If you want to make more money next year and survive in this ever-changing profession we call real estate, then you need to develop a financial plan allowing you to achieve your goals.

In this recurring column, Inman hosts various contributing writers who share personal and business finance insights they’ve picked up throughout their careers to help agents and brokers stay financially fit.

Remember when you had a full-time job with a consistent paycheck and benefits? Oh yes, those were the days! Well, those days are over. You are now your own boss, and your family is dependent on you to feed, clothe and shelter them. Knowing what you need to earn and how you are going to pay the bills is critical to your survival as an agent.

Selling real estate can be either “feast” or “famine.” Depending on the market and other conditions, our wallets are full of money, or they are full of dust. Finding the middle ground of sustainability is hard for most agents. Real estate agents are notorious for not properly handling their finances. Successful agents know how to manage their income and control their expenses. Sound financial management is not that difficult if you have a budget and stick to it.

Before I received my real estate license, I knew I needed money to survive the first six months in the business and a budget to manage my income and expenses. I quickly learned a budget for my business was a critical component of my business plan. Budgeting supported my need to remain focused and on track as I was selling real estate.

In order to properly manage your business finances, you must oversee your personal expenses. The following tips can assist you in preparing your personal and business budgets.

Now is the time to begin the budgeting process for both your business and personal expenses for 2020 as well as setting your sites on increasing your income. If you want to make more money next year and survive in this ever changing profession we call real estate, then you need to develop a financial plan allowing you to achieve your goals. Without a plan in place, you will find yourself frustrated with a business that struggles to thrive.

1. Know your debt

Outside of your mortgage, where is your debt? Automobile and student loans, medical and hospital bills, as well as other consumer debt such as credit cards and revolving charge accounts make up a large amount of most families’ debt service.

Reducing your debt is the first step to profitability. You need to develop a debt-reduction plan as soon as possible. Debt is what stands in the way of us having money we can spend on the things we need and want. You should develop a plan that will reduce your debt over a specific period of time.

What debt do you pay off first? I encourage you to pay off your highest-rate debt first. For example, paying $500 toward a $2,500 credit card bill with an interest rate of 19 percent will save you much more than paying off a $750 bill at 5 percent.

Another option is debt consolidation. You might consider taking out a home equity line of credit (HELOC) or a second mortgage on your property to reduce your debt. Interest rates for these loan products are much lower than what is charged by the major credit card companies.

2. Build up your personal reserves

At any given time, you should have at least six months of cash reserves set aside in the event your sales drop due to a downturn in the economy. This money can assist you in paying your bills and providing food and other needs for your family.

3. Set aside a business reserve

Like personal cash reserves, you need a reserve for your business. You never know when a computer might break or a laser printer needs to be replaced. It makes good business sense having the money on hand and not using a high-interest credit card to pay the expense.

4. Ask your bank or credit union for a line of credit for your business

If your personal credit is good to excellent, you will probably qualify for a small business line of credit. As you grow your business, you may need to make investments in equipment, office space and team members. A business line of credit also provides you with a cushion, so you are not feeling additional pressure between commission checks. These credit lines may be secured or unsecured.

Unsecured lines of credit will allow you to draw money, but they will have a smaller cash limit than secured lines. If the credit line is secured, you will need to be able to provide the necessary collateral for the line to be approved by your bank.

5. Divide your commission check so you can pay taxes and business expenses

When I receive a commission check from the sale of a home, I do not deposit the entire amount in my checking account. I always put approximately 30 percent aside to pay my quarterly estimated federal income taxes and 15 percent back into my business. The remaining 55 percent goes to cover my personal expenses.

Never deposit money in only one account, as you are more likely to spend it on personal necessities and not for expenses that will occur in your real estate practice. I have two accounts at my bank where I deposit commission monies. The first one is my business checking account to cover taxes and business expenses, and the other one is my personal checking account that I use for expenses outside of my business.

6. Use your money to provide you with the best return on investment

Selling real estate is an expensive proposition. You need to make smart decisions when spending money on your business. Most agents do not know what lead system or marketing tool will work for their business, so they overspend trying to find that “one thing” that will make their business successful.

An agent must use some discernment when it comes to spending money. Ask high-producing agents what and where they are spending their money. They can provide you with some invaluable advice on what to do and what not to do when it comes to operating your business.

Sometimes the lowest price does not provide the best return on your investment. Don’t purchase the cheapest laptop at the local discount warehouse store because you probably will need to replace it after a couple of years. It will be worth spending more for a computer that can meet your needs for several years.

Also consider the “little things” you spend your money on such as printer paper, signage, photography, cell phone, customer relationship systems, closing gifts, etc. Make smart decisions that will help lower the long-term costs of your business. Remember, “You get what you pay for.”

7. Set aside money for continuing education and professional development

I believe an agent can grow their business by choosing the right “tools” for their “toolbox.” A large number of tools involve knowledge. As a real estate instructor and a continuing education course curriculum author, I am a big proponent of professional development for agents. When we learn new skills, techniques and ideas, it not only benefits our clients, but it also contributes to the bottom line. The more you know, the more you can make.

For example, those who take classes on making effective listing presentations will be better positioned to procure more listings than someone who doesn’t. An agent who is knowledgeable on how to sell real estate in the midst of a couple getting a divorce will be more likely to catch the eye of divorce attorneys and accounting firms.

Getting a National Association of Realtors (NAR) designation or certification may or may not put more money in your pocket, but it will provide you with the latest information on how to best work with buyers and sellers in today’s competitive real estate market. People like to work with professionals who know what they are doing. Invest in your education, training and professional development.

Also, consider attending local, regional and national meetings and conferences. I have gained a wealth of information by participating in Realtor association meetings and other industry events. Inman holds two very important gatherings each year for real estate professionals called Inman Connect. Industry experts present on a wide-array of topics relative to the current national and international real estate market. I would encourage you to attend Inman Connect in New York in January or the one scheduled in summer.

8. Cut your current expenses

Where is your money going? How much are you spending in certain areas of your budget? Can you make any changes? You need to ask these questions and track your expenses so that you know where every penny you earn is being spent. Consider cutting back in some areas if you do not see the results you want. Good businesspeople always stay on top of their expenses.

I suggest you find some creative ways to cut spending, so you can keep money in your pocket. Don’t go out and buy the latest luxury SUV unless you have plenty of money to pay for it. High automobile loan or lease payments can drain you of money you need to pay other expenses. Consider washing your own car instead of going to the local car wash. Cut out the local dry cleaner and iron your own shirts. Eat in more than you eat out. It is amazing how much money you can save when you consider reigning in the “little” expenses.

Now, go get it done!

John Giffen is Director of Broker Operations for Benchmark Realty, LLC in Tennessee. He is the author of “Do You Have a Minute? An Award-Winning Real Estate Managing Broker Reveals Keys for Industry Success.”

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