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Accounting Diagnostics – How to Measure Accounting’s Performance

Successful real estate businesses can outgrow their accountant in as little as a single deal or project, creating distracting, expensive, and even financially devastating consequences. Before jumping to any general business accountant, look for signs that a prospective firm will be a good fit.

Real estate accounting firms that want to get to know your business via a pre-assessment or accounting diagnostic review will often be a better fit long-term. Participating in a full accounting diagnostic review will uncover gaps in en existing accountant’s work as well as providing a taste of the potential firm’s responsiveness and attention to detail, previewing what a working relationship will look like.

More than a simple tour of your business' financials, diagnostic reviews from reputable firms can help you better understand whether accounting is supporting business growth or becoming a liability. The goal of the full accounting diagnostic review is to provide clarity around accounting's performance and business relevance, putting you back in control of your business' finances and success.

Here are some of the items that should be addressed in an accounting diagnostic review:

Accounting Structure – Review accounting setup to ensure basic functions have been addressed and accounting infrastructure supports the business

  • Determine if assets and liabilities are properly stated (e.g. are sales marked as “Services”)
  • Are all accounting-related items current or is catch-up work required?
  • Are the company’s financial records complete?

Revenue & Expenses – Determine whether revenue and expenses are appropriately collected, recorded, and planned for

  • Are transactions properly posted?
  • Are revenue and expenses matched?
  • Have payments been received payment for future work?
  • Are customers and invoices current?

Chart of Accounts – Assess the state of accounting and whether the existing chart of accounts is adequately serving the business' needs

  • Are all accounts organized using account numbers?
  • Are revenue and expense classes used?
  • Are the classes providing the necessary information for proper financial reporting and projections?

Payroll – Identify any concerns or red flags with payroll expenses

  • Is payroll paid current or in arrears?
  • Should any of contractors be on payroll?

Accrual – Determine whether the accrual method fits the business and serves its goals

  • Is there a process for accruing expenses?
  • Are any expenses paid in advance?

Compliance – Review compliance-related issues such as sales and use tax and appropriate payroll tax

  • Do all transactions have support attached?
  • Sales and use tax considerations
  • Have all W-9 information been collected and attached to vendor records?

Too often, real estate businesses wait until they’re financially impacted to review accounting’s performance. Periodically taking a deep dive into accounting operations is a healthy due diligence step to ensure that the existing accounting function still aligns with business goals and that the existing firm can handle planned growth and expansion. While diagnostic reviews can be performed by an existing provider, typically a third-party real estate accounting firm provides an unbiased perspective.

Bottom Line

Reviewing accounting’s performance is a preventative step for real estate businesses and is critical when assessing new real estate accounting firms. Diagnostic reviews identify gaps and misalignment that can either be repaired or signal that it’s time to look for a better fitting real estate CPA firm. RealCount accounting diagnostics cover all items addressed above and more. To discuss and schedule a RealCount accounting review, click here.

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