Title: Navigating the Chaos: A Real Estate Investor’s Financial Overhaul
In the world of real estate, where deals are made and properties change hands, maintaining clean financial records is crucial. I recently had the opportunity to assist a real estate investor who reached out, desperately needing to organize and update her current year’s financials. This turned out to be a more complex challenge than anticipated.
During our initial 15-minute discussion, it became clear that her financial landscape was entangled and disorganized. She oversees three separate LLCs, each with a distinct focus:
- A residential rental real estate company
- A commercial real estate entity
- An interior renovation business
Although she wisely maintains separate QuickBooks accounts and bank accounts for each LLC, complications have arisen due to overlapping transactions. On several occasions, she transferred funds between businesses to facilitate real estate transactions, meet payroll obligations, or pay contractors. Fortunately, she assured me there were no personal expenses mixed in with her business activities.
Her residential property LLC is her primary focus, being the oldest and most active, and is the one she wishes to be cleaned up and brought up to date. However, she is currently behind on approximately 1,100 transactions solely for this LLC. She previously outsourced Bookkeeping to a West Coast firm but ceased their services due to high fees at the end of 2023, without securing a replacement.
It’s worth noting that while I’ve encountered multiple cleanup scenarios involving mingled personal and business transactions, typically these involve sole proprietorships or single-member LLCs. Therefore, dealing with a real estate investor who manages several intertwined LLCs presents a unique situation.
A potential cleanup of this magnitude demands consideration, particularly in terms of compensation. I am contemplating a fee between $5,000 and $10,000, recognizing the effort required to disentangle and organize such a complex financial situation.
As I consider taking on this project, I’d appreciate hearing suggestions or insights from those who’ve navigated similar financial cleanups. How would you tackle this intricate web of transactions? How would you determine an appropriate fee to charge?
Feel free to share your thoughts in the comments below.
One response
In situations like these, it’s essential to approach the task methodically to ensure a thorough cleanup and prevent further entanglements in the future. Here’s a suggested step-by-step plan to tackle this real estate cleanup:
Step 1: Initial Assessment and Scope Clarification
A. Detailed Consultation:
Schedule a more extended meeting with your client to discuss the specific goals, timelines, and your approach to handling the cleanup. Gather as much information as possible about each LLC’s activities, any special tax considerations, and the exact state of their financial records.
B. Engage with a CPA:
If you aren’t already collaborating with a CPA, especially one with real estate experience, it would be beneficial. This ensures that any cleanup aligns with tax strategies and compliance needs. A CPA can also provide guidance on structuring intercompany transactions.
Step 2: Cleanup Strategy
A. Separate Transactions by Entity:
Your primary goal is to ensure all transactions are accurately attributed to their respective LLCs. You should:
– Extract bank statements and organize all transactions by the LLC they belong to.
– Use QuickBooks to help automate this process where possible. If the accounts were mishandling transactions, importing them and coding them correctly is crucial.
B. Address Intercompany Loans and Transactions:
For any intercompany financial movements (e.g., one LLC covering another’s payroll), you need to classify these correctly. Establish them as either loans or advances in the books, noting the terms of repayment if applicable.
Step 3: Systematizing for the Future
A. Policy Implementation:
Put policies in place to prevent future intercompany financial mingling. Ensure that all expenses, payrolls, and acquisitions are correctly allocated to the respective LLC moving forward.
B. Recommend Automation and Tools:
Consider recommending tools that automate expense tracking and payroll, to streamline her processes. You might also advise a move from multiple QuickBooks into a more centralized system that allows her to manage multiple entities under one umbrella, should her business structure and volume warrant that.
Step 4: Pricing Strategy
A. Determine Effort Required:
Considering the complexity and the volume (1100 transactions), a project rate between $5,000 and $10,000 seems reasonable. However, tailor your estimate based on the time you anticipate spending and the client’s balance of affordability and urgency. Provide a detailed proposal outlining what’s included in your fee.
**B. Offer Continued