Inspection Connection

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Home Real Estate Inspection Business Plan

Financial Plan

The following sections include the annual estimates for the standard set of financial tables. Detailed monthly pro-forma tables are included in the appendices. The plan is to start with owner investment only, and to pay all expenses and direct costs from the cash flows of the business. The only exception is the fee for the CT license internship, which will be paid with a credit card in March, with a 7% interest rate. This credit card bill will be repaid within two years.

Inspection Connection, will break-even in the seventh month, and generate steady profits thereafter, even as the owner's salary increases.

8.1 Start-up Funding

The Start-Up Funding table indicates how much Capital will be needed for Inspection Connection to begin providing services. The owner will be funding this venture without outside investments.

Start-up Funding
Start-up Expenses to Fund $4,419
Start-up Assets to Fund $1,581
Total Funding Required $6,000
Assets
Non-cash Assets from Start-up $0
Cash Requirements from Start-up $1,581
Additional Cash Raised $0
Cash Balance on Starting Date $1,581
Total Assets $1,581
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $0
Capital
Planned Investment
Owner $6,000
Investor $0
Additional Investment Requirement $0
Total Planned Investment $6,000
Loss at Start-up (Start-up Expenses) ($4,419)
Total Capital $1,581
Total Capital and Liabilities $1,581
Total Funding $6,000

8.2 Important Assumptions

Inspection Connection, assumes a continued reasonable rate of home sales in the selected towns.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 7.00% 7.00% 7.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

8.3 Break-even Analysis

Based on the Break Even table and chart, Inspection Connection will reach a break even point after 7 months.  It is worth noting that the average unit price of $450 is a conservative figure. Most inspections will include at minimum a radon test, which will increase the unit price significantly. Therefore, there is a good chance that the Break Even point could be reached much earlier that 7 months.

Break-even Analysis
Monthly Units Break-even 18
Monthly Revenue Break-even $7,965
Assumptions:
Average Per-Unit Revenue $450.00
Average Per-Unit Variable Cost $45.00
Estimated Monthly Fixed Cost $7,168

8.4 Projected Profit and Loss

The following Profit and Loss table is based on an estimated average 19 unit sales per month at a price of $450 per unit.  Most sales will be at a rate greater than the minimum of $450; this will help offset slower months where the year-end goal of 31 unit sales may not be attainable.

We will not show a profit in the first year, due in large part to the deductible training expenses for licensing in a second state to expand the business.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $101,250 $167,400 $167,400
Direct Cost of Sales $10,125 $16,740 $16,740
Other Costs of Sales $0 $0 $0
Total Cost of Sales $10,125 $16,740 $16,740
Gross Margin $91,125 $150,660 $150,660
Gross Margin % 90.00% 90.00% 90.00%
Expenses
Payroll $28,600 $61,200 $61,200
Marketing/Promotion $6,000 $6,000 $6,000
Depreciation $0 $0 $0
Answering Service $4,800 $4,800 $4,800
Liability / E&O Insurance $4,800 $4,800 $4,800
HealthCare $9,000 $9,000 $9,000
Auto Insurance $1,440 $1,440 $1,440
Auto Fuel $2,500 $3,600 $3,600
Accounting/Legal Fees $1,800 $1,800 $1,800
Membership/Licensing Fees $1,200 $1,200 $1,200
Vehicle Maintenance $240 $240 $240
Local/Toll Free Phone Numbers $840 $840 $840
Training/internship $14,000 $0 $0
Supplies $8,400 $9,600 $9,600
Payroll taxes $0 $0 $0
Other $2,400 $2,400 $2,400
Total Operating Expenses $86,020 $106,920 $106,920
Profit Before Interest and Taxes $5,105 $43,740 $43,740
EBITDA $5,105 $43,740 $43,740
Interest Expense $683 $326 $0
Taxes Incurred $1,327 $13,024 $13,122
Net Profit $3,095 $30,390 $30,618
Net Profit/Sales 3.06% 18.15% 18.29%

