Section 4: Managing a Real Estate Office Flashcards
Ratio that shows whether the firm has enough assets to cover its obligations
Current ratio
Rental income from investment properties would be included in gross income
True
Loan proceeds
Appear on the cash flow statement but not on the income statement
Budgets
Crucial component of a business plan
Cash Basis Accounting
Record created when funds are received.
Accrual Accounting
- Record created when services are provided but money not yet received.
- Best suited for projections because it anticipates what will eb spent and when.
- Date used must be soonest of:
- payment received
- payment due
- earned income
Advantages of renting office space
- Flexibility to expand or move to a new rental location as the business grows
- Possibility of the landlord paying property expenses, including maintenance, utilities, cleaning, repairs, etc.
- Financial advantage (no down payment/purchase cost)
Advantages of purchasing office space
- mortgage cost remains stable and fixed
- tax deductions for mortgage interest, property tax, etc.
Business Plan 3 Key Strategies
- Operational
- Marketing
- Financial
What factors contribute to business plan projections?
- Firm Size
- Office space size
- Market conditions
- Size of sales staff
- Productivity of sales staff
How is a cash flow statement different than an income statement?
It includes cash received from non-operating sources such as loans and cash investments by the owner.
What stage of the business life cycle is a business in if they made bad decisions, they’ve taken on significant debt, and questionable if company can revitalize operations?
Decline
Because the owners strayed from their plan and made poor decisions, the company fell into decline.
Which ratio shows whether the firm has enough assets to cover obligations?
Current Ratio
Current Assets / Current Liabilities
A business that is established and growth slows to a steady pace, what stage of business are they in?
Midlife
In the midlife stage, the company is a key player in the marketplace. Growth is less aggressive, and taking on new ventures is an option.
What business stage involves laying off employees and liquidating assets to pay off debt?
Death
A lot has to happen when a business dies, such as laying off employees and asset liquidation.
Which phase of the business life cycle is characterized by a small scope of work, a tight budget, and an efficient operating structure?
Birth
The birth stage is characterized by a small scope of work, tight budget, and efficiency.
Working Capital calculation
Total Current Assets - Total Current Liabilities
Tells you if you have enough current assets to pay for its current liabilities.
Debt to Net Worth Ratio
Total Liabilities / Net Worth
Tells you how much you depend on debt to operate teh firm.
What are examples of Fixed Expenses?
Rent, insurance, management salaries
What are examples of Variable Expenses
Commissions, property-related advertising, etc.
Business Life Cycle - Birth Stage
- First one to three years
- tight budget
- Challenges include establishing customer base, maket presence, cash reserves, sales expectations, accounting management
Business Life Cycle - Growth Stage
- Generating revenue and adding new customers
- Challenges include meeting needs of increasing # of customers, effective management, expanding existing business
Business Life Cycle - Midlife Stage
- Might be growing but less aggressively
- Challenges include keeping up with marketplace shifts and competition
Business LIfe Cycle - Maturity Stage
- Business focuses on growing through innovation or restructuring or constructs exit strategy
- Challenges include risk of obsolescence, maintaining profit
Business Life Cycle - Decline Stage
- Company doesn’t enhance/modify its plan, make good decisions to continue to evolve
Business Life Cycle - Death Stage
- Business folds, company is dissolved or sold off
- Employee layoffs, payouts, selling assets, debt payoff
Business Life Cycle - Rebirth Stage
Rebirth and new growth are possible if company can re-engineer and re-energize operations.
Which type of compensation plan benefits inexperienced real estate agents the most?
Employee salary
IRS test to see if a licensee is an independent contractor
- Individual is a licensed real estate agent
- All the individual’s income is a result of services performed as a real estate agent as opposed to # of hours worked
- Indivual and employing broker have a written contract that describes the services the indivual will perform and explicity states that the indivual will not be treated as an employee for federal tax purposes.
Why is it important for brokers to obtain input from all levels of the firm in the creation of the policies and procedures manual?
To arrive at a more effective and comprehensive manual while simultaneously gaining buy-in from the members of the firm
