Are you actively looking for ways to improve cash flow in your real estate brokerage business?
There is no denying that cash flow is the lifeblood of any business and it is always important to pay close attention to how the business manages its cash flow.
Before taking a look at how to improve you cash flow, let’s review what exactly cash flow is and the different types you need to be cognizant of.
What is cash flow?
The Corporate Finance Institute (CFI) defines cash flow as “the increase or decrease in the amount of money a business has.”
Before you can increase your cash flow, it’s imperative to understand which type of cash flow you need to improve from the four kinds of cash flow that exist.
- Cash From Operating Activities
- Free Cash Flow to Equity (FCFE)
- Free Cash Flow to the Firm (FCFF)
- Net Change in Cash
Cash From Operating Activities
This is money that comes from the brokerage’s core business activities.
Free Cash Flow to Equity (FCFE)
FCFE is the money that’s readily available after fixed assets have been bought, maintained, or improved.
Free Cash Flow to the Firm (FCFF)
FCFF refers to the state a brokerage finds itself in when it has no debt.
Net Change in Cash
This type of cash flow pertains to the change experienced between one accounting period and the next.
Armed with this information, here are our five tips to improve cash flow in your real estate brokerage business today.
Tip #1 Audit your cash flow
How often do you study your cash flow statement – the report that analyzes your cash flow? Without a proper audit, you don’t know where your money is going and how it’s being used. A cash flow analysis is simply vital.
By studying your income statements, balance sheets, and other financial metrics you get a clear overview of the state of your finances.
Benjamin Franklin is accredited with the maxim, “Small leaks can sink great ships.” This idea should be applied to operations within a brokerage. Seemingly small expenses can compound leading to financial distress hence the need for proper tracking systems and regular investigations.
If you are interested in have a complete Cash-Flow Analysis performed on your brokerage reach out to Real Estate Back Ops today and we can get you set up for an initial consultation! Contact us here.
Tip #2 Reduce your operating costs
Following on the heels of carrying out a cash flow analysis is the idea of mitigating your operating expenses. By ensuring your back-end is lean, you can maximize cash flow.
Take a look around the brokerage. What can you downsize or purchase pre-owned or lease? Things that may be swapped out to save on expenses include cars and equipment.
Pre-owned cars mean less insurance, vehicle taxes, and interest payments.
Consider a home office too in lieu of leasing an actual commercial space. Outsourcing your administration requirements can also keep costs lower.
Tip #3 Charge a premium for your services
Many brokerage owners are hesitant to increase their fees. However, this could be setting you back considerably.
Carry out a survey to establish what the current market rates are and adjust your pricing accordingly.
Ideally, your prices should be competitive enough to keep your operations running, but not too low such that you struggle to stay afloat.
Not sure if your fees are competitive or worried that your agents will want to leave? Let Real Estate Back Ops review your current Fee Structure and show you what changes you can make that will keep your agents happy and improve your bottom line! Contact us here.
Tip #4 Become a title agent
Instead of having a third-party title insurer handle the title insurance of all the transactions you close, how about adding an ancillary business to your existing brokerage by offering title insurance to your clients?
Setting up a title services business is not as complex as most brokers think.
In fact, with over 5, 432 firms across the country and a market size worth $16 billion, there is no reason why you should not be tapping into this lucrative cash flow avenue.
Earn hundreds of extra dollars on each transaction you’re already doing.
Tip #5 Apply for real estate broker loans
Competition among real estate agencies in the U.S. can be tough as there are currently more than 100,000 real estate brokerages.
Securing a loan to inject much-needed cash into your business just when you need it can be the difference between closing shop and keeping your doors open until you get your commissions.
These loans can also be used and leveraged for acqusition of other brokerages as a growth strategy. We have helped hundreds of brokerages through mergers and acquisitions.
Do you need help improving cash flow?
Real Estate Back Ops (REBO) is one of country’s most reliable brokerage services providers. We assist with cash flow analysis, valuations, growth through M&As, commission structure design, and ancillary revenue plans. Contact us for more information.