Wow…It has been a while since I have posted an article here! I’ve been a bit busy with life and being a Real Estate Agent.
I just wanted share an update on how my real estate sales business did this year.
This was my first full year as a real estate agent, so it has allowed me to look over my numbers and performance to establish a baseline to grow from. Here are the highlights.
In the past year, I added 398 contacts to my database. What is the big deal about that? For every fifty people that you market to at least 12 times a year, you can expect one sale. So that allowed me to add four potential additional sales a year going forward.
Out of those contacts, 275 were potential buyers or sellers. That lead to a total of 87 sales opportunities, with 24 being listing opportunities and 63 being buyer opportunities.
I closed 16 total units with a production volume of $2,464,390. That was 7 listings at $880,500 and 9 buyer sales at $1,583,890. The average sale amount was $154,024.
I ended the year with 5 pending deals carried into 2022. 4 listings and 1 buyer. As of today, 17-Jan-2022, one of those listings has closed and buyer sale should close this week.
Remember, if you have a real estate need, whether buying or selling, give me a call or shoot me an email. It doesn’t matter if you are outside of my area, I can connect you with a Rockstar Real Estate Agent!
Now for the business breakdown…I had a Gross Revenue of $81,468. This included $68,581 of Gross Commission Income, $9,574 in referral Commission, and $3,308 of sales of oilfield testing equipment liquidated for a client.
Out of that, I paid $20,502 in “Company Dollar”, (split of my commission to the brokerage), $4,115 in Royalties to Keller Williams Realty International, $1,624 COGS, (client split of testing equipment sales), and $9,397 in operating expenses. OPEX includes advertising, training, dues, professional fees, etc.
Overall, I had a Gross Profit of $37,720 before taxes.
Not a bad start for my first full year! AND, this was while also serving as the Market Center Tech Trainer, in addition to the whole area shutting down for the whole month of September due to Hurricane Ida.
If you are interested in becoming a real estate agent, get in touch with me. It’s a really cool career and much more enjoyable than my previous career.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
If you like my posts, please share them with others and subscribe to this blog.
Clint C. Galliano, a native of Lafourche Parish, has lived in the Houma-Thibodaux area for over 34 years and is currently a REALTOR® with Keller Williams Realty Bayou Partners in Houma, La. He has been involved with real estate investing since 2017 and hosts the local Real Estate Investment Association. Real Estate is his passion. Clint previously worked in drilling fluids and drilling fluids automation for 28 years. He lives in Bayou Blue with his wife and two daughters.
Today, we are going to continue where the last article left off. We are going to go over the lessons learned from my experience buying a business with partners. I will list them out with short descriptions. There is no particular order to the list. Any names mentioned other than my own have been changed to protect the innocent…
Lessons
Learned
Partners (The Team) –Our team consisted of four partners. Bob and Carl are the majority investors and took out an SBA loan to acquire the business. John and I are minority partners and not party to the SBA loan. Because Carl, John, and I all have full-time jobs and at the time Bob did not, the plan was that Bob would learn and operate the business until we could afford to put someone else running the business, leaving Bob to pursue his personal interests. See my last article for how that all turned out.
Recommendations:
Be transparent about
individual drivers. Becoming your own boss and becoming wealthy eventually
become competing interests for an entrepreneur.
Professional respect
is critical. Tolerance is listening to every idea quietly. Professional respect
is availability, transparency, punctuality, and preparedness.
Autonomy must be
earned, never assumed in a partnership.
Bad habits are hard
to break in others.
Operating Agreement/Bylaws – Depending on whether you have a Limited Liability Company (LLC) or a Corporation (Co), you should have either an operating agreement or bylaws to govern how the business will be run. In our case, since we had a corporation, we had bylaws. We deliberated on what to include in these bylaws to ensure smooth operations, but did not go far enough. They did not spell out the duties of each partner & role, because we thought that all of us being adults, we would do what was needed to be successful. What we realized was that we each viewed the word through a very personalized lens and what seems obvious to one, (or two, or even three), is not obvious to everyone and if the fourth person feels strongly enough about it, they just will not go along unless forced to. And even then, although begrudgingly agreeing in discussion, they will still fight and obstruct the wishes and decisions of the group. If we had, as a group, decided on the duties for each role and assigned responsibilities for each role to each member of the group, then documented it in the bylaws, it would have made things a lot clearer.
