Grow your estate agency
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Our guess is you started your estate agency because of an interest in property, a skill for making sales and an ability to charm your customers. You probably didn’t do it because of your love of spreadsheets, right?
Don’t let that put you off digging a bit deeper into the numbers behind your business though. You don’t need to be an accountant to understand the basics. Armed with a little knowledge, you can gain simple insights into the state of your finances that will help you make sensible management decisions that will have those profits looking healthy in no time.
On this week’s blog we’re looking at some simple accounting ideas and how they could help you.
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What is it?
Cash flow is the difference between the amount of money you have at the beginning of a period (your opening balance) and the amount of money available at the end (your closing balance). If the figure increases across the period, this is called positive cash flow, while if it decreases, it is termed negative cash flow.
Why should you care?
Comparing levels of cash flow across subsequent periods can give a good indicator of the financial health of your business. In fact, lack of cash is one of the top reasons small businesses fail. A quick check that you have more coming in each month than you do going out is a good way to make sure you’re heading in the right direction.
Sales / turnover
What is it?
Sales turnover is the total value of goods or services sold in a given period, typically a month, quarter or year. It includes revenues received from daily operations rather than income from other activities. Your sales turnover figure will not necessarily be the same as the cash that has come in as you may still be owed some of the money; turnover is based on sales within the period rather than payments received.
Why should you care?
Comparing sales turnover month on month, quarter on quarter or year on year gives you a way to determine whether your sales performance is improving or declining. Obviously, there could be many reasons for the change (for instance, you may have increased or reduced your headcount). But looking at your turnover figures should at least give you a start point for analysis.
Profit and loss
What is it?
A profit and loss statement, sometimes known as a P&L, reports a business’ revenues (or income) and expenses across a given period. This could be a year, a quarter, a month or even a year-to-date period depending on what it is you want to show. Your P&L will give a different picture to your bank statement as it focuses specifically on sales and the costs associated with making those sales.
A simple profit and loss statement will show Gross & Net Profit:
Gross Profit = [Sales – Cost of Sales]
Sales
This could be sales commissions, service fees, property management fees etc.
Cost of Sales
Any costs that relate directly to the sales that have taken place. This might include the commissions of the salesperson, direct advertising costs such as listings, and printing of direct marketing materials.
Net Profit / Loss = [Gross Profit – Overheads]
Overheads
These are the general costs of running your business. Think rent, rates and utilities, regular staff costs, travel costs, legal fees, taxes, or professional fees.
Why should you care?
A regular look at your P&L statement will give you an at-a-glance evaluation of the health of your business. It can be a useful tool to help you make management decisions. It may be that your gross profit is looking good, showing you have a reasonable mark-up on the spend you incur to get the sale. But how does that translate once you’ve taken all your other overheads into account? If your “bottom line” figure is not so healthy, it’s time to consider increasing your prices (or commission in an agent’s case), increasing the number of sales you make, or reducing some of your overheads.
Budgeting
Do you have an annual budget in place? Or is this one of those things that never makes it to the top of the to-do list?
A budget, however simple, is vital for any small business. It allows you to monitor where you are financially, meaning you can head off cash flow issues before they cause too much of a problem.
But it’s not just about avoiding problems. Knowing your figures inside out can mean that you are able to make business growth decisions that you wouldn’t otherwise be able to. For example, what if you had the money to take on an admin or marketing assistant and you didn’t even realise? Wouldn’t it be great to free up more of your time to spend on making sales?
It’s only once you begin to understand and track the numbers that you will find the confidence you need to make these kinds of decisions the right way, and get your business growing.