ﬁbusiness plan: property management in southern...

Applied Project Alberto Castellanos

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Athabasca University

�Business Plan: Property Management in Southern Mexico�

Coordinator: Jim Dunn

Supervisor: Ike Hall

Submitted by: Alberto Castellanos


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Executive Summary:

The subject of this business plan is to develop a property management company and relate services in the south of Mexico. The company vision and mission was developed to take advantage of the growing trend of Baby Boomers that are purchasing second homes in winter destinations, the strong financial forecasts over the next 10 years for vacation homes in Mexico, and the willingness of the community to participate. Estimate costs required are in the amount of $350,000 and included one time expenditures and operating expenses. Proposed gains and benefits will be to create a stable business with a stable income stream as well as personal career development. Major obstacles are the sources of funds required to start-up the venture, perception of civil unrest, concern of recent tourist deaths in Mexico, long breakeven point due to nature of the business, and variety of laws and restriction that apply to different country.

The applied project analyzed the short-term strategies to forecast future demand and new potential customers. The City of Oaxaca in the south of Mexico has been selected as a starting point. The project includes company value proposition, values, business goals, and objectives to be achieved. Products and services to be provided are described as well.

Environmental scanning was developed in order to identify trends and events that can influence the project. The Marketing strategy includes:

• Typical buyers • Market segmentation • Psychological and sociological factors • Target market • Size of the market

The Marketing plan focuses in the target niche market and product offerings to attract buyers. The Marketing plan includes:

• Price strategy • Price structure • Advertising

The Production and operation plan was developed to take advantage of the critical success factors � order winner and qualifiers.


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A theoretical framework is proposed for human resources strategy to accelerate the development of high performance teams.

Organizational form is explained and organizational strategy includes:

• Limited partnership • Financing • Taxation • Insurance program

Time frame and expected costs are described under the implementation schedule. The Implementation schedule spans over two years.

Financial strategy is developed under financial plans. The plan includes:

• Sources of capital • Expected profit in the first year of operations • Financial projections and ratios • Break-even analysis • Divestiture/ harvest strategy

Risk types are identified under a specific risk analysis framework. Description, scope, and management of the risk are described under four different categories.

Major findings includes the identification of a growing market for vacation homes in sunny Mexico, but mostly in coastal development and established expatriate communities. This type of business is capital intensive and financial forecasts do not demonstrate high return on investment in the first year of operation, making it difficult to obtain sources of capital for the short-term. Other findings include risks associated with political and security concerns for potential buyers and tax implications for investors. Coastal developments offer a better outlook and growth opportunities than inland communities. A Strategic decision concerning where to invest is now required to be made if the project should go forward.


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TABLE OF CONTENTS

1.0 INTRODUCTION ...............................................................................................5

2.0 FACT SHEET ....................................................................................................7

3.0 THE INDUSTRY ................................................................................................8

4.0 THE COMPANY ..............................................................................................10

5.0 PRODUCTS/SERVICE OFFERING.................................................................12

6.0 MARKET ANALYSIS.......................................................................................14

7.0 MARKETING PLAN.........................................................................................21

8.0 PRODUCTION OPERATION PLAN................................................................27

9.0 MANAGEMENT TEAM....................................................................................32

10.0 IMPLEMENTATION SCHEDULE ..................................................................36

11.0 FINANCIAL PLAN.........................................................................................37

12.0 RISK FACTORS ............................................................................................44

13.0 CONCLUSION...............................................................................................46

14.0 END NOTES AND REFERENCES................................................................47

15.0 BIBLIOGRAPHY............................................................................................51

16.0 APPENDICES................................................................................................52


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1.0 INTRODUCTION

Southern winter destinations continue to attract many Americans and Canadians. One such destination of choice for traveling, studying, and even working is Mexico. It is not uncommon for Canadian baby boomers to purchase a second home in sunny Mexico. Within Mexico, the colonial city of Oaxaca in the south offers the unique combination of colonial architecture and pre-Hispanic ruins, as well as affordable prices and sunny weather.

The company vision and mission is based on offering property investment opportunities through specialist services responsible for selling and managing of high quality private vacation homes in the southern and coastal parts of Mexico, to Canadian and international buyers. Company values include integrity, responsibility, profitability, value, security and career growth opportunities for employees. Business goals include achieving steady sales growth and creating one the most recognized businesses of this type within the area.

Property management and related services are the focus of this business plan. Related services complement the value proposition. The starting point of the business is the City of Oaxaca and the concept of strong community ties is at the centre of the business model. The growing community of expatriates and high demand for residential real estate gave rise to the idea.

Environmental scanning was developed in order to identify trends and events. Economic forces identified that the sales of vacation homes will remain high with $5 billion in investments by developers and homebuyers over the next 15 years within the country.1 Districts with the largest expatriate populations were identified as well; they are Baja California, the Federal District (Mexico City), and Jalisco. The expatriate population is expected to continue growing at a rate of 0.01% of the total population. Typical buyers are baby boomers who are approaching retirement and looking for second or vacation homes. Market segmentation includes boomers that enjoy colonial cities and are interested in exploring local culture and traditions. Psychographic or sociological factors include lifestyle status. The target market is reduced to 50 potential property buyers per year and approximately $15 million US in investment within the City of Oaxaca.


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The marketing plan identifies the unique features, the target niche market, and the reasons for the attractiveness of the services provided. Price structure and strategy are described. Advertising through the Internet would be used with potential links to various sites. The proposed promotional slogan is included and significant advertising efforts would be required to build awareness. Public relations and communication strategies are described, as well as distribution channels.

Production and operation plans identify critical success factors and operational priorities for this type of business: safe investment, communication, location, dependability, and flexibility. Also included are growth opportunity, delivery speed, and price.

The human resources strategy is laid out using a comprehensive theoretical framework geared for effective high performance teams.

Factors affecting organizational form are evaluated in order to select the best alternative. Advantages and disadvantages of limited partnerships are explained for both Canada and Mexico. Taxation affects the way foreign operations are financed. Debt financing was selected in order to avoid double taxation. An insurance program is presented for basic protection of the new venture.

The implementation schedule for the venture has been broken down into four distinct phases: conceptual, preliminary, development, and growth. Each of these phases includes the time frame and expected costs.

The financial plan includes arranging financing from several sources to raise the required capital. Business is expected to generate $9,300 after taxes in the first year of operation. Ramp-up is planned for the second year of operation. Start-up financial requirements are also laid out. Financial projections include cash flow, income statement, balance sheet, and financial ratios. Break-even analysis is included as well as divestiture/harvest strategy with four options.

Risk type is identified using Hartman�s basic steps for risk analysis. Description, scope, and management of risk are covered. Categories of risk include business related, environment related, and project related.


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2.0 FACT SHEET

Company Name: Southwest Property Management Product: Property management and related services Description: Provide property management and investment opportunities

to international buyers through specialist services responsible for selling and management of high quality private properties in the south of Mexico.

Capital Required: $350, 000 Management: Alberto Castellanos Mission: Company business is based on offering Canadian and

international buyers a potential investment in emerging and established locations, through a specialist services company responsible for selling and managing high quality private properties in the southern and coastal regions of Mexico. Growth opportunities and synergistic benefits are achieved through the long standing partnerships with communities, employees and environmental protection obligations. The Company objective is to recruit, develop, motivate, reward, and retain employees of exceptional ability and dedication by providing compensation on the basis of performance, career growth opportunity, and business development.


