Real Estate Broker Business Plan

Reed Properties

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Financial Plan

  • Reed Properties wants to finance growth mainly through cash flow.
  • The most important factor is closing sales days. These dates will be determined ultimately by the seller and the buyer and a move out/move in schedule will be complied with.

7.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendix. From the beginning, we recognize that collection days are critical, but not a factor we can influence easily. Interest rates, tax rates, and personnel burden are based on conservative assumptions. Some of the more important underlying assumptions are:

  • We assume a strong economy, without major recession.
  • We assume that there are no unforeseen changes in the economy that would change our estimations.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Break-even Analysis

The following table and chart will summarize our break-even analysis.

Break-even Analysis
Monthly Revenue Break-even $7,316
Assumptions:
Average Percent Variable Cost 5%
Estimated Monthly Fixed Cost $6,950

7.3 Projected Profit and Loss

The projected three year profit and loss is shown on the following table and chart.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $83,000 $130,000 $160,000
Direct Cost of Sales $4,150 $6,500 $8,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $4,150 $6,500 $8,000
Gross Margin $78,850 $123,500 $152,000
Gross Margin % 95.00% 95.00% 95.00%
Expenses
Payroll $48,000 $60,000 $69,000
Sales and Marketing and Other Expenses $6,900 $8,100 $11,300
Depreciation $0 $0 $0
Leased Equipment $0 $0 $0
Utilities $3,000 $3,000 $3,000
Insurance $300 $300 $300
Rent $18,000 $18,000 $18,000
Payroll Taxes $7,200 $9,000 $10,350
Other $0 $0 $0
Total Operating Expenses $83,400 $98,400 $111,950
Profit Before Interest and Taxes ($4,550) $25,100 $40,050
EBITDA ($4,550) $25,100 $40,050
Interest Expense $0 $0 $0
Taxes Incurred $0 $7,530 $12,015
Net Profit ($4,550) $17,570 $28,035
Net Profit/Sales -5.48% 13.52% 17.52%

7.4 Projected Cash Flow

The following table and chart highlights projected cash flow for three years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $20,750 $32,500 $40,000
Cash from Receivables $56,350 $94,159 $117,867
Subtotal Cash from Operations $77,100 $126,659 $157,867
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $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 $6,000 $0 $0
Subtotal Cash Received $83,100 $126,659 $157,867
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $48,000 $60,000 $69,000
Bill Payments $36,529 $51,142 $62,099
Subtotal Spent on Operations $84,529 $111,142 $131,099
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $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 $84,529 $111,142 $131,099
Net Cash Flow ($1,429) $15,518 $26,768
Cash Balance $8,521 $24,038 $50,807

7.5 Projected Balance Sheet

The following table is the projected balance sheet for three years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $8,521 $24,038 $50,807
Accounts Receivable $5,900 $9,241 $11,373
Other Current Assets $0 $0 $0
Total Current Assets $14,421 $33,279 $62,180
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $14,421 $33,279 $62,180
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $3,021 $4,309 $5,175
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $3,021 $4,309 $5,175
Long-term Liabilities $0 $0 $0
Total Liabilities $3,021 $4,309 $5,175
Paid-in Capital $31,000 $31,000 $31,000
Retained Earnings ($15,050) ($19,600) ($2,030)
Earnings ($4,550) $17,570 $28,035
Total Capital $11,400 $28,970 $57,005
Total Liabilities and Capital $14,421 $33,279 $62,180
Net Worth $11,400 $28,970 $57,005

