Section 4: Managing a Real Estate Office

Question 1

Ratio that shows whether the firm has enough assets to cover its obligations

Answer 1

Current ratio

Question 2

Rental income from investment properties would be included in gross income

Answer 2

True

Question 3

Loan proceeds

Answer 3

Appear on the cash flow statement but not on the income statement

Question 4

Budgets

Answer 4

Crucial component of a business plan

Question 5

Cash Basis Accounting

Answer 5

Record created when funds are received.

Question 6

Accrual Accounting

Answer 6

• 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

Question 7

Advantages of renting office space

Answer 7

• 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)

Question 8

Advantages of purchasing office space

Answer 8

• mortgage cost remains stable and fixed
• tax deductions for mortgage interest, property tax, etc.

Question 9

Business Plan 3 Key Strategies

Answer 9

• Operational
• Marketing
• Financial

Question 10

What factors contribute to business plan projections?

Answer 10

• Firm Size
• Office space size
• Market conditions
• Size of sales staff
• Productivity of sales staff

Question 11

How is a cash flow statement different than an income statement?

Answer 11

It includes cash received from non-operating sources such as loans and cash investments by the owner.

Question 12

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?

Answer 12

Decline
Because the owners strayed from their plan and made poor decisions, the company fell into decline.

Question 13

Which ratio shows whether the firm has enough assets to cover obligations?

Answer 13

Current Ratio

Current Assets / Current Liabilities

Question 14

A business that is established and growth slows to a steady pace, what stage of business are they in?

Answer 14

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.

Question 15

What business stage involves laying off employees and liquidating assets to pay off debt?

Answer 15

Death
A lot has to happen when a business dies, such as laying off employees and asset liquidation.

Question 16

Which phase of the business life cycle is characterized by a small scope of work, a tight budget, and an efficient operating structure?

Answer 16

Birth
The birth stage is characterized by a small scope of work, tight budget, and efficiency.

Question 17

Working Capital calculation

Answer 17

Total Current Assets - Total Current Liabilities

Tells you if you have enough current assets to pay for its current liabilities.

Question 18

Debt to Net Worth Ratio

Answer 18

Total Liabilities / Net Worth

Tells you how much you depend on debt to operate teh firm.

Question 19

What are examples of Fixed Expenses?

Answer 19

Rent, insurance, management salaries

Question 20

What are examples of Variable Expenses

Answer 20

Commissions, property-related advertising, etc.

Question 21

Business Life Cycle - Birth Stage

Answer 21

• First one to three years
• tight budget
• Challenges include establishing customer base, maket presence, cash reserves, sales expectations, accounting management

Question 22

Business Life Cycle - Growth Stage

Answer 22

• Generating revenue and adding new customers
• Challenges include meeting needs of increasing # of customers, effective management, expanding existing business

Question 23

Business Life Cycle - Midlife Stage

Answer 23

• Might be growing but less aggressively
• Challenges include keeping up with marketplace shifts and competition

Question 24

Business LIfe Cycle - Maturity Stage

Answer 24

• Business focuses on growing through innovation or restructuring or constructs exit strategy
• Challenges include risk of obsolescence, maintaining profit

Question 25

Business Life Cycle - Decline Stage

Answer 25

• Company doesn’t enhance/modify its plan, make good decisions to continue to evolve

Question 26

Business Life Cycle - Death Stage

Answer 26

• Business folds, company is dissolved or sold off
• Employee layoffs, payouts, selling assets, debt payoff

Question 27

Business Life Cycle - Rebirth Stage

Answer 27

Rebirth and new growth are possible if company can re-engineer and re-energize operations.

Question 28

Which type of compensation plan benefits inexperienced real estate agents the most?

Answer 28

Employee salary

Question 29

IRS test to see if a licensee is an independent contractor

Answer 29

1. Individual is a licensed real estate agent
2. All the individual’s income is a result of services performed as a real estate agent as opposed to # of hours worked
3. 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.

Question 30

Why is it important for brokers to obtain input from all levels of the firm in the creation of the policies and procedures manual?

Answer 30

To arrive at a more effective and comprehensive manual while simultaneously gaining buy-in from the members of the firm