When the time comes to reflect on your performance this year, ask this question of yourself: “How many times did ‘you’ get in the way of making decisions?”
The real estate industry abounds in Family businesses, particularly husband and wife teams, and it is one of the enjoyable aspects of the industry for employees to work closely with the owner operators but beware of forgetting that employees are not family members.
Familiarity and time can blur the lines for owners when speaking to their staff, especially when providing instructions to employees for particular tasks. So here is a list for family business owners to work towards.
1. Agree on your roles.
2. Have formal meetings together in a closed room, and sign off on plans, agreeing; what is to be done and, who communicates it to the employees, ideally it should be written down.
3. The chosen owner should inform the relevant employees of the strategy and be clear.
4. The other family owner should remain out of the discussion and agree with the written or spoken instructions of the chosen owner.
5. Review the success or failure of each decision in private
The following list of don’ts can make employees feel awkward or uncomfortable
1. Arguing about the decision made, and saying it was wrong of the other family member to instruct the employee the way they were.
2. Confiding in the employee that you cannot express how exhausting it is dealing with business matters.
3. Being unpredictable in your decision making, which can cause employees to be confused.
4. Bringing other family matters into the conversation unnecessarily.
In short you have to get your communication right and remember to be clear when you are making business decisions, and when you are making family ones. Employees thrive in an environment of great leadership, they wilt in the face of division, they certainly don’t want to feel they have to pick sides.
The Real Estate industry is a big employee of people in the state, and is also a heavily regulated sector, which has important licencing requirements, due to the significant sums of money held of third parties. This creates numerous ways agencies cross refer, conjunct, partner and profit-share with employees, contractors or other businesses, given the main turnover of the sector relies on executing an exchanged property contract between a willing vendor and buyer, whom often are introduced by different agents.
There is currently plenty of discussion in the industry about the Office of State Revenue looking closely at payroll tax compliance, so to help, I thought I would outline some points for business owners to think about, especially if you are worrying about these matters in the middle of the night.
A common problem is confusing the issues that are typically addressed during an OSR review. Also, there is nothing out of the ordinary for OSR to review a business to check how they are complying with the legislation.
On the matter of the specific issues that are commonly mistakenly two spring to mind. Firstly, Grouping for Payroll Tax, and secondly, Exempt Independent Contractors.
So let’s address Contractors first.
- Know the law and its specific requirements. To do this, speak to your independent professional advisor, someone who understands the details of the law.
- Contractors are specifically discussed (for NSW) in the following link NSW payroll tax information 2013-14. It clearly states the grounds on which exempt status is granted.
- Don’t generalise. Payroll tax is legislated in states separately, and applies to services provided to achieve the core income production of the company.
- The wording says, where a contractor agreement is “not exempt” then they are included for payroll tax purposes. Therefore understanding the meaning of an exempt agreement is crucial.
- The biggest mistake for people is not doing the hard work up front to properly understand what is required to correctly implement a legal contractual agreement.
- No two agreements are identical. Therefore you’ll need to look at each contract on its own and the outcomes that you and your professional advisor determine. The paper work matters and it is a case by case basis whether a contractor agreement is exempt. Ultimately it comes down to the paperwork and how the money is handled.
As I mentioned, people often confuse the above matter with “Grouping”. Grouping is a matter that relates to the common ownership of separate entities. Should the OSR deem that companies are grouped for payroll tax purposes, then the grouped companies will share the payroll tax free threshold and, combine all qualifying payroll amounts in each of the grouped entities to calculate the amount payable for payroll tax.
- Speak to your accountant about all tax implications (including payroll tax) before you establish or incorporate any entity which will employ staff.
- Grouping( for NSW) is explained by the OSR on their website in the following link OSR NSW explanation of Grouping
- Essentially, keep it simple. If two companies have a common majority shareholding, they will be grouped.
I need to make it clear that I am not writing this blog to provide answers to specific circumstances of any business, but to clearly separate the issues where the real estate industry has been in the spot light. If you’re confused about the above matters, then I reiterate, go and speak to your trusted professional Tax Accountant to review your situation in detail, and follow their advise based on your particular circumstances.