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3.0 THE INDUSTRY

Traditionally, Canadians have invested in real estate properties in the southern United States (eg., Florida) as a winter destination, but more and more Canadians are choosing more exotics locales, such as the Caribbean, Costa Rica, and Mexico (Owens, 2006).2 Nowadays many retirees choose Mexico for traveling, learning, playing, and even working. Up to date information about the local cost of living, real estate market, medical care, safety recreation, and community events is readily available (�Health and Safety,� 2006).3

Owning a picturesque southern Mexican vacation property is becoming an affordable reality for many Canadians (Mang, 2006).4 Baby boomers are leading the charge to invest in vacation real estate. Canadian boomers are proving to be especially receptive. For example, they make up the third largest property vacation buyers group tied with Great Britain at 14 percent and behind only the Americans at 42 percent, as demonstrated by investor statistics in the Bahamas (Owens, 2006).5

A growing number of Canadians are purchasing second homes in sunny Mexico. Usually it involves cashing out some of the equity in their private residences and investing it in properties in Mexico. This trend has accelerated since 1993 when the Mexican Government allowed foreigners to own properties within restricted zones (such as along the coast) through a trust (called a fideicomiso in Spanish) managed by Fonatur, Mexico�s National Tourism Development Trust (Huang, 2005).6

Destinations include not only coastal locations, but inland communities, such as San Miguel de Allende and Lake Chapala (Cooper, 2006).7 These two communities have attracted Canadians looking for pockets of foreigners where English is widely spoken. San Miguel, an artist�s haven, alone has an expatriate community of 10,000 Americans and Canadians. An estimated 20,000 North Americans now live in the lakeside community of Ajijic, an hour southeast of Guadalajara (Huang, 2005).8

Another tourist destination is the City of Oaxaca de Juárez (Oaxaca); the capital of the State of Oaxaca in the south of Mexico. ("Oaxaca", pronounced wa-HA-ka, comes from the Nahuatl word "Huaxacac�, meaning "in the nose of the


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squash.") The city, with its 256,848 inhabitants, is located in the centre of the state just four hours drive from Mexico City. The state is bounded to the north by the states of Veracruz and Puebla, to the east by Chiapas, to the west by Guerrero, and to the south by the Pacific Ocean.

Tourism is one of the principal sources of income for the residents of Oaxaca (�Municipio de Oaxaca,� 2004).9 One of the first cities established by the Spanish conquistadores, Oaxaca is also steeped in the Mixtec and Zapotec indigenous cultures, and offers a unique combination of colonial architecture and pre-Hispanic ruins. Oaxaca also has a growing community of expatriates located in the north of the city that has been well-received by the city�s local population. They enjoy the city�s year round spring-like climate, the scenery, architecture, cuisine, and a multitude of cultural and artistic centres and events.

A perfect combination of affordable prices, sunny weather, rich history and culture, and convenient traveling time from Canada through Mexico City make Oaxaca City an ideal real estate market.


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4.0 THE COMPANY

4.1 Company Vision

The company�s vision is to create a property management entity that sells, rents, or manages private vacation or second home real estate in unique locations that offer a variety of activities and cultural experiences.

4.2 Company Mission

The company business is based on offering Canadian and international buyers a potential investment in emerging and established locations, through a specialist services company responsible for selling and managing of high quality private properties in the southern and coastal regions of Mexico. Growth opportunities and synergistic benefits are achieved through the long standing partnership with communities, employees and environmental protection obligations. The company objective is to recruit, develop, motivate, reward, and retain employees of exceptional ability and dedication by providing compensation on the basis of performance, career growth opportunity, and business development.

4.3 Company Value Proposition

The company value proposition is based on the following considerations:

• Secure Investment • Responsibility towards the community • Unique experiences • Accessible destinations • Ease of airlift potential • Competent partners • Safe surroundings • Environmental sustainability • Superior quality.

The strengths of the proposed business plan include architectural and construction services experience combined with project management and market knowledge. Opportunities include the willingness of communities to participate, tourism services available in the city and possible future market expansion to


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other countries. Weaknesses include the language barrier, lack of employee training, availability of medical service providers and size of the actual expatriate community (Ponder, 2005). 10 Threats include land ownership restrictions, local regulations, and political and security concerns.

4.4 Company Values

Fundamental values to be adopted by the company when conducting business:

• Integrity � dealing honestly with customers, suppliers and the community • Responsibility � respecting the environment, community and common good • Profitability � maintaining the level of profitability required to achieve long

and short term goals • Value � being committed to quality as the only sustainable advantage in the

long term • Security � providing secure investment opportunities to customers • Employees � providing career growth opportunities and potential partnership

to responsible employees.

4.5 Business Goals to Be Achieved

Listed below are major business goals:

• Create a family business type of company that is diverse enough to survive recessions, but small enough to be able to maintain control of the company.

• Create one of the most widely recognized businesses of its type • Create a stable business that will provide a sufficient income stream.

4.6 Specific Objectives to Be Achieved

The following criteria will be used to measure the ability to achieve the company mission:

• US$ 325,000 in property sales in the first year of operation • US$ 500,00 in property sales per year after the first three years of operation • A steady growth that will enable the company to look for opportunities in

different locations that complement the value proposition.


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5.0 PRODUCTS/SERVICE OFFERING

The purpose of the project is to develop a business plan for a property management company. The proposed location is the City of Oaxaca with possible future expansion to coastal regions. This project provides an evaluation of the feasibility of establishing a services company that will assist with the buying and management of residential real estate in southern Mexico. The categories of potential property buyers are identified and the opportunity for investors to receive a good return on their investment is demonstrated. Canadian baby boomers with a median age of 50 that have sufficient earnings and net worth to acquire a second home, and have an interest in diversifying their investments, are being targeted as the principal customer group.

Services provided by the company include:

• Assistance with acquisition of existing residential properties; • Consulting regarding site selection for the construction of new residential

properties and negotiation of land purchase agreements; • Outsourcing of architectural and construction services; • Project management of construction; • Maintenance, protection and management of residential properties, including

marketing and rent collection; and • Assistance with the sale of residential properties.

These services would be provided primarily in the north of the city where the American and Canadian expatriate community is currently located, but other locations within the city would also be investigated. Existing as well as potential members of the expatriate community would be targeted.

Demand would be driven primarily by the opportunity to own a private residential property at much lower prices than at other popular destinations (Vieira, 2005).11 Property prices could range between $150,000 to $500,000 USD. At the same time, real estate can offer a good return on investment because of cheaper prices, strong forecasted demand, and the strength of the Canadian dollar versus the Mexican peso.

The concept of strong community ties is at the centre of the business model.


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Services such as housekeeping, security, and maintenance would be provided by the members of the local community. Community members and expatriates would create a synergy through opportunity and demand for services. Community employees will be given a chance to start their own businesses as independent service providers. The combination of dependable service providers reinforces the idea of investment opportunities within the community. The idea was born after coming to know the growing community of expatriates in Mexico and their willingness to purchase residential properties (Sansom, 2006).12


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6.0 MARKET ANALYSIS

Fred R. David (2001) argues that no organization can plan in detail every aspect of its current or future actions, but all organizations can benefit from knowing the general direction in which they are headed and the ways to get there.13 It is a fact that changes in external forces translate into changes in consumer demand for both products and services. External forces affect the type of products developed, the nature of positioning and market segmentation strategies, the type of services offered and businesses� decisions to acquire or sell. Identifying and evaluating external opportunities and threats enable organizations to develop clear strategies and to achieve long term objectives. A framework to develop an external audit is a vital part of the strategic management process. Information to be reviewed includes:

• Economic; • Social, cultural, demographic, and environmental; • Political, governmental and legal; • Technological; and • Competitive forces.

Environmental scanning helps to identify and evaluate the trends and events beyond the control of the organization.

6.1 Economic Forces

As affluence increases, individuals place a premium on time, improved customer service, immediate availability, trouble free operation of products and dependable maintenance and repair services.

Real estate for second home and property vacation homes demand in Mexico is being fueled by U.S. residents flush with cash from rising stocks and five-year surge in home value, according to Mitch Creekmore, director of International Development for Steward Title Guaranty, which insures $3 billion of property in Mexico. (Black, 2006)14

Jeff Hornberger, manager of international market development for the National Association of Realtors, estimates that anywhere between 500,000 to 1.5 million


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Americans have homes in Mexico. (Harris, 2006)15

The INEGI, �Censo de Poblacion y Vivienda� reported in 2000 that approximately 493,000 expatriate residents have been registered as living in Mexico. (Sistemas Nacionales Estadisticos y de Informacion Geografica. 2006). Migracion.16 Mexico is quickly becoming the country of choice for retiring Americans and Canadians, allowing them to save on housing and living expenses.

