How to manage money for your real estate business
As a real estate broker, your business success depends on whether or not you continuously have enough money available and be able to pay rent, bills and - of course - your agents, but also whether you will be in a position to take advantage of market opportunities such as securing the best agents or expanding into additional territories.
Keeping your real estate office in basic financial health can reduce your personal stress as the office owner, as well as position your office for peak performance.
While we encourage you to seek specialist financial advice for your business, here are three general ways to keep your cash flow in good shape:
- Establish your financial baseline
- Anticipate cashflow peaks and low points
- Improve and maintain financial reserves
Let's look at each in turn.
Create a baseline budget
Assuming you’ve already created a personal budget and know how much income you need, you can move on to creating a business budget. Maybe you went through this exercise a few years ago already - it could be that things changed so it’s worth doing it again!
Let’s start by creating a baseline.
How to Create a Baseline Budget
You’ll want to understand how much you need every week or every month to cover your business expenses.
To do this, take a sheet of paper and make two columns. Look at the past 3 to 6 months and write down all of your income in one column and all your expenses in the other. This will be your baseline budget.
Make sure you include everything, so that means:
- Agents salaries
- Commission splits
- Realtor membership fees
- Professional services
Anticipate peak and low periods
Once you have a baseline budget, you can start making it more specific. As a real estate broker, the best way to do this is to adjust your budget to the ups and downs of the real estate market.
How to Take Real Estate Cycles Into Account
- Think strategically: Go beyond looking at your budget per month and look at what you need on a yearly basis.
- Compare budget and cycles: How does your spending follow the cycles - most importantly, are you saving enough during the high periods to cover your expenses in the low periods?
- Adjust your baseline budget: Plan to save when the market’s up and cut all non-essential spending when the market’s down.
Increase financial reserves
Lastly, it’s important to look at the overall financial reserves in your business - making sure you have enough of a cushion to sit through slow periods.
Cash and credit also helps if you want to expand your business, for instance by opening a new office or hiring an additional team of agents.
Ultimately, increasing your financial position is as simple as this: Increasing Income + Decreasing Spending = More Wealth
Rather than focusing on irrelevant details (e.g. don’t buy coffee at Starbucks, but bring your own thermos), zoom in on the things that will make a big, long-term impact:
3 ways to increase real estate income:
- Review commission splits. Do your compensation plans favor you or your agents? What could you change?
- Train your agents. Brokerages with extensive training programs tend to do better.
- Broaden your network: Real estate is a hugely social industry, so the more people you know, the more opportunities you can create!
3 ways to decreasing real estate office spending:
- Renegotiate rent, utilities, services and insurance. Some brokers forget they are master negotiators - don’t just use your negotiating skills for real estate deals, but also for any other contracts and recurring costs you may have
- Don’t pay for listings. There are plenty of websites where you can list for free, so why would you pay?
- Use tax deductions for real estate agents. Often you get deductions for operating licenses and fees and the NAR membership costs.
If you take these steps, you’ll be on your way to a healthy business with good cash flow, responsible budgeting and a sizeable reserve resource. Accumulating your financial resources can help position your business to take advantage of growth opportunities and performance improvements.