We Are Selling with Lee Woodward
We Are Selling is a weekly podcast about real estate, business and tackling life's challenges. Hosted by renowned real estate industry coach, Lee Woodward, learn from experts in their field and maximise your life.
We Are Selling with Lee Woodward
Gross Commission Isn’t Your Bestie, Leftovers Are with Mai Harris
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We share practical ways to keep more of what you earn by choosing the right structure, building cash flow discipline, and planning for profit first. Accountant Mai Harris also maps a clear path into property, super, and teaching money skills to the next generation.
• choosing PAYG, sole trader, or company for commission income
• setting a base wage and pre-allocating tax, GST, super, and marketing
• understanding gross margin, break-even, and monthly reviews
• avoiding tax shocks with reserves and automation
• funding assets with profit, not hope
• when property makes sense and how to avoid cash bleed
• using super and SMSF to build retirement income
• defining financial success as freedom of choice
• a plan to teach budgeting and tax basics in schools
Hosted by Lee Woodward Training Systems
Brought to you by The Complete Salesperson Course & Super Coaching Program
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Hello and welcome back to the podcast We Are Selling. Today we're going to have a look at being smart with your money, what you need to know, and all the mistakes that many of us make who generate so much income, but what is left over becomes very important. No matter if you're a salesperson, property management, principal, we have a we have a top-line accountant with us today with an amazing story. Please welcome to the program. Mai Harris. Mai, welcome aboard.
SPEAKER_00:Thank you, Lee. Thank you for having me.
SPEAKER_01:Mai, you have an amazing story. And I'm going to get you to share that with us because you came over here from Thailand when you were 13, you spoke no English whatsoever, and was thrown into an Australian school in Morissette. That's right. Take us into that time.
SPEAKER_00:Yeah, it was a very challenging time because I came to Australia when I was 13. And yeah, within after the first week of being here, not knowing very much English at all, I was thrown into Morissett High School. So that was such an experience. So you sink or swim at that point.
SPEAKER_01:Absolutely amazing. And let's go deeper into that. How did you become an an accountant?
SPEAKER_00:I always have the love for numbers. So I try to figure out what I can do in life to better myself because I look around and I have a look at where my mum lives, and I feel that I want to be financial independent in my own life. So I had a look at the jobs ads back then from the newspapers, and I can actually see that there are lots of jobs for accountants, pages upon pages. So I said to my mum, you know what? I think that's what I wanted to do. I wanted to um be financial independence and I I want to become an accountant.
SPEAKER_01:Absolutely amazing. So off to Sydney you go, you're very young, you get a job as a trainee accountant, you are studying at night while still traveling back and forth, and today you've got your own accountancy firm.
SPEAKER_00:That's right. We're a team of 12 and all of our staff are well trained. I'm very lucky. I have three very qualified managers, chartered accountants with lots of experience. So my team is everything to me. They really support me and support the business.
SPEAKER_01:Well, congratulations and thanks for sharing the background because people come on the program and we're about to give financial tips and things that you need to do in the technique and what you need to know, but that background levels it all up to the journey ahead. So my I've got a job for you today. We've got all different types of people listening to us, and you look after all different types of small businesses, public speakers, events companies. You have this incredible gift of bringing that all together and giving the financials. Let's take a real estate commission-only agent. What are some of the go-wrongs that people do with their financial structures when it comes to they might be earning it, but what do they need to do to set themselves up to best retain it?
SPEAKER_00:For those who actually are subcontractors, usually on a commission-only arrangement with the real estate, we actually, well, from my professional opinion, you should form a company so that you can have flexibility in either you want to pay yourself wages or you'll pay tax in the company and pay yourself dividends in the future. But it depends on the arrangements that you have with the real estate, its um business itself. Because a lot of the time I get that question from the real estate agent whether or not I should um get out of being PYG employee, or should I start my own company or trade as sole traders? And often it depends on the arrangements with the licensee. Because if you actually very well have self-disciplined, maybe having your own trading structures might suit you better because you have flexibilities in terms of claiming tax deductions and um choosing where you want to operate for from and also making the most out of having your own business. However, if you are struggling to um manage the the cash flow, for example, paying for your own tax, paying for your own super, and um and then paying, you know, for your business expenses, like um business expenses, you should really just maybe stick with being POYG. The reason being they will pay POYG withholding, which is tax on wages for you. You'll get super, you also don't have to worry about the overheads.
