Category Archives: Business Management

Cash Flow Pressures

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Now might be the time (certainly in Sydney & Melbourne markets) where you might be discovering how strong the foundations of your Real Estate business are? When markets are strong and revenue plentiful, it can hide a multitude of sins. Got a problem, throw more money at it!

However for many, this may be the first time you’ve experienced such challenges in the real estate industry, especially if you’ve been in business less than 10 years, anyone remember the GFC….? Or more recently if you’re on the West Coast, the down turn that came via the mining sector correction, lots of listings no buyers or new managements, but no one to live in them.

It is now that your business requires strong leadership and financial management to push through the other side. First and foremost ask yourself these questions;

  • What is my businesses break-even point?
    • How many sales per month do I need just to keep the lights on?

  • Is my sales team being productive? Being busy and productive are very different, they’re not productive if they’re not listing and SELLING.

  • How does my cash-flow look for the next 6-12 months?

Two of these are financial, the one that is not, can have the biggest impact on the other two! Knowing your break-even is the barometer of your business. If you’re monitoring the productivity of your agents then you’ll know exactly when you’ve passed the “kept the lights on” moment. Your profit and loss report gives you great insights into where your money goes (and if you’re making any) and the trends of your business, a forecast cash-flow shows you where you are going! If you would like a break-even analysis done on your business or a forecast cash flow, then contact us now.

Now is the time for action, keep listing through Christmas up until the office doors close, if you stop so will your sales team! Remember your December BAS will be due for payment in February and March BAS in April, two big cash flow impacts in a short time frame, be prepared.

Outsourcing is a great way to protect cash during lean times, employing staff that are not busy or efficient is a drain on your business. By outsourcing you pay for only what’s required, by someone who specialises in that area. Think about this, if you had to go to court, you wouldn’t go get a law degree or employ a full-time solicitor, you go get a gun for hire to do that job that needs doing! Find out how we can help here.

Changes to Real Estate Industry Award

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There are key changes to the Real Estate Industry Award, which you need to have implemented by 2nd April 2018.

There are now 4 levels of employee classification;

  • Real Estate Employee Level 1 (Associate Level)

Employees engaged as a Property Sales Associate, Property Management Associate or a Strata Management Associate will all fall into Level 1 and have the same minimum rate of pay. Two wage rates apply at this level. The first rate applies to employees during their first 12 months of employment and the second rate applies thereafter.

  • Real Estate Employee Level 2 (Representative Level)

Salespeople, property managers and strata managers will all fall into Level 2 and have the same minimum rate of pay.

  • Real Estate Employee Level 3 (Supervisory Level)

Sales, property management and strata management supervisors will all fall into Level 3 and have the same minimum rate of pay.

  • Real Estate Employee Level 4 (In-Charge Level)

Employees who are responsible for the overall operations of an agency will fall into Level 4.

New commission-only standards;

For an employee to be engaged on a commission-only basis from 2 April 2018, they must:

  • Be 21 years of age or older
  • Have a Real Estate Licence of Certificate of Registration
  • Be employed as a salesperson
  • Agree in writing to be employed on a commission-only basis
  • Have worked in the industry as a salesperson for at least 12 months in the last three years
  • Satisfy the new Minimum Income Threshold Amount (MITA) qualification test.

The MITA is satisfied if the employee can show that in a consecutive 12-month period in the three years immediately prior to entering into the commission-only agreement they received a salary (including commission or bonus payments, but excluding allowances and superannuation) at least equal to 125 per cent of the employee’s classification rate under the new Real Estate Industry Award, calculated as an annual amount.

The new MITA will be $52,733 and will increase as minimum rates of pay change each July.

Other things of note;

  • New mobile phone allowance
  • New motor cycle allowance
  • Extension to post-employment commission entitlements

Contact us for further information. To read the full award changes, REEF will be the best place to find all relevant information regarding all employment changes.

 

Remember: it’s business, not personal

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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?”

I did this over the holiday season and, on reflection, it’s something that happens to me more often than I’d realised.

Here is an example. I was looking to meet with a client in the middle of last year, and discuss the need to review their contract and bring it into line with our revised agreement. Seems simple enough? Well, in the background, there were a number of factors that came in to play in other areas of the business, and I was simply too overwhelmed to deal with another round of negotiations. So the revision didn’t happen. Not only did I not do what I should have done, I was the reason it didn’t happen!

In reality, it was the idea of having to put myself through another issue that prevented me from completing an important part of my business.

Well, this is where I believe I found the solution in the holiday break. If you want to make everything personal you can – and I can empathise with people who do this – but the empowering approach is to focus on the business aspect. You then tailor your solution in a personal way, rather than personally being the solution. Look to build systems or procedures that improve your effectiveness. This allows you to use your personal skills in more lasting and productive ways.

One of the terms that’s in vogue at the moment is ‘mindfulness’. It can seem a bit unclear, but what it really means is look after yourself and know where you are and how things affect you.

For those of you who share my habit of taking business personally, I believe the trick is to depersonalise business decisions. While I’m no expert in this field, it’s a goal I’ve set myself this year.

Running a Family Business? Here’s a Tip

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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.

OSR and NSW Payroll Tax in Real Estate: Talking Points

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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.

image of contract

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.

Independent Contractors

  1. Know the law and its specific requirements. To do this, speak to your independent professional advisor, someone who understands the details of the law.
  1. 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.
  1. Don’t generalise. Payroll tax is legislated in states separately, and applies to services provided to achieve the core income production of the company.
  2. 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.
  1. 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.
  1. 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.

Grouping

  1. Speak to your accountant about all tax implications (including payroll tax) before you establish or incorporate any entity which will employ staff.
  2. Grouping( for NSW) is explained by the OSR  on their website in the following link OSR NSW explanation of Grouping
  1. 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 info@liverealestateaccounts.com.au

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.

Chris Mercer

10 Actions Points for your Business to be the Big Fish in your Real Estate Market?

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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. 

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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.

  1. Work hard! Your best competitors are. If you want to be the best business, you have to beat the best business.
  2. 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…..!
  3. You can’t become invincible in your first year, but you can become insolvent. Keep cash flow flowing.
  4. You can always pay your best agents more, if they do more.
  5. If a good business in your market comes up for sale, buy it, but do your homework
  6. Property Management is small in cash flow, but big in value. It’s not a complaint line, it’s a golden egg.
  7. 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.
  8. Measure everything and review it. Learn from your successes and failures.
  9. Don’t limit your potential, but minimise your risks. Always know when to stop a bad decision and don’t apologise.
  10. 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 info@liverealestateaccounts.com.au . The rest is all about hard work and results.

Happy listing and selling,

Chris

How do you increase profit when everyone is ‘Discounting’?

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percentage

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.

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

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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!

 

What is your time worth?

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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?

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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.