Export Watch Manufacturer Business Plan

Grutzen Watches

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Financial Plan

7.0 Financial Plan

Growth will be supported by cash flow and owner investment. This will keep initial growth slow and manageable, and will allow the management to have complete control over the firm.

7.1 Important Assumptions

Grutzen's financial plan relies on several important assumptions - most of which are shown in the following table.

The key assumptions are:

• Sufficient access to capital.
• Steady economy without a major recession.
• No unforeseen drastic technology changes.

General Assumptions

General Assumptions
	FY 1999	FY 2000	FY 2001
Plan Month	1	2	3
Current Interest Rate	10.00%	10.00%	10.00%
Long-term Interest Rate	9.00%	9.00%	9.00%
Tax Rate	25.42%	25.00%	25.42%
Sales on Credit %	50.00%	50.00%	50.00%
Other	0	0	0

7.2 Key Financial Indicators

• Keeping average collection days at 30 days or below is very important as this could become a major cause of cash flow problems for the first year.
• Gross margins must remain above 55%.
• Variable costs must not exceed $80.

Benchmarks



7.3 Break-even Analysis

The Break-even Analysis chart and table show that if the costs stay at the current, or relatively stable, level Grutzen Watches will be able to make a steady profit by the second year. The break even point is only $12,000 per month, while projected sales are three to five (or more) times that figure.

Break-even Analysis



Break-even Analysis

Break-even Analysis:
Monthly Units Break-even	120
Monthly Revenue Break-even	$20,400
Assumptions:
Average Per-Unit Revenue	$170.00
Average Per-Unit Variable Cost	$70.00
Estimated Monthly Fixed Cost	$12,000

7.4 Projected Profit and Loss

The following table and chart shows Grutzen's expectations for profit and loss. The company will begin to make a profit in its second year of operation.

Profit and Loss

Pro Forma Profit and Loss
	FY 1999	FY 2000	FY 2001
Sales	$1,066,000	$1,307,000	$1,515,000
Direct Costs of Goods	$410,000	$500,000	$610,000
Other	$33,000	$38,000	$43,000
	------------	------------	------------
Cost of Goods Sold	$443,000	$538,000	$653,000
Gross Margin	$623,000	$769,000	$862,000
Gross Margin %	58.44%	58.84%	56.90%
Expenses:
Payroll	$296,400	$323,000	$349,000
Sales and Marketing and Other Expenses	$100,675	$112,900	$129,200
Depreciation	$36,000	$40,000	$42,000
Leased Equipment	$72,000	$80,000	$81,000
Utilities	$6,325	$7,000	$8,000
Insurance	$18,000	$21,000	$23,000
Rent	$48,000	$51,000	$55,000
Other	$6,000	$6,300	$6,500
Payroll Taxes	$35,568	$38,760	$41,880
Other	$0	$0	$0
	------------	------------	------------
Total Operating Expenses	$618,968	$679,960	$735,580
Profit Before Interest and Taxes	$4,032	$89,040	$126,420
Interest Expense	$6,375	$4,850	$4,800
Taxes Incurred	$0	$21,048	$30,912
Net Profit	($2,343)	$63,143	$90,708
Net Profit/Sales	-0.22%	4.83%	5.99%

Profit Yearly



7.5 Projected Cash Flow

Cash flow will be managed with a $60,000 capital input for the first year with a $65,000 input in each of the following two years.

Cash Flow

Pro Forma Cash Flow
	FY 1999	FY 2000	FY 2001
Cash Received
Cash from Operations:
Cash Sales	$533,000	$653,500	$757,500
Cash from Receivables	$493,850	$644,649	$749,861
Subtotal Cash from Operations	$1,026,850	$1,298,149	$1,507,361
Additional Cash Received
Sales Tax, VAT, HST/GST Received	$0	$0	$0
New Current Borrowing	$41,000	$0	$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	$60,000	$65,000	$65,000
Subtotal Cash Received	$1,127,850	$1,363,149	$1,572,361
Expenditures	FY 1999	FY 2000	FY 2001
Expenditures from Operations:
Cash Spending	$77,138	$86,317	$101,666
Payment of Accounts Payable	$982,478	$1,132,815	$1,296,686
Subtotal Spent on Operations	$1,059,616	$1,219,132	$1,398,352
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	$0	$0	$0
Principal Repayment of Current Borrowing	$40,000	$1,000	$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	$1,099,616	$1,220,132	$1,398,352
Net Cash Flow	$28,234	$143,017	$174,009
Cash Balance	$98,234	$241,251	$415,260

Cash



7.6 Projected Balance Sheet

As seen in the balance sheet, A strong growth in net worth is expected over the next three years - reaching approximately $422,000.

