Best Agent Business can organize your accounting and financials for both tax purposes and business analysis purposes.
This is based on our Billion Dollar Agent Profit Model
Version: 12/23/14 by Steve

Goal
  • Define important profit/loss line items for monthly financials
  • Explain how to code properly using QuickBooks Online or other software. We will refer to QB for QuickBooks or whichever accounting software you are using.
  • Get all Billion Dollar Agent on same financial model to compare performance

Monthly Financials - Profit Loss Statement - Overview
Problems - typical issues we find
  • Revenue is often missing broker share or buyer agent shares in some franchises
  • Revenue is lower because broker expenses are deducted before a check is cut
  • Broker expenses are not separated by split, franchise fee, transaction fees, other charges
  • Difficult to identify true net profit - salary equivalent of business owner
Accounts
  • There are usually two or more real accounts such as checking account and credit card.
  • To properly handle business analysis, we add a Pseudo Account for general ledger entries to reflect the business accounting.
  • This can be called Pseudo Account to make it clear and obvious. It should always balance to 0.
  • Reports are run with real and pseudo accounts.
  • Reports for tax purposes to match real money are run excluding pseudo account.
Above and Below Net Profit Line
  • Use Net Profit of Income - Expense as general business profit number.
  • Use "below the line" of Net Profit for Other Income and Other Expense adjustments such as draw/salary to owner or charity or personal items. This will allow us to compare apples to apples.
Income - Revenue - Sales
  • All revenue and gross commission income before any broker fees, referral fees, or buyer agent splits must be entered.
  • The total is entered into pseudo account. The actual amount deposited in bank is transfer from pseudo to regular account.
  • The expenses taken out before receiving net funds should be entered as expenses for desk fees, broker split or cap, franchise fees such as KW, Coldwell Banker, transaction fees if separate, buyer agent splits, referral fees paid to other agents.
  • Transaction fees: Have these $195-$695 buyer/seller transaction fees appear as separate income item so we can see total percentage.
  • Marketing sponsorship - have any revenue from vendor/sponsor joint marketing efforts or joint marketing agreements as separate income item. You should not consider that you spent $20,000 on marketing and someone paid for $5,000 so you spent $15,000 on Marketing. Instead, you spent $20,000 on marketing and you separately got $5,000 marketing sponsorship. It is important to see the $5,000 separately.
Cost of Goods Sold
  • This should contain Buyer Agent fees and Showing Agent fees.
Owner Salary - Draw - Profit
  • Adjust numbers using pseudo account so that the true net profit and salary equivalent appears as Net Profit, before the Other Income and Other Expense line items.
  • This is done by adding negative entries in pseudo account to zero out salary/draw from above the line and then positive items moved down to Other Expenses. Other Expenses should have any salary, draw, payroll taxes for owner, retirement contribution by owner.
  • We want to be able to see something like Net Profit of $200,000 and then below the line under Other Expenses is amounts already paid out to owner.
Expenses
Expenses - Marketing
  • Move all marketing and advertising related expenses under main Marketing heading. This should include postage, printing, monthly technology subscriptions to databases or lead sources.
  • If you have large Marketing expenses, consider trying to subgroup by Buyer Marketing, Seller Marketing, Listing Marketing (marketing costs variable specific to listings such as photography, staging, etc.), and General (anything which applies to both Buyer/Seller Marketing).
  • All databases, technology services, and monthly subscription items like those can be grouped under Marketing.
Expenses - Admin/Assistant
  • Keep Assistant subtotals separate from Callers and Showing Agents.
  • We want to be able to see totals for Asst/Office Mgt staff, versus Callers/ISA, vs Showing Agents
  • Showing Agent hourly fees or bonuses should appear under Cost of Goods Sold.
Training - Coaching
  • Put together seminars, training, learning, coaching fees.
  • If substantial travel costs related to training/coaching, have those appear under Training as well.
  • Coaching plus travel costs can sometimes add up to significant expense and should be viewed separate and not lumped into Marketing or Travel.
Office Space
  • Brokerage Fees often incorporate office space. If they do not, have general expense group of Brokerage/Office and have Office Space/Rent as line item.
  • Thus, when we look at total expenses, we can view total brokerage/office charges to compare against option of a different broker or independent brokerage in future.
Charity - Donations
  • Charitable contributions or donations are NOT a normal business expenses. These should be under Other Expense.
Owner Draw/Salary
  • Put these under Other Expenses so we can see Net Profit above the line of total net profit before any payments/draw to owner.
Personal Expenses
  • If you have combined some personal/business mixed expenses, put these under Other Expenses.


Misc Items - Review of Vicki and David on 12/23/14 by Steve
Gretchen - please move these items to proper sections ABOVE and add new sections ABOVE as needed.
  • This is list of various items/ideas from review of 2 agents at 500k-$1m GCI with high net profit.
  • Assumptions: We should have spreadsheet of assumptions for an agent.
  • Transactions - need deal count of buyer deals and seller deals.
  • Showing Agent fees: Should be listed under Cost of Goods Sold for Buyer Business.
  • Closing Management: If you pay per file, state fee per file.
  • Contract Management cost: This is for delegating assistance of contract negotiation, a few hours per deal. Listed under Assistant.
  • Commission percentage: State what is average for market and what do you achieve. For example, market is 5% and we charge 5.5% which is 2.5% on listing side. Have commission percentage calculated by source of business to see difference of a buyer deal versus a seller expired deal, for example.
  • Brokerage fees - total must be on P/L and then state brokerage fees broken out by any percentage split, franchise fee, deal transaction fee, etc.
  • Average sales price - this number greatly impacts profits. State city/market average and your average.
  • Balance sheet - need balance sheet also
  • Describe last 3 years of GCI and net profit progress. Anything to change to impact net profit.
  • Deals: Track by Lead Caller if you use a Caller, Source. What is total of Client Marketing %?
  • Marketing Income - separate line under Income - this should be 3-5% of total revenue.
  • Transaction fees - listed as separate line item under Income - should not impact commission percentage. Do not add into commission percentage.
  • Listing staging: State avg cost per listing. This should be under Cost of Goods Sold under Seller Business.
  • Group expenses by logical chunk, not alphabetically. Have in order by Brokerage, Marketing, Assistant, General/Admin major chunks and subchunks under it.
  • Calling: This is separate expense under Expenses for Sales - Calling. It is new line item. Not under Marketing, not under Assistants. Calling should be 5% or more.
  • Personal expenses - should not be on PL or should be under Other Expenses so does not confuse net profit.


Detailed Suggestions
This is more detailed suggestions including brokerage/franchise specific information.

Keller Williams
  • KW Transaction Report
    • The KW transaction report should be able to match total numbers to QB.
    • GCI: Total Gross Comm Income


    • Co-Comm: Company commission - amount kept by KW Market Center, MC as part of CAP/Split. This is usually 30% up to a CAP of $X. The CAP varies from $15,000-$40,000 based on each MC.
    • Agt Gross: Agent Gross - Co_Comm

    • Agent Royalty with Tax: This is KW Intl Royalty fee to corporate - max of $X per year.
    • Agt_Comm: This is Agt Gross - Agent Royalty Fee

  • Expense
    • Brokerage Fees
      • KW Intl Royalty Fee - the $3,000 per year to Intl
      • KW MC CAP - the 30% split up to CAP for Market Center
      • KW Other Fees - other fees from MC such as transaction fees