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Whether you’re just starting your journey in real estate or a seasoned veteran, you’ll want to continue reading for some valuable tips to help you control your money and not let your money control you!

Planning around commissions

Its feast or famine for a lot of agents starting out.  Or, if you’ve been around for awhile and have a steady pipeline of listings then your income may be more steady.  Either way, you need to plan and budget around your commissions.

One of the best ways we’ve helped agents do this is by following the 80/20 rule.  The rule is simple: take 20% right off the top of your commissions and use the rest for business expenses and to pay yourself.  If you save 20% of your income then you’ll have a decent chunk set aside for taxes and anything unexpected that comes up.  Just remember, taxes can be the #1 expense for the real estate professional so do some planning ahead of time.

Taxes can be the #1 expense for the real estate professional so do some planning ahead of time!

The next step in the process is to follow a 3-month rolling budget.  We know the commissions don’t happen every month when you’re first starting out.  And some months you may be “feasting” while others are a “famine”.  But over the course of 3 months, you should be able to have a good idea of what your income and expenses are.  Setting up a budget can be as simple as using a spreadsheet, or our preferred method is to use easy to use financial software like Xero.

Check out how easy it is to setup and use a budget in Xero:

Budgeting With Xero

 

Following Up and Being Held Accountable

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Got to your favorite coffee shop to plan your budget

Following a budget means nothing if you don’t ever review it!  If you’re going to be successful at controlling your money then you have to review and look at your actual and budgeted income and expenses.  We’ve seen professionals be the most successful at this when they have an outside person holding them accountable to their plan.  Or, if you don’t want someone else helping, you should calendar a time and place (preferable somewhere different from where you normally work!) and stick to your budget review appointment.  Remember, if you don’t treat it like a normal business meeting, it probably won’t happen!  We like to mix food and drink in this meeting–that seems to always make something that can be grueling a bit more exciting.

 

There’s no time like the present

Decide to take control now by following these simple steps:

  1. Gather your bank statements for the past 3 months so you can see how much you made and spent
  2. Tally up all your income, and then expenses into categories or “buckets” so you know where your money was spent
  3. Setup a spreadsheet or budget in finance software.  Set realistic goals in your budget so that you can acheive your budget goals.
  4. Record your business income and expenses from setting up your budget and see how you did for the past 3 months.
  5. Record your income and expenses often and review every 3 months.  Setup a calendar event and stick to your meeting.
  6. Adjust your budget as necessary for changing costs like advertising, staging, open houses, etc.

If you follow those steps then you’re well on your way to being in control of your finances.

 

We’ve worked with many real estate professionals so we know what works, and what doesn’t.  Feel free to reach out, we’re happy to answer simple questions and be a resource for you.  Here’s to your financial freedom and listing lots of properties!

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It’s that time again and the holidays are fast approaching.  It’s a time of excitement, family, get togethers, and…finances!  For most, year-end is the time when we start thinking about taxes and our financial situation for the year.  December 31st is too late, but if you’re reading this now, you have a good chance to get things in order to make tax time and other year-end tasks less stressful.  Keep reading to see how to get ready!

Catch Up Your Bookkeeping

If you have some a back log of bookkeeping to do, now is the time to get caught up and ready for January.  Bookkeeping can be as simple as a spreadsheet if you’re a sole proprietor, or if you have LLC or Corporation, then you really should use software like Xero.  Don’t spend hours and hours on this.  Technology is come along away in the past 5 years so chances are “there’s an app for that”!

Having your books caught up will tell you how much income and expenses you have for the year.  Once you know that, then you’ll have a good idea of what your tax bill is going to look like.

Taxes

If you’re self-employed chanced are that you should be paying estimated tax payments–which are basically tax prepayments.  Reviewing how much you’ve paid in, and making any necessary catch up payments will help ensure you don’t have a large tax bill and will help you avoid any pre-payment penalties.

Additionally, you should review your net income to ensure you aren’t getting caught with a large unexpected tax bill.  Reviewing this will help you know what to expect when it’s time to file taxes.  And if you have extra cash, you can even pay some or all of your tax liability before you file your return.

 

Retirement Accounts

Saving for retirement has almost become a cliché term.  But did you know most business owners aren’t taking advantage of having their company pay themselves for retirement?  It’s one of the great tax planning tools that a business owner can use!  The company (which you own) pays into a retirement account for you.  So it’s like getting a double benefit!  Every business owner should be doing this.

There are many different options for retirement accounts.  Whether it’s a 401K, SEP, or SIMPLE IRA, find the one that works for you and get it started.

Re-evaluate Your Pricing & Costs

End of year is a great time to look at your pricing and costs.  It’s also a great time to review your Gross Profit % and make sure you’re charging enough for your products/services, or adjust your Cost of Goods Sold (COGS).  Keep in mind that generally speaking, your COGS should be no more than 30% of your revenue.  If it is, you could be bleeding cash and you may soon run out.  If you run out of cash, guess what?  The jig is up and you may be out of business.  In order to do this you’ll need to of course have your bookkeeping caught up so do that first, and then review these numbers.

 

…your COGS should be no more than 30% of your revenue

Review Your Systems and Processes

Finally, review your internal systems and processes.  Or, maybe this is the time where you commit to write them down.  Mapping out your systems and processes does a few things for you:

  1. You can discover inefficiencies that you may have never seen.  Writing something down  has the amazing effect of providing objectivity!  You can use paper or online tools like Google Docs or Evernote to do this.  That way, if you ever have staff taking over certain jobs, they’ll know what to do.
  2. It also prepares you to be able to hire staff and delegate tasks or jobs.  Doing this allows you to take on more of a managerial/strategy role and be less of a technician.  As business owners, we should all be moving away from the technical side of the business so we can work on the vision and growing the company.

