Recently I interviewed a number of managers and salespeople, asking them for the most common reasons why real estate salespeople fail. In my last column, I listed the top 10 reasons.
Now in a series of columns I’m going to take a closer look at each of the 10 pitfalls.
#1 Lack of cash flow
As a general rule I advise new salespeople (and experienced salespeople) that they can only spend 50 per cent of commission earned. The other 50 per cent goes toward brokerage fees, GST/HST, annual taxes (or installments), advertising and general expenses. The best way to do this is to have two separate accounts from your general account: a tax account and an expense account.
When a commission cheque is received, most of brokerage fees are taken except for additional expenses invoiced through your brokerage. Then 20 per cent should go into the tax account and 20 per cent should go into the expense account. Many salespeople end up with serious issues with Revenue Canada because they don’t have the funds to pay when GST/HST or income taxes are due.
In addition to the separate accounts, I recommend doing quarterly GST/HST filings so at the end of the year there is only the final quarter to submit and basically your taxes are done.
Many agents never do a home budget either, and this is essential because everyone needs to know how much money they need to pay all their home expenses and have some savings.
For example, if your personal budget is $5,000 per month, that’s $60,000 per year. That means you need to make $120,000 GCI to be able to take home $60,000. This is why many agents are always behind in their income and have to use lines of credit and credit card debt to keep things going.
Having a business plan and knowing exactly what tasks are required on a daily basis is not only recommended but is really essential to meet all your financial goals. Of course, the number of daily contacts and lead conversion will depend on the type of business one is doing. It is always advisable to have at least three sources of new leads (such as circle of influence, geographic farm and for sale by owner). And probably the most important is to stay in contact with all past clients and ask for referrals. This is a guarantee of future cash flow.
If you would like a template for a home budget and business budget, please email me.
George E. Zanette is a trainer and manager at Royal LePage Your Community Realty in Toronto. He says he has a passion to lead, teach and inspire others to be their best in all areas of life. His goal is to help people new to the real estate profession have an easier and more successful transition than he did. Visit his website, or email him: george@geozan.com
