Running a successful short term rental (STR) business requires more than providing a cozy and inviting space for guests. To truly maximize profitability, STR owners must diligently track income and expenses. Effective financial tracking helps with budgeting, identifying tax deductions, and understanding the overall health of your investment.
Here are the best practices to streamline your income and expense tracking:
1. Set Up a Separate Business Account
Keeping personal and business finances separate is crucial. Open a dedicated bank account and credit card for your STR business. This makes it easier to:
monitor cash flow
avoid mixing personal expenses with business transactions
simplify tax preparation
2. Use STR-Specific Accounting Software
Invest in software tailored for short term rentals, such as Hospitable, Guesty, or Lodgify. These platforms often integrate with booking channels like Airbnb and Vrbo, automatically importing income and some expenses.
Alternatively, you can use general accounting software like QuickBooks. Whichever software you choose, ensure it supports features like:
tracking multiple properties
categorizing income and expenses
generating profit and loss statements
3. Automate Where Possible
Automation saves time and reduces human error. Consider:
Automated payment tracking: Sync your accounting software with your bank and booking platforms.
Recurring expenses: Schedule automatic payments for utilities, mortgage, and subscription services.
Receipts management: Use apps like Expensify or ZoneSage to scan and categorize receipts.
4. Create a Detailed Chart of Accounts
A well-organized chart of accounts allows you to categorize every transaction. Common categories include:
Income: booking revenue, cleaning fees, pet fees, etc.
Fixed expenses: mortgage, property taxes, insurance, HOA fees
Variable expenses: cleaning services, utilities, maintenance, supplies
Marketing: advertising, photography, listing platform fees
5. Track All Deductions
Proper documentation ensures you don’t miss any deductions come tax time. Common deductible expenses include:
cleaning and maintenance
mortgage interest
utilities and internet
depreciation of property and furnishings
marketing and professional services
Consult a tax professional to understand what applies to your STR business.
6. Monitor Metrics Monthly
Regularly review your financial metrics to spot trends and issues. Focus on:
Revenue per property: Understand the income each property generates.
Expense ratios: Identify areas where costs can be reduced.
Profit margins: Ensure your STR is meeting your financial goals.
7. Save for Taxes
STR income is taxable, and depending on your location, you may also owe lodging or sales taxes. Set aside a percentage of your income each month for tax obligations. Use a separate savings account to avoid accidental spending.
8. Leverage Professional Help
Consider hiring a bookkeeper or accountant familiar with STR businesses. Professionals can:
ensure accurate records
provide insights into tax strategies
offer peace of mind during audits or complex transactions
9. Keep Backup Records
Always back up your financial records to the cloud using services like Google Drive or Dropbox. Maintain paper copies for critical documents, such as:
property purchase agreements
tax filings
major repair invoices
10. Evaluate and Adjust Annually
Your financial tracking system should evolve with your business. At the end of each year:
evaluate your tools and processes
identify inefficiencies
plan for upgrades or changes to software or professional services
By implementing these best practices, you’ll stay organized, maximize profits, and ensure compliance with financial regulations. Whether you manage one property or a portfolio, consistent income and expense tracking is the cornerstone of a successful short term rental business. Remember, staying on top of your finances today will save you headaches come year-end and set you up for long-term success.