As a Real Estate business owner, you want to know where your business is at. But too often, the reports you want to view aren’t available, and the reports you do see aren’t important or reliable.
You need to have a clear idea of what reports are essential for your business and focus on these ones!
Here are the 5 reports that cover all the bases of your real estate business:
The Monthly Listing and Sales Report (non-financial report):
This report should be summarised by each real estate agent. It will have the breakdown of all agents’ new listings and exchanged “unconditional” sales results.
A few key matters to watch: Are the number of new listings high enough by each agent to replace the sales made? And, has every agent listed the minimum number of properties for sale?
If every agent including new agents are generating new listings, and if clearance rates are steady, and assuming you have not lost any productive agents, then you can expect a healthy comparative performance in relation to previous months.
The Monthly Listing and Sales Report will clearly show your strong performers and weaker ones. If you encourage your strong performers to maintain their levels and work with your lesser performers or “non-performers” to lift their performance, your results will grow.
At the same time, you should measure the number of agents that list a property each month. Is this number growing? If not, over time your business could go backwards each time an agent leaves.
The Monthly Property Management Activity Report (non-financial report):
This report covers all the activities of the Property Management division: the number of managements (including new and lost managements), the number of renewed or new leases, arrears of rent percentage, and the average management fee percentages for portfolios and for new managements.
Key matters to watch: The arrears should be kept to a minimum as should the “preventable losses” of management properties from the portfolio. If you can maintain your management fee percentage and prevent net losses in your management numbers, your portfolio will at worst hold its value and income and will more likely build.
The Monthly Profit and Loss Report: Sales (financial report)
The Profit and Loss report is the reconciled complete picture for almost every small to medium-sized business in real estate. It is the definitive summary of all income banked and expenses you have received, which should generally result in a profitable result and only result in a loss position when anticipated, i.e. a quieter period in the year. Separate the Sales and Property Management divisions if you can, and have last year’s results, if available, to compare performance.
Key matters to watch in terms of sales: Unrecovered advertising is the most common expense of cash waste. If the total amount of property advertising spent exceeds the vendor property advertising recovered, then the business is incurring a cost. This should be a neutral cost.
The total wages for commissions (and retainers) for sales agents must be in line with the acceptable percentage of total sales commissions earned. If the percentage is too high, combined with any unrecovered advertising, the Gross Margin will be lower, making it more difficult to cover the overheads (e.g. rent and administration salaries) of your business. The gross margin should be between 33–40% of your average business for sales (assuming the business owner is paid a commission like an agent).
The Monthly Profit and Loss Report: Property Management (financial report)
As above for sales, this profit and loss should be the actual summary of Income and expenditure incurred for the period. It is good to have last year results on hand to compare performance.
Key matters to watch in terms of property management: Monitor the salaries of property managers as a percentage of the total property management income. Property management income is very static and if wages are too high, profitability will be lower. This mistake is often made when a new member of staff is added prematurely, to help the existing “busy” team members. If you have capacity to grow then fill it up as quickly as you can by signing up new management. This is the best means of reducing the percentage of property management salaries against income, thereby increasing profit. Also make sure that recoverable items and activities are charged back to the vendor where agreed. This also will help protect profitability.
Monthly Cash flow Forecast Against Budget report: (financial report)
The monthly cash flow forecast versus the budget is a vital report to help you as a business owner understand how the cash flow of your business is tracking and what the near future will look like based on assumed budgeted performance. This report helps business owners see the effect of timing of transactions.
Key matters to watch include Company Taxation and Superannuation. The balance sheet of each business can provide the amounts of PAYG, GST, COMPANY PAYG and Superannuation payable. For most businesses, this is paid quarterly and can have a big impact. In your actual available bank balance, you may have these liabilities building up. To the untrained eye, they may seem like free cash flow. However, by having a cash flow forecast that projects the bank balance, you can see at the end of each quarter what your total cash outgoings will be and how this impacts your overall cash flow. If it seems tight, some business owners will push sales harder, inject some more money or speak with the bank.
The key to this report is understanding how the money works in your business. The budget can help you by highlighting what the expected performance of your company will deliver in cash flow. Therefore, if the business exceeds the budget, there should be more cash available and there will be less if the budget is not achieved. Watch out for one-off costs and their timing, especially insurances and asset purchases.
There you have it
There they are, 5 reports to manage your real estate business. If you would like help creating these reports, speak to your accountant, or contact us and we can help you. We have specialised real estate reports for businesses of all shapes and sizes, and importantly, our bookkeepers will maintain them for you as well. Get hold of us at email@example.com or call 02 9906 2578 today.