Money | Real Estate Back Ops

5 Tips for Managing Your Real Estate Brokerage Cash Flow

by adminrebo | Apr 6, 2021 | Business, Money, Real Estate, Uncategorized

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.

Fortunately, you can obtain real estate business loans from reputable institutions such as National Funding, Become. co, and SBA Loans.

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.

How Administrative Mistakes Can Cost You as a Broker

by adminrebo | Oct 28, 2020 | Business, Money, Personal Design, Real Estate, Uncategorized

What is the real cost of administrative mistakes? As a broker, your clients depend on you to handle things professionally. Administrative mistakes by a broker can have a domino effect and affect everyone involved in the deal. Let’s take a look at some administrative mistakes to avoid and how they can cost you as a broker.

1. Grammatical and typographical errors

Part of a broker’s responsibility is handling paperwork between clients. The correct use of grammar and punctuation is imperative. One misplaced character and failure to carefully proofread documents can cause untold damage. The following incidents are examples of the catastrophic consequences that may arise from such errors.

In 2006, a typo by Alitalia Airlines resulted in business-class flight tickets being sold for $39 instead of $3,900. The result? More than 2,000 people purchased the $39 tickets leading to a $7.2 million loss by the airline. Another incident, albeit more costly occurred in Tokyo when a typing error saw the shares of a renowned company go on sale leading to a $340 million loss. Moral of the lesson? Grammatical and typographical errors are administrative mistakes to avoid.

2. Poor advice and or unethical behavior

When a client hires you or chooses to work with you as a broker, they expect you to act professionally and do your job in terms of giving them good advice. They are paying for your expertise and experience. Doing a half-hearted job and failing to provide clients with honest, accurate, and fair assessments of their situation can result in you being sued if the client loses money in any way.

You may be surprised to learn that as many as 25% of homebuyers said they would never work with their broker or recommend them to anyone. Brokers do get sued for a variety of reasons – fraud, breach of duty, giving advice that’s not within their scopes (e.g. offering legal advice) negligence and breach of contract. These are all administrative mistakes to avoid.

3. Poor data management and failure to document

If there are two administrative aspects of being a broker that should never be overlooked, its documentation and filing papers properly. Poor data management can result in you not being able to find a critical document when it’s needed. There is no excuse for not having a defined records system. This is certainly high up in the list of administrative mistakes to avoid.

4. Hiring the wrong brokers for the brokerage

Do you have a strategy for hiring people? Not having a time-tested solution can result in you hiring the wrong person. This can be extremely inconveniencing not to mention expensive. You’ll want to avoid having to repeatedly post job openings and screen candidates. By following our advice on hiring better agents, you can improve your retention rate.

When you cannot afford administrative mistakes look no further than Real Estate Back Ops (REBO). We’re one of the leading real estate technology and consulting companies in the US. For the best brokerage services don’t hesitate to contact us.

5 Property Staging Trends for the Fall & Winter Months

by adminrebo | Oct 7, 2020 | Business, Home Life, Money, Personal Design, Real Estate

Are there people interested in viewing homes during the colder months?

Should you attempt to sell your house during fall or winter?

Do people really buy homes in winter?

Yes, yes, and yes!

If stats are anything to go buy, nearly one million homes are sold each winter between December and February. If you’re looking for serious buyers, the fall and winter months may be the ideal time to stage your property. So, how do you go about property staging during winter? Let’s find out!

1. First impressions matter – a lot

How important is curb appeal? Extremely important. For buyers, first impressions matter greatly. Do you know that most buyers make up their minds about your house within the first 15 seconds? That’s a lot of pressure. Fortunately, you can do something about it. To help win buyers over, ensure that your yard is well-maintained. Leaves should be racked, hedges trimmed, and the lawn perfectly manicured.

2. Turn on the interior and exterior lights

You want the house to feel warm and welcoming. So, don’t hesitate to light the driveway and walkway to your front door. Turn the lights on indoors as well. Light is an excellent medium and will help to highlight and draw attention to both the interior and exterior. Lamps and strategic lighting solutions can make rooms appear bigger and make the house feel more inviting.

3. Keep décor simple and neutral

Are you big on decorating the house during Thanksgiving, Halloween, and Christmas? If yes, you may want to tone it down a notch when you are property staging. Avoid over-the-top decorations such as blown up lawn elements, streamers, and religious symbols. Opt instead for more subtle pieces of décor such as a simple wreath on the front door and electric candles strategically placed around the home.

4. Evoke the senses with seasonal scents

Human beings are sensory by nature. If you can appeal to people’s emotional side you can influence their decision on a deeper level. Harvard Professor Gerald Zaltman in his book, “How Consumers Think: Essential Insights into the Mind of the Market”, demystifies the buying experience by claiming that at the core, we are emotional buyers. Zaltman attests that 95% of purchasing decisions are subconscious. So how do you incorporate this into your property staging? Through the use of pleasant seasonal scents; think cinnamon, freshly baked goods, and oranges.

