Cash flow. Just the mention of these two words can send shivers down the spine of any estate agency owner. At first glance, cash flow seems like a straightforward concept, simply referring to the movement of money in and out of your business. However, for many of us, it’s the outflow that keeps us awake at night. The thought of dwindling cash reserves can be daunting, leading to sleepless nights filled with anxiety about how to cover bills, salaries, and other expenses.
But let’s shift our focus for a moment. Imagine the joy of seeing a fresh completion drop into your account—£5,000, £10,000, or even more! It’s a beautiful sight, but it can vanish just as quickly into the abyss of expenses, leaving you feeling like an ostrich with its head in the sand, avoiding the harsh reality of your financial situation. I’ve been there, too. I’ve left bank statements unopened, dreading the sight of a negative balance. You’re not alone in this struggle.
At a recent Mastermind event, we asked, “Who here has faced cash flow challenges?” Almost every hand shot up. But knowing that others share your struggles won’t help when that dreaded text from your bank arrives, reminding you to deposit funds to avoid overdraft fees. The good news is that you can take control of your financial situation right now. Embrace the truth, own your financial state, and commit to making changes.
The tools I’m about to share with you won’t magically solve your problems, but they will empower you to take charge of your finances. If you embrace financial discipline, you’ll pave the way for the success you desire. Remember, simply earning more money won’t solve your problems if you don’t manage it wisely. As financial guru Dave Ramsey wisely states, “Unless you control your money, making more won’t help. You’ll just have bigger payments.”
Understanding Your Money Mindset
Let’s start by examining your relationship with money. What messages did you receive about finances while growing up? Perhaps you heard phrases like:
- “Money doesn’t grow on trees.”
- “You have to work hard to earn money.”
- “Rich people are selfish and greedy.”
These beliefs can create what are known as “money blocks”—underlying fears or beliefs that hinder your financial success. To overcome these blocks, follow this simple framework:
- List Your Beliefs: Write down all the beliefs you hold about money.
- Evaluate Them: Look at each belief critically. Are they true?
- Challenge Your Beliefs: Can you absolutely know they are true? How do they affect your success?
- Reframe Negative Beliefs: Write down the opposite of any beliefs that hinder your success.
- Commit to Change: Create an ‘if…then’ commitment for each belief, outlining what you will do when these thoughts arise.
For instance, if you believe “the love of money is the root of all evil,” consider how this belief might be sabotaging your success. Instead, reframe it to recognise that financial success can enable you to support your family and community.
Keeping Score: Your Weekly Scorecard
Tracking your performance is essential. Each week, we update our ‘AJ Scorecard,’ which includes key performance indicators (KPIs) that help us measure our agency’s health. This scorecard provides a clear snapshot of our activities and results, allowing us to identify areas for improvement quickly.
For example, if we notice a dip in valuations, we can immediately assess our marketing efforts. We track metrics such as:
- Listed Fees: The total fees we’d earn if we sold all listed properties at asking price.
- Pipeline: The value of fees on properties under offer or exchanged.
By analysing these figures, we can gauge the overall health of our business and make informed decisions about where to focus our efforts.
Mastering Your Cash Flow Forecast
A cash flow forecast is a vital tool for any estate agency. It helps you manage your cash reserves and anticipate future financial challenges. By forecasting your cash flow, you can prepare for unexpected costs or delays in completions, ensuring you’re never caught in a bind.
To create a simple cash flow forecast, consider these four elements:
- Income: Include completions and management fees.
- Expenses: Break them down into fixed and variable costs.
- Net Profit: Calculate your profit or balance.
- Cash Balance: Track your available cash (excluding VAT).
By keeping your forecast straightforward, you’ll be more likely to update it regularly. Remember, it’s okay to round your figures—accuracy isn’t as crucial as consistency.
Creating Your Financial Dashboard
Every Monday morning, we compile a financial dashboard to assess our business’s health. This dashboard highlights key figures, such as:
- Total cash banked this year
- Total expenses paid out
- Current bank balance
This snapshot allows us to identify any red flags and stay on track with our financial goals. A simple dashboard can provide you with the insights you need to make informed decisions.
Implementing the Profit First System
The Profit First system, developed by Mike Michalowicz, is a game-changer for managing your finances. Instead of waiting until the end of the month to allocate funds for expenses, this system encourages you to divide your income into different accounts right away.
Here’s a quick overview of the accounts you’ll need:
- Operating Expenses: For all your business costs.
- Profit: To build a financial buffer.
- Tax: To set aside funds for taxes.
- Owner’s Profit: Your personal salary.
By following this system, you’ll avoid the temptation to overspend and ensure you’re always prepared for upcoming expenses.
Bonus Tool: GoHenry for Financial Literacy
Teaching financial literacy is crucial, especially for the younger generation. I discovered GoHenry, a prepaid debit card and app designed for kids, which helps them learn budgeting and the difference between wants and needs. I use it to transfer a small weekly allowance to my grandson, Riley, teaching him valuable money management skills.
Conclusion: Take Charge of Your Financial Future
Financial management may seem daunting, but with the right tools and mindset, you can take control of your estate agency’s finances. Embrace the tools outlined in this article, and remember that your financial success begins with you. By facing your fears, tracking your performance, and implementing effective systems, you’ll not only improve your cash flow but also set the stage for long-term success in the property market.
So, let’s ditch the fear and take charge of our financial futures together! Your agency’s success is within reach—let’s go get it!
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When you’re ready, here are 3 ways we can help you:
1. Reach out for a call with Sam – choose from three different calls to help you overcome your specific challenges. All free and without strings. Grab a coffee and let’s get to work.
2. Come and spend the day with Sam and Phil, at AshdownJones’ HQ, in our beautiful Lake District. Meet the team, check out our systems and marketing, and enjoy meeting like-minded (non-competing) agency owners. We’ll even put on lunch! Book your place here.
3. Join our Facebook community of super-ambitious independent agents.
Hope to catch up with you soon and find out how you’re growing your business!
Till then,
Sam and Phil
