If you run your own appraisal business, or if you’re employed by a larger company—or both—you will need to track your expenses vigilantly. Inaccurate records might mean a tax bill that’s higher than you should pay, and might prevent reimbursement from an employee or a client. Here are some principles of expense management that could apply to any business, but to an appraiser especially.
1. Hire an accountant
Even if you’re good at tracking your own income and expenses, a trained accountant will probably know tricks to minimize your tax exposure, and will crack the whip over you to keep accurate records. If, like many appraisers, your business includes other real estate services besides appraisals, your accountant can advise you on how to keep separate records for each branch of your business—and whether to combine them or keep them distinct for purposes of taxation and liability.
2. Get automated accounting software
If you’re working with professional accountants, get the same software that they use. If you’re handling your accounts yourself, ask your colleagues in the appraisal business to recommend software that’s especially well-suited to your business.
3. Leverage expense management apps
Look into the latest expense management apps that will allow you to record and keep score of expenses on your smartphone or other device as they happen—and might allow you to scan receipts and other records. Otherwise, keep all paper receipts, label them, and file them by date and category. Keep them for at least five years.
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4. Keep paper use to a minimum
Store your financial information on your computer as much as possible. Instead of printing out paper copies, keep backup files on a neutral site or share them with your accountant.
5. Think of yourself as royalty
Royalty never carry cash. Okay, actual royalty will have the bills sent to the palace, or they will have a servant standing by with cash to pay small expenses and tips. But you should pay your expenses almost entirely with credit cards or paper checks. It’s easy to forget to record a cash payment—and it’s easy for the tax people to doubt them. Credit card statements and canceled checks are your best friends at tax time. On the rare occasions where you might use petty cash (tipping in a restaurant for example), note the expense immediately.
6. Keep business and personal bank accounts separate
Use one credit card for business, and another for personal expenses. It’s best not to carry credit card debt of any kind, but be especially careful not to have any debt on your business accounts. Pay those credit cards off immediately, in full.
7. Know what you can list as expenses
You might be pleasantly surprised. Business expenses might include:
- Your home, if you use part of it for an office. Measure the total square footage of your home and your office. You can deduct that proportion of your rent, mortgage payments, utilities, and maintenance costs as business expenses.
- Books and periodicals purchased to boost your professional skills.
- Vacations, if you use part of your trip for professional purposes. For example, who cares what you do with your spare time in Acapulco if you’re attending an appraisal conference during working hours? However, you can’t legally count greens fees, or side trips, as business expenses.
- Association fees, entertainment expenses, and even contributions to charity.
This is another reason why you should hire an accountant: they might know about deductible expenses that you wouldn’t have thought of.
8. Take money off the top for savings
If you habitually put 10 percent of your income into a retirement account, do that first. That is, if you make $5,000 in a month, take $500 off the top. Don’t pay your bills and then take 10 percent out of what’s left.
9. Consider incorporating
If you’re an independent businessperson, ask your lawyer or accountant about whether incorporating might be a smart move financially. Even a one-person business can be a corporation. This is a way of reducing your payment into Social Security, which might be a wise course if you have your retirement arranged independently of Social Security.
10. Have a clear and fair expense policy
If you have employees, develop a clear and fair expense policy. Share this with your employees as soon as you hire them—and explain that any “exceptions” will be just that: exceptional. Keep the policy simple and easy to comply with—and ensure that your employees report expenses as promptly as they can, with full documentation. (For example, entertainment expense reports need to include the names of the people being entertained, as well as time and place.) Teach your employees to use whatever automated devices you have, so that you won’t have to do the work yourself. Make your managers accountable for the expenses of the employees under them.
11. Have a budget but don’t be a slave to it
If you’re starting out in any business, your initial budgets won’t always be realistic—but you’ll learn and improve. Simply by staying aware of how much you intend to spend in a month or a year, you’re likely to keep a sharper eye on expenses and reduce them by just a dollar or two here and there. At year’s end, you might be pleasantly surprised at how much you’ve cut your total spend.
12. Time is money
Expense management and time management go hand in hand. You can reduce your expenses by managing your time. Plan your day in 20- to 30-minute increments. If you’re planning to drive to a building that you’re appraising, figure in any errands that you could accomplish on the way there and back. When you’re making out your schedule for the day, fill any anticipated downtime with small tasks that won’t take long. If you’re constantly doing, you’ll be amazed at how much gets done.
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Article written by Joseph Dobrian. Joseph Dobrian has been writing about commercial and residential real estate, and real estate-related finance, for more than 30 years. His by-line has appeared in The Wall Street Journal, The New York Times, The New Yorker, Real Estate Forum, Journal of Property Management, and many other publications. He is also a noted novelist, essayist, and translator. His website is www.josephdobrian.com, and he can be contacted at email@example.com.