In my experience as a real estate agency profit consultant, I’ve seen many real estate businesses in grave financial trouble, and many spend themselves into oblivion. For businesses to survive and thrive, they must be built on solid financial foundations.
This is explained in depth in our four-day presentation of the Agency Profit System®, but here are some important foundations that all leaders should strive to have in place.
Individuals and households that spend all they earn are just one pay-day from bankruptcy. Businesses are no different. If you aren’t saving, you have no buffer for lean months.
Expenses under control
One office spent $112,000 in a single month on premium advertising. That’s what we call “Double-D” – Dumb and Dangerous. This money was spent because the agency’s salespeople did not know how to list properties without committing the agency to massive advertising spending. If you think the agency recouped the expense through Vendor Paid Advertising, you’d be wrong.
If a fraction of that 529 plans money was spent on training the team, they would list properties without the requirement for massive advertising or fee discounting. This agency’s expenses were out of control – but they are not alone.
Borrowing to buy investments is perfectly fine, provided you don’t extend yourself too far. I personally do not feel comfortable with more than 30% debt-to-equity, excluding the family home.
‘Dumb Debt’ is the worst debt. Dumb Debt is borrowing to buy anything that goes down in value – car leases, equipment leases, credit card spending where the debt is not paid out at the end of each month. Spend too much on Dumb Debt and saving will suffer.
Family home fully paid
When you go to bed, owning the roof under which you sleep is an essential goal. Pay out your home, and don’t use it as a gambling chip by securing it against business spending. Take your chance as rates on VA home loans are rather low at the moment.
The sooner you start investing, the sooner you become wealthy. Save and invest in quality real estate and blue chip shares.
Businesses haemorrhage huge amounts through team incompetence. Every time salespeople lose listings to the opposition, it costs the agency dearly. It would be the biggest financial loss in most real estate offices, in addition to the damage caused to the company’s reputation by having incompetent representatives (head to Goodwin Barrett to find out more).
Training is a bargain by comparison to losses through incompetence of the team and the leader.
Income is not profit. If you want to maximise your profit, you need to take your focus off turnover and put it onto profit. You need profit systems to ensure that this happens. This is why so many agency leaders use Pittard’s Agency Profit System®: profit does not happen without systems!
Profit is not a dirty word!
Buildings without solid foundations crack over time. The same is true for businesses. Profit is not a dirty word. There is nothing wrong with making a profit, provided you do so honestly.
In fact, if you are a business owner, it’s your duty. Why else did you go into business?