SPEAKER_01:So, really, administration is really about business maturity, isn't it? I'm gonna run this. Yes, there's so many advantages by being a company structure versus uh a sole trader.
SPEAKER_00:Yeah.
SPEAKER_01:But you as a person have got to be the person who's prepared to do that. And depending on your goal, your dream, so for a lot of our listeners right now, uh, they're coming into this structured time of, okay, I've done really good. I'm gonna put on some extra people. And this is where I think the game really changes because who's employing those people becomes the next question. What's the advantage of that? What are some of the go-wrongs that you see of that?
SPEAKER_00:The go-wrongs that I see when people actually making a decision to become their own boss, you know, um trading under the sole trader arrangement or the company companies' arrangements is when they haven't allowed a certain amount of their income for taxes. A lot of the time they can see the money c money coming in, they didn't realize that they actually have to put away a certain portion of it for GST, for the, you know, um income tax, and also for other business expenses. And that depends on the size of your business as well. So if you have employees, it takes someone to to really be self-disciplined because you need to understand that you have um employees' obligations, like paying for their super. That's the main thing, that's a big thing, and also have enough money to pay for their taxes as well.
SPEAKER_01:Well, that was so well explained. And for some of our agents thinking I'll be a company, don't forget that when you are employed and you are getting commission, you do get the benefit of the super. Just explain that to us.
SPEAKER_00:Yes. Generally, when you actually get pay commission, you get 12% super on top. That's a responsibility of the employer to do that for you. However, when you negotiate your commissions and you're actually you're not the employee anymore. You become perhaps a subcontractor or um you operate under the real estate, under uh companies, or a um sole trader arrangement, you may not think of that. And you might just miss out on that 12% super on top of your commission. So that's something that a lot of people need to think about.
SPEAKER_01:Yeah, you're short-changing yourself there, and depending on your goals, your vision, your dream, and as you said, the arrangement with your employer, contractor, whoever the group you're working with. And mine, we've seen this happen as an explosion across the country of a lot of agents now going out on them by themselves, under a brand, but working from home, and they've got to book a business and off they go. Some do really well, a lot feel very lonely. Rocking up to an office with 12 people is a good feeling versus working in isolation all the time. But for most small businesses, would you agree the challenge starts in the beginning of there's no budgeting or reporting at all, we're just gonna go hard, the commission's come in, the amount of agents who've rung me at times to say, oh, I've got a 180 grand tax bill and I don't know where I'm gonna get it from is exactly what you were saying. It's not being compartmentalized out into the fees that have come in. So in this financial structures, a lot of agents will look at the full commission and say it's mine, versus wouldn't they be better off to say I'm gonna take a salary in the company as someone would, and then I'm gonna put money away for marketing, I'm gonna put money away for tax. And what's left over at the end of the quarter, month, whatever, I can then decide upon if I'm gonna pay myself a bonus at that point. But you can't just take it all.
SPEAKER_00:That's right. No, I totally support that. So uh for agents who are thinking of getting out there on your own, my recommendation is to just put some time away to think about, you know, how much money you need to make to um pay for the essentials, pay for yourself, take it almost like what is the minimum wage that you can take, and then also have a look at budgeting. That's the key. Put away, you know, the figures that you require to pay for the business operating costs, and then you can have a look at okay, what are my potential net profit after you know paying myself, paying for the business operating costs, and then don't go out and spend that money. You need to understand that you need to put a portion of that, and generally it's 25%, towards income tax if you're making money. And also, you know, put some money away for a rainy day. So you should have reserves that you built up every month, and that way you are not staring at uh, you know, cash deficit at the end of every Baz, for example. So you you should always have some reserves if you can.
