Business Planning Season

By Allen Wright

            In the super competitive world of the 21st Century, December and January have evolved into think tank meetings, strategy sessions and business planning for the ensuing year.

            There are various types of business plans - from written statements of goals and desires to mathematical tables with charts and graphs.  No matter which version you choose the basic premise is the same.  “What are the steps you need to take to succeed?”

            Obviously success can be measured in a variety of ways, but in real estate, and for the purpose of this discussion we will focus on monetary success.  The best process for real estate sales agents is to create a business plan using zero-based budgeting.  Zero-based budgeting determines how much cash-flow (revenue) you need to generate to cover all your business expenses plus your personal budget.

            First you should start by creating a Personal Budget. This budget should include your household and personal expenses such as mortgage, food, utilities, taxes, etc.  View this figure as the Salary that you want to pay yourself and is the top of the pyramid that will be become your ultimate business plan. 

            The second step in designing your business plan should be examining your expenses more closely.  From an accounting point of view there are two types of expenses fixed and variable.  In real estate these expenses equate to Overhead and Transaction expenses. 
           
            Overhead is the silent killer as it consumes a large portion of each commission check and since you pay overhead items throughout the month it is hard to relate these expenses on a per transaction basis.  Overhead includes items such as licenses, MLS access, desk fees, automobile expenses, computer and software expenses, etc. 

            Part two of the expense section deals with Transaction expenses.  These variable expenses are those that you incur each time you take and close a listing and/or a buyer.  Think about where and on what you spend money on a typical listing and/or buyer.  This process in and of itself is eye-opening.  For the purpose of this article let’s move past the math and into the use of your business plan. 

            If the top of your business plan pyramid is the focal point or your Salary the supporting level below that is the number of transactions you must close to pay all your business expenses and pay your salary.  This is one of the items your business plan should calculate for you.  “How many transactions must you close, to meet your Salary goal?”

            At this point most agents stop their business planning process, this is a mistake.  Activities are the most important step of your business plan and make the foundation of the pyramid that symbolizes your business plan.  These are the Activities that you do to close the required number of transactions needed to generate the revenue that has been calculated to cover your business expenses and pay your Salary.

            So the third step is to list out where you think you will get your business from: Sphere of Influence, Referrals, Past Clients, Open Houses, Floor Duty, etc.  Then list the amount of effort it takes you to get business from each source.  Ultimately what you want to create is a realistic list of the activities that you need to do month-in and month-out to make your Salary.

            Your business plan is now ready, so you know what you will need to do to succeed in the New Year.  Remember that your plan is not a static piece of paper, but a living guide to your business success.