Analysis of Income and Expenses
Sources of income
Commissions from direct brokerage
Commissions from referrals
Property management activity
Fees from related activities
Trend analysis and projection
Projecting business activity for a newly established firm
Identification of cost centers within the firm
Calculation of marginal (variable) 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.
Liability (Errors and Omissions)
"Key person" life and disability
Flexible (or moving)
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
Company checking accounts