Six Tips for Reviewing Your P&L

Prosperous agents keep fiscal health first Suzanne Colvin, Chief Financial Officer, PLACE

We sat down with new PLACE Chief Financial Officer Suzanne Colvin to discuss best practices for reviewing a profit and loss (P&L) statement to ensure your business is making enough money after expenses to justify your output and identify areas of improvement. Prior to PLACE, Suzanne served as the CFO of Egnyte, a content security and governance SaaS company designed for multi-cloud businesses, that grew to $175 million in revenue and 1,000 employees during her tenure. And, she was previously the CFO of Napster from its ramp up stage through the company’s acquisition by Best Buy.

Suzanne’s team consults with PLACE Partners to grow their profitability while also powering future growth. In speaking with so many real estate professionals over the years, her team noticed a common theme: most novices, and even agents further along in their careers, consider gross commissions a top success metric.

Suzanne says that prosperous agents take a more wellrounded approach, adopting the lens used by successful business owners to examine fiscal health. This tactic means diving deeply into company financial activity and asking tough questions around revenue, operating expenses and more, with a thorough review of your profit and loss statement.

As you review your company’s P&L, Suzanne recommends these six tips to live out your own version of the PLACE vision: win in business, make money, give to others, live experientially, and do good.

Review Your Profit Target

When you created your first P&L, you probably set an initial profit target (and if you haven’t created that P&L, here is your first order of business). Take a look at that target through fresh eyes. As an individual agent, it is not unheard of to hit a 50 to 60% profit margin, but as your business expands, revise your estimate to a target of 30 to 40%.

Our own PLACE Co-Founder, Chris Suarez, decided to run his business as a team from the get-go. When creating his initial P&L, he put himself on a commission split, allocating 10% to leverage and an additional 10% to lead generation in his operating account. This approach also helped attract talent, as agents had the same potential net profit margins as the business as a whole.

Take A Deep Revenue Dive

Don’t just take your GCI at face value. Instead, ask yourself these five questions to help understand what is driving this critical metric and identify areas for improvement:

• How does my GCI compare to what I budgeted, and if there is a variance, why?

• What is my ratio of list vs. buy units for the month, and the year?

• What sort of training does my team need to focus on moreprofitable listings?

• What was the overall team commission percentage this month, and year-to-date?

• What is my average selling price year-to-date and how does it compare to last year?

Understand Your Costs

From commissions to brokerage fees, it’s important to understand exactly what money is going out the door and how it affects your bottom line. Use these questions to help set your record straight:

• Am I paying reduced commission splits for appointments set by the team?

• Based on my agent splits and regular business expenses, are referral fees worth what I am paying?

• Does the value from my brokerage justify its fees, and have I hit my brokerage fee cap?

• Is my gross profit at 50% or better, and how many of my agents’ monthly transactions were on <50% splits to the team?

Dig Into Your Operating Expenses

Have you gone through your expenses in detail? Now is the time to do so. Print out the statement, and as you go through it, be alert for monthly or yearly recurring charges. Ask yourself:

• Which of my expenses could be reduced or eliminated in a low-production period?

• Am I personally authorizing/approving new expenses before they’re incurred?

• Do any expense jumps stick out or do you notice any unfavorable trends over the past 12 months?

• How does my current month compare to my year-to-date in each spending category?

• Which of my expenses are known revenue-producing activities?

• Are my staffing expenses what I expected, and are my employees and contractors aligned with those expectations?

DON’T FORGET THE ODDS & ENDS

A true audit isn’t complete without looking at yourself, team growth, and lead generation. Here are some important considerations to keep in mind:

• How many agents were productive in the month, and how much did I contribute to the team production?

• What is my team’s trend in agent count?

• How much time am I devoting to agent recruiting on a daily basis?

• How much am I spending on leads; how quickly is my team initiating follow-up and converting them into transactions?

• Is every client in my database set up to receive a listing alert or market report?

• Am I taking full advantage of the PLACE technology platform?

Stay Consistent

You dove headfirst into your finances. You asked yourself the important questions and made the necessary adjustments to increase profits. Now, it’s important to not lose steam. Set a goal to review your P&L on a monthly basis and focus on growth and profitability. What will help you achieve both? Stay true to your targets, and use your review to determine when to go full speed ahead, and when it may be time to pull back.

Leave It To The Professionals

If you are looking for more support managing expenses and driving profitability, reach out to your financial team at PLACE for a consultation. Our accounting professionals can help you develop a plan to improve profitability.