Cash flow is one of the most important aspects of your real estate business. Ignore it, and you’re in big trouble. Cash flow forecasting should be a regular part of your overall business strategy. This means that it should be attended to on a monthly basis. If you do it yearly, you’re already too late to reap the benefits, and your business is likely in trouble financially.
Unfortunately, the real estate industry is prone to delays in income and commission. This can cause unnecessary frustration, which can be avoided by putting flexible commission advance services in place. To do this, you have to create a financial plan. There are may ways to ensure successful cash flow forecasting.
Here are some helpful tips to get you started.
It’s good to set optimistic goals for your business, but make sure that you’re being objective. Forecasting is about determining the most successful path to managing your money. It’s true that your business could see a 75 percent increase in sales, but is that a realistic projection, or simply something you hope will happen? Use past sales history to create a forecast starting point. By using information you already have on sales trends for your business, you can establish a realistic forecast for future sales.
Understand The Difference Between Income, Cash and Profit
A sale isn’t cash. It becomes cash only after the commission has been received. Income is the commission made on the sale, and profit is what money is left over. You may show great numbers on income and profit, but without cash, it will be impossible to keep your business going. Make sure to allow two to three months between when the contracts are exchanged and when the cash is in your business account. If that seems like a long time to wait, then commission advance services can help ease the burden of delayed payments.
Create Multiple Forecasts
Forecasting is an estimation of what you think sales will be. In essence, it’s a guessing game, but if you’re forecasting monthly, it gets easier to hit the mark with your figures. Forecast three different scenarios. One should be a best case forecast. This is the forecast that shows what happens if sales are really good. Next, forecast a worst case scenario. This is going to show what will happen if things don’t go as planned. Last, create a middle of the road scenario. This is going to be what you think will actually happen. Creating all three forecasts will help you navigate the monthly cash flow a little easier. Then, if things go well, you know where you’re going. If things don’t go as well as you would have liked, you know where to make adjustments. When creating your best and worst forecasts, we suggest using figures that are either 25 percent higher or 25 percent lower than your middle of the road scenario.
Don’t Overlook the Little Things
Take the small expenses into consideration. Postage fees, utility bills and office supplies are just a few examples. These are things your business needs on a regular basis. If you leave these out, you’ll discover that you’re losing money, but you’re not prepared for it. These expenses add up quickly, so make sure you include them.
Understand Fixed and Variable Costs
Fixed costs are expenses that are the same month to month. This could be the rent you pay for the office, your internet bill or even a utility plan with a set fee. These are easy to forecast. Variable costs are where you should focus the majority your attention. Variable costs are things like marketing expenses, utility bills that fluctuate or office supplies. Electricity costs may ebb and flow depending on the season, for example. If you’re predicting an increase in property sales, your variable costs will increase. This is also true when you’re predicting a time of reduced sales.
For more information, take a look at “What To Do When Your Real Estate Cash Flow is MIA”, “Finance Tips For Real Estate Agencies” and “How to Maintain Steady Cash Flow Even When Real Estate is Slow.”
For access to flexible, friendly cash flow support as well as access to same day advance commission payments, contact us at 1300 667 286