Balance Sheet

Pro Forma Balance Sheet
Assets
Current Assets	FY 1999	FY 2000	FY 2001
Cash	$98,234	$241,251	$415,260
Accounts Receivable	$39,150	$48,001	$55,640
Inventory	$96,000	$117,073	$142,829
Other Current Assets	$5,000	$5,000	$5,000
Total Current Assets	$238,384	$411,325	$618,730
Long-term Assets
Long-term Assets	$35,000	$35,000	$35,000
Accumulated Depreciation	$36,000	$76,000	$118,000
Total Long-term Assets	($1,000)	($41,000)	($83,000)
Total Assets	$237,384	$370,325	$535,730
Liabilities and Capital
Current Liabilities	FY 1999	FY 2000	FY 2001
Accounts Payable	$48,727	$54,526	$64,222
Current Borrowing	$31,000	$30,000	$30,000
Other Current Liabilities	$0	$0	$0
Subtotal Current Liabilities	$79,727	$84,526	$94,222
Long-term Liabilities	$20,000	$20,000	$20,000
Total Liabilities	$99,727	$104,526	$114,222
Paid-in Capital	$231,000	$296,000	$361,000
Retained Earnings	($91,000)	($93,343)	($30,201)
Earnings	($2,343)	$63,143	$90,708
Total Capital	$137,657	$265,800	$421,508
Total Liabilities and Capital	$237,384	$370,325	$535,730
Net Worth	$137,657	$265,800	$421,508

7.7 Business Ratios

Standard business ratios are provided in the following table. The ratios show a strong, yet safe growth. Industry Profile ratios are based on Standard Industrial Classification (SIC) Index code 3873.

Ratios

Ratio Analysis
	FY 1999	FY 2000	FY 2001	Industry Profile
Sales Growth	0.00%	22.61%	15.91%	3.90%
Percent of Total Assets
Accounts Receivable	16.49%	12.96%	10.39%	27.20%
Inventory	40.44%	31.61%	26.66%	29.70%
Other Current Assets	2.11%	1.35%	0.93%	26.70%
Total Current Assets	100.42%	111.07%	115.49%	83.60%
Long-term Assets	-0.42%	-11.07%	-15.49%	16.40%
Total Assets	100.00%	100.00%	100.00%	100.00%
Current Liabilities	33.59%	22.82%	17.59%	36.30%
Long-term Liabilities	8.43%	5.40%	3.73%	19.00%
Total Liabilities	42.01%	28.23%	21.32%	55.30%
Net Worth	57.99%	71.77%	78.68%	44.70%
Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	58.44%	58.84%	56.90%	34.40%
Selling, General & Administrative Expenses	58.66%	54.01%	50.88%	23.80%
Advertising Expenses	3.38%	3.21%	3.17%	0.70%
Profit Before Interest and Taxes	0.38%	6.81%	8.34%	1.70%
Main Ratios
Current	2.99	4.87	6.57	2.42
Quick	1.79	3.48	5.05	1.31
Total Debt to Total Assets	42.01%	28.23%	21.32%	55.30%
Pre-tax Return on Net Worth	-1.70%	31.67%	28.85%	2.10%
Pre-tax Return on Assets	-0.99%	22.73%	22.70%	4.80%
Additional Ratios	FY 1999	FY 2000	FY 2001
Net Profit Margin	-0.22%	4.83%	5.99%	n.a
Return on Equity	-1.70%	23.76%	21.52%	n.a
Activity Ratios
Accounts Receivable Turnover	13.61	13.61	13.61	n.a
Collection Days	29	24	25	n.a
Inventory Turnover	3.81	4.69	4.69	n.a
Accounts Payable Turnover	21.06	20.88	20.34	n.a
Payment Days	18	17	17	n.a
Total Asset Turnover	4.49	3.53	2.83	n.a
Debt Ratios
Debt to Net Worth	0.72	0.39	0.27	n.a
Current Liab. to Liab.	0.80	0.81	0.82	n.a
Liquidity Ratios
Net Working Capital	$158,657	$326,800	$524,508	n.a
Interest Coverage	0.63	18.36	26.34	n.a
Additional Ratios
Assets to Sales	0.22	0.28	0.35	n.a
Current Debt/Total Assets	34%	23%	18%	n.a
Acid Test	1.29	2.91	4.46	n.a
Sales/Net Worth	7.74	4.92	3.59	n.a
Dividend Payout	0.00	0.00	0.00	n.a