Cash is obviously vital to running any successful enterprise and this is especially true in a seasonal business like selling real estate in Canada.
Here are some simple rules for developing a successful cash flow plan:
1. Don’t Be Unrealistic. Look at your monthly sales for the previous year as this will probably be a reasonable estimate of what you might achieve in the current year (all things being equal). Don’t assume that you will double your sales this year – that is probably quite unrealistic. Remember that this plan is designed to ensure that you have sufficient cash flow to be successful (not an exercise in projecting success).
2. How Long Before You Get Paid For Your Sales? On average, it will take 60 – 90 days to collect your commission. So unless you are taking a commission advance, don’t assume that you will get paid in the month that you make the sale.
3. Separate The Fixed From The Variable. Your business, like any other, has certain expenses that are predictable, seasonably consistent and must be paid every month – rent, phone, car payments, etc. Consolidate these expenses into one total fixed expense. This number will tell you what you must receive every month to stay in business. Your monthly receipts in excess of this fixed expense total represents what you have available for variable spending – particularly marketing.
4. Plan For Growth. If you are successfully covering your fixed and variable expenses and have some cash left over, you have a number of positive options. The most obvious is to figure out how to best invest some of the excess to grow your business. This will probably include expanding your marketing budget.
5. Plan For The Unforeseen. There is nothing wrong with planning for that “rainy day” or a great opportunity because the unexpected can happen. Either way you will be in excellent financial shape to “weather the storm” or capitalize on opportunities to grow your business.
Follow these simple rules and you will be well on your way to successfully managing your business.
Jim Trainor CPA, CA