7.6 Business Ratios

The following table provides important ratios for the real estate industry, as determined by the Standard Industry Classification (SIC) Index, 6531, Real Estate Agent and Managers.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 56.63% 23.08% 3.60%
Percent of Total Assets
Accounts Receivable 40.91% 27.77% 18.29% 6.90%
Other Current Assets 0.00% 0.00% 0.00% 49.90%
Total Current Assets 100.00% 100.00% 100.00% 57.30%
Long-term Assets 0.00% 0.00% 0.00% 42.70%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 20.95% 12.95% 8.32% 28.50%
Long-term Liabilities 0.00% 0.00% 0.00% 27.20%
Total Liabilities 20.95% 12.95% 8.32% 55.70%
Net Worth 79.05% 87.05% 91.68% 44.30%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 95.00% 95.00% 95.00% 100.00%
Selling, General & Administrative Expenses 100.48% 81.48% 77.48% 67.40%
Advertising Expenses 7.23% 5.38% 6.25% 3.60%
Profit Before Interest and Taxes -5.48% 19.31% 25.03% 3.90%
Main Ratios
Current 4.77 7.72 12.02 1.87
Quick 4.77 7.72 12.02 1.11
Total Debt to Total Assets 20.95% 12.95% 8.32% 55.70%
Pre-tax Return on Net Worth -39.91% 86.64% 70.26% 1.70%
Pre-tax Return on Assets -31.55% 75.42% 64.41% 3.80%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -5.48% 13.52% 17.52% n.a
Return on Equity -39.91% 60.65% 49.18% n.a
Activity Ratios
Accounts Receivable Turnover 10.55 10.55 10.55 n.a
Collection Days 58 28 31 n.a
Accounts Payable Turnover 13.09 12.17 12.17 n.a
Payment Days 27 26 27 n.a
Total Asset Turnover 5.76 3.91 2.57 n.a
Debt Ratios
Debt to Net Worth 0.26 0.15 0.09 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $11,400 $28,970 $57,005 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.17 0.26 0.39 n.a
Current Debt/Total Assets 21% 13% 8% n.a
Acid Test 2.82 5.58 9.82 n.a
Sales/Net Worth 7.28 4.49 2.81 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0
Break-even Analysis
Monthly Revenue Break-even $7,316
Assumptions:
Average Percent Variable Cost 5%
Estimated Monthly Fixed Cost $6,950
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $83,000 $130,000 $160,000
Direct Cost of Sales $4,150 $6,500 $8,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $4,150 $6,500 $8,000
Gross Margin $78,850 $123,500 $152,000
Gross Margin % 95.00% 95.00% 95.00%
Expenses
Payroll $48,000 $60,000 $69,000
Sales and Marketing and Other Expenses $6,900 $8,100 $11,300
Depreciation $0 $0 $0
Leased Equipment $0 $0 $0
Utilities $3,000 $3,000 $3,000
Insurance $300 $300 $300
Rent $18,000 $18,000 $18,000
Payroll Taxes $7,200 $9,000 $10,350
Other $0 $0 $0
Total Operating Expenses $83,400 $98,400 $111,950
Profit Before Interest and Taxes ($4,550) $25,100 $40,050
EBITDA ($4,550) $25,100 $40,050
Interest Expense $0 $0 $0
Taxes Incurred $0 $7,530 $12,015
Net Profit ($4,550) $17,570 $28,035
Net Profit/Sales -5.48% 13.52% 17.52%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $20,750 $32,500 $40,000
Cash from Receivables $56,350 $94,159 $117,867
Subtotal Cash from Operations $77,100 $126,659 $157,867
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $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 $6,000 $0 $0
Subtotal Cash Received $83,100 $126,659 $157,867
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $48,000 $60,000 $69,000
Bill Payments $36,529 $51,142 $62,099
Subtotal Spent on Operations $84,529 $111,142 $131,099
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $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 $84,529 $111,142 $131,099
Net Cash Flow ($1,429) $15,518 $26,768
Cash Balance $8,521 $24,038 $50,807
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $8,521 $24,038 $50,807
Accounts Receivable $5,900 $9,241 $11,373
Other Current Assets $0 $0 $0
Total Current Assets $14,421 $33,279 $62,180
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $14,421 $33,279 $62,180
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $3,021 $4,309 $5,175
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $3,021 $4,309 $5,175
Long-term Liabilities $0 $0 $0
Total Liabilities $3,021 $4,309 $5,175
Paid-in Capital $31,000 $31,000 $31,000
Retained Earnings ($15,050) ($19,600) ($2,030)
Earnings ($4,550) $17,570 $28,035
Total Capital $11,400 $28,970 $57,005
Total Liabilities and Capital $14,421 $33,279 $62,180
Net Worth $11,400 $28,970 $57,005
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 56.63% 23.08% 3.60%
Percent of Total Assets
Accounts Receivable 40.91% 27.77% 18.29% 6.90%
Other Current Assets 0.00% 0.00% 0.00% 49.90%
Total Current Assets 100.00% 100.00% 100.00% 57.30%
Long-term Assets 0.00% 0.00% 0.00% 42.70%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 20.95% 12.95% 8.32% 28.50%
Long-term Liabilities 0.00% 0.00% 0.00% 27.20%
Total Liabilities 20.95% 12.95% 8.32% 55.70%
Net Worth 79.05% 87.05% 91.68% 44.30%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 95.00% 95.00% 95.00% 100.00%
Selling, General & Administrative Expenses 100.48% 81.48% 77.48% 67.40%
Advertising Expenses 7.23% 5.38% 6.25% 3.60%
Profit Before Interest and Taxes -5.48% 19.31% 25.03% 3.90%
Main Ratios
Current 4.77 7.72 12.02 1.87
Quick 4.77 7.72 12.02 1.11
Total Debt to Total Assets 20.95% 12.95% 8.32% 55.70%
Pre-tax Return on Net Worth -39.91% 86.64% 70.26% 1.70%
Pre-tax Return on Assets -31.55% 75.42% 64.41% 3.80%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -5.48% 13.52% 17.52% n.a
Return on Equity -39.91% 60.65% 49.18% n.a
Activity Ratios
Accounts Receivable Turnover 10.55 10.55 10.55 n.a
Collection Days 58 28 31 n.a
Accounts Payable Turnover 13.09 12.17 12.17 n.a
Payment Days 27 26 27 n.a
Total Asset Turnover 5.76 3.91 2.57 n.a
Debt Ratios
Debt to Net Worth 0.26 0.15 0.09 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $11,400 $28,970 $57,005 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.17 0.26 0.39 n.a
Current Debt/Total Assets 21% 13% 8% n.a
Acid Test 2.82 5.58 9.82 n.a
Sales/Net Worth 7.28 4.49 2.81 n.a
Dividend Payout 0.00 0.00 0.00 n.a