Recommendations:
The operating agreement or bylaws should also include a
defined exit strategy that everyone has agreed to and is committed to
following. It should have defined triggers that initiate the exit strategy.
These triggers should be something that the partners can easily monitor and
measure against.
It should also be spelled out how to handle decisions and
requests. In our case, decisions initially required unanimous board approval.
We amended the bylaws later to only require a two-thirds majority due to the
one partner asking for a solution to a problem, but not liking the board
recommendations, then never implementing the solutions.
Due Diligence – Nowhere near enough due diligence was done on this business or partners. We did not understand enough about how either operated. The revenue the company was making included the previous owner doing work on weekend “off-book” to get jobs out & keep expenses down. It also relied heavily on promotion via owner visits with distributors and their personal relationship. We had no relationships.
Additionally, having a partner who tells the group he agrees
with the intention of not taking any profits for three years, but assigns
himself a $100,000 per year salary and in the first week of operation directly
violates the ground rules we set up for operating the business. We, (the other
three partners), realized that the fourth partner had pursued the investment
deal to set himself up with a kingdom where he was king. #AvoidDat
Recommendations:
Know how the business operates prior to purchase.
Calculate how much revenue you need to make to break even.
Have a budget that takes into account ALL costs to operate.
Unless you are laundering money for drug cartels, whatever
starting capital you have isn’t enough.
That much isn’t enough, either.
Planning to grow? Triple the previous statement.
Financials –While we started out with modest working capital, we had no understanding of our run rate, break-even point, or runway length. In other words, we did not know how much it cost us to operate, how much we needed to make to break even, or how long we could operate with the amount of working capital we had. We eventually figured those things out, but not until it was too late. Also, another point to make, as referenced in a previous article, you have to pay attention to Cash Flow to stay on top of your business finances. We utilized the accrual method of accounting, but did not regularly look at the cash flow reports. Because of this, we would account for interest paid on our loan from the Income Statement (P & L), but did not account for principle repayment in any of our break-even or forecasting exercises until almost two years into the business.
Recommendations:
The person managing the business needs to have a fundamental
understanding of basic accounting and business / financial principals. This is
a KEY point and will lead to many headaches if not followed.
Know your costs to operate, to the penny! AND, make sure you
include labor!
Cash is King! When you run out of working capital, that is
pretty much the end of the business.
Gross margins should be higher than thirty percent. If not,
this will lead to a death spiral for the company.
Sales – The business we purchased operates, (soon to be preterite or past-tense?), conducted sales via a convoluted structure. The products are sold via distributors to building supply centers for builders. So if an end user wants to use our product, they get their builder to point them to their preferred building supply store, where they can look at brochures or in some instances, floor models to decide on what they would like. They then request a quote. That request comes to our operation, is processed, and returned to the building supply store salesperson. That salesperson has limited information on the product nor incentive to sell it.
From our end, we pay a commission to a sales agent to
promote our products to the distributors, who in turn make them available in
building supply stores. This is too far removed from the end buyers and in my
opinion, not an effective spend.
Recommendations:
Agencies DO NOT replace effective sales people! Agencies
represent a large portfolio of products and do not focus on pushing your
product(s) 24/7.
It doesn’t matter what your product is if you and your team
cannot sell the product(s). No sales = No revenue = No profit = bankrupt
company.
It does not matter how much you cut costs or control
spending if you and your team cannot sell the product(s). (See equation above)
Operations / Efficiency – Prior to closing the deal on the business, since Bob was going ot be operating it, we requested that Bob create a budget and document processes for what the business would need to run. He never gave us a budget, nor processes, even after being in the business for a couple of years. His initial excuse was that he had to be working IN the business to understand how the business operated (for processes) and that we, as the board, should be giving him a budget that he could spend. These were two more missed #RedFlags in our journey that should have told us to run, not walk, to the nearest exit. As of today, there are still no documented processes. We kind of have an idea what our budget is through reviewing financials, but we don’t trust the numbers because they are constantly being adjusted. So, we only have an idea, and nothing from Bob. Ultimately, there are still a lot of inefficiencies in the way the business is being run.
Recommendations:
Inefficiency is
expensive and cripples or kills a company. From the start, focus on efficiency
of process, capital, communication, and decision-making.
Be deliberate and
realistic about growth rate. In projections and practice. Year over year
revenue and product volume increases have to be realistic and managed to avoid unmet
expectations and quality issues. It’s nice to have targets, but remember that
you need sales to support targets (see Sales section below). And it is much
easier to have a customer wait for quality than to apologize for a sparkly
piece of crap.
Product Management –This business has about eight main products with practically infinite levels of customization, not counting special-order material types. Every order is a custom order with many options to choose from. There are forty-five different options to choose from when requesting a quote. This leads to decision fatigue and indecision in customers. Ultimately, our quote/win ratio was very low. We suspect that most customers that requested a quote had already decided on something else by the time they received the quote back. Additionally, “Bob” was continuously wanting to add new products to the portfolio because they were the latest hot thing selling.
Recommendations:
Have IP, a unique desirable product, or both. If you have
neither, shoot it in the head, kill the deal, pull the plug, or whatever
euphemism you want to think in. Unless your goal is to be your own boss, then
feel free to limp along for eternity (or until your cash runs out).
Keep or reduce your product line to your top sellers. Based on the Pareto Principle, roughly 80% of your business should come from your top 20% of sales. (Just a note, it will not be exact. This is a rough guideline) So, find out what products make up the majority of your revenue if you already have a large portfolio of products and focus on selling those products. If you only have a few products, keep this idea in mind before adding new products. Which leads to the next one…
Before adding a new product to the portfolio, always write
up a business case and do sales/cost impact projections. In fact, this should
also be done for any request or change to a product or portfolio.
Product customization is less important that total customer
buying experience. If you make it easy for your customer to buy your product,
you will have more sales.
22-Nov-2019
As of right now, the business is still operating. I do not
know how much longer that will be the case. It continues to limp along, hanging
by a thread.
Stay tuned for further updates…
And, as always, let me know what you think in the comments. Ask questions, tell your story.
If you like my posts, please share them with others and
subscribe to this blog.
Wow, it has been a while since I’ve written anything here.
Things have been busy, to say the least, between my regular job and family. My
oldest started high school marching band as a freshman and her schedule is
brutal! (Translation: Lots of after-school practice, football games, and
marching competitions).
Today we are going to talk about when things don’t go right
in a business, from a finance perspective based on a business I am involved in.
The names have been changed to protect the innocent.
Business History
In March of 2017, a group of former colleagues, with me as a
minor investor, purchased a door manufacturing business. At this point, none of
us had ever been involved in that industry, but we thought that between the
four of us, we could figure everything out and grow the business.
Prior to the purchase, we examined the prior owner’s books
and he seemed to be making decent revenue and profit. We tried to analyze Cost
of Goods Sold (COGS) and Expenses to get a good handle on what our potential
revenue could be.
Because three of us were working full time jobs, the fourth partner, we’ll call him Bob, was going to run the business initially, until we could grow the business enough to hire someone to manage it.
We attempted to get Bob to put together a pro forma operating expense projection, but he kept claiming “he would not be able to accomplish this until he was actually working IN the business and understood everything”. RED FLAG #1 (In hindsight, this should have shut down the deal for us.)
Once we purchased the business, Bob assigned himself a $100,000 per year salary because that was what he “needed” to survive on. We, the other investors, had not begun to understand the business’s key financial benchmarks at this point, so let it slide. RED FLAG #2
After six months or so of this, we begin to realize that our working capital was steadily draining. In addition to Bob arguing against every suggestion the board, (other three investors), would make to improve things, agreeing to implement the suggestions, then never acting on them. We slowly started to realize that even though we all agreed at our initial gathering that this was an investment to grow and either sell it for a profit or, after three years of profit reinvestment, provide cash flow and dividends, Bob was acting as if he was setting up Bob’s Kingdom. He wanted to run the business exactly as the previous owner had run things. RED FLAG #3
We made changes. First, we reduced the salary to $50,000, a
figure more in line with the position. Then we removed him as President. We
attempted to replace him with a salesman we brought on and moved Bob into the
sales role, but since Bob was still involved and also trained the salesman, he
was set up to fail. Bob did not teach him everything and did not say anything
when things slipped through the cracks until after we noticed a couple of
months down the line.