SPEAKER_01:What an interesting way of looking at it. Unfortunately, and everyone's gonna agree, listen to me, this, listening to me on this point right now, that the Australian real estate industry looks at one number, the gross commission income. And I wrote 1.5 million in fees, I write 500,000 in fees. None of that matters if there was nothing left over. And there's people out there going so hard, and I see them thinking, wow, you know, you've got 30, 40 vendors, you're you're working seven days a week, but you earned more money when you were by yourself because there was more left over. Do you see a lot of that in all small business?
SPEAKER_00:Absolutely. So a lot of businesses actually look at their turnover and not their leftovers. It is highly recommended to review your profitability position to me on a monthly basis with your accountant to make sure that you understand your fixed costs and um your variable costs, and also work out what is your gross margin because that will drive how much you actually earn. What's the leftover at the end? You need to review the spending compared to the amount of money you bring in. So gross margin is something that you need to understand as a business owner.
SPEAKER_01:Explain gross margins.
SPEAKER_00:Okay. So gross margin is your turnover, your sales, which is your commission in this case, and then your cog, which is cost of goods sold. What is cost of goods sold? Cost of goods sold are the expenses that's associated with you producing that sales. So that could be, you know, your advertising costs, your marketing, if it's actually directly associated with um how much you earn. So and maybe your referral fees.
SPEAKER_01:So if an agent's looking at a house, going on the market, the owner didn't want to do all the advertising, and the agents quite often say, look, we're gonna put in for a couple of ads, we're gonna pay for this, we're gonna pay for that handyman to go over. That's all associated to the cost of goods sold. It's directly it's directly.
SPEAKER_00:Yeah, it's directly related to producing that income. So that's usually what is the cost of goods sold. So uh to make it simpler, like for a cafe, for example, so the cafe sells food. So the um turnover are the costs of, you know, um well, the income from you know selling the the food, and then the cost of goods sold is actually the cost of groceries, you know, and the cost of packaging um for takeaway and the um cost of cleaning, for example, because you must do that. So it's gotta be directly associated with your income.
SPEAKER_01:And my I haven't mentioned it on the program at the moment, but you're our accountancy firm that looks after the wonderful Lee Woodward Training. That was a big transition from us from academy to becoming Lee Woodward Training. You came highly recommended, and it's been wonderful. But one thing that you've really helped me with, and I want to bring this into the audio of context, is planning. That structure of what we're trying to achieve, how does that work, take us into what a business owner or a leader of an effective business unit, a little mini team, what planning should they be bringing in place?
SPEAKER_00:To start off with, it's January now, and um I really believe that every business owner need to actually sit down and do an annual planning. So an annual planning should consist of, you know, what you want to actually achieve this year in terms of net profits, and then you can break it down to a monthly net profit target. Show it to your team, communicate that to your team so they're actually on the same page with you, but then you need to go through your annual budgeting and then make sure that all the numbers will work, how much turnover you require, at what gross profit margin, and in order to cover all your operating costs, and then your net profit will be what you project it to be for that year. But the most important thing is don't look at what I need to earn in a m on a monthly basis. It's start off with an annual target projection first, look forward to the 12 months and then break it down because it's always um the goals, the ultimate goals first, and then the next step is to break it down to smaller chunks, so monthly, and then review it and know your numbers.
SPEAKER_01:So everything was digital, and the web shop was connected to the database and it would refresh every 15 minutes and it would show us the sales of the day. And very funny story, and I hope this young lady who's grown up is listening to this right now. Our wonderful receptionist said, Oh, Lee, you must be ecstatic. We've done$6,000 and it's not even one o'clock. And I said, Hey Shannon, uh let me know when it hits nine, because that's what it costs a day for us all to be here. And and if it gets above nine, um we're okay. If it's below nine, it's not a good day. But understanding the break-even of the day, everyone would watch the plasma all the time and it'd make you think, what can we do? Now that was daily for accountability, it was great. But unfortunately, a lot of people look at the business owner and think, you're just earning a fortune, because they look at that total gross income. But what's left over and the cost of running a business for our business principals out there, it's higher than it's ever been. And yet we're seeing people say, I want bigger commission sweats and so forth. And there's just so much happens now with the tech stack, all the communication tools we're using, all the social media accounts. Like the tech stack is way more than rent of all these tools we're using across all small business. What are you seeing there?
