Author Archives: Aaron David

About Aaron David

Aaron David is a Director of Live Bookkeeping with extensive experience in managing financial matters in real estate. You can connect with him on Google+ or on LinkedIn.

7 Traps Of Do-It-Yourself Bookkeeping

Posted by: Aaron David.

In business, we like to think we can do everything.

But as a business grows, smart business owners soon realise that to manage their time better. They must outsource non core business functions like bookkeeping. But many businesses, still try to do everything themselves and so we’ve come up with 7 traps you must look for for do-it-yourself bookkeeping.

1. Doing it yourself, makes it hard to monitor cash flow.

A business under financial pressure needs to monitor its cash flow carefully. A dedicated bookkeeper does this by keeping records up to date with regular reporting rather than updating the books at the end of each quarter.

2. Accounting software is not as easy to use as you think.

Whilst some Accounting software is user friendly, there are some traps for businesses that don’t know how to use the software properly. You need to know what records need to be entered and where to enter them. Only bookkeepers with experience in using accounting software can provide access to accurate financial records that represent the real picture. This ensures you won’t have any nasty surprises from the ATO.

3. You must keep on top of your BAS, GST, PAYG and Superannuation obligations.

Every quarter, your business needs to lodge a BAS statement and pay GST, PAYG and Superannuation. Missing deadlines for any of these can result in penalties. You must have up to date records will give you peace of mind.

By outsourcing your bookkeeping, these deadlines become straight forward as they are managed by someone focussed on keeping your books up-to-date.

4. Don’t lose track of your accounts payable.

Accounts go unpaid for a variety of reasons. In most cases, it’s because you’ve lost track of what you have and haven’t paid. A bookkeeper will put the systems in place so you don’t have unpaid accounts hanging over your cash flow and potentially damaging the reputation of your business.

5. Incorrect recording can be a problem.

Incorrect recording occurs when a business owner is unsure where to record the item. So they just choose from whatever ‘sounds right’ rather than ensuring all items are recorded correctly. Having a bookkeeper experienced in the Real Estate industry means they know which items go where.

6. All bookkeepers are not the same

A good bookkeeper gets things done on time, accurately, which produces clear reporting and accounting benefits to your business. Poor bookkeeping hinders the accuracy of your financial reporting and may result in nasty surprises and headaches for you the business owner.

7. Don’t fall for the “I can do it cheaper” trap

A common mistake by many business owners is not realising the REAL cost of employment. Employing staff is often more expensive than outsourcing as you must also factor in costs such as: costs to advertise a position, your time to interview candidates, cost of training and then the additional employment costs such as workers comp, payroll tax, sick and holiday leave and superannuation. With outsourcing you don’t need to worry about these additional costs.

Whilst DIY bookkeeping can seem like the cheapest alternative, you’ll soon realise that you are better off outsourcing this non-core function. It will give you the time and freedom to do what you do best, grow your real estate business.

How To Double Your Property Management Income For Only $16,000

Posted by: Aaron David.

How do you grow your real estate business or specifically your property management income?

Here are two ways. First, you could do it through organic growth, attending a seminar every week by different trainers talking about various things you need to know for your business. Though to start with, you’d have to make sure you outstrip churn before growth takes place and you’d need to drive your business development team, just as you would your sales team.

The second way is through a good strategic acquisition. For those who haven’t gone about it before, it can seem daunting, especially if you are adverse to risk and debt. However, with interest rates at or near record lows, now is the time to investigate what opportunities may be available to you.

The main benefit is instant cash flow with the possibility of picking up a good agent or two along the way. The spring bounce in the sales market may provide a momentary relief or the belief of growth for some agencies, but come the quieter months of February and March, these same agencies will be wondering where all the cash is. What this all means is: if you’ve got your finances in order, it’s time to act!

So how does it work? Firstly, remember these two things: 1) the value is attained by multiplying the management fees only, with no ancillary fees, 2) you only pay for what is signed over.

Now, let’s do a back of the envelope calculation on how the debt/leverage can work (note: each institution will have its own leverage comfort levels and multiples that differ depending on the location and quality of the property being managed).

Purchase of 100 properties under management, with p.a. income of $120,000 and the multiple around your location is about $3
$120,000 x $3 = $360,000 (the bank will require a valuation)
Now, if the bank sees fit, they may lend you up to 60% of that total:
60% of $360,000 = $216,000 (debt)
$360,000 – $216,000 = $144,000 (Capital required)
Interest on debt at 7.5% x $216,000 = $16,200 p.a. (Depending on your institution, there may be some capital paydown required).

