"Promotional Products Mfr." Business Plan:
1.0 Executive Summary
2.0 Company Summary
3.0 Products
4.0 Market Analysis Summary
5.0 Strategy and Implementation Summary
6.0 Management Summary
7.0 Financial Plan
 7.1 Important Assumptions
7.2 Key Financial Indicators
7.3 Break-even Analysis
7.4 Projected Profit and Loss Important Assumptions
7.5 Projected Cash Flow
7.6 Projected Balance Sheet
 7.7 Business Ratios
Business Ideas applicable for this business plan:
Advanced Bonded NdFeB magnets.
This business plan was originally published
by Palo Alto Software, Inc. All rights reserved.
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7.0 Financial Plan
Elsewares is seeking a $300,000 financial package
based on a note due in five years, but amortized over 15 years. The note will be
personally guaranteed by the Greenbaums' assets. By amortizing the note over 15
years, the company will be afforded the opportunity to establish a healthy track
record which will enable the company to seek alternate financing for the
balance. In light of that strategy, Elsewares proposes the following payback
schedule:
- Months 1-12: No payback of principal or interest
- Months 13-24: 15% interest plus 10% net profit
- Months 25-48: 10% interest plus 15% net profit
- Months 49-60: 10% interest plus 20% net profit
It should be noted that the owners of Elsewares do
not intend to take any profits out of the business until the long-term debt has
been satisfied. Whatever profits remain after the above debt payments will be
used to finance growth, mainly through the acquisition of additional inventory.
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7.1 Important Assumptions
General assumptions for this plan are on the following
table.
|
| General Assumptions |
| |
2001 |
2002 |
2003 |
| Plan Month |
1 |
2 |
3 |
| Current Interest Rate |
9.00% |
9.00% |
9.00% |
| Long-term Interest Rate |
9.00% |
9.00% |
9.00% |
| Tax Rate |
25.00% |
25.00% |
25.00% |
| Sales on Credit % |
100.00% |
100.00% |
100.00% |
| Other |
0 |
0 |
0 |
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7.2 Key Financial Indicators
The most important indicator in our case is
inventory turnover. We have to make sure that our inventory of drawstring bags
and any other packaging products turns over a minimum of five times to avoid a
negative impact on our cost of goods sold and on our cash flow.
- Collection Days: These are very
important. It may be necessary to implement a variety of payment terms with
different distributors, depending on their payment history. In extreme cases,
prepayment of orders may be the only extendible terms. We will rely heavily on
our subscription to the ASI Credit Service for this valuable pre-sale
information.
- Gross Margins: We must maintain gross
margins of 90% at the least, and hold marketing costs to no more than 20% of
sales.
Benchmarks
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7.3 Break-even Analysis
The following table and chart illustrate our
break-even analysis. With our fixed cost estimate of $18,000 per month, we need
to sell 112,500 units to break-even in a month. Given the estimates, we hit
running monthly break-even after the fourth month.
Break-even Analysis
|
| Break-even Analysis: |
| Monthly Units Break-even |
$112,500 |
| Monthly Revenue Break-even |
$32,625 |
| |
| Assumptions: |
| Average Per-Unit Revenue |
$0.29 |
| Average Per-Unit Variable Cost |
$18.000 |
| Estimated Monthly Fixed Cost |
$37,053 |
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7.4 Projected Profit and Loss
The following table shows the projected profits.
Monthly projections are included in the appendices.
