Introduction to the Five Rules to Cash Flow Management for Six Figure Real Estate Agents
Most businesses fail because of cash flow problems. Unfortunately, very few business owners know what cash flow means, how it works, and how to handle cash flow problems. In fact, when most people say cash flow, they are talking about sales; but sales are not cash flow. In fact, an increase in sales activity almost always results in more cash flow problems, not less.
If you want to run a successful six figure real estate business, you need to understand what cash flow is, what causes cash flow problems, and how to manage cash flow. In this article, we will explain what cash flow is, what it is not, how it works, and what to do about it so you can be in the 1% of businesses that don’t fail within five years.
The Five Rules of Cash Flow for Real Estate Agents Are:
- If You Can Pay Bills With it – It is Considered Cash
- If You Can Pay Your Bills – You Stay in Business, Period!
- Waiting to Get Paid Causes Cash Flow Problems
- You Will Need Capital Financing to Grow
- You Won’t “Save” Your Way to Growth and Success
What is Cash Flow for Real Estate Agents
Before we start talking about the Five Rules of cash flow for Real Estate Agents, you need to understand what cash flow is and why it matters. Cash flow is a word that is thrown around a lot in the business world, but very few people truly understand what it means.
What is Cash Flow?
The first thing to know is that cash flow for Real Estate Agents is NOT sales. But this is what most people mean when they say the phrase “cash flow.” Remember this for the rest of your business career: Sales is NOT Cash Flow
Not only is cash flow not sales, but an increase in sales also almost always has a negative impact on cash flow.
To begin with, let’s talk about what cash flow for six figure realtors means. Cash flow describes the flow of cash coming into your business and cash flowing out. That is what cash flow is – the flow of money into your business and the flow of money out of your business.
The Statement of Cash Flows (if your accountant has prepared one for you) is where you can study the cash flows happening month to month within your business. It documents the cash coming into and leaving the business.
Unfortunately, unless you are an accountant (and even then, most accountants can’t prepare a statement of cash flows properly – or read it), this financial statement is hard to understand. Because of this, most people, even senior executives in major companies, do not try to read it. They know it exists, but for the most part, the Statement of Cash Flows goes ignored.
But you don’t need to be an accountant or finance major to understand cash flow. All you need to know is that cash flow is cash flowing in and cash flowing out of your business – AND – you need to know what constitutes cash from a capital finance perspective.
Rule #1: If You Can Pay Bills With it – It is Considered Cash
What is Cash? This may seem like a question with an obvious answer, but not when it comes to business finance. When most people think of cash, they think of cash in their pocket, or in the balance of their savings and/or checking accounts.
But in business finance, as it pertains to cash flows, cash does not end with the cash in your account (although it does include it). Cash is ANY money you have access to that can be used to pay bills, salaries, rent, vendors, Etc.
What do we mean by that? You can pay bills, salaries, and vendors with your credit cards, lines of credit, loans you take out, debt you sell, private equity investment you receive, the equipment you have sold, and more. Remember – if you can spend it, it is considered cash.
Anywhere you can get access to money you are allowed to spend; it is considered cash when you are talking about cash flow.
Remember this, because it matters – if you can spend it, it is considered cash for the purpose of discussing cash flow. It doesn’t matter where the money comes from – if you can spend it, it is considered cash.
It is important to understand what cash is because many business owners do not consider debt, private equity investment, or cash advance options as cash flowing into their business. But it is when you are talking about cash flow.
If you take out a $100,000 line of credit, that is $100,000 of cash flowing into your business. The monthly payment you make is the cash flowing out of your business.
This is why many businesses struggle because they consider financing options “bad” which causes them to try to grow with only the funds available to them in their checking and/or savings accounts.
Unfortunately, the cash in your savings and/or checking account goes up and down. In the real estate business, they go up and down wildly at times. Savvy real estate agents who want to keep or reach a six-figure real estate business, do not rely on their savings and/or checking account to manage cash flow and finance their business. They get cash from every source of cash they can qualify for or gain access to.
Remember – Cash is ANY money you can spend, which might include:
- Bank Loans
- Credit Cards
- Lines of Credit
- Private Equity Investment
- Selling Shares of Stock
- Selling Bonds
- Angel Investment
- Mortgaging Assets and Converting them to Cash
- Real Estate Commission Advances
- SBA Loans
- And more!
