Mortgage Brokers: Ideal Chart of Accounts (COA) for your Brokerage's Financials

All self employed mortgage brokers aim to be savvy business owners who know their brokerage inside out. In order to do that, some brokers keep a day aside or work on the weekends to get up to date with their business. This includes updating their accounting software with the financials and payroll updates, identifying cost reduction, planning their long term goals and exploring new business opportunities.

With so much on they rely on their bookkeepers and accountants to look after their financials. Most of the brokers say they don't get or cannot afford business advisory services from their bookkeepers and accountants. Brokers don't understand their businesses' Profit and Loss and Balance Sheet statements. As long as they need to pay the least in tax they assume all is well.

Getting to know your financials should not take hours. It should be like standing on the digital weighing scale which shows you your weight, BMI, Fat Index and app sync all on one screen. You get to know exactly where you stand and what you need to focus on.

What is a Chart of Accounts?

• Comprehensive Financial Listing: An organized index of all financial accounts in a mortgage broker's general ledger.
• Enhanced Transparency: A strategic tool categorizing financial transactions into different buckets to present a clear view of the brokerage’s financial health.
• Customization: Can be tailored at the back end of your accounting software to the specific needs and scale of a mortgage brokerage.
• Consistency for Accurate Tracking: Maintains accuracy in 'benchmarking' across different periods and with your peers (other mortgage brokers)

Below is a more detailed explanation tailored specifically for mortgage brokers. Speak with your accountant or book keeper before making any changes to your existing set up.

Revenue Section (200 Series)

1. Residential/Commercial/Asset Finance Upfront Commissions (200, 205, 210): These accounts record income from different types of loans. Each loan category (residential, commercial, asset finance) has a distinct account for better tracking.
2. Trail Commissions (215): This account tracks ongoing commissions received over the life of a loan.
3. Referral Revenue (220-224): Separate accounts for various referral incomes like Insurance, Financial Planning and Concierge services.
4. Brokerage and Consulting Revenue (230, 235): Earnings from brokerage services and consulting.
5. Other Income Section (250 Series):Covers incidental income like fringe benefits tax (FBT) contributions, profits from asset disposal and interest earnings.

Cost Of Goods Sold Section (300 Series)

1. Aggregator Fees and Clawbacks (300, 301): Expenses paid to aggregators and costs associated with commission clawbacks.
2. Commission Related Costs (305-310): Payments to contractor brokers or introducers for their services.
3. Client and Operational Expenses (302, 315-330): Direct costs like client incentives, processing fees and valuation charges.

Operating Expenses Section (400 Series)

Encompasses a wide range of costs from marketing, professional fees, employee costs to office-related expenses. This section is vital for tracking the operational efficiency of the brokerage. Specific accounts for:

1. Technology (410, 438, 474),
2. Staff Costs (406, 417, 420, 422, 475-478)
3. Premises expenses (408, 445, 462, 469, 470)

Conclusion

By structuring the chart of accounts in this detailed manner a successful mortgage broker can effectively manage and analyze their financial performance, ensuring better control over revenue streams and operational costs. This level of detail aids in strategic decision-making which are crucial for the success of a mortgage brokerage business.

Look at splitting your upfronts, trail and referral income revenues and outline the splits that go out to contractors and other referral partners to provide you with a clear overview on your targets.

Speak to your Business Development Manager at your aggregator who should be able to provide you with a template to follow and adopt.