“Big commission checks feel great… until tax season or a slow quarter shows up. That’s the rollercoaster most agents ride.”
The Problem At Hand
As Agents and Brokers, we are constantly striving to beat our prior year goals, working to become the best version of ourselves and for our clients.
Also, like many of you, I myself have and am in your shoes. While I love growing my accounting firm to help our fellow agents, I am still actively working in CA and FL as an agent and soon-to-be co-team leader.
However, while our industry has numerous sources for acquiring more clients and serving them, I believe there is a lack of information on how to effectively utilize the money once earned, specifically to create lasting wealth.
I'm not sure about you, but I got started in this industry to change my family, to take control of my life, and build something that my future generations can benefit from.
Wear Your CFO Hat
Action Step: Block 30 minutes to review your last 12 months of commission/business income
Every large company in the world has a chief financial officer position; this is an individual who manages all financial aspects of a company, from income and expenses to tracking its tax burden, plus more!
This week, I want you to act as the CFO for your business. I’m sure if you’re a top producer you already do this, but sit down and look at your commission over the last 12 months and look at these things:
What was your Total Income? (minus expenses, taxes, and owner pay/salary)
Did you have to invest money in your business to cover expenses?
What % of total income was your Pay to yourself? Your expenses? Your taxes?
What type of leads generated the highest Rate of return on the money spent to attract them?
Did you have to take a higher Salary because of the increased lifestyle beyond basic needs?
I can tell you that, only when working with a Top team in San Diego as a brand-new agent, did I see a proper CFO act in the real estate team and address all of the above and more every month. Now let’s see what we can do with these numbers and knowledge 👇.
Break the Rollercoaster with a Commission Allocation Plan
While I would like to feel special that the CEO of Keller-Williams, EXP, or any famous agent in the country reads this newsletter, I know most of you are like me, hard-working and trying to build it big.
P.S. If you don’t have an accounting software and system to track your finances, and even the 10% of the basics I have above, then get your butt over to QuickBooks ASAP! Alternatively, you can have my Firm handle it for you, regardless of your success level.
One of the best systems I've found for managing finances in my real estate business is the profit-first method. Check it out here (I get nothing from this link) 👇
I receive no compensation from you for clicking the profit-first link. I'm telling you as someone who had no one to really outline how a small business can have a system to manage finances. This answered all my questions.
Essentially, to sum it up, it's a system of categorizing your income into several buckets, such as taxes, expenses, owner’s pay, etc. Below, I have outlined how I currently separate my finances, along with a brief explanation for each. Mind you, this concept also involves several checking accounts, which not every institution will offer. Currently, I use Relay Bank again. I have no relationship with them other than that I use them for two of my businesses.
100% Income Checking (this is the checking account that all income comes into)
Now it gets distributed to my other accounts
30% to Expenses (this can absolutely be higher, but currently I have no virtual assistance on my team, and I do not pay for leads as I use YouTube to generate them. This absolutely can be higher depending on your strategy.)
30% to owner’s salary (this goes towards the money I pay myself every single month.)
30% Taxes (I always make this bucket a little bit higher than needed to be safe as I also have to pay payroll tax.)
10% Profit (in profit first, this account withholds some of the money you usually pay yourself, so you can withdraw half of the account every quarter.)
Build Wealth Beyond the Deal
Once you start tracking the money in your business, how do you save it? As small business owners, we have the opportunity to make a real impact on our families and the lives of others.
We all know death and taxes are some of the most impossible things to avoid on this earth so why not create a plan to keep as much of your money as you can put it towards good use.
In the coming weeks, I hope to share specific strategies. For now, the most important thing is to begin creating tax plans based on your situation, whether that involves contributing to retirement accounts, investing in real estate deals, or other similar options.
Before you even pay yourself from your business, when you track your money correctly, I promise you, there are so many strategies to save substantial amounts on taxes and get money into your pocket that's legal and in my opinion, proper to do, so that way those you care about can prosper as well.
P.S. I also have a podcast, which goes into more depth! Commission Keeper podcast soon to be out on most major platforms! This is where I get to stray from the script of the weekly newsletter and add more depth!
Disclaimer:
I’m not a CPA or financial advisor. The information here is for educational purposes only. I am not a licensed tax professional, but I am legally allowed to prepare and assist with taxes. However, this should not be taken as formal tax or financial advice for your specific situation. Please consult your own licensed professional when needed.