5 Ideas for Managing Cash Flow

March 1, 2007

Your sales associates might be generating plenty of commission income, but is enough of that money flowing to your brokerage for you to pay your bills on time? Here are a few ideas to help ensure that you don’t run into trouble:

1. Get the split right. It’s not uncommon for associates to earn a lot in commissions early in the year, transition to a higher split, such as 90–10, based on a preset volume trigger, and then enjoy the higher split even if the market slows and their volume shrinks dramatically. In those cases, you’re left covering overhead for underperforming associates. What’s better is to set the split trigger on the basis of what associates cost you in overhead. That way, you don’t transition them to the higher split until they’ve generated enough income for you to cover their costs to you plus a little profit.

2. Don’t subsidize underperformance. You’re throwing away money paying for all your associates’ business cards and signs if only 7 percent of them are generating 93 percent of your business, as some brokers contend. It’s better to let your associates buy their own cards and signs, as well as pay for at least half of the costs of their marketing and training; otherwise, you’re subsidizing the 93 percent who are generating little business.

3. Shop for deals on your office essentials. You often pay more than is necessary for phone service if you just go with your local provider. Shop national carriers instead, and you’ll almost certainly find cheaper service. And buy a used copier instead of leasing a new one. You can get a high end copier for a fraction of its original cost by going with a barely used machine that’s been thrown on the market by a belly up company.

4. Invest in back office software that calculates projected cash flow. Lucero Summit (www.lucero.com) and Lone Wolf Realty Management System (www.lwolf.com) are two examples of software products that can tell you how much money you’ll have to spend in the months ahead on the basis of deals your associates have in the works. Armed with that information, you can make critical spending decisions, such as when to buy new office equipment or whether you should tap reserves to pay your creditors.

5. Don’t secure a line of credit with personal assets. It’s tempting to use a personal asset as loan collateral to help ensure that you can pay your bills at a reasonable interest rate, but if you need a line of credit, make it an unsecured business loan. That costs you 2 percentage points more in interest on average than if you secure the credit with a big personal asset like your house. But you have much less at risk if you start missing repayments.

Source:Cliff Perotti, TheBrokerCoach.com, Corte Madera, Calif.