Implementing an accounting system as soon as you start a vacation rental or lodging management business is imperative if you wish to build a strong foundation for your company. In a nutshell, with an accounting system in place you’ll be able to keep track of what you own and what you owe as well as your business’s cash inflows and outflows.
An accounting system will allow you to streamline most of the accounting processes, including daily bookkeeping, payment processing, receipt tracking, financial reporting, and tax preparation. Perhaps more critically, an accounting system will provide a valuable, quick insight into your business’s financial health anytime you want. As a result, it allows you to make timely and effective business decisions so you can reduce or even eliminate losses and increase yourprofit margins.
Considering the importance of accounting in business, developing the right accounting system is critically important. To help, we’ve created this guide, which presents some essentials you should take into account when setting up your system.
Once you decide to start a vacation rental management business,opening a separate business bank account is highly recommended. Besides making it easier for you to manage your vacation rental or lodging management business, having a separate business bank account will help you avoid commingling personal funds with business funds. As a result, you could easily prevent a whole host of problems in the future.
For instance, when preparing documents for tax season, you need to separate your business transactions from your personal transactions. If you have only one bank account, going through every transaction and receipt in order to separate personal from business transactions could be a time-consuming process. Commingling personal funds with business funds may also prevent you from keeping proper business records. In that case, you could easily overlook some deductions you may be entitled to.
Depending on your state’s law, you may also need to open one or more trust accounts. These accounts are designed to keep advance deposits for future bookings separate from business or personal bank accounts.
If you have employees, you may consider setting up a payroll checking account as well. This account is strictly used to cover employee wages, payroll tax liabilities, and employer contributions. Additionally, you may find yourself hiring different contractors as your business grows. It’s important to categorize them correctly as independent contractors. Mixing independent contractors with your own employees can result in penalties from the IRS.
Setting aside money for your business’ emergency fund is another wise decision. Thereserve fund, which is typically deposited into a business savings account, makes available the money you need in case of an emergency or extended period of property vacancy.
The “Chart of Accounts”
The “chart of accounts” is basically a listing of all the accounts you need to include in the general ledger of your accounting system. The main role of this chart is to help you locate the accounts you need quickly and conveniently. A vacation rental or a lodging management business might need to set up five different types of accounts: revenue accounts, expense accounts, asset accounts, liability accounts, and stockholder’s equity accounts. You could also create a series of sub-accounts and use them to record and sort different business transactions.
The easiest way to create a chart of accounts is to use the IRS Schedule E form as your starting point. Although the IRS might not require vacation rental property owners and/or managers to report balance sheet accounts (assets, liabilities, and equity) annually, adding them to the chart of accounts will allow you to better track and manage the flow of funds through the vacation rental business you own or manage.
Setting up the chart of accounts correctly is one of the most critical aspects of efficient and accurate bookkeeping. If you’re an accounting newb, a bookkeeper or an accountant can be of great assistance in structuring your chart of accounts.
Once you set up your accounting system, it’s important to enter data on a regular basis using a journal. After you record transactions in your journal, you need to transfer them to your general ledger. To do that, you must use the double-entry bookkeeping system, which requires two book entries:one debit and one credit. At the end of an accounting period, you need to close your general ledger. Closing allows you to calculate the net profit or loss for your business and prepare the system for a new accounting period.
If you’re looking for a way to streamline your accounting tasks, a good idea would be to opt for a complex lodging management software system. Equipped with an advanced suite of features, a complete PMS solution can help you manage different areas of a vacation rental business, including accounting. The greatest benefit of using such a solution is that it pays for itself when you factor in all the time and money it will save you in the long run. To find out how PMS software works, feel free towatch our demo orschedule a personal demo today!
*To ensure you are in compliance with your state, be sure to contact a local CPA and broker for advice.