Cash flow is just as important to a business as profit. Whilst it’s crucial to spend time seeking out business leads and building up the reputation of your real estate agency, it’s more important to cultivate a consistent stream of what accountants call “free cash flow”.
The economy at times can often be unpredictable and the slightest change may result in the drastic rise and fall of the property market. As the owner of a real estate agency, this can have adverse outcomes – for when property prices and interest rates are high, business can often slow down and in many cases can come to a complete halt. The best way to ensure that your business survives through the unpredictable rises and falls of the property market, is to strategically plan ahead and ensure that you have a steady cash flow – all year round.
Maintaining steady cash flow should be the number one priority for your real estate agency. Here are some ways you can ensure your cash flow remains healthy:
1. Draw up a detailed cash flow forecast
A steady stream of cash is the fuel that keeps a business going, so it’s essential that you take the time to analyse your business and forecast what is going to happen to cash flow in the months ahead. This is a strategic plan for the future, and allows you to identify any potential problems before they occur. Sit down every couple of months and work out the exact amount of the cash coming in and the cash going out.
By identifying ahead of time the potential shortfalls in your agency’s cash flow, you’ll be able to budget accordingly – to ensure that during the slow times, you always have the money to pay your team.
2. Limit your spending
Don’t make the mistake of spending money frivolously by justifying every purchase as a tax deduction. This is a common mistake that many businesses make; the bottom line is – the less you spend, the more cash you will have in your business account. Don’t fall for the spending trap, instead choose to be thrifty and account for every single cent that leaves and comes into your agency.
3. Keep your financial records up-to-date
Flawless record keeping is an important part of monitoring business performance. Accurate records are the bloodline of your business; they show you exactly where your business is sitting and are a valuable resource for when making business decisions. Being able to account for every dollar will give you total control over your business finances and as a result you will be able to strategically plan for unforeseen circumstances. Implementing an effective financial system does not have to be complicated, it just comes down to designing a basic yet functional system along with maintaining up-to-date and well-organised business records.
4. Budget in any GST that you have collected
GST that you collect is not business money, so don’t make the mistake of adding it to the income of your agency. Put an immediate stop on the temptation to spend the GST money by opening up a separate account and depositing all GST money into it as soon as it’s received. That way, when it comes time to paying the Business Activity Statements (BAS), you’ll not be left with a shortfall in your cash.
5. State clearly your payment terms
When billing your customers, be very consistent and clear on the payment terms. Set up a process to ensure that all invoices are paid within a timely manner. The quicker you receive the money then the better. This also goes for paying your bills. Pay your bills on time to avoid any late payment fees. Fees are just money thrown down the drain and this can be avoided with some care.
If at any time that you find that your agency is experiencing cash flow issues, seek help from an expert in cash flow management so that they can help you quickly identify problem areas.
By taking the time to plan and cultivate the cash flow your agency generates, will ensure that you build a strong foundation for your real estate agency. This will result in you building a successful agency that will be well-equipped to survive the financial roller coaster that is the economy.
James Steer is CEO at Commission Flow and charged with helping real estate agencies address cash flow issues with cash advancements on unconditional exchange of contracts. For more information on how to manage your agency cash flow, get in touch.