In our last article we looked at why knowing your agent's average commission rate gave you the information to be proactive in managing your relationship with them. Now we turn our attention to being proactive in making a profit for your brokerage.
For two long I've heard people say that “you can't make money on just the real estate brokerage operation”. Yet, through my accounting practice I consistently see offices making $4,000 to $6,000 pre-tax per agent. So what separates though who can from those who can't?
First, having access to timely information. Knowing how your company did financially six months after year-end when your CPA delivers financial statements is meaningless. Some of the information is almost a year and a half old. Information is only valuable when it is timely. If an agent asks for a break on fees or expenses, how do you know how to handle that? What are their pending deals in the pipeline? How many listings do they have? What is their current expense balance? One simple production report, detailing all of this information, and you have information to make a more informed decision with. And more informed decisions equals better decisions. And better decisions equal more profit.
Next, ask yourself why the agent needed the break. As in last month's article on the Commission Cutting Report™, we talked about the agent's taking a problem of theirs, not making enough money, and trying to make it one of yours. Well, if you have the same problem, whose do you make it into? You are the end of the food chain and you better deal with it. What the agent was probably lacking was any sort of financial plan or budget. Where is yours? A budget is a roadmap to financial success. It doesn't have to be perfect but it will help you to plan for profits and monitor your progress towards them.
The budget is a guideline for what you expect in revenue and where you expect to spend your money. As events unfold during the year you will be under on some and over on others. It's not important how accurate each line is but it's critical that the bottom line is. And remember to include your compensation in the budget. The biggest mistake owners make is to plan for profits and then expect to pay themselves from that profit. That's called salary, not profit. Put your salary in the budget and have the bottom line truly be profits!
Now it is critical that you have access to accurate monthly financial statements in order to monitor your progress. Each month review operational income against expectations. If you have agents on commission splits and they aren't producing as expected, lower their split! If you expect an agent to do $75,000 in business with a split of 80/20, you expect $15,000 of contribution. You can either be reactive and at the end of the year, when they have only done $50,000 and contributed $10,000, accept your loss or you can proactively review throughout the year, monitor targets and adjust accordingly.
In the area of controlling costs, the integration of financial and operational data is another excellent example of information helping you make the correct decision is the Uncovered Expense Report™. Having a list of your agent receivables is great but who would you be more worried about, an agent who owes you $2,500 or an agent who owes you $500. On a standard accounts receivable list, you will always pay attention to the $2,500 agent and ignore the $500 one. But now take that list, add a column for pending transactions and now look at the numbers again. The uncovered agents are the ones who show up without enough in the pipeline to cover their expenses. Now the $500 agent with no deals jumps out at you. He is your potential bad debt and possibly an agent getting ready to leave. Be pro-active and deal with them on your terms.
And what opportunities exist to service your agents? Sure they don't want to pay for anything but neither do the sellers when the agents talk about commissions with them. But just as the top agents get top commissions, a top broker can get top dollar from their agents. People react to pain and you can make a lot of money when you take the pain away. Agents all must make quarterly tax installments. Painful! Have your accounting department withhold a percentage from each agent's check for them and then hand them the money each quarter when installments are due. Now charge them a fee for doing it. They'll gladly pay because you are performing a valuable service for them and taking away their pain. With a proper accounting system set-up, this involves nothing more from your staff then setting it up once and cutting a check each quarter, the rest is automatic.
In summary, profits are generated by planning for them; having access to meaningful, accurate and timely information; the pro-active application of that information; and the constant awareness of opportunities to better serve your customer, the agent. Profits are out there, go get them!
Lorne C. Wallace C.A. is the CEO of Lone Wolf Real Estate Technologies, a company with over 150 staff that provides fully integrated management systems to over 9,000 real estate offices across North America. www.lwolf.com firstname.lastname@example.org