SecurForce specializes in residential security alarm system installations and monitoring.

It has been in business for just over 25 years and for the most part, things have been good. It has experienced steady growth over the years and now provides monitoring services for 500,000 homes across Canada. Its target is to install new systems in 30,000 homes in the upcoming year. It has had a few growing pains, though, especially when it seems to be difficult to hold on to management level employees.

The other concern for the CEO has been the cash flow. In the past, the CEO and CFO have simply taken the previous year's budget and adjusted for inflation and an estimated percentage increase in sales. This has, unfortunately lead to some cash flow problems and a couple of times in the previous year, the company came close to not being able to cover the costs of payroll and had to scurry to the bank to arrange for emergency financing.

They know that they will not be able to continue to access funds at the last minute, but are unsure how to anticipate their cash shortfalls over the year. They are looking at making some large purchases in the first quarter of 2014 of $3,500,000, but they're not sure if they will need to borrow that much. They anticipate having $820,000 at the end of 2013, so are assuming that they will need to borrow at least $2,680,000. Both the CEO and CFO were part of the founding team for the company. Chanelle, the CEO, and Frederik, the CFO, were able to put some money together, along with a couple friends, in order to buy a small security system 25 years ago when they had graduated from high school, and they have slowly been building the company to a national corporation. They had both been working for the security company over the summers and part-time throughout the year as installers before buying the company when the owner told them he was going to retire. So they have learned pretty well everything they needed to know about running the company through experience, trial and error, and a lot of guidance from friends and family. Last week, they were describing their cash flow problem to Di, a CMA friend of theirs, and she said that she would help them out with forecasting their cash needs and gave them a list of information that she would need. They gathered everything together and sent it to Di. They are hoping that this year, they will be able to improve the strained relationship that they have with their bank.

Sales:

New installations........................................................................................................$400

Monitoring package....................................................................................$30 per month

Repairs.......................................................................................................$100 on average

Cash is received for revenues with 60% received in the quarter in which the work was done, 2% is never collected, and the remainder is received in the quarter after the revenues are recorded.

They anticipate the following workload:

Labour:
Installations are done in teams of two technicians who work full-time. Each team has one senior installer and one junior installer. The senior installer earns $35 per hour and the junior installer earns $25 per hour (on an assumption of 160 hours per month). They need a technician team for every 300 installations or repair jobs that need to be done. They do the hiring at the beginning of the quarter in which they are needed.
The monitoring centre is housed in one location and serves all customers across
Canada. They hire one full-time employee for every 5,000 customers. Monitoring centre staff earn $15 per hour.
One manager and 0.5 of an administrative person are needed for each region. There are 20 regions across Canada. Managers earn $45,000 per year and administrative staff earn a total of $22,500 for their part-time work.
All employees are part of a benefits plan that costs SecurForce an additional 30%
(Including the costs of provincial and national mandatory payroll benefits such as CPP, EI, health insurance, etc.).
Cash is paid out to employees with 87.5% of payroll paid in the quarter in which the employee worked and 12.5% in the following quarter. Benefits are paid 100% in the quarter after the employee worked.
Expenses:
Secur Force purchases one complete system of hardware at $150 each for each new system to be installed and they order one complete system for every five repairs that need to be done. They have found it cheaper to purchase the system that will then typically provide enough hardware to do five repairs, then to purchase individual parts for repairs. They order enough to have a buffer of 5% of the next quarter's new installations and 20% of the next quarter's repairs. A/P for the systems is $625,000 at the end of 2013 and they pay 40% of the purchases in the quarter of purchase and 60% in the following quarter.
Other expenses, including depreciation, selling costs, all administrative and general costs are expected to be as follows:
Q4 (2013) = $11,870,000
Q1 (2014) = $12,025,000
Q2 (2014) = $12,673,000
Q3 (2014) = $13,224,000
Q4 (2014) = $13,576,000
90% of the other expenses are paid in the quarter in which they are incurred, with the remaining 10% being paid in the following quarter.

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Q4 (2013) (2014) 02 3 Q4 Total 2015 495,000 500,000 506,000 513,500 521,000 Q1 Q1 530,000 5,000 6,000 7,500 7,500 9,000 30,000 8,000 4,990 5,000 5,060 5,135 5,210 20,405 5,300 . ^ Repairs (196)