O'Connor & Partners

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Agricultural Consultants Business Plan

Financial Plan

The initial cash balance is substantial after start-up expenses. According to this business plan, the cash balance bottoms out at about in the seventh month of operation. Cash flow enters positive territory during month eight (August 2004). The net worth of the company is estimated to grow steadly through 2006. At the end of 2006, a dividend may need to be paid out to the equity investors, if they choose to exit the venture.

7.1 Projected Profit and Loss

During the first month of operation, the gross margin is positive but the net profit is negative, as a loss occurs. The first profitable month is July 2004, the seventh month of business. As sales ramp up, the monthly gross margin rises through December 2004. For the first year overall, the gross margin is good and the net profit is meager, according to the financial plan. As consulting sales continue to increase, year two and three imorove profitability. Net profit over the three-year period is moderate. The pro forma profit-and-loss statement for 2004-2006 is show below. See the Appendix for the monthly profit-and-loss table for 2004.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $185,026 $235,518 $303,520
Direct Cost of Sales $72,000 $78,000 $84,540
Other Costs of Sales $0 $0 $0
Total Cost of Sales $72,000 $78,000 $84,540
Gross Margin $113,026 $157,518 $218,980
Gross Margin % 61.09% 66.88% 72.15%
Expenses
Payroll $96,000 $105,600 $116,160
Sales and Marketing and Other Expenses $0 $0 $0
Depreciation $0 $0 $0
Rent $0 $0 $0
Utilities $0 $0 $0
Insurance $0 $0 $0
Payroll Taxes $14,400 $15,840 $17,424
Other $0 $0 $0
Total Operating Expenses $110,400 $121,440 $133,584
Profit Before Interest and Taxes $2,626 $36,078 $85,396
EBITDA $2,626 $36,078 $85,396
Interest Expense $0 $0 $0
Taxes Incurred $437 $9,020 $21,705
Other Income
Interest Income $0 $0 $0
Other Income Account Name $0 $0 $0
Total Other Income $0 $0 $0
Other Expense
Account Name $0 $0 $0
Other Expense Account Name $0 $0 $0
Total Other Expense $0 $0 $0
Net Other Income $0 $0 $0
Net Profit $2,190 $27,059 $63,691
Net Profit/Sales 1.18% 11.49% 20.98%

7.2 Important Assumptions

The financial plan depends on important assumptions, some of which are shown in th General Assumptions table as annual assumptions. Section 5.2 includes many of the sales-specific assumptions.

7.3 Break-even Analysis

The following Break-even Analysis shows the break-even point for the business in necessary revenue. Neglecting outsourcing surcharges or other sources of revenue, 102 hours would need to be billed (if partner and associate hours were equal). This amount of consulting service represents 59% of the potential monthly billable hours.

Break-even Analysis
Monthly Revenue Break-even $15,061
Assumptions:
Average Percent Variable Cost 39%
Estimated Monthly Fixed Cost $9,200

7.4 Projected Cash Flow

The annual cash flow is highlighted in the next table. The monthly numbers for 2004 are depicted in the Appendix). The net cash flow is worst (most negative) for month two, February 2004. Cash flow becomes positive in September 2004. The net cash flow for 2004 is negative overall. The cash balance at the end of 2006 is respectable.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $46,257 $58,880 $75,880
Cash from Receivables $108,426 $168,358 $216,488
Subtotal Cash from Operations $154,682 $227,237 $292,368
Additional Cash Received
Non Operating (Other) Income $0 $0 $0
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $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 $0 $0 $0
Subtotal Cash Received $154,682 $227,237 $292,368
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $96,000 $105,600 $116,160
Bill Payments $78,423 $102,819 $121,958
Subtotal Spent on Operations $174,423 $208,419 $238,118
Additional Cash Spent
Non Operating (Other) Expense $0 $0 $0
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 $174,423 $208,419 $238,118
Net Cash Flow ($19,741) $18,819 $54,249
Cash Balance $20,259 $39,078 $93,327

7.5 Projected Balance Sheet

The pro forma balance sheet follows. The net worth of O'Connor & Partners increases steadily from the end of 2004 to 2006 year-end.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $20,259 $39,078 $93,327
Accounts Receivable $30,344 $38,624 $49,777
Other Current Assets $0 $0 $0
Total Current Assets $50,603 $77,702 $143,104
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $50,603 $77,702 $143,104
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $8,413 $8,454 $10,165
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $8,413 $8,454 $10,165
Long-term Liabilities $0 $0 $0
Total Liabilities $8,413 $8,454 $10,165
Paid-in Capital $50,000 $50,000 $50,000
Retained Earnings ($10,000) ($7,810) $19,248
Earnings $2,190 $27,059 $63,691
Total Capital $42,190 $69,248 $132,939
Total Liabilities and Capital $50,603 $77,702 $143,104
Net Worth $42,190 $69,248 $132,939

7.6 Business Ratios

Industy ratios for the Process, Physical, Distribution and Logistics Consulting industry, NAICS code 541614, are shown in comparison to the ratios calculated from the financial forecasts of this plan.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 27.29% 28.87% 7.23%
Percent of Total Assets
Accounts Receivable 59.96% 49.71% 34.78% 19.36%
Other Current Assets 0.00% 0.00% 0.00% 50.02%
Total Current Assets 100.00% 100.00% 100.00% 70.95%
Long-term Assets 0.00% 0.00% 0.00% 29.05%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 16.63% 10.88% 7.10% 33.87%
Long-term Liabilities 0.00% 0.00% 0.00% 15.64%
Total Liabilities 16.63% 10.88% 7.10% 49.51%
Net Worth 83.37% 89.12% 92.90% 50.49%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 61.09% 66.88% 72.15% 24.27%
Selling, General & Administrative Expenses 60.02% 55.39% 51.05% 11.90%
Advertising Expenses 0.00% 0.00% 0.00% 0.57%
Profit Before Interest and Taxes 1.42% 15.32% 28.14% 0.87%
Main Ratios
Current 6.01 9.19 14.08 1.61
Quick 6.01 9.19 14.08 1.32
Total Debt to Total Assets 16.63% 10.88% 7.10% 56.90%
Pre-tax Return on Net Worth 6.22% 52.10% 64.24% 2.84%
Pre-tax Return on Assets 5.19% 46.43% 59.67% 6.59%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 1.18% 11.49% 20.98% n.a
Return on Equity 5.19% 39.07% 47.91% n.a
Activity Ratios
Accounts Receivable Turnover 4.57 4.57 4.57 n.a
Collection Days 56 71 71 n.a
Accounts Payable Turnover 10.32 12.17 12.17 n.a
Payment Days 27 30 27 n.a
Total Asset Turnover 3.66 3.03 2.12 n.a
Debt Ratios
Debt to Net Worth 0.20 0.12 0.08 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $42,190 $69,248 $132,939 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.27 0.33 0.47 n.a
Current Debt/Total Assets 17% 11% 7% n.a
Acid Test 2.41 4.62 9.18 n.a
Sales/Net Worth 4.39 3.40 2.28 n.a
Dividend Payout 0.00 0.00 0.00 n.a