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Part 2: Accounting for Rental Properties: When to hire a bookkeeper or accountant

Key Takeaways

  • Should you hire a bookkeeper or accountant to manage the finances for your rental business? The answer depends mainly on what areas you need help with. Bookkeepers focus primarily on recording and processing day-to-day transactions, while accountants provide general financial advice.
  • Hiring a bookkeeper or accountant is a great way to save time, keep your financial records up to date, and benefit from the expertise of a qualified professional. However, it can be a costly option. You also bear responsibility for any mistakes they make, including those on your tax return.
  • Only hire a bookkeeper or accountant after interviewing them first. Ask about their qualifications and experience, the software they use, the types of services they offer, their billing rate, and how they keep clients' financial details safe.

Published on Mar 7, 2023 | Updated on Jan 23, 2024

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There’s no doubt that proper accounting is essential for a thriving rental business. It enables you to maximize your rental income, keep your expenses in check, and keep your tax bill low. Maintaining your financial records will also give you accurate and up-to-date information that you can use to make wise financial decisions.

The question is, how do you juggle accounting tasks as a busy landlord? 

In part one of this series on accounting for landlords, we explored common pitfalls and how to steer clear of them. Here, we’ll examine the differences between a bookkeeper and an accountant, how they can help keep your books in order, and when it’s worth hiring help. 

There are three different solutions to managing your financial accounts as a landlord: 

1. Do it yourself (DIY). The most obvious approach to rental property accounting is to take the reins and do the work yourself. This option is viable if you have the time, energy, and expertise to record transactions, maintain documents, and comply with tax duties. DIY accounting requires a detailed-oriented, meticulous mindset and the use of suitable accounting software and apps.

2. Hire a bookkeeper. A bookkeeper specializes in the accurate and timely recording of financial transactions in accounting software. They may also generate financial statements and file basic tax returns, but they usually don’t provide advice on business strategy, tax planning, or conduct detailed financial analysis. Hiring a bookkeeper is ideal if you’re busy with other business activities and your primary concern is transaction processing.

3. Hire an accountant. Accountants can also perform the functions of a bookkeeper, but their primary duties centre around financial planning, tax advice, and analyzing financial statements. They may also file tax returns, conduct internal audits, review bookkeepers’ work, and enter complex transactions into accounting software. An accountant is valuable if you run a large rental property business or need specialized services and advice during the year.

What’s the difference between a bookkeeper and an accountant?

People sometimes use the terms “bookkeeper” and “accountant” interchangeably. And while these two professionals’ functions overlap, their roles are still distinct.

Knowing the differences between the two is essential as a landlord. If you’re considering hiring one or the other, you need to be sure they can provide you with the services your rental business requires.

Key differences to remember 

Bookkeepers’ credentials can vary widely. Some may have a college degree, while others only have a high school education. This disparity is because there’s no formal training requirement in Canada for bookkeepers. It’s an unregulated field in every province and territory. Still, many bookkeepers do have some formal training, either through a post-secondary institute or a bookkeeping course. Some hold the CPB designation

While they can work independently, a bookkeeper’s work is usually reviewed by an accountant or their employer. 

Compared to bookkeepers, accountants typically possess more education and advanced training in accounting. Many hold a bachelor’s degree in accounting or a related field. They have extensive knowledge and experience in financial analysis, financial planning, auditing, operations management, and tax law.

In Canada, accounting isn’t a regulated profession. No central accounting registry exists, nor are there any special licensing requirements to do the job. However, those who wish to practice as Certified Public Accountants (CPA) have specific standards to meet. These include completing a university degree, receiving on-the-job training, and passing a rigorous exam.

The pros and cons of hiring help 

There are advantages and disadvantages to going the DIY route when it comes to accounting for rental properties. The same applies to hiring a bookkeeper or accountant.

Click through the slides below to compare each approach to managing your rental’s financial records.

Deciding if you should hire a bookkeeper or accountant

Before you decide to hire a bookkeeper or accountant, ask yourself the following questions:

Do you lack the appropriate skill set?

To do accounting well, you must be detail-oriented, well-organized, patient, accurate, and understand accounting principles. And, of course, you need to know your way around accounting software and how to analyze financial information.

Do you spend too much time on accounting?

Depending on the size and scope of your rental operation, you may need to dedicate considerable time to tasks like recording expenses, processing revenue, and reviewing bank statements. Spending time on these tasks will come at the cost of other activities related to your rental property.

Are you constantly falling behind on accounting tasks and deadlines?

