Are you running your business, or is your business running you? A consistent theme echoed throughout the BiggerPockets community is the idea of developing systems to streamline your investing business.
After all, one of the biggest draws of real estate investing is the ultimate goal of gaining passive income. Many investors struggle to achieve this passive income because they get caught up in the day-to-day operations of their business. An investment business is successful to the degree that it is scalable. To be scalable, processes and systems must be built, documented and executed.
One of the most popular business book recommendations on the BP Podcast is The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About it by Michael E. Gerber (Josh and Brandon interviewed Michael on Podcast 125!). The basic concept of The E-Myth is to work on your business as opposed to working in your business. To help you achieve this level of entrepreneurship, you must understand the big picture of your business.
What does your business do, and how does it do it?
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Business Process Framework
As an operations consultant, the business process framework was the bedrock from which I assessed the efficiency and proficiency of organizations. I have spent countless hours interviewing employees of Fortune 500 companies to gain an understanding of how they do their jobs. A key reference point within the world of Operations Management is the Process Classification Framework.
This framework outlines a generic set of business processes and several layers of sub-processes that one would expect to find in an average organization. We used this framework to document the tools, processes, and resources utilized to accomplish tasks within an organization. Once we have completed this documentation, we are able to illustrate the big picture or view of the organization.
To gain a strong understanding of your real estate operation, you should create your own process framework that is unique to your investment business.
Outlining Your Business Processes
Start by making a high level outline of your business processes. Ask yourself the question, “What are the different things my business does?” If you are a buy and hold investor, this list would include processes such as acquiring property, arranging financing, managing property, accounting, selling property, etc. These processes can then be broken down into one or more sub-processes. Eventually, you will have established a high level outline of the core functionality of your business.
Below is an example of what your outline may look like:
- Fill vacant units
- Develop rental strategy
- Specific necessary repairs/improvements
- Determine marketing channels
- Establish rent price/security deposit
- Plan rental timeline and establish key milestones
- Prepare unit for rent
- Notify tenant of landlord access schedule
- Perform necessary improvements
- Perform final make-ready/clean-out
- Execute marketing campaign
- Create rental advertisement(s)
- Update/renew advertisement(s)
- Manage inquiries
- Receive rental inquiries
- Respond to rental inquiries
- Schedule appointments
- Confirm appointments
- Develop rental strategy
- Receive & Process Rent
This exercise may seem laborious and tedious. However, I can assure you that creating your business outline will force you to take a deep look into the core function of various areas of your business. You may be surprised that, while most of your business exists in your head, there are some areas that may be neglected.
After you create your business outline, it’s time to add some meat to your business process framework.
Business Process Framework: Your Business Owner’s Manual
Imagine you plan to branch out and franchise your business. To ensure consistency among your franchises, you would need to create comprehensive documentation as to how the business works. How would you write the owner’s manual for new franchise owners? The business process framework is a great place to start!
Your business outline should act as a table of contents for your business process framework. Your next task is to dive into each of the processes and sub-processes from your outline and indicate how the process is executed. In the simplest form, you want to answer the who, what, where, when and how of the processes within your business.
Below is an example for the sub-process of “create rental advertisement(s).”
Create Rental Advertisement(s)
- Who: Nick
- What: Digital rental ads for vacant units. Include:
- Monthly Rent
- Target Lease Start Date
- Key features
- Pet Policy
- Nearby Attractions
- Contact Information
- Link to Application
- Where: Craigslist/Postlets
- When: At least 3 weeks before target fill date
- How: Publish ad on Craigslist/ Postlets. Web form allows interested tenants to submit application. Application goes to Podio. Nick is notified and a task is created to review the application.
The Journey is as Important as the Destination
There are obvious benefits of having your entire business process framework completed and thoroughly mapped out. This document will serve as the foundation for your business operations. As you begin your investing career, it is likely that you will personally be responsible for many of the steps within your framework. As you grow, you will hopefully be successful in outsourcing to employees and/or third parties. Your owner’s manual will serve as a great basis for your training material!
In addition to the benefits of a documented business framework, the exercise itself is extremely valuable. Documenting your process framework will force you to take a holistic view of your business. You may find holes in your business and opportunities to automate and/or improve your processes.
For example, as a beginner I used Microsoft Excel to manage the finances of my investments. As our business grew, I transitioned to Quickbooks Online.
A not-so-obvious example can be found in the area of managing maintenance requests. How many of us are still waiting for the phone to ring to respond to property maintenance requests? Why not investigate free or inexpensive options for bringing this process online?
A review of your business process framework will force you to reflect on your processes and find opportunities for improvement.
No matter how simple or new your real estate business, we can all benefit from building a business process framework. In fact, it should be very easy to document your business when you’re just getting started. Building a dynamic process framework will be extremely valuable as you add services and grow your business.
What kind of process framework have YOU developed for your business?
Let me know with a comment!