No one starts a business to lose money. So how do we make sure our real estate business is profitable? The general principles are the same as any business. Real estate agents need a solid understanding of how to budget and a long-term business plan to generate real estate profit. Without these two structures in place, the real estate business lacks a direction and risks missed opportunities to increase its bottom line.
How to budget for real estate
As ICC Coach Brad Baldwin says, “run your business by design, not default.” Many real estate agents let profit come to them rather than actively managing their income stream.
Watch how Baldwin breaks down the most essential numbers real estate professionals must monitor in their budgets to have a full understanding of their business and how to generate real estate profit.
Real estate professionals that do budget often only look at their gross commission income, or GCI. There’s nothing wrong with knowing and tracking GCI, but it’s not the only important variable to watch. An equally important metric is your cost of sale and your expenses. After you deduct these two metrics from GCI, you have your actual take-home pay.
Without knowing your cost of sale or your expenses, how can you find cost-saving measures or re-negotiate your splits to increase your take-home pay? Expenses can get out of hand if you’re not keeping tabs on where your hard-earned money is going.
Creating a long-term business plan
Do you know where you want your real estate business to be in three years? Five years? Ten years? The goal “make more money,” might be true, but it is not a strategic goal. You can’t put “make more money” into action.
Real estate business growth requires an accountable and actionable plan. The budget is the foundation of any business plan, which is why creating and following one is an important first step. A budget helps predict your net income over five years, come up with profit-loss estimates, and know your anticipated budget for each year.
How will you successfully support your GCI and profit goals? Real estate agents need a lead pipeline constantly working to find new business. To meet your anticipated budgetary needs, a real estate business plan must detail the lead generation systems that support long-term growth.
Baldwin breaks down the other aspects of your real estate business to consider when writing a five-year business plan.
As you can see, real estate business plans must include a model of the target numbers to hit. Do you know how many listings you need to take to fulfill your budget? Do you know how many buyer agreements your team must sign each year? Knowing these numbers keeps your real estate team accountable to the business plan.
Without a long-term plan and a solid budget in place, it’s challenging to set goals and achieve them in real estate. Essentially, you’re operating in the dark. Long-term planning is how you know the expectations, accommodate growth, and measure the real success of you and your team.