8.5 Projected Cash Flow

The following Cash Flow chart and table indicate that there will be sufficient cash flow to maintain operations while allowing room for growth and periods where sales are slower. It also shows the projected credit card debt and repayment for the internship.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $101,250 $167,400 $167,400
Subtotal Cash from Operations $101,250 $167,400 $167,400
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $14,000 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $115,250 $167,400 $167,400
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $42,600 $61,200 $61,200
Bill Payments $48,720 $76,414 $75,601
Subtotal Spent on Operations $91,320 $137,614 $136,801
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $4,680 $9,320 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $96,000 $146,934 $136,801
Net Cash Flow $19,250 $20,466 $30,599
Cash Balance $20,831 $41,297 $71,896

8.6 Projected Balance Sheet

The Balance Sheet shows that Inspection Connection will steadily increase its Net Worth even without a large asset base, as a service-oriented business.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $20,831 $41,297 $71,896
Other Current Assets $0 $0 $0
Total Current Assets $20,831 $41,297 $71,896
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $20,831 $41,297 $71,896
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $6,835 $6,231 $6,212
Current Borrowing $9,320 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $16,155 $6,231 $6,212
Long-term Liabilities $0 $0 $0
Total Liabilities $16,155 $6,231 $6,212
Paid-in Capital $6,000 $6,000 $6,000
Retained Earnings ($4,419) ($1,324) $29,066
Earnings $3,095 $30,390 $30,618
Total Capital $4,676 $35,066 $65,684
Total Liabilities and Capital $20,831 $41,297 $71,896
Net Worth $4,676 $35,066 $65,684

8.7 Business Ratios

The following table shows standard ratios for our business, and a comparison with standard ratios for the Building Inspection Services Industry, SIC Code 7389.0203.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 65.33% 0.00% 2.53%
Percent of Total Assets
Other Current Assets 0.00% 0.00% 0.00% 47.92%
Total Current Assets 100.00% 100.00% 100.00% 75.32%
Long-term Assets 0.00% 0.00% 0.00% 24.68%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 77.55% 15.09% 8.64% 34.42%
Long-term Liabilities 0.00% 0.00% 0.00% 11.16%
Total Liabilities 77.55% 15.09% 8.64% 45.58%
Net Worth 22.45% 84.91% 91.36% 54.42%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 90.00% 90.00% 90.00% 100.00%
Selling, General & Administrative Expenses 86.94% 71.85% 71.71% 79.94%
Advertising Expenses 0.00% 0.00% 0.00% 1.94%
Profit Before Interest and Taxes 5.04% 26.13% 26.13% 1.74%
Main Ratios
Current 1.29 6.63 11.57 1.56
Quick 1.29 6.63 11.57 1.24
Total Debt to Total Assets 77.55% 15.09% 8.64% 54.75%
Pre-tax Return on Net Worth 94.56% 123.81% 66.59% 3.65%
Pre-tax Return on Assets 21.23% 105.13% 60.84% 8.07%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 3.06% 18.15% 18.29% n.a
Return on Equity 66.19% 86.66% 46.61% n.a
Activity Ratios
Accounts Payable Turnover 8.13 12.17 12.17 n.a
Payment Days 31 31 30 n.a
Total Asset Turnover 4.86 4.05 2.33 n.a
Debt Ratios
Debt to Net Worth 3.45 0.18 0.09 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $4,676 $35,066 $65,684 n.a
Interest Coverage 7.47 134.09 0.00 n.a
Additional Ratios
Assets to Sales 0.21 0.25 0.43 n.a
Current Debt/Total Assets 78% 15% 9% n.a
Acid Test 1.29 6.63 11.57 n.a
Sales/Net Worth 21.65 4.77 2.55 n.a
Dividend Payout 0.00 0.00 0.00 n.a