Rule #2: If You Can Pay Your Bills – You Stay in Business, Period!
Do you know why businesses close their doors? Businesses close when they run out of cash. Businesses do not close because of lack of profit, or even lack of sales. When you no longer have enough cash or credit or capital financing to pay your bills and salaries, you are done. That is the end of it. But long as you can keep paying bills, employees, and vendors, you are still in the game.
Companies like Amazon and Uber rarely make a profit. But they have unrivaled cash flow coming into their business constantly. They sell stock, have private equity investors, sell debt, and make acquisitions of cash-rich companies with low debt to service. But then on top of that, they also have massive amounts of cash coming directly into their cash account every second of every day from sales.
A company like that will never go out of business because it will ALWAYS have the cash to pay employees, bills, and vendors. They might overextend themselves and need to lay off people or make some pay cuts, but they will stay in business indefinitely because they have massive inbound cash flows from operations and capital financing beyond that.
Now contrast these types of businesses with inexhaustible inbound cash flows with being a class action plaintiff attorney who takes work on a contingency fee basis and may wait YEARS before they get paid for their work – all the while having to finance the costs of litigating cases and keeping their law firm open and running. Because they are always waiting for their money, they have cash flow struggles.
And isn’t this just like being a six-figure realtor? You have constant cash outlays to get more listings, market those listings, and get them to close, and then you still must wait months before you get paid. This is why it is vitally important for six figure realtors to get access to capital financing – to cover the gap between getting work and getting paid for that work.
Remember – as long as you can pay people, you stay in business. But as soon as you run out of cash or credit to pay people, you are out of the game for good. And this can happen to businesses that have tens of millions of dollars owed to them “in the future” but don’t collect it fast enough. One day they shut their doors, collect their money later, sell off all their assets, and pay their creditors as best they can with the leftover scraps. You can’t spend money people owe you – you can only spend the money you have in liquid form.
Rule #3: Waiting to Get Paid Causes Cash Flow Problems
To understand why Real Estate Agents struggle with cash flow, you need to understand how cash comes into your real estate business, and how it goes out. The main problem Real Estate Agents have with cash flows is caused by the “timing” of cash coming in versus cash flowing out. (Which is true for lots of different companies).
You must spend a lot of money to get listings, have an office, market properties, pay salaried employees, and market your company. The problem is, you are spending that money every week (or every month) but you don’t get paid every week or every month because it can take a long time to sell a house and even longer to get to the closing meeting where you get paid.
As a real estate agent, you are always waiting to get paid, and this is Rule #3 – Waiting to get paid will ALWAYS result in cash flow problems.
The Timing of Cash Flows Problem for Real Estate Agents
This creates a real problem for lots of companies, but Real Estate Agents are particularly susceptible to cash flow problems because they are expensive to operate, and it often takes a long time to get paid for your work. Your money is flowing out at more regular intervals than it comes in which leaves the Real Estate Agents struggling to “finance the wait.”
Problems Lack of Cash Flow Creates for Real Estate Agents
- Paying Your Bills and Vendors – This is the most obvious problem unbalanced cash flow creates for Real Estate Agents. If you can’t pay your bills and pay your vendors, you are in trouble. If you can’t pay, your vendors discontinue services, which limits your ability to operate (and damages your company’s reputation and credibility for the future).
- Growth – The less obvious problem lack of cash flow creates is that it forever limits your growth. Everyone knows you have to spend money to make money – but it’s hard to do if your cash account is empty and you are waiting for multiple closings before you can continue executing your growth strategy.
- Doing It All Yourself – In the short term, if you can’t pay vendors, they will leave, which means whatever they were doing on your behalf, you now have to do it yourself (staging, repairing, cleaning, improving). And while you are doing that, you are not networking, marketing, and seeking new opportunities for growth. And although this is uncomfortable, lots of small Real Estate Agents stay stuck in this forever. They always struggle with cash flows, and they never grow.
- Long Term Strategy – Businesses with cash flow issues can’t think about long term strategies. They are constantly focused on the moment because they must chase their next dollar just to keep the doors open.
