Now that I have your attention, the sky isn’t really falling and before you drastically and irresponsibly cut expenses, let me explain how to evaluate your finances. Yes, there truly is a way to be irresponsible when cutting your expenses, which I will address.

Let’s get back to “The Sky is Falling.” Let’s face the reality we are in a different world of real estate these days, to put it mildly. What are you going to do or what are you doing about it? Before you answer that question, the first thing you must recognize is the incredible opportunity that is present in the current condition. We need to move away from focusing on economic conditions and analyze the real estate environment from a human resource perspective. Quite simply we are going through an industry cleansing process that will eliminate people from the business who came in during the peak and acquired unrealistic expectations and habits. This may be a little harsh, but it’s a fact. The real estate boom positioned an industry (real estate sales) further down the list of respected professions by attracting people that wanted to sell real estate and get rich! Unfortunately selling real estate and getting rich doesn’t necessarily create professional and competent agents. The hand we have been dealt needs plenty of attention and focus as we make the necessary adjustments to be successful during these market conditions.

Now is the time for you to dig-in and demonstrate that you are committed to the business, which is the most valuable business proposition to agents in the marketplace. In turn you will have the opportunity to recruit agents with superior skill-sets and professionalism that approach their position in real estate as a profession. Why? The answer is companies with longevity and leaders with vision grow and continue to move forward in a down market. Offices will continue to close as we go through this process, which creates extraordinary recruiting opportunities for you. Each office in your market has talented agents that would be great additions to your company and contribute to its growth. What are you doing today, more than ever, to attract these agents? The current market is stimulating unrest among the agent population, which in turn leads to agents exploring other companies. Now is the time to grow! In my next article I will focus on the specifics of “Growth in a Down Market,” but until then let’s continue on to budgeting issues during these times.

I have worked with many brokers on how to evaluate their budget and expenditures to find areas where they can make cuts. My experience has been that countless brokers start the process by looking down an itemized list of expenses, picking out those that cost the most, and then cutting them. It amazes me how many will take such a simple approach without taking into account a true measurement of each expense. What do I mean by true measurement? It is how much you spend in a specific silo of your expenses and what return you receive from that expense.

Here are the simple steps to take when evaluating your budget and cutting expenses.

1. Review the list of expenses in your P & L line by line. Once you have assessed all items, attach a number to each expense that measures its level of importance to the organization, with number 1 being the most important.
2. Now take a scientific approach. Step one was purely sense and feel; the measurements were largely determined by your gut instinct. Unfortunately many brokers stop at step one, and although it is important to the process, this is no way to run a real estate business. You must have a scientific approach to complement your evaluation. List every expense and its corresponding amount on the left side of a document, including whether it is calculated monthly or annually. Next, on the right side of the document, list the revenue return you have received from the expense. If this sounds very simple, you’re right, it is.
3. Now you have a complete picture of your expenses and what each investment of dollars is doing for you. If your expenses can’t be measured, that is cause for concern, wouldn’t you agree? The object is to spend money and get a return, not spend money and hope it delivers a return. In the evaluation process of bouncing back and forth between a “scientific” approach and a “sense and feel” approach, please keep in mind budget cuts that are a risk to retention.

You have now gathered all the data necessary to make a responsible decision. One piece of advice I will provide to you is through a question. What is the most important activity to the growth and profitability of your business? RECRUITING! I am consistently astonished by the low level of investment being put towards the number one area that will drive profits and growth. What percentage of your dollars is being invested in recruiting as compared to the other expenses associated with running your business?

The sky isn’t falling; it’s merely shifting and in order for your business to survive, you must make the necessary adjustments. Any fear you are experiencing is the result of your belief in what isn’t going to work. Direct your time and energy towards the things that can be modified and will have a positive impact on your office. We may be in the midst of a down market, but that doesn’t mean you have to go down with it. Evaluate your budget, cut expenses, and focus on recruiting because the sky’s the limit!

© 2008 The Real Estate Recruiters

Jon Cheplak, ABR, GRI, CRS, CRB, CLHMS is the President/Founder of The Real Estate Recruiters, The Management and Recruiting Solutions Experts for the real estate industry. Jon is also the President/Founder of The Real Recruiter, the real estate industry’s complete recruiting technology platform He can be reached at 775-846-5748 or e-mail him at recruit@therealestaterecruiters.com. Visit his website at www.therealestaterecruiters.com or www.therealrecruiter.com