BUSINESS IDEAS Forum

6.0 Financial Plan

• We want to finance our aircraft loan through cash flow from our aircraft rental.
• We want to pay for our engine overhaul at the recommended TBO through cash savings acquired during our aircraft rental.
• In order to attract larger sums of money, we will offer a 10-hour block of aircraft rental for $630 ($63/hour) which is reduced from our normal rental rate of $65 per hour. Additionally, we will offer M-GLAS employees the same $63 per hour rate for block or non-block rentals.

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6.1 Important Assumptions

The financial plan depends on the number of revenue hours flown each month in our aircraft.

The most important assumptions crucial to our success are:

• The aircraft will maintain flying status other than routine, required inspections lasting a day or two.
• We will not have any major aircraft accidents or incidents that will result in major downtime.
• We also assume that student pilot starts will continue to increase and the demand for pilots will continue.

General Assumptions
	2001	2002	2003
Plan Month	1	2	3
Current Interest Rate	10.00%	10.00%	10.00%
Long-term Interest Rate	10.00%	10.00%	10.00%
Tax Rate	28.17%	28.00%	28.17%
Other	0	0	0

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6.2 Sales Forecast

Our Sales Forecast tables shows our estimated aircraft rental revenue. This monthly breakdown can be seen in the appendix. Estimated operating expenses and other charges are listed in the Profit and Loss table.

Sales Monthly


Sales Forecast
Unit Sales	2001	2002	2003
Aircraft Rental	$45,775	$46,800	$48,000
Other	0	0	0
Total Sales	$45,775	$46,800	$48,000
Direct Cost of Sales	2001	2002	2003
Aircraft Rental	$0	$0	$0
Other	$0	$0	$0
Subtotal Direct Cost of Sales	$0	$0	$0

6.3 Break-even Analysis

Breaking down our monthly fixed costs enables us to calculate how much the aircraft needs to be flown each month to maintain profitability. Our monthly fixed costs include:

• Hangar rental.
• Aircraft insurance.
• Engine overhaul fund.
• Aircraft loan payments.
• Routine aircraft maintenance and inspection costs.
• Estimated monthly fuel costs.

The following chart and table summarizes our break-even analysis.

Break-even Analysis


Break-even Analysis:
Monthly Units Break-even	$40
Monthly Revenue Break-even	$2,623
Assumptions:
Average Per-Unit Revenue	$65.00
Average Per-Unit Variable Cost	$0.25
Estimated Monthly Fixed Cost	$2,613

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6.4 Projected Profit and Loss

With monthly fixed costs of hangar rent, renter and instructor insurance, an engine overhaul fund, aircraft loan, planned maintenance and inspections, and fuel, we can actively market our aircraft to obtain the correct number of students to exceed our expenses while making the aircraft convenient for the students to schedule for training and rental.

A loss is expected for the first few months while a student base is carefully chosen and constructed. We hope to increase our number of flight hours flown each month by 25% until the break-even point is reached. At that time, we will assess the number of students and the number of hours being flown to determine how many more students and renters we want to increase our profits and maintain good aircraft availability.

NOTE: You will notice in the year 2003 that the company is showing a net loss for the year. This is the year that we estimate the aircraft engine will require a factory overhaul. This expense ranges from $13,000 to $20,000, depending on several variables. Therefore, we have chosen to show an overhaul expense of $15,000 for that year. However, this was only shown to demonstrate the effect of not properly saving for the overhaul expense. We have allocated a certain percentage of each flight hour toward the engine overhaul savings fund which will cover all of our expenses, thus, hopefully returning Lansing Aviation to a net profit for 2003.

