Measuring the Financial Health of Your CRE Business

Keeping an eye on the health of your business is something most should do, but few fully execute. It's easy to focus on one metric like sales quantity; but are you considering sales quality? It's a difficult question to answer, and one that can only be really answered from capturing several key performance metrics. If…

Keeping an eye on the health of your business is something most should do, but few fully execute. It's easy to focus on one metric like sales quantity; but are you considering sales quality? It's a difficult question to answer, and one that can only be really answered from capturing several key performance metrics. If left unanswered, you find yourself peddling faster and faster only to stay in the same spot-your expenses keep increasing, and the bottom line does not change.

Most CRE brokers out there are independent contractors, which means they are the legal owners of their businesses; this makes understanding the true health of your business all the more important. You know the CRE game, you know the players in the field, and you know how to find the best office space deals for your clients; now its time to learn how to score your achievements.

Revenue & Expenses
This one is the obvious first step to obtain the health of your CRE business. However, this number goes beyond the sentences you've collected; track and categorize your other sources of revenue like same client, client referrals, networking, direct prospecting, and even directed decisions. Expanding the scope of data allows you to get a better picture of where you stand.

Your expenses should encompass the basic ones like phone, car, and broker splits, but like any growing business, the owner needs to tend it through investment. You can grow your business through research and development or marketing, but as a rule of thumb, if your revenue increases 10%, your expenses should not increase more than 10%.

Capital Improvements
The exception to this rule is capital improvements. Buying a new computer or CRM software, or investing in yourself by training to acquire a new skill or useful certification, are all examples of sound capital improvements. You will not see a return on investment in the first year, but you will generate one in the future.

Activity Ratios
This is a critically important metric in obtaining the financial health of your commercial real estate business. This metric focuses on the “how” of your business. You are meeting clients, holding meetings, and attending seminars, but how is this work getting done? This can get tedious, but track your movements going all the way from proposal, to listing, to closing. Also include other activities like number of calls completed and pitches presented. Taking the time to look closely at the effort put into your daily routine will certainly show which activities are worth doing, which are not, and which need improvement.

Get a Second Opinion
You've taken the time to tally the numbers and record activities, but you are having difficulty making sense of the numbers. This is common for many small firms or individuals. Call one of your industry friends to get a second opinion; getting an external perspective can shine fresh light on a sticky problem.

Beware of over-analysis, which can only be as destructive as under-analysis. Stick to generally analyzing the broad strokes of your business, while diving only a little deeper into certain touch points. Numbers never lie so long as you do not lie about your numbers! Even if you are not experiencing any business difficulties, tracking your numbers through the good times is an excellent way to zero in on problems during the bad times.