E;ective business budgeting goes beyond monitoring
expected income and spending, though those are
certainly necessary endeavors. The optimal strategy
involves setting up three distinct budgets: an operating
budget, a capital budget, and a financial budget.
Each budget addresses a di;erent aspect of a real estate
business, but all three are geared to the same objective:
helping you run the most successful enterprise you can
through varying economic and market conditions.
While much of this advice is aimed at brokerage
owners and managers, sales professionals working as
independent contractors will also benefit from creating
and maintaining a budgeting system using these three
5Subtract general and administrative xpenses, interest, and taxes.
GA expenses include every other cost that isn’t directly
tied to sales. Some examples are advertising, salaries,
benefits, payroll taxes, rent, utilities, and maintenance.
For the table at right, GA expenses are lumped together, but like the COS, they should be itemized in your
budget. Refer to your records to ensure that all expenses are accounted for. Some will be fixed and, therefore,
easy to forecast, while others will be seasonal. Subtract
GA expenses from gross profit to get an estimated operating profit or loss for each month.
To estimate interest expenses, refer to recent loan
statements and use an online amortization table if
needed. Don’t forget to account for additional interest
expense if you’ll be borrowing money to pay for a
capital project or for other needs. Taxes are subject to
many variables; it’s wise to consult with a qualified tax
professional on this aspect of your budget.
Photo: iStockphoto/MBPhoto Inc. ©2013
Once you’ve subtracted interest and taxes from
your operating profit, you’ll have a well-thought-out
estimate of net income for the coming year. Now,
review the operating budget as a whole. Does it
correspond with your brokerage’s overall strategy?
(or, if you’re an agent, with your individual business
strategy?) Are your forecasts optimistic? If you don’t
meet them, what will it mean to your net income? Remember, budgeting is not an end in itself; it is meant to
provoke thought and to spur action if needed.
Tracking revenue and
expenses is only the beginning
of ensuring a healthy future
for your brokerage.
By Kristoffer C. Burnett
Do the Numbers . . .
(May to December are omitted for space)
January February March April
Number of transactions 8 12 13 16
1 Forecast the number of transactions
Price-range segment (average revenue)
< $150k ($ 2,829) 2,829
$151 - 225k ($ 5,376) 16,128
$226 - 300k ($ 7,317) 14,634
> $301k ($ 9,435) 18,870
Gross Transaction Revenue 52,461
2 Calculate transaction revenue
(multiply the number of transactions and the average revenue per transaction)
Fee Revenue 2,000 2,438
Total Revenue 54,461 77,738
3 Add fee revenue
Franchise fees 2,623 3,765 3,784
Referral fees 325
Agent Commissions 32,395 46,498 46,736
Gross Profit 19,443 27,475 27,166
4 Subtract cost-of-sales expenses
General & Adminstrative 21,293
Operating Profit ( 1,850)
5 Subtract other expenses
Net Income ( 1,338)