Now, to spend $16k per year to get $360k income: looks like there’s plenty of room should you need an additional property manager to come on board! But what if you’ve already got a small management of 100 properties and a property manager in place? Well, if there’s no debt attached to the rent roll, you can put that up as collateral. Again, this could be leveraged so you may not need to come up with any cash. If we work off the same valuations and multiples as the possible acquisition then it could look like this:

	Properties	Value	Debt 60%	Leverage 40%	Total Debt	Cap req.	Int 7.5%
Acquisition	100 prop	$360,000	$216,000			$144,000	$16,200p.a.
Current	100	$360,000		$144,000			$10,800p.a.

Total	200	$720,000			$360,000	$0	$27,000p.a.

What does all this mean? Well, you could double the size of your property management business for as little as the interest payments. In this hypothetical, you’ve doubled your income with little extra expense, producing twice the amount management fees alone and creating a business that’s cash flow positive, whilst doubling your asset base. Lastly, we haven’t factored in any ancillary fees from the managements, nor the possibility that you may snare yourself a decent agent or two to drop into your sales team – nice little add-ons.

At Live Bookkeeping, we have seen the benefit and detriment of not having your books up to date and accurate. If you plan to speak with your bank, it’s vital that your current business books represent the real position of your business. This will give them the confidence to back you.

Remember cash is king, but debt can be your friend!

What is your time worth?

Posted by: Aaron David.

In the small business world, business owners wear many hats.

But far too often, they wear too many hats for far too long. Not being able to delegate fully or hire the right person to do the job, they continue to do it all themselves.

What they need to do, both to expand their business and to not work themselves into the ground, is to put a cost or value on their time.

They should focus on tasks that grow their business and profitability – instead of tasks that should be outsourced or completed by a paid employee who has the correct skill set.

In the real estate industry, many small to medium-sized operators are guilty of this. They are running their business, not leading and managing their team. They get stuck on back office tasks when really they should be out listing and selling or providing lead generation to the sales team, creating value and growing income.

The bookkeeping position is the classic anchor to the business owner. If you’re thinking of hiring an in-house bookkeeper, two important questions are: How much will this process cost? How much is your time worth?

Figuring out the cost of the process might look something like this:

Place ad for bookkeeper = $200

Sift through CVs = your time

Interview Candidates = your time

The total cost to employ an in-house bookkeeper = your time + $200

Then, you might have to do it all again in three months when you realise you’ve employed the wrong person!

So what’s your time worth? Well, if you’re a selling principal and you could have possibly listed or sold a property in the same time, your time, based on a sample sale price below, is worth:

House = $480,000

Commission = 2.2% (this might be light on, some locations will be higher and others lower)

Total commission in dollar terms = $10,560

Comparing these figures, it’s a no brainer. Work to your strengths, outsource your bookkeeping to a bookkeeping professional (with real estate experience) and enjoy a more profitable and productive business.

However, don’t wish your responsibilities away. You or someone in your business still has to be responsible for authorising bills and handling the movement of money from bank accounts. Your bookkeeper will give you the who, what and when, but you or the person you delegate still needs to press OK.

To find out more about outsourcing your bookkeeping, contact us at info@live-bookkeeping.com.au.

Principal Interview: Patrick McCarthy, McGrath Real Estate Cronulla, Sylvania and Menai/Illawong

Posted by: Aaron David.

Pat McCarthy has grown his business from one office in Cronulla to an operation that covers the entire Sutherland Shire. Always challenging himself and his business on ways to grow or do things better, here are Pat’s thoughts on the current state of the real estate market.

Aaron David (AD): Pat, what is your view of the market today?

Pat McCarthy (PM): I think it’s getting harder and harder to run a business as a traditional model or the Ma & Pa corner store operation. We operate over a territory of 80,000 residences and the internet allows that. Traditionally, you would have had 10 offices to handle that size of territory; with the internet, you could probably have one large one. However, we’ll have 4 or 5 offices instead of 10, and maybe in the future that will only be 2 or 3. That’s not from a customer perspective; it’s from the agent’s: they’ll want a base that’s a bit closer to their stock. Although we could handle property anywhere within the Shire from Cronulla, we think we need a few bases for our agents to cover our client and customer needs. Also, as time management for the agents, it’s more effective

AD: What is the biggest challenge facing your business today?

PM: The biggest challenges are always recruitment and productivity. They’re what we’re always thinking about and constantly working on: How do we get the productivity up of our current team and how do we get more good people into our business? There’s no magic answer. It’s a long-term view and it’s constant. There are always a certain amount of people that come in and out of the industry and we have to keep on top of churn. We know that if we wanted to grow by 10 people, we’d have to recruit 14.

