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 in our case is collection days. We can't push our clients hard on collection days. Therefore, we need to develop a permanent system of receivables financing, using one of the established financial companies in that business.
MSN's plan depends on the assumptions that are made in the following table. These are annual and monthly assumptions that show the consistent growth of the company. Since we operate on a monthly collection basis, we are assuming that the majority of the collections will be timely and in full.
Some of the underlying assumptions are:
The following chart indicates our key financial indicators for the first three years. MSN foresees growth in both unit rentals as well as increasing the percentage of growth margin.
MSN's cash flow depends on the monthly collection from the renters. We allow for a 25-day grace period, after which unpaid accounts will inhibit our cash flow. However, since we collect on a monthly basis, cash flow should maintain at a steady level.
The following table and chart summarize our break-even analysis. With per month fixed costs and a variable per-unit cost, the number of units we will need to rent out to cover our monthly costs is shown below. MSN's first housing complex will consist of 40 units. According to the calculations, we will break-even within our first year of operation.
The break-even assumes that all units will be occupied and that all rent will be paid in a timely manner. This assumption is probably unrealistic; therefore our initial break-even per unit will most likely be higher.
The projected profit and loss for MSN is shown on the following table. Sales are increasing in 1999 and continue steadily after the third year. We show a net profit in 2000. We are projecting a healthy gross margin for the first year. This is an aggressive projection that will help our efforts to keep total cost of sales low while increasing gross margin. We will also have very low marketing costs, due to the public exposure to the units, and good word of mouth around the university area.
The planned projections are included in the attached Profit and Loss Table.
The following cash flow projections are a key part of MSN's early 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.
The balance sheet in the following table shows varying but managed net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix and are a good indicator of MSN's annual value.
The business ratios for the years of this plan are shown below. They point out MSN's liquidity, debt, performance and some other important aspects. We expect to generate acceptable ratios for our profitability and return. Industry profile ratios based on the NAICS code 531110, Lessors of Residential Buildings and Dwellings, are shown for comparison.