BUSINESS IDEAS Forum

7.0 Financial Plan

We want to finance growth through a combination of long-term debt and cash flow. Purchase of the larger facility and equipment will require approximately eighty percent debt financing. Additional technology will be primarily financed with cash-flow. Inventory turnover must remain at or above four or we run the risk of backing up orders and jeopardizing our freshness guarantees. We have had no problems with accounts receivable and we expect to maintain our collection days at 30 with thirty percent of sales on credit.

In addition, we must achieve gross margins of thirty-five percent and hold operating costs no more than sixty-five percent of sales.

Back to Top

7.1 Important Assumptions

Important assumptions for this plan are found in the following table. These assumptions largely determine the financial plan and require that we secure additional financing.

Back to Top

7.2 Key Financial Indicators

The most important factor to Silvera & Sons anticipated growth is the procurement of necessary financing. The size of the orders currently requested by importers are larger than what can be produced given our present plant capacity.

The following chart shows changes in key financial indicators: sales, gross margin, operating expenses, collection days, and inventory turnover. The growth in sales goes above thirty percent in the first year, twenty percent in second, and back to thirty percent in year three after which it will settle. We expect to increase gross margin but our projections show a decline in the first two years following the purchase of the new facility. This is due to the facilities not being run at maximum capacity. The projections for collection days and inventory turnover show that we expect a decline in these indicators.

Benchmarks

Back to Top

7.3 Break-even Analysis

The break-even analysis shows that Silvera & Sons has sufficient sales strength to remain viable. Our break-even point is close to 7,300 units per month and our sales forecast for the next year calls for almost 8500 units per month on average. Projections are detailed in the following table.

Break-even Analysis

Back to Top

7.4 Projected Profit and Loss

We expect to close the first year of production in the new facility with ($BRL) 26,260,416 in sales and increase our sales to more than ($BRL) 33 million in the second year and ($BRL) 46 million in year three. Net earnings will average ($BRL) 2.4 million.

Back to Top

7.5 Projected Cash Flow

Silvera & Sons expects to manage cash flow over the next three years with the assistance of a loan supported by the Central Bank of Brazil of ($BRL) 2,700.000. This financing assistance is required to provide the working capital to meet the current needs for the construction of the new production facility and additional personnel, distribution costs, and other related expenses.

Cash

Back to Top

7.6 Projected Balance Sheet

As shown in the balance sheet in the following table, our net will grow from approximately ($BRL) 935,626 to more than ($BRL) 1.48 million by the end of 1999 and to ($BRL) 3.46 million by the end of the plan period. The monthly projections are in the appendices.

Back to Top

7.7 Business Ratios

Standard business ratios are included in the following table. The ratios show an aggressive plan for growth in order to reach maximum production within three years. Return on investment increases each year as we bring the new facility to maximum capacity and production. Return on sales and assets remain strong and cost of goods decreases based upon efficiency projections. Projections are based on the 1997/98 selling price.

Back to Top | <-- Previous Page | Next Page -->