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. Our agents are committed to a year lease with a 30-day cancellation agreement. These 30 days are not prorated and payment comes at the first of every month through direct withdrawal from either a major credit card or electronic transfer. If a credit card transaction fails because the agent has exceeded his/her limit or has received an NSF from his/her bank, he/she will be locked out of the members area automatically. This will prohibit him/her from performing any duties as a real estate agent until the problem has been remedied.
The owner plans to invest $125,000 of his own money (the proceeds of the liquidation of properties and assets of Hall Properties Realty, Inc.). The cash flow projections show that the business will require $65,000 of working capital during the early months of the first year of operations. If a new corporate site is needed for unforeseen growth, additional financing may be necessary. We have identified three options for raising further funds
The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. From the beginning, we recognize that collection days are critical, but not a factor we can easily influence. 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:
The following chart and table summarize our Break-even Analysis. With fixed costs of $37,000 per month at the outset (a bare minimum), we need to bill $45,000 to cover our costs.
Our projected profit and loss is shown in the following chart and table, with sales increasing from $7.78 million the first year to more than $77 million in the third, and substantial profits even in the start-up phase of the business.
The company's projected cash flow analysis for FY2001-2003 is provided below.
The following table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position.
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 6531, Real Estate Agents and Managers, are shown for comparison.