4 Things You Can Do To Turn Around Your Real Estate Business

4 Things You Can Do To Turn Around Your Real Estate Business

Posted by: .

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!

 

Tax Office Targets Real Estate Agents

Posted by: .

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.

 

 

 

 

What is your time worth?

Posted by: .

In the small business world, business owners wear many hats.

But far too often, they wear too many hats for far too long. Not being able to delegate fully or hire the right person to do the job, they continue to do it all themselves.

What they need to do, both to expand their business and to not work themselves into the ground, is to put a cost or value on their time.

They should focus on tasks that grow their business and profitability – instead of tasks that should be outsourced or completed by a paid employee who has the correct skill set.

In the real estate industry, many small to medium-sized operators are guilty of this. They are running their business, not leading and managing their team. They get stuck on back office tasks when really they should be out listing and selling or providing lead generation to the sales team, creating value and growing income.

The bookkeeping position is the classic anchor to the business owner. If you’re thinking of hiring an in-house bookkeeper, two important questions are: How much will this process cost? How much is your time worth?

Figuring out the cost of the process might look something like this:

Place ad for bookkeeper                              =             $200

Sift through CVs                                           =             your time

Interview Candidates                                     =             your time

The total cost to employ an in-house bookkeeper            =             your time + $200

Then, you might have to do it all again in three months when you realise you’ve employed the wrong person!

So what’s your time worth? Well, if you’re a selling principal and you could have possibly listed or sold a property in the same time, your time, based on a sample sale price below, is worth:

House                   =             $480,000

Commission       =             2.2% (this might be light on, some locations will be higher and others lower)

Total commission in dollar terms               =             $10,560

Comparing these figures, it’s a no brainer. Work to your strengths, outsource your bookkeeping to a bookkeeping professional (with real estate experience) and enjoy a more profitable and productive business.

However, don’t wish your responsibilities away. You or someone in your business still has to be responsible for authorising bills and handling the movement of money from bank accounts. Your bookkeeper will give you the who, what and when, but you or the person you delegate still needs to press OK.

To find out more about outsourcing your bookkeeping, contact us at info@liverealestateaccounts.com.au.

Are You Running A Real Estate Business, Or Do You Have A Job?

Posted by: .

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.

A Job

A Business

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.

 

Principal Interview: Patrick McCarthy, McGrath Real Estate Cronulla, Sylvania and Menai/Illawong

Posted by: .

Pat McCarthy has grown his business from one office in Cronulla to an operation that covers the entire Sutherland Shire. Always challenging himself and his business on ways to grow or do things better, here are Pat’s thoughts on the current state of the real estate market.

Aaron David (AD): Pat, what is your view of the market today?

Pat McCarthy (PM): I think it’s getting harder and harder to run a business as a traditional model or the Ma & Pa corner store operation. We operate over a territory of 80,000 residences and the internet allows that. Traditionally, you would have had 10 offices to handle that size of territory; with the internet, you could probably have one large one. However, we’ll have 4 or 5 offices instead of 10, and maybe in the future that will only be 2 or 3. That’s not from a customer perspective; it’s from the agent’s: they’ll want a base that’s a bit closer to their stock. Although we could handle property anywhere within the Shire from Cronulla, we think we need a few bases for our agents to cover our client and customer needs. Also, as time management for the agents, it’s more effective

AD: What is the biggest challenge facing your business today?

PM: The biggest challenges are always recruitment and productivity. They’re what we’re always thinking about and constantly working on: How do we get the productivity up of our current team and how do we get more good people into our business? There’s no magic answer. It’s a long-term view and it’s constant. There are always a certain amount of people that come in and out of the industry and we have to keep on top of churn. We know that if we wanted to grow by 10 people, we’d have to recruit 14.

AD: What is the biggest opportunity for your business today?

PM: Because it is getting harder to run as a small operator, the opportunity for us is those people that have recognised that it’s too hard or too expensive operate by themselves, and they can come on board with us as a partner in a contracting role. The way we’ve set up our model allows those people to plug in, they can choose us as a partner and we want to be seen as the obvious choice for those people. I’d say 4 or 5 of our key people have come on via that way.

AD: Tell us about growth: acquisition vs. BDM.

PM: We don’t see it as one or the other. We do both. If you get to be as big as we are, you need a good idea of your churn and you need a strategy in place to counter that churn. As we want to continue to grow, we’ve made quite a big investment in that. We’ve got 4 BDMs and are looking at possibly adding another. That’s all because we know our churn could be up to 10%. So if one or two plug the churn then we’ve got two for growth. Combine that with good strategic acquisition and you gain the benefit of the extra cash flow that immediately adds to your business. So I see them going hand in hand.