- Risk Aversion – Business owners who never take risks, never win big. When you have lots of money in the bank (or access to capital), you can take more risks. But when you are low on funds, how much risk are you going to take on new opportunities? How many large opportunities will you miss out on because you simply can’t take the risk, even though it is a pretty good opportunity?
- Marketing – Businesses with cash flow problems don’t spend money on marketing and advertising, which has a way of making sure they stay small. After all, how much marketing are you going to do when you are struggling to pay for staging? Probably not much. Marketing is risky – a lot of marketing doesn’t pay off immediately and sometimes doesn’t pay off at all. Real Estate Agents who struggle with cash flow don’t do much marketing. They can’t afford to take the risk.
- Missed Opportunities on Deals – A company struggling with cash flow imbalance is going to miss out on opportunities. The best deals never wait. You get a call and one shot to get in on a deal, and if you hesitate because your cash flow position is uncertain or precarious, the deal is gone. And not only that, but the people who tend to find and come up with the best real estate deals, eventually figure out that you aren’t playing at their level, and they stop calling you when they find a new opportunity because they know you don’t have the cash to get in on it.
Rule #4: You Will Need Capital Financing to Grow
Show me a business that is financing its operations on its own savings account, and I will show you a company that is not positioned well for long term growth. Everybody who has taken a basic business finance course in college knows this is true. To grow a company, you are going to need financing options, and as many financing options as you can find.
Although being debt free and living on your own money (not using financing) might be great on a personal level, it is not a good business goal. Why? Because as a business, you are going to need financing to:
- Invest in New Technology
- Hire Top Talent
- Enter New Markets
- Take Long Term Risks
- Take Market Share from Competitors
- Get Involved in Emerging Real Estate Deals
Why is this the case? Because if you were investing in the latest technology and new talent, entering new markets, and taking long term risks to grow, there is little chance can finance all of that on your own savings account (unless you have a trust fund or inheritance) and finance experts know this. When a finance person discovers a business that is not using financing options, they know they’ve found either a takeover target or a weak competitor they can take market share from.
Corporate take-over specialists are always looking for companies with long-term growth potential and no liabilities on their balance sheet (because they don’t use financing). Why are they looking for companies with low or no debt on their balance sheet? Because they know these companies are behind the times and have lots of upside growth potential with the right capital investment.
They buy these companies and borrow against their equity (take on financing for leverage) to finance growth, which increases the value of the company and enhances the investor’s balance sheet. Then they sell them at some point once they have driven up their value.
And when they don’t buy these companies to pile debt on them so they can grow – they dismantle them and sell them off piece by piece to the highest bidder because with no debts to pay off, when they sell off the property, plant, and equipment, it is 100% profit and money in the bank.
Our point in all of this is to make sure you understand that having access to capital financing to grow your six-figure real estate business is important unless your goal is to stay small and have a business that just supports your lifestyle but never really goes anywhere.
You see, finance companies know that to grow and prosper as a business you are going to have to use other people’s money. Very few companies have ever found a way around this.
And if you think you know someone who has accomplished successful growth without using financing, chances are, if you knew the truth, there was probably a trust fund or inheritance or someone else backing those companies. Using these types of personal funds, though they may seem nearly inexhaustible, may not be the best idea. Small and medium sized businesses have decimated an untold number of trust funds, inheritances, 401k’s, and life savings accounts.
Having Options is Important for Business Finance
There are a lot of financial vehicles available to Real Estate Agents, and it is important you know what they are and how they work. You should also do your best to always have multiple sources of capital financing available to you. You should not trust your future growth to any single source of financing or any single institution (although it is often the case that agents build relationships with just a few financiers they know and trust, who know and trust them).
Financial vehicles for Real Estate Agents include loans, lines of credit, bonds, private equity investment, SBA loans, selling equity, business credit cards, and real estate commission advances for agents, just to name a few.
It is important to know how each of these financing options work, how to gain access to them, and to begin building solid business relationships with the financing firms who offer them. Over time, your best financiers will come to know you well, trust your judgment, and become more willing to offer you options for financing your business growth.
Agility and Flexibility in Finance
Agility and flexibility are important when you are considering financing options. If you need to secure a large amount of capital in a short period of time to get in on a real estate deal, you need financing options that are fast and flexible.
