Business And Strategic Planning

Goals

Business And Strategic Planning
by Allen  Wright



Most of you have been asked to generate a Business Plan sometime in your career, and most spit nails at the thought.  “I know how to sell real estate … why do I need to plan anything?”  is a common response.  To which I reply, “You own a Business … Right?  Then you better have a Business Plan.”  The tension mounts and before you know it a paper napkin is produced with how many listing and sales will be closed and an estimate of gross production.  The sad part of this scenario is that some managers accept this as a Business Plan.

My first question is simple … Do you believe (as a general rule) that agents with a Business Plan do better than agents without?  The mere effort required to create a plan is indicative of their work ethic.  Let’s walk through the process of creating a Business Plan should be created and then I would refer you to the demo at the end.

 

There are two major factors in planning your real estate business.

How much do you want to make?

What are your expenses?

To create a plan start from the assumption that you must pay yourself first.  Set yourself a realistic salary that you would like to earn.  This number should be After Expenses but Before Taxes.  Every Business Plan has a simple mathematical basis: Income less Expenses.  Income is generated from three components, Your Commission Structure, The Commission You Charge/Receive and The Price of the Homes you Sell.  That’s the easy part.

 

Expenses kill most businesses, regardless of the industry.  Most businesses fail not from a lack of revenue, but from proportionally high expenses.  Look at a typical new agent that closes 10 to 12 deals their first year, but buys every marketing piece that comes across their desk.  Lack of a Business Plan and the ability to focus on what you have budgeted for expenses causes new agents to leave this industry.  Remember this is a business not a hobby.  Your expenses should be in three separate categories.

 

Overhead – What you spend just to stay in business.  Professional Dues, Signs, Lockboxes, Technology, Email and Websites, E&O Insurance, Business Cards and Letter-head.   You get the idea, everything that you spend money on that is not directly related to Personal Marketing or a Transaction is Overhead.

 

Personal Marketing – This is a component of Overhead but should be listed separately so you can focus on where you really spend your money.  Geographical Farming, Mailings, Client Parties, Gifts, General Advertising etc.  What do you do to promote yourself?  As real estate agents we have a tendency to buy anything put in front of us… HERE IS THE IMPORTANT PART …. without regard to how it fits into our overall marketing plan.  I would be shocked if anybody can honestly tell me that they have not wasted money on something.

 

Transaction Expenses – Look at an average Listing and Sale, and list all the expenses that are directly related to closing the deal.  Just Listed/Sold Cards, Virtual Tours, Internet Posting, Coffee, Newspaper Advertising, Broker Opens, Deal Savers (Remember that refrigerator you had to buy.) the list goes on.  You should know roughly what direct expenses you incur when you list or sell a home.

 

The calculation is simple:  Take Your Salary, Add Your Overhead And Personal Marketing Expenses Then Divide By You Average Commission From A Deal, Then Multiply The Number Of Deals By The Transaction Cost And Multiply That By The Ratio Of Listings To Sales And Re-Calculate The Number Of Deals You Will Need To Close. 

 

OK so it is not such an easy calculation … that’s were technology plays an important role.  Other factors to consider in a well thought-out Business Plan are the extra goodies in our industry: Referral Fees, Allowance for Expired Listings and Non-Closed Transactions and the Seasonality of our Business.  What is most important, is that you focus on the bottom-line on every transaction.  Make sure that when you are asked to negotiate your commission that you can afford to do so.  So often real estate agents do not factor in the Overhead (Overhead equals Overhead Expenses plus Personal Marketing divided by the number of closed transactions) that it takes just to exist in this business. By going through this exercise every year you see the relationship between what you invest (time or money) and what you receive.

 

Once you have modeled your business using a tool like, Createaplan.com,  you can start analyzing different scenarios.  What would happen if I added an assistant?  How will my business be affected if I start a geographical farm project?  To view the impact of these events enter in the appropriate expenses and then view the effects on the Summary Page.  Keep in mind that you are not in this business to break-even, so if it takes an extra 10 deals to afford that assistant you really want to be thinking of 13 or more deals to make it worth your time and the risk associated with that decision. 

 

Pen and Paper oriented Business Plans are fine, but have no ability to allow the user to view the impact of changes to your business without requiring the user to manually re-calculate all your numbers.  Treat your business like a business … have a plan.

 

and remember …

 

You Must Tell Your Brain Where To Go For It To Understand How To Get There   ….…  You Must Start With A Plan


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Allen Wright. All right reserved. For information contact Frog Pond at 800.704.FROG(3764) or email susie@frogpond.com.