Juggling accounting with your other duties as a landlord can lead to disorganized financial records. Missed bill payments, late tax filings, and inaccurate financial figures will be all too common.

Do you need help understanding where you stand financially?

If you’ve done your bookkeeping correctly, you should be able to assess your cash flow, revenues, expenses, and overall profitability with little effort. If that’s not the case, there’s a good chance you’ve committed a slew of mistakes!

Do you feel stressed and anxious when thinking about accounting and taxes?

Depending on your temperament and circumstances, you may feel dread when logging into your accounting software or filling out your tax return.

Is your tax return complex?

The more complex your tax situation, the more frustrating it’ll be to sort out your tax return. Plus, you’ll be more prone to making errors that can result in CRA penalties.

Is your rental business experiencing rapid growth?

As your operation expands, so will your paperwork. Staying on top of accounting tasks will become increasingly challenging.

Did you answer “yes” to most of these questions? If so, you’d be better off hiring a bookkeeper than managing your books independently. Depending on your needs, goals, and preferences, you may also want to outsource specific tasks to an accountant, such as tax filing and financial planning advice.

What are some important questions to ask a bookkeeper or accountant before hiring them?

Here are some key questions to ask a bookkeeper or accountant to determine if they’ll be a good fit for your rental property business:

1. What are your qualifications and level of experience? A quality bookkeeper should possess solid communication skills, deep accounting knowledge, and established business processes to ensure their work is accurate and timely. It’s worth contacting one of their current or former clients to gain insights about their expertise and work experience.

2. What tools do you need to do your job? You may need to supply a bookkeeper with specific accounting software, apps, and other tools to do their job. However, freelance bookkeepers should have subscriptions to relevant software programs they pay for themselves.

3. What is the scope of work you can do? Do they only focus exclusively on revenue, expenses, and general ledger transactions? Can they process payroll and file basic tax returns? The more services a bookkeeper can provide at a reasonable price, the better.

4. How much do you charge for your services? Most bookkeepers charge by the hour or a flat monthly rate. Their fees will vary based on their level of expertise, the scope of services provided, and local market conditions.

5. Do you have rental property accounting experience? While not a dealbreaker, a bookkeeper with knowledge of the residential rental industry will be a better fit for you. Ask them if they’ve worked with landlords or have experience managing rental properties.

6. How do you operate your business? Do they work exclusively in a cloud-based environment or rely on paper-based documents and basic spreadsheets? Do they communicate through text-messaging apps or by phone? Ideally, you want to choose a bookkeeper whose management style aligns with yours. For example, suppose you work primarily with paper documents, and they prefer dealing strictly with electronic data. In that case, you may experience challenges, as they’ll constantly press you to digitize everything.

7. How do you protect client data? Naturally, you’ll share sensitive information about your rental property and finances with your bookkeeper. It’s crucial to gain insight into their security and privacy practices, especially if you’re hiring a firm rather than a solo bookkeeper. Inquire about their policy regarding internal controls, segregation of duties, and fraud prevention. Ask where they store your data and how often they create a backup.

8. What is your delivery and response time? What is their work schedule like? Will they keep your books updated weekly or enter all transactions near the end of the month? When can you expect your financial statements to arrive?

Our final thoughts

Taking on accounting duties to save money and ensure more control over your finances is perfectly acceptable. Some landlords prefer to handle every aspect of their rental business personally, especially if they run a small and straightforward operation. 

However, hiring a competent and experienced bookkeeper or accountant is a superior solution if you lack the time, energy, and expertise to manage your books independently.

With a seasoned accounting professional by your side, you’ll have more freedom to attend to other important tasks, such as finding quality tenantsdoing necessary renovations, and scouting the market for new properties to add to your rental business. 

Not only that, but you’ll have confidence and peace of mind knowing that you can rely on your financial figures to make crucial financial and tax decisions. There’s nothing worse than not knowing where you stand because of inaccurate and unreliable financial data. For this reason alone, an accounting service is worth the cost.

A bookkeeper can record the rent you receive from your tenants on your books, but they can’t guarantee the money will always hit your bank account. Lost rental income from non-paying tenants is perhaps the greatest fear of any landlord—and it often happens out of the blue. Without steady rent payments, your rental business will incur heavy losses quickly. 

SingleKey’s Rent Guarantee is designed precisely to address this issue. Under this program, your rent payments are protected for up to 12 months, up to $60,000. Should your tenant stop paying their rent, SingeKey will step in and cover the missed payments to keep you afloat.

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