Current Status
The business continues to limp along. We have not put any
more capital into it. Bob occasionally takes out small invoice-secured loans
when the bank account gets too low. He is working at another job and has the
lead employee mostly running the business.
We other investors have mostly given up on expending more
than just a nominal effort to expand the business since no advice given is
followed. We came up with plans and strategies on how to streamline the
business and improve revenue, and presented them as a means to grow the
business, but they didn’t sit well with King Bob, so they went nowhere.
The best I can hope for is that I can harvest some capital
gains from other investments when this business eventually fails so I can
offset the losses on my taxes.
In a future post, I plan to lay out the lessons learned from
this experience and hopefully it will help you, the reader, to avoid some of
our mistakes.
Post in the comments about your things that didn’t go right.
And, as always, let me know what you think in the comments.
Ask questions, tell your story.
If you like my posts, please share them with
others and subscribe to this blog.
This week we are going to go over
some myths regarding taxes for small businesses. I get a newsletter from our CPA
each month that covers tax-related topics. The articles are written by other
people and I am assuming his website subscribes to these articles from a
service.
I found the topic of this one
interesting, so I searched for the title on the web and found the original
author. Here
is the original article, by Juanita Farmer, CPA, of Germantown, Maryland.
There are a lot of myths &
misconceptions around what you can and can’t benefit from with regards to taxes
in the US. Below we are going to cover seven of the most common ones.
***DISCLAIMER
– I am not a CPA and DO NOT Offer tax advice over the internet or otherwise.
Please consult with your CPA for tax advice. This article is for informational
purposes only***
Business start-up costs are the costs incurred prior to the
business actually beginning operation. They range from advertising and travel
to surveys and training. Organizational costs such as these fall under capital
expenditures.
Just like you can amortize depreciation of equipment, when
you start a business, you can amortize some business start-up costs.
You can deduct up to $5000 of business start-up costs and up
to $5000 of organizational costs. For start-up or organizational costs that
exceed $50,000, the $5000 deduction is reduced. The remaining balance must be
amortized.
Overpaying Taxes Makes
You Audit-Proof
From a business perspective, the IRS is only worried about
if your documentation matches your deductions and that your deductions are
legal and legitimate. Properly document expenses and follow the advice of a
good tax accountant to “Audit-Proof” your business.
You Can Take More
Deductions for an Incorporated Business
You don’t need an Incorporated Business to deduct business
expenses. Plus, depending on the corporate entity, you may have more tax and
tax filing burden.
Home Offices are an Audit
Flag
Home offices used to be a common audit flag, but with so many
people now utilizing home offices, the IRS issued a a simplified home office
deduction that is easy to claim, with proper recordkeeping.
No Business Expenses are
Deductible If You Don’t Take a Home Office Deduction
All business expenses such as travel, business supplies,
equipment depreciation, etc. Are deductible, regardless of if you take a home
office deduction or not.
Filing an Extension
Delays Your Tax Payment Due Date By 6 Months
Regardless of whether you file for an extension or not, if
you owe any taxes, payment is due on the original due date, typically around
April 15. All an extension does is allow you a six month extension to this deadline to turn in all
of your paperwork/documentation.
Part-Time Business Owners Can’t Have Self-Employed Pension Plans
Even if you are working a full-time job with 401k benefits
and you start a small business, you can
still set up a SEP-IRA for that small business
This week we are talking about different types of investments that you can utilize to better your personal finances. I’ll briefly touch on traditional investments (stocks, bonds, etc.), investing directly into a business, and various forms of real estate investing.
Traditional investments are what most people usually think of when they think of “Investing”. This can be stocks, bonds, Exchange Traded Funds (ETF), etc.
