A crucial, but often overlooked, aspect of running a real estate business is keeping an eye out for risks, and knowing what to do when things really go wrong.
The number one thing that will keep your business afloat is cash flow. That means making sure production stays healthy, and increases month-on-month.
A ‘risk’ can be defined as the ‘effect of uncertainty on objectives’. So a risk could be any unknown future events that threaten your production, and ultimately your profitability.
Make a plan for when downturns happen
That’s why it’s important to set up a risk management plan. This will allow you to think about the actions you’ll take in times of crisis, before the crisis actually happens. You’ll set out a clear plan when your mind is at ease -- and you can make decisions that are properly thought out.
To set up your risk management plan, follow these steps.
Think about the coming year, and consider any big events that could threaten your production. You should thing of both internal risks, which come from inside your business (e.g. agents leaving your business) and external risks, which come from the outside world (e.g. economic downturn leading to a slowing of the housing market). Write all these risks down.
For each risk, determine what steps you’d take to mitigate. This can include recruitment plans, upsizing/downsizing strategies, geographical expansion, etc...
Set up a system to detect risks early on. Keep an eye on production, and know what is in the pipeline to detect any threats early on.
Once you detect a risk, start countering it by implementing your plan.
How to look into the future and detect risks
Most real estate professionals have a fairly good idea of potential threats to their business. But, it’s a lack of risk detection that often has companies scrambling for answers when crisis hits.
To detect any risks early on, you’ll need a way to ‘look into the future’. For a real estate business, that means understanding what’s in your pipeline -- and in your agents’ pipelines.
If you have a small team, you may have a reasonable idea of what they’re doing, but in bigger brokerages with multiple teams, it’s downright impossible to know what everyone is doing all the time.
To get an accurate idea of what to expect in the future, you’ll need to figure out these three things:
The number of deals each agent is looking to close over the next 1 to 6 months
The expected selling price on each of these deals
The expected commission that trickles back to you for each of these deals
Based on this information, you’ll be able to create in-depth and highly accurate forecasts of the next 6 to 12 months. You’ll know whether to expect any major downturn in production and commission, and you can start setting in motion your risk management plans, making sure you’re still around even in times of crisis.