As trusted bookkeepers for many real estate agencies, our team at Live Bookkeeping assist our clients where we can to help clear up any confusion there might be for owners trying to clarify their payroll tax liabilities, and should you want us to point you in the right direction, or refer you to a professional tax accountant to talk to you, then don’t hesitate to contact us email@example.com
I will write about accounting for Payroll tax and how to cost it in to your business plan in a blog at a later date.
Want to be the dominant business in your market and have a profit to show for it? Here’s a word of advice, don’t rely how today’s successful businesses got there, that can’t be replicated ever again, but if you have the ambition to match them, if not topple them, then adopt these action points and if you want it bad enough, there is nothing stopping you.
I am currently working on my book, and in preparation for its completion I was asked how I would run an agency if I was to do so. It got me to think about what I have learned from successful businesses I have analysed from the inside out, across all markets.
So here are the actions points you must complete if you are to become the market leading agency no matter where you are.
- Work hard! Your best competitors are. If you want to be the best business, you have to beat the best business.
- Focus on innovative ways to get an edge, but on the important factors first. Which ones you might ask? no surprise here: “LISTINGS , LISTINGS, LISTINGS” or “PRODUCTIVE AGENTS, PRODUCTIVE AGENTS…..!“
- You can’t become invincible in your first year, but you can become insolvent. Keep cash flow flowing.
- You can always pay your best agents more, if they do more.
- If a good business in your market comes up for sale, buy it, but do your homework
- Property Management is small in cash flow, but big in value. It’s not a complaint line, it’s a golden egg.
- Profit is the goal, not income. Business is about spending a $1.00 to make $1.16, not 85c. Income is great, but margin is what you keep.
- Measure everything and review it. Learn from your successes and failures.
- Don’t limit your potential, but minimise your risks. Always know when to stop a bad decision and don’t apologise.
- Listen to experts, not naysayers. If you have good people, your business will fly and remember to look after them.
If you are thinking about getting into agency business and want to know how it all works, speak to people you either trust or who you know have had success in real estate business. It makes it so much easier when you get things right from the start, rather than the all to familiar “learning the hard way” mentality.
We are always available to help any agent who wants to get their books in order and their business plan finished, just contact us at firstname.lastname@example.org . The rest is all about hard work and results.
Happy listing and selling,
When Gerry Harvey was answering a question during the toughest moments of the retail ‘recession’, if Sales had become a permanent feature of all retail outlets. He answered, and I paraphrase:
“The secret to successful retailing is not just discounting, anyone can do that, but getting the customers into your store with discounted products and selling them the benefits of the better products with higher margins in store.”
So how does this apply to today’s property sales market?
Property is all the rage in the media, headline grabbing results in Sydney, are setting the tone for the country, but not everyone is enjoying the stronger selling conditions of Sydney, why?
Two Factors: 1) Low numbers of Stock, and 2) Discounting in the market by agents trying to get a listing.
Inexperienced operators, or the more tired operators are justifying their discounting because properties are selling quickly and not requiring a lot of time. Their thinking is “I’ll do it for 1.5%+GST because it will still be $10,000.”
Smart agents realised, that by showing the vendors they were willing to meet the market for an average result, they could ask for an incentive or “kicker” if a better than expected result was achieved. So rather than “just discounting” their fee to 1.5% +GST they pick a price point and ask for a higher%. The vendors are happy to agree to it, because they know they will have achieved their minimum expectations, and the rest is upside.
This is what Gerry Harvey was referring to when he pointed out the difference in retailers, providing a service to the customer, rather than flogging old stock at a discount.
I could mention a number of my customers that have enjoyed great commissions for great sales results, where everyone was happy with the outcomes. In fact, they have increased their average % commission fee as a result, even though they agree to “discount” and get the business. That’s smart business operating. The Live Bookkeeping Way.
