By Michele Lerner
Keeping your business on track in tough times requires taking a closer look at the practices you have in place and effectively streamlining your expenses and instituting cost-saving measures to safeguard yourself and your business. Office expenses can place a heavy burden on brokers, and for both brokers and agents, marketing plans and personal financial strategies can be implemented to help you stay successful.
Strategies for Brokers
Brokers are finding several ways to streamline their businesses and tighten their belts while still maintaining effective, productive offices. Avenues to reach this goal include looking at office expenses and marketing expenses. Experts provide ideas in both of these areas.
Rental properties can include fluctuating payments and often require maintenance fees. Owning office space, if a company can arrange financing, may be a more viable option since the real estate itself becomes a long-term investment. Space should include only what’s necessary to run an effective office. Offering rental space to ancillary businesses such as lawyers and lenders can utilize unused space and produce additional income. Utilities expenses should be controlled frugally by adjusting the thermostat and making sure that lights and computers are turned off at night. Brokers should encourage paperless processes and bundle Internet service and phone lines. Sharing offices may be an option for agents, along with offering agents the opportunity to work virtually away from the office by providing continuous online access
Rick Healey, broker/owner of Foster-Healey Real Estate in Fitchburg, Leominster, and Athol, says he uses “zero-based” budgeting.“We have to justify every program that costs money, and there are definitely no more frills,” Healey says. “We ask the fundamental question about what value we get out of each penny we spend, rather than trying an across-the-board percentage cut.”Zero-based budgeting stipulates that every department function is reviewed comprehensively and all expenditures, not just increases, must be approved.
Zero-based budgeting requires that any budget request be justified in complete detail starting from the zero base.
Reduce spending on print ads by focusing solely on open-house ads or one institutional ad in a core local publication in order to keep the office name and its agents visible. Cut back on mass mailings and stay in touch with customers through e-mail or phone calls. Some offices, including George Russell Realty in Worcester and Millbury, buy time on a local cable television channel, which provides them with affordable additional visibility for listings.
Experts agree that the best place to spend marketing dollars is online; make sure that each listing receives maximum exposure through multiple websites and photos. Spending additional money for enhanced listings on Realtor.com can be offset by reducing funds used for print ads or mass mailings.
Not every broker agrees that setting goals as an office works to motivate agents. Russell avoids quotas and instead coaches his agents and encourages them to set personal goals.According to Jeanette Tighe, vice president for New England at Exit Realty, broker-owners are trained in goal-setting classes and then arrange one-on-one goal-setting sessions with each agent for the following year. “The agents are the assets of the corporation so they need to be educated,” says Tighe.
To keep a real estate office growing, brokers rely on recruiting agents. While brokers report that they are recruiting fewer agents than in the past, many are still training people new to the business or bringing back agents who had left the field to pursue other careers but now want to return to real estate.Exit Realty has an unusual recruiting program; it pays agents who bring in new agents a commission based on the sales of each recruit. The program applies to every recruited agent across the U.S. and Canada. The recruiting agent can earn 10 percent of what the new agent makes, up to $10,000 per year, while the recruiting agent works. Reduced commissions are earned by retirees and their beneficiaries.
Cost-Cutting for Agents and Brokers
Both brokers and agents can cut their spending through some simple financial strategies.Instead of meeting for lunch or dinner, agents should consider networking over breakfast, which is considerably less expensive yet accomplishes the same goals. Agents should evaluate the money they spend on publications and memberships in groups such as alumni groups or other associations. Belonging to a group simply to keep your name on a list may not be valuable, but if you frequently attend networking events or receive insurance or other benefits through the group, it may be worth the dues.Monica Dupre, broker-owner of Dupre Realty in Lakeville, says she and her agents stay active with community volunteer work, which is free and raises their visibility to bring in referrals.
Personal Finance Strategies
Brokers and agents need a financial plan to survive the vagaries of the real estate profession. The first steps include making a budget, exercising discipline over spending, and starting an emergency fund. Michael Dooley, a financial planner with MAR Benefit Partner, The Patriot Financial Group, believes that commission-based agents should build an emergency fund with savings equal to nine to 12 months of the average budget from the previous two years. If that seems unattainable to start, try saving three to six months of expenses.Agents and brokers can save money by combining errands to save on gas, packinga lunch instead of eating out, and bringing coffee from home rather than making a daily coffee run. Saving just two dollars per day quickly adds up to $60 per month and $720 per year. Vacations and dinners out should also be curtailed or eliminated.“Paying off debt and maintaining a fixed daily and monthly living expense is priority item number one,” says Dooley, who suggests that real estate agents meet with a financial advisor or accountant to review 90 days of expenditures and develop a comprehensive analysis of their finances.
Financial planners recommend that everyone continue to contribute to a retirement fund, despite the current volatility of the stock market. Investing while the market is low can result in greater future returns. Jim Littleton, a CPA and financial advisor with The Patriot Financial Group, says, “It can be painful when cash flow is a key issue, but you don’t want a year to go by without putting at least something into retirement.”
Reevaluating Estimated Tax Payments
As independent contractors, real estate agents need to fund their own health insurance and pay estimated taxes. Littleton says that when incomes are rising, estimated tax payments should be based on the prior year’s tax liability, but he suggests an alternative method when incomes are stable or reduced.“Agents should pay 90 percent of their estimated 2008 liability if they are making less than last year,” Littleton says. “But they should be conservative and keep track of their income to avoid a penalty for underestimating the taxes. If you think you’ll owe $5,000 in taxes, it is much better to pay that than to have the government holding onto $10,000 and wait for a refund, especially when cash flow is tight. But it might be wise to add a little cushion and pay $6,000 to be sure you avoid a penalty.”
One of the least expensive ways to stay on track in the real estate business is free: having a positive attitude. Staying optimistic with the public and other agents is crucial. No one wants to be affiliated with a pessimist.Brokers can keep their agents motivated by bringing in coaches and trainers who can encourage people to try new techniques with clients. Additionally, many brokers continually educate their agents about the market with information that can, in turn, be shared with clients. “Realistically, someone’s tragedy is someone else’s opportunity,” Healey says. “For instance, if you can help someone avoid foreclosure with a short sale, then you have helped them out of a difficult situation, and you’ve helped someone else find a house they can afford.”
Advantages of Zero-Based Budgeting
Promotes efficient allocation of resources based on needs and benefits.
Drives managers to find cost-effective ways to improve operations.
Detects inflated budgets.
Useful for service departments where output is difficult to identify.
Increases staff motivation by providing greater initiatives and responsibilities in decision-making.
Increases communication and coordination within the organization.
Identifies and eliminates wasteful and obsolete operations.
Identifies opportunities for outsourcing.
Forces cost centers to identify their mission and their relationship to overall goals.