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Maintaining tidy finances can be very difficult for anybody; there is much to put in place, and it can get very stressful and disorganized at times— especially if you have to do it all yourself — from creating and sticking to a set budget, filing taxes, keeping track of expenditures and probably auditing your performance over a period.
It gets even more tasking for an agent — especially those who run their own brand and sometimes have to be their own accountants.
There are costly financial mistakes agents must avoid if they must scale up their business in the long run. Here are five of the most common financial mistakes agents make. Whether you are a new agent or a relatively established one, you must avoid them.
1. Not separating your personal account from a business account
This problem is especially common to independent real estate agents who run their own businesses; that is not to say that other agents are not addressed as well. This financial mistake is due to the difficulty involved in running two separate accounts and auditing them.
More so, keeping personal finances completely separate from those of your business is challenging, which is why you still find many agents who use one bank account for everything — business and personal. While it might look easy to keep every record in one location, it is even easier to keep track of and audit your expenditure while keeping a separate business account. More so, filing your taxes is made way easier.
Along with keeping a separate bank account for business, you should also keep a separate card which will make your auditing by the IRS (Internal Revenue Service) easier — something a separate account can’t do. If you fail to keep separate accounts, you are not helping the growth of your real estate venture, as you might find it too easy to dip into your business funds for personal uses.
2. Not having or sticking to a budget
This is a no-brainer, but many agents still fail to adhere, surprisingly. Not only agents alone but every business person has to know that avoiding this financial mistake is very key to scaling any business. Your budget is the bedrock of your finances. What are we saying? A budget is the clear layout of your business expenditure; therefore, you must properly lay out how much income your real estate business needs to bring in to cover running expenses and still make a substantial profit.
Not having a budget and/or not sticking to it is a lack of proper preparation for your business journey, and you must avoid this! You must make the mistake of not using accounting software to map out anticipated expenses per month, distinguishing which expenses are fixed and variable. While doing this, you just take into cognizance the peculiarities of the particular real estate market period.
3. Subscribing for all real estate management tools
This is more inadvertent. The question is, “Do you really use all you subscribe for?” It is very easy to subscribe to platforms that offer a subscription of some kind for one service or the other. Most real estate tools like CRM, websites, analytics systems, mating systems, and applications will charge every month. Now imagine paying for all, and you don’t use some as much — a waste of resources.
A 2019 survey conducted by Warstone Group on 2,500 subscribers revealed that every year, about $3,000 is spent on subscription services. You just have to prioritize what you actually need in your day-to-day real estate logistics. If you have a lot of subscriptions, do well to do a thorough analysis of what you are using and what you are not really using. Do not spend money on services you can live without.
4. Not saving against a market downturn
This is just wrong. As with any other business or economy sector, there are slow periods — periods where sales will drag. Now, as an agent, you do not want to make the grave mistake of not saving to cover for “rainy days.”
The real estate industry is very lucrative, no doubt, with a lot of cash to be made. But many agents forget that the market plummets too — major economic decisions can affect it, as well. More so, agents don’t get to have their commissions from sales immediately; it takes some time.
Your business does not have that time; it has to keep running. How do you do this? Saving. The importance of saving cannot be overemphasized when it comes time to cater for unforeseen occurrences like when the business is slow and you have to run logistics like dues and day-to-day operations.
The consequences of this financial mistake are fatal, as you may find yourself quickly going into debt or losing viability as a real estate agent. I’m very sure you do not want to suffer this fate. Thus, the agenda should be to save as much as you can.
5. Not preparing for quarterly tax filing
Most likely, you are running your own business as a real estate agent. This is why the Internal Revenue Service (IRS) classifies real estate agents as self-employed, which means they have to pay taxes every quarter in addition to filing annually in April. The costly mistake agents make is not preparing their businesses for making these payments. The quarterly payments you make will cover Medicare, Social Security, and federal and state taxes.
Part of preparing for these payments is determining which tax bracket you are in based on your estimated taxable income for the previous quarter. You need to stay organized and get accurate management of your income to prepare for your taxes. You do not want to end up paying taxes you are not preparing your business for.
These financial mistakes might look too gullible to make, but they cannot be completely struck out. You do not want to fall into oblivion. Note these, and you are set to put your business on a path to sustainable profit.
Chris Heller is a best-selling author and currently serves as the Chief Real Estate Officer at Ojo Labs. He also serves as an Advisor and Head of the Editorial Board for AgentAdvice.com. Connect with him on Facebook and LinkedIn.