You’re working hard. You know there are things you want to change. Try these steps to find some clear action points that will improve your business results.
1. Write down the things you most want to change
Back your instincts. If you’re not happy with any aspect of your business, write it down and don’t hold back. These are the things causing you to worry, so it is healthy to face up to them.
Start by addressing the issues that are easy to change, then think hard about the more strategic or fundamental changes you know need to happen. Before you act, talk them over with someone you can confide in.
It really helps to talk these issues out, which will help refine the steps required to get the outcome you want..
2. Look closely at your gross margin and think of ways to improve it.
Your gross margin is the percentage of income left after the cost of sales have been deducted from income.
Take your sales commission income, for example. An agent is paid 45% and you have 8% franchise fees; unrecovered property advertising and profile expenses come in at 11%; and agent consumables like phones, postage, printing and stationery come to 5%.
So, your total cost of sales (COS) is 45% + 8% + 11% + 5% = 69%.
Therefore, your gross margin = your income at 100% – COS 69% = 31% gross margin.
The two easiest places to improve the margin described above is by lowering the percentage of unrecovered advertising and agent consumables. If you can reduce these by 4%, your margin will increase to 35%. That’s smart business.
3. Get buy-in from your key people
A powerful way to get your team to commit to your vision is by including them in your planning process.
They will buy in to ideas that they participate in making. If your people can see you are genuinely listening to their contributions, they will feel empowered. A warning though: you can’t make decisions based on compromise in an attempt to make people happy.
Compromise is never the main reason any change should be made. Decisions should be made on what makes good business sense. So get people to engage, but still show leadership by setting out the big picture goals that you are determined to achieve. These goals provide the boundaries for all decision-making initiatives.
4. Complete one action a day that will help grow your business in the future.
As a leader, you can get bogged down in administration and trouble-shooting.
Surprises always come up. So in your calendar, set aside a time each day for you to make one phone call, write one letter, have one meeting or complete one action that will help you grow your business in the future. These meetings could be with a vendor, landlord, potential acquisition or merger business owner, a property developer, an agent that you would like to recruit, a key supplier, an accountant, a lawyer, a financial planner, a marketing expert, etc.
You will be amazed how a ‘growth hour’ each day can energise you, create opportunities you didn’t know about and better inform you about what is happening inside and outside your business. This hour allows you to be completely free and curious. But a warning: a trap for some people is they stop managing today’s business, while looking at the future. Striking the balance is the key for a successful business operator.
I hope you can take these points and find some improvements that not only help your peace of mind, but improve your ongoing business results. Quick wins are nice, but strategic wins are great!
TV and radio airwaves have been awash with the annual announcement of who the Australian Tax Office will be targeting for the 2012/13 income tax year. Every year the ATO releases its Compliance in focus report. This time around the real estate industry, amongst other sectors, has been highlighted.
What does this mean for you?
Real estate has been singled out for non-payment of superannuation:
“Every time an employee tells us that their employer has not paid their superannuation guarantee entitlement, we investigate. In the coming year we expect to contact around 12,000 employers as a result of these complaints.” Source: ATO Compliance in Focus 2013-14 report
This is a serious matter. Although lagging super payments during times of tight cash flow may seem logical, it could put the spotlight on your business for the 2013/14 tax year.
Also relevant to real estate agents are the ATO emphasis on employers’ compliance with:
– Identifying and reporting for FBT – see p8
– Fraudulent Phoenix Activity – see p8
– Workers incorrectly treated as contractors rather than employees – see p8
– Payment of superannuation guarantee – see p8 and p20
Essentially, the ATO examines businesses by size and transaction type as part of its annual compliance strategy. The announcements are nothing new. They simply state where the ATO is placing greater emphasis and enforcement of existing tax laws.
If you have any concerns or doubts, the simplest solution is to speak to your Tax Accountant and follow their advice. One of the best ways to avoid non-compliance is to have an experienced, qualified bookkeeper in your business. A good bookkeeper will handle these matters along the way, and where needed can get the right answers directly from a Qualified Tax Agent.
