Some time back, I had to take control of the rooms to get the asset back on track. I had to jump in as the things got so out of hand. This post is the story of setting the rooms, an asset back on track. The personal finance geeks will snigger at calling a room as an asset. But its considered as an asset because of its characteristics of causing regular cashflows.
An asset always causes regular cashflows or grows in value over time. You can read this post to know more about this fixed asset called the house. Hence, assets are the kings of the balance sheet. Since rooms get rentals, they sit on the asset side of personal balance sheet. The rooms were suggested, as it was the easiest to build and, easier to maintain.
Rooms were livable because of care in designing it. The Cots had racks, tables beside. Each table had lighting to aid in studies. These rooms were lightyears ahead compared to others as they had shared facilities. Tiled bathrooms and specially placed light above mirror made the rooms luxury in my city. Despite all the facilities, the rooms went off track quickly.
The main culprit was financial administration, not the facilities. Because of mismanaging of finances, the thing took turn for worse. Above all, the not taking of advance amounts was the cause of decay. As a result of not taking the advance amount, the entry barrier to bad behaviour was not there. The management of finances went like that of PSB’s. The initial set of people lay waste to the paradise. Not giving rent on time, and many more sins were committed. That lead to rot in finances.
Getting the asset back on track:
The first thing I did after taking control was to establish the ledgers for advances and rents. Every expense incurred and every rent earned is posted to the ledger. Ledger has records of every rent received with the date as well as repairs, expenses incurred etc.. The Expenses appear on the left side, the debit side. Rental incomes are credit entries. The advance received is credit entry. The advance given back is a debit entry. This is not a double entry accounting system like my personal one. The proper accounting also gives insurance against tenants causing arguments about rent. Because of expense tracking, the optimization ideas present themselves easily.
By keenly looking at power bills, I went into overdrive and replaced all the lights with LEDs. The LED’s pulled the power bills down significantly. The garbage has a plastic bag now. The tied bag is thrown, the smelly bucket is not dumped. The facilities itself give the impression of well-maintained rooms. The expense tracking has helped in making efficiency improvements. It’s these improvements that cut costs of maintenance. But cutting costs is not the final solution.
Above all the main benefit of having proper accounts is in banking. The access to banking makes it possible to store advance amounts and rents in the bank instead of cash. Apart from storing the rents, some have started giving the rent via UPI itself. The rent is fully taxable like salary and its done at same slab rates. But proper accounting helps in paying taxes as well as access to credit. For the cash accounting people, the only source of credit will be loan sharks. Whereas proper accounting gives access to banking credit.
That was the way I got the room an asset back on track. The most common denominator of asset going sour will be either leverage effects or financial mismanagement. In our case, it was a financial discipline thing. Getting the discipline back also bought the asset back on track. Being an honest taxpayer too aids in credit access. Also, the financial discipline helps in reducing unnecessary overheads.