2.2.1 - START-UP CAPITAL ASSUMPTIONS WESTBURY STORAGE PROPOSAL ASSUMPTIONS ABOUT NEEDED ASSETS (capital items) We will offer by June 1 of year 0 to purchase the building at 1400 Commercial Drive, in Westbury, New York. This is a 3 floor 60,000 sq ft warehouse in a commercially-zoned area. We must take possession of the property by July 1, so that studies of how to renovate the property can be made. Payment in full for the purchase is expected by August 15. Price = $567,430. A contractor will begin to create an office and 388 storage units on the three floors inside the building, beginning on August 15. The office should be finished by October 15, and all storage units will be completed by December 15. An initial payment of $100,000 is due in August, with $50,000 to be paid each consecutive month until the job is complete. Total cost = $308,000. Elevator refurbishment and upgrading will begin on September 15, and should be completed by November 15. The provider expects payment of $30,000 each month, beginning in September, with the ending balance due in November. Total cost = $92,000 Office furnishings and equipment will be purchased and installed by November 15. Total cost = $10,650 Equipment to assist customers in moving and storing goods (hand trucks, dray wagons, and locks) will be purchased and delivered by December 15. Total cost = $3,400
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2.2.1 - START-UP CAPITAL ASSUMPTIONS WESTBURY STORAGE PROPOSAL ASSUMPTIONS ABOUT NEEDED ASSETS (capital items) We will offer by June 1 of year 0 to purchase.
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2.2.1 - START-UP CAPITAL ASSUMPTIONSWESTBURY STORAGE PROPOSAL
ASSUMPTIONS ABOUT NEEDED ASSETS (capital items)
We will offer by June 1 of year 0 to purchase the building at 1400 Commercial Drive, in Westbury, New York. This is a 3 floor 60,000 sq ft warehouse in a commercially-zoned area. We must take possession of the property by July 1, so that studies of how to renovate the property can be made. Payment in full for the purchase is expected by August 15. Price = $567,430.
A contractor will begin to create an office and 388 storage units on the three floors inside the building, beginning on August 15. The office should be finished by October 15, and all storage units will be completed by December 15. An initial payment of $100,000 is due in August, with $50,000 to be paid each consecutive month until the job is complete. Total cost = $308,000.
Elevator refurbishment and upgrading will begin on September 15, and should be completed by November 15. The provider expects payment of $30,000 each month, beginning in September, with the ending balance due in November. Total cost = $92,000
Office furnishings and equipment will be purchased and installed by November 15. Total cost = $10,650
Equipment to assist customers in moving and storing goods (hand trucks, dray wagons, and locks) will be purchased and delivered by December 15. Total cost = $3,400
START-UP CAPITAL INVESTMENTSWESTBURY STORAGE PROPOSAL
BUILDING $967,430
Building purchase (includes closing costs) $567,430
Renovation and construction (units and office) $308,000
Elevators refurbished $ 92,000
OPERATING EQUIPMENT $ 3,400
Hand trucks (6 @ $125 / assorted sizes) $ 750
Dray wagons (3 @ $450 / with large wheels) $ 1,050
Chairs, side and waiting (3 @ $250 + 4 @ $300) $ 1,950
File cabinets (3 @ $600) $ 1,800
End tables and coffee table (2 @ $75 + $250) $ 400
Computers and printers (2 @ $1000) $ 2,000
Photocopier/Scanner/Fax Machine $ 500
Furnishings (Drapes, etc) $ 700
TOTAL START UP ASSETS NEEDED $981,480
2.2.2 - START-UP EXPENSE ASSUMPTIONS - 1
We plan to contact a lawyer to assist us in filing for limited liability corporation status (LLC). This needs to happen in early June (year 0). We expect all expenses (lawyer plus filing fees) to cost about $3000. The lawyer must be paid by July 1.
Property and liability insurance must be purchased as of July 1, year 0. Six months of coverage for July 1 to December 31 will cost about $5000. Once operations begin in year 1, property and liability insurance will cost $18000 per year, and must be paid (half) in January and July of each year. Insurance costs are expected to increase an additional 3% each year starting with year 2.
Property taxes for July to December (year 0) are $5975, and are payable in December. Once the facility opens (in year 1), property taxes are expected to be $25000 per year, and will increase about 3% per year thereafter.
As of July 1, year 0, utility expenses average $880 per month (water and sewer charges are $360/yr, electricity is $3000/yr, trash removal is $1200/yr, and heating expense is expected to be 6000/yr). Thus total utilities costs are $10560 per year, and are not expected to change when we begin full operations in year 1. Beginning in year 2, we project that utilities costs will increase about 3% annually.
Telephone service will cost $90 per month. Currently there is no phone service in the building, but it will be installed once the office is occupied on November 1 (year 0). Starting in year 2, we expect phone costs to increase about 3% per year.