If you don’t know who to speak to, or for help managing your real estate books, please contact us at Live Bookkeeping. We really know real estate, and will save you time, money and headaches.
Take care, and I hope your sales and rent rolls are growing. As I always advise, keep your tax up to date. The ATO is always a better friend than enemy.
The real estate business can be tough. You’ve all heard it before. You may have even said it yourself:
“Sometimes I think I’d be better off selling up and being an agent again!”
This feeling of “it’s all too hard” normally materialises quite quickly when you have to deal with a setback or a particularly frustrating day. In my experience, it’s a natural response for any business owner.
In some cases, you may just be letting off steam, but the time when this problem is really worrying is when a business owner is caught up in their business not because they want to be, but because they’ve been unable to successfully build a business with sustainable profits.
So, to help you diagnose a common misconception, here are some pointers to assist you to identify whether you are currently running a business or instead, you have a sales agency that’s led by a principal.
You have to sell to provide the cash flow to your business
|You have a sales team that operates independently of you|
You’re not available to your staff because you’re too busy selling
Your primary role is providing resources to help your business run more efficiently
You don’t trust anyone else to do the job as well as you
You accept a slightly lesser standard of performance, recognising it takes time to create a quality agent
You only look at the “whiteboard” and bank balance to measure success
You set Sales & Financial budgets and review your Profits & Loss each month
Employing bookkeepers is seen as an annoying cost you wish you didn’t have to pay
You have accounting processes in place to ensure that all matters are dealt with smoothly
You worry when an agent in your business doesn’t use you to list a property
You love it when your agents list property on their own
You can’t take a holiday without feeling your income will drop
You make sure everyone knows what to do while you are away, and what you expect
|You do things yourself, rather than take the time to manage your team through a task||
You manage the team through tasks, and provide feedback on the outcomes
As with any list, you could easily add points to both sides. It’s also important to recognise that everyone’s business is at a different stage in the business cycle.
However, by comparing these lists and looking at the differences between them, you can see that to ultimately run a business, your role requires you to have greater dependence on different members of your team.
The transition from top sales agent to business owner is a common challenge in the real estate industry, given that so many business owners have a strong sales background. It does take time, but for those of you that feel you’re getting closer to freeing yourself from the day-to-day, keep going!
You may have a different role, and different responsibilities, but the result is that you will make more money.
As a Real Estate business owner, you want to know where your business is at. But too often, the reports you want to view aren’t available, and the reports you do see aren’t important or reliable.
You need to have a clear idea of what reports are essential for your business and focus on these ones!
Here are the 5 reports that cover all the bases of your real estate business:
The Monthly Listing and Sales Report (non-financial report):
This report should be summarised by each real estate agent. It will have the breakdown of all agents’ new listings and exchanged “unconditional” sales results.
A few key matters to watch: Are the number of new listings high enough by each agent to replace the sales made? And, has every agent listed the minimum number of properties for sale?
If every agent including new agents are generating new listings, and if clearance rates are steady, and assuming you have not lost any productive agents, then you can expect a healthy comparative performance in relation to previous months.
The Monthly Listing and Sales Report will clearly show your strong performers and weaker ones. If you encourage your strong performers to maintain their levels and work with your lesser performers or “non-performers” to lift their performance, your results will grow.
At the same time, you should measure the number of agents that list a property each month. Is this number growing? If not, over time your business could go backwards each time an agent leaves.
The Monthly Property Management Activity Report (non-financial report):
This report covers all the activities of the Property Management division: the number of managements (including new and lost managements), the number of renewed or new leases, arrears of rent percentage, and the average management fee percentages for portfolios and for new managements.
Key matters to watch: The arrears should be kept to a minimum as should the “preventable losses” of management properties from the portfolio. If you can maintain your management fee percentage and prevent net losses in your management numbers, your portfolio will at worst hold its value and income and will more likely build.
