How to avoid being ambushed by a cash flow crisis

The war in Iran, a significant increase in mortgage rates, coupled with higher gas prices, has made the spring selling season one of the toughest markets we have seen in years.

Many real estate agents and brokers had already had a low income year before 2025, and current events are taking an even greater toll this year. If you’re struggling to make ends meet and the transmission in your car dies, you get sick, or some other disaster strikes, what can you do to avoid being decimated by a cash flow crisis?

A major challenge that every business faces is managing cash flow. Cash flow is what we have left after we make all the deductions necessary to run our business, including car expenses, computer equipment, marketing, accounting, software, etc.

Another way to look at cash flow is the money available to support the operating needs of your business. You can be profitable at the end of the year and still have a cash flow crisis. This is especially common in real estate, where you may receive one large check and then wait several months before receiving the next one.

Cash flow is extremely important because without cash flow your business stops.

5 Steps to Avoid a Cash Flow Crisis

To avoid being ambushed by a cash flow crisis, take the following steps:

1. Build up a reserve

The easiest way to avoid being ambushed by a cash flow crisis is to build up a cash reserve. Ideally, you need at least six months of income in the bank to cover all your expenses. You should actually have a separate reserve for both your home and your business. To build your reserve, start allocating a portion of each commission check to your cash reserve fund.

2. Make prospecting time sacred

Failure to prospect regularly is a major reason agents experience a cash flow crisis. If you’re facing a cash flow crisis, get started calling past customers, speaking to owners of expired listings, holding open houses during the week, or doing anything else that has generated leads for you in the past. In other words, make sure you bring as many potential customer leads to the forefront as possible.

3. Monitor and shorten market time

What was the average time it took to sell each of your listings over the last twelve months? How many houses did you have to show to a buyer before he or she bought? If you do not know the answers to these questions, it is important to start tracking this information immediately.

You could sell exactly the same number of properties as last year, but if you halve the time on market or the number of homes you show to buyers, your profitability (the money you keep) will increase dramatically.

4. Calculate the opportunity cost

There are fees associated with marketing a property or taking buyers to view properties. For example, when you spend time selecting a buyer, your “opportunity cost” consists of all the other activities you didn’t do that could have generated revenue. That’s why it’s always smart to ask, “Will working with this buyer or seller or conducting this activity provide the highest return for my time?”

A slightly different question is: “What can I do that will give me the maximum return for the minimum amount of time invested?”

5. Create a percentage budget

Do you have a budget for your business? If so, is your budget fixed or is it a percentage budget?

A fixed budget means you allocate a certain dollar amount for each item. In some cases, budget items are fixed, such as board membership, errors and omission insurance, etc. However, some items are not fixed. Examples include marketing costs, advertising, open house costs, etc.

With a percentage budget, you only spend a certain percentage of your income on these expenses. In other words, if I spend 10 percent of my gross sales revenue on marketing and I earn $2,000, I should limit my marketing expenses for the month to $200. If my income this month is $8,000, I can spend $800.

This approach allows you to easily adapt to fluctuations in your income while keeping your cash flow under control.

How to deal with a cash flow crisis

1. Pay in cash

Paying for business expenses with a credit card can be convenient, but it’s also an easy way to get into trouble. A better approach is to use a debit card or check. If you run out of money in the account, stop spending until you do.

2. Be careful with credit cards

If you must use a credit card, do your best to pay off the full balance each month. Otherwise, you’ll end up paying an extra 12 to 29 percent per year in credit card interest. This is the least effective way to deal with a crunch.

If you need to borrow, consider opening a business line of credit. Many local investment banks, as well as some credit unions, will be happy to work with you if you have good credit and are willing to run your commission checks and credit card charges through their credit union.

3. Become your own bank

Do you have money in a retirement account? If so, liquidating it could cost you a huge amount of money. A better approach is to borrow against the account.

For example, one of my friends has some money tied up in an LLC that holds stock. Instead of selling shares when he needed money, he took out a loan at 6 percent interest. Because he has two other partners, he paid four percent of the loan to his partners and the remaining two percent to himself.

Be sure to always check with your CPA or financial advisor about the best route for your personal situation.

With a little planning and forethought, you can avoid a cash flow crisis in your business and keep your commission income high all year round.

Contact your CPA, pay with cash or use a debit card if possible, avoid those impulse purchases, and look for ways to reduce retail company fees for your phone, insurance, and other services that may be available at a lower cost.