Poor cash flow management is the ultimate business killer, especially when it comes to real estate companies.
The importance of proper cash flow management
Even if your real estate company has plenty of money coming in every month – you could still be putting your business in danger by overspending. Simply failing to track your cash flow properly can also put your business in trouble.
Even if you’ve poorly managed your business’s cash flow in the past, you can still turn it around. It’s never too late to implement smart cash flow management. These five tips will help you spend less and protect the income you do have.
Plan for the Worst
No property manager wants to believe they’ll have to deal with vacancies for an extended period of time. But the reality is vacancies happen. You won’t always be able to replace a tenant whose lease has expired. So, when you’re budgeting, make sure you factor in the worst-case scenarios. Don’t assume that not every vacancy will immediately be filled.
It would be best to build an emergency fund to cover unexpected repairs and maintenance costs. When you give yourself a cushion in your budget, your business can stay afloat in the worst of times.
Stagger Your Lease Expirations
Vacancies will have the biggest impact on your cash flow, but they are going to be inevitable sometimes. One way to make vacancies affect your real estate company less is by staggering the expiration dates of your leases. Your leases can all cover the same amount of time if you want them to. Just make sure they start on different months, so they end on different months. This way, when there are vacancies, they won’t be all at once. You might have one vacancy a month for a few months instead of several vacancies in the same month.
Manage your CAM Expenses
Carefully budget your common area maintenance (CAM) expenses. This means looking at the previous year’s expenses and making sure the amount you are recovering from your tenants is sufficient for the expenses that are coming in. Ideally, you will end the year with neither the tenant having to come up with additional cash nor you having to provide a credit back to the tenant. If the budgeting is done poorly, you may have more expenses than what you are receiving from the tenant, which will negatively impact your cash flow. Managing your common area maintenance takes a lot of thoughtful work!
Carefully Monitor Lease Escalations
Many property managers make the mistake of forgetting to implement lease escalations when the time comes. This can have serious negative consequences for your cash flow. Make sure you are escalating your leases to the right amount at the right time each year to avoid falling behind market rates. After all, this is why escalations were built into the lease in the first place.
Track Your Cash Flow
If you aren’t tracking your finances properly, you’re definitely going to run into some cash flow problems. It’s easy to overspend when you aren’t tracking your expenses and your income. But seeing your cash flow on paper (or on a screen) can make a big difference!
If you already know you’re struggling with cash flow problems, this is the best way to figure out why. You can make adjustments before the problem gets too out of control to correct.
Every single dollar coming in and every single dollar going out should be accounted for.
Improve Cash Flow Management with STRATAFOLIO
You can get even more helpful insights on your real estate company’s cash flow by using STRATAFOLIO. This cloud-based software helps you more effectively manage your business. You can keep a close eye on your finances using our Cash Flow Dashboard. In addition to cash flow, you can monitor seven other metrics. Having all this information in one convenient place makes managing your cash flow much easier.
So many real estate companies have benefitted from this important tool. You can join them! Request your free demo of STRATAFOLIO today!