Do you know your agency's break even point?

Most real estate business owners will closely focus on the profitability of their operations. This is natural because profits are the ultimate goal for anyone running a business.

But the question needs to be asked: is reviewing a profit and loss (P&L) really the best way to track and achieve your profit goals?

Think about your listing and selling cycle:

  • Month 1-2: successful pitching work that leads to listings
  • Month 2-3: marketing efforts to converting listings to sales
  • Month 3-4: settled sales that ended up in your P&L 

So really, in the agency business, the P&L is a reflection of work performed three to four months earlier. You can’t expect to effectively plan a business with a three-month-old report in front of you, can you?

Pondering the P&L is like looking in the rear-view mirror. Try to name a single racing driver who ever succeeded using that strategy!

The truth is that we give it a seven-minute look-over with our clients and then put it aside for more important things – and I’d strongly suggest you consider this approach too.

The importance of break even is something few accounting teams really understand – so they will naturally opt to deliver you the same old P&L statement every month instead.

Why is the break even so important?

Knowing your break even point is actually the secret to maintaining and increasing profitability on a faster and proactive basis.

Once you know your agency’s true break even, you can set clear targets for agents covering all the required KPIs – prospecting activities, listing results and unconditional sales.

You will have a clear picture in mind of what each agent needs to write in fees every month to cover your business overheads and salary. Remember, your salary is a key essential of your overall calculation because without it you could not afford to keep running your business.

Once you set the foundations of your agency’s break even point, you will find the monitoring of actual sales against break even (as opposed to just looking at last month’s P&L) will set the foundation for driving profitability and growth on a more structured, proactive and effective basis.

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Sanjiv Pabari

Sanjiv Pabari

Sanjiv Pabari is the founder and director of Financial Controllers Real Estate, which specialises in real estate agency accounting, tax and performance maximisation. Sanjiv is considered one of the most commercially focused real estate financial experts in the industry with a professional background emanating from KPMG, Ernst & Young and Ray White before he established Financial Controllers Real Estate to work with various real estate franchise groups.

His business currently provides specialised daily accounting, payroll, taxation and business advisory services to a number of award-winning franchised brands and independent agencies. Sanjiv has personally consulted and worked with over 100 business leaders on business formation, stabilisation, profit and growth and is retained by a large number of agency principals as their ongoing business advisor. For more information, email [email protected] or visit www.financialcontrollers.com.au

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