Difficult real estate markets can still provide an opportunity for business growth, a leading real estate accountant says.
Live Real Estate Accounts Managing Director Chris Mercer says agency leaders should not only see a changing market as a threat but as a great opportunity for growth.
“Not all businesses are on a solid financial footing,” he says.
“If the best businesses are experiencing difficulty, then those not in such a strong position will feel even greater financial hardship.
“This is most likely to create opportunities for acquisition in the marketplace.
“Sometimes, a tough market presents opportunities to grow, and those who execute it and take it on and invest when others are looking to shed costs, will be the leaders when the market returns.”
Chris will be one of more than 20 speakers at the 6th annual The Business of Real Estate Conference on the Gold Coast in September.
He says in a tight market agencies need to look beyond the profit and loss figures to the actions that generate those figures.
“I teach people that the numbers on the profit and loss sheet don’t change unless the actions they represent change,” Chris says.
CHRIS’S TOP 5 ACTIONS TO FOCUS ON WHEN SALES VOLUMES ARE LOW:
1. Cash flow management
Cash is king. A lot of business owners mistake costs with cash and this is a big error. Knowing how to utilise and protect cash flow in difficult times is vital to ensure you can make your way through a quiet income period.
An example of this is where you stretch the terms of your suppliers to the limit to assist you in tight cash flow periods. In good times, people like to pay their bills on time and quickly. However, this may be the time to be more judicious when it comes to making those payments.
Often people oversimplify how they receive income every month. This is a significant error as you actually earn income on an ad-hoc basis. There is a long time between the first day and the last day of the month. Money doesn’t necessarily come in daily.
So tie the payment of your suppliers to your income and don’t forget that payment prioritisation is a critical part of mastering this.
2. Reducing excess capacity costs
There are two types of costs in a business: Costs that are a percentage of generating income, and costs that support the transactional volume and capacity of your business, such as rent.
Where you once needed two offices, experiencing a market downturn is a good time, unless you felt the market was likely to change quickly, to consider shutting an office and coming back under one roof.
This will reduce the number of agents you can house under one roof, but it will lower the operating costs of the business each month. Each business must examine these costs in light of its own circumstances.
3. Review existing supplier fees/contracts
Many businesses have subscriptions and ongoing, long-term relationships where there has not been a renegotiation of standard terms in a long time.
A low-income environment presents a good opportunity to examine reviewing terms with your major suppliers and looking at whether all of your subscriptions are still required.
There will be many opportunities to reduce the rates you are charged or to remove excess and unnecessary fees and contracts. Areas you may like to review include insurances, IT contract services and software costs.
4. Look at staffing
In real estate, staffing represents 70 per cent of the total cost to the business as personal services generate the income.
Where people who are income producers are no longer bringing in more money than they are paid, their continued employment should be reconsidered.
The award is about $55,000 per annum. Where they are not bringing in enough money to cover that payment, and their sales pipeline does not indicate they will achieve it in the foreseeable future, then it may make sense to cease their employment.
In tough times leaders are often forced to make hard decisions for the greater good and the survival of the business. No one wants to make decisions that affect people and their family, but sometimes you must make tough calls.
Often real estate businesses build up a support team and, as loyal as they are, and as much as that works in times of plenty, you may be over supported.
There are two ways to address this:
• Reduce the capacity of your in-house support.
• Outsource the solution and reduce the amount of time required.
Business growth is like blowing up a balloon. There are times where you need to take a breath, and when you take that breath, the balloon shrinks a bit. While it is painful, you have to face that breath between each blow.
5. Examine refinancing facilities
Increasing your debt facilities in the current bank environment is difficult following the Banking Royal Commission. However, where a business has capacity on its balance sheet, and solid historical and current performance, they can negotiate a facility, such as an overdraft.
Getting access to an additional cash facility can provide a level of peace of mind to assist in riding out the bottom of the cycle.
A combination of all of these actions can help lower the cash break-even point and reduce the level of income required to make a profit. This increases a business’s ability to survive in a market with a materially different volume of sales.
Chris Mercer will be speaking at The Business of Real Estate on September 9 and 10. To book tickets visit thebusinessofrealestate.com.au.