Financial and Cost Considerations of a Real Estate Agency Company

Determination of The Startup Costs 

To launch a successful real estate agency company, it is necessary to be clear with the startup costs and have a budget that is as realistic as possible. Budgeting is of paramount importance especially for start-up costs since they will be incurred before the business starts as expressed by Schaper, Volery, Weber, and Lewis (2010). Such costs take a while since the business will need time to generate revenue. Further, some of the costs are necessary to legalize the business and without such costs being incurred, the business would operate illegally, which is a risk in itself. The following are the most likely startup costs for the business. 

The first cost is the pre-licensing real estate training. Being the operator of the company, it is necessary to be certified and accredited after sitting for a real estate licensing exam. As such, at the very beginning, the business owner will have to attend classes from any qualified and accredited real estate school which will administer the coursework. The costs for the training undertaking differs with different states and can be estimated at $300. 

The second cost after training is the real estate examination and licensing fees. Before embarking on acquiring the license is the license application fee which will be in the range of $30. Before the license is issued, the licensing office will need to conduct a background check and finger printing of the proprietor, an amount that can easily hit $150. Then comes the exam. The state exam fee often varies between states and will be about $50. When the proprietor passes the exams, the license fee comes in and just like the state exam, it will vary across states but will generally be in the range of $200. 

Third, we have real estate membership dues. Being a Realtor, one is required to be a member of the National Association of Realtors. It gives potential clientele confidence to deal with the realtor and the fees are about $200, paid annually. It is also important to join the state and local real estate board which might require about $100 annually or sometimes paid monthly depending on the rules governing such boards. 

Fourth are business expenses which cover the operationalization of the business. Such costs include the purchase of office supplies, computer hardware and software, utility bills such as internet, power, and telephone bills, all totaling to $15,000. The business will also require to have operational space which is paid in the form of rent which will hit $2,000 every month. The company will have to furnish the office and acquire a vehicle for business at $8,000. 

Marketing costs are very critical part of the start-up costs. Depending on the budget of the company owner. Marketing includes aspects such as web development, online adverts, client lunches, and other forms of marketing that the company owner might deem necessary. Marketing costs have a direct impact on the revenue generation and as such, it is necessary to have the company dedicate a considerable amount of its start-up costs to marketing which will take up $60,000 in the first year of operation. The table below summarizes the startup costs. 

Operating Expenses of the Business for The First Two Years 

Operating expenses are the expenses that the business must incur for it to remain as a going concern as expressed by Drury (2013). Depending on the operational size of the real estate some costs will need to be incurred on a continuous basis on a bid to keep the business on track on a bid to reach the objectives. Operational costs can either be fixed or variable. Fixed costs are those costs that will not be dependent on the level of output of the business ( Drury, 2013) . They will have to be incurred despite the level of revenue generated. They include rent for office space which is estimated to be around $2,000, license fees and other subscriptions which are estimated at $400, leases, depreciation costs for office equipment and vehicles which totals to $2,000, interest on loans which depends on amount borrowed, insurance (fire, motor vehicle, health) which can should go over $10,000, salaries for five full time employees which should total to $180,000, and utilities which should be around $15,000. All these costs are incurred on an annual basis. The business should do its best to minimize the fixed costs. When the fixed costs reduce, the financial position of the business improves. At times, when the fixed costs are reduced, some variable costs increase (Jack and Mundy, 2013). For instance, when fixed costs reduce, the business reports increased profits and taxes owed to the Internal Revenue Service increases. 

Variable costs increase with the level of revenue the business generates. They are directly related to the level of business in the company ( Drury, 2013) . In the real estate agency business, one of the most notable variable cost is marketing. A thriving business needs to utilize both traditional and upcoming methods of advertisement. For instance, the company should invest in T.V. and radio advertisement which should cost $60,000 every year. Modern marketing strategies, for instance, online advertisements, web optimization, content development, social media marketing, all which, according to Koen (2015), should be designed to be disruptive and targeted advertisement should cost the company $50,000. Other marketing approaches include research costs which should total to $30,000, fuel costs should be $15,000, while client lunches for an entire year should be $10,000. Other variable costs include broker fees which will run to $100,000. Taxes which the business will pay to the government in the first year will be about $25,00O0. 

Plan to Cover Startup and Ongoing Operations Expenses, As Well as Personal Financial Requirements 

To cover the startup and ongoing operations expenses and also personal financial requirements for the purposes of remaining solvent until sufficient business cash flow begins should be a priority before the company is open for business. The capital structure of the company is an important determinant of how the business will fair both in the short run and in the long run. The proprietor of the business will prefer to use his personal savings and family support to finance the big part of the business. Personal savings will total to $300,000 while family input will include $50,000. Other sources of finances for the business will include a bank loan to the tune of $100,000 which will attract a 5.99% annually. The provided financial outlay is estimated to run the business for at least two years before it makes a substantial income through an expanded and stable clientele. The business will if bad times persist, will be offered a contingency bailout plan by the owner who has other businesses that can support this new business. This kind of cover and assurance will ensure that the business will remain operational despite the prevailing conditions. The owner will be supported on a personal level by other businesses which will cover his personal expenses until this business takes off and becomes viable to support him. 

Anticipated Revenue Sources and Breakeven Point 

The business is expected to break even towards the end of the second year. This will result from an increased client base. The business estimates that it will have amassed about 50 clients with each proving a business worth $15,600 each in the entire year. This means that the business will generate total revenues of $780,000 in the first year, an amount that is sufficient to cover for the expenses (fixed and variable) of that year. The business will generate the revenues in terms of agent fees, affiliate programs, relocation services, residential property management, and commercial brokerage. With time, the business will invest in actual estates from which it will generate income. Other revenue streams on the line for the business, especially after generating substantial cash reserves is investing in the stock market which is a diversification plan. A diversified business is one that can withstand economic shocks out of an investment environment full of uncertainties. 

Overall Viability of the Business Based On the Above Financial Projections 

Based on the above financial viability, the business is viable. It has different revenue streams which are generated from the real estate industry. The business has a high load of fixed costs which need to be worked on to ensure that such costs are brought down to manageable levels where the business can absorb them with ease. It has been determined that the business will break even in the second year. From the projections, it is clear that the business will be making net profits of $362,610.00 each year and within two years, the business will have paid off for its capital injection of $700,000 while at the same time having covered it expenses. To ensure that the business succeeds, there is a need to have sufficient capital injection and also a standby source of finance that can be called upon should the plan delay. Further, the business needs to be aggressive with innovative marketing, which should be disruptive . Property owners need to be convinced that there in is a better offer in the market before they decide to board. As such, investments in marketing does need consistent investment. 

References 

Drury, C. M. (2013). Management and cost accounting . Springer. 

Jack, L. & Mundy, J. (2013). Routine and change: the role of management accounting and control.  Journal of Accounting & Organizational Change , Vol. 9 Issue: 2, pp.112-118,  https://doi.org/10.1108/18325911311325924 

Koen, P. (2015). Lean startup in large enterprises using human-centered design thinking: a new approach for developing transformational and disruptive innovations. Howe School Research Paper , (2015-46). 

Schaper, M., Volery, T., Weber, P., & Lewis, K. (2010). Entrepreneurship and small business . John Wiley & Sons.