HIGH-TECH MARKETING BUSINESS PLAN
7.0 Financial Plan
Our financial plan is based on conservative estimates and assumptions. We will need to plan on initial investment to make the financials work.
7.1 Important Assumptions
Table 7.1 summarizes key financial assumptions, including 45-day average collection days, sales entirely on invoice basis, expenses mainly on net 30 basis, 35 days on average for payment of invoices, and present-day interest rates.
General Assumptions
| General Assumptions |
| | 1996 | 1997 | 1998 |
| Plan Month | 1 | 2 | 3 |
| Current Interest Rate | 8.00% | 8.00% | 8.00% |
| Long-term Interest Rate | 10.00% | 10.00% | 10.00% |
| Tax Rate | 25.42% | 25.00% | 25.42% |
| Sales on Credit % | 100.00% | 100.00% | 100.00% |
| Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
The following benchmark chart indicates our key financial indicators for the first three years. We foresee major growth in sales and operating expenses, and a bump in our collection days as we spread the business during expansion.
Benchmarks
7.3 Break-even Analysis
Table 7.3 summarizes the break-even analysis, including monthly units and sales break-even points.
Break-even Analysis
Break-even Analysis
| Break-even Analysis: |
| Monthly Units Break-even | 12,500 |
| Monthly Revenue Break-even | $12,500 |
| | |
| Assumptions: | |
| Average Per-Unit Revenue | $1.00 |
| Average Per-Unit Variable Cost | $0.20 |
| Estimated Monthly Fixed Cost | $10,000 |
7.4 Projected Profit and Loss
The detailed monthly pro-forma income statement for the first year is included in the appendix. The annual estimates are included here.
Profit and Loss
| Pro Forma Profit and Loss |
| | 1996 | 1997 | 1998 |
| Sales | $592,000 | $875,000 | $1,100,000 |
| Direct Cost of Sales | $159,000 | $219,000 | $289,000 |
| Other | $0 | $0 | $0 |
| | ------------ | ------------ | ------------ |
| Total Cost of Sales | $159,000 | $219,000 | $289,000 |
| Gross Margin | $433,000 | $656,000 | $811,000 |
| Gross Margin % | 73.14% | 74.97% | 73.73% |
| Expenses: | | | |
| Payroll | $194,750 | $377,000 | $432,000 |
| Sales and Marketing and Other Expenses | $162,000 | $137,000 | $195,000 |
| Depreciation | $0 | $0 | $0 |
| Leased Equipment | $6,000 | $7,000 | $7,000 |
| Utilities | $12,000 | $12,000 | $12,000 |
| Insurance | $3,600 | $2,000 | $2,000 |
| Rent | $18,000 | $0 | $0 |
| Other | $0 | $0 | $0 |
| Payroll Taxes | $27,265 | $52,780 | $60,480 |
| Other | $0 | $0 | $0 |
| | ------------ | ------------ | ------------ |
| Total Operating Expenses | $423,615 | $587,780 | $708,480 |
| Profit Before Interest and Taxes | $9,385 | $68,220 | $102,520 |
| Interest Expense | $6,800 | $11,400 | $15,400 |
| Taxes Incurred | ($524) | $14,205 | $22,143 |
| Net Profit | $3,109 | $42,615 | $64,977 |
| Net Profit/Sales | 0.53% | 4.87% | 5.91% |
7.5 Projected Cash Flow
Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month and the other representing the monthly balance. The annual cash flow figures are included here as Table 7.5. Detailed monthly numbers are included in the appendix.
Cash
Cash
| Pro Forma Cash Flow |
| | 1996 | 1997 | 1998 |
| | | | |
| Cash Received | | | |
| Cash from Operations: | | | |
| Cash Sales | $0 | $0 | $0 |
| Cash from Receivables | $495,000 | $828,630 | $1,063,133 |
| Subtotal Cash from Operations | $495,000 | $828,630 | $1,063,133 |
| | | | |
| Additional Cash Received | | | |
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
| New Current Borrowing | $30,000 | $100,000 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 |
| New Long-term Liabilities | $50,000 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 |
| New Investment Received | $0 | $0 | $0 |
| Subtotal Cash Received | $575,000 | $928,630 | $1,063,133 |
| | | | |
| Expenditures | 1996 | 1997 | 1998 |
| Expenditures from Operations: | | | |
| Cash Spending | $92,012 | $100,651 | $135,545 |
| Payment of Accounts Payable | $467,603 | $728,952 | $888,243 |
| Subtotal Spent on Operations | $559,615 | $829,603 | $1,023,788 |
| | | | |
| Additional Cash Spent | | | |
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $0 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $0 | $0 | $0 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $559,615 | $829,603 | $1,023,788 |
| | | | |
| Net Cash Flow | $15,385 | $99,027 | $39,346 |
| Cash Balance | $40,385 | $139,412 | $178,758 |
7.6 Projected Balance Sheet
The balance sheet shows healthy growth of net worth, and strong financial position. The monthly estimates are included in the appendix.