SPEAKER_00:I've seen it all the time, you know, where um the business owners are actually quite frustrated and they're expressing themselves that, you know, um look at, you know, the employees are looking at the turnover, but they don't realize that it actually cost um X amount of dollars to actually run a business day to day. And I I believe that it might be the case where you they haven't been educated. Your team, you know, haven't been communicated to.
SPEAKER_01:Well the transparency of how it's trying to be here.
SPEAKER_00:And that's right. And I think that might be an important factor that a lot of business owners uh uh don't want to share that kind of information. But it might just provide them with the understanding that they need so that they're not trying to hit you up for more and more and more because they they understand that yep, you have to actually run a business at a profit in order in order to have the reserve that you need to actually pay for the liabilities like super taxes and also unforeseen business expenses. If you actually don't communicate that, you're going to continue to experience that frustration when your team members just having a look at high turnover and just hit you up for more.
SPEAKER_01:Yeah, it's like having a superstar player at a soccer club who believes they are the best and that the reason the club's winning, but that doesn't mean you should go and start your own soccer club because being part of a team is being part of a team. And for all our principals out there, it's never been tougher than it is right now to be in business, medium size, large size, small business. And for anyone who works in the business, have an understanding of that because it is, it can be a very dark time when things aren't going to plan, there's a change in market, COVID hit, these things have impact. Let's progress forward. Let's say we've got our structures right, we've done our budgeting, we now have decided which business lane we're going to be in based on our personality, and we'd actually earn some money. And my one thing you've done incredibly well, separate to being an accountant and having an accountancy firm, is you passionately believe in property and you've built a very good, solid property portfolio. What's your advice in there of all these people that work in the real estate space, but they don't actually buy back into real estate?
SPEAKER_00:Well, my advice is you know, you've got to. Start somewhere. Start with one. And a lot of people have this crazy dream that they want to have such a massive property portfolio. Some just go, oh, I just want 10 and 20. Well, then you need to look at your cash flow. You don't want to bleed all your cash flow. And then if something goes wrong, for example, you have five rental properties and they're all negative gearing, you know, that means you actually have to top up every month. So if you have five, that's a lot of money. So will you be able to, you know, top up the loan repayments? Or, you know, if you don't have a renter for one or two of your rental properties, well, you're going to go down pretty quickly. So to me, you're just going to have to plan this ahead rather than just go, yeah, I'm just going to go for it. So best that if you actually own a property yourself, like your personal home, you know, and um it has equity in it. My suggestion would be have a look at your borrowing capacity and then have a look at your equity. And if it all goes well, your mortgage broker actually advised you on how much you can actually borrow for an investment property and you have enough equity, enough cash flow to support any deficits, well then go for it. Start and then have a look at the market. You're in the market anyway. So you can see, you know, the ups and downs of the real estate market. And um when it actually goes up, or you can actually get the market valuation done every couple of years, there'll be more equity there. So borrow from the equity that you have and um buy another one. Or don't be afraid of just cash up, you know, the your investment to buy a better one that would give you a better rate of return.
SPEAKER_01:Isn't it interesting? It's like the circle of life. In the first part of this audio, we're speaking about budgeting, how much you need to live, and so forth. And we've got a lot of senior agents that listen to this program due to time of industry, and they're coming up to their retirement age where they're thinking, okay, I'm gonna hang up the boots, I'm not selling real estate anymore. How much money do I need to live? becomes the next question. And if your own home has been paid out, how do you even approach answering that question? Or what do you see people having to do to do that well?
