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