Pro Forma Profit and Loss
	2001	2002	2003
Sales	$45,775	$46,800	$48,000
	------------	------------	------------
Total Cost of Sales	$0	$0	$0
Gross Margin	$45,775	$46,800	$48,000
Gross Margin %	100.00%	100.00%	100.00%
Sales and Marketing Expenses:
Sales and Marketing Payroll	$0	$0	$0
Fix Operation Payroll	$27,530	$27,530	$27,530
Aircraft Upgrades	$1,500	$0	$0
	------------	------------	------------
Total Sales and Marketing Expenses	$29,030	$27,530	$27,530
Sales and Marketing %	63.42%	58.82%	57.35%
	------------	------------	------------
Total General and Administrative Expenses	$0	$0	$0
General and Administrative %	0.00%	0.00%	0.00%
Other Expenses:	$0	$0	$0
Other Payroll	$0	$0	$0
Unforeseen Maintenance & Repairs	$1,700	$1,000	$1,000
	------------	------------	------------
Total Other Expenses	$1,700	$1,000	$1,000
Other %	3.71%	2.14%	2.08%
	------------	------------	------------
Total Operating Expenses	$30,730	$28,530	$28,530
Profit Before Interest and Taxes	$15,045	$18,270	$19,470
Interest Expense	$3,042	$2,289	$1,728
Taxes Incurred	$3,368	$4,475	$4,997
Net Profit	$8,636	$11,507	$12,745
Net Profit/Sales	18.87%	24.59%	26.55%

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6.5 Projected Cash Flow

The following cash flow projections show the amounts anticipated from the first few months during the student accumulation period through the company's rental saturation.

Cash flow is critical to our success, for payment of the insurance and aircraft loan payments as well as the fuel costs required to operate and the hangar to house the airplane.

Cash


Pro Forma Cash Flow
	2001	2002	2003
Cash from Operations:
Cash Sales	$45,775	$46,800	$48,000
Cash from Receivables	$0	$0	$0
Subtotal Cash from Operations	$45,775	$46,800	$48,000
Additional Cash Received
Sales Tax, VAT, HST/GST Received	$0	$0	$0
New Current Borrowing	$0	$20,000	$0
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	$0	$0	$0
Subtotal Cash Received	$45,775	$46,800	$48,000
Expenditures	2001	2002	2003
Expenditures from Operations:
Cash Spending	$3,713	$3,529	$3,523
Payment of Accounts Payable	$33,016	$31,784	$31,733
Subtotal Spent on Operations	$36,730	$35,314	$35,256
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	$0	$0	$0
Principal Repayment of Current Borrowing	$3,200	$3,650	$0
Other Liabilities Principal Repayment	$0	$0	$21,000
Long-term Liabilities Principal Repayment	$2,600	$3,780	$3,780
Purchase Other Current Assets	$0	$0	$0
Purchase Long-term Assets	$0	$0	$0
Dividends	$0	$0	$0
Subtotal Cash Spent	$42,530	$42,744	$39,036
Net Cash Flow	$3,245	$4,056)	$8,964
Cash Balance	$3,545	$7,602	$16,566

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6.6 Projected Balance Sheet

The balance sheet in the following table shows some very important information regarding our short-term and long-term financial goals.

Pro Forma Balance Sheet
Assets
Current Assets	2001	2002	2003
Cash	$3,545	$7,602	$16,566
Other Current Assets	$0	$0	$0
Total Current Assets	$3,545	$7,602	$16,566
Long-term Assets
Long-term Assets	$36,000	$36,000	$36,000
Accumulated Depreciation	$0	$0	$0
Total Long-term Assets	$36,000	$36,000	$36,000
Total Assets	$39,545	$43,602	$52,566
Liabilities and Capital
Current Liabilities	2001	2002	2003
Accounts Payable	$410	$389	$389
Current Borrowing	($3,200)	($6,850)	($6,850)
Other Current Liabilities	$0	$0	($21,000)
Subtotal Current Liabilities	($2,790)	($6,461)	($6,461)
Long-term Liabilities	$29,800	$26,020	$22,240
Total Liabilities	$27,010	$19,559	$15,779
Paid-in Capital	$10,450	$10,450	$10,450
Retained Earnings	($6,550)	$2,086)	$13,592
Earnings	$8,636	$11,507	$12,745
Total Capital	$12,536	$24,042	$36,787
Total Liabilities and Capital	$39,545	$43,602	$52,566
Net Worth	$12,536	$24,042	$36,787