Banks are some of the most powerful financial institutions in the world and they control a great deal of the wealth in the world today, but they are not generally known for being agile. They tend to be somewhat more risk averse than a private equity investment fund might be (but not always). Banks have lending standards that are precise and specific. They employ processes in their underwriting to help reduce exposure to “bad loans.”
This can have the effect of making their underwriting less agile. Unfortunately, the best opportunities rarely wait. If a deal is good enough, someone is going to show up with a check and close the deal while you are waiting for someone else to loan you money.
But other investors, like private equity or real estate commission advance companies often have different lending standards than banks, making them faster, and much more flexible. You can have the money in your bank in as little as 48 hours after your application is received.
Savvy Real Estate Agents will have lots of options available for financing operations, including using advances on real estate commissions.
How Real Estate Commission Advances Help with Cash Flow
Remember the basic Real Estate Agent cash flow problem? Money goes out fast and comes in slow. One of the ways Real Estate Agents can manage their cash flow is by using a real estate commission advance company to get their money right away instead of always waiting until closing is complete.
When you sell a home, you are owed your commission. That commission is considered an asset, just like a stock or a bond is considered an asset. Because of this, you can “sell” all or a portion of the pending commission that is owed to you to a real estate commission advance company and get your money now, instead of waiting for closing which can be months away.
The way this works is: You sell the commission you are owed for an agreed upon price at which point the real estate commission advance company owns the pending commission. They wait to get paid at closing instead of you. It is as simple as that. You get your money now, and they get paid to wait. This arrangement allows you to get cash flowing into your cash account faster, which helps you regulate cash flow. Remember, the longer you wait for your money, the more opportunities you will miss.
What Is the Difference Between a Realtor Commission Advance and a Bank Loan?
A real estate commission advance is not like a bank loan in any way. A real estate commission advance does not require a credit check and does not require monthly payments. The fee structure is much different than that of a typical bank loan. Also, a real estate commission advance doesn’t accumulate daily, monthly, or yearly interest like loans do.
In fact, a real estate commission advance is more like selling futures (puts and calls) than a loan. You are selling an asset today at a discounted rate, and the people you sell it to receive their money at some designated date in the future. This is how a bank loan works.
Credit Checks Are Not Used in Commission Advances for Real Estate Agents
In the underwriting process for real estate commission advances, companies don’t check your credit. Real Estate Commission Advance companies do check for liens and judgments against the agent before they enter into an agreement with them.
They do this to make sure they can collect their money at closing and there are no other lien holders who have a priority claim against the commissions they intend to collect at closing; however, your credit score will not stand in the way of you getting approved.
Why do Real Estate Agents Use Commission Advances?
Commission advances are funds provided by a commission advance company to the agent before the final closing meeting. The commission advance company then collects its funds directly from the closing agent once the transaction is finalized.
Real Estate Agents often use commission advances as a finance option to free up working capital. These funds can be used to cover marketing costs, legal fees, and other expenses associated with closing real estate deals.
One of the biggest advantages of using a commission advance for Real Estate Agents is the ability to access funds quickly. Instead of waiting weeks or even months to receive your commissions, you can get some of your money in as little as 48 hours. This can give realtors peace of mind, knowing that they have cash available to cover unexpected expenses or reinvest in their business.
Rule #5: You Won’t “Save” Your Way to Growth and Success
When people think of “cash flow management” what they often envision are ways to save money or reduce expenditures. They gravitate toward trying to slow the outbound flow of cash. But the truth is, you are not going to “cut” your way to sustained business growth and long-term success. Cost cutting, while important, is a short-term strategy that is extremely limited.
Why is it limited? Because once you’ve cut as much as you can (which often isn’t much), you have exhausted that strategy. Then what are you going to do? You can’t cut any more than you can cut.
This is why we suggest that when you are thinking about which of the cash flows to focus on, we suggest you focus your effort, attention, and energy on getting access to all the capital financing you can from everywhere you can get it.
In an interview, Gary Vee (Vaynerchuk) said something like this: “Every month I saw the bill come in from my Google Ad Spend and it was like, eighty thousand dollars every month. And I thought to myself I should try to cut that expense down. I was wrong. So wrong. I should have been figuring out how to get that number up to three million dollars per month. And If I had done that, my company could have been where it is now, three years ago. But I only looked at the expense, not the goal of my marketing.”
