Heading up a property management business is no joke. Employees, friends, and family don’t often see the blood, sweat, and tears that you pour into your company. If you’re looking at how to grow your property management business, it’s tough work and is not for the faint of heart.
As I’ve scaled my CPA firm, The Real Estate CPA, I’ve noticed that most of the companies that we work with follow the same general path as they’re scaling their property management business.
Small businesses in this stage are often made up of one or two people working tirelessly to make things happen. Many mistakes are made, and many hard lessons are learned. Some companies never make it out of this phase. In part one of this series, I talked about how to avoid some of the common missteps in establishing bank account structures, as an example.
Prospective customers know who you are and are requesting your services. This state of hyper-growth could last a handful of months or multiple years.
Such a ceiling can be characterized by:
If you haven’t faced these issues, you haven’t hit your first ceiling yet. I know because my firm and many of our clients ultimately go through this. It’s painful, and your company is forced to mature quickly in order to survive.
This time, however, customers will be happy, margins will be higher (meaning that you can hire more employees), and you’ll have a business that’s systematized and operates smoothly.
Throughout the process of growing your business, you’ll continually hit ceilings that will test your ability to pivot and adapt. As each ceiling is broken through, the rewards become that much sweeter.
We’ve coached our clients on how to break through such ceilings; and whether you’re a property manager, real estate syndicate, or developer, the advice is relatively similar. I’m going to share some of our advice with you today in the hope that you can put things in motion now to make breaking through your ceilings easier when they inevitably arrive.
How do you charge for your services? Did you determine your pricing model based on what everyone else is charging?
Pricing is both an art and a science. Don’t be afraid to take risks and test new offerings. For example, if you have an out-of-state landlord, what would they pay for a quarterly video walkthrough of their property?
There are three main ways to price services: value, fixed, and hourly. We have property management clients that incorporate all three pricing models into their overall pricing strategy. Consider the following:
The key is experimenting to figure out what works for you.
Property managers often push back on the second and fourth points above. On #2, people think that a 20% markup on the contractor’s pricing is “as far as I can go before clients will feel it’s too expensive.” However, nearly all property managers in almost all markets charge that same 20%. On #4, clients tell us that a percentage of gross revenue incentivizes the property manager to keep the property full. That’s understandable—but it also pushes you away from taking on properties that have low occupancy and will take a ton of work to lease up. Your revenue on such a property will be low in the beginning, so you may not take it on at all—and yet, you could probably add significant value to those landlords.
The point is that you not only need to consider different pricing strategies—you also need to test them. Figure out what works for you, and dare to be different. All the while, you need to be laser-focused on margins. Companies that have a hard time breaking through that ceiling of growth usually suffer from low margins.
New property management companies typically use multiple technologies and lack standardized processes and procedures. Eventually, this will come back to bite you.
When we’re coaching property management firms, we like to imagine a scenario where a new employee joins your company, and you don’t have time to train them. The employee is totally on their own. Do you have a knowledge base that they can dig into to figure things out?
At some point, you’ll need all of your processes to be standardized and well-documented. They should be so easy to follow that anyone could do it. This is a painful process, but lends itself to scale quite well, especially for service-based firms where your revenue is largely based on the time that you spend working.
You will discover creative ways to identify and eliminate routines that are no longer benefiting your business.
For example, you may be tracking financial data on Google Sheets and running bill-pay through third-party software. You might be calling contractors on your cell phone, delivering custom reports to clients that take forever to create, and writing tasks down on sticky notes. What a mess.
Deciding to deliberately systematize your business allows you to take a hard look at how you run your company and work directly on improving it. It allows you to ask tough questions and visualize the “perfect” way to run your business.
For our clients, that “perfect” business is one that’s fully automated. That means using property management software like Buildium that offers resident and client portals and a bill-pay solution, a contractor solution, and an accounting solution all in one place. It means building in triggers and tasks so that your employees know what to do and when, while also allowing you to monitor the completion of such tasks.
As our clients implement better systems for their business, they find that they have more free time. The business will begin to run itself, and the owners can focus almost entirely on growth instead.
You can start systematizing your business right now. Brainstorm a list of the business-related tasks that you’ve worked on over the last 24 hours. Reflect on that list and ask, “What technology can I buy to eliminate this task, and can that technology integrate with my current platform?”
Without excellent systems, you likely don’t have a way to track and analyze the data that you need in order to grow your business. If you aren’t tracking the right data, you’ll have little to base your business decisions on other than instinct—and instinct will only get you so far in the competitive sport of business.
The data that you track will be unique to your business and the way in which you operate it. I encourage you to explore key performance indicators (KPIs) for property management companies. You want to be measuring financial data, such as revenue and margin; operational data, such as turn-around time and quality; and client experience data, such as net promotor score.
One simple way to gain massive insight into your business is to start tracking time. I know, I can hear you groaning: “Listen to this CPA telling me to track my time—yeah, right!”
Believe it or not, I had the same reaction when one of my employees suggested that our firm begin tracking time. We were hitting that first ceiling after experiencing hyper-growth, and we didn’t have much data to base decisions off of. So, we implemented time-tracking—much to my chagrin—and I was blown away with the data we collected as a result.
We found out that employees were spending way too much time researching tax laws when another employee already had the answer. We found that employees had natural abilities to perform certain tasks quickly, where other employees took two to three times as long. We also found clients that we had significantly underpriced.
Time-tracking is easy to implement and will offer you unique insights into how and where you and your employees spend your days. If you’re not careful, however, time-tracking can easily provide you with awful data.
If you start tracking time, you must always resist the urge to use time as a performance management factor. For instance, many CPA firms use ‘utilization’ as a performance metric. You are assigned a utilization rate—say, 93%, which means that you must bill 93% of all working hours during the year, equating to 1860 hours. If you hit your utilization, you get a raise. If you don’t, you don’t.
Using time as a performance factor will encourage employees to flub their time card. “I worked 7.5 hours today, and I have nothing else to do, but I need the extra hours so I’ll add one hour to a client and no one will notice.” This happens all the time.
To avoid this, we continually remind our employees that time will never be a factor in their performance review. We also explain that an 8-hour work day is obsolete and based on industrial-era methodologies. What we care about is getting the work done in a timely fashion and adding value—and we want time accurately tracked so that we can manage capacity and know when it’s time to move people around or bring on new employees.
We coach our clients on the same thing. When they implement time-tracking, it’s tough to get used to. However, the data that you receive—as long as you constantly remind employees to track their time accurately and give them no incentives to flub it—will provide awesome insights into your business’ operations that you can take immediate action on.
As stated, Buildium will give you operational efficiency across multiple spectrums. Here’s a list of other technology I’d recommend checking out as you’re scaling your property management business: