Raise your hand if you thought you would go to Real Estate School, pass your exam, pay your dues and never spend another dime towards building your business... Anybody? Everyone goes into Real Estate for different reasons, but everyone also probably loved the thought of being their own boss and generating their own success. Now, second question... how many of you prepared a financial plan in order to budget for your new business?
To tell you the truth, it never crossed my mind to prepare for the lack of income that stems from the first few months of getting your business up and running. Though a handful of smart people in my Real Estate class did in fact think this new adventure through and a few of them noted that they saved 3-6 months of their previous income to be prepared for the unknown ahead.
Real Estate Business Startup Plan
So when you start considering Real Estate, what sort of start up costs and business supplies should you plan for?
- Real Estate School
- Background Check and Final Exam
- MLS Dues
- Brokerage Dues Which Vary Based on The Brokerage You Choose
- Costs of Lead Generation if You Don't Have a Large Sphere of Influence
- Branding Tools (Website, Signs, Business Cards)
- E&O Insurance
The list goes on and on depending on what your brokerage may or may not provide you with upon joining.
How to Manage Your Commissions
So let's say you get that first big commission check three months down the road. It feels like receiving a big bonus check and you've been thinking for weeks about how to spend it. Do you take your family on a much deserved vacation? Do you finally get around to doing those costly repairs around the house? I definitely encourage you to celebrate your first successful closing! But it's important to remember that a third of that money should be set aside for when tax season comes around, as well as another third being invested back into your business.
Hopefully, during your first transaction, you did such a great job that you'll generate referrals from those who you worked closely with. Do you have enough signs for additional listings? Did you save a few hundred dollars to invest back into lead generating through direct marketing? Did you set aside the proper amount for bills in case your next closing isn't for a few months? These are things to remember during the excitement of receiving our commission checks, because again, we may not be the CEO of a large corporation but all businesses need a budget and income to keep it afloat without worry.
Create a plan. Be smart. Don't give into temptation. Tax season comes every year and so do the costs of running a business. There are many reasons why real estate agents fail, don't let a lack of financial planning be one of them. To see the other 6 reasons why agents fail, click here. For more information on how to run a successful business, keep checking back for dates on our upcoming business planning class.