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6.7 Business Ratios

We expect to see flat ratios of profitability during the first year while we build our customer base. We expect these ratios to improve in the second and succeeding years. The following table shows the projected ratios for Lansing Aviation. The Industry Profile comes from Standard Industry Code #8299, Schools and Educational Services.

Ratio Analysis
	2001	2002	2003	Industry Profile
Sales Growth	0.00%	2.24%	2.56%	9.50%
Percent of Total Assets
Accounts Receivable	0.0%	0.0%	0.0%	0.0%
Inventory	0.0	0.0%	0.0%	0.0%
Other Current Assets	19.98%	12.19%	7.89%	25.10%
Total Current Assets	8.97%%	17.43%	31.51%	62.40%
Long-term Assets	91.03%	82.57%	68.49%	37.60%
Total Assets	100.00%	100.00%	100.00%	100.00%
Current Liabilities	-7.06%	-14.82%	-12.29%	43.30%
Long-term Liabilities	75.36%	59.68%	42.31	17.30%
Total Liabilities	68.30%	44.86%	30.02%	60.60%
Net Worth	31.70%	55.14%	69.98%	39.40%
Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	100.00%	100.00%	100.00%	0.00%
Selling, General & Administrative Expenses	81.12%	75.41%	73.39%	73.80%
Advertising Expenses	60.14%	58.82%	57.35%	5.00%
Profit Before Interest and Taxes	32.87%	39.04%	40.56%	3.20%
Main Ratios
Current	-1.27	-1.18	-2.56	1.33
Quick	-1.27	-1.18	-2.56	1.11
Total Debt to Total Assets	86.30%	44.86%	30.02%	60.60%
Pre-tax Return on Net Worth	95.75%	66.47%	48.23%	5.50%
Pre-tax Return on Assets	30.35%	36.65%	33.75%	14.00%
Additional Ratios	2001	2002	2003
Net Profit Margin	18.87%	24.59%	26.55%	n.a
Return on Equity	68.89%	47.86%	34.64%	n.a
Activity Ratios
Accounts Receivable Turnover	0.00	0.00	0.00	n.a
Collection Days	0	0	0	n.a
Inventory Turnover	0.00	0.00	0.00	n.a
Accounts Payable Turnover	81.61	81.59	81.67	n.a
Payment Days	4	5	4	n.a
Total Asset Turnover	1.16	1.07	0.91	n.a
Debt Ratios
Debt to Net Worth	2.15	0.81	0.43	n.a
Current Liab. to Liab.	-0.10	-0.33	-0.41	n.a
Liquidity Ratios
Net Working Capital	$6,336	$14,062	$23,027	n.a
Interest Coverage	4.95	7.98	11.27	n.a
Additional Ratios
Assets to Sales	0.86	0.93	1.10	n.a
Current Debt/Total Assets	-7%	-15%	-12%	n.a
Acid Test	0.00	0.00	0.00	n.a
Sales/Net Worth	3.65	1.95	1.30	n.a
Dividend Payout	0.00	0.00	0.00	n.a

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6.8 Long-term Plan

Our long-term plan is based primarily on the short-term future of the business. If the aircraft is able to support its expenses, then the future of Lansing Aviation and our long-term goal plan can be successfully accomplished.

Our long-term plan contains the following elements:

• Paying off the entire aircraft loan in the first three years of operation.
• Acquiring partial ownership of a twin-engine aircraft for training and travel needs.
• Avoiding accident, incident, and lawsuit through our entire longevity.
• Providing present and future students and renters with a superlative aircraft for all of their flying needs.

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