A glance in your financial rearview mirror often looks good for you as a real estate agent: You met your gross commission income (CGI) goal, you closed several good deals, and, most importantly, your business is still alive and well.
But is it thriving or merely surviving? Did you meet your profit goals? Did you even set profit goals?
Many real estate agents don’t track their income, cost of sales, and expenses simply because they see themselves as having a sales career rather than as a business owner.
Fortunately, you can address this lack of perspective and more issues with one helpful tool: a profit and loss statement.
What Is a Profit and Loss Statement?
A profit and loss (P&L) statement, also referred to as an “income statement,” is an accounting of how much money you brought in versus how much you spent. It costs money to make money, and a profit and loss statement helps you analyze not just what you made, but also how much it cost you to generate that income.
The Benefits of a Profit and Loss Statement
A profit and loss statement helps you confirm you’re running a healthy business. Here are some of the primary benefits.
See Whether You’re Actually Turning a Profit
It can be hard to tell — with certainty — whether your business is profitable, especially given the vast array of expenses a real estate agent assumes throughout the fiscal year. With a profit and loss statement, you get a clear view of everything you spent alongside what you took in. You can also include pending expenses, such as loan payments or items purchased on credit, that may not have hit your bank account yet. In this way, a P&L statement provides an unquestionable account of your business’ profitability.
Analyze Your Return on Investment (ROI)
Virtually everything you spend while trying to generate or maintain a business is an investment. Some common investments include paying for lead sources, advertising, or employee salaries. A P&L statement can help you ascertain how these expenditures are affecting your profit. You can then see which investments are the most productive and cut down on those with the least payback.
See Your Variable vs. Fixed Costs
Fixed costs are those you incur whether or not you have a sale. They may include office rental space, an administrative assistant’s salary, etc. Variable costs change according to what you spend to make a sale. With each sale, you have to invest funds into marketing the listing, which includes photography, staging, and signage, setting the property up for presentation, and even smaller items like snacks, flowers, or other tidbits to make buyers feel more comfortable.
When presented in a P&L statement, variable and fixed costs can tell you a lot about the health of your business. If you’re overspending on either one, you may be bleeding hard-earned money that could be better invested in initiatives to grow your business. You can also identify opportunities to reduce the cost of doing business by trimming either your variable or fixed expenses.
Much of the cost of doing business comes from the cost of sales. Cost of sales includes your brokerage, franchise fees, transaction coordinator expenses, referral fees, buyer specialist commission splits, and more.
Each of these can be delineated in line items on the profit & loss statement, giving you the opportunity to analyze all that goes into a sale and discover ways of selling more while spending less.
Get Professional Bookkeeping Help
With my years of experience helping real estate agents optimize their financial opportunities, I can provide you with a P&L statement that supports your business strategies and goals. In addition, my bookkeeping services ensure all business expenses are recorded appropriately to maximize your tax deductions. This makes tax season easy — instead of scrambling last-minute or having to file an extension, you’re ready to file without stress.
Also, with my bookkeeping services, you’re able to view your P&L every month — or more frequently — enabling you to adjust your expenditures to maximize ROI on the fly. With a professionally prepared P&L statement, you can take concrete steps to analyze the health of your business and its expenses, and ensure each investment is paying off.