Strategic Business Tips for Real Estate Investing
Have you ever heard the phrase, “work ON your business not IN it”? What does it even mean and how can you get started on your real estate business? Get ready because we’re dishing out strategic business tips for real estate investing with a touch of fun and a dash of helpful insights. Let’s turn your real estate dreams into a strategic success story! Here’s 3 ways to work ON your real estate investing business.
#1 Write a List of Your Activities
Create a list of everything you do and then separate them into income producing activities and non-income producing activities. Some examples might include:
Income Producing Activities
Meeting with a potential private money lender
Networking with a potential partner
Non-income Producing Activities
Setting up utilities
Picking up materials
Replying to tenant questions
Once you have your list, focus on delegating, eliminating, or automating the non-income producing activities to make sure your time is money! If you want to learn how to be the CEO of your business, sign up for our CEO Bootcamp.
#2 Create Standard Operating Procedures (SOPs)
SOPs tell you exactly how to run your business. They help streamline processes and make sure that things don’t fall through the cracks. Creating a Standard Operating Procedure (SOP) involves a structured approach to document and communicate steps for a particular process or task. Here’s a general guide:
Understand the Process:
Research & Observe: Analyze the process thoroughly. Gather information from experts or those performing the task.
Flowchart: Visualize the process steps using flowcharts or diagrams to understand the sequence.
Define the Objectives:
Clearly state the purpose and expected outcomes of the SOP.
Outline the SOP:
Title and Introduction: Title the SOP and provide a brief overview.
Scope: Define the boundaries and limitations of the procedure.
Procedure: Detail each step concisely, using clear language.
Roles and Responsibilities: Identify who is responsible for each step.
Tools/Materials: List any tools or materials needed.
Troubleshooting/Contingencies: Include steps to address common issues or unexpected situations.
Safety Measures: Highlight any safety precautions.
Quality Control: Specify checkpoints for quality assurance.
Use a consistent format, clear language, and simple instructions.
Keep it concise yet comprehensive.
Review and Validation:
Review Process: Have subject matter experts review the SOP for accuracy and completeness.
Validation: Test the procedure in real-time to ensure it achieves the intended outcome.
Implementation and Training:
Train personnel on the SOP, emphasizing its importance and proper execution.
Ensure easy access to the SOP.
Monitoring and Updates:
Regularly review and update the SOP to incorporate improvements or changes in the process.
Track performance against the SOP’s standards.
#3 Review Accounting Reports
Reviewing accounting reports is crucial for understanding a business's financial health and making informed decisions for your real estate investing goals. If you need guidance, consider hiring a real estate bookkeeper or use real estate banking software like Baselane to keep your financials on track. Make sure to review the following 3 statements:
Profit and Loss
Balance Sheet
Cash Flow Statement
1. Profit and Loss
The Profit and Loss (P&L) statement, also known as the Income Statement, is a fundamental financial statement that summarizes a company’s revenues, expenses, gains, and losses over a specific period. Here’s a breakdown:
Components of a P&L Statement:
Revenue: This section includes the income generated from the primary business activities. It can come from sales of goods, services rendered, interest income, etc.
Cost of Goods Sold (COGS): This represents the direct costs associated with producing goods or services sold by the company. It includes raw materials, labor, and manufacturing overhead.
Gross Profit: Calculated by subtracting COGS from Revenue, it indicates how efficiently a company uses its materials and labor to produce goods or services.
Operating Expenses: These are the costs incurred from running the business operations. They include salaries, rent, utilities, marketing expenses, administrative costs, etc.
Operating Income (or Operating Profit): Derived by subtracting operating expenses from the gross profit, this figure shows the profitability from the company’s core operations.
Other Income/Expenses: This section includes non-operating items like interest income, interest expenses, gains or losses from the sale of assets, etc.
Net Income Before Taxes: The company’s total earnings before deducting taxes.
Income Tax Expense: The tax amount owed by the company based on its taxable income.
Net Income: Also known as the bottom line, it’s the final profit figure calculated by subtracting income tax expenses from the net income before taxes. It indicates the overall profitability of the company after all expenses and taxes have been accounted for.
2. Balance Sheet
The balance sheet provides a snapshot of a company's financial position at a specific point in time, reflecting its assets, liabilities, and equity, which are crucial for understanding financial health, overall worth, obtaining loans, and attracting investors. Here's a breakdown:
Assets include what a company owns and everything that is of value such as:
Current Assets: Cash, inventory, accounts receivable (money owed by customers), and other assets expected to be converted into cash within a year.
Fixed Assets: Property, buildings, equipment, and other items owned for the long term to support the business operations.
Liabilities represent what the company owes to others, including:
Current Liabilities: Debts and obligations that are due within a year, such as accounts payable (money owed to suppliers) and short-term loans.
Long-Term Liabilities: Debts and obligations that extend beyond a year, like long-term loans and mortgages.
Equity is what remains after subtracting liabilities from assets. It represents the shareholders’ ownership in the company and can include:
Common Stock: Shares issued to investors.
Retained Earnings: Profits reinvested into the business instead of being distributed as dividends.
To calculate your Balance (Assets), add your Liabilities + Equity. A healthy balance sheet shows that a company has more assets than liabilities, indicating financial stability and potential for growth.
3. Cash Flow Statement
Cash flow refers to the movement of money into and out of a business over a specific period, typically measured monthly, quarterly, or annually. '“Cash is King” and positive cash flow is always the goal. This means more money is coming in than going out, and indicates stable financial health and the ability to cover expenses, invest, or pay debts. Understanding a company's cash flow is critical because it provides insights into its financial health, operational efficiency, and ability to meet financial obligations. Here's an outline of cash flow:
Components of Cash Flow:
Operating Activities:
Cash Inflows: Revenue from sales, interest received, and dividends.
Cash Outflows: Payments to suppliers, salaries, rent, utilities, and taxes.
Investing Activities:
Cash Inflows: Sale of assets (like equipment or property).
Cash Outflows: Purchase of assets, investments, or acquisitions.
Financing Activities:
Cash Inflows: Borrowing money (loans) and issuing stock.
Cash Outflows: Loan repayments and dividends paid to shareholders.
Often times, investors and creditors use cash flow statements to assess a company's financial stability and potential for growth. However, cash flow can come with challenges. A cash flow statement might not capture certain non-cash expenses like depreciation. Additionally, a company might temporarily show positive net income (positive cash flow) but run into negative cash flow issues if customers or tenants delay payments.
Let’s recap the 3 strategic business tips you need for real estate investing. First, write a list of income-producing activities, then create SOPs, and finally review your accounting reports to elevate your real estate investing business. Each of these business strategies aims to enhance the resilience, efficiency, and growth of your real estate investment business ventures. Need more help? Check out our resources below. Happy investing!
Resources:
Grab our free SOP Templates
Sign up for our CEO Bootcamp to scale your real estate business
Listen to the SOP mini-series with Jae Morales (Episode 57, Episode 58, Episode 59)
Try Baselane, the #1 banking platform for real estate investors
Join our private WIIRE Facebook community
Connect with us on Instagram