Chapter 14
The Business Plan:
The New Brokerage

Function of a Business Plan

*   Focus detailed thinking about business

*   Focus detailed planning for business and its growth

*   Attract investors

*   Attract financing

Successful Planning Dependent Upon:

*   The industry and its potential

*   The buyers and sellers with whom the firm must deal

*   The behavior of the competitors

Measuring the Local Industry and Its Potential

*   Changes in economic base of community

*   Housing starts and building permit information

*   Interest rates and interest rate trends

*   Population and household formation data

*   Change in volume of listings in market

Preparation for the Business Plan

*   Examine the firm's strengths and weaknesses

*   Define the firms primary market area

*   Geographically based (some fixed radius from office)

*   Product based (some specialized product such as condominiums or country club properties)

*   Develop demographic profile of primary market area

*   Map location and size of primary competitors whose trade areas extent into the firm's market area

*   Estimate market share

*   Develop strategies to accomplish the targeted market share.

*   Estimate the resources needed

Composition of the Business Plan

*   Cover page

*   Statement of business purpose

*   Detailed description of business

*   Marketing and advertising plan

*   Financial plan

Business Plan:
Description of Business

*   Legal form of business

*   Short description of business activity

*   Management and organization of firm

*   Names or recruitment plan for management and support personnel, job description, and salaries

*   Names of sales force or recruiting plan, job description, legal relationship to firm (IC status?), commission splits

*   Outside professional services and their costs

*   Banking plan, costs, and procedures for all accounts

*   Credit rating/reports

Business Plan:
Financial Plan

*   Financial history if applicable

*   Three or five year budget

*   Startup period (if applicable)

*   Subsequent periods

*   Sources and uses of capital

Growth Management
Branch Expansion or Contraction

*   Need for branching

*   Legal issues

*   Location

*   Selection of branch manager

*   Staffing

*   Budgeting

Why branch?

*   Need to expand market penetration

*   Need to move closer to shifting target market segment [Perhaps the direction of growth has been changed by opening a new bridge, building a new road, or opening of a major employer.]

*   Need to specialize [appraisal, property management, commercial sales, etc.]

*   Need for more desk space

*   Need to promote good employee

Legal

*   Licenses [Real estate and occupational]

*   Zoning

*   Corporate [The firm may wish the branch to be separately incorporated.]

Location Selection

*   Identification of under-served areas

*   Travel required to manage branch office

*   Advertising economies of scale

Selection of a Manager

*   Trust

*   Top producer? [If the person is managing, will they be able to earn as much for themselves and for the company? If their income declines, they may choose to leave the firm.]

*   Loyalty [Successful managers may decide to leave the firm and open their own offices. The firm can not only end up losing an disloyal manager but also some of the top producers who may go with the manager to the new firm.]

Staffing

*   Transferring associates from one location to another can result in a drop in their productivity

*   New associates may lack enough experience and may require too much of the managers time to train

Budgeting

*   Operating budgets

*   Cash budgets [The firm should project the cash needs for the branch. Initially, the branch will bring in less cash flow than it will spend. A good cash budget will plan on little branch income for the first six to nine months. There may be substantial commissions pending in a successful branch after six months, but few contracts will have been completely closed and the commissions paid.

Establishing the New Firm

*   Broker's License required for principle owner/broker

*   Successful sales experience not necessarily proper preparation for managing a brokerage office

*   Must have prospects of permanent business, and ability to solicit new business

*   Long range plan very useful

Establishing the New Firm

*   Broker's License required for principle owner/broker

*   Successful sales experience not necessarily proper preparation for managing a brokerage office

*   Must have prospects of permanent business, and ability to solicit new business

*   Long range plan very useful

Choosing the Market Area and Segment

*   Geographical area and market area should be chosen at first based upon experience areas of initial sales force members of the firm

*   In larger towns most firms will tend to specialize in certain parts of town only

*   Market segment: services offered (residential, commercial, investments, property management, leasing) should reflect experience of initial sales force.

*   Consider "raiding" experienced sales people from other firms.

Marketing the Firm

*   Important for new firms to work extra hard on listings so that signs are often seen in the area.

*   Reputation and experience of sales force members are important assets.

*   Publicity

*   Previous customers of sales force

*   Other firms--make them aware of the new firm

*   Personal contacts.

Advertising

*   Radio/TV too expensive and too broad

*   Brokerage office open house

*   Mailouts

*   Cost effective

*   Can be personalized with a computer mail merge

*   Directly targets desired market

*   Advertising costs are usually much higher as the firm establishes its market share

*   The "sold" sign is the best single source of advertising