budget is not a 4-letter word learn to love the mrea budget model and plan your way to a successful...
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Budget is Not a 4-Letter Word
Learn to love the MREA Budget Model and plan your way to a successful 2015!
![Page 2: Budget is Not a 4-Letter Word Learn to love the MREA Budget Model and plan your way to a successful 2015!](https://reader038.vdocuments.mx/reader038/viewer/2022103005/56649d0d5503460f949e19f4/html5/thumbnails/2.jpg)
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Learn to love the MREA budget model and plan your way to a successful
2015!
Budget is Not a 4-Letter Word
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4 MREA* Models:
• 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
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Everyday Questions
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?
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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?
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ANSWER …What does your budget say?
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.
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The Budget Model
• 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.
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INCOME
• Tracks the GCI, not what you take home• The total amount of commission paid at closing for
your side of the transaction
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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.
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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) $
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Cost of Sales
• Track the costs directly associated with the closing of a transaction.
• Examples – Local cap– Royalty – Referral fees – Team commissions
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Example 1:
• 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.
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Example 2:
• The gross commission earned at closing is $9,000. • 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
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Example 3:
• The gross commission earned at closing is $9,000. • 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
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P&L Income and Cost of Sale
More detail of Income and Cost of Sales.
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)
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
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Question:
Why should we track the Cost of Sale and not just our take-home income?
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Answer
• 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.
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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.
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Operating Expenses:
• 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
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P&L Expenses /MREA Budget
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Expenses 61000 Salaries/Benefits 61100 Salaries 61110 Management61120 Administration61130 Other - Salaries61100 Total Salaries 61200 Benefits/Processing 61210 Benefits61220 Payroll Processing61230 Payroll Taxes61240 Other - Benefits/Processing61200 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
64300Internet 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 Lease66200 Depreciation66300 Gas66400 Maintenance66500 Other - Automobile 66000 Total Automobile 67000 Equipment/Furnishings67100 Rental67200 Depreciation of Capitalized Equipment/Furnishings67300 Repair/Maintenance67400 Property Tax on Equipment/Furnishings67500 Other - Equipment/Furnishings67000 Total Equipment/Furnishings 68000 Supplies/Office Expenses68100 Banking Charges68200 Office Supplies (consumables)68300 Office Operations68400 Other - Supplies/Office Expenses
68000 Total Supplies/Office Expenses 69000 Insurance69100 Automobile 69200 Error & Omissions69300 Property/Liability69400 Other - Insurance69000 Total Insurance 69500 Professional Services69510 Accounting & Tax Preparation69520 Legal69530 Other - Professional Services69500 Total Professional Services 69600 Other Expenses69610 Charitable Contributions69620 Loan/Interest Payment69630 Office Transaction Fees Paid69640 State Sales/Franchise Taxes69650 Other - Other Expenses69600 Total Other Expenses
Total Expenses
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Examples:• Where would you account for purchasing a listing
sign?
62000 Lead Generation62100 Advertising62300 Print/Direct Mail62400 Internet Lead Generation62500 Entertainment/Other62700 Other - Lead Generation
62000 Total Lead Generation
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Examples:• Where would you account for the cost associated
with renewing your license?
65000 Education/Dues65100 Education/Training65200 Coaching/Consulting
65300Books/Audio-Visual/Subscriptions
65400 Dues65500 Other - Education/Dues
65000 Total Education/Dues
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Examples:• Where would you account for the cost associated
with your assistant?61000 Salaries/Benefits 61100 Salaries 61110 Management61120 Administration61130 Other - Salaries61100 Total Salaries 61200 Benefits/Processing 61210 Benefits61220 Payroll Processing61230 Payroll Taxes
61240 Other - Benefits/Processing61200 Total Benefits/Processing 61300 Contract Labor 61000 Total Salaries/Benefits
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Examples:• Where would you account for the registration cost
associated with Family Reunion?
65000 Education/Dues65100 Education/Training65200 Coaching/Consulting
65300 Books/Audio-Visual/Subscriptions65400 Dues
65500 Other - Education/Dues65000 Total Education/Dues
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Examples:• Where would you account for the meals and hotels
associated with Family Reunion?
65000 Education/Dues65100 Education/Training65200 Coaching/Consulting
65300 Books/Audio-Visual/Subscriptions65400 Dues
65500 Other - Education/Dues65000 Total Education/Dues
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How Much You Make
Income – Cost of Sale – Expenses
= Net Profit $$$
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What Are the Guidelines?
• Know how to read a P&L • Track income and expenses • Now … what are the guidelines?
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MREA 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.
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Example 1
You Are a Solo Agent• You earn:
– Buyer Agent Income– Listing Agent Income– Admin Salary – Profit
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Example 2
You Have an Assistant• You earn:
– Buyer Agent Income– Listing Agent Income – Profit
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Example 3
You Have an Assistant and a Buyer Agent• You earn:
– Listing Agent Income – Profit
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Example 4
You have a 7th Level Business • You earn:
– 40% Net Profits
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Note
• 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.
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Setting Up Your Budget
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!
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Monthly Tracking
• 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
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Action Plan
List at least ONE action you will take as a result of what you’ve learned.
1. _________________________________________
2. _________________________________________
3. ___________________________________________________________
Convert More by Knowing the Score
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