AD: Let’s talk print advertising vs. internet advertising only. How do you see this issue for businesses in real estate sales?

PM: That’s a very tough one at the moment and it’s tough because from a buying perspective, the internet is more and more effective – and cost effective. But I still think there’s a place for print, so we still run with a combination approach. From a business perspective, you’re brave to go internet-only at the moment. It will probably be the way of the future. However, a combination approach is currently the best way. Although it seems the internet is grabbing market share all the time, there’s still a place for print.

We measure the effectiveness through our open houses, we ask those who come where they first saw the property. We believe there are passive and active buyers in the market. The active buyer is on real estate alerts and gets them every week. They’re active in the marketplace, someone who may buy in the next 1 to 6 months.

Then you get the passive buyers who might flick through the paper whilst having a coffee and think “that looks like something I’m interested in”. They’re not active in the market – trawling through open houses or receiving alerts – but if they see the right thing then they’re looking. Those people might see this in print, then go online to get more information about the property, floor plans and videos. So it works in combination.

What that can do though is make the reporting skewed; if you ask them where they saw the property they might say the internet. However, they may have first seen it in print and then investigated more via the net. When prompted, they remember.

Some of the data out there points to the internet as having captured over 90% of the traffic, but we don’t find that to be true. The acid test for me is what would I do with my own house or my parents’ house if it were to go to market. The answer is, it’s a combination of print and internet. You want all those channels working for you, and if it means one extra buyer on your property, you’d be crazy not to use them.

5 Reports You Need To Run Your Real Estate Business

Posted by: .

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 info@liverealestateaccounts.com.au or call 02 9906 2578 today.

EOFY Tip #5 – Make Changes To Your Financial Accounts

Posted by: .

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.

EOFY Tip #4 – Review Your Current Suppliers

Posted by: .

Reviewing suppliers is a challenge for every business, how to put in place an efficient yet invaluable review of trusted suppliers.

Often savings in themselves are not the sole reason for making a decision – you have to consider the associated costs of transitioning to a new supplier, in time and familiarity.

The secret to addressing suppliers is that you want to have an incremental approach to this. If you were to review every supplier at once, then the exercise could be overwhelming, not to mention destabilising.  But, if you had a process in place to address your top five suppliers first, then the next five and so on, you may find that the savings or gains in what suppliers offer you to keep your business can have a significant impact on your bottom line and competitiveness.

This is a good exercise to delegate to your office manager or bookkeeper. Remember for every dollar of overhead you save it has a multiple effect in reducing your break even. i.e save $1 and lower your income breakeven by up to $5 or $6.

Now that sounds like an exercise well worth doing.

EOFY Tip #3 – Review Your Agent Packages

Posted by: .

Real estate businesses are all about people, ultimately the quality of your people is your major point of difference in your market place.

As the end of financial year is the close off of your payroll calendar, it is a good time to look all of your packages.

If you strive to be an employer of choice in your market, how you handle your team’s career paths and remuneration is a very strong determining factor.

It is often daunting to drive these changes, and for many business owners saying nothing and dealing with it on a case by case basis is the rule, but leadership requires direction, and efficiency requires process.

Great businesses don’t fight fires all day, they take advantage of clear communication and mutual agreement between the owners and their staff, because it’s healthy for both parties to know where they stand. What better time than the start of a new financial year.

EOFY Tip #2 – Finalise Your Budget, Completely!

Posted by: .

Okay, it might sound silly to add the word ‘completely’ to this EOFY tip, we all need to have a budget, but what I am referring to is this, is the budget signed off?

Factors that you need to address when preparing a comprehensive budget include; have you looked at your business costs? Does your budget take into account growth in your existing business and the organic growth available through recruitment and increases in your number of managements?

Have you looked at your businesses available capacity as it sits today, or are you bursting at the seams? All of these known factors should be reviewed and given consideration as you finalise the budget for the next Financial Year.

Finally, once the budget has been finalised and agreed has it must be entered into your accounting software (e.g. MYOB, Quickbooks etc)? If not, make sure it does otherwise it will be forgotten?

The budgeting process is a wonderful exercise to facilitate a regular review from ‘Bottom up’ or ‘Top down’ of all people, events, agreements and investments you have in place in your business. It should play a regular role in the sound management overview for any business owner that wants to achieve success. An old management truism makes the point, “if you aim for nothing, you’ll achieve it with great regularity”. I hope you aim for a little more.

If you don’t know where to start, speak to your accountant or trusted advisor. Our team at Live Business Services is also more than happy to help.

Happy budgeting.