I thought this would be fitting as its tax season and the new budget is to be released this week!
After a decade in real estate I can honestly say the most important thing I learned in real estate was treating the financial side of the business better than any other area in real estate. It amazes me how many agents don’t have the financial end of real estate in order. Here are some of the most important strategies for your real estate business and the financial side that you should definitely put into place!
1. Separate business account from personal account. Agents must have their personal finances and their real estate finances separated. If you own any business or franchise you cannot have your personal money and your business money flowing together in the same accounts. I have found having my personal finances going through one lending institution and my business finances going through another completely different lending institution allows me to keep them organized and identified on all of their different statements and paper work. Put your home finances and business finances in two separate banks.
2. Your Personal accounts and your business bank accounts should have separate chequing and saving accounts, separate line of credits preferably unsecured, separate overdrafts, separate physical cheques, separate credit cards preferably with air miles connected to them and separate debit cards as well is step number two.
3. Take the time to write out all your monthly non-negotiable expenses for your personal expenses and your business expenses. Knowing what your monthly nut is for your personal and business lives is so important when you need to determine what you need to make for your annual income each year. So many agents set their income goals each year and they are not even high enough to cover their personal and business expenses for the year. Another great tip if you can pay it off every month is to put all business and personal expenses through a travel credit card and build up travel points for an annual holiday flight each year.
4. At the beginning of each month sit down and write cheques for your personal expenses and business expenses and live the golden rule of paying yourself first. Imagine if you had cheques coming to you each month in real estate to pay for your personal and business expenses. The cheques will have a positive effect on you mentally and allow you to just focus on the important things now that the bills are met at the beginning of the month.
5. When you take any money personally always remit the tax owing on that amount to the government at the time the money is paid to you. I always paid the tax on the income I wrote myself personally so that come tax time the following year the taxes were paid and not having to play catch up or pay the penalties because the money was already spent.
6. When your commission income comes into your business accounts try to build up monies in your business account and not tempt yourself with it in your personal accounts and spend your monies from business because you see it all the time and think it is there and you can spend it. I always left the monies in the business account and had control on my personal and business spending by having it sit in a separate account.
7.Choose a good and affordable accountant for your personal and business accounts that will do a good job on your reporting and filing each year. I have an amazing relationship with 2 outstanding accountants that I can just reach personally on their direct lines for quick advice and not have to pay an arm and a leg for quick simple advice.
8. Take the time to find yourself a simple work at home bookkeeper as well to be able to take your receipts quarterly so it doesn’t get overwhelming dealing with one whole year. It is so tedious and time consuming doing the receipts and expense reporting when you could be out listing or selling a house. They put expenses into an excel or quick books report every three months for me and balance them with my bank statements and even pull out the GST for quarterly GST filing as well. It should be fairly inexpensive and quicker to do just a batch of 3 months’ worth of receipts and not the whole entire years’ worth.
9. The final strategy is to set a goal to live on 70% of your business income and save 10%, invest 10% and donate 10% ( just start with like 85% and 5%-5%-5% and create the habit. Have your bank auto withdraw the 5%-5%-5% into three other separate accounts within your business account to start building up your wealth within your business accounts. You then can use the savings for emergencies, invest in real estate or the markets and be able to give away a portion to make a difference in the world each year.
10. Be sure to check your tax rates
Long and boring Post I know!!! But so important to implement as soon as possible. The path is always in the math! I have an Excel Tracker built out that I would be happy to share. Just send me a message and I will have it emailed to you to help keep your business and personal on track.
All the best Kevin !