START-UP EXPENSE ASSUMPTIONS - 2
We will begin to advertise in December of year 0. We plan to advertise annually in the yellow pages ($900 per year, renewable in December) and monthly in local newspapers ($300/month). We will stop newspaper ads at the end of year 1. Yellow page ads will be placed each year, and costs are assumed to increase about 3% per year beginning in year 2.
When we set up our office, starting in November (year 0), we must purchase an accounting software package (like QuickBooks) and office supplies (envelopes, paper, stamps, forms, files, etc). We have allocated $800 for these initial purchases. Once operations begin, there will be an ongoing need for periodic purchases of envelopes, paper, forms, files, stamps, etc. We anticipate these costs to be $1000 in year 1, $2000 in year 2, and an annual increase of about 5% each year thereafter. Normally, these items will be replenished in November of each year.
Two employees will staff the facility: a manager and an office assistant. The assistant will not be hired until the facility opens in January 1 (year 1). The manager will be employed on July 1 (year 0), and will oversee the preparation and development of the facility as it is renovated. He will be paid a salary of $30,000 per year with additional benefit costs of $9000 (30% of wages). Thus, labor costs for the period July 1 to December 31 (year 0) are expected to be $19,500 or $3250 per month. Once operations begin, the assistant will be hired with expected annual wages of $20800, and an additional $6240 (30%) for benefits. Starting with year 2, we anticipate labor costs (salaries plus benefit expenses) will increase an average of 6% per year.
No maintenance expenses will be incurred in year 0. Maintenance expenses are expected to be $18,000 in year 1. This is normally charged out on a monthly basis. We expect maintenance costs to increase 6% each year, starting in year 2.
2.2.3 - ASSUMPTIONS ABOUT DEPRECIATION AND UTILIZATION
ASSUMPTIONS ABOUT DEPRECIATION
Depreciation for equipment will be calculated on a straight-line basis, and allocated over five years. Thus, the annual equipment depreciation charge will be $2810 ($14,050/5 = $2810), beginning in year 1 and ending in year 5.
Building depreciation will be calculated on a straight-line basis, and allocated over forty years. Thus, $24186 of building depreciation will be charged against annual operations ($967,430/40 = $24186), beginning in year 1, and ending in year 40.
UTILIZATION/OCCUPANCY ASSUMPTIONSOur three sales forecasts make the following assumptions about utilization or occupancy in years 1, 2
All three scenarios assume upper floor rates will gradually be raised in years 2 and 3 to match the rates charged for first floor renters (see next chart). Furthermore, we have assumed that rates will rise by roughly 4 - 5% per year, beginning in year 4. These rate increases for years 4-7 are assumed for both the optimistic and most likely scenarios. The pessimistic scenario assumes that heavy competition will force us to not raise rates in year 4. Modest 2% rate increases are assumed for years 5-7.
START UP ASSUMPTIONS ABOUT EQUITY AND DEBT (and timeline):
We do not expect to turn a profit or break-even until year 2. Initial investment costs and operating expenses are large, and will badly deplete cash in the start up phase and in the initial year of operation. Thus, we need significant equity funding from the owners, as well as favorable terms from those lending institutions who are comfortable with us. Once we achieve full occupancy, the full profit potential of this venture will be realized.
The owners must contribute at least $400000 of equity to capitalize this venture. Cash flow projections have revealed that this amount is needed to keep sufficient working capital in the firm during the first year and a half of operation. Thus, no equity or capital should be removed from this venture by the owners for at least two years. Initial investment of $400,000 will be used to establish a checking account on June 1-yr 0.
We plan to obtain a fixed-rate mortgage to fund the purchase and renovation of the building. The bank will finance 70% of our investment in the building (which will be $967,430), and will give us a 40-year, fixed-rate loan at 8%. Thus the loan will be for $677,200, and the proceeds will be available to us at the closing in August (year 0). Monthly loan payments of $5580 will begin in October (year 0).
We have negotiated a short-term 8% (one-year) loan with an equipment supplier to help purchase our office equipment. We will receive the $8000 loan in November, when we take delivery of the office equipment. Loan payments of $696 are due each month, starting the end of November (year 0), and ending with the October (year 1) payment.
2.4 - LOCATION AND FACILITIESWESTBURY STORAGE PROPOSAL
THE FACILITYASSUMPTIONS ABOUT THE PROPOSED FACILITY:
We plan to renovate a 3-story building, 241 ft x 81 feet (inside dimensions) About 6200 sq ft will be used for walkways, elevators, etc. on each floorAn office and storage spaces will occupy 1300 sq ft on the first floorPartitions and walls will take up between 1500-1800 sq ft on each floorThis leaves us roughly 10500-12000 sq ft of rentable floor space per floor 388 storage units will be constructed on the three floors as noted below:
NUMBER AND TYPE OF STORAGE UNITS TO BE BUILT ON EACH FLOOR
Sq Ft / Unit 1st Floor 2nd Floor 3rd Floor TOTAL25 (5x5) -0- 21 units 21 units 42
units50 (5x10) 43 units 43 units 36 units 122 units100 (10x10) 51 units 41 units 44 units 136 units150 (10x15) 22 units 33 units 33 units 88 units
See Floor Plans that follow: TOTAL 388 units
3.1 – SERVICE ASSUMPTIONSWESTBURY STORAGE PROPOSAL
We intend to offer the four most popular sizes of storage units: 5x5, 5x10, 10x10 and 10x15.
