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Budget is Not a 4-Letter

Word

Matt Fetick

Matt Fetick

2

Kennett Square, Pennsylvania

Mega Agent, OP, MC Investor

KWU Master Faculty

Budget is Not a 4-Letter Word

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3 Budget is Not a 4-Letter Word

Learn to love the MREA budget model and plan

your way to a successful 2015!

Budget is Not a 4-Letter Word4

• Economic: The money you’ll make

• Lead Generation: How you’ll make it

• Budget: How you’ll spend it

• Organization: Who will help you

*The Millionaire Real Estate Agent

4 MREA* Models:


About the Organization Model (Leverage/Team)

• Am I ready for an assistant?

• How much can I pay an assistant?

• How much can I pay a buyer agent?

Everyday Questions


About the Lead Generation Model

• Should I buy that new “shiny thingy”?

• How much can I spend on farming?

• What can I spend on a 33 Touch?

Everyday Questions


The budget model …

• answers all of these questions.

• helps you determine how much money you can

spend on specific expenses.

• helps you to track the source of your income.

ANSWER …

What does your budget say?


• Based on using a Profit and Loss (P&L) statement

also know as an Income Statement.

• A P&L tracks all of your income and expenses.

The Budget Model


• Tracks the GCI, not what you take home

• The total amount of commission paid at closing for

your side of the transaction

INCOME


EXAMPLE:

• You represent the buyer who purchases a $300,000

home.

• The listing agent is offering 3% buyer agent

commission.

• At closing, the total commission paid is $9,000• This is the total commission, regardless of splits, referrals,

etc.

INCOME


P & L Income Section


Income

41000 Residential Income

41100 Listing Income $

41200 Sales Income $

41300 Referral Income $

41400 Leasing Income $

41000 Total Residential Income $

42000 Commercial Income

42100 Listing Income $

42200 Sales Income $

42300 Referral Income $

42400 Leasing Income $

42000 Total Commercial Income $

43000 Other Real Estate Income $

Total Income (GCI) $

• Track the costs directly associated with the closing

of a transaction.

• Examples

• Local cap

• Royalty

• Referral fees

• Team commissions

Cost of Sales


• The gross commission earned at closing is $9,000.

You have not yet capped.

• Cost of Sale:

• GCI: $9,000 - Local MC Cap (30%) $1800 – KWRI

Royalty (6%) $540

• The Cost of Sale is $1800 in Commissions due to

company and $540 in Royalty.

Example 1:



You have capped and the client came as a referral

at 25%.

• Cost of sale:

• GCI: $9,000 - Referral fee (25%) $2250

• The cost of sale is $2250

Example 2:



You have capped and you are paying a buyer agent

40% for working with the client.

• Cost of sale:

• GCI: $9,000 – Buyer agent (40%): $3600

• The cost of sale is $3600

Example 3:


More detail of

Income and

Cost of Sales.

P&L Income and Cost of Sale


Income41000 Residential Income

41100 Listing Income

41200 Sales Income

41300 Referral Income

41400 Leasing Income

41000 Total Residential Income

42000 Commercial Income

42100 Listing Income

42200 Sales Income

42300 Referral Income

42400 Leasing Income

42000 Total Commercial Income

43000 Other Real Estate Income

Total Income (GCI)

Cost of Sales 51000 Commissions Paid Out

51100 Commissions to Office

51200 Royalties Paid

51300 Listing COS

51400 Buyer COS

51500 Other - Commissions Paid Out

51000 Total Commissions Paid Out

52000 Other - COS

Total Cost of Sales

Gross Profit

Question:

Why should we track the Cost of Sale and not just our take-home income?


• It is important to know what it COSTS you to be in

business.

• These are the fixed expenses you cannot control,

except for renegotiating the costs.

Answer


• Most agents don’t truly know what it costs them to be in business with both the broker and team members.

• Agents in companies that don’t have capped commissions but perhaps an initial higher fixed commission may think that being on an 85/15 split with no cap, is better than being on a 70/30 split with a cap.

• By tracking the cost of sale, agents have a better financial picture of what it costs them to be in business with their Broker and team members.

Answer


• Everyday costs of your business that can fluctuate and can quickly get out of control.

