Cost Cutting Techniques to Increase Cash Flow

Ways to Cut Costs and Increase Cash Flow

When business is strong, we sometimes forget about being frugal, but we all remember the "bad days" of the real estate recession in the early 1990’s. You don't want to be scrambling to "do something" if you are in a cash crunch. If you are doing okay, why not cut some costs and put more money in your pocket?

There are two primary rules, used by all properly managed companies, from one-appraiser firms to Fortune 500 companies:

1. Pay your bills only when they are due.

2. Get your income as soon as possible.

Fortunately for real estate firms, most of the costs are variable. For example, if your work volume drops, your photo processing and appraisal fee split labor also drop. But fixed costs, such as rent and support staff, can cause financial problems when appraisal assignments drop off quickly.

Cash management

1. Pay no bill before its time. Don't pay any bills until they're due. See who has a late charge, and who doesn't. Send checks out on Friday to take advantage of the weekend "float."

2. Exercise dormant lines of credit. Frequently business owners set up lines of credit they don't use. The bank may drop your line of credit if it is not used for a certain period of time, so be sure to check their use requirements. If there is an annual cost, such as 1%, many business owners consider dropping a line of credit. But remember the rule of banking: If you really need the money, you probably can't qualify for the loan.

3. If you don't have a line of credit, set one up now. Check around for competitive rates. It's a lot cheaper than using credit cards if you're really in a cash flow pinch.

4. Closely monitor your three sources of cash:

- Sales in process, not yet completed

- Sales billed out, but not yet collected

- Paid billings: cash on hand

5. Complete and bill out appraisals as fast as possible. The sooner they're billed, the sooner they'll be paid. We're all tempted to "let the work fill up the time available." But, it delays payment of your bill. If they don't have the appraisal, they won't pay the bill.

6. Give your associates a higher fee split or a break on desk fees if they're willing to wait to be paid until you're paid. This policy can be a substantial help to cash flow problems as the highest percent of expenses is labor.