The Monthly Profit and Loss Report: Sales (financial report)
The Profit and Loss report is the reconciled complete picture for almost every small to medium-sized business in real estate. It is the definitive summary of all income banked and expenses you have received, which should generally result in a profitable result and only result in a loss position when anticipated, i.e. a quieter period in the year. Separate the Sales and Property Management divisions if you can, and have last year’s results, if available, to compare performance.
Key matters to watch in terms of sales: Unrecovered advertising is the most common expense of cash waste. If the total amount of property advertising spent exceeds the vendor property advertising recovered, then the business is incurring a cost. This should be a neutral cost.
The total wages for commissions (and retainers) for sales agents must be in line with the acceptable percentage of total sales commissions earned. If the percentage is too high, combined with any unrecovered advertising, the Gross Margin will be lower, making it more difficult to cover the overheads (e.g. rent and administration salaries) of your business. The gross margin should be between 33–40% of your average business for sales (assuming the business owner is paid a commission like an agent).
The Monthly Profit and Loss Report: Property Management (financial report)
As above for sales, this profit and loss should be the actual summary of Income and expenditure incurred for the period. It is good to have last year results on hand to compare performance.
Key matters to watch in terms of property management: Monitor the salaries of property managers as a percentage of the total property management income. Property management income is very static and if wages are too high, profitability will be lower. This mistake is often made when a new member of staff is added prematurely, to help the existing “busy” team members. If you have capacity to grow then fill it up as quickly as you can by signing up new management. This is the best means of reducing the percentage of property management salaries against income, thereby increasing profit. Also make sure that recoverable items and activities are charged back to the vendor where agreed. This also will help protect profitability.
Monthly Cash flow Forecast Against Budget report: (financial report)
The monthly cash flow forecast versus the budget is a vital report to help you as a business owner understand how the cash flow of your business is tracking and what the near future will look like based on assumed budgeted performance. This report helps business owners see the effect of timing of transactions.
Key matters to watch include Company Taxation and Superannuation. The balance sheet of each business can provide the amounts of PAYG, GST, COMPANY PAYG and Superannuation payable. For most businesses, this is paid quarterly and can have a big impact. In your actual available bank balance, you may have these liabilities building up. To the untrained eye, they may seem like free cash flow. However, by having a cash flow forecast that projects the bank balance, you can see at the end of each quarter what your total cash outgoings will be and how this impacts your overall cash flow. If it seems tight, some business owners will push sales harder, inject some more money or speak with the bank.
The key to this report is understanding how the money works in your business. The budget can help you by highlighting what the expected performance of your company will deliver in cash flow. Therefore, if the business exceeds the budget, there should be more cash available and there will be less if the budget is not achieved. Watch out for one-off costs and their timing, especially insurances and asset purchases.
There you have it
There they are, 5 reports to manage your real estate business. If you would like help creating these reports, speak to your accountant, or contact us and we can help you. We have specialised real estate reports for businesses of all shapes and sizes, and importantly, our bookkeepers will maintain them for you as well. Get hold of us at email@example.com or call 02 9906 2578 today.
The most commonly neglected aspect of business management in my opinion is the state of the financial chart of accounts.
Ask yourself this question, if I asked you to print off a profit and loss report from your accounting software, how much confidence would you have that you could lay your hands on it within one day?
If your answer is yes, then that’s a good start, but I would add, when you read the report does it offer any critical insight other than your total income, or bottom line result? For those of you that answer no, how can you run a professional business and not have access to the ultimate financial result?
It is understandable that this is not an area of strength that all business owners have. But whether it is getting a process and system in place that produces these reports on a monthly basis, or making changes to the chart of accounts for a better breakdown of financial information – these changes are well placed to happen from the first month of every new financial year in July because accounting software rolls forward on the 1st, and provides a clean slate.
Don’t make changes without consulting a suitable professional advisor, or qualified Bookkeeper. Live Bookkeeping can help you whether it is by providing the template to change or outsourced bookkeeping services to implement the changes. If you are serious about your business, you need to get serious about your financial scoreboard and reporting.