Chapter 12
Financial Control

Analysis of Income and Expenses

Income Analysis

*   Sources of income

*   Commissions from direct brokerage

*   Commissions from referrals

*   Property management activity

*   Appraisals

*   Fees from related activities

*   Insurance commissions

*   Mortgage brokerage

*   Trend analysis and projection

*   Projecting business activity for a newly established firm

Expense Analysis

*   Identification of cost centers within the firm

*   Personnel

*   Secretarial

*   Telephone

*   Computer services

*   Copying

*   Advertizing

*   Calculation of marginal (variable) costs

*   Desk costs

Examination of the Company Dollar

*   The company dollar is that part of revenue which accrues to the firm before deducting its own costs.

*   Calculated as revenue less commissions paid to sales force deducting its own costs.

*   Normally company dollar is 40% to 50% of revenues; profit usually is about 10% to 30/5 of company dollar.

*   Thus, profit in the real estate business is generally about 5% to 15% of revenues.

*   Larger firms have smaller profit margins, but make up for it with a higher volumes of revenue

Profit Analysis of the Average Sale

*   Average cost per sale: total costs divided by number of sales

*   Sales which would bring less revenue than the average cost per sale must at least cover the marginal (variable) costs.

Cost Effectiveness of Personnel

*   Unproductive people cost the firm by not making money and by using company resources which might be used by more productive persons.

*   Personnel should make an acceptable level of profit.

Insurance

*   Property

*   Liability (Errors and Omissions)

*   "Key person" life and disability

Budgeting

*   Traditional

*   Zero based

*   Flexible (or moving)

Capital Budgeting

*   Budgeting for expansion or contraction

*   Determining firms cost of capital

*   Projecting net income from growth

*   Calculation of net present value of growth

Other Financial Control Issues

*   Escrow accounts

*   Company checking accounts

*   Payroll

*   Computerization

*   Accounting

*   Audit control