Lenders know there is a huge niche south of the border and have begun to jockey for position in some of the more attractive markets. Lenders now offer fixed rate and adjustable rate mortgage programs for primary and secondary home buyers under its �Mexico: my dream� campaign, which debuted last year. (Kelly, 2006)17

As a reference, baby boomers are now nearing retirement age and are increasing the demand for second homes. It is likely that second-home sales will remain historically high over the next decade. The National Association of Realtors (NAR) reported 43.8 million second homes, out of which 37.2 million were found to be investment homes and 6.6 million vacation homes. 23 percent of all homes purchased in 2004 were for investment purposes, and another 13 percent were vacation homes. In 2003, second home sales went up by 16 percent, investment homes up by 14 percent and vacation homes up by 20 percent. (Reeves, 2005)18 Last year, vacation homes and investment properties made up about 36 percent of all real estate sales, or about $560 billion. (Neville, 2005)19 Property management has been beneficed because homeowners pay about 25% commission on all rental income to property management companies. In exchange property management companies are on duty 24/7, to book guests and check them in and out, to see that the small details such as windows are washed or snow removed, and to call in a repairman when the roof leaks or the dishwasher breaks. (Bennett, 2005)20

A little more than a decade ago, Mexico underwent a currency crisis that saw the Peso collapse, followed by an economic downturn. Since that time, however, the Mexican economy has seen a steady economic growth of 5 percent in 2005 with inflation rarely reaching more than 5 percent. Much of this success can be attributed to the North American Free Trade Agreement, as Mexico is one of the largest trading partners of the United States and Canada. Still, should another


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devaluation of the peso occur, an investor in Mexico will likely emerge from it unscathed. (Smith, 2006)21

According to Mexico�s National Trust Fund for Tourism Development, the five largest projects geared for U.S. customers should yield $5 billion in investment by developers and homebuyers over the next 15 years. A Mexican real estate investment can provide a hedge against rising prices. (Young, 2006)22

The state of Oaxaca offers great retirement opportunities with a reasonable cost of living, low property taxes and minimal need for climate control.

6.2 Social, Cultural, Demographic and Environmental Forces

Baby boomers, the 76 million Americans born from 1946 to 1964 who make up 29 percent of the U.S. population, stand to inherit more than $70 billion from their parents, and much of that will be spent on real estate. Baby boomers are using their savings or equity from rising U.S. home prices to buy across the border.

Mexico has relaxed its foreign investment laws and U.S. companies have begun offering escrow services and title insurance reducing risk. This change in Mexico�s real estate climate is drawing U.S. developers including Donald Trump, David Butterfield, and John Fair to build communities on the Baja peninsula. (Black, 2006) 23

According to Mark Raven, a Tucson attorney specializing in real estate in Mexico, the buying boom took off after the September 11, 2001 terrorist attack and thousands of new units have been built. (Harris, 2006)24

Most Mexicans welcome U.S. investment, recognizing that new developments have produced jobs and economic benefits. Buying an overseas vacation home immerses the buyer into local culture and a different lifestyle. When buying an overseas vacation home part of the fun is having access to a different culture.

Environmental problems in southern Mexico include a limited fresh water supply.

6.3 Political, Government and Legal Forces

During the last five years, the Mexican government under President Vicente Fox


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has cracked down on corruption and real estate bribes. This has created a safer environment for real estate business. Recently, for the second time since 1910, a conservative President was elected and he is probably going to continue the same policies.

Buying a home in Mexico has gradually become similar to a U.S. transaction. In 1994 a law was passed to allow full foreign ownership of land near the coast or border through trusts or �fideicomisos.� (Trusts are not required for foreigners to acquire property located in the interior of Mexico. (Expat Focus).25) The trusts are created and owned by Mexican banks. The foreign buyer benefits by having his property rights protected. The trusts last up to 50 years and are renewable. Interest in the properties can be protected through title insurance that will cover legal fees in case of an ownership dispute.

In 2003, the Mexican Legislature provided some clarity to the foreclosure provisions under Mexican law. Foreclosure procedures have been abbreviated and a non-judicial foreclosure is available when the property is held in a Mexican trust. Recent reforms to the Mexican constitution and judicial system have significantly strengthened the rights of foreign owners of Mexican real estate. U.S. companies now offer escrow services and title insurance and financing from US banks is now more readily available. All these factors are attracting U.S. developers. Florida-style retirement communities complete with golf courses, marinas, and shopping centers are being planned. Elsewhere in Mexico, the government wants to develop beach land by creating coastal corridors in Fonatur. (Retire Better, 2006)26

In terms of disadvantages, poor record keeping of land granted to farmers can lead to title disputes. Foreign buyers still do not have the same legal standing as Mexican Citizens, who can buy any property without using a trust.

Overall, however, lending in Mexico has become much more attractive to lenders and safer for consumers.


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6.4 Conclusion of Environmental Scanning and Identification of Trends

A critical factor in successfully launching a new venture is understanding who your customers are and what needs your products or services might satisfy.

Baja California has the largest population of expatriates at 62,829. The Federal District (Mexico City) is the second largest with 56,187 expatriates followed by Jalisco with 48,989 and Chihuahua with 44,436. Oaxaca only registered 4,591 expatriates or 1% of all the expatriate residents in Mexico. The expatriate population has seen a steady growth of 0.04% since 1990. In 2000, the expatriate population grew by 0.1% and is expected to continue growing, especially in established locations such as Baja California, Jalisco, Mexico City and Chihuahua. Typical real estate buyers are baby boomers that are near retirement and looking for second homes or vacations homes, or for investment opportunities.

Expatriates buy properties in Mexico located within:

• International developments • Communities • New developments • Florida-styles retirement communities • Fonatur

The principal requirements in selecting a product or service of this type include:

• Fixed interest rate • Adjustable rate mortgage program • Escrow services and title insurance to reduce risk • Full foreign ownership, including through trusts • Title insurance and third-party management of escrow • US bank-financing

Geographic segmentation would include location since Oaxaca City or coastal developments are located in specific locations in southern Mexico. The target client group would include people who like colonial cities and the surroundings. Geographic location reduces the target market to 1% of all potential expatriates.


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The demographic description includes baby boomers with a median age of 50 that have sufficient earnings and net worth to acquire a second home, and have an interest in diversifying their investments. Psychographic or sociological factors include lifestyle and status. Market segmentation includes boomers that enjoy colonial cities and desire to explore different cultures, traditions and values.

6.5 Estimated Total Market Size and Trends

The principal market is located in the City of Oaxaca in the first phase of the project. Actual total market size is about 4,591 based on the number of expatriates living in Oaxaca in 2000. The market is scattered throughout the city and surroundings without a typical pattern of specific location. Market size has grown at 1% per year from 1990 to 2000. Therefore there are 50 potential customers for properties in the city in the coming year. Total market size in US dollars is $15,000,000 using an average price of $325,000 per residence.

According to Fred R. David (2001) competition in virtually all industries can be described as intense, and sometimes cut-throat.27 Collecting and evaluating information on competitors is not always easy because privately held firms do not publish any financial or marketing information. However, many firms use the Internet to obtain most of their information on competitors.

6.6 Analysing Competition

The key direct competitor in the area is URBIC Constructions � Joaquin Solis Altamirano.28 The estimated market share is unknown. Products or services offered include:

• Investment management • Property acquisition • Sales and promotion • Property management • Surveying • Property appraisal

URBIC is an integrated service provider that offers mainly real estate, architectural, design, construction, structural engineering, and business


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consulting services. It aims to become the first strategic consultant on investment projects and its principal advertising strategy is the Internet. URBIC emphasizes quality through quality management. Average selling price (in USD) is as follows:

• Land for sale in the area surrounding the city - $6.50 per m2 • Land for sale in coastal areas - $300 per m2 • Land and property within the city - $286 per m2

Its profit margin is approximately between 30 to 50% and it does not emphasize a low selling price. Expected retaliation could include price lowering and increased promotion and advertising.

Other indirect competitors include:

• Independent real estate companies - �Oaxaca Real Estate�. Oaxaca Real Estate & Oaxaca Real Estate Investment Guide.29

• MEXonline. Buying Property in Mexico. MEXonline.com.30

• Others - Retirement & Investment Real Estate. 1st Wave Realty.com.31


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7.0 MARKETING PLAN

Kotler (2003) states that the traditional view of the business process will not work in more competitive economies where people face abundant choices. The mass-market is actually splintering into numerous micro markets, each with its own wants, perceptions, preferences and buying criteria.32 The marketing strategy could be defined as follows:

• Choosing the value � representing the research that marketing must do before any product exists. It must segment the market, select the appropriate market target, and develop the offering�s value proposition.

• Providing the value � representing the features, price and distribution. • Communicating the value � representing the tactical marketing, sales

forces, promotion, and advertising.

Product and service offered is providing property management and investment opportunities to international buyers through specialist services responsible for selling and management of high quality private properties in southern Mexico.

