The importance of cash flow can never be underestimated for a business. Yes, profit is important, but so is a steady inflow of cash. It is certainly important that the reputation of your business and real estate agency grows and you get business leads but even when real estate business is having a low phase, you have to learn how to maintain a steady cash flow (or free cash flow, as called by accountants).
The property market is full of uncertainties and fluctuates as the economy changes. Small economic changes can affect the real estate market drastically. If you are in the real estate industry, then these small changes can have adverse effects on your business – business tends to slow down or completely stop when interest rates and property prices are on a rise. To make sure that these ups and downs of the economy do not ruin your business, you have to involve some amount of planning so that there is a steady cash inflow in your business all year round.
Your number one priority as the owner of a real estate agency should be to maintain a steady cash flow. The following are some ways to take care of the health of your business even when the economy is not behaving as per your expectations –
1. Chalk Out A Detailed Forecast of Cash Flows – Cash flow forecasting is important for the survival of your business and thus, you need to analyze the following months and chalk out a forecast. This would allow you to prepare for any problems that might occur in the future and successfully counteract them. Hence, every few months, the inflows and outflows of your business need to be analyzed in detail. Using this strategy, for low inflow months that you have predicted, you would be able to create a budget so that low income phases do not affect your business’ workings.
2. Put A Ceiling on Spending – It is true that certain expenditure would give you tax deduction but that is no excuse for making frivolous expenses. Follow the rule – spend less and strengthen your business account. Be thrifty when it comes to useless expenses and save the money.
3. Update Your Financial Records – To monitor your business’ performance well, you need to keep your records and statements updated. This would help you check your business status at any given point of time and when you need to make an important decision, this regular recordkeeping would be essential. In order to have an effective financial system, you do not need complicated procedures and rules to follow but you just need to keep your records updated and follow a plan of action. When you are planning for future emergencies, this careful working would be invaluable.
4. GST Collected Is Not To Be Taken As An Inflow Of Cash – Many businesses make the mistake of adding the collected GST to their inflow of cash when, in truth, it is not. In fact, there are often instances when you might spend your collected GST. To avoid such a situation, open a separate account and deposit your collected GST when you receive it. Thus, when you prepare BAS (Business Activity Statements) and need to pay the GST, there would be no issues of cash shortfall.
5. Mention Your Payment Terms Clearly To Your Customers – As far as the billing process of your customers goes, clarity is pretty important. You have to be consistent with your approach and must always state your terms of payment clearly. To make sure that every invoice is paid in a timely manner, you need to set up a planned process. This would ensure that you receive your money as quickly as possible and it would be better for your overall business.
Same goes for bill payments. When you delay paying your bills, you have to pay late payment fees and that is one expense you can absolutely avoid. Take some care and set up a schedule to ensure that you never miss your bill payment dates and thus, payment of late fees can be avoided.
If, even after following the above points, you still face cash management problems, you can always take the help of an expert to help you out with proper management of cash flows. They would also help identify the problem areas in your business and management. By following these simple points, you would be able to prepare your business for any downward turn the economy might take and would have better chances of being successful.