This sheet is intended to provide you with definitions of terms as well as descriptions of expense accounts and subaccounts to help you make choices as to what categories and subcategories are appropriate for specific transactions. Only you know the intent of any specific transaction. That intent may impact where that specific expense belongs in your P&L. A catering bill may be "Lead Generation - Marketing" if it was for a brokers open, "Lead Generation - Sphere of Influence" if it was a client appreciation party or "Owner Draw" if it was for a Superbowl party. Our goal is to provide you with a general outline of the "best practices" to help you make those decisions. When in doubt try to follow the definitions and guidance provided here.
Please be aware that your REProphet account is intended to be a tracking tool to assist you in operating your real estate sales business. Only your CPA or tax adviser can give you specific advice with regards to your specific business and/or specific tax situation. If you follow the definitions and guidelines that are included here you will be able to compare your sales business' financial performance against proven industry models. If used correctly, it should also provide sufficient information for you to provide to your CPA or tax advisor but this information may not be all that is needed by your CPA or tax advisor. If you have any questions always consult with your CPA or tax advisor.
Category - Descriptions
Cost of Sales - Includes splits & commissions your office/broker, selling team members and referral fees. Cost of Sales is an expense that only takes place when and only when there is a closed transaction.
Gross Profit - Total of all income generated by your real estate business. Gross Profit is before expenses and before taxes.
Total Expenses - Total of all operating expenses paid to run your real estate business. This should include all legitimate business expenses other than Cost of Sale.
Net Profit - Net profit is the Gross Profit less Total Expenses. Remember that taxes still need to be withdrawn from this number before it is yours to spend.
Estimated Tax Liability - ESTIMATED amount that may be owed in taxes based on the ETL % that you have entered into the system. You should consult with your CPA or tax advisor to determine what % to use. Remember that this is only a guide and is meant to hep you plan ahead along with advice from a professional.
Owner Draw - The money that you pull out of your business for personal use either in the form of a salary, bonus, lump sum payments or through the use of your revenue to pay personal expenses. If you're paying both personal and business expenses out of the same account all of those personal expenses should be categorized as Owner Draw
Owner Contributions - Any money that you (the business owner) puts into the company that is not generated by the activities of the business. Ex.Your business expenses are $5,000 a month and you only have $2,000 in your account so you put $3,000 in from your personal funds. That $3,000 represents a $3,000 investment in your business or an Owners Contribution
Available Capital - Available Capital in your REProphet account is your Net Profit - Estimated Tax Liability - The Sum of all Owner Draw/Contributions. This is one of the most important numbers in our system! It is not your bank balance. It represents the amount of net profit left in the business after tax liability and what you've already spent. This number could be negative and if it is you've spent more than your after tax income already. That is a problem that you need to be aware of and need to fix!
Salaries/Benefits - Compensation to employees, independent contractors, consulting and professional services
Lead Generation - All prospecting and marketing activities. If it is an expense that is intended to elicit a response from a consumer that will produce additional revenue it likely belongs to Lead Generation. Remember that all of the subcategories of Lead Generation in your REProphet account will tie back to your sources and track your ROI (return on investment)
Occupancy - Facility expenses i.e. rent, desk fees, maintenance or repairs on your office or office space. This would also include capital improvements (major repairs or upgrades that need to be depreciated like a large build out) and the depreciation on those capital improvements. Your CPA or tax advisor can provide you with guidance on capital improvements and depreciation.
Communication/Technology - All phone, internet and other technology related expenses
Education and Dues - All cost of board/MLS dues and fees, training material and events, coaching etc. If you are incurring travel costs to attend training events or seminars those can be included here as well. From a business perspective you should know that total cost of those events including travel and meals.
Automobile/Insurance - All business expenses related to your automobile and insurance. There are a difference of means of deducting these expenses and you should consult your CPA or tax advisor to see what you can and cannot deduct at the end of the year.
Equipment/Furnishing - Purchase or rental of any equipment (printers, copiers, computers, lockboxes, telephone equipment, office furniture etc. Some equipment is considered an asset and may need to be depreciated. Consult your CPA or tax advisor for guidance in these areas.
Supplies and Office Expense - Includes all office supplies and expenses related to the successful operation such as paper, envelopes, stamps, pens, paper, ink, human resource expenses, office meeting expenses, storage of supplies or files, etc
Credit Card Payments - It is important that you correctly categorize credit card payments as such. Otherwise they will impact the accuracy of your reports by counting that payment as income.
Transfers - If you are transferring money between two accounts that are both linked to your REProphet account it will create a debit from one account and a credit into the other. That withdraw from one account and the deposit into the other should both be separately categorized as Transfers. Otherwise the withdrawal (debit) will create an "expense" and the deposit (credit) will create income. When they are categorized as Transfers they will be recorded in the Transfer category but both the debit and the credit will be removed from your P&L so that they do not not effect your numbers.