Well, needless to say, the start of 2023 has been a little rocky. With inflation a major concern for most Canadians, rate hikes have ballooned loan costs, resulting in slower markets and uncertainty in the industry.
This uncertainty cooled what was one of the hottest real estate markets in Canadian history and has had a lingering effect on all of our businesses by pushing Canadian home sellers and buyers to the sidelines.
But, runaway inflation, interest rate hikes and some degree of uncertainty have not changed some of the key drivers affecting our industry.
Think about it, what are two of the most basic things that drive purchasing behaviour for all products and services? Do consumers want it, and do they have the ability to pay for it? So far, the activity by the Bank of Canada has not had an appreciable impact on these two factors.
Canada’s housing shortage
Firstly, there is still a major supply shortage compared to the number of people who want to buy a home. According to a Bank of Nova Scotia study, as of 2022, Canada is short approximately 1.8 million homes. Couple that with booming population growth, and that gap is expected only to increase.
Secondly, Canadian post-pandemic household savings are still two to three times higher than pre-pandemic levels, and almost everyone who wants to work in Canada is working.
In February 2023, Statistics Canada reported Canadian unemployment at 5.0 per cent. Remember the second-factor driving purchasing behaviour noted earlier; can people afford it?
At the moment, Canadians have access to more savings (to pay for down payments), and most are working (allowing them the means to secure financing).
Spring 2023
Needless to say, I am optimistic that this slower-than-expected start to 2023 will be followed by a return to normal for the spring market and solid third and fourth quarters. In its March announcement, the Bank of Canada held its overnight lending rate for the first time in a year, signalling that its aggressive quantitative tightening measures may be behind us.
Although I am optimistic that the end is near, that does not mean the downturn has not had a significant impact on your cash flows. As a result, you have had to put an incredible focus on all aspects of your business and make difficult decisions for its long-term health.
Here are eight helpful strategies that brokerage owners should consider when looking to manage cash flows over the next few months:
- Focus on collecting outstanding receivables: Follow up with anyone who owes you money and collect outstanding receivables as soon as possible.
- Create a cash flow forecast: Forecasting your cash inflows and outflows can help you identify any potential cash flow problems before they happen. Use your historical financial data as a guide and adjust for any changes in revenue and expenses.
- Cut non-essential expenses: Identify any expenses that are not critical to your business operations and remove them. This could include reducing your marketing spend or negotiating with suppliers for better pricing.
- Consider alternative financing: Look into alternative financing options, such as lines of credit, to help bridge any cash flow gaps.
- Be flexible: Be willing to pivot your business model or adjust your service offerings to meet changing agent needs and market conditions.
- Seek expert advice: Consult with a financial advisor or accountant. These professionals are great resources who can help you find ways to manage your cash flow and navigate the financial challenges of a downturn.
- Consider ancillary revenue sources for your business: Things like property management, staging and renovation services can be helpful.
- Delay payments: If possible, delay payments to vendors and suppliers to conserve cash. However, be sure to communicate with them and make arrangements for when you will be able to pay.
By implementing these strategies, not only will you be able to manage through a downturn, but you will also set yourself up for success in the future when the economy improves.
