Golden Valley Real Estate

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Start-Up Real Estate Business Plan

Financial Plan

Since the firm has concluded our contract with Quadrant Homes, Inc., it is management's opinion that initial profitability will be fairly high for a start-up company. Our financial plan anticipates that we will achieve positive net income by the end of the first year. We have budgeted enough investment to cover any potential losses and have an additional personal financial resources available for equity investment if sales do not match predictions.

7.1 Important Assumptions

We are assuming approximately 15% sales on credit and average interest rates of 10%. These are considered to be conservative in case our predictions are erroneous.

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

Our break-even analysis is based on the assumption that our gross margin is 100%. In other words, we will have insignificant direct cost of sales. It is conservatively believed that during the first three years, average profitability per month per unit will be about an average 10% commission rate. Management expects that about one home sold per month will guarantee a break-even point.

Break-even Analysis
Monthly Revenue Break-even $8,198
Assumptions:
Average Percent Variable Cost 0%
Estimated Monthly Fixed Cost $8,198

7.3 Projected Profit and Loss

The following table itemizes our revenues and associated costs. We expect to be paying higher costs in marketing and advertising than other companies as we attempt to build sales volume. As the reader can see in the accompanying charts, we expect consistent monthly profits to begin in May 2004.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $117,800 $160,000 $195,000
Direct Cost of Sales $0 $0 $0
Other Costs of Sales $0 $0 $0
Total Cost of Sales $0 $0 $0
Gross Margin $117,800 $160,000 $195,000
Gross Margin % 100.00% 100.00% 100.00%
Expenses
Payroll $46,500 $49,000 $58,000
Sales and Marketing and Other Expenses $6,000 $6,000 $8,000
Depreciation $0 $2,500 $2,500
Rent $18,000 $18,000 $20,000
Utilities $3,400 $3,600 $4,000
Insurance $1,100 $2,000 $2,000
Payroll Taxes $6,975 $7,350 $8,700
Travel $2,000 $3,000 $5,000
Other $14,400 $16,000 $17,000
Total Operating Expenses $98,375 $107,450 $125,200
Profit Before Interest and Taxes $19,425 $52,550 $69,800
EBITDA $19,425 $55,050 $72,300
Interest Expense $5,805 $5,090 $3,940
Taxes Incurred $4,086 $14,238 $19,758
Net Profit $9,534 $33,222 $46,102
Net Profit/Sales 8.09% 20.76% 23.64%

7.4 Projected Cash Flow

The following is our cash flow table and chart. We do not expect to have any short-term cash flow problems. Our short-term loan will be repaid in two equal payments in 2004-2005. Our long-term loan will be paid off in less than ten years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $100,130 $136,000 $165,750
Cash from Receivables $14,899 $23,007 $28,427
Subtotal Cash from Operations $115,029 $159,007 $194,177
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $2,000 $2,000
New Other Liabilities (interest-free) $0 $2,000 $2,000
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 $3,000 $0 $0
Subtotal Cash Received $118,029 $163,007 $198,177
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $46,500 $49,000 $58,000
Bill Payments $60,318 $73,539 $87,320
Subtotal Spent on Operations $106,818 $122,539 $145,320
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $8,000 $7,000
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $3,600 $5,000 $7,000
Purchase Other Current Assets $5,000 $0 $0
Purchase Long-term Assets $7,500 $5,000 $5,000
Dividends $1,000 $2,000 $6,000
Subtotal Cash Spent $123,918 $142,539 $170,320
Net Cash Flow ($5,889) $20,468 $27,857
Cash Balance $38,611 $59,080 $86,937

7.5 Projected Balance Sheet

The following is the snapshot of our assets, liabilities, and equity.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $38,611 $59,080 $86,937
Accounts Receivable $2,771 $3,764 $4,587
Other Current Assets $8,500 $8,500 $8,500
Total Current Assets $49,882 $71,343 $100,024
Long-term Assets
Long-term Assets $12,500 $17,500 $22,500
Accumulated Depreciation $0 $2,500 $5,000
Total Long-term Assets $12,500 $15,000 $17,500
Total Assets $62,382 $86,343 $117,524
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $4,448 $6,187 $7,266
Current Borrowing $15,000 $9,000 $4,000
Other Current Liabilities $0 $2,000 $4,000
Subtotal Current Liabilities $19,448 $17,187 $15,266
Long-term Liabilities $41,400 $36,400 $29,400
Total Liabilities $60,848 $53,587 $44,666
Paid-in Capital $23,000 $23,000 $23,000
Retained Earnings ($31,000) ($23,466) $3,756
Earnings $9,534 $33,222 $46,102
Total Capital $1,534 $32,756 $72,858
Total Liabilities and Capital $62,382 $86,343 $117,524
Net Worth $1,534 $32,756 $72,858

7.6 Business Ratios

Our current Standard Industrial Classification (SIC) code is 6531.0105 -- Real estate agent, residential. We have included industry standard ratios from the residential real estate agent industry to compare with ours. These ratios are as closely matched to our industry as management could find, however there are some significant differences, especially in sales growth, financing ratios, long-term asset investments and net worth. Most of these differences are because GVRE has a strong amount of personal equity to back up the company, which leads to lower debt leverage. Also we expect higher sales growth percentages in our initial years as we ramp up our sales. However, our projections indicate a healthy company that will be able to obtain and retain long-term profitability.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 35.82% 21.88% 5.63%
Percent of Total Assets
Accounts Receivable 4.44% 4.36% 3.90% 7.77%
Other Current Assets 13.63% 9.84% 7.23% 56.54%
Total Current Assets 79.96% 82.63% 85.11% 65.03%
Long-term Assets 20.04% 17.37% 14.89% 34.97%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 31.18% 19.91% 12.99% 14.92%
Long-term Liabilities 66.37% 42.16% 25.02% 26.55%
Total Liabilities 97.54% 62.06% 38.01% 41.47%
Net Worth 2.46% 37.94% 61.99% 58.53%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 100.00% 100.00% 100.00% 100.00%
Selling, General & Administrative Expenses 91.91% 79.24% 76.36% 61.47%
Advertising Expenses 0.00% 0.00% 0.00% 2.83%
Profit Before Interest and Taxes 16.49% 32.84% 35.79% 9.09%
Main Ratios
Current 2.56 4.15 6.55 1.93
Quick 2.56 4.15 6.55 1.10
Total Debt to Total Assets 97.54% 62.06% 38.01% 4.56%
Pre-tax Return on Net Worth 887.87% 144.89% 90.40% 55.36%
Pre-tax Return on Assets 21.83% 54.97% 56.04% 10.22%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 8.09% 20.76% 23.64% n.a
Return on Equity 621.51% 101.42% 63.28% n.a
Activity Ratios
Accounts Receivable Turnover 6.38 6.38 6.38 n.a
Collection Days 58 50 52 n.a
Accounts Payable Turnover 13.89 12.17 12.17 n.a
Payment Days 29 26 28 n.a
Total Asset Turnover 1.89 1.85 1.66 n.a
Debt Ratios
Debt to Net Worth 39.67 1.64 0.61 n.a
Current Liab. to Liab. 0.32 0.32 0.34 n.a
Liquidity Ratios
Net Working Capital $30,434 $54,156 $84,758 n.a
Interest Coverage 3.35 10.32 17.72 n.a
Additional Ratios
Assets to Sales 0.53 0.54 0.60 n.a
Current Debt/Total Assets 31% 20% 13% n.a
Acid Test 2.42 3.93 6.25 n.a
Sales/Net Worth 76.79 4.88 2.68 n.a
Dividend Payout 0.10 0.06 0.13 n.a