The concept is unique because it strives to tailor the second home buying experience to the individual's taste and preference. Its focus is on international buyers that are looking for a potential investment in either an emerging or established location. The concept is strengthened by forming long standing partnerships with communities and employees with the obligation to protect the environment. It is distinctive from other concepts because it caters to a market niche with individual clients and individual experience. The primary customers are baby boomers who enjoy new cultural experiences and at the same time want a good return on their investment. The concept combines two ideas into one opportunity. On the one hand, it provides a winter destination, and on the other captures the growing market of expatriates willing to purchase second homes in sunny Mexico. If the idea is technically feasible, a property residence would be built as a first step to demonstrate quality standards and unique design.


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7.1 Services Provided

Services provided by the company would include:

• Assistance with acquisition of existing residential properties; • Consulting regarding site selection for the construction of new residential

properties and negotiation of land purchase agreements; • Outsourcing of architectural and construction services; • Project management of construction; • Maintenance, protection and management of residential properties, including

marketing and rent collection; and • Assistance with the sale of residential properties.

Warranties would be subject to local laws, but additional services free of charge would include free translation and consulting regarding references and networking.

The products and services are unique because of the following features:

• Focus on customers with attention to detail � niche market • Customer protection and loyalty • Investment opportunities within the community • Experience in project management and market knowledge • Competitive advantage through high-quality workforce • Being adaptive.

Kotler (2003) identifies market niches by dividing a segment into sub-segments. An effective segmentation must be measurable, substantial, accessible, differentiable, and attainable.33 An attractive niche is characterized as follows:

• The customers in the niche have a distinctive set of needs • They will pay a premium to the organization that best satisfies their needs • The niche is not likely to attract other competitors • The niche gains certain economies through specialization • The niche has size, profit, and growth potential

Kotler (2003) outlines different ways to identify customers including needs, attitudes, preferences, income, social classes, and stages in family life cycle.34


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The target customers are baby boomers near retirement age with a median age of 50 that have sufficient income and net worth to acquire a second home and have an interest in diversifying their investments.

The following is a list of reasons why customers will buy company products and services:

• Limited offerings in the city • Sales would be available in Canada directly • Residence prototype is available in advance • Complete package of services • Warranties are available for customers • Knowledge of the product • Quality control • Price structure is easy to understand • Specific target market and product offering • Strategic location � water is an issue due to scarcity • Reliability of the company • Use of performance objectives • Property protected with title insurance • Easy due diligence • Strong community ties.

In a study of hundreds of business units, the Strategic Planning Institute found that the ROI averages 27 percent in smaller markets, but only 11 percent in larger markets� (Kotler, 2003, p.271).35 There are several reasons, but the principal reason is that the specialized business ends up knowing the target customers so well that it meets their needs better than bigger firms that occasionally sell to this niche. As a result, the specialized firm can overstate its price versus cost. Where the nicher achieves high margin, the mass-marketer achieves high volume (Kotler, 2003).36

Anthony A. Atkinson et al (2000) identifies how an organization determines its long-term benchmark price to guide its pricing strategy. Managers must consider both the short-term and the long-term consequences of their decisions. Price-Taker or Price-Setter decisions will be identified using short-term and long-term decision-making considerations. (David, 2001)37


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7.2 Pricing Program

New properties based on design specification and needs are unique services that should be priced as value-based instead of competition-based.

Value-based pricing is the perceived value the customer places on services. The price is determined by analysing customer needs and value perceptions that involve availability, image, and warranty considerations. Differentiating factors include availability, location, image, quality and reliability.

Pricing strategy will include the cost of the land and the cost of construction. The average cost of land is US$150 per m2 and US$300 per m2 for construction. The price includes 5 percent for project management services and 10 percent for architectural design and engineering.

7.3 Advertising

Advertising would be done through the Internet and complemented by sending out press releases and developing effective outdoor window displays. Cost estimates for Internet site development varies from $500 to $100,000 and information on the website should be updated regularly. Advantages include high selectivity, interactive possibilities, and relatively low cost. A disadvantage of the proposed advertising strategy is that the Internet is a relatively new medium with low numbers of users in some countries. Other aspects to consider include:

• Domain name • File registration request • Reliable web server to house the site • Links leading to the site by listing with directories and hotlines

There are different sites that promote living in Mexico and offer financial, legal, or cooperative advertising programs. A direct link to the company's website would be preferred. Cooperative advertising websites include:

• Mexretire.com � �Mexico feels like home� • Expat Focus � For anyone moving or living abroad • Oaxaca Real Estate � Oaxaca vacation information • Oaxaca Real Estate Investment Guide


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• Mexliving.com � Live in Mexico twice the lifestyle half the cost • Choose Mexico � Retirement in Mexico, health and safety travel guide.

7.4 Promotion

The primary promotional message to potential customers is: �Investment opportunities in sunny Oaxaca. Buy, rent, or invest in a colonial town; perfect combination of affordable prices, sunny weather, rich history and culture, and convenient traveling time from Canada through Mexico City make Oaxaca City an ideal real estate market.�

In setting the promotional budget, five specific factors require consideration:

• Product life cycle stage � new products require a significant advertising budget to build awareness and gain consumer interest, but established brands usually are supported with lower advertising budget when compared to sales (informative advertising).

• Market share and consumer base � increasing market share by increasing market size requires larger expenditures (informative advertising).

• Competition and clutter � In a market with a large number of competitors and high advertising spending, a brand must advertise more heavily to be noticed (persuasive advertising).

• Advertising frequency � number of repetitions needed has an important impact on the advertising budget (remainder advertising).

• Product substitutability � advertising is important when a brand can offer unique physical benefits or features (persuasive advertising).

Due to specific factors listed above we have:

• Large advertising efforts are needed to build awareness • Larger advertising efforts are needed to increase market size • Less advertising is needed if the number of competitors is decreased • Large advertising efforts needed to put across the brand�s message • Large advertising efforts needed to offer unique physical benefits or features.

Overall a large advertising budget is required for the new venture.

A trade promotion program will include complementary services with cooperative


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firms. Also, promotion will include maintenance services, extended guaranties, consulting services, and cost saving strategies.

7.5 Public Relations

Public relations, general communication and relationships would be personal and would include employees, government, community and customers. Support of the community and environment would be of utmost importance everywhere we do business. Distribution of the products will be directly to the consumers. The company will use its own sales force in the beginning and start using agents and brokers once more products are available.


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8.0 PRODUCTION OPERATION PLAN

Critical success factors include those activities that must be performed if the organization wishes to achieve its long term objectives. Critical success factors or performance objectives are designed to satisfy the market they attempt to serve. Nigel Slack, Stuart Chambers and Robert Johnston (2001) classify critical success factors into two categories:38

• Order-winning factors are those objectives that directly and significantly contribute to a winning business. They are a key reason for purchasing. Raising performance in an order-winning factor will either result in more business or improve the chances of gaining more business.

• Qualifying factors are those aspects of the operation�s performance that must be above a particular level just to be considered by customers. Any further improvement above the qualifying level is unlikely to gain the organization additional competitive benefits.

Identifying and classifying the critical success factors would enable the organization to gain a competitive advantage.

Nigel Slack et al (2001) identify operational strategy as the set of general principles that will guide the decision making process.39 Those decisions include translating market requirements into operation decisions. A Top-Down approach should be used to identify operational strategy and to address the following questions:

• What types of business does the organization want to be in? • What part of the world, region, or city does the organization want to operate

in? • How should cash be allocated amongst the various businesses, departments,

or units?

8.1 Identification of Operational Priorities

Critical success factors or performance objectives within the operation seek to satisfy customers through developing their five performance objectives.


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For a property management company the quality advantage means providing error-free goods and services that are suitable for their purpose. Internally, quality operations reduce costs and increase dependability. Quality advantage includes the following services offering:

• Safe Investment � long standing partnership with communities and employees.

• Growth Opportunity � a sound investment with growth projections. Company�s organization is stable and efficient. Operations are performed as specified.

• The quality of the technical solutions � the appropriateness and constructability as perceived by customers. Consulting services are carried out in a consistent manner. Properties to be sold or bought are inspected to ensure their good condition.

• The quality of communications with customers � the frequency and usefulness of information. Customers are consulted and kept informed. All documentation is presented and information is accurate and useful.

• The quality of company documentation � the usefulness of documentation throughout the project life and customer relationship.

The Speed Advantage means providing the services promptly and without delay � minimizing the time between a customer asking for services and receiving them in full. Internally, speed reduces risk by delaying resources commitment.

• Delivery speed � the time between customers requesting a services and receiving it is kept to a minimum.

• Location � direct air access between three to five hours.

