RJ Wagner and Assoc. Realty

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Real Estate Brokerage Business Plan

Financial Plan

  • We want to finance growth mainly through cash flow. We recognize that this means we will have to grow more slowly than we might like.

  • The most important factor for R.J. Wagner & Associates Realty is the 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. Immediately following the closing sale commission will be disbursed by the title company conducting the closing.

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. At least we are planning on the problem, and dealing with it. 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 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Projected Profit and Loss

Our projected profit and loss is shown in the following table.

As with the break-even, we are projecting very conservatively regarding cost of sales and gross margin.  Initially, we will depend on our associates for most fulfillment, which is why costs should be lower than shown. We prefer to project conservatively so that we make sure we have enough cash.

We are spending less on marketing expenses due to our paid memberships with the associations. This broker has a published real estate book and organizational programs placed in the Houston Association of Realtors and also the Dallas Association of Realtors. The associations advertise these marketing tools free to this broker.

The detailed monthly projections are included in the appendix.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $135,394 $259,510 $459,510
Direct Cost of Sales $19,970 $108,990 $228,840
Other $0 $0 $0
Total Cost of Sales $19,970 $108,990 $228,840
Gross Margin $115,425 $150,520 $230,670
Gross Margin % 85.25% 58.00% 50.20%
Expenses
Payroll $36,000 $60,000 $100,000
Marketing/Promotion $8,100 $1,000 $1,000
Depreciation $1,270 $970 $970
Utilities $1,800 $1,950 $1,950
Rent $15,600 $15,600 $15,600
Insurance $1,800 $1,800 $1,800
Office Supplies $3,000 $3,200 $3,200
Business Software $1,000 $1,000 $1,000
Leased Equipment $3,000 $3,000 $3,000
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $71,570 $88,520 $128,520
Profit Before Interest and Taxes $43,855 $62,000 $102,150
EBITDA $45,125 $62,970 $103,120
Interest Expense $325 $831 $1,220
Taxes Incurred $10,779 $15,292 $25,653
Net Profit $32,750 $45,877 $75,277
Net Profit/Sales 24.19% 17.68% 16.38%

7.3 Break-even Analysis

The following table and chart will summarize our break-even analysis. Most of our cost of fulfillment is actually the sales of the agents as well as the sales of the active broker. We don't expect to reach break-even until a few months into the business operation.

Break-even Analysis
Monthly Revenue Break-even $6,996
Assumptions:
Average Percent Variable Cost 15%
Estimated Monthly Fixed Cost $5,964

7.4 Projected Cash Flow

Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month, and the other the monthly balance. The annual cash flow figures are included here and the more important detailed monthly numbers are included in the appendix.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $121,855 $233,559 $413,559
Cash from Receivables $8,983 $21,774 $39,221
Subtotal Cash from Operations $130,838 $255,333 $452,780
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $6,000 $4,620 $3,150
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 $136,838 $259,953 $455,930
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $36,000 $60,000 $100,000
Bill Payments $66,091 $149,398 $272,528
Subtotal Spent on Operations $102,091 $209,398 $372,528
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 $102,091 $209,398 $372,528
Net Cash Flow $34,747 $50,555 $83,401
Cash Balance $44,503 $95,058 $178,459

7.5 Projected Balance Sheet

The balance sheet in the following table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $44,503 $95,058 $178,459
Accounts Receivable $4,556 $8,733 $15,463
Other Current Assets $20,000 $20,000 $20,000
Total Current Assets $69,059 $123,791 $213,922
Long-term Assets
Long-term Assets $7,000 $7,000 $7,000
Accumulated Depreciation $1,270 $2,240 $3,210
Total Long-term Assets $5,730 $4,760 $3,790
Total Assets $74,789 $128,551 $217,712
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $9,282 $12,548 $23,282
Current Borrowing $6,000 $10,620 $13,770
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $15,282 $23,168 $37,052
Long-term Liabilities $0 $0 $0
Total Liabilities $15,282 $23,168 $37,052
Paid-in Capital $50,000 $50,000 $50,000
Retained Earnings ($23,244) $9,506 $55,383
Earnings $32,750 $45,877 $75,277
Total Capital $59,506 $105,383 $180,661
Total Liabilities and Capital $74,789 $128,551 $217,712
Net Worth $59,506 $105,383 $180,661

7.6 Business Ratios

The following table outlines some of the more important ratios from the Offices of Real Estate Agents and Brokers industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 6531.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 91.67% 77.07% -1.90%
Percent of Total Assets
Accounts Receivable 6.09% 6.79% 7.10% 6.84%
Other Current Assets 26.74% 15.56% 9.19% 61.44%
Total Current Assets 92.34% 96.30% 98.26% 68.41%
Long-term Assets 7.66% 3.70% 1.74% 31.59%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 20.43% 18.02% 17.02% 16.11%
Long-term Liabilities 0.00% 0.00% 0.00% 22.30%
Total Liabilities 20.43% 18.02% 17.02% 38.41%
Net Worth 79.57% 81.98% 82.98% 61.59%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 85.25% 58.00% 50.20% 100.00%
Selling, General & Administrative Expenses 60.09% 39.80% 33.43% 70.37%
Advertising Expenses 3.47% 0.00% 0.00% 3.86%
Profit Before Interest and Taxes 32.39% 23.89% 22.23% 2.28%
Main Ratios
Current 4.52 5.34 5.77 2.18
Quick 4.52 5.34 5.77 1.24
Total Debt to Total Assets 20.43% 18.02% 17.02% 58.00%
Pre-tax Return on Net Worth 73.15% 58.04% 55.87% 2.56%
Pre-tax Return on Assets 58.20% 47.58% 46.36% 6.11%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 24.19% 17.68% 16.38% n.a
Return on Equity 55.04% 43.53% 41.67% n.a
Activity Ratios
Accounts Receivable Turnover 2.97 2.97 2.97 n.a
Collection Days 55 93 96 n.a
Accounts Payable Turnover 7.04 12.17 12.17 n.a
Payment Days 31 26 23 n.a
Total Asset Turnover 1.81 2.02 2.11 n.a
Debt Ratios
Debt to Net Worth 0.26 0.22 0.21 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $53,776 $100,623 $176,871 n.a
Interest Coverage 134.94 74.61 83.76 n.a
Additional Ratios
Assets to Sales 0.55 0.50 0.47 n.a
Current Debt/Total Assets 20% 18% 17% n.a
Acid Test 4.22 4.97 5.36 n.a
Sales/Net Worth 2.28 2.46 2.54 n.a
Dividend Payout 0.00 0.00 0.00 n.a