There are three main approaches you can use:
Investment Advisor
Robo Advisor
DIY
Investment advisors usually handle clients’ money for a fee. In most cases, that fee is a percentage of the total portfolio balance. Additionally, unless the advisor has a fiduciary duty to you, the investor, they may push you towards investments where they get better or additional commissions, as opposed to investments with less fees and/or commissions involved. Also, you need a sizable balance to start your account, say, in excess of $500,000.
Robo Advisors are basically algorithms that select the best investments based for you based on many criteria. They usually invest in ETFs and can automatically do things like rebalance portfolios, automate tax loss harvesting, etc. They tend to operate on a fractional percentage commission, meaning that they are usually cheaper than a full-blown human investment advisor. Robo Advisors will also allow you to start an account with a much lower balance than a traditional financial advisor, with some allowing you to open an account with no money, though you will need to put money in to invest.
DIY or Do It Yourself is another approach you can take. It costs you no fees other than trade fees and you don’t need a large balance to start. But, you will have to spend a lot of time researching your investments and deciding where to put your money. You can start with as little as the price of a single share of stock and the trade fee.
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Direct Business Investment
You can invest into a business outside of stock. This can be in the form of buying a franchise, buying a share of an existing business, or even taking your non-retirement account money and opening a business. A word of caution: Be sure to perform thorough due diligence into any business you invest in like this and if investing with partner(s), ensure you have a sound operating agreement in place and that everyone abides by it.
If you only have retirement account funds available, either from a 401k from an previous job or an IRA (Individual Retirement Account), you have the option to buy or start a business using those funds through a Rollover Business Startup (ROBS) transaction, also known as Business Owner Retirement Savings Account (BORSA). This allows you to utilize the money you have saved to start a business without incurring taxes or penalty. There are specific restrictions that go along with it and it has to be administered by a qualified group. Companies like DRDA and MySolo401k can help you deal with this type of thing.
Real Estate
The last type of investing option I am going to talk about is real estate. As I have talked about before, I like investing in real estate, in addition to other types of investing. Real Estate has options that range from very hands-on and intensive involvement to very passive hands-off approaches.
Direct Investment – Real Estate
If you have money sitting around, or you decide you want to follow the Tim Ferriss approach and dreamline a muse to support real estate investing, you have lots of options.
You can wholesale, which is finding people with a need or desire to sell a property that doesn’t qualify for traditional financing or need the funds in a short time period (need a quick closing).
You can Fix and Flip. This involves buying a distressed property at 30% or more below market value (where market value is considered the after-repair value or ARV) and rehabilitating the property, then selling it at or near market value.
You can also buy and hold, the term for investors that buy property with the intention of renting it out over the long term. Generally, these investors like to acquire their properties in a similar state to the Fix and Flip investors, but do not sell the properties.
A less well-known approach is to invest in Notes. These are mortgages that the banks sell off at a discount to get their capital back & re-deploy it in another loan. There are note funds in addition to you being able to buy notes directly.
Most note funds require that you be a sophisticated investor. No, that does not mean that you have to drink your tea with your pinky out and wear a three-piece suit every day. It is a category defined by the government as having an income of $200,000/year if single, $300,000 if married, OR $1,000,000 in net worth, not including your primary residence.
Self-Directed IRA – Real Estate
Like the ROBS/BORSA methodologies mentioned above for direct business investments, there is a self-directed IRA (SDIRA) that can be used to invest in real estate. They can be used to buy investment properties or, in some cases, to actually BE a “bank” of sorts.
Some caveats with using an SDIRA to buy investment property: You cannot take advantage of depreciation on the property, so you lose out on some tax benefits; You cannot receive any immediate benefit from the investment. All returns from the investment belong to the SDIRA.
Another option is to become a private lender. Basically, you are becoming the bank, lending money on a short-term basis, to a real estate investor. They benefit from quicker and usually cheaper closings and you as the lender benefit from the interest earned by lending the money, which usually is more than you will make in the bank or other investments.
Hopefully giving you this overview of different types of investing will help further your knowledge and be a starting point for your own investigation into how best to invest your money.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
If you like my posts, please share them with others and subscribe to this blog.
Things I Think About... 