Dependability Advantage means delivering the services when and as they were promised. In other words, it means keeping the delivery promises you have made to your customers. Internally, dependability increases operational reliability, thus saving the time and money that would otherwise be taken up in solving reliability problems, and also provides stability to the operation.

• Dependability � our ability to deliver on the promised date and on a revised date. Have a plan ahead of services schedule and a plan for dependability of supply.


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The Flexibility Advantage means the ability to vary or adapt the operational activities to cope with unexpected circumstances or to give customers individual attention. Hence, the range of goods and services that you produce has to be wide enough to deal with all possible customer preferences. Change far enough and fast enough to meet customer requirements. Internally, flexibility can help speed up the response time by saving time that would otherwise be wasted in changeovers and maintaining dependability.

• Flexibility � the ability to adapt to different solutions. This means changing what operations does, how it is doing it, or when it is doing it. Keeping track and retrieving new customer information (e.g. medical records). Keeping up with new customer demands, and providing a range of options from which customers are able to choose when acquiring services.

• Highly skilled personnel that are able to resolve problems. The ability to train highly skilled personnel.

Cost Advantage � means minimizing costs, that is to produce goods and services at a cost that enables them to be priced appropriately for the market while still asking for a return to the organization. Internally, cost advantage is helped by good performance in the other performance objectives.

• Price � the total charge to the customer. The lower the cost of producing the goods and services, the lower they can be priced to the customers.

Graph No.1 - Plotting on the nine-point scale:

Importance/Performance Scale to CustomersMore Important Less Important

1 2 3 4 5 6 7 8 9 10Safe Investment X

Growth Opportunity XCommunications X

Documentation XSpeed X

Location XDependability X

Flexibility XHigh Skilled Personnel X

Price X1 2 3 4 5 6 7 8 9 9

X Rating of importance to customers


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Graph No. 1.2 Order Winner/Qualifiers/Less Important:

Safe InvestmentGrowth Opportunity

CommunicationsDocumentationDelivery Speed

LocationDependability

FlexibilityHigh Skilled Personnel

Price

Competitive factorsOrder

winnersQualifiers Less

important

Safe Investment, communications, location, dependability, and flexibility are classified as order winners. Growth opportunity, delivery speed, and price are classified as qualifiers. Although the qualifiers provide a crucial advantage, clients would be more interested in the order winners. Performance objectives are important considerations for focusing resources where they are important to achieve competitive advantage.

To address the owner order winner qualifiers, it is important to separate them into two categories. The first category can be achieved through planning and searching for the best options on the market (safe investment and location). The second category can be achieved through training and project team development. A review of the internal process is required in order to increase communication, flexibility, and dependability.

8.2 Human Resources

Charles R. Greer (2000) states that human resources strategies are essentially plans and programs that address and resolve fundamental strategic issues related to human resources management. Human resource strategy focuses on the alignment of the organization�s human resources practices, policies, and programs with corporate and strategic business plans. Increasingly, it is being recognized that competitive advantage can be obtained with a high-quality workforce, which enables organizations to compete on the basis of market responsiveness, products and service quality, differentiated products, and technological innovation, instead of reliance on low costs.40 A comprehensive theoretical framework can be used in order for human resource strategy to help


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align personnel practices, policies, and programs with the human resource strategy so that the desired employee roles and characteristics will support company strategy (Hartman, 2006).41

Open communication � a culture of openness is best cultivated through leadership and example. Open communication should be nurtured from the beginning.

Ownership of your work � having control of your work and balancing the needs of an individual against those of the team.

Propensity to take risk � competitive advantage lies in continuing improvement and improvement comes from trying something different. If a risk is taken, the results should be treated as a learning experience in order to replicate the results or to avoid making the same mistake in the future.

Creativity � it attracts the best people to the organization and keeps them motivated. Creativity needs encouragement, focus, and natural leaders as well as general awareness within the company.

Fun � it starts with open communication and creativity. Team members having fun are much more productive and motivated.

Tribalism � people feel good when they belong to a tribe. Each tribe has its own language, culture, dress code, hierarchy, taboos, and traditions. It is part of our heritage and it is a powerful tool in bringing people together.

Trust � it is the glue that binds us into more effective teams. It is a necessary condition for meeting targets, collaboration, improvements, and competence.

This framework offers powerful ways to accelerate effective high performance teams.


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9.0 MANAGEMENT TEAM

Anthony A. Atkinson, Robert S. Kaplan, and S. Mark Young (2000) contend that in response to today�s increasing competitive pressures, organizations are changing the way they are organized and the way they do business.42 This is necessary because they must be able to change quickly in a world where technology, customer tastes, and competitors� strategies are constantly changing. Being adaptive generally requires that the organization�s senior management delegate or decentralize decision-making responsibility to people in the organization. Decentralization allows motivated and well-trained organization members to identify changing customer needs quickly and gives frontline employees the authority and responsibility to develop plans to react to these changes.

The degree of decentralization reflects the organization�s trust in its employees, the employees� level of skill and training, the increased risk from delegating decision-making, and the employees� ability to make the right choices. It also reflects the organization�s need to employ highly qualified personnel.

9.1 Legal Forms of Business Organization within Canada

The legal form of organization involves several factors to be considered, such as:

• Complexity � it could be complex if the business adopts different types of operations even though they can be complementary. Line of operations involves:

o Buying and selling properties is complementary to the core business proposition. It should be considered as a way to attract more business, so there should not be a separate organization to perform this business operation in the short term.

o Property management � it is the core of the business and operations should be concerned to develop its performance objectives.

o Consulting services � it is complementary as stated in point No.1 o Project management - it is complementary and it should be

outsourced if possible. It should be performed to control quality of


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the processes and it should be performed in the early stages of the business.

• Expenses associated with organizing and operating the business � principal expenses are start up costs, such as land acquisition, engineering and architectural services and construction. Start-up expenses are high and the breakeven point could be achieved later than in one year.

• The extent of the owner�s personal liability is a key factor to be considered in initiating and organizing the legal form of the business.

• The need for capital and operating funds from different sources � funds to be considered after start up costs.

• Distribution of profits and losses

• Extent of government regulation in both countries

• Tax consideration and implication � to be discussed separately

• Need to involve different partners

After considering all these factors, the most appropriate form of partnership in Canada is a limited partnership. The liability of a partner in a limited partnership is limited to the partner�s own contribution to the capital of the business. Also, limited partners are limited in their participation in the day-to-day management of the business or they will lose their limited-liability status, but they have the ability to remove the general partners.

Ease of recruiting investors is one of the principal advantages of this form of organization. The disadvantages for the partners are that only the general partners have decision-making authority and can participate in the management of the business. Other advantages include:

• Initial requirements and costs � it should be registered provincially. • Taxes � apply individually to the partner�s contribution • Transfer of ownership � partners can sell their interest in the company


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In Mexico the best form of organizing the business is as a foreign subsidiary. A foreign subsidiary is a legal entity that is completely separate from the Canadian parent. Corporations are easy to organize under Mexican laws. The advantages are similar to those of a corporation in Canada. A company qualifies as multinational company when it has operations and assets in a foreign market and draws part of its total revenue and profits from such market. As a multinational company, it can be exposed to international factors such as:

• Foreign ownership � portions of equity of foreign investment owned by foreign partners, thus affecting foreign decision making and profits.

• Multinational accounting � different currencies and specific rules influence the consolidation of financial statements into one currency.

• Foreign exchange risk � fluctuations in foreign exchange markets can affect foreign revenues and profits, as well as the overall value of the company.

9.2 Legal Forms of Business Organization Outside of Canada

The existence of bilateral tax treaties and the subsequent application of tax rules can significantly enhance the overall net funds available to multinational companies from the invested country. International taxation is one of the variables that multinational corporations should take into consideration when financing overseas projects. In determining the total taxes to be paid by a multinational company, the level of taxable income must be calculated.

In order to reduce double taxation, a company should have a permanent establishment in the foreign country and take advantage of tax treaties that override domestic laws. In addition to taxing business income, most countries impose withholding taxes on certain types of payments out of the country. Payments subject to withholding taxes include dividends, interest, royalties, and management fees. The tax rate that applies tends to be 15%. Since tax treaties normally do not eliminate withholding taxes altogether, double taxation can still occur.

The decision on whether to finance a foreign operation using debt or equity financing is based on the tax rates in the country where the foreign operation is based and the home country. In countries with high tax rates, debt is preferred as a financing method. If a multinational company is financed with debt and pays


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foreign income as interest in the year it is generated. The home country tax rate will likely apply because interest payments may make it possible to reduce the foreign operation�s taxable income to zero.

