Cash Flow Management Tips for Real Estate Investment Firms

While the practical side of real estate investment is crucial, the back-end administrative side is just as important to get right. Poor cash flow management is the source of demise for many different business models, and real estate investment firms are certainly no exception.

Mastering the Art of Cash Flow is Key to Successful Real Estate Investment

There are plenty of good reasons for real estate investment firms to develop a healthy, functional, and sustainable cash flow system. Inefficient cash flow management can make it hard to shift properties, cause tension between investors, and contribute to general financial loss.

Ergo, the incentive for efficient cash flow management is high.

But if you needed any more reasons to streamline this integral aspect of real estate investment, here are a few more:

• Maximizes Returns – When your cash flow is reliable, turning over properties becomes easier, which leads to bigger financial returns.
• Allows you to Cover Unexpected Costs – Natural disasters, break-ins, and wear-and-tear are all potential issues that you may not see coming. You can protect your firm from allowing these unexpected costs to throw you under when they do inevitably occur.
• Prevents Legal Drama – A smart cash flow system makes it easier for you to keep your financial affairs in order and ensure your taxes and bills are always following the law.

 

But creating and managing a sustainable cash flow system isn’t as simple as it might seem. It requires serious time, effort, and experience to develop an efficient system that will withstand the test of time.

Here are eight tips for real estate firms who want to manage cash flow more effectively.

1. Utilize Software Tools

We’re lucky enough to live in a day and age where digital tools are just as widespread and accessible as physical ones. Businesses from every sector, including hospitals, construction companies, and more, are using financial technology to improve their cash flow, and it’s time for real estate to join the party.

A financial software tool can not only help your firm regulate its cash flow but also make sense of it in a way that’s easy for everyone to understand. These tools can provide data insights highlighting potential risks, help you track your growth, and to create useful infographics. To make things even simpler, there are plenty to choose from online.

2. Don’t Grow too Quickly

Growth is usually a good thing, but when it happens too quickly, problems can arise.

Before your firm can ramp up to invest more, it may need to reassess staff levels or buy more raw materials to take care of the existing properties. Create a cash flow system that mitigates long delays between cash flowing in and out of your business.

3. Identify Issues Early and Deal with them Promptly

If something doesn’t feel right, it probably isn’t. When you encounter an inevitable blockage or issue with your cash flow system, don’t ignore it. Take it seriously and deal with it as soon as possible.

For example, if vacancy levels are taking a dip, or your operating expenses are too high, don’t wait for it to get worse. Figure out what’s causing the problem and take action. Like most problems, cash flow issues won’t go away on their own.

4. Know the Market

The more you and your firm understand the current market, the easier it will be to identify, address, and even predict cash flow problems before they arise. Keeping up to date on all the latest property trends and buyer behaviors is key to ensuring you have a strong grip on cash flow.

5. Educate All Members of the Team on Financial Management

It might surprise some people to know that only a small percentage of investors are considered to be financially literate on a professional level. Of course, you need to know the basics to participate in property investments. However, there’s no harm in refreshing your team’s financial memory and skills.

Your firm’s approach to cash flow management will be much stronger and less vulnerable to error if everyone on the team has a keen knowledge of how it works.

There is also significant evidence to suggest that upskilling programs within businesses lead to improved productivity, building competitive advantage, and saving money.

6. Nominate a Cash Flow Manager

While getting everyone involved in the cash flow management process is a good idea, it can also be extremely beneficial to designate one person to focus on this task exclusively.

Having a cash flow manager means that you don’t need to worry about important details falling through the cracks. Plus, everyone can focus on their respective responsibilities in a way that is more concentrated and effective. This role can be outsourced or in-house.

7. Frequently Draw Up Financial Projections

Sort out your financial affairs and meet with your team regularly to discuss them. If you can keep tabs on your cash flow and know how to calculate the profit margin, you (or a designated cash flow manager) can draw up projections that paint an accurate picture.

Financial projections are similar to risk assessment graphs. They help you not only make sense of your current cash flow situation but also to make predictions about what its future might look like. These predictions could be both short-term and long, and allow you to chart your growth realistically.

8. Make Cash Flow Management a Priority

At the end of the day, all the tips on this list point to making cash flow management a top priority for your real estate investment firm.

Don’t set it aside or underestimate how much it can influence the outcome of your investments. Take it seriously and make it a central part of how you manage your business.

Final Thoughts

Real estate investment is a complex occupation that often comes with more responsibilities than meets the eye. But cash flow and financial management are two things every firm needs to have a strong grip on if their projects are to succeed.

With these useful tips, any real estate investment firm can build a solid foundation that will allow them to thrive. Now and in the future.