Did you know that 80% of small businesses fail within the first 5 years? And that 87% of all new real estate agents leave the industry within 2 years. While those statistics are rather high, the good news is that so much of the reasoning for them can be traced back to finances and small business acumen, and understanding budgeting for real estate agents. Let’s take a deeper look below.

The purpose of a small business is to serve its owner, not the other way around. There are a lot of different ways that a small business can serve its owner. But if it’s not financially serving the owner, then that small business is almost guaranteed to fail. As an agent, you want the business to work for you, you don’t want to be working for the business.

In the book “The E Myth, Revisited” by Michael E. Gerber, he shares that there are three personalities every small business owner must take on: Entrepreneur, Manager, and Technician. For the purposes of this blog, we’re going to discuss the Manager – the one who loves to budget. The Manager is Pragmatic. They are planners who crave order and structure and they have the ideal personality for sustainability. If you’re familiar with the DISC profile, S’s and C’s are managers. They love working from a plan, as well as a budget to support that plan.

In order to determine the amount of money needed monthly to support your household, look at the personal categories below. Then, figure out what the minimum dollar associated with each would be:

• Housing
• Transportation
• Food
• Savings
• Insurance
• Medical
• Utilities
• Recreation

When it comes to your Business Income/Expenses, think about how much capital you would need to reinvest into your business each month. Then, in order for the business to grow, do the following each month:

• Pay yourself a salary for expenses you need each month in order to live.
• Put 20% of your gross commission income aside for taxes into a savings account.
• Put 10% aside for Lead Generation and/or marketing.
• Allocate 10% for business expenses like MLS fees, lockboxes, etc.
• Put 5% aside for coaching and education.
• Save 5% in business savings account to build a 3-to-6-month (preferably 6) reserve. This will allow you to do so much more in the future. And down the road, it will serve as a start to funding your retirement account.

With the difference between your GCI minus your monthly personal and business expenses, think about what you will do with the remaining amount each month. You may want to pay yourself a little bit more, but it’s also a good idea to reinvest it back into your business. To set you up for success in the future, it’s important to remember that whether you’re closing on homes each month or not, there are still expenses that need to be paid. Take the figures above and adjust them to what works for you. 

It’s also very important to have a separate bank account for both your business and personal finances. Consider hiring a CPA or accountant to make sure things are getting done the right way from the beginning.

Self-discipline is crucial in the beginning to be able to grow your business slowly and properly. Doing so will ensure that it’s self-sustainable over time. As time goes on, you’ll be SO glad that you did this because it will add consistency to your life instead of worry. If you want to learn a little bit more about this concept and how to run a profit-first business, check out the book called “Profit First” by Mike Michalowicz. We are also happy to answer any questions and would be happy to share additional resources with you.