9.3 Insurance

An insurance program will provide some financial protection against unpredictable occurrences in several areas that could threaten the survival of the company. The following represent the basic insurance protection of the new venture:

• General liability insurance � covers the liability to customers injured by a product that the company has sold to them.

• Business premises insurance � covers business premises and equipment from loss due to fire, theft, and other causes.

• Use vehicle insurance � it must be obtained for cars and other vehicles used in the company�s business.

• Business interruption or loss-of-income insurance � it will enable the company to continue to pay the bills if the business should be closed down by fire, flood, or other catastrophes.

• Credit insurance � it protects the company from extraordinary bad debt or losses due to a customer going out of business.

• Surety and fidelity bonds � it protects the business from the failure of another firm or individual to fulfill its contractual obligations.

• Worker�s compensation - it provides compensation for the company employees in case of illness or injury related to their employment.


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10.0 IMPLEMENTATION SCHEDULE

A general implementation schedule has been developed to ensure that all phases of the venture have been adequately planned. The development of the concept has been broken down into four distinct components: concept phase, preliminary phase, development phase, and growth phase.

• Concept phase. This phase would take approximately six months to be developed. Activities include assembling the advisory team, such as accounting, law, and marketing. The principal objective is to identify land options to be purchased, to evaluate the most attractive alternatives, and to purchase the most suitable alternative. Expected cost, $110,000.

• Preliminary phase. This phase would take approximately four months to be completed. The principal activity is to secure financing. Other activities under this phase include name registration, business incorporation and registration for tax purposes. Architectural, engineering, and web page design services will be contracted. Expected cost, $20,000.

• Development phase. This phase is expected to take ten to twelve months to be completed with the majority of the time consumed by construction and sales activities. Principal activities include sales, advertising and promotion campaign, employee hiring, and comprehensive training program. Expected cost, $120,000.

• Growth phase. This includes the long-term growth of the business. This phase involves the development of new coastal property locations and property management services.


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11.0 FINANCIAL PLAN

According to Lawrence J. Gitman & Sean M. Hennessey (2005), the financial strategy sets out the company�s planned financial actions and the anticipated financial impact of those actions over the period ranging from 2 to 10 years. Long-term (strategic) financial plans are part of the integral strategy that, along with production and marketing plans, guide the firm toward achievement of its strategic goals. Those long-term plans consider proposed fixed asset outlays, marketing, capital structure, and major sources of financing. 43

11.1 Arranging Financing

There are relatively few sources of seed capital for ventures that are just starting and do not have a track record. Combining financing from several sources to raise capital is required.

11.2 Investigating Debt Financing

Banks can provide debt financing in the form of self-liquidating, short-term loans to cover small business working capital requirements in the form of a line of credit. With an operating loan, credit is extended up to a prearranged limit on an ongoing basis to cover day-to-day expenses due to cyclical incomes. Furthermore, a line of credit can give you the advantage of a discount for prompt payment.

Restrictions investing with debt financing are:

• Retained earnings leave the company • Vetoes purchase of fixed assets above certain limit • It is subject to annual review and renewal by mutual agreement determined

by the lender • Interest on operating loan is usually tied to the prime rate • Bank may ask for a personal guarantee of business loans as well as a pledge

of collateral security for the full value of the loan or more. • In order to qualify for a loan, one must have sufficient equity in the business

and a strong personal credit rating.


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11.3 Arranging Personal Funds

Personal funds will be used in the business. The first land acquisition will be financed through a combination of personal and family funds. All of the terms and conditions of the investment will have to be set out in a formal legal agreement. The legal agreement will include the nature of the business, detailed implementation plans, and risks associated with the venture.

Family business orientation has the advantage of obtaining funds from family sources with the understanding of limited liability, limited participation in the day-to day management of the business, and mutual agreement of all partners. Moreover, family members located in different countries can take advantage of tax laws.

11.4 Venture Capital

Venture capital involving equity participation would be necessary in the development stage of the business. The development stage of the business will require funds of US$1 million. To grow the business into the development stage, venture capital would be required. Equity participation would be needed to raise funds for new property development. The main issues under capital investment include:

• Price � value of the business, value prepared to accept, and value prepared to consider.

• Control � managing the risk by putting some controls in place to protect their investment, such as ability to make financial decisions, representation on the board of directors, equity to give up based on predetermined performance based targets, first opportunity to participate in the sale of equity, and ban on the sale of future shares without limited partnership agreement

• Establishment of performance expectations � specific milestones and objectives and performance measures

• Exit strategy � available option to cash in their investment such as: acquisition by a third party, sale of the investor interest to third party investors, buy-back agreement, and management of employee buyout.


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11.5 Down Payment from Customers

In construction it is customary to receive a partial payment at certain defined stages during the course of the project. Any work that involves special orders or custom design would require a significant deposit or part of the total payment in advance.

Money Required to Launch the Property Management Business

Calculating funds available to launch the start up phase of the business includes:

Source Amount in US$ Personal Sources

Cash 2,000Stock 5,000Mutual Funds 51,000RRSP�s 5,000Other Investments 5,000Credit Cards 10,000Line of Credit 22,000

Sub-Total 100,000Personal Contacts

Family Members 50,000Limited Partners 100,000

Sub-Total 150,000Other Sources

Down Payments from Customers 100,000 Total Funds from All Sources 350,000

11.6 Determining Start-Up Financial Requirements

The property management business is a capital-intensive business to start. The bulk of the money is required for land acquisition and professional services. The estimate of the funds required to set up the business can be broken down into two components:


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One time expenditures � expenditures must be made before the business can open its doors. These include capital expenditures and soft costs as disclosed in Table 12.1

Operating expenses � these include employee payments, wages, utilities, promotions, and other ongoing expenses that must be incurred until the business begin to generate profit. It is estimated that three to six months of funds would be required to cover operations. A cash flow reserve is required to cover emergency situations. Operating funds to cover these initial operation expenses are also illustrated in Table 12.1

Table 12.1 Estimated Start-Up Requirements for Property Management Company

Estimate Monthly Expenses

1 2 3

Estimate monthly based on sales of $322,000 per year

No. of months of cash req. to

cover expenses

Estimate cash required to start

business

ITEM1. Owner's Salary -1,667 3 -5,0002. Employees' Wages and Salaries -3,750 3 -11,2503. Rent -376 3 -1,1274. Advertising and Promotion -524 3 -1,5725. Delivery Expense -215 3 -6446. Supplies and Postage -270 3 -8107. Telephone -939 3 -2,8188. Utilities (Heat, Light, Power) -671 3 -2,0139. Insurance -537 3 -1,61010. Taxes including employment insurance -2,147 4 -8,58711. Interest -1,342 3 -4,02512. Professional, Legal and Accounting Fees -1,878 3 -5,63513. Maintenance Expense -617 3 -1,85214. Other Fixed Expenses -1,020 3 -3,059

-15,951 -50,000

*Expenses and other payments should be entered as negative (-) numbers.

MONTH

A. TOTAL CASH REQUIRED FOR MONTHLY RECURRING EXPENSES


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Estimate One Time ExpendituresExpenditures

B. CAPITAL COSTS Cash required to start business

ITEM1. Land Purchased ( 1 lots) -100,0002. Licenses and Fees -10,0003. Geotechnical Work -1,0004. Surveying and Permitting -1,0005. Architectural Services -10,0006. Engineering Services -10,0007. Interior Design Services -3,0008. Furniture -10,0009. Construction Fees -110,00010. Supervision and Appraisals -5,00011. Web Page Design and Set Up -5,00011. Others -7,500

-272,500

Estimate One Time ExpendituresExpenditures

Cash required to start business

C. SOFT COSTSITEM1. Utilities -1,5002. Professional, Legal and Accounting Fees -5,0003. Licenses and Permits -1,0004. Advertising and Promotion -2,0005. Accounts Payable (Interest) -8,0006. Cash -5,0007. Others -5,000

-27,500D. TOTAL ONE-TIME CASH REQUIREMENTS -300,000


E. TOTAL ESTIMATE CASH REQUIRED TO START BUSINESS: -350,000

11.7 Financial Projections

Detailed financial projections are provided under Exhibit No.1 and No.2. As indicated, Property Management Services are expected to require $350,000 in the first year of operations, primarily due to land acquisition, construction fees, and professional services, such as architectural and engineering. The business


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is expected to generate $9,300 in its first year of operations, as well as providing for the purchase and development of a second property. Profits will be used to repay limited partners and family members. The $322,000 sales generated in the first year is enough for the breakeven point of $302,518. Financial projections for the second year will include the construction of one additional property and the ramp-up of the property management services.

