not thinking of the money as business income.
“It isn’t my money. It’s my business’s money,”
Karegeannes says. “It’s not personal income, and it
needs to be allocated appropriately. As real estate
professionals, we are small-business owners. Even
though I’m with Shorewest, R;;;;;;;®, essentially
I am running my own real estate business.”
The U.S. Small Business Administration
recommends that small-business owners, including
independent contractors, create and live by a solid
financial plan, whether they’re just starting out
or have been in business for years. “A business
plan that lays out all your projected expenses and
projected revenues allows you to adjust as things
get better or worse,” says Dennis Melton, district
director of the SBA in St. Louis.
“Real estate is the kind of business where you
can have a huge paycheck one month, nothing
the second, and a middling check the third,” says
Bob Newman, also with the St. Louis o;ce of the
SBA. “Having that plan will keep you honest with
yourself so you can recognize a problem before it
overwhelms you. If you are drifting away, you can
more easily correct course.”
A good financial plan is partly strategic and
partly tactical, says C.A. Hebda, a New Jersey
consultant who helps companies develop long-
range strategic plans. It doesn’t have to be long; in
fact, bullet points are okay. The strategic portion
of the plan should look ahead five to 10 years and
should focus on the segment of the market being
targeted. “It is not going to have a lot of detail,”
Hebda says. But it does require research about what
portion of that market is available to you based on
your skills, experience, and knowledge. “You [also]
must have some sense of the competitors in that
market,” she says. “Who are the true competitors?”
The tactical section of a good business plan
includes a more detailed quarter-by-quarter plan
for the first year. It should be reviewed quarterly,
or more frequently if things aren’t going well. (Read
more about budgeting on p. 28.) The most common
mistakes made by independent contractors include
not being realistic and failing to develop solid
contingency plans, Hebda says. “A lot of people
focus on wishful thinking instead of reality. You
need to examine the data. Know your market.”
That means asking questions such as: What’s
selling? What’s stalling? How will either scenario
a;ect my business? “If the bottom drops out of the
$2 million–plus market, how many $500,000
houses will I be able to sell?” she asks. It’s also
critical to consider how changes in government
policies, such as increasing interest rates or new tax
rules, could a;ect your business.
Note to Self: Stay on Track
These tips from strategic planning experts, financial planners, and real estate
professionals can help keep your business on the straight and narrow.
Be strategic—and tactical.
A successful business starts with a solid plan. Once in place, a good plan can
help business owners recognize problems as they develop, allowing them to be
handled early. Creating one shouldn’t be laborious or intimidating; bullet points
are just fine. Plans should include a strategic one-page summary laying out five-to 10-year goals and a tactical day-to-day details section laying out plans for the
year. The tactical plan should be reviewed quarterly.
Preserve your reserves.
One critical but common mistake made by real estate professionals is failing to
put enough money into reserves. Every business needs cash to carry it through
the inevitable slumps. This is money for daily needs, such as paying your o;ce
lease or keeping the Internet hooked up, rather than retirement savings. While
salaried wage earners can get by with a reserve of about three to six months,
real estate professionals who don’t have a steady paycheck are better served
with an emergency fund of at least six months worth of expenses. Those with
employees might want to consider even more of a cushion.
Donʻt wait for the IRS to find you.
Pay your federal—and state—taxes. Build quarterly estimated tax payments
into your budget based on what you owed the previous year. If you overpay,
you’ll get a refund. If you underpay, you’ll be on the hook for far less than if
you waited until April 15 to pay the whole bill. Make it easy by automatically
deducting 20—30 percent of each commission check into a separate account
so you have the funds available to pay the tax man each quarter.
Bring in professionals.
Consider hiring qualified professionals such a certified public accountant and
certified financial planner to help manage the financial end of your business.
With the quickly changing financial scene, from taxes to the stock market,
certified industry professionals can help make every dollar count.