5. Use clean lines when arranging furniture

How furniture is arranged in a home can make or break the buyer’s experience as they walk through the house. Clean lines are important. Furniture that’s helter-skelter and follows no pattern or symmetry can feel disorderly. If you have a central feature in a room such as a fireplace, organize your furniture around it. Adding well-placed throw pillows and fur rugs can also accentuate the orderliness and comfort of a room.

Selling Your Real Estate Brokerage? Either Way, Get a Valuation

by adminrebo | Sep 30, 2020 | Business, Money, Personal Design, Real Estate, Uncategorized

If you’re planning on selling your residential real estate brokerage, a valuation is an obvious necessity, since no serious buyer would consider purchasing based solely on the word of the seller. A comprehensive valuation can help the broker to discern what actions can be taken prior to shopping their brokerage to increase its fair-market value. But what if you’re not selling? Is there any reason to get a valuation in that case? An annual physical with a doctor is recommended for your measuring and maintaining your health, and the same is similarly true of a residential real estate brokerage. It turns out, valuations offer several benefits to your brokerage even if you have no intention of selling anytime soon. As the old adage goes, if you can’t measure it, you can’t manage it. Valuations can allow brokers to analyze their brokerage from a different perspective and make changes accordingly to optimize their business.

DETERMINE EXACT RECRUITMENT EFFORTS NECESSARY

Valuations will show a broker somewhat of an ‘X-Ray’ of their business. It will outline each agent’s transaction count, average GCI per transaction, and compare this to business expenses allowing brokers to effectively determine exactly how many agents are required, (by applying average GCI/agent), in order to break even, or how much recruitment efforts would increase the cash flow and profit of the brokerage given measurable recruitment expenses and expected outcome.

SPLIT EXPENSES INTO OPERATING AND NON-OPERATING COSTS

Valuations will additionally provide an actionable guideline with regard to where exactly brokers can cut unnecessary expenses. Any expenses deemed ‘non-operating,’ (not contributive to the bottom line), likewise don’t contribute to the value of the brokerage, and cutting or reducing these costs will increase the value of a brokerage. Any broker thinking about selling their brokerage will definitely want to identify these costs and make cuts where necessary to get the highest possible fair-market value for their company.

IDENTIFY POSSIBLE CUTS IN FULL-TIME EMPLOYEE SALARIES

Valuations can bring to light the agent to employee ratio as it’s applied to profit generation, and spell out how this margin is directly affected by each full-time employee. This allows brokers to first, recognize which employee duties are considered either non-operating costs or extraneous to the brokerage operations, and second, exactly how much this margin will increase by making according cuts and how much that will increase the value of the brokerage.

ANCILLARY BUSINESS OPTIMIZATION

Brokers may elect to include other business models to the operations of their brokerage such as mortgage lending, home warranty services, property management, etc. Often times additional income from these businesses will convince brokers that the functionality of their brokerage is above average by industry standards if the profit analysis of these other businesses is muddled with that of their brokerage. Valuations can help to not only identify where immaterial expenses have crept into their brokerage as a result of these misleading values, but determine how the expenses can be cut, and how to better optimize those ancillary businesses.

IDENTIFY WHAT TRANSACTION COORDINATION EXPENSES ARE NECESSARY

If a brokerage has transaction coordinators employed full-time, (they will soon no longer be allowed to hire them as independent contractors), they are likely lowering their EBITDA during down months when transaction coordinators are processing fewer files due to this excessive expenditure, and thus, lowering the value of their brokerage. Valuations can help brokers to determine if this is the case for their brokerage, and whether or not it would be prescient to consider an outsourced transaction coordination service instead.

Valuations not only provide an accurate assessment of the current value of a brokerage, but can help to point out practical ways to increase that value, and therefore, the profitability, which is a good business practice regardless of a broker’s interest in selling or not. To learn more about valuations and how one could benefit you and your brokerage, contact payton@realestatebackops.com for more information.

The AB 5 Employment Law For Real Estate Agents and Brokers: Anticipate, Don’t React

by adminrebo | Sep 23, 2020 | Business, Money, Real Estate, Uncategorized

If you haven’t been keeping your pulse on the changing landscape of the real estate industry and the likely future of brokerage structures, agent payment, and transaction coordinator employment status, you may not be aware of the Assembly Bill (AB) 5, the important legal statute passed by California Governor, Gavin Newsom, that just went into effect this month.

What is Assembly Bill (AB) 5?

AB 5 is a bill the Governor signed into law in September 2019 addressing employment status when a hiring entity claims that the person it hired is an independent contractor. AB 5 requires the application of the “ABC test” to determine if workers in California are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders.

The ABC test is intended to address 3 requirements:

Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?
Does the worker perform work that is outside the usual course of the hiring entity’s business?
Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?

