During the financial crisis of 2008, the US housing market experienced a spike in foreclosures. Real estate firms had to slash their operating budgets in order to survive. The pace of construction also dropped since home buyers did not have the finances to purchase a new home. When it came to lenders, they were not in a position to provide lending services to home buyers and real estate firms. At the time, they were busy foreclosing homes since a vast majority of homeowners had stopped remitting their mortgage payments.
As a smart real estate firm, preparing yourself early in anticipation of another financial crisis is highly suggested. We have organized the top 5 tips to help a large residential real estate firm double its revenue during a financial crisis.
Reduce operating costs
As the executive of a large residential real estate firm, optimizing your firm’s footprints can help to deliver cost savings. As you already know, a notable amount of funds spent by a company are directly tied to utilities, freight, security, direct and indirect taxes among others. Studies have shown that a vast majority of real estate firms are unable to contain their operating costs.
The good news is that any real estate firm – small, medium or large – can lower its operating costs while still keeping its business partners and customers happy. One option of reducing operating costs is by reducing light levels in the office. Another option is where the firm links the service standards and customer metrics.
Reduce debt exposure
Exposing your large residential real estate firm to bad debts especially during financial turmoil will lead to the collapse of your business. To avoid this and lower your debt exposure, establish a system that helps to organize your receivables. There are tons of good accounting software which have an A/R module. Available versions include web, desktop, and mobile.
Using available systems, keep your customers’ information updated. It is quite common to find that some payments have gone uncollected for far too long. Probably the invoice went to the wrong address or the business moved. To correct such errors, keep your customer’s information up to date.
Monitor all customer accounts regularly. Your agents should also be in a position to make the call and confirm that a tenant is forthcoming or not.
Set clear strategic goals
The mark of a successful large residential real estate firm is the ability to create action plans and accomplish different objectives. As an executive, setting clear strategic goals is a lifelong process. You need to cultivate this habit all through your life because it will be useful especially when faced with a recession.
Take a pen and paper or your smart device. Next, follow the SMART system below to come up with realistic goals that will ensure your real estate firm sails through a recession and comes out the other side unscathed.
. Specific – ensure that your goals are focused on the vision of the company
. Measurable – your goals should be quantifiable and must be checked for efficacy
. Achievable – should be attainable
. Realistic – should be viable and feasible
. Time-bound – one should provide a time frame for the accomplishment of the goals.
Remember to divide the goals into short, mid and long-term.
Grow other parts of your business to improve cash flow
As an executive in a large residential real estate firm, you probably have measured and identified key profit drivers. Additionally, you have developed strategies and goals to ensure they keep growing without increasing operating costs. To keep your real estate firm profitable, you have to find ways of improving sales revenue and decrease your operating costs. For this to be possible, benchmark all departments.
During a recession, real estate firms can improve their departments by developing new product lines, increasing staff productivity, finding new customers, finding new markets, improving customer service and offering discounts.
Establishing risk strategies
In real estate, risk management is critical. As a real estate agent, you already know those commission penalties, license suspensions, and customer complaints are by far some of the largest risks. If these risks are not addressed, they will surely be the end of your business when faced with the recession.
To identify risks in a large residential real estate firm, know your stakeholders and the context. It is also important when identifying risks to be aware of your Duty of Care responsibilities and chances of litigation.
Risks that your real estate business will be affected by include:
. Economic – such as interest rate increase and recession
. Technological – such as theft of computers and unauthorized access
. Occupational health and safety – such as safety of clients
. Legal – such as badly written contracts
. Social – such as reputation of the real estate agents being damaged
. Property and equipment – such as damage to business vehicles
. Natural events – damage to properties by storms
To manage and prevent the risks above, a systematic approach is required. This helps to identify, establish context, analyze and monitor the risks.
Learn more about risk management from the following resource: Risk Management Tips For Real Estate Brokers and Owners – Part One.