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4 Ways to Measure the Financial Health of Your Personal Commercial Real Estate Business

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Whether you are the broker, manager, associate, agent or advisor affiliated with your commercial real estate firm – you are more than likely also an owner. Since the majority of commercial real estate professionals (at least on the production side) are independent contractors, legally they are also owners of their own business units.

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As an owner in your own personal commercial real estate business, you should constantly evaluate the health of your business. For many, this is a challenge – as they cannot see past the current transaction they are chasing or a commission they are anxiously waiting for. However, for those that consistently earn more high quality opportunities, they recognize their role as business owners, and as such – they focus on key metrics to gauge the health of their commercial real estate practice.

REVENUE. This may seem obvious, but measuring revenue goes beyond the number of fees you have collected. You should also track and categorize your sources of revenue such as: same client, client referrals, networking, direct prospecting calls, etc. In addition, as part of your revenue, your pipeline should define your anticipated receivables – yes, projected commissions.

EXPENSES. Yes, you should have expenses – and I mean beyond your brokerage splits with the house, and your cell phone and car. Business owners understand they need to invest in their business to grow. Any growing business has some segment of “research and development” and “marketing” costs associated with their operations. You should see your expense increases as related to your revenue. If your revenue increased 10%, in general – expenses should not increase more than 10%. The exception to this rule is measure #3 below.

CAPITAL IMPROVEMENTS. These are investments in your practice and yourself. This can be a new computer or CRM software for your practice, but should also include any personal development initiatives – such as pursuing a designation, training and/or coaching. These investments will not necessarily have a payback in the first year – however, they should generate a return for many years in the future. What is your personal/capital improvement budget for this year?

ACTIVITY RATIOS. To measure the health of your business, you must know the activities behind your business. You need to track both individual metrics (such as calls, meetings, exclusives, closings, etc.) as well as activity ratios. Activity ratios should include such measures as: days from proposal to listing, days from listing to closing, number of calls attempted to number of calls completed, and number of pitches presented to number of exclusives secured.

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Numbers never lie, as long as you don’t lie about your numbers. If you have hit a plateau and are not sure how to get out, the first place you should look to is your financial metrics. If you had a great year last year, but cannot truly tell yourself why – look to your financial metrics. If you’re sitting there thinking that you don’t track any financial metrics and are doing just fine, then congratulations. As my father used to suggest, “even a blind squirrel can find a nut once in awhile”. I urge you, please follow a path different than that of the blind squirrel.

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