These units will be located on all three floors of our building.
We are installing a high-speed elevator with extra large capacity to transport patrons and their goods to the 2nd and 3rd floors.
We will provide (free of charge) several large, easy-to-roll dollies and dray wagons to help customers transport their goods between the docking area and their storage units.
3.3 – COMPETITOR RESEARCH WESTBURY STORAGE PROPOSAL
11 Competitors in the area…what size storage units does each offer?...and at what price?
Name Size Sq Ft Price/Mo Oliver St. Mini Storage 5X10 50 $48
Most of these competitors were fully rented out (95%+ occupied) with very few available units.
Thus, we assume that we should be able to attain a high occupancy rate once we are known in the community…further assuming we charge “reasonable” or going rates for our storage services.
Occupancy rates among competitor storage facilities are currently between 90% and 100%. Several of these businesses didn’t have any spaces available…they were fully rented when we were gathering price information. This bodes well for our business, since we shouldn’t have much trouble keeping our units fully rented once the public becomes aware of our new facility. Thus, we assume (…our most likely scenario) that during the first year of operation, our occupancy rate will average about 50%. By the end of the first year (…or at the beginning of year 2), we will have achieved about a 95% utilization/occupancy rate which we should be able to maintain.
For forecasting purposes, we have made the following assumptions about the average utilization or occupancy rates in years 1, 2 and beyond:
Year 1 Year 2 Years 3+Optimistic 60% 100% 100%Most Likely 50% 95% 95%Pessimistic: 35% 70% 70%
All three scenarios assume that upper floor rates will gradually be raised in years 2 and 3 to match the rates charged for first floor renters (see next chart).
In the optimistic and most likely scenarios, we assume that rental rates will rise by 4 - 5% each year, beginning in year 4.
The pessimistic scenario assumes no rate increase in year 4 because of increased competition. A modest rate increase of 2% per year is projected for years 5, 6, and 7.
• We need to keep our prices competitive for the first year if we want to fill up our facility. (See 3.3 Competitor Summary)
• We will charge $10 more per month for our first floor storage units because of convenience…but prices on floors 2 and 3 will match the competition.
• Except for the (5x5) units, we will gradually raise our unit rates on the upper floors by $5 per month in year 2, and again in year 3, so that rental rates will be the same for all floors by year 3.
Size of Rental Unit Avg Compet Price/Mo Our Price/Mo – Yr 1
1st Floor 2nd/3rd Floor
(5x5) 25SQ FT $45 ---- $ 45
(5x10) 50SQ FT $55.50 $ 65 $ 55
(10x10) 100SQ FT $102 $110 $100
(10x15) 150SQ FT $129.50 $140 $130
3.5.1 – SEVEN YEAR PRICING PLANOPTIMISTIC & MOST LIKELY SCENARIOS
Unit Size Price/Mo - Yr 1 Price/Mo – Yr 2 Price/Mo - Yr 3
Unit Size # Units Year 1 Year 2 Year 3(5x5) 42 $1890 $1890 $1890
(5x10) 122 $7140 $7535 $7930
(10x10) 136 $14110 $14535 $14960
(10x15) 88 $11660 $11990 $12320
Revenue/Mo (…if 100% rented) $34800 $35950 $37100
Year Year 4 Year 5 Year 6 Year 7 (5x5) $1890 $1932 $1974 $2016
(5x10) $7930 $8052 $8174 $8296
(10x10) $14960 $15232 $15504 $15776
(10x15) $12320 $12584 $12848 $13112
Revenue/Mo $37100 $37800 $38500 $39200
PROJECTIONS FOR THE PESSIMISTIC SCENARIO FOR YEARS 4-7 (NO INCREASE IN YEAR 4, AND JUST A 2% INCREASE IN YEARS 5-7)
3.7.1 – PESSIMISTIC SALES FORECASTS FOR 7 YEARS
PESSIMISTIC SALES FORECAST:
Revenue projections for the first year of operation are based on an average occupancy of just 35%. All other projections (year 2 and onward) assume that only 70% of the spaces will be rented. Rental rates will not be increased in year 4 due to competitive pressures, but rates will increase 2 % in years 5-7.
PESSIMISTIC REVENUE PROJECTIONSYEAR 1 YEAR 2 YEAR 3
Revenue projections for the first year of operation are based on an average occupancy of just 50%. All other projections (year 2 and onward) assume that 95% of the spaces will be rented.
MOST LIKELY REVENUE PROJECTIONSYEAR 1 YEAR 2 YEAR 3
Revenue projections for the first year of operation are based on an average occupancy of just 60%. All other projections (year 2 and onward) assume that 100% of the spaces will be rented.