Top 5 Reasons for Cash OutFlow
Real estate professionals experience similar business challenges, whether they work in Seattle, Austin, or Poplar Bluff. The dynamics of the business drive both cash inflows (from a cascade of sales) and cash outflows (for a variety of ongoing and predictable expenses). Yet, even with the regularity of the Realtor cash flow, there are still a number of common reasons why their cash flow takes a dip - and why Realtors should prepare for these common eventualities:
1) Split Anniversary - The most common agent to broker arrangement is splitting a commission up to an annual cap. When a successful Realtor gets used to the commission flow, after they've passed their annual cap (and exceed the split requirements), the anniversary of their contract can come as a shock. Suddenly, 25% to 30% of their usual income disappears - but the expenses that must be covered does not.
2) Tax Time - whether this comes on a quarterly basis (when Realtors pay estimated taxes) or comes on annually (when the tax bill is larger and more difficult to address), paying federal (and sometimes state) taxes is a predictable burden. The sensible approach to this problem is to reserve monies out of every commission check to cover the eventual bill. But this is not the common approach - delaying the inevitable only ends up costing more in the long run.
3) New Listings=New Investments - You get that covetted new listing on the really attractive property. Now comes the bills - photography, staging, marketing and advertising. Are you ready to take on this new revenue opportunity? You need to be ready - and your new client is expecting your best effort to get them the best price. No one ever said that operating a real estate business is a low cost affair.
4) Automobile Crisis - That beautiful SUV has driven many buyers to their new forever home (and many other homes that weren't quite right). You've got 175,000 miles on the odometer to show for it. But all good things must come to an end - and when it comes to your workhorse car, it often ends suddenly. Realtors can't get by without their cars - even a couple of days can be a burden. And the price tag on a new vehicle (brand new, used, or leased) is not small. Even if you can repair your workhorse, the price tag on an older vehicle can easily be in the thousands.
5) Bill Pile-Up - You can put off some bills for some amount of time - making minimum payments, installments, etc. Maybe they piled up in winter months, when sales were slow. Or possibly you or your family were hit with a medical event that took you out of commission for awhile. But, eventually, the season comes that you need to catch up. And the faster you catch up the better, because those interest charges are not in the budget (nor were you planning on the hit to your credit score).
I've heard all of these reasons (and more) for needing a cash infusion in a broker's business. Failure to attend to each of these shifts in cash flow can be very costly - and distract Realtors from their core efforts. Ideally, you spend effort throughout the year ensuring that you have capital when you need it. Here are some tips that will help every Realtor to do that: Money Management Tips for Realtors
But even when your business is solid and revenue dips, you can get a commission advance on your pending transactions and accelerate your cash flow. It pays to leverage the assets in your business to give yourself the opportunity to drive more business success without the distractions of cash flow worries. If you are in WA, feel free to contact me to learn more.
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