To be related to production. Variable costs, on the

To further elaborate on the mentioned above, I will be explaining
the financial costs and overall business approaches to fund and operate the
first two years of a startup real estate business- further detailing the
marketing expenses, financial requirements, and the anticipated revenues. To
begin the startup, one would have to bear in mind the cost structures that
would be associated with the said business, and the relative proportions of the
fixed and variable costs.

 In order to have a proper
estimate for the beginning of this real estate business, one must include the
first year expenses such as legal, stationary, sales literature, and the design
of the overall structure of the company. These costs would accumulate before
the opening date, as they are the fundamentals of the startup. The said
business would also need to have an asset in the bank to support the beginning
months before generating proper income.

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          To clarify more on the costs, I will address
the fixed and the variable costs that would inevitably be associated with the
business. The wages, utilities, sales literature, stationary, insurance, rent
and marketing would all fall under the category of fixed- uninfluenced in
change-by the outside fluctuations of production rates and sales. Elements
involving sales commissions and shipping expenses fall under the classification
of variable costs, due to the easily influenced fluctuations associated with
those expenses. Although, fixed costs can change over
a period of time, the change will not be related to production. Variable costs,
on the other hand, are dependent on production output. The variable cost of
production is a constant amount per unit produced. As volume of production and
output increases, variable costs will also increase. (Variable Cost Ratio,
2018) 

 

And finally, to further elaborate with a numerical estimate, one
must include the following tasks and actions allocated to the business. To
begin, an aesthetically pleasing office in a city, such as Los Angeles, would
be around three thousand dollars a month, utilities including internet and
telephones would be around seven hundred, depending on of course, the space of
the facility as well as many other factors. A fully operational staff group
would be of huge importance for a business such as real estate, including a
receptionist, office administrator, managing broker and an accountant. The
workers would be vital in the functionality of the business, especially a
managing broker, who would be responsible for budgeting finances and to offer
recruitment for potential realtors. The total cost of this would also vary, but
one would gauge this to be at twenty thousand dollars a month, and of course a business
such as real estate would need proper insurance, which would cover faults in
agents’ contracts; therefore, with a general coverage, the price would be a
minute thirty dollars a month. In order to fully operate, the business would
need a business license, the price of which would also depend, however, one
would estimate it to be perhaps three hundred a month.

The last few items to address would be realtor training and office
equipment, both vital for a fully operating real estate business. It would be
critical for agents to have necessary information concerning laws and
contracts, thus, realtor training and ongoing education would be a part of the
vital monthly costs, totaling up to perhaps two hundred dollars a month. And
lastly, office equipment, essential for both staff and potential clients. This
would include copiers, printers, scanners, computers, telephones, desks and
chairs, coming up to at least ten thousand dollars. However, this would be a
onetime cost. Thus, to tally up a numerical total, one would presume it would
range between thirty to thirty five thousand dollars. The total startup cost
appraisal would be highly dependent upon variable environmental factors, most
notably, property value and the proportional increase in rent, as well as
mandated worker compensatory rates.

 

These costs are obviously quite inordinate therefore, one must
consider how to remain solvent until the business was properly generating funds
that would be greater or equal to expenditure, and an example of that would be
to reduce fixed costs, as that would help in the general financial wellbeing of
the business to remain solvent. For example, moving to a less expensive
facility in a more secluded location, or reducing the number of staff that may
not be needed during this expense saving period. However, it is important to
note that such moves to reduce financial expenditures could also potentially
lead to a reduction of output in the mitigation of ones’ ability to access a
large client base, as the first two years of every startup business are the
most financially grueling. Thus, one would consider the required fees to
maintain business, until cash flow appeared to cover extra costs. The necessary
payments required to stay at a status quo would be the lease, and wages for the
basic administrative staff, the utilities, and lastly, the insurance. During
this time, in order to remain solvent, the real estate business would be fully
dependent on paying for only the necessities required to maintain the
facilities, as well as being fully reliant on other sources of income. For
example, the commissions from sales, desk fees as well as technology fees. To
further elaborate on the mentioned above, the commission splits are the largest
source of income, as the firm will take ten percent from an estate agent with
extensive experience, and forty percent of revenue from an agent with less
working experience in sales. Obviously, the estate broker would be more
interested in a realtor with more skill and background in selling, as they
would generate more income, but the broker would have to be thoughtful about
how much lower of a commission one would charge in exchange for more working
experience. Another good source of income for the estate firm would be the
contract with the realtor. To clarify further, in order to be associated with
any broker, a realtor must pay a desk fee. This means that the realtor would be
linked to the name of the firm, in order to work independently, but under the
protection and the coverage of the said business. The desk commission also does
not vary with the commission the realtor may be bringing in, it is a price
between seven hundred and two thousand dollars, but this price would obviously
be contextually dependent. Desk
fees could possibly vary, but in general tend to be fixed at a set amount, an
agreed upon rate for operating either in the broker’s office or under the
broker’s license or both. They may be higher or lower if an agent wants a
private office or if they work from home and do not have a physical desk at the
broker’s office (Weintraub, 2007).The realtor
must also pay the estate business a technological fee, as previously stated,
the equipment such as printers, scanners, computers, internet and telephones
are included in the firm, however, a realtor working for the firm will pay a monthly
fee for access to the technological resources. The price that would be charged
to a prospective realtor would be about fifty dollars a month, thus, bringing
in a good source of revenue for the firm, as these are continues charges
regardless of sales commissions.

      In essence, the overall viability
involved in opening a real estate business would depend on the financial
resources one would have to begin with. As the estimated cost would be around
thirty thousand dollars, and in order to have enough financial assets to cover
liability, one would have to be cautious to sustain a fixed capital. The
overall objective would be to start off with sufficient funds to properly
maintain financial resources for the first year before estimated cash flow, and
then to have the necessary staff to launch the success of the said business. As
a good broker who would be able to recruit successful agents who would close
more sales would be vital for the proper revenue and achievements. To sum up,
if all these requirements were met, then the overall viability of this
particular real estate startup would be very possible. Of course, The afore
mentioned monetary amounts would vary on a variety of factors, but if the
business generated enough income to sustain long-term survival and maintain its
ability to sustain profits over a period of time (Murray, 2017) then the
viability given the circumstances would be sufficient. The chart below is a
numerical detailing of the figures mentioned throughout, and will offer more
content, further detailing the variable and fixed costs, revenue, and the costs
needed to maintain solvent for the startup of the business.

Cost

Revenue

Facilities

$3,000.00

Sales Commission

10-40% of X

Utilities

$700.00

Desk Fee

$700.00-1,000.00

Staff

$20,000

Technology Fee

$50.00

Equipment

$10,000

 

 

Total:

~$35,000

 

 

Works cited

(n.d.)
Retrieved from https://www.investopedia.com/terms/v/variable-cost-ratio.asp

Elizabeth
Weintraub (2017, October 29th) https://www.thebalance.com/under-desk-fee-arrangement-1798536

 Jean Murray (2017, April 3rd) https://www.thebalance.com/what-is-business-viability-3884327