Remember, you are not going to “save” your way to success in business. You need to spend your way to success, and that isn’t going to happen easily without capital financing for real estate agents.
Summary – The Five Rules of Cash Flow for Real Estate Agents Are:
- If You Can Pay Bills With it – It is Considered Cash
- If You Can Pay Your Bills – You Stay in Business, Period!
- Waiting to Get Paid Causes Cash Flow Problems
- You Will Need Capital Financing to Grow
- You Won’t “Save” Your Way to Growth and Success
Rule #1: If You Can Pay Bills With it – It is Considered Cash
In business finance, cash is not just cash in your checking and/or savings account. If you can spend it – it is considered cash. This includes credit cards, lines of credit, bank loans, private equity, angel investment, selling stock, real estate commission advances, and more. If you can pay someone with it – it is considered cash when you are talking about cash flow.
Rule #2: If You Can Pay Your Bills – You Stay in Business. Period!
Businesses close for one reason, and one reason only: They run out of cash to pay people. From Rule #1 – cash includes any money you can spend. But when your credit is exhausted, you can’t get private equity investment fast enough, and your bank account is empty, then you are out of the game. But if you can pay your bills, you stay in the game.
Rule #3: Waiting to Get Paid Causes Cash Flow Problems
Waiting to get paid for work you’ve already done is what causes cash flow problems. When you are continuously laying out cash to keep your business going (and growing) but don’t get paid for months for that work, you are going to have cash flow problems. This is why companies use lines of credit, business credit cards, and real estate commission advances to finance “the gap” between doing work and getting paid for it.
Rule #4: You Will Need Capital Financing to Grow
Real Estate Agents who are interested in long term growth must always have capital financing available to them to manage cash flow, finance operations, market successfully, take on new talent, take short- and long-term risks, and get involved in the best real estate deals.
Examples of Capital Financing for Real Estate Agents
- Bank Loans
- Lines of Credit
- Private Equity Investment
- Selling Equity
- Business Credit Cards
- Real Estate Commission Advances
- SBA Loans
- And more!
Without financing options, you will not be able to market properly, you will not be able to take risks, and you will not be able to focus at all on long term strategic initiatives. When you are struggling to make payroll and pay the rent, it is difficult to think about your next strategic marketing initiative, and you certainly are not going to be thinking about it three to five years down the road.
Rule #5: You Won’t “Save” Your Way to Growth and Success
You aren’t going to cut your way to success and growth. There is only so much you can cut, and once that is done, you’ve exhausted that strategy. That is why we suggest focusing on getting access to capital financing and keeping as much money coming in as fast as you can get it. You won’t save your way to successful cash flow management. Instead, focus on getting and keeping your inbound cash flow options open.
About Accel Real Estate Commission Advance
We are a direct funder, not a broker like most real estate commission advance companies. Because there’s no middleman involved, our fees are among the lowest in the industry, as we pass our savings on to you.
We factor numerous asset classes, helping attorneys, professional athletes, business owners, and of course real estate agents and brokers. Let Accel finance your next Real Estate Commission Advance.
Frequently Asked Questions about Real Estate Commission Advance
Question: Is there a minimum size commission that you advance Real Estate Agents?
Answer: There is no minimum size commission, but the minimum fee is $300.
Question: Is there a maximum size commission that you advance?
Answer: Yes. The maximum amount is $30,000.
Question: Are there any reserve holdbacks?
Answer: Yes, there is a 10% reserve holdback on every advance.
Question: Are there any administration fees?
Answer: There is a $30 wire fee for any outgoing wires. Agents can opt to receive funds via eCheck for no charge.
Question: Are there any application fees?
Answer: No
Question: Do you advance brokers of record?
Answer: Yes, on a case-by-case basis.
Question: Can I advance more than one deal at a time?
Answer: Yes
Question: How much of my Commission can I Advance?
Answer: Up to 80% of the net commission is due to the agent.
Question: How quickly can I get my advance processed?
Answer: Advances are processed in 48 hours or less. The majority of advances fund the same day.
Question: Are your advances restricted to a closing within 90 days?
Answer: Within 120 days.
Question: Do you require a minimum size deposit?
Answer: No
