The real estate industry comes with its ups and downs. On one hand, working as a real estate agent can be a rewarding experience with the right efforts, persistence, and effective planning. On the other hand, it can be an overwhelming career path when agents quickly realize that the amount of revenue they earn depends solely on their efforts.
With that said, one of the things that can be overwhelming for agents is effectively managing cash flow. Real estate agents earn revenue through commissions, which is why how you manage the revenue that comes in and out will either make or break the business.
Importance of Cash Flow Management
Managing cash flow is important for all businesses but it is specifically important for real estate agents as revenue is often unpredictable. One reason cash flow management is important is that agents can keep track of the actual money they’re making. This means they can gauge what percent of those earnings can go into reserves.
The last thing you want to do is overestimate the amount of money you can stash away for a rainy day because you miscalculated how much money you would make from a property.
Another reason cash flow management is important is that agents can better adapt to new business changes going forward. When agents are aware of what revenue is coming in and out, they are able to make more financially sound business decisions.
For instance, if you realize you’re bringing in less revenue than expected, it’s probably time to adjust your marketing plan and scout for new prospects. This might be difficult to understand if you aren’t effectively tracking your cash flow and comparing it to previous months.
How to Manage Cash Flow
Implement a Tracking System
One of the best ways agents can manage their cash flow is by using a tracking system. An efficient system will allow agents to follow their revenue as it comes in and out to minimize the risk of depleting funds.
Due to the nature of the job, most agents will see pending cash that’s coming in and out. For this reason, it makes it easy for agents to miscalculate what they really have when keeping track manually.
A tracking system is accurate, efficient, and allows agents to plan ahead. For instance, agents can plan ahead for months by including outflows well in advance. This ensures that you don’t overspend, leaving yourself in a hole later on.
Put Money on Reserves
Putting money on reserves is something that every agent should be doing immediately. Stashing money away allows agents to prepare for a rainy day. As stated previously, working as a real estate agent means revenue is unpredictable.
You might be preparing to receive a 6% commission on a $350,000 home today but the client can back out of the deal by next week. For this reason, it’s crucial to keep money on reserves for those dry periods where cash flow isn’t coming in like it normally would.
Pursue Other Means of Money
If you plan ahead with the help of your cash flow tracking system, you will more than likely be able to spot areas ahead where cash flow may be a little tight. In times like this, it’s good to pursue other means of money while you wait for your commission check.
One of the best options available for real estate agents is commission advancement services. These services give agents convenient access to their commissions so that they can continue to sustain.
Other options for agents include a credit card or a personal loan. However, interest rates are often high and can be more trouble than it’s worth. If you choose a credit card or personal loan as another means for money, stick to a budget and be 100% certain that you can pay it back.
For real estate agents, managing cash flow is a central part of business sustainability and success. Proper cash flow management allows agents to track their revenue, aid in better business management and planning, and create a sufficient amount of reserves in the process.