The importance of good book keeping to manage your ROI


Louise Misiewicz

Tax Consultant

19th February 2014

12th February 2013 by Simon Misiewicz

Is Return on Investment important (ROI) to you?

Do you give your receipts to your accountants at the end of the year?

If you have answered yes to both of these questions then there is an immediate issue. If you only give your accountant a bag of receipts at the end of the year how are you actually managing your ROI on a monthly basis.

The harsh but much needed reality check is “you are not managing your ROI” if you are not managing your finances on monthly basis.

Let us take James as an example. He reviews properties by seeing them with estate agents, builders and a joint venture partner. He knows that the property is in a good spot close to a university (and to boot a hospital). “This property will make a great HMO” he thinks and goes home to do the numbers. Upon arriving at his desk armed with a freshly brewed coffee he sits in front of the television for background noise and lifts the lid of his laptop. The trusty Excel template is opened and the due diligence spreadsheet is worked in with all the numbers of rent, voids, maintenance, deposit, refurbishment costs all entered.

James feels the excitement builds as his trusty due diligence spreadsheet demonstrates to him that this is a worthwhile investment. With that news of 22.8% ROI he picks up his mobile phone from the desk that lies eagerly next to his laptop. He calls the agents and puts in the accepted offer.

A few months in and the place is tenanted and James is now onto the next project.

A year down the line James receives a letter from HMRC informing him that he has received a £100 fine because his self assessment is late. In dread he picks up the phone and contacts his local accountants, Optimise Accountants. He organises a meeting and he comes prepared with his bag of receipts and bank statements.

James receives a call from the accountant to inform him that he has no tax to pay. He is happy with this news and thinks the accountant is wonderful because he did not have a clue of how much money he had made. The sad truth is that most accountants would not tell James that in actual fact his property made losses because the rental income did not cover the huge costs of utilities and maintenance. This is not a time to celebrate but a time to take action and correct the issue of poor financial control and management. James is also an IT director and his work requires him to stay away from home. The idea of managing the HMO never crossed his made and as a result the property only had 65% occupancy with the rest being voids.

You would not run a business like this so why should your property portfolio. The key to success is to only do things that can be measured and acted upon. In James’ example he did not measure the fact that rent was less than forecast. You could say that the due diligence process is a waste of time if in reality the numbers are not comparable.

Here are a few things that you can do to ensure that you keep on top of your property finances.

  • Ensure that you record all income and costs by property each month on a spreadsheet or accounting system.
  • Open a bank account that is dedicated to your property portfolio. This avoids having confusion to what costs relate to property and those nights out.
  • Record your mileage to property viewings, estate agents, networking meetings. Please note that you can claim 45p per business mile up to 10,000 miles and then 25pm thereafter.
  • Keep your receipts in month order or organise them in a property folder or box file.
  • Use your due diligence spreadsheet as a forecast to compare actual results
  • Wherever there is an adverse variance compared to your forecast then take action to correct it.
  • I am certain that if you manage your property finances on a monthly basis that you will be more profitable at the end of the year.

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