|
| Pro Forma Profit and Loss |
| |
2001 |
2002 |
2003 |
| Sales |
$523,000 |
$654,057 |
$863,355 |
| Direct Cost of Goods |
$282,783 |
$355,373 |
$452,309 |
| Production Payroll |
$28,000 |
$30,000 |
$32,000 |
| Inventory Purchase |
$0 |
$0 |
$0 |
|
|
------------ |
------------ |
------------ |
| Cost of Goods Sold |
$310,783 |
$385,373 |
$484,309 |
|
Gross Margin |
$212,315 |
$268,684 |
$379,046 |
| Gross Margin % |
40.59% |
41.08% |
43.90% |
| Sales and Marketing Expenses: |
| Sales and Marketing Payroll |
$54,000 |
$59,000 |
$64,000 |
| Sales and Marketing and Other Expenses |
$44,000 |
$48,400 |
$53,240 |
| Travel |
$18,900 |
$20,790 |
$22,896 |
| Miscellaneous |
$6,000 |
$6,600 |
$7,260 |
| Other |
$0 |
$0 |
$0 |
| |
------------ |
------------ |
------------ |
| Total Sales and Marketing Expenses |
$122,900 |
$134,790 |
$147,369 |
| Sales and Marketing % |
23.49% |
20.61% |
17.07% |
| General and Administrative Expenses: |
| General and Administrative Payroll |
$36,000 |
$40,000 |
$45,000 |
| Sales and Marketing and Other Expenses |
$0 |
$0 |
$0 |
| Depreciation |
$0 |
$0 |
$0 |
| Utilities |
$42,000 |
$46,200 |
$50,820 |
| Insurance |
$3,600 |
$3,960 |
$4,356 |
| Other |
$0 |
$0 |
$0 |
| Payroll Taxes |
$23,600 |
$25,800 |
$28,200 |
| |
------------ |
------------ |
------------ |
| Total General and Administrative Expenses |
$141,200 |
$155,560 |
$171,936 |
| General and Administrative % |
$141,200 |
$155,560 |
$171,936 |
| General and Administrative % |
26.99% |
23.78% |
19.91% |
| |
------------ |
------------ |
------------ |
| Total Other Expenses |
$0 |
$0 |
$0 |
| Other % |
0.00% |
0.00% |
0.00% |
| |
------------ |
------------ |
------------ |
| Total Operating Expenses |
$264,100 |
$290,350 |
$319,305 |
| Profit Before Interest and Taxes |
($51,785) |
($21,666) |
$59,741 |
| Interest Expense |
$885 |
$11,688 |
$21,250 |
| Taxes Incurred |
$0 |
$0 |
$0 |
| Net Profit |
($52,670) |
($33,353) |
$30,472 |
| Net Profit/Sales |
|
-10.07% |
-5.10% |
3.53% |
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7.5 Projected Cash Flow
The following table shows cash flow for the three
years, and the chart illustrates monthly cash flow in the first year. Monthly
cash flow projections are included in the appendices.
Cash
|
| Pro Forma Cash Flow |
| |
2001 |
2002 |
2003 |
| |
| Cash from Operations: |
| Cash from Receivables |
$329,784 |
$605,660 |
$786,008 |
| Subtotal Cash from Operations |
$329,784 |
$605,660 |
$786,008 |
| |
| Additional Cash Received |
| Sales Tax, VAT, HST/GST Received |
$0 |
$0 |
$0 |
| New Current Borrowing |
$75,000 |
$125,000 |
$100,000 |
| New Other Liabilities (interest-free) |
$0 |
$0 |
$0 |
| New Long-term Liabilities |
$0 |
$0 |
$0 |
| Sales of Other Current Assets |
$0 |
$0 |
$0 |
| Sales of Long-term Assets |
$0 |
$0 |
$0 |
| New Investment Received |
$100,000 |
$0 |
$0 |
| Subtotal Cash Received |
$504,784 |
$730,660 |
$886,008 |
| Expenditures |
2001 |
2002 |
2003 |
| Expenditures from Operations: |
| Cash Spending |
$156,509 |
$169,604 |
$212,124 |
| Payment of Accounts Payable |
$462,150 |
$546,808 |
$652,349 |
| Subtotal Spent on Operations |
$618,659 |
$716,412 |
$864,472 |
| |
| 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 |
$618,659 |
$716,412 |
$864,472 |
| |
| Net Cash Flow |
($113,875) |
$14,248 |
$21,535 |
| Cash Balance |
$3,525 |
$17,773 |
$39,308 |
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7.6 Projected Balance Sheet
The projected balance sheet is shown in the following
table, with monthly projections in the appendices.
|
| Pro Forma Balance Sheet |
| |
| Assets |
| Current Assets |
2001 |
2002 |
2003 |
| Cash |
$3,525 |
$17,773 |
$39,308 |
| Accounts Receivable |
$193,314 |
$241,710 |
$319,057 |
| Inventory |
$127,530 |
$160,267 |
$203,983 |
| Other Current Assets |
$20,000 |
$20,000 |
$20,000 |
| Total Current Assets |
$344,368 |
$439,750 |
$582,349 |
| Long-term Assets |
| Long-term Assets |
$5,000 |
$5,000 |
$5,000 |
| Accumulated Depreciation |
$0 |
$0 |
$0 |
| Total Long-term Assets |
$5,000 |
$5,000 |
$5,000 |
| Total Assets |
$349,368 |
$444,750 |
$587,349 |
| |
| Liabilities and Capital |
| Current Liabilities |
2001 |
2002 |
2003 |
| Accounts Payable |
$44,639 |
$48,374 |
$60,501 |
| Current Borrowing |
$75,000 |
$200,000 |
$300,000 |
| Other Current Liabilities |
$0 |
$0 |
$0 |
| Subtotal Current Liabilities |
$59,627 |
$162,409 |
$173,644 |
| |
Long-term Liabilities |
$119,639 |
$248,374 |
$360,501 |
| Total Liabilities |
$119,639 |
$248,374 |
$360,501 |
| |
| Paid-in Capital |
$300,000 |
$300,000 |
$300,000 |
| Retained Earnings |
($17,600) |
($70,270) |
($103,624) |
| Earnings |
($52,670) |
($33,353) |
$30,472 |
| Total Capital |
$229,730 |
$196,376 |
$226,848 |
| Total Liabilities and Capital |
$349,368 |
$444,750 |
$587,349 |
| Net Worth |
$229,730 |
$196,376 |
$226,848 |
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7.7 Business Ratios
The table shows projected business ratios. The
Industry Profile columns show statistics for Standard Industry Code (SIC) #5199,
Nondurable Goods.
