Managing the cash flow of your small business is not easy. Cash flow can be defined as what's left over after all expenses have been paid.  This is what's available to support the working needs of your business.

photo credit: the queen of subtle

Realtors, unlike most small businesses, may go several months in between commission checks and managing and budgeting becomes a major challenge.

In an Inman News article, Bernice Ross offers 5 ways to avoid the real estate cash flow crunch.

1.)    Build a Reserve:  Start now by allocating part of your commission check to build towards a 6 month reserve to cover your business and personal needs.

2.)    Prospect For Business Every Day:  Ross says the cash flow crunch usually hits when you haven't been out prospecting.  Put yourself in front of as many potential clients leads as possible. Peter Bregman, CEO of a management consulting firm, suggests that you take 5 minutes at the end of the day to look back at what happened and set a goal for what you want to happen next.

3.)    Monitor and reduce market time: "If you cut listing market time or the number of houses you show buyers by half, your profitability (the money you keep) will increase dramatically." says Ross. Try producing a "potential buyer's video" to send to your clients.  In an article seen on Metro Brokers TV, this should result in reducing the number of home showings.

4.)    Opportunity costs:  Ross says it's smart to ask: "Is working with this buyer or seller or engaging in this activity going to yield the highest amount of return for my time?"

5.)    Create a percentage budget:  Some of your monthly expenses are fixed such as association dues, but some should be adjusted according to your income.  For instance you could allot 10% of your income to Marketing and this would adjust accordingly if you brought in $2,000 vs. $8,000.

Ross also outlines the best ways to handle it if you find yourself in a cash flow crunch:

1.)    Pay cash for all business expenses.  Credit cards might be convenient but it's better to use a debit card or check... it's easier to stop when the money runs out.

2.)    Credit Cards are the most expensive way to finance cash flow problems.  If you must use them, pay off the entire balance every month. Look into a business line of credit at your bank.

3.)    Become your own Bank: Taking money out of your retirement fund can cost you a lot in taxes.  A better way, Ross says, might be to borrow against the account.  "For example, one of my friends has some money tied up in a limited liability company (LLC) that holds stock. Rather than selling stock when he needed money, he took a loan at 6 percent interest. Since he has two other partners, he was paying 4 percent of the loan to his partners and the other 2 percent to himself."

Of course, Ross suggests that you should always "check with your CPA or financial adviser about the best possible route for your personal situation. With a little bit of planning and forethought, you can avoid a cash-flow crunch in your business and keep your commission income strong all year long."

Read more at Inman News.

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Posted in Education And Training, Real Estate Market Conditions

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