We began by entering in our sales projections that we had arrived at earlier in Section 5.7, 5.8 and 5.9 into the modules. Thus we start with our sales projections of $360,000 year 1, $540,000 for year 2, and $900,000 for year 3 respectively. As you know from our sales forecasting sections there are three possible economic scenarios that we considered when looking at sales forecasting - the slow market, the good or normal market and the great market. We decide to go with the good or normal market condition numbers in our financial modules since it presented the middle of the road approach towards projections which we felt was appropriate.
In our compensation forecast, we are projecting that Jose who owns a larger share of the company will be drawing a salary of $96k, $138k and $282k in the first, second and third year respectively. Dinah who has a smaller share of the company is projected to draw a salary of $64k, $92k and $188k during the first three years of operations. Both the partners have good personal balance sheets and understand that their business is a pay for performance business - if business is slow, they will have to lower the amount of salaries they give themselves and vice versa.
The largest operating expense for a small business like Home At Last Realty is of course compensation. Given that both the owners have plans of hiring only one admin for the first year and another in the the second year of operations, the only compensation expense in the first critical year of operations will be the salaries that they pay themselves and their admins over which they have complete control. Real estate agents employed by the firms are paid as indendent contractors when they make a sale.
The initial capital contribution at the outset will be a total of $50,000. Jose will be making 60% of the total contribution by bringing $30,000 to the table. Dinah will be responsible for the remaining $20,000 representing the remaining 40%. Both the partners don't think that they will need to make any additional contribution to the business, but they are ready, willing and able to do so if the need were to arise.
Loan & Interest Expense Summary:
We will be taking out a fully amortizing term loan from a local community bank where we will be paying back both principal and interest on the loan every month. We have anticipated that a loan in the amount of $16,435 at 7% interest for 3 years should do the job for us and we are projecting that we will be putting in for this loan at the outset.
As we keep paying this loan down, we anticipate that the at the end of each year we will have the following projected principal balance outstanding - $11,334, $5,65 and $0 for 2012, 2013 and 2014 respectively.
Fixed Asset & Depreciation Summary:
The fixed assets that we have entered in for 2012 includes the upfront capital improvements to the location, along with all the other fixed assets like furniture & fixtures, computer hardware & software, printers, security systems, deposit etc that we will need to run the business for the next three years. We don't anticipate adding any more to our existing fixed asset infrastructure unless one of the pieces of equipment goes bad - even in that instant, our product warranties should be enough to cover the contingencies.
Purchases, Inventory & Cost of Goods Sold:
In this section we simply enter in the cost of goods sold for each year along with the changes in inventory if any. The projectedcost of goods sold in our case will be $0 since there no intrinsic cost of production for any of our services. This is fairly common for service oriented businesses like Home At Last Realty. Also very common in the service business is the lack of any inventory. Typically service businesses don't have any tangible physical inventory they carry and hence the inventory numbers for all three years of operations are projected to be at $0.
Accounts Receivable Summary:
In the real estate business, there tend to be very low accounts receivables, but there are certainly occasions when a closing does not always go well and owners don’t fulfill their promises of sending in the cost of extra services provided. Sometimes, in the event of clerical errors, when an home inspector or title company owes us a refund, they fail to send the check in. Hence we are projecting that accounts receivables for each of the three years will be 0.50% of sales.
don’t fulfill their promises of sending in the cost of extra services provided. Sometimes, in the event of clerical errors, when an home inspector or title company owes us a refund, they fail to send the check in. Hence we are projecting that accounts receivables for each of the three years will be 0.50% of sales.
Accounts Payable Summary:
Likewise, it is rare to have large accounts payable in a service oriented business like Home At Last Realty. There may be occasions when we have to return a small portion of our office expenses outstanding when we make bulk purchases of office supplies or direct marketing material - to account for all this we are projecting a modest accounts payable for $200 for each of the three years.
A security Deposit in the amount of $2,700 is what we anticipate paying our landlord and that security deposit will of courseremain with the landlord for the duration of the three years that are being projected here.
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