CRE brokers have many responsibilities as independent contractors in an eat what you kill environment. Mimicking a regularly occurring salary can help better manage cash flow in an income environment that is anything but regular and consistent.
Most brokers are paid 1099 income and set up as an entity that is taxed as an S Corporation. This structure is the most optimal way to receive income, but it introduces many new responsibilities and deadlines to manage.
Having inconsistent cash flow is another challenge CRE brokers face. We advise so many CRE brokers that have allowed us to test different strategies to see what works best for managing variable cash flow.
We help CRE brokers start every year with a “Tax and Cash Flow Plan.” Then, using their expectation for income and a goal for retirement account savings, we project their estimated tax liability for the year.
We translate the expected tax liability into a percentage of anticipated revenue to know approximately how much cash to set aside for taxes. Knowing this at the beginning of the year helps manage cash flow better.
Because most are set up as an entity that is taxed as an S Corporation, setting a salary for yourself will be a requirement. Many factors help us determine the salary or reasonable compensation.
The salary will also include a variable component to award a bonus when revenue expectations are exceeded. So, although they will have a salary, it is not like a regular paycheck received every two weeks.
Because income expectations can go up and down dramatically, the final wages can fluctuate. Paying a salary requires running an official payroll, but this will be done only one time at the end of the year. However, you can still create the experience of a regularly occurring paycheck by setting up a monthly transfer of cash from your business account into your personal checking account.
Figure out an approximate amount of cash you need every month to pay your bills and set up an automatic transfer of that amount. Then, as you need more cash from time to time, you will slide over additional cash as needed.
Adding some consistency to your cash flow situation will help alleviate stress and give you more time to focus on your business and increase your income.
