Solid budgeting techniques can help you stay in the game. We’ve got tips from the pros to help you build a balanced budget.
Build a balanced budget
It didn’t take Bryan Sereny long to recognize that to succeed in real estate sales, he would not only need top-notch sales and customer service techniques, but he’d also have to get his own financial house in order. A sales associate with Zilbert Realty Group in Miami, Sereny was licensed five years ago and sold $10 million in properties in 2006. The bulk of those sales involved condos in the South Florida market, where listings are plentiful and buyers have become harder to come by.
Sereny credits a few early decisions with helping his business successfully navigate the market downturn. He hired a tax advisor before he closed his first sale, and formed a corporation that serves as a holding tank for his commission payments, which are then distributed to him via a regular salary. He allocates 20 percent of his earnings back into the business to pay for marketing, advertising, Web site development and maintenance, equipment, and travel expenses.
“Once I pay for my telephone, Internet and fax service—and a new computer every two years—the rest is earmarked for marketing and advertising,” says Sereny, who in today’s market is allocating more money than ever to the latter, based on the scarcity of buyers. He uses Intuit’s QuickBooks (www.quickbooks.intuit.com) program to record and track all expenses and income, and he reviews the information quarterly to make sure he is on target with his budget.
“I look at how much revenue I generated, and I take 20 percent of that number and funnel it back into marketing and advertising for the next quarter,” says Sereny, who like many other real estate professionals, struggles with the fluctuating nature of his income. To deal with it, he keeps a buffer in his bank account to cover “several months of business and personal expenses” for quarters when income is lower than expected.
The few hours a month that he spends updating and reviewing his QuickBooks files is well worth it, says Sereny, who feels that staying on top of all money flowing into and out of his business has helped him keep his head well above water in this challenging market.
“It’s allowed me to build my business and remain focused on working with buyers and sellers, rather than worrying about what’s going to happen three months down the road,” Sereny says. “So while other agents have had to find other means of income for the last 12 months, I’m still hitting my targets.”
Nuts and Bolts
You may not have learned this in real estate school, but budget is the most important tool that a business owner can have in his or her toolbox. As real estate professionals like Sereny have discovered, a budget serves as a game plan for both day-to-day and long-term operations, and gives a business owner an inside track in both good and bad times.
Composed of estimated numbers for sales and for the costs required to produce those sales, a budget can be scribbled on a sheet of paper, mapped out in a Microsoft Excel spreadsheet or developed through a sophisticated accounting system like QuickBooks or Microsoft Office Accounting. Also available are a number of online budgeting programs (which don’t require a software download and/or installation), including those accessible at Microsoft Office.com and TheBeehive.org.
Christian Frazier prefers to track his budget through QuickBooks, where he enters his income and expenses on a daily basis in order to keep on top of his business finances. In residential real estate for five and a half years before becoming vice president of Orlando-based Century 21 Real Estate Professionals’ commercial division, Frazier says that, early in his career, a mentor taught him the value of budgeting. Part of that exercise includes allocating 5 to 7 percent of his income toward advertising and marketing, and another 5 to 7 percent to continuing education.
“That’s the rule of thumb that I learned and followed,” says Frazier, who tracks which advertising mechanisms are working and which are not (mainly by asking people how they heard of him, when they call or e-mail) and then adjusts his budget accordingly. “If I received multiple calls from people who heard about me on the Internet, then that’s where I would spend more of the money, rather than on other marketing.”
This year, to get a better handle on his budget, Frazier set up an S corporation and opened a dedicated business checking account. Now, he deposits all money received from his broker into the account and then writes himself a paycheck from it. He uses a Visa check card for all business expenses, and says keeping his business and personal finances separated has made budgeting that much easier. “I can look at my spending and figure out what I need to spend more on and what I need to cut back on,” he says.
Finally, Frazier uses a program called Neat Receipts (www.neatreceipts.com), a scanner and software solution that scans, analyzes and organizes paper receipts, bills, medical forms and business cards, and stores it all in a computer database. So rather than letting all those gas and lunch receipts pile up on his desk, he quickly scans them, exports them to QuickBooks and factors them into his budgeting process. “It keeps me organized,” he says, “and allows me to budget more effectively, knowing that all of my expenses are properly recorded in my accounting software.”
Getting Set Up
To establish an effective budgeting system, says Certified Financial Planner and CPA Randi Grant, a partner with Berkowitz Dick Pollack & Brant in Fort Lauderdale, the first step is to look at fixed expenses, like advertising, marketing, equipment, rent, telephone and Internet services, to come up with an estimate of exactly how much money has to be allocated to your business. Don’t forget expenses like health insurance, transportation costs, retirement plan contributions and your own paycheck, the latter of which Grant suggests handling first.
“Unlike traditional employees, you don’t have someone paying you and paying for your retirement, so take care of yourself first,” says Grant, who also advises real estate professionals to set up rainy day funds, which they can access when their fluctuating incomes don’t pan out as planned.
When it comes to figuring out how much money to funnel back into the business, Grant says, the level of investment should be in line with gross revenue. “The higher the gross, the more should go towards savings,” says Grant, “and the less that needs to go into operations.”
At Realty Executives in Orlando, Sue Silberbusch, Esq., uses QuickBooks to manage her finances and business budget. She updates the program monthly when she receives her business banking statement, and she consults with her CPA regularly to make sure her budget is on track. “Whenever a commission check comes in, I’m making a phone call to the CPA to talk about how to best allocate it,” she says. She wants to make sure she has “the reserves in my account to handle future listings, future marketing and my own paychecks.”
Just how much money is dedicated to each of those items depends on what time of the year it is, according to Silberbusch, who after two and a half years as a residential real estate professional, has found September through December to be “extremely slow.” To deal with it, she cuts back on spending by about 20 percent and reserves the extra money to handle expenses during that period, knowing that the commission checks won’t be flowing as freely. When January 1 rolls around, Silberbusch changes her strategy and spends more on advertising, marketing and other expenses.
K.I.S.S.
Having worked with many sales associates over the years, Benjamin Bohlmann, shareholder with public accounting firm Mallah Furman & Co. in Miami, says his best piece of budgeting advice is “Keep it simple.” Take a step back and come up with an easy way to track income and expenses, he says, and then fine-tune the process to come up with a workable budget.
“If you’re using an accounting program, you can record your checks and deposits for a year and then have the program develop a budget for you and extend it forward for the upcoming 12 months,” says Bohlmann. “As you progress through the year, you can use the same program to generate a report that compares the budget to the actual activity. That makes it easy to see where you’re going right, or where you’re going wrong.”
Ultimately, you want your budget to serve as a business tool, and not as a burden or hassle. Just as a household would have a budget for handling fixed (mortgage payments, utility bills) and soft (entertainment, home improvements) costs, a real estate professional should be able to pull up his or her budget at any time, tweak it as necessary and use it for business planning and forecasting. Don’t forget to review your budget regularly, says Grant, who’s seen too many people take the time to make up a complete budget, only to set it aside and forget about it.
“Like any business tool you have to constantly review, revise and update it to make it work for you,” says Grant. “You’ll see the most benefit from it if you use it on an ongoing basis.”
SOURCE: Florida Realtor Magazine, December 2007, Bridget McCrea is a Clearwater-based freelance writer.