5 Reasons to Prioritize Debt Accounting

ARTICLE | January 22, 2024

Real estate companies and other small and mid-sized businesses rely on financing, which makes it crucial for them to properly account for loans, mortgages, interest, and other financing arrangements.

Debt accounting is more than just keeping track of your outstanding loans and interest payments. It is a fundamental component of a sound financial strategy. Here are five reasons why it is so important for real estate companies and other businesses to prioritize debt accounting.

1. Accurate financial reporting

Debt accounting is essential to provide a clear and accurate picture of your company’s financial health. When you fail to properly account for loans and other debt obligations, your balance sheet may be misleading, leading to an inaccurate assessment of your financial position. Any errors or discrepancies can also erode trust and deter potential partners or investors.

2. Loan compliance

Loan agreements typically come with covenants and terms that must be adhered to, such as maintaining specific debt-to-equity ratios and providing periodic financial reports. Accurate debt accounting ensures that your company remains in compliance with these loan terms, reducing the risk of penalties, increased interest rates, or even loan default.

3. Better decision-making

To make critical decisions about debt, you need to know which financing options are most cost-effective, which loans should be prioritized for repayment, and when to refinance. Accurate debt accounting equips you with the data needed to make informed decisions that benefit your business in the long run.

4. Interest rate management

Interest rates can significantly impact the profitability of real estate investments. By accurately accounting for interest payments, businesses can assess the cost of financing and explore opportunities to negotiate better terms or consider refinancing options when rates are favorable.

5. Portfolio analysis

If your company owns multiple properties with various financing arrangements, debt accounting can help you analyze the performance of individual properties, assess their overall leverage, and decide on future investment strategies.

Get the help you need

By maintaining detailed and precise records of your financing arrangements, your business can navigate the financial landscape with confidence, ensuring long-term success and stability.

Insero & Co. is a public accounting firm with decades of experience working with businesses and nonprofits, including real estate companies that require debt accounting services. Our experienced experts are available to provide consulting and many other remote services—whatever support your small or mid-sized business needs.