Break-Even Analysis

Projected Sales 322,000Total Operating Expenses 245,642

Gross Margin Contribution Margin

Net Sales 81.10%

Total Operating Expenses

Break-Even Point ($Sales) Contribution Margin

302,888

As indicated in the Cash Flow projection under Exhibit No.2, the initial bank loan and the $27,000 investment give operations more than adequate cash flow. This gives the business the advantage of paying debt more aggressively and the possibility of launching additional properties. Equity will not be paid to the owner initially in order to maximize funds available for growth. The current and debt ratio provide evidence that there should not be problems meeting financial obligations going forward. If cash is drawn down due to equity distribution, it will be done under the condition that the current ratio be maintained at a minimum of 2:1.

11.8 Divestiture/Harvest Strategy

Real options are opportunities that are embedded in capital projects that enable managers to alter their cash flow and risk in a way that affects project acceptability (NPV). These options are described below and they will be used to assess the feasibility of the business plan:

• Abandonment option � The option to abandon or terminate a project prior to


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the end of its planned life will be considered prior to initiating the construction phase where the bulk of resources would be committed. Land could be sold and proceeds of the sale will be used to pay off the debt obligations of the business and any remaining funds will be used to pay the owners

• Flexibility option � Flexibility is incorporated into the organization�s operations by virtue of the different services provided by the company. Flexibility would allow the company to focus on the more profitable niches.

• Growth option � The option to develop follow-on projects, expand markets, and so on includes property developments in the coastal areas after year two of the implementation schedule. Project feasibility indicates that the growth option should be pursued.

• Timing option � The timing option recognizes the organization�s opportunity to delay acceptance of a project for one or more periods, to accelerate or slow the process of implementing a project in response to new information or to shut down a project temporarily in response to changing product market conditions or competition. Funding is the principal obstacle to delaying the project and to use the timing option.


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12.0 RISK FACTORS

Francis T. Hartman (1999) defines risk as the event or factor that leads to a different than planned outcome. Risk analysis helps to identify the elements that can increase the uncertainty of the outcome of a project. The goal is to avoid or reduce the chance of failure, and risk analysis involves finding the most volatile parts of the project and stabilizing them by mitigating the risk. (Hartman, 2006)44 Using Hartman�s basic steps for risk analysis will help to layout a plan to moderate the things than can go wrong. The three steps to review are as follows:

• Identifying risks • Assessing risks • Managing risks

Types of Risk and Consideration in the Project:

Category Name Risk Type Description and Scope

Market Market assessment � estimate size of the market.

- Further assessment of the market would be required to suit market development and new market opportunities such as national market.

Financing Source of funds � investors prefer to invest in coastal places or close to home.

- National stockholder have shown interest in the concept if additional capital is required.

Risk related to the business

Limited Partnership Perceived value and delay on ROI.

- Location of the properties is the key for faster product turnover. Trade promotion and advertising are required.

Risk related to the external environment

Political Civil unrest in the city and concern of recent tourist deaths in Mexico.

- Exit strategy would be offered to stockholders.


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Economic Tax breaks problems.

- Use of debt instead of equity to avoid double taxation.

Social Local competition.

- Different product offering and value proposition.

Nature Possibility of natural disasters, e.g. earthquakes.

- Comprehensive insurance protection.

Sub-contractors Delay in construction and leasehold improvements.

- Penalty clauses will be written in the contrasts to ensure Property management is compensated for the damages. Project management services will be in effect.

Duration Long breakeven point.

- Offering different lines of services.

Value Huge size of cash flow is required.

- Allocation of personal fund and continue looking for external sources of financing.

Complexity Variety of laws and restrictions.

- Incorporate an experienced advisory team.

Risk related to the project

Definition and volatility Scope of what clients want.

- Clear definition of success and further assessment of the market conditions.


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13.0 CONCLUSION

Major findings includes the identification of a growing market for vacation homes in sunny Mexico, but mostly in coastal development and established expatriated communities. This type of business is capital intensive and financial forecasts do not demonstrate high return on investment in the first year of operation, making it difficult to obtain sources of capital for the short-term. Other findings include risks associated with political and security concerns for potential buyers, and tax implications for partners. Coastal developments offer better outlook and growth opportunities than inland communities. The strategic decision about �where� to invest must be made if the project should go forward after the first phase.


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14.0 END NOTES AND REFERENCES

1 Young, Linda. (2006, October 13). U.S. Retirees Buying Homes in Baja California, Mexico. AII Headline News. Retrieved October 30, 2006 from the World Wide Web: http://www.allheadlinenews.com/articles/7005171350

2 Owens, Wesley. �They Are Boomers. And They Are Doing It.� The Globe and Mail 25 February 2006: LUX1. 3 Choose Mexico: Retirement in Mexico, Health and Safety Travel Guide. Retrieved on October 14, 2006 from MedToGo Web Site on the World Wide Web: http://medtogo.com/t/health-travel-store/retirement-in-mexico.html 4 Mang, Anthony Randall. �Join the Club.� The Globe and Mail 25 February 2006: LUX2. 5 Supra No.2. 6 Huang Renee. �Destination Mexico.� The Globe and Mail 8 July 2005: G12 7 Cooper, Douglas Anthony. �Barbarians at the Gate.� En Route Monthly March 2006: 51-58. 8 Supra No.6. 9 Municipio de Oaxaca, Oaxaca Fiesta de Arte y Color, retrieved on October 14th, 2004 on the World Wide Web: http://www.oaxacainfo.gob.mx/?mod=topic&topic=poblacion. 10 Ponder, Stephanie E. �Staying Healthy in Mexico.� The Costco Connection Bi-monthly May/June 2005: 51. 11 Vieira, Donna S. �Pure Escapism.� Dream Escapes Bi-monthly January/February. 2005: 24-28. 12 Sansom, Maggie. �Dream Big� The Globe and Mail 25 February 2006: LUX2. 13 Fred R. David (2001). Strategic Management Concepts and Cases. (8th ed). Upper Saddle River, NY.: Prentice Hall. 14 Black, Thomas. (2006, October). News. Mexico�s Baja Tempts U.S.


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Buyers With Beaches, Title Insurance. Blooberg.com. Retrieved October 12, 2006 from the World Wide Web: http://cansim2.statcan.ca/cgi-win/cnsmcgi.pgm?Lang=E&ResultTemplate=Srch3&CORCmd=GetTCount&CORId=1212 15 Harris, Craig. (2006, May 15). Mexico Beachfront Homes Lure U.S. Investors. Azcentral.com. Retrieved October 12, 2006 from the World Wide Web: http://www.azcentral.com/home/hb101/articles/0515mexico0515.html. 16 Mexico. Systemas Nacionales Estadisticos y de Informacion Geografica. (2006). Migracion. Instituto Nacional de Estadistica e Informatica. Mexico. 17 Kelly, Tom. (2006, May 8). Buying in Mexico is Getting Easier. Herald Net. Retrieved October 12, 2006 from the World Wide Web: http://www.heraldnet.com/stories/05/05/08/100bus_mexico001.cfm/. 18 Reeves, Scott. (2005, April 21). Buying The Perfect vacation Home. Forbes.com, Real Estate. Retrieved October 12, 2006 from the World Wide Web: http://www.forbes.com/personalfinance/2005/03/22/cx_sr_0322vacationhomes.html 19 Neville, Tim. (2005, August 5). Buying a Second Home Without a First Look. The New York Times. Retrieved October 12, 2006 from the World Wide Web: http://www.nytimes.com/ 20 Bennett, Julie. ( 2005, January 27). Real Estate Journal. Buying Vacation Rentals In Southwest Hot spots. Wall Street Journal. http://www.realestatejournal.com/secondhomes/20050127-bennett.html 21 Smith Geri. (2006, March 13). Piggybank Full of Pesos. Businessweek Online. Retrieved October 12, 2006 from the World Wide Web: http://www.businessweek.com/@@bR4qQoYQBgaIVR0A/magazine/content/06_11/b3975071.htm 22 Young, Linda. (2006, October 13). U.S. Retirees Buying Homes in Baja California, Mexico. AII Headline News. Retrieved October 30, 2006 from the World Wide Web: http://www.allheadlinenews.com/articles/7005171350 23 Black, Thomas. (2006, October). News. Mexico�s Baja Tempts U.S. Buyers With Beaches, Title Insurance. Blooberg.com. Retrieved October 12,

