Money business: 6 steps to managing real estate cash flow

Cash ebbs and flows are inevitable in the real estate industry, but many of us struggle to manage these highs and lows as well as we could. So what are some strategies to put in place that will lead to better money management in your agency?  

1. Setting a budget

Putting a budget in place is crucial to ride out the ups and downs of real estate. It allows you to plan how you will keep things running when cash is tight, and will also provide some great insights into where your money is actually going ‒ so you can press pause on unnecessary outgoings if needed.

Setting up a proper financial tracking system will give you an overall view of your current cash flow at any one time, meaning you can make better, more informed business decisions.

2. Know your agency’s break-even point for better financial goals

If you don’t know what income is required to keep your agency running for a profit, then it’s time to get serious. Because once you can see what income needs to be achieved for day-to-day costs, you’ll gain greater insight into how your business is actually performing. Is it running at a loss? Or will it in six months’ time if you continue the way you are?

Some business owners may prefer to keep their ‘head in the sand’ when it comes to this type of information, but it’s about taking back the power. Understanding this figure is crucial, not just to keep your business afloat, but to also set better growth and financial goals. If you know what you want to achieve, you can work out how long it will take you to get there.

3. Save everything above your target

Many real estate agencies tend to fall into the trap of spending money when they have it, without much thought to the future. But this is dangerous territory.

It is important to set a realistic budget, stick to it, and save any surplus. This is because we can often lose sight of those ‘lulls’ when everything is going well. But it actually makes better financial sense to keep it set aside for quieter periods. Not only does it help you to cover your financial obligations, it also means you can reinvest back into the business.

During downturns, a lot of agencies close ranks ‒ reducing any marketing spending, promotions or advertising. But this is usually the time these aspects are needed most, in order to keep our business in the spotlight, and gain the confidence of potential clients.

It is important to set a realistic budget, stick to it, and save any surplus

4. Be meticulous about tracking deductions and anything claimable

Details matter in business, and even the smallest outgoings can add up to a significant amount of money. So make sure this is something you are completely across ‒ and if it’s not your style, give this responsibility to someone in the business who can manage it.

Spend some time with your accountant to gain a better understanding of anything that is tax-deductible and what can be claimed as a business expense. There might be some crucial funds that you are missing out on and, in a successful business, every dollar counts.  

5. Ensure you set aside tax monies first

Not proactively setting aside money for tax will only come back to bite you. So make sure you take care of this first.

It can be so difficult to manage cash flow in real estate, because forecast income often takes a while to come through (due to settlement dates), can be delayed, or even fall through. Which is why saying you’ll pay for tax with future monies is risky business ‒ it might not be there when you need it!

So before you start to pay any bills, set aside around 30 per cent of your income to cover tax obligations. This will ensure you always have the money when required, otherwise you could face some hefty, avoidable fines from the Government.  

6. Analyse every expenditure

Every business has bills, expenses and outgoings, but do you really know where every cent goes? By looking closely at everything your agency spends, you may be able to uncover some areas where you could save money, either immediately, or in the long run!

Consider things like:

• Seeking new supplier agreements for better deals (WiFi, phones, tech equipment, printing, electricity providers, etc.)
• Looking objectively at your current operational costs. Could you be in a smaller office? In a cheaper location? Changing these things doesn’t mean your business is failing, just that money could be better spent elsewhere.
• Examining your business: Is it effectively and efficiently? There are always new ways in which businesses can be smarter in the way they do things, like using Cloud computing, implementing the right tools for marketing campaigns, outsourcing certain tasks, etc.   
• Franchise or network fees: Are you paying too much? You might be stuck in an agreement where you’re paying over the odds for bells and whistles your business doesn’t need. Look for alternatives that give you the essentials but leave much of your monthly spend under your control. For example, here at OneAgency we have a simple fee structure that includes a low establishment fee and a surprisingly low set monthly fee under $1,000. Our difference is that our fees are predictable fixed dollar amounts, rather than commission-based ‒ and this is what makes the One Agency licence so appealing.

It’s what you save that counts

If I could impress just one thing on real estate agents managing their businesses, it would be to control your outgoings, because it will give you the peace of mind that your business is sustainable ‒ and really that’s the only side of your business that’s truly under your control and not subject to market forces. Happy saving.