The PMS Financial Plan - Essay Example

PMS Financial Plan The PMS will be financed mainly through the cash flow generated by the rental of the properties. In effect, the growth will be slower than is desired. The most important factor in our case is the continuous occupancy of the properties. Therefore, there is a need to develop an effective strategy to deliver the services such as repairs and maintenance. Important Assumptions The following table details the assumptions that are made .These figures are annual and monthly assumptions that show the consistent growth of the company. Since the operation is on a monthly collection basis, it is assumed that the majority of the collections will be timely and in full. Some of the underlying assumptions are: 1. A healthy growth trend in Florida's real state market and property management industry with a continued strong local economy is assumed. 2. Continuous updating of personnel and systems with advances in technology and housing is assumed. General Assumptions 2006 2007 Plan Month 1 2 Current Interest Rate 8.00% 8.00% Long-term Interest Rate 5.50% 5.50% Tax Rate 25.61% 25.86% Other 0 0 The following chart indicates our financial indicators for the first two years of operation. PMS foresees growth in both in customers who want their property to be managed as well as increase in the growth margin percentage. PMS cash flow depends on the monthly collection from property owners. A 25-day grace period is provided after which unpaid accounts will inhibit our cash flow. However, the monthly basis of cash flow should maintain the steady level of cash flow. Legend: 2006 2007 Break-even Analysis The following table and the accompanying chart details the break-even analysis for this project. The projected fixed costs will be $6,000 per month with a variable per-unit cost of $200 which shall be ideally accounted for by 28 properties that is rented at $3,000 per month. The payment scheme of PMS using this rent figure will then be $1500 for the 1st month that the unit is occupied by a tenant or 50% of the rent. A 10% rent management commission or $300 fee starting from the first month until the tenant occupies the unit shall also be collected. To account for the fact that the $1500 will only be paid on the first month and that the break-even analysis is on a per month basis, the total fee collected by the PMS for each month would be $300 plus $ 125 ( $1500 / 12 months). Thus the total fee is $425 per month. The break-even assumes that all rent shall be paid in a timely manner such that the owner of the property can pay PMS also on time. This situation is ideal and as such, it is expected that the initial break-even per unit will likely be higher. Break-even Analysis: Monthly Units Break-even 10 Monthly Revenue Break-even $16,380 Assumptions: Average Per-Unit Revenue $200.00 Average Per-Unit Variable Cost $425.00 Estimated Monthly Fixed Cost $6,000 The projected profit and loss for PMS is shown on the following table. Management fees are increasing from about $624,000 in 2006 to above $701,000 after the second year. The net profit for the first year alone amounts to $160,000. The projected gross margin will be about 69% for the first year. The net profit for the second year is seen to be above 20% The planned projections are included in the attached Profit and Loss Table. Pro Forma Profit and Loss 2006 2007 Professional Fees $624,000 $701,000 Direct Cost of Fees $192,000 $205,000 Other $0 $0 ------------ ------------ Total Cost of Property Managing $192,000 $205,000 Gross Margin $432,000 $496,800 Gross Margin % 69.23% 70.87% Expenses: Payroll $120,000 $135,000 Sales and Marketing and Other Expenses $15,600 $16,000 Depreciation $3,815 $6,500 Leased Equipment $15,000 $15,000 Utilities $8,000 $9,000 Insurance $9,000 $10,500 Maintenance $8,500 $9775 Rent $3,000 $4,000 Payroll Taxes $18,000 $19,700 Other $0 $0 ------------ ------------ Total Operating Expenses $258,915 $282,050 Profit Before Interest and Taxes $173,085 $214,150 Interest Expense $7,680 $7,680 Taxes Incurred $4,432 $200,828 Net Profit $160,356 $200,932 Net Profit/Sales 25.69% 28.66% The following chart illustrates the cash flow projections for the PMS. The monthly cash flow is shown with one bar representing the cash flow per month with the other representing the monthly balance. The annual cash flow figures can be seen in the table below. Cash Flow Pro Forma Cash Flow 2006 2007 Cash Received Cash from Operations: Cash Sales $0 $0 Cash from Receivables $432,000 $496,800 Subtotal Cash from Operations $432,000 $496,800 Additional Cash Received Sales Tax, VAT, HST/GST Received $0 $0 New Current Borrowing $96,000 $48,000 New Other Liabilities (interest-free) $0 $2,500 New Long-term Liabilities $4,500 $4,500 Sales of Other Current Assets $0 $0 Sales of Long-term Assets $0 $0 New Investment Received $21,000 $21,000 Subtotal Cash Received $594,000 $ 572,800 Expenditures 2006 2007 Expenditures from Operations: Cash Spending $25,915 $29,650 Payment of Accounts Payable $144,085 $160,350 Subtotal Spent on Operations $170,000 $190,000 Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out $0 $0 Principal Repayment of Current Borrowing $55,680 $55,680 Other Liabilities Principal Repayment $0 $0 Long-term Liabilities Principal Repayment $4,500 $5,500 Purchase Other Current Assets $0 $0 Purchase Long-term Assets $15,000 $15,000 Dividends $0 $0 Subtotal Cash Spent $271,095 $301,830 Net Cash Flow $322,905 $270,970 Cash Balance $26,861 $21,677 The balance sheet in the following table shows that PMS is sustainable and in fact shows a tremendous increase in Net Worth. Pro Forma Balance Sheet Assets Current Assets 2006 2007 Cash $120,000 $135,000 Other Current Assets $15,000 $15,000 Total Current Assets $135,000 $150,000 Long-term Assets Long-term Assets $427,952 $499,762 Accumulated Depreciation $3,815 $6,500 Total Long-term Assets $431,767 $506,262 Total Assets $566,767 $656,262 Liabilities and Capital Current Liabilities 2006 2007 Accounts Payable $218,595 $242,330 Current Borrowing $48,000 $48,000 Other Current Liabilities $0 $0 Subtotal Current Liabilities $266,595 $290,330 Long-term Liabilities $139,200 $150,000 Total Liabilities $405,795 $440,330 Paid-in Capital $245,472 $270,000 Retained Earnings ($120,000) ($120,000) Earnings $35,500 $65,932 Total Capital $160,972 $215,932 Total Liabilities and Capital $566,767 $656,262 Net Worth $160,972 $215,932 Read More