Balance Sheet
| Pro Forma Balance Sheet |
| | | |
| Assets | | | |
| Current Assets | 1996 | 1997 | 1998 |
| Cash | $40,385 | $139,412 | $178,758 |
| Accounts Receivable | $97,000 | $143,370 | $180,236 |
| Other Current Assets | $7,000 | $7,000 | $7,000 |
| Total Current Assets | $144,385 | $289,782 | $365,995 |
| Long-term Assets | | | |
| Long-term Assets | $0 | $0 | $0 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $0 | $0 | $0 |
| Total Assets | $144,385 | $289,782 | $365,995 |
| | | |
| Liabilities and Capital | | | |
| Current Liabilities | 1996 | 1997 | 1998 |
| Accounts Payable | $29,627 | $32,409 | $43,644 |
| Current Borrowing | $30,000 | $130,000 | $130,000 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $59,627 | $162,409 | $173,644 |
| | | |
| Long-term Liabilities | $50,000 | $50,000 | $50,000 |
| Total Liabilities | $109,627 | $212,409 | $223,644 |
| | | |
| Paid-in Capital | $50,000 | $50,000 | $50,000 |
| Retained Earnings | ($18,350) | ($15,241) | $27,374 |
| Earnings | $3,109 | $42,615 | $64,977 |
| Total Capital | $34,759 | $77,374 | $142,351 |
| Total Liabilities and Capital | $144,385 | $289,782 | $365,995 |
| Net Worth | $34,759 | $77,374 | $142,351 |
7.7 Business Ratios
The following table shows the projected business ratios. We expect to maintain healthy ratios for profitability, risk, and return. The industry comparisons are for SIC 8742, management consulting services.
Ratios
| Ratio Analysis |
| | 1996 | 1997 | 1998 | Industry Profile |
| Sales Growth | 0.00% | 47.80% | 25.71% | 6.98% |
| | | | | |
| Percent of Total Assets | | | | |
| Accounts Receivable | 67.18% | 49.48% | 49.25% | 26.80% |
| Inventory | 0.00% | 0.00% | 0.00% | 5.01% |
| Other Current Assets | 4.85% | 2.42% | 1.91% | 43.95% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 75.76% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 24.24% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| | | | | |
| Current Liabilities | 41.30% | 56.05% | 47.44% | 31.78% |
| Long-term Liabilities | 34.63% | 17.25% | 13.66% | 17.26% |
| Total Liabilities | 75.93% | 73.30% | 61.11% | 49.04% |
| Net Worth | 24.07% | 26.70% | 38.89% | 50.96% |
| | | | | |
| Percent of Sales | | | | |
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 73.14% | 74.97% | 73.73% | 100.00% |
| Selling, General & Administrative Expenses | 72.81% | 70.10% | 67.79% | 85.31% |
| Advertising Expenses | 6.08% | 4.57% | 4.00% | 1.02% |
| Profit Before Interest and Taxes | 1.59% | 7.80% | 9.32% | 1.90% |
| | | | | |
| Main Ratios | | | | |
| Current | 2.42 | 1.78 | 2.11 | 1.88 |
| Quick | 2.42 | 1.78 | 2.11 | 1.48 |
| Total Debt to Total Assets | 75.93% | 73.30% | 61.11% | 3.41% |
| Pre-tax Return on Net Worth | 7.44% | 73.44% | 61.20% | 55.78% |
| Pre-tax Return on Assets | 1.79% | 19.61% | 23.80% | 7.72% |
| | | | | |
| Additional Ratios | 1996 | 1997 | 1998 | |
| Net Profit Margin | 0.53% | 4.87% | 5.91% | n.a |
| Return on Equity | 8.94% | 55.08% | 45.65% | n.a |
| | | | | |
| Activity Ratios | | | | |
| Accounts Receivable Turnover | 6.10 | 6.10 | 6.10 | n.a |
| Collection Days | 43 | 50 | 54 | n.a |
| Inventory Turnover | 0.00 | 0.00 | 0.00 | n.a |
| Accounts Payable Turnover | 16.77 | 22.58 | 20.61 | n.a |
| Payment Days | 18 | 15 | 15 | n.a |
| Total Asset Turnover | 4.10 | 3.02 | 3.01 | n.a |
| | | | | |
| Debt Ratios | | | | |
| Debt to Net Worth | 3.15 | 2.75 | 1.57 | n.a |
| Current Liab. to Liab. | 0.54 | 0.76 | 0.78 | n.a |
| | | | | |
| Liquidity Ratios | | | | |
| Net Working Capital | $84,759 | $127,374 | $192,351 | n.a |
| Interest Coverage | 1.38 | 5.98 | 6.66 | n.a |
| | | | | |
| Additional Ratios | | | | |
| Assets to Sales | 0.24 | 0.33 | 0.33 | n.a |
| Current Debt/Total Assets | 41% | 56% | 47% | n.a |
| Acid Test | 0.79 | 0.90 | 1.07 | n.a |
| Sales/Net Worth | 17.03 | 11.31 | 7.73 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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