Business Owners : "Leaky Buckets Draining Your Business"
Although it does refer specifically to “Real Estate”, the concepts are similar for any other type of business.
Say goodbye to the frantic monthly money juggle – look into your business buckets and learn how to keep staff, suppliers and the tax man happy.
In real estate – perhaps more dramatically than other businesses – the buck stops with you, the licensee. And you know only too well how the money side of things no longer just sorts itself out somehow.
These times are more likely to see you constantly hanging on by your fingernails, waiting for money to come in while trying to work out whom to pay first – staff, suppliers, or the tax man. Wages are due, but you’re waiting for settlements. GST needs paying, but property management commissions aren’t transferred yet. And the overdue ATO account stresses you out as it builds up and up every month, no matter how hard you try to pay it down.
If you’d like to see an end to the monthly money drama, I have some suggestions.
Financial Clarity in Buckets
The key to running your business smoothly and profitably on a consistent basis lies first in separating out its distinct categories. Residential Sales, Commercial Sales, Property Management and Admin Costs are what I call the ‘buckets’ of your business.
Each bucket must have – and be seen to have – its own inflow and outflow. Separating them out shows how much is going into and out of each bucket. It also helps as a reminder that the Admin Costs bucket needs to be supported by inflow (profits) from the other buckets.
For example:
How much does the Property Management bucket make after paying
- related staff wages
- a portion of advertising
- PM motor vehicle costs
- franchise fees due on rental commissions?
How much does the Sales bucket earn on an average number of sales, after paying
- memberships/advertising costs
- franchise fees
- commissions
- any other flyers/ banners or other related costs?
What does it cost to run the Admin side of the business:
- support staff
- insurances
- bookkeeping costs and the like?
Overspending doesn’t have to happen when you can identify and track early on any area’s excessive outflow. Noticing how other buckets may be perilously propping it up, you can take timely action to rebalance your buckets.
Leaky Buckets Make for Leaky Bank Accounts
An unprofitable area – a ‘leaky bucket’ – is even more serious than overspending. Why? Because in spite of its low-to-zero inflow (profit), that unprofitable area still attracts its own related bank outflows. And the effect on the bank account can be dire.
The times may be challenging, but you absolutely don’t need to find yourself scrounging and scrabbling to deal with GST and PAYG withholdings from salaried staff – not to mention tax office demands for settlement of businesses tax debts and PAYG instalments.
No less than a farmer or a plumber, a real estate licensee needs to fully understand where and how the ‘water’ is flowing at any given time, how it might be leaking in destructive ways, and what can realistically be done about it.
Take the following steps to know the truth about how much money each distinct area of your business is making– and how much it actually needs.
- Identify the average monthly amount of profit made by Property Management.
- Identify how much money is needed to support the Admin side of your business – support staff, insurances, bookkeeping, rent etc. (Remember to account for your own wage)
- Does the money made from Property Management cover this? If not, exactly what is the shortfall?
Facing the reality of a shortfall may not be comfortable. But you need to be aware of exactly what net dollar value sales commission (Residential / Commercial) would cover the shortfall – because that is precisely the amount you need just to make ends meet. To ensure your desired profit, you will need to consider how much to boost that figure.
If the situation looks unsustainable, then you will need to either cut costs, or find a way to ensure you consistently earn that dollar value sales commission.
Clarity gives you Power
With the figures, clearly visible, you can determine your flexibility regarding percentage or flat rate commissions you quote for prospective Residential / Commercial Property Sales listings.
It may be better to quote lower if you want to secure a listing, rather than miss out on it and continue to struggle financially.
Here’s to your freedom from the cycle of scrounging and overspending!
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