• Office rent• Copies• Licensing • Signs • Lockboxes• Insurance • Salaries • Marketing expenses • Training • Meals and more

Operating Expenses:


P&L Expenses /MREA Budget


Expenses

61000 Salaries/Benefits

61100 Salaries

61110 Management

61120 Administration

61130 Other - Salaries

61100 Total Salaries

61200 Benefits/Processing

61210 Benefits

61220 Payroll Processing

61230 Payroll Taxes

61240 Other - Benefits/Processing

61200 Total Benefits/Processing

61300 Contract Labor

61000 Total Salaries/Benefits

62000 Lead Generation

62100 Advertising

*62300 Print/Direct Mail

62400 Internet Lead Generation

62500 Entertainment/Other

*62700 Other - Lead Generation

62000 Total Lead Generation

63000 Occupancy

63100 Rent/Desk Fees

63200 Utilities

63300 Repair/Maintenance

63400 Depreciation of Capital Improvements

63500 Other - Occupancy

63000 Total Occupancy

64000 Communication/Technology

64100 Telephone Services

64200 Answering Services

64300

Internet Service Provider/Hosting

Charges/Email

64400 IVR Service

64500 Website Creation

64600 Website Maintenance

*64800 Other - Communication/Technology

64000 Total Communication/Technology

65000 Education/Dues

65100 Education/Training

65200 Coaching/Consulting

65300 Books/Audio-Visual/Subscriptions

65400 Dues

65500 Other - Education/Dues


65000 Total Education/Dues

66000 Automobile

66100 Mileage or Interest Portion of Payment or Percentage of Lease

66200 Depreciation

66300 Gas

66400 Maintenance

66500 Other - Automobile

66000 Total Automobile

67000 Equipment/Furnishings

67100 Rental

67200 Depreciation of Capitalized Equipment/Furnishings

67300 Repair/Maintenance

67400 Property Tax on Equipment/Furnishings

67500 Other - Equipment/Furnishings

67000 Total Equipment/Furnishings

68000 Supplies/Office Expenses

68100 Banking Charges

68200 Office Supplies (consumables)

68300 Office Operations

68400 Other - Supplies/Office Expenses

68000 Total Supplies/Office Expenses

69000 Insurance

69100 Automobile

69200 Error & Omissions

69300 Property/Liability

69400 Other - Insurance

69000 Total Insurance

69500 Professional Services

69510 Accounting & Tax Preparation

69520 Legal

69530 Other - Professional Services

69500 Total Professional Services

69600 Other Expenses

69610 Charitable Contributions

69620 Loan/Interest Payment

69630 Office Transaction Fees Paid

69640 State Sales/Franchise Taxes

69650 Other - Other Expenses

69600 Total Other Expenses

Total Expenses

• Where would you account for purchasing a listing

sign?

Examples:


62000 Lead Generation

62100 Advertising

62300 Print/Direct Mail

62400 Internet Lead Generation

62500 Entertainment/Other

62700 Other - Lead Generation

62000 Total Lead Generation

• Where would you account for the cost associated

with renewing your license?

Examples:





65300

Books/Audio-

Visual/Subscriptions

65400 Dues



• Where would you account for the cost associated

with your assistant?

Examples:


61000 Salaries/Benefits

61100 Salaries

61110 Management

61120 Administration

61130 Other - Salaries

61100 Total Salaries

61200 Benefits/Processing

61210 Benefits

61220 Payroll Processing

61230 Payroll Taxes

61240 Other - Benefits/Processing

61200 Total Benefits/Processing

61300 Contract Labor

61000 Total Salaries/Benefits

• Where would you account for the registration cost

associated with Family Reunion?

Examples:






65400 Dues



• Where would you account for the meals and hotels

associated with Family Reunion?

Examples:






65400 Dues



Income

– Cost of Sale

– Expenses

= Net Profit $$$

How Much You Make


• Know how to read a P&L

• Track income and expenses

• Now … what are the guidelines?

What Are the Guidelines?


Cost of Sale: 30%

Expenses: 30%

Profit: 40%

As a business owner you should be able to net

40% of the GCI for owning the business.

Keep in mind, that when you are performing in a role,

you are getting that income as well.

MREA Guidelines:


You Are a Solo Agent

• You earn:

• Buyer Agent Income

• Listing Agent Income

• Admin Salary

• + Profit

Example 1


You Have an Assistant

• You earn:

• Buyer Agent Income


• + Profit

Example 2


You Have an Assistant and a Buyer Agent

• You earn:


• + Profit

Example 3


You have a 7th Level Business

• You earn:

• 40% Net Profits

Example 4


• COS – how to limit it to 30%

• with team members earning more than 30%

• COS is “capped” and goes away as the business

increases in volume

• Your local company cap and royalty will be zero for

each transaction after you’ve capped so those

dollars can be assigned over to the team member.

Note


1. Begin with a blank P&L.

• Download the MREA P&L from KellerInk.com

2. Fill in the income amount (how much you’ll make.)

• 30% for Cost of Sale

• 30% for Expenses

3. Use MS Excel – it’s not hard!

Setting Up Your Budget


• Track your P&L

• Use software (Quickbooks – upload your budget into

its P&L.)

• Track your Budget vs. Actual

• Your actual income and expenses against your

budget

Monthly Tracking


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Budget is Not a 4-Letter Word - Amazon Web Serviceskw-sites.s3-us-west-2.amazonaws.com/kw-family... · Budget is Not a 4-Letter Word. Tell Keller Williams University what you think!