MSN Real Estate

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Real Estate Management 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 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.

7.2 Important Assumptions

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:

  1. We assume a healthy growth trend in the local real estate market, along with a continued strong local economy.
  2. We assume that we stay in line with the continuing advances in technology and housing.

7.3 Key Financial Indicators

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.

7.4 Break-even Analysis

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.

Break-even Analysis
Monthly Units Break-even 41
Monthly Revenue Break-even $27,632
Assumptions:
Average Per-Unit Revenue $680.22
Average Per-Unit Variable Cost $357.71
Estimated Monthly Fixed Cost $13,101

7.5 Projected Profit and Loss

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.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $437,380 $538,498 $612,756
Direct Cost of Sales $230,009 $255,740 $273,136
Other Costs of Sales $0 $0 $0
Total Cost of Sales $230,009 $255,740 $273,136
Gross Margin $207,371 $282,758 $339,620
Gross Margin % 47.41% 52.51% 55.42%
Expenses
Payroll $90,600 $105,000 $128,000
Marketing/Promotion $13,800 $14,000 $17,700
Depreciation $12,221 $13,000 $19,333
Leased Equipment $2,400 $2,600 $2,800
Utilities $7,200 $8,200 $8,500
Insurance $14,400 $15,500 $16,000
Maintenance $0 $12,000 $15,000
Rent $3,000 $4,000 $5,000
Payroll Taxes $13,590 $15,750 $19,200
Other $0 $0 $0
Total Operating Expenses $157,211 $190,050 $231,533
Profit Before Interest and Taxes $50,160 $92,708 $108,087
EBITDA $62,381 $105,708 $127,420
Interest Expense $64,853 $79,591 $93,552
Taxes Incurred $0 $0 $0
Net Profit ($14,693) $13,117 $14,535
Net Profit/Sales -3.36% 2.44% 2.37%

7.6 Projected Cash Flow

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.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $437,380 $538,498 $612,756
Subtotal Cash from Operations $437,380 $538,498 $612,756
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $8,400 $15,000 $12,000
New Other Liabilities (interest-free) $1,802 $2,500 $2,000
New Long-term Liabilities $4,500 $513,000 $2,500
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $5,862 $6,000 $4,000
Subtotal Cash Received $457,944 $1,074,998 $633,256
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $90,600 $105,000 $128,000
Bill Payments $318,094 $408,946 $447,312
Subtotal Spent on Operations $408,694 $513,946 $575,312
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $2,750 $5,000 $10,000
Other Liabilities Principal Repayment $650 $1,000 $1,000
Long-term Liabilities Principal Repayment $23,121 $24,469 $41,645
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $1,080,000 $570,000 $0
Dividends $0 $0 $0
Subtotal Cash Spent $1,515,215 $1,114,415 $627,957
Net Cash Flow ($1,057,271) ($39,417) $5,299
Cash Balance $54,059 $14,643 $19,941

7.7 Projected Balance Sheet

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.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $54,059 $14,643 $19,941
Other Current Assets $12,000 $12,000 $12,000
Total Current Assets $66,059 $26,643 $31,941
Long-term Assets
Long-term Assets $1,200,000 $1,770,000 $1,770,000
Accumulated Depreciation $12,221 $25,221 $44,554
Total Long-term Assets $1,187,779 $1,744,779 $1,725,446
Total Assets $1,253,838 $1,771,422 $1,757,387
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $35,048 $33,483 $37,059
Current Borrowing $10,650 $20,650 $22,650
Other Current Liabilities $1,152 $2,652 $3,652
Subtotal Current Liabilities $46,850 $56,785 $63,361
Long-term Liabilities $1,061,379 $1,549,910 $1,510,765
Total Liabilities $1,108,229 $1,606,695 $1,574,126
Paid-in Capital $251,862 $257,862 $261,862
Retained Earnings ($91,560) ($106,253) ($93,136)
Earnings ($14,693) $13,117 $14,535
Total Capital $145,609 $164,726 $183,261
Total Liabilities and Capital $1,253,838 $1,771,422 $1,757,387
Net Worth $145,609 $164,726 $183,261

7.8 Business Ratios

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.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 23.12% 13.79% 4.77%
Percent of Total Assets
Other Current Assets 0.96% 0.68% 0.68% 40.83%
Total Current Assets 5.27% 1.50% 1.82% 46.21%
Long-term Assets 94.73% 98.50% 98.18% 53.79%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 3.74% 3.21% 3.61% 12.55%
Long-term Liabilities 84.65% 87.50% 85.97% 35.36%
Total Liabilities 88.39% 90.70% 89.57% 47.91%
Net Worth 11.61% 9.30% 10.43% 52.09%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 47.41% 52.51% 55.42% 100.00%
Selling, General & Administrative Expenses 50.77% 50.07% 53.05% 59.39%
Advertising Expenses 2.79% 2.41% 3.16% 0.88%
Profit Before Interest and Taxes 11.47% 17.22% 17.64% 2.37%
Main Ratios
Current 1.41 0.47 0.50 1.90
Quick 1.41 0.47 0.50 1.28
Total Debt to Total Assets 88.39% 90.70% 89.57% 59.42%
Pre-tax Return on Net Worth -10.09% 7.96% 7.93% 0.30%
Pre-tax Return on Assets -1.17% 0.74% 0.83% 0.73%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -3.36% 2.44% 2.37% n.a
Return on Equity -10.09% 7.96% 7.93% n.a
Activity Ratios
Accounts Payable Turnover 9.96 12.17 12.17 n.a
Payment Days 27 31 29 n.a
Total Asset Turnover 0.35 0.30 0.35 n.a
Debt Ratios
Debt to Net Worth 7.61 9.75 8.59 n.a
Current Liab. to Liab. 0.04 0.04 0.04 n.a
Liquidity Ratios
Net Working Capital $19,209 ($30,143) ($31,420) n.a
Interest Coverage 0.77 1.16 1.16 n.a
Additional Ratios
Assets to Sales 2.87 3.29 2.87 n.a
Current Debt/Total Assets 4% 3% 4% n.a
Acid Test 1.41 0.47 0.50 n.a
Sales/Net Worth 3.00 3.27 3.34 n.a
Dividend Payout 0.00 0.00 0.00 n.a