From The Desk Of
Dov M Landesman, CPA
Davie, Florida
Dear Real Estate Developer,
Would you agree with me if I said that business has become increasingly tough for Real Estate Development companies like yours over the past several years?
I'm sure you've felt the pressure...
As the economy is becoming bearish, and speculators are no longer confident in the capital markets. New investors are looking for positive investment paths in the Real Estate industry. But with the increased opportunity comes greater competition. And if the cost of materials and labor weren't high enough already, the shift of demand for attractive real estate investments is pushing them even higher.
The low-end opportunities are all but gone, and a sophisticated developer must now, more than ever, look for the big projects. The costly projects, with larger labor forces, custom materials and heavy equipment.
Suddenly, your Budgeting, Accounting and tax planning (not necessarily in that order), are no longer just about balancing your books and preparing an average tax return. Now you must be extra vigilant with your finances, tracking costs, timing your cash flows and planning for larger projects. You need to take advantage of every single available tax strategy available to you and your investors, to reduce and control your tax liabilities.
As someone who's spent the last 18 years working with hundreds of real estate developers, from all across the US, and investors from all over the world, I understand the unique challenges you face while running your business.
And here's the thing...
Sponsors spend so much time planning and managing their projects that they tend to overlook, or accept for granted, the fact that up to 50% of their bottom-line will go to pay their (and their investor's) TAXES.
TAXES is the single largest line item on your profit and loss, and it doesn't add any real benefit to the project. Most companies aren't actually the ones subject to the tax (but rather it passes to the individuals) so it won't even get a it's own line on the companies Financial statements. And to make things worse, whether you pay more or pay less the quality and attractiveness of the project will remained unaffected.
Though TAXES is the Big Bad Wolf, there are many other pitfalls looming, which directly flow into taxes, such as your supply of cash needed to fund your projects, more often than not, you won't see a dollar of profit until the project at least 80% done, leaving you with the need to properly manage your funds and budget future costs. There is no better way to KILL a project than to run out of financing.
The biggest issue I encounter with my clients, is that they treat their accounting, budgeting/forecasting and taxes as 3 distinct departments.
Which they could be, if they had half-a-dozen Financial analysts and accountants in their employ.
How can you prepare a solid tax plan, without access to the budget?
How do you compare your accounting to your budget and explain variances?
How would you get your bookkeeping to tie to your tax planning, so your tax returns will reflect the planning?
And at this point, your budget and tax planning just become useless... what a waste.
This is why I decided to write my latest book...
