Frank and Peter 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 $295,000 year 1, $3337,000 for year 2, and $387,000 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 for the projections 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 Frank & Peter will be drawing a salary of $42k, $47k and $55k for the first, second and third years respectively. 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. They are both drawing modest salaries with an eye towards building the cash reserves of the business and making sure that it has the capital needed for future growth.
The largest operating expense for a small business like Home At Last Realty is of course compensation. Besides the owners, the company will be hiring 2 full time employees and one part time employee for production - these are folks that will help out Frank and Peter on jobs directly. Additionally the firm will also be hiring another part time operations staffer that will help out at the office. The total compensation expense for the firm is expected to be $141k, $164k and 191k for 2016, 2017 and 2018 respectively.
The initial capital contribution from the owners will be a total of $68,900. Frank will be making 50% of the total contribution by bringing $34,450 to the table. Peter will be responsible for the remaining $34,450 representing the remaining the other 50%. 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 large local lender 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 $70,000 at 7.25% interest for 4 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 - $54,349, $37,525 and $19,441 for 2016, 2017 and 2018 respectively.
Fixed Asset & Depreciation Summary:
The fixed assets of $125,100 that we have entered in for 2016 includes the upfront capital investments in customized landscaping trucks along with tools and equipment, 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 and additional insurance riders 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 Green Lawn Landscaping. Also very common in the service business is no inventory. Typically service businesses don't have any tangible physical inventory besides the purchases of initial tools they need and hence the inventory numbers for all three years of operations are projected to be at $0.
Accounts Receivable Summary:
In the electrical contractor business the management of accounts receivables tends to be a major issue especially with large contracts. However since Green Lawn Landscaping is a small sized landscape contractor, they will be instituting and following a policy of payment upon completion of service. In those instances that they do give their clients the ability to pay them after the completion of the job, their payment terms will be Net 7 - bottom line Frank and Peter's customers are going to have to pay up within 7 days of the completion of the services. Further if the jobs are larger than $500, we will be asking their customers to provide them with a deposit to cover the anticipated cost of purchasing any of the parts needed for the job. Based on all these elements, both Frank and Peter are estimating that their accounts receivables for each of the three years in the business plan will be no more than 0.25% of sales.
Accounts Payable Summary:
In the landscape contracting business, it is fairly typical to be able to get terms of Net 30 when purchasing the parts needed on contracts. However from their extensive past experience both Frank and Peter know only too well, that depending on vendor financing is not a good idea and eventually the cost of financing can also eat away the profit margins on any job very quickly. Thus they will be following a policy of payment upon delivery - paying promptly for the purchases made is one of the hallmarks of excellent cash flow management and fiscal discipline - a common reason why many landscape contracting small businesses fail. With all this in mind, we are projecting a very modest accounts payable of 0.15% of all purchases made for their first three years of operations.
A security Deposit in the amount of $2,200 is what we anticipate paying our landlord and that security deposit will of course remain with the landlord for the duration of the three years that are being projected here. This security deposit represents two months rent.
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