A budget in short is a plan, it’s a plan for your money. How much you are going to spend, when you are going to spend and why you are going to spend. Just like for life it is also important to have a plan for business. Real estate agencies are in a unique industry which makes managing the company financials a challenge. Real Estate Agencies are:

  • Highly seasonal: Both on the time of year and the overall industry performance, sales constantly dip and peak and are highly dependent on changes in the market.
  • Pricing is variable: Pricing is highly variable dependent on the properties being sold and the price obtained.  
  • Significant lead times: There can be significant lead times from first listing a property to seeing the transaction complete.

These characteristics make managing and budgeting your business financials extremely complex. However it’s not all bad, there are ways you can use the volatility of the real estate industry to your advantage.

  1. Know Your Cost Base:

It doesn’t matter if you are a single real estate agent, or an established firm with multiple employees and locations. You need to know the minimum amount your firm needs to continue to operate for the coming year. What expenses are non-negotiable? Rent, Salaries, Benefits, Transport, Insurance, Membership fees ect.

  1. Know Your Average Project:

When most companies budget we talk in terms of months, quarters and years. In real estate a month, a quarter or a year may face many uncertainties which make it difficult to determine upcoming revenue and expenses. One useful solution is to think of budgeting in terms of number of projects:

  • What does your average project look like?
  • What’s the sales price on the property?
  • What’s your commission?
  • What costs are necessary for the sale?

A useful starting point is to review sales from prior months and identify trends between projects.

  1. Know Your Ideal Margins:

Profit Margins (net and gross) for real estate agencies vary widely from market to market, based on location and segment. Do some research in your area to determine average profit margins as well as perform some analysis on your own business to determine what is realistic for you. Generally speaking most real estates operate between a 10% to 30% gross margin.

Hot Tip: Gross Margin is Revenue minus costs of goods sold, Net Margin is Revenue minus all Costs.

Once you have all the above, well that’s where the magic happens! Combine all of the above until you have a detailed budget for your real estate business.

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Clear Margin Consulting is a Financial & Strategy Consulting Firm based in Vancouver, Canada. We help small business owners to better manage their financials so that they can make better informed decisions and grow their business.

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