BAM’s Key Details:
- BAM hosted the first of four webinars with Shahar Plinner, the founder of Formations, and Patrick Olp, Formations business consultant
- The purpose of this webinar was to highlight the financial systems industry professionals need to set up to get their money right and prepare for a profitable tax season
Eighty-seven percent of real estate agents fail. And that number never seems to change. It doesn’t matter if you’re a solo agent, if you’re on a team, if you’re the broker or the team leader.
And if you don’t set yourself up like a business, that’s one sure way to drop into that 87%.
Whatever the market and regardless of the resources you have at your disposal, we’re working to elevate the industry and reduce that number.
And a lot of it starts with how your finances are set up. That’s why we’re hosting four webinars with Formations, a company dedicated to helping self-emlopyed set up financial systems to maximize their financial potential.
BAM x Formations Webinar
Shahar Plinner, founder of Formations, and Patrick Olp, Formations business consultant joined Byron Lazine and Dan Oneil last week for the first of four Bam x Formations webinar.
During the webinar, they discussed three financial systems every agent should set up now, so that there’s no added stress come tax season.
As Shahar pointed out, “Tax season is an all-around task; it’s not a task that only comes around on a specific date.” Any agent who wants to create a successful real estate business needs to be prepared for tax season today—and every day.
Formations put on a flag to cancel tax season. Why chase after this artificial deadline? Make sure you’re compliant every day, that you’re reconciled, that your expenses are in, that your income is in, that your benefits are there, that you know your position. And therefore, tax filing is just a click of a button.
Three systems agents can (and should) put in place right now
So, what are a few systems agents can put into place right now to start taking control of their finances so that April deadline doesn’t come at them like a wrecking ball?
#1: Get an LLC
As Shahar puts it, “If you’re not an LLC, you’re out of the game.” A single-member LLC allows you, at any time, to do a quick escalation and become an S-Corp. You’ll still be subject to full 15.3% self-employment taxes, but LLC status is an essential first step.
This is not something to put off until you start bringing in $50K or more a year. If you’re a business from day one, your tax status should reflect that.
Also, you need to get your LLC in order before you can set up a business bank account—which is system #2.
#2: Create a business bank account
The point here is to separate your assets. Make sure you open a separate bank account just for your business income—the account where your broker can deposit your commissions.
Start getting money into the business bank account because that’s the foundation. From there, you can automatically transfer specific percentages of each deposit into other accounts:
- Personal checking — to cover the cost of maintaining your household
- Tax savings — to save the amount you’ll owe the state and federal governments
- Business checking — to pay for expenses related to doing business
- Other savings accounts — for personal or business expenses (keep them separate)
One thing you do not want is the IRS accessing your personal checking and savings accounts.
Byron’s own bank account strategy is one he adopted early in his career. To illustrate Shahar’s point, he detailed exactly what he did, before becoming an S-Corp, to handle taxes and alleviate the stress.
I stopped dumping my commissions into a personal account. I immediately opened up three additional accounts on top of my personal account. And so, I started with four accounts. I started having my commissions going into a “Business Checking,” the main account. From there, I set up automatic transfers from my Business Checking account into three accounts: personal checking, tax savings, and a savings account. Now, I have 15 different accounts. It’s a little bit more complex, but that was the foundation I started with.
Shahar agreed with this approach and cautioned agents to “Make sure you take care of yourself first.” The separation of assets is critical to this. Pay yourself first and prioritize your well-being so you’ll have the energy you need to keep leveling up your business.
#3: Invest in an accounting system
The third system Shahar recommends is to invest in an online accounting system.
You need to know your numbers. You need to get visibility into what you’re doing. You can’t make smart financial decisions in the dark. Money in the bank is fun…but some of it’s already committed. It’s not yours…Online software [costs around] $7 a month. If you can’t afford $7/month, you’re in the wrong business.
We’re using Xero at the back office for Formations because it is a native cloud-based [system]. It’s automatically connecting to your bank account, super-easy, it pulls the transactions every night…There’s a machine learning AI that, once the system learns you, it’s basically an automated bookkeeping that helps you always be on top of your expenses.
Patrick doubled down on the importance of having an automated accounting system in place and why it’s so effective.
What gets measured gets managed. If you don’t have tools in place to help you measure and objectively be able to call a spade a spade with where your business is at, you’re never going to be able to manage it properly. We see people leave thousands of dollars on the table every year because they don’t have a great accounting system that helps streamline that. So, they’re doing their expenses all by themselves. And I say to agents everyday that if you are doing your own accounting, free of some kind of software, that’s the FSBO of accounting. Dumping out your receipts at the end of the year, saying a prayer, passing it off to the CPA, and hoping for the best—hope is not a solid financial strategy.
Taking control of your finances as a self-employed agent can feel overwhelming. Implementing these three systems is the perfect place to start—and will make you a more aware, motivated, and effective real estate professional every day of the year.