Reviewing Your Year as an Entrepreneur
Tracking and Adjusting.
Have you been a savvy entrepreneur in 2020?
If collecting key data is an essential part of your business, you probably were.
When you know your data, you make informed decisions. If you aren’t up on your facts and figures, you will be making uneducated decisions and, over time, that inevitably leads to failure. You can only be lucky for so long.
I’m gonna guess some of you already squirming in your chair because you don't track your data. No worries, you're not alone. In my experience, 99% of real estate agents and other entrepreneurs I know fail to keep track of their numbers.
Conversely, I’ve found that the 1% who do track their data are the most profitable. Some do it daily, some weekly, some monthly—the precise frequency isn’t crucial as long as you are regularly getting those numbers and putting them into a format where they can offer the insights you need to make better decisions.
Business all comes down to awareness and good decision-making.
So, if you are within the 99%, let’s figure out how to change course for the new year.
That means you’ll likely need to do some extra digging, and go back a few years to see trends in your business.
Step #1: Create your P&L Statement
The first step should be getting together a profit and loss (P&L) statement that shows all of your revenue and expenses broken out by line item. If you have no idea what I'm talking about, don’t feel like you need to reinvent the wheel here.
I have a basic spreadsheet template I can send you – just email me @ jon@jonkbrooks.com. This is the template we have used and, frankly, I believe it is the reason we are millionaires today.
We faithfully review our financials, lead flow, and the people in our business world, every month. It's an amazing process, and it helps us avoid an insanely high number of mistakes.
Step #2: Analyze your P & L statement
Once you have inputted your revenue and expenses into the P&L spreadsheet, it's time to do some analysis. Among things to consider:
What are your largest expenses?
What do you consider to be a good return on investment (ROI)?
What (or who) is not providing a good ROI, and should you make a change or even a cut?
Step #3: Find ways to cut your budget
I recommend you go through your P&L and find 10% to cut out of your budget each month.
I know, that sounds very aggressive, but cutting the fat keeps you lean and agile. And, you would be surprised at how little it really takes to operate a real estate sales business. There are undoubtedly non-essential expenses that come out of your account monthly that you probably aren’t even aware of.
Your cashflow is the lifeblood of your business; don't let the expense robbers come in and take your prizes (profit).
So, now you know. Now go make some changes!
To start trimming the fat, I suggest you go over your two largest expenses as a real estate agent.
Taxes
Your largest expense is typically federal taxes. There are ways to cut them, but you need to talk to your CPA (yes, you should have an accountant) to discuss the possibility of creating an LLC, elect as an S-Corp, and pay yourself a salary (we use QuickBooks, BTW) if you're making more than $40,000 a year.
We are not tax experts, so we can’t advise what is best, only that you should definitely enlist an accountant to help you figure out the most efficient tax structure for you and your individual situation.
Brokerage Splits and Fees
Your second largest expense is usually your brokerage splits plus any junk fees they charge you (i.e., E&O, monthly desk fees, a fee to have an email address, etc.). So, go through those carefully to see what you could eliminate. Are you really using that desk you pay for?
We just did a local study in our Multiple Listing Service (using Broker Metrics) that revealed a sobering financial reality: Agents working at a big box brokerage with 20-36% splits (even with the caps), and producing less than $3M in volume (approximately 12-14 units), are likely to be better off working as a W-2 employee!
The math is not complicated – it includes looking at brokerage splits, taxes, health insurance, and other factors—and we will break it down for you in future newsletters.
The point is, it’s time to crunch your numbers.
If they show that you are not in a financial model that allows you to succeed, or one that forces you to produce at a non-sustainable level for what you want your lifestyle to be, it may be time to consider a change.
Are you are ready to commit to improving your business in 2021? Then start by working on that 2020 P&L, and reach out or comment if you have any questions. We would love to get a conversation going.
We are passionate about agents building wealth in real estate, not just for their broker, but for their own families. Each day, we see agents making that change, and we are proud that many of our associates, since partnering with Momentum, have had their best financial year ever.