What Financial Numbers Should Brokers Be Looking At?

One of the most common questions that brokers/owners ask is this: "What numbers should I be looking at?" This is an intensely personal question, since it goes to the root of what type of operation you are running. The goal in this article is to guide you to some key numbers you should have a handle on.

First let's agree on one thing--you need an up-to-date, accurate, financial statement. Your financial statement is your roadmap to financial health, read it like you are going somewhere! You don't go on a trip without planning your route and tracking your progress. So why would you treat your company any different? Having accurate and timely financial statements is the key to financial health. Finding out how you did in your last fiscal year when your CPA gives you statements six months later is ineffective. The information is out of date and not relevant to what is currently happening in your business. So the first set of numbers you should look at is your current financial statement – and it must be in a format that you can read.

A statement that shows the most recent twelve months of activity is critical. This is what will allow you to spot trends and get a feel for what direction things are heading. The financial statements that your CPA gives you, with a column for last year and a column for the current year might be required for your income tax return but they do little to help you understand the flow of your business. Only a spreadsheet type twelve month statement will do this. The year-end date of your company doesn't matter here either; you need to see the most recent 12 months, regardless of the fiscal year they fall in. The fiscal year is just a convention created by the government and accountants to fit your numbers into a nice neat slot for them, not to help you run your business.

Now that you have a statement, the next thing to do is create a budget to go with it. This will help you plan where you expect your statements to go and then matching them up to results will help you understand what worked and what didn't.

The most important line on your financial statement to look at is the amount of income retained after paying your agents. What this means is that how you pay your agents is not important, it's how much you keep that is. Whether you compensate with splits, transaction fees or desk fees, which is just how you carve the pie up, you need to understand what you keep versus every dollar that comes in. This is the money that you have to run your business with.

While I stated above that how you compensate your agents is not important, what is important is monitoring how they are doing. Once you have decided on how to compensate, the challenge is to make sure that they hold up their end of the deal. A desk fee office and a traditional split office has different needs when it comes to the numbers required to understand where they are heading.

• Traditional Splits: Look at a production report that monitors their progress in their split. If you hire an agent at 80/20 up to $100K, you expect to get $20K from them that you will use towards running your office. If six months into the year they have only produced $30K, you have received $6K instead of the $10K you were expecting, leaving you $4K short towards paying your bills. If this continues to year-end and you end up $8K short, what will you do? Add it on to next year, expect the agent to pay up, find a supplier who will cut their bills or kick the money in yourself?

  How about staying on top of their progress, sitting down with them at the six month mark and saying; "80/20 is not working so I'm going to have to roll you back to 60/40." If they continue at the pace they are going, the new 60/40 split will get you back up to the company dollar that you expected. Sure they won't be happy, but the question is this--do you want to deal with this challenge now or in six months? Either way, deal with it you must!

• Monthly Expenses: Look at an analysis matching their expense balances against what they have in production. Who is a bigger concern to you, an agent owing $2K with $10K in pending deals, or an agent owing $1K with no pending deals? On a normal A/R listing, you would look at the $2K agent first and this would be wrong. They are not your bad debt problem, the $1K agent is!

The numbers above will help you know where you have been, where you are going, and how you will get there. This is just a brief overview and doesnt mean you should be neglecting other areas. The brokerWOLF back office management solution is designed to help brokers have a complete look into everything from listing inventory, transaction processing, agent management, accounts payable and accounts receivable all the way down to financial statements. For more information, vist www.lwolf.com/brokerWOLF

To view the original article, visit the Lone Wolf blog.