How does this affect my real estate business?

As the real estate industry currently operates, agents and transaction coordinators are usually hired as independent contractors. Federal Law guaranteeing agents’ rights to operate as independent contractors will likely take precedence over AB 5, but the status of transaction coordinators will most definitely be addressed. Most brokerages hire transaction coordinators as independent contractors, and there’s an increasing trend of agents hiring personal coordinators as independent contractors directly. This will likely result in a tumultuous upheaval of business operations for brokers and agents alike for most in California, however, it presents a unique opportunity for those ahead of the curve to gain an edge on the competition. We’ll get to that soon, but first it’s necessary to go over the issue the unprepared brokers and agents will falter over.

What does this mean for transaction coordinators?

Of course, coordinators will no longer hold the opportunity to be hired as independent contractors directly by brokerages, but what about agents, (assuming they are afforded the privilege of maintaining their independent contractor status), who hire transaction coordinators directly? Independent contractors are responsible for paying their FICA taxes quarterly, (typically 15%), while employers of standard employees are responsible for paying half of these costs, and the employee the other half. Does this mean in the instance an agent contracts a transaction coordinator directly that the agent will now be responsible for half of the FICA fees incurred by the coordinator?

There’s no Federal Law in place advocating for the coordinator’s continued role as independent contractors, as is the case for agents, so someone, whether the agent or the broker, will now be paying this additional tax. If the broker has a degree of separation from these coordinators, since they hire agents as independent contractors, who then hire the transaction coordinators, the cost may very well fall to the agent.

How can brokers and agents capitalize on this impending shift?

While the future of employment status for agents is still an undetermined proposition at this time, there is good news for agents and brokers concerning the new requirement that transaction coordinators must be hired as employees. Outsourced transaction coordination services, like REBO, allow brokers and agents alike to circumvent these new incipient tax implications.

Transaction coordinators working for these services will uphold the new requirements as full-time employees, but they will be employees of these services, not of the brokerage or agent. Contracting these services, and allocating transaction coordination responsibilities from the broker and agent will effectively maintain broker and agent compliance with Assembly Bill 5, while passing the new tax costs to those services. It is apparent that these services are invariably the future of the transaction coordinator – agent relationship, and any broker or agent that resists this change breaks the law and invokes the wrath of the IRS at their own peril.

To learn more about adjusting the transaction coordination process of your brokerage or personal real estate business, contact REBO at payton@realestatebackops.com

Reasons Not To Hire A Transaction Coordinator

by adminrebo | Mar 4, 2019 | Business, Money, Real Estate, Uncategorized

Providing real estate agents with all the tools necessary for them to effectively conduct business is at the forefront of every broker’s docket. Ideally, they can do this while simultaneously reducing legal exposure, lowering expenses, and reducing the risk of agent turnover.

Achieving this perfect balance between functionality and security is difficult when brokers hire transaction coordinators as salaried employees for the following reasons:

Salaried Employees Get Benefits

Having transaction coordinators on payroll can be costly to a brokerages bottom line both in terms of cost/sale and benefits provided to employees.

Legal Exposure

A large number of TCs are unlicensed or have expired licenses.

A growing number of states like California are requiring transaction coordinators to be certified.

The ambiguity and volatility of these laws between states makes them difficult to interpret, and puts the broker at a greater legal risk by continuing the practice of hiring transaction coordinators who aren’t certified.

Agents are Loyal to their Coordinator

Agents often align their loyalty with their in-house transaction coordinator.

If the coordinator is poached by another brokerage, the agent may very well leave with them and vice versa.

If a transaction coordinator retires, this can create an unstable relationship between the agent and the brokerage if the new coordinator assigned to them doesn’t meet their standards, resulting in the agent leaving the brokerage.

Transaction Coordinators Don’t Use the Same Transaction Software

There’s often a difference in opinion among coordinators as to what the best transaction coordination software is.

This can result in the broker subscribing to multiple transaction coordination platforms, which is an unnecessary cost.

Alternatively, the broker could force the coordinators to all use the same platform, which will result in disgruntled employees and raise the likelihood for error by the coordinators who are forced to learn a new software, increasing legal exposure.

No Regulation

Each transaction coordinator has a preferred method of carrying out their tasks.

Some prefer to use DropBox, others use Docusign. Some store their PDFs in a folder on their Desktop, others in Google Docs, etc.

The non-conformity between how each transaction coordinator carries out their coordination responsibilities and how they store their files results in a greater hassle when file or correspondence retrieval becomes necessary, and in extreme cases, loss of files.

REBO CAN HELP

Fortunately, there is a simple solution for all of these issues.

Brokers that sign up with REBO instead of employing transaction coordinators:

Save money
Reduce legal exposure
Reduce risk of agents leaving

Ready to find out more?

To learn how about how REBO can help you today and take advantage of our special offer click below!

Special Offer!

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