Real estate businesses have complex functions and accounting processes, requiring lots of financial analysis and relevant reporting. This article provides a comprehensive overview of the key elements of financial management involved in accounting for real estate. From analyzing cash flow to understanding return on investment, this article explains everything from your first operational budget to preparing your quarterly reports as well as annual and semi-annual audits. Read on to learn how to track cash flow and complete essential financial statements for your real estate business. What is financial analysis and reporting?
Financial analysis and reporting are the processes of analyzing and summarizing operational data to understand and evaluate a company’s financial performance. The core purpose of financial analysis is to provide managers with important information to make business decisions. Financial analysis is necessary for any business that conducts operations and has financial data that needs to be analyzed. For example, real estate businesses must analyze their financial performance to understand how well they are doing, analyze investment returns to determine profitability, and manage the risk of investing. Real estate businesses can use financial analysis to compare the performance of their operations with that of other companies and their industry. In addition to tracking financial results, real estate businesses can use financial analysis to develop long-term plans for growth and identify potential problems with equipment or staff.


Essential financial statements for real estate business

Accounting for real estate businesses involves preparing financial statements based on the records. A business’s financial statements are the core of financial analysis and reporting. They include the following documents: -

Formal operating budget - This is a financial plan that describes the expenses your business will incur for the coming calendar year. Your operating budget shows how much you expect to earn from expenses and how much you expect to spend on each expense.

Cash flow tracking system - This financial tracking system allows you to follow the movement of cash from your business. You can use it to quickly identify when cash is flowing in and out of your business and understand how much cash you have in your bank account at any given time.

Earnings statement and profit & loss account (P&L) - The P&L shows how much your business has earned and lost over the past six months. This will enable you to track your bottom line, which is one of the key elements of financial management in the real estate business.

Tracking your investments in real estate business - Tracking your investments is an important part of real estate financial analysis. It can help you determine the profitability of your real estate business, understand your cash flow, and decide when to reinvest or sell your investments.


Bottom line

While real estate financial analysis and reporting can seem complex, it is actually quite straightforward if you break the process down into components. With the right approach, you can easily track your cash flow and complete essential financial statements for your real estate business.