Estate Agents: How to remain compliant and achieve growth
Estate agency is a specialised profession and whatever the size of your practice, there are both challenges and opportunities facing the sector.
Accounting for estate agencies can be complicated as estate agents deal with vast sums of money on a regular basis. The situation becomes even more complex if you handle the accounts of a housing association or manage an investment trust. Simply managing payroll is a challenge due to the commission structure of most sales employees’ contracts. Add tight financial regulations into the mix and you can see that managing your accounts can be tricky, to say the least.
Mistakes could quickly cost you, or you clients, money, and the latter could have a drastic effect on your reputation. That’s why it is important to have your accounts professionally managed by an accountant who is experienced in the nuances of the real estate sector and the regulations you must adhere to. In this blog post, we explain some of the accounting issues estate agents experience every day, and how effective accounting can provide solutions.
Real estate is a heavily regulated industry
The mistakes leading up to the economic crash in 2007 have resulted in a further tightening of regulations and there are now tougher rules when it comes to financial transactions, particularly in relation to managing and accounting for client funds, offsetting expenses and money laundering.
The Estate Agents Act 1979 regulates the work of an estate agent to make sure they act in the best interests of their clients and that both buyers and sellers are treated honestly and fairly. Under the act, failure to comply with regulations can result in a number of penalties, from formal warnings to being banned from trading.
To ensure you remain fully compliant with the plethora of regulations, it is important to seek the advice of a qualified accountant who specialises in the real estate sector. They will ensure your books are professionally maintained and are fully up to date and accessible should you be audited by a government official.
Handle client’s money carefully
There are a number of regulations under the act that an Estate Agent must comply with but one of the most important elements are the rules around handling clients’ money. You should have robust controls and systems in place to protect client monies. It’s paramount to implement thorough processes to ensure you comply with the strict regulations. You must keep intricate records of all transactions relating to a client account and give detailed receipts for all the money you receive. It is actually an offence not to do so. If you are a RICS regulated firm, you have access to the their free ‘Client’s Money Protection Scheme’ which is a valuable tool to help you stay compliant.
Ensure you have a transparent audit trail
The regulations require your accounts to be examined and reported on by a qualified auditor within six months of the end of your accounting period. You must also keep your accounts and all financial records for at least six years after the end of each accounting period, in case there is an inspection by an authorised officer, such as a representative from Trading Standards.
A good accountant can help you stay compliant with these regulations. By managing your accounts through cloud-based accounting software they will ensure your records are always safe and accessible which will make the process much less stressful. They will conduct a review of your firm’s accounts to identify any areas of risk and give you training and guidance on the implications of accounting regulations and bye-laws. They may also create for you a full compliance plan to monitor and prevent potential breaches.
Managing payroll can be complicated
Commission structured remuneration is standard in the real estate sector. In some scenarios, sales people will be paid purely on the commission they earn from property sales or rental income. In others, the salesperson could be paid through a combination of fixed salary plus commission. This can make payroll complex as payments can fluctuate throughout the year.
Accounting software such as Xero, can make recording transactions easy. But as far as commission calculations are concerned, there need to be rigorous systems in place governing the calculation of the amounts due and when those sums become payable. The whole process must be underpinned by a well-organised office ensuring all the key records are saved in appropriate places so that they can be accessed by the right people, in a timely manner. This also ensures you have thorough records of all your payments, which is vital for your tax obligations as commission is subject to income tax.
Protect yourselves from money launderers
Money laundering is an area of increasing concern globally. Estate agents are included in the list of professionals deemed at high risk in the UK Money Laundering Regulations Act 2007. As such you are required to put in place systems to avoid money laundering and report suspicious activity to the National Crime Agency.
There are a number of scenarios that may indicate money laundering when dealing with a client. Perhaps the client is secretive or evasive about their background, where the money is coming from or the bigger picture of the transaction. Perhaps they have provided false information or are known to have been involved in financial crime in the past, or you have doubts about the legitimacy of the parties involved in the transaction. You should be extra vigilant to ensure your firm is protected from money launderers. You can find out more about the precautions you should take at the RICS website.
The importance of accurate accounting
Accurate accounting is vital for the success of your business. So is the software you choose to account with. It needs to be simple to use, yet capable of handling all your transactions. Many businesses are electing to be cloud based to ensure that their information can be accessed at any time and is completely safe. We choose Xero. It’s simply the best cloud accountancy software for our clients.
With Xero, clients can record all their transactions in real time and therefore reduce the likelihood of out of date information. We can seamlessly access our clients’ accounts and can provide access for anyone who requires the information, such as the client’s team, a book keeper, or auditor. Information can be viewed anywhere, at any time, so there’s no need to send files back and forth. We can review our clients operating results and generate excellent reports to help them understand how their business is performing. We can also provide proactive and timely advice on issues impacting the business to help our clients keep the business on track and comply with their tax obligations.
Avoid nasty tax surprises
Where there is property there will always be taxation. From Capital Gains Tax to Inheritance Tax and Stamp Duty Tax, dealing with taxation can be a minefield for those without experience. An accountant experienced in the sector will have extensive knowledge of tax legislation and will help you structure your business in the most tax-efficient way. They should support you with tax planning advice and provide comprehensive tax health checks to ensure you are not paying a penny more than you absolutely have to and you don’t get any nasty surprises.
Businesses in the property sector are sometimes targeted by government tax inspectors. It is vital that your accounts are always in order as they will be examined in fine detail by inspectors looking for anomalies. Using quality accounting software such as Xero will help you through this process. Xero provides a full audit trail for any transaction so you are fully transparent with your financial records, making the auditor’s job much easier.
Seek professional growth advice
When developing a strategy to grow your business it is important to seek the advice of an accountant. They can help you access corporate finance and give you specialist advice on merger and acquisition opportunities. They can help you conduct due diligence and support you with post-acquisition integration. If you are looking to sell your business, an accountant is also there to help you prepare your proposition and guide you through the process.
For more information about how Sanders support a range of Estate Agency clients, get in touch by calling 020 7317 0040 or emailing us at firstname.lastname@example.org.