CPPREP5006 - Written Questions v1

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CPPREP5006 - Manage operational finances in the property industry (Release 2) Written Questions Written Questions Page | 1 of 13 © Real Estate Academy Australia Version 1.0 – November 2021 RTO 32426

CPPREP5006 - Manage operational finances in the property industry (Release 2) Written Questions Question 1 Analyse and record processes for the following aspects for a real estate agency and departments (e.g. residential sales, property management). (a) Managing budgets The following sources of funding are used by the agency: commissions from property sales, commissions from the management of properties, the selling of a portion of an existing rent roll, bank loans, and other investments in the company, such as business partners. The agency loses money when: • Staff salaries are paid; • Fixed costs, like electricity and facility expenses. Creating the balance sheet and profit and loss statement using budgets will allow you to assess the health of your company. (b) Financial control systems Budgets for revenues and cash flows Budgeting involves cash flow forecasts, predicted profit forecasts, and a breakeven point knowledge that helps put things in perspective. A cash flow budget is only concerned with the specific month that cash needs to be available to cover the bills, but a profit budget typically allots a share of each category of the annual expected operating expenses to each month in order to match the month's income. A cash flow budget estimates the available finances at the conclusion of a particular month, while a profit budget calculates the predicted profit for each month. Even if a company is making a profit, there may be months when overdraft facilities are needed but haven't yet been set up. Positive influences on financial flow 1. Effective credit sales (debtors) collection based on strong credit management that minimises bad debts 2. Achieving a stock turn rate that is in line with industry requirements, demonstrating that no surplus stocks are kept. 3. Preserving a gross profit margin for the sector that does not indicate excessive discounting. 4. Making payments to creditors within the permitted credit periods offered, where possible taking advantage of early payment discounts. Internal control, which consists of a system of checks and balances to help protect a company's cash and other assets, is also necessary for financial control. An external audit may be part of this in a small business. Page | 2 of 13 © Real Estate Academy Australia Version 1.0 – November 2021 RTO 32426

CPPREP5006 - Manage operational finances in the property industry (Release 2) Written Questions (c) Financial Management Requirements To support the achievement of department and agency KPIs, it is required to deploy a variety of resources in accordance with financial management standards. These could include: • Stock needs • Physical, human, and financial resources (present and projected) • Goods and services that need to be ordered and acquired The most basic procedure for identifying these requirements is consultation, though there are other methods as well. Question 2 a) What is a financial plan? A financial plan is a written document that defines the financial objectives of an agency and sets down a strategy for achievingthose objectives. The plan will commonly include a number of budgets (or targets) that are used for monitoring and reporting. b) What is included in a financial plan? a statement of the current financial position of the business an analysis of borrowing requirements financial forecasts budgets a system for provisioning a description of the financial systems in place a strategy for measuring business performance. Question 3 a) What is a budget? Page | 3 of 13 © Real Estate Academy Australia Version 1.0 – November 2021 RTO 32426

CPPREP5006 - Manage operational finances in the property industry (Release 2) Written Questions A budget is a forecast of revenue and expenses for a specific future period of time that is usually prepared and updated on a regular basis. b) What is included in a budget? The best financial budget combines a short-term, month-to-month plan for at least a year with a long-term, quarter-to-quarter plan that you use for financial statement reporting. It should be prepared during the two months prior to the conclusion of the fiscal year to give enough time for adequate data gathering. c) What is the purpose of a budget? It's crucial to budget for both the income statement and the balance sheet, even though many financial budgets only include plans for the income statement. This makes it possible for you to think about potential cash flow requirements for your entire business, rather than just as they relate to income and expenses. For instance, if your company had been operating for a few years and you decided to hire new salespeople, you would need to weigh the effects of supporting them through the reward system for at least the first year. d) Design and implement strategies to establish and maintain link between individuals responsible for budgets and individuals operating financial control systems. A commitment to a good system entails a commitment to better staffing and increased training. Develop a staff performance system that assigns full accountability for the procedural components of individual positions within the firm in addition to a practise of hiring specialists and competent personnel for the accounting functions. These procedures offer a great amount of strength and comfort in the procedural parts of the business, especially when coupled with an independent audit of these processes with the goal of accuracy and continual improvement. Question 4 a) What is cash flow budget? In order to put things into perspective, budgeting involves predicted profit budgets, cash flow budgets, and knowledge of one's breakeven point (which is the fixed Page | 4 of 13 © Real Estate Academy Australia Version 1.0 – November 2021 RTO 32426

CPPREP5006 - Manage operational finances in the property industry (Release 2) Written Questions costs divided by the gross profit %). A cash flow budget is only concerned with the specific month that cash needs to be available to cover the bills, but a profit budget typically allots a share of each category of the annual expected operating expenses to each month in order to match the month's income. b) What are the five steps in developing a cash flow budget? 1. Effective credit sales (debtors) collection based on strong credit management that minimises bad debts 2. Achieving a stock turn rate that is in line with industry requirements, demonstrating that no surplus stocks are kept. 3. Preserving a gross profit margin for the sector that does not indicate excessive discounting. 4. Making payments to creditors within the permitted credit periods offered, where possible taking advantage of early payment discounts. 5. Keeping an eye on running expenses, comparing them to the planned amounts, and looking into any negative variations. Question 5 List three types of information that can be used to forecast income. 1. Book keeping 2. Balance Sheet 3. Profit and loss statement Question 6 What is a profit and loss statement? A financial statement known as an income statement, also known as a profit and loss statement (P&L), shows how revenue, or money received from the sale of goods and services before expenses are deducted, is converted into net income, or the outcome after all revenues and expenses have been taken into account, or the "bottom line. Question 7 What is a statement of financial position? A balance sheet or statement of financial position is an overview of the financial balances in financial accounting. As of a particular date, such as the conclusion of its financial year, assets, liabilities, and ownership equity are listed. A balance sheet is frequently referred to as a snapshot of a company's financial situation. The balance Page | 5 of 13 © Real Estate Academy Australia Version 1.0 – November 2021 RTO 32426

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