http://cansim2.statcan.ca/cgi-win/cnsmcgi.pgm?Lang=E&ResultTemplate=Srch3&CORCmd=GetTCount&CORId=1212



http://www.forbes.com/personalfinance/2005/03/22/cx_sr_0322vacationhomes.html

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http://www.nytimes.com/

http://www.businessweek.com/@@bR4qQoYQBgaIVR0A/magazine/content/06_11/b3975071.htm

http://www.businessweek.com/@@bR4qQoYQBgaIVR0A/magazine/content/06_11/b3975071.htm


of 56

2006 from the World Wide Web: http://cansim2.statcan.ca/cgi-win/cnsmcgi.pgm?Lang=E&ResultTemplate=Srch3&CORCmd=GetTCount&CORId=1212 24 Harris, Craig. (2006, May 15). Mexico Beachfront Homes Lure U.S. Investors. Azcentral.com. Retrieved October 12, 2006 from the World Wide Web: http://www.azcentral.com/home/hb101/articles/0515mexico0515.html. 25 �Mexico � Buying Property.� For Anyone Moving or Living Abroad. Expat Focus. 2006. 14 October. http://www.focusonmexico.com/categories.php?pagid=33&gclid=CLnf5v-3nYgCFSTsPgod3GthXQ. 26 �Retire Better.� Thousand of North American Expats Retire Each Year in Mexico. �MexRetire.com.� October 2006. http://www.mexretire.com/why. 27 Supra No.13. 28 Real Estate, Project Design, & Development. MexOnline.com. Retrieved November 14, 2006 from the World Wide Web: http://www.mexonline.com/urbic.htm 29 �Oaxaca Real Estate�. Oaxaca Vacation Information. Oaxaca Real Estate & Oaxaca Real Estate Investment Guide. http://www.oaxacavacationinfo.com/realestate.asp. 30 �Can Foreigners�. Buying Property in Mexico. MEXonline.com. http://www.mexonline.com/index.htm. 31 �1st Wave Realty� (October 12, 2006). Retirement & Investment Real estate. 1st Wave Realty.com. . http://www.1stwaverealty.com/?gclid=CICAis_xn4gCFQHqPgodlxlkWw. 32 Kotler, Philip R. (2003) Marketing Management. Upper Saddle River, NY.: Prentice Hall. 33 Supra No.32 34 Supra No.32 35 Supra No.32 36 Supra No.32




http://www.focusonmexico.com/categories.php?pagid=33&gclid=CLnf5v-3nYgCFSTsPgod3GthXQ

http://www.focusonmexico.com/categories.php?pagid=33&gclid=CLnf5v-3nYgCFSTsPgod3GthXQ

http://www.mexretire.com/why


of 56

37 Supra No.13 38 Nigel Slack, Stuart Chambers and Robert Johnston (2001). Operation Management. (3rd ed.) Essex England, Pearson Education. 39 Supra No.38 40 Charles R. Greer (2000). Strategic Human Resource Management. (2nd ed.) Upper Saddle River, NY.: Prentice Hall. 41 Francis T. Hartman (1999). Don�t Park Your Brain: A Practical Guide To Improving Shareholder Value with SMART Management. Newton Square, Pennsylvania. Project Management Institute, Inc. 42 Anthony A. Atkinson, Robert S. Kaplan, and S. Mark Young (2000). Management Accounting. (4th ed.) Upper Saddle River, NY.: Prentice Hall. 43 Lawrence J. Gitman and Sean M. Hennessey (2005). (Canadian ed). Principles of Corporate Finance. Toronto, Ontario. Pearson Education Canada Inc. 44 Supra No.41


of 56

15.0 BIBLIOGRAPHY

Kerzner, Philip R. (2001) Project Management a System Approach to Planning, Scheduling, and Controlling (7th ed.). New York: John Wiley & Sons.

Kezsbom, D., & Edward, K. (2001). The New Dynamic Project Management: Winning Through Competitive Advantage.,p.94, New York: John Wiley & Sons.

Walter S. Good, (2005). Building a Dream: A Canadian Guide to Starting Your Own Business (6th ed.) McGraw-Hill Ryerson.


of 56

16.0 APPENDICES

App

lied

Pro

ject

Alb

erto

Cas

tella

nos

Pag

e 53

of 5

6

Exhi

bit N

o.1

FO

RM

A I

NC

OM

EP

RO

ST

AT

EM

EN

TF

OR

TH

E P

ER

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EN

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G :

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ar

- M

on

th -

Da

y

12

34

56

78

910

1112

TO

TA

L1.

Gro

ss S

ales

1,200

1,500

1,500

301,6

002,

700

2,70

02,

700

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02,

700

2,70

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02.

Les

s: C

ash

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coun

ts0

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ES

00

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00

1,5

00

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00

30

1,6

00

2,7

00

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00

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00

2,7

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2,7

00

322,

000

Co

st o

f Go

ods

So

ld:

3. B

egin

ning

Inve

nto

ry21

,981

21,9

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21,9

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21,9

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21,9

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04.

Plu

s N

et P

urch

ases

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0012

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0012

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12,5

0012

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0012

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0012

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0012

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150,

000

5. T

ota

l Ava

ilabl

e fo

r Sal

e31,905

31,905

31,905

31,905

31,905

31,905

31,905

31,905

31,905

31,905

31,905

31,905

382,858

6. L

ess

End

ing

Inve

nto

ry26

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26,8

3326

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. C

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C=

A-B

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22

96

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2-2

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2-2

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2-2

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22

61,

142

Less

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e E

xpen

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7. O

wne

r Sal

ary

-1,6

67-1

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67-1

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67-1

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8. E

mpl

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ages

and

Sal

arie

s-3

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Sup

plie

s an

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age

-268

-268

-268

-268

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-268

-268

-268

-268

-268

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2010

. Adv

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. Co

nstr

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l Fee

s-1

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-1,8

78-1

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78-1

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78-1

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19. U

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39-9

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39-9

39-9

39-9

39-9

39-9

39-9

39-9

39-9

39-9

39-1

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21. T

axes

and

Lic

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s-2

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. Dep

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. Int

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764

-2

6,6

24

-8

,93

4

-8,9

34

-1

6,7

00

-8

,93

4

-11,

474


of 56

Exhibit No.3 PRO FORMA BALANCE SHEETEnd of year 1

ASSETSCurrent Assets:

1. Cash 56,6702. Account Receivable 03. Inventory 04. Other Current Assets 100,000

A. Total Current Assets 156,670

Fixed Assets5. Land and Buildings 0less depreciation 06. Furniture and Fixtures 10,000less depreciation -2,0007. Equipment 7,500less depreciation -1,5008. Truck and Automobiles 5,000less depreciation -1,0009. Other Fixed Assests 5,000less depreciation -1,000

B. Total Fixed Assests 22,000

C. Total Assets (C=A + B) 178,670

LIABILITIESCurrent Liabilities (due w ithin 12 months) 27,500

10. Account Payable 35,67011. Bank Loans/Other Loans 012. Taxes Ow ed 0

D. Total Current Liabilities 63,170Long-Term Liabilities

13. Notes Payable (due after one year) 014. Other Long-Term Liabilities 100,000

E. Total Long Term Liabilities 100,000

F. Total Liabilities (F=D + E) 163,170

NET WORTH (CAPITAL)Share Capital

Common Shares 0Preferred Shares 0

Retained Earnings 15,500G. Total Net Worth (G= C - F) 15,500H. Total Liabilities and Net Woth (H = F + G) 178,670



of 56

Exhibit No.4

FINANCIAL RATIOS

Gross Profit 261,142Net Sales 322,000

Current Asset 156,670Current Liabilities 78,670

Current Assets - Inventories 156,670Current Liabilities 78,670

Net Income (After Tax) 9,300Net Sales 322,000

Net Income (After Tax) 9,300Total Assets 178,670

Net Sales 322,000Net Worth 15,500

Net Profit 15,500Net Worth 15,500

1. Gross Margin/Sales

2. Current Ratio

3. Quick Ratio

4. Net Profit/Sales

5. Return On Assets

6. Sales/Net Worth

7. Net Profit/Net Worth

0.81

1.99

1.99

0.03

0.05

20.77

1.00

ﬁbusiness plan: property management in southern...

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