SPEAKER_00:Well, to do that well, you kind of need, you know, different nest eggs. So if your home's paid off, you don't really need excess, you don't really need the cash that you're making, perhaps make super contributions and just review how much you can make as a maximum super contribution for the year. Your account should be able to tell you that. And then also, if you're actually in your 40s and your 50s, it might be a good idea for you to review how much you have in your super fund. So, because once you actually retire, and we all hope to retire at you know, um, the age of 60 and um start working, then. So the good news is when you actually um have a lot of money in your super and you turn 60, you can actually retire. And what happened at retirement, you can access um you your preservation age is 60. So what does it mean? It means that you can actually access your super benefits. And if you have a self-managed super fund, for example, yes, that's quite easy as well. So if you have a strategy to build a portfolio, it might be a good idea to do it under your self-managed super fund so that you can actually inject super into your own super and pay off the debt or extend your investments in your own self-nessed superfund that way. That will accelerate your Nestex by far. That's you know the to me, that's the fastest way to grow wealth.
SPEAKER_01:What an excellent explanation. And obviously, you have ours structured in that way. And self-managed super, I'm amazed how many people don't know about it, haven't investigated it. But when if you want to start buying properties, a self-managed super fund, and you're allowed four members of your super fund, so it could be husband and wife, children, it could be two other business partners, that gives you an amazing control over that wealth. Final questions for you. How do you define financial success?
SPEAKER_00:Financial success is very different to a lot of people. And it's not about amount that you have, it's about amount that makes you have the ability to enjoy life the way you want it to be. So, main thing is about live comfortably, being ha able to do whatever you wanted to do when you retire, whatever you want to do in life, really. There's no limitations there. Financial success is when you not making compromises. And to me, it doesn't have to be a lot of money, but it needs to make you feel fulfilled and satisfied with your life, with what you have. That to me is financial success.
SPEAKER_01:My brother, who's not that old, has retired very early. And I was with him the other day, and I said, What are you enjoying most about retirement? He said, No schedule. I don't need to be somewhere appointment after appointment after meeting, after Zoom, after this, after that. Each day, and that was his measurement of success: that I don't actually have to be anywhere. I can take every day as I wish. If I want to take off on a plane tomorrow, I can, if I want to stay here, whatever. But that choice is quite amazing. Now, my just before we wrap up, you have a very passionate goal that you're gonna fulfill uh in the next year, two years. We'll see how long this takes. And when you're explaining this to me, I just think it was such a valuable part of who you are and what you do. Take us into your passion of what you want to do.
SPEAKER_00:Well, my my passion, um, I always thought this, you know, like why am I talking to so many people that in financial hardship? And how can I help the future generation to not be in this position? And why are we not teaching just, you know, basic budgeting skills, you know, our taxation systems, what they need to do when they actually got a job. You know, they actually need to lodge their tax return. To me, it's not actually the parents' job to educate their children about these things. Because um, let's face it, a lot of them are struggling to understand that part themselves. So it would be a game changer for the education system to include this as a program for high school students. So my passion in the next five years is to start up a not-for-profit organization that goes to high schools, teaches uh high school students to do budgeting, simple budgeting, and understand how to, you know, spend their money, how to save money, and also what are the basics understanding of, you know, the tax taxation systems that we have today and what they need to do in order to arm themselves when they leave school and get themselves a job. So it it's not such a minefield for them, and it's not a burden to society and also their their family.
SPEAKER_01:Well, that is such a brilliant and wonderful thing, and you have thousands of thousands of parents listening to this audio right now thinking, I wish someone would get through to my son, my daughter, the importance of this, because they don't care, they don't think about it. And I think we all left school and none of us knew anything. But if that was taught at school, that would be absolutely amazing. We'd have better business maturity in the future businesses that have been opening, and when they join the teams and work alongside other people, there's an understanding, whereas right now there's a void of what the schools teach, and then they're out in the real world. If you could fill that gap, that would be absolutely amazing. I want to thank you for appearing on We Are Selling for a very different topic this week. We've had many people request things about financials. Mai Harris, thank you for joining us.
SPEAKER_00:Thank you, Lee. Thank you for having me.