| |
| Ratio Analysis |
| |
2001 |
2002 |
2003 |
Industry Profile |
| Sales Growth |
0.00% |
25.04% |
32.00% |
8.50% |
| |
| Percent of Total Assets |
| Accounts Receivable |
55.33% |
54.35% |
54.32% |
29.40% |
| Inventory |
36.50% |
36.04% |
34.73% |
28.10% |
| Other Current Assets |
5.72% |
4.50% |
3.41% |
26.90% |
| Total Current Assets |
98.57% |
98.88% |
99.15% |
84.40% |
| Long-term Assets |
1.43% |
1.12% |
0.85% |
15.60% |
| Total Assets |
100.00% |
100.00% |
100.00% |
100.00% |
| |
| Current Liabilities |
34.24% |
55.85% |
61.38% |
47.70% |
| Long-term Liabilities |
0.00% |
0.00% |
0.00 |
10.20% |
| Total Liabilities |
34.24% |
55.85% |
61.38% |
57.90% |
| Net Worth |
65.76% |
44.15% |
38.62% |
42.10% |
| |
| Percent of Sales |
| Sales |
100.00% |
100.00% |
100.00% |
100.00% |
| Gross Margin |
40.59% |
41.08% |
43.90% |
25.00% |
| Selling, General & Administrative Expenses |
50.66% |
46.18% |
40.34% |
15.80% |
| Advertising Expenses |
8.41% |
7.40% |
6.17% |
0.60% |
| Profit Before Interest and Taxes |
-9.90% |
-3.31% |
6.92% |
1.30% |
| |
| Main Ratios |
| Current |
2.88 |
1.77 |
1.62 |
1.84 |
| Quick |
1.81 |
1.13 |
1.05 |
1.02 |
| Total Debt to Total Assets |
34.24% |
55.85% |
61.38% |
57.90% |
| Pre-tax Return on Net Worth |
-22.93% |
-16.98% |
16.97% |
3.60% |
| Pre-tax Return on Assets |
-15.08% |
-7.50% |
6.55% |
8.60% |
| |
| Additional Ratios |
2001 |
2002 |
2003 |
|
| Net Profit Margin |
-10.07% |
-5.10% |
3.53% |
n.a |
| Return on Equity |
-22.93% |
-16.98% |
13.43% |
n.a |
| |
| Activity Ratios |
| Accounts Receivable Turnover |
2.71 |
2.71 |
2.71 |
n.a |
| Collection Days |
54 |
121 |
119 |
n.a |
| Inventory Turnover |
4.77 |
2.47 |
2.48 |
n.a |
| Accounts Payable Turnover |
11.35 |
11.38 |
10.98 |
n.a |
| Payment Days |
20 |
31 |
30 |
n.a |
| Total Asset Turnover |
1.50 |
1.47 |
1.47 |
n.a |
| |
| Debt Ratios |
| Debt to Net Worth |
0.52 |
1.26 |
1.59 |
n.a |
| Current Liab. to Liab. |
1.00 |
1.00 |
1.00 |
n.a |
| |
| Liquidity Ratios |
| Net Working Capital |
$224,730 |
$191,376 |
$221,848 |
n.a |
| Interest Coverage |
-58.49 |
-1.85 |
2.81 |
n.a |
| |
| Additional Ratios |
| Assets to Sales |
0.67 |
0.68 |
0.68 |
n.a |
| Current Debt/Total Assets |
34% |
56% |
61% |
n.a |
| Acid Test |
0.20 |
0.15 |
0.16 |
n.a |
| Sales/Net Worth |
2.28 |
3.33 |
3.81 |
n.a |
| Dividend Payout |
0.00 |
0.00 |
0.00 |
n.a |
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