Positive Cash Flow Doesn't Happen by Chance - Make a Plan

By
Services for Real Estate Pros with Commission Express of Western Washington

Every Small Business knows that positive Cash Flow doesn't happen by chance - it takes good planning.

In my business, giving commission advances to agents and brokers, I see professionals who for a variety of reasons need cash in the short term.  While some are trying to take advantage of a sudden business investment opportunity, most are trying to compensate for a gap in their business cash flow.  In these challenging economic times, it is more important than ever to manage your business cash flow effectively so that you can keep your business momentum going to capitalize on opportunities.  Here are 3 critical steps to managing your cash flow effectively:

1)  Have a budget and manage to it: 

Every business, big or small, needs a budget which includes your monthly expenses and your expected revenues.  Real estate pros have a lengthy list of monthly costs (i.e. desk fees, licenses, subscriptions to systems and marketing channels) as well as a lengthy list of expenses specifically related to each client's transaction (lockboxes, signs, photography, potential staging costs, potentially print ads, auto expenses).  Be specific in your budget and understand the costs of the business you do.  Then be flexible in managing your budget by being both aware of where you are spending more than expected as well as where you might make up for the deficit (either in added revenue or savings in another expense item).

2)  Understand the Timing of your Cash Flows:

For many real estate agents, commission income does not come in at a steady rate - throughout the year commissions are up and down.  Some of this is predictable - in the Pacific Northwest, pending sales drop significantly in the winter months and pick up again in the spring.  Some variation may be based on the agent's lifestyle - commissions drop during their August vacations.  You need to project your own cash flow seasonality.  You also need to bake in any delays that may occur in closings or settlement from the broker.  When making a plan, it doesn't pay to be overly optimistic - be a realist

3)  Be aware of your Sources of Cash at all times:

When you combine your plan in steps 1) and 2) it is likely that you will have a shortage in your cash flow at some time in the year.  What is important when these times occur is that you do not deprive your business or yourself at these times.  When you deprive your business of cash flow, you limit your opportunities for success not only when you do it but even when your cash flow recovers.  Likewise, when you temporarily cut back on your expenses at home, you limit your emotional capital to invest in your business. 

So it is important to know what alternatives are available to you to supplement your cash during these dips in revenue.  Aside from having a savings account, many agents have a personal line of credit to dip into as needed.  Some of these lines of credit have been decreased or eliminated by banks during this credit crunch.  For relatively small cash flow gaps ($1000 or less), credit card cash advances are a possible solution - but be aware of the fees (3% transaction fees are the norm plus high interest rates on the advance and the usual rule that you will pay off other balances on the card before you start to pay off the high interest rate advance). 

For larger sums of money, commission advances are a convenient way to fill in the gaps in your cash flow  - by selling your commission receivable on pending transactions you can accelerate the cash flow in your plan and keep up your business momentum.  Make sure that you understand the terms and costs of your commission advance - and place those costs into your financial plan.

With a thorough financial plan for your business, you will be ready to generate success year-round and have the peace of mind that goes with it.

 

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Commission Express of Western Washington
4500 9th Avenue NE, Ste 300
Seattle, WA 98105
Phone: 206-829-2440       FAX: 206-357-9355


About the Author:  Michael Goodheim, is the owner of Commission Express of Western Washington, which provides cash flow solutions to real estate professionals (agents and brokers) by purchasing their commission receivables on pending transactions and giving them commission advances.  With more than twenty years of finance experience, Michael writes on a wide range of topics that assists others in managing their cash.

www.commissionexpress.com/WA

 

 

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Rainer
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Celia Maddox
Solutions Real Estate-The Celtic Connection - Gilbert, AZ

Thanks for sharing. I learn a lot of good information on Active Rain blogs. Best Regards,

Jan 27, 2010 08:28 AM #1
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Michael Goodheim

Cash Flow Expert for Real Estate Pros
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