Real estate professionals are pros at buying and selling homes, adept at marketing properties and experts at reading building comparables. We are also, for the most part, absolutely terrible at securing our own financial well-being.
Take this quick financial quiz:
– What is current the profit/loss ratio of your business?
– Do you have a Self-Employed Pension Plan?
– What were your exact expenses for May 2004?
– Did you correctly estimate your June 15th tax payment?
If you re unable to answer any of the above, you re not alone. Many within the real estate community cannot. And that is extremely disturbing.
Financial planning is critical to every broker s success, but few of us practice it to our benefit. It doesn t matter if you are the industry s number one producer if you don t have a strong financial base. Massive debt, bad credit or bankruptcy can wipe out all of your hard-earned gains.
So why do so many brokers, including many industry veterans, pay so little attention to this business mainstay? “Most brokers don t see themselves as entrepreneurs,” notes Dorothy Somekh, vice president and associate broker at Halstead. I couldn t agree more. Like it or not, we are small business owners and that carries a unique set of responsibilities.
Another key reason is that too many agents rely on broker-owners to run their businesses. I have something to share with you: those days are over.
The real estate industry has changed radically in the past few years and has become much more self-directed. Take control of your business by creating a sound financial program. This is one of the most important business improvements you can ever make.
The first step is to get financial coaching from an accountant and a financial planner. We re in a 24/7 business, and managing the financial end of our business without professional guidance is not only time-consuming, but foolhardy. You don t want to open yourself up to an audit or pay more to Uncle Sam than you should. “My business is profitable in large part because I rely on a team of experts to guide me,” Somekh says.
“I see myself as the chief financial officer of my client s business,” says Lois Feldhendler, president, LFF Consulting, a financial planning firm.
“I assist my customers with their overall financial planning, from developing an annual budget, to analyzing management systems to paying bills.” For many of her clients, this is a huge relief. “They can focus on running their businesses knowing that the financial end of their day-to-day operations is being properly managed,” Feldhendler says.
Aside from tax preparation, a certified public accountant (CPA) can act as a business consultant by providing advice on a variety of complex financial issues such as new tax laws, investment strategies and retirement programs such as the Self-Employed Pension Plan (SEP). “SEP is based on a percentage of your net income after expenses,” says Gary Marks, president, Gary Marks & Associates, Ltd., an accounting firm. “It can significantly lower your tax rate.” He knows that accounting rules and regulations can be difficult to follow for even the most business savvy broker. “I would rather have my clients call me 10 times than make a single mistake,” Marks says. “Their understanding is necessary for their long-term financial success.”
The best way to find a good CPA and financial planner is through referrals or a service. Arrange a personal meeting with at least two or three candidates for each position and get additional references. Take the time to get your financial house in order – it s worth it.