Riding the commission roller coaster: four tips for managing your cash flow
Real estate agents, like most good salespeople, tend to be optimistic. You have to be in order to succeed in a profession based 100% on sales commissions.
But when your compensation is tied to a sale that may cancel or become delayed due to no fault of your own, it can create financial stress for even the most optimistic real estate professional.
Fortunately, there are some tried-and-true steps you can take today to make sure you have steady access to cash between closings. It all starts by taking an honest look at your current finances and making a realistic projection of your short-term and long-term needs.
Assess your cash flow
Most financial planners and experienced sales professionals agree, the first step toward managing your finances is to have a clear view of them.
Building a realistic annual projection of monthly income and outflow means spending time analyzing your real needs and the nice-to-haves. The process of documenting your income and expenses in a spreadsheet results in a type of “goals” list, which can serve as a motivational tool for meeting your objectives now and into the future.
Create a budget (or two)
Now that you’ve assessed your cash flow for a 12-month period, the next step is to create a budget that will enable you to cover current expenses and save for the months when commissions are lighter than expected.
Sally Herigstad, a CPA and author, suggests making two budgets: one outlining normal spending levels and one for bare-bones spending. When the money comes in more slowly than expected, she explains in her book, you can revert to the bare-bones budget and still get by.
And of course, save, save, save if at all possible. Experts recommend saving at least five percent of each commission check as a buffer for lean times. Document your savings in the normal spending budget, as the bare-bones budget will not allow for such a luxury.
Local expertise sells
Clients will be drawn to you if you are viewed as an expert in the community. But how do you develop expertise that extends beyond real estate? By interviewing other experts and publishing your findings. Talk with the police chief about what makes the community a great place to live. Ask parents you know about the best parks for toddlers and young children. Patronize local retailers and restaurants, and provide positive, yet honest, reviews of their service and quality.
Once you’ve amassed enough content, write a blog or newsletter, sharing the results of your information-gathering efforts with prospective buyers and sellers. A side benefit of establishing yourself as a local expert is the possibility that your blog or newsletter could generate modest advertising revenue. If enough people view you as the go-to resource in town, other business people will want to get their message in front of your readers.
Cash flow Infusion
Nothing beats consistent commission checks for meeting your financial needs, but sometimes the length of time between those checks causes a problem. What agent hasn’t had an occasional delay with a closing and had to wait even longer for a commission check? Or maybe you have two or three sales bunched up and ready to close the next couple of months but have bills to pay now?
To smooth out those cash flow ups and downs it helps to have a financial back-up option. Commission advances from a service like eCommission help thousands of agents every year manage the unexpected by providing fast and easy advances today on commissions due later. By helping you stay current with your financial obligations and even invest in growing your business, eCommission is one of those proactive resources you turn to when the time is right.
Two bonus tips
Networking is one of the most useful marketing activities in the real estate business-development toolbox. Try building a mutually beneficial referral network with out-of-state agents. Referral commissions can be a nice supplement to your regular income.
And finally, you may want to broaden the scope of your work to include residential leasing instead of focusing exclusively on sales. With today’s white hot rental market in many parts of our country, this could provide an additional income stream for times when it feels like you’re treading water.