AD: What is the biggest opportunity for your business today?

PM: Because it is getting harder to run as a small operator, the opportunity for us is those people that have recognised that it’s too hard or too expensive operate by themselves, and they can come on board with us as a partner in a contracting role. The way we’ve set up our model allows those people to plug in, they can choose us as a partner and we want to be seen as the obvious choice for those people. I’d say 4 or 5 of our key people have come on via that way.

AD: Tell us about growth: acquisition vs. BDM.

PM: We don’t see it as one or the other. We do both. If you get to be as big as we are, you need a good idea of your churn and you need a strategy in place to counter that churn. As we want to continue to grow, we’ve made quite a big investment in that. We’ve got 4 BDMs and are looking at possibly adding another. That’s all because we know our churn could be up to 10%. So if one or two plug the churn then we’ve got two for growth. Combine that with good strategic acquisition and you gain the benefit of the extra cash flow that immediately adds to your business. So I see them going hand in hand.

AD: Let’s talk print advertising vs. internet advertising only. How do you see this issue for businesses in real estate sales?

PM: That’s a very tough one at the moment and it’s tough because from a buying perspective, the internet is more and more effective – and cost effective. But I still think there’s a place for print, so we still run with a combination approach. From a business perspective, you’re brave to go internet-only at the moment. It will probably be the way of the future. However, a combination approach is currently the best way. Although it seems the internet is grabbing market share all the time, there’s still a place for print.

We measure the effectiveness through our open houses, we ask those who come where they first saw the property. We believe there are passive and active buyers in the market. The active buyer is on real estate alerts and gets them every week. They’re active in the marketplace, someone who may buy in the next 1 to 6 months.

Then you get the passive buyers who might flick through the paper whilst having a coffee and think “that looks like something I’m interested in”. They’re not active in the market – trawling through open houses or receiving alerts – but if they see the right thing then they’re looking. Those people might see this in print, then go online to get more information about the property, floor plans and videos. So it works in combination.

What that can do though is make the reporting skewed; if you ask them where they saw the property they might say the internet. However, they may have first seen it in print and then investigated more via the net. When prompted, they remember.

Some of the data out there points to the internet as having captured over 90% of the traffic, but we don’t find that to be true. The acid test for me is what would I do with my own house or my parents’ house if it were to go to market. The answer is, it’s a combination of print and internet. You want all those channels working for you, and if it means one extra buyer on your property, you’d be crazy not to use them.

7 Benefits of Outsourcing Your Bookkeeping

Posted by: Aaron David.

Outsourcing key roles in your real estate business is a way to improve profitability and productivity, save time and money! By outsourcing the bookkeeping role with Live Bookkeeping there are many benefits and below I’ve listed 7 for you to think about.

1. On-site – we come to you

Live Bookkeeping will provide an on-site experienced bookkeeper to your business at a time and day the suits you.

2. Peace of mind

There’s no need for you to worry about sick leave, holiday cover etc. If required Live Bookkeeping will provide another bookkeeper, up to speed the next day.

3. Great value for money

Often in small businesses the bookkeeper will either assume or be handed responsibilities outside normal bookkeeping duties, by having a Live Bookkeeping bookkeeper come to you, you know they are there to focus on your books, saving you time and money.

4. Tailored to meet your needs

Once our team has assessed your bookkeeping requirements they’ll be able to guide you on the real time needed to complete the accounts and be able to tailor a bookkeeper to the hours, time and days that suit the business needs. This flexibility allows more hours should the business be experiencing a busy growth period or scale back the hours required should the market taper off.

5. BAS accredited & over seen by a Chartered Accountant

The Tax Agent Services Act 2009 require people who offer BAS services to be registered by the Tax practitioners board, there are fines for unqualified bookkeepers who perform BAS related work. All of this overseen by our in-house CA.

6. Experienced network of agencies & bookkeepers

Live Bookkeeping provides real estate specific bookkeepers who have the benefit of a wide variety of real estate business experience, from start up, small business, independent to multi franchise offices, gaining valuable knowledge and experience to share with you.

7. Concentrate on your core business while we do the books

By outsourcing this compulsory role in your business and having one less staff member to worry about, you’ll be able to focus your attention on listing and selling and growing your PM, all the while knowing your books and business financial’s are accurate and up to date.
These are just seven compelling reasons to investigate the role outsourcing can play in your business, without going deeper into the “real cost of employment” when you are reviewing roles and staffing requirements of your business

For more information on outsourcing your bookkeeping contact us now.

Happy listing and selling.