 

As business owners we should all be moving away from the technical side of the business so we can work on the vision and growing the company

 

This isn’t meant to be an exhaustive list by any means, but it should get you started.  If you need help, just ask!  We’ve helped countless businesses do these things and we can offer down-to-earth advice that will make doing this, easy!

 

 

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Here at iAccounting Solutions, Xero is our first choice in helping small businesses keep better track of of their finances.  That’s why when Xero announced the Business Performance Dashboard, we were pretty excited.

What Is It?

In short, the Performance Dashboard is a simple way to check the health of your business.  By using simple formulas, you can measure Key Performance Indicators, aka KPI’s, to know how your business is fairing.  However, instead of running complex spreadsheets or doing it by hand, in true Xero fashion, they have built them in so you can find and use them easily.

Xero   performance db

 

 

 

 

 

 

What Do They Mean?

That’s really the important question isn’t it?  In the world of Financial Analysis, there are thousands of ratios.  But here are the top 4 that we think are most useful to small businesses.

1. Current Ratio

This ratio (also sometimes called the “Quick Ratio) measures your ability to pay your liabilities.  A healthy range is 1.5 to 3.  Any score below 1.5 means that you may have a problem paying your debts.  And anything above a 3, means that you may not be using your assets wisely.

Xero   Business Performance   Demo Company  US

 

 

 

 

 

 

 

 

 

2. Gross Profit % (or Gross Profit Margin)

This is where the numbers get fun!  This percentage tells you the amount left over, after you’ve paid for all your costs that are associated in making that revenue, or Cost of Sales.  Healthy Gross Profit % generally changes from industry to industry.  If you don’t know what your standard should look like, reach out to us, we can help you with that.  Comparing it to industry standards can help you determine if you’re paying too much in costs, charging enough for services/products, and a whole range of indicators that show how the health of your business.

Xero   BD Gross

 

 

 

 

 

 

 

 

 

3. Net Profit % (or Net Profit Margin)

Perhaps one of the most popular metrics–this tells you how efficient your business is when comparing your expenses, to your net sales.  Although, this number varies from industry to industry, 10% or better is considered to be good.  You can gauge your overall business success with this %.

Xero BD Net

 

 

 

 

 

 

 

 

 

4. Accounts Receivable Days

This measures how fast you collect on your invoices.  Knowing this allows you to plan around your cash flow very effectively.  Knowing this can even prevent cash flow disasters from happening to your business.

 

Xero BD AR

 

 

 

 

 

 

 

 

 

In the end, these ratios and percentages are only as good as the information you put into your accounting system.  Good reporting is the backbone of any business that wants to grow and succeed.

 

What Does This Mean For My Business?

Want to have a more in depth conversation about these topics and what they mean?  Just fill out our “Contact Us” page and we’ll get in touch.  Or, give us a ring.  We can explain of these topics common language so you can understand them.

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Whether you’re budgeting for your business, organization, or a department you’re in charge of, it can be a daunting task!  But believe it or not, the nuts of bolts of how to create, manage, and execute a budget is the easy part.  Most often, the challenge is to train ourselves how to treat the funds we have stewardship over.

Traditional Budgeting, Right or Wrong?

If you’ve ever worked for large corporations, institutions, or organizations, the attitude is usually “use what’s been allotted to you, or lose it!”  That attitude is reactive in nature because you base the budget off of what happened in the past.  So, you may ask, what’s wrong with that?  The short answer maybe nothing at all.  But if you work for a cash sensitive business where funds are closely monitored, either due to cash flow, or the nature of the funds is more custodial in nature (tithes in churches), this is generally the wrong approach to budgeting.  Chances are if you’re reading this, that you fall under that categorization.

The Proactive Approach

Zero-based Budgeting (ZBB) is a term that has become popular in recent years, and is truly the proactive approach to budgeting.  Instead of basing budget amounts and expenditures on what happened in the past, it requires those who are designing the budget to ask “what do we need for this year or program?”.  So instead of using last year’s performance, you effectively wipe the slate clean and ONLY plan for what your expectations are coming up.

For example, let’s say you are budgeting for your kids extra-curricular activities for the upcoming year.  Last year your kids played soccer, with a total cost of $300 for the year.  This year, you decide your kids don’t have what it takes to be the star player, so you put them in Karate, for a total annual cost of $1200.  Now, let’s budget!

Under the traditional method, you would use history to create your new budget so we have $300 in the budget.  I bet you can already see the problem!  Now, because you used a traditional budget, before you make it half of the year, you are already over budget.

Under the ZBB method, you think ahead: “I know my kids played soccer for $300, but I know they want to try karate and that’s going to cost $1200″.  So you budget for $1200.  Viola! You just created a budget and it looks like you’re going to stick to it!

Conclusion

You can see the difference in the budgeting methods used in the example above.  It’s up to you to think about your budget from a “Zero-based” point of reference so that you can use your funds proactively.  It may be hard, and take some cognitive training, but in the end, it will be worth it when your are using hard-earned funds, to their maximum potential to achieve your goals.

If you have questions, please comment below, or “Contact Us” and we’ll be happy to help!

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