7 Budgeting Mistakes to Avoid
Creating and managing your company's budget is a job in itself. To make that job easier, steer clear of these common mistakes.
April 1, 2010
1. Basing your budget on unrealistic goals.
Many brokers, especially those at smaller companies, fail to establish a series of realistic, attainable goals, says Rajia Ackley, CCIM, CRB, president and CEO of Coldwell Banker Ackley Realty in Kissimmee, Fla. "You must have a clear idea of your income projections, including all income streams from broker price opinions, property management, referrals, and so on," she says.
2. Cutting expenses too drastically.
"Getting your budget down to the bare bones looks good on paper, but is it realistic?" Ackley says. Make sure you don’t cut so much that you can’t spend on necessities or take advantage of sudden opportunities. Marketing is one line item where brokers sometimes slash too deeply, says Travis John, owner of RE/MAX Gold Partners in Apopka, Fla. "Especially in slow times, it’s essential to spend more on marketing, not less," he says.
3. Forgetting about reserves.
Keep at least two to three months of operating expenses in reserve. "When I started my company three years ago, I made sure I didn’t need to make any money for the first three years," says Kimberly Clark, GRI, broker-owner of Bayside Realty Consultants LLC in East Dennis, Mass.
4. Underestimating recruiting concessions.
Brokers sometimes budget to get, say, 25 percent of a commission split but end up giving bigger splits to recruit sales associates, explains Rob Hatchett, regional vice president of Chattanooga and Huntsville, Tenn., for Crye-Leike, REALTORS®. As a result, he says, they end up getting only 10 percent to 15 percent of the split.
5. Not planning for surprises.
Don’t forget that the cost of necessities such as insurance and association membership tends to rise over time, says Brian Wood, principal of Damico Realty Group in San Diego; those little increases can add up. Also, plan for unexpected expenses such as the departure of a top associate, delinquencies in desk and other fees, a breakdown in major equipment, or disputes that require the expenditure of attorneys’ or settlement fees.
6. Dumping expenses in the first line item that comes to mind.
"Most brokers don’t really understand how to classify certain items and just lump everything together," says D’Ann Harper, CIPS®, CRB, broker-owner of Coldwell Banker D’Ann Harper, REALTORS®, in San Antonio. "If you do that, you really don’t have a clear view of how much you’re spending in specific areas."
7. Not being flexible.
Many brokers simply don’t monitor their expenses regularly. "Realizing how much your company spends can be both eye-opening and painful," Ackley says. "If you really want a handle on where your money’s going, monitor your expenses daily or weekly. You should be able to make adjustments to your spending."