Architecture Firm Business Plan

NW Architecture

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Financial Plan

NW Architecture will increase growth and technology with cash flow as it increases through the years. Further money will be set aside to pay for further consulting as needed.

7.1 Important Assumptions

The annual assumptions made in the following table are based on a stable economy. We will adjust these assumptions as changes occur in the now tumultuous ecomony the Bay Area is experiencing.

General Assumptions
Year 1 Year 2 Year 3
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 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Key Financial Indicators

The following benchmark chart indicates our key financial indicators for the first three years.

7.3 Break-even Analysis

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

Break-even Analysis
Monthly Revenue Break-even $8,348
Assumptions:
Average Percent Variable Cost 1%
Estimated Monthly Fixed Cost $8,246

7.4 Projected Profit and Loss

Net profit is virtually nonexistent for the first two years of operation, with respectable increases after that time. Our projected profit and loss is shown on the following table, with sales starting at $102,000 for the first year and climbing to $500,000 the third year.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $102,000 $210,000 $500,000
Direct Cost of Sales $1,250 $1,250 $2,500
Other $0 $0 $0
Total Cost of Sales $1,250 $1,250 $2,500
Gross Margin $100,750 $208,750 $497,500
Gross Margin % 98.77% 99.40% 99.50%
Expenses
Payroll $70,000 $120,200 $286,000
Sales and Marketing and Other Expenses $8,200 $12,800 $34,500
Depreciation $0 $0 $0
Leased Equipment $1,440 $1,680 $1,920
Utilities $480 $620 $650
Insurance $1,800 $2,800 $3,500
Rent $17,030 $23,400 $23,400
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $98,950 $161,500 $349,970
Profit Before Interest and Taxes $1,800 $47,250 $147,530
EBITDA $1,800 $47,250 $147,530
Interest Expense $1,517 $1,097 $659
Taxes Incurred $374 $11,538 $37,330
Net Profit ($90) $34,615 $109,541
Net Profit/Sales -0.09% 16.48% 21.91%

7.5 Projected Cash Flow

Cash flow is vital to the well being of this company because of the duration of payment. The following chart and table below show cash flow projections.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $88,100 $195,282 $460,480
Subtotal Cash from Operations $88,100 $195,282 $460,480
Additional Cash Received
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 $6,000 $0 $0
Subtotal Cash Received $94,100 $195,282 $460,480
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $70,000 $120,200 $286,000
Bill Payments $29,684 $53,805 $101,097
Subtotal Spent on Operations $99,684 $174,005 $387,097
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $4,380 $4,380 $4,380
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 $104,064 $178,385 $391,477
Net Cash Flow ($9,964) $16,897 $69,003
Cash Balance $9,036 $25,932 $94,936

7.6 Projected Balance Sheet

The following table shows our projected Balance Sheet and net worth over the next three years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $9,036 $25,932 $94,936
Accounts Receivable $13,900 $28,618 $68,137
Inventory $750 $750 $1,500
Other Current Assets $0 $0 $0
Total Current Assets $23,686 $55,300 $164,573
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $23,686 $55,300 $164,573
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $3,156 $4,536 $8,647
Current Borrowing $13,160 $8,780 $4,400
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $16,316 $13,316 $13,047
Long-term Liabilities $0 $0 $0
Total Liabilities $16,316 $13,316 $13,047
Paid-in Capital $25,000 $25,000 $25,000
Retained Earnings ($17,540) ($17,630) $16,984
Earnings ($90) $34,615 $109,541
Total Capital $7,370 $41,984 $151,526
Total Liabilities and Capital $23,686 $55,300 $164,573
Net Worth $7,370 $41,984 $151,526

7.7 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7383, Independent Artists (including Architects), are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 105.88% 138.10% 11.74%
Percent of Total Assets
Accounts Receivable 58.69% 51.75% 41.40% 26.18%
Inventory 3.17% 1.36% 0.91% 3.42%
Other Current Assets 0.00% 0.00% 0.00% 50.14%
Total Current Assets 100.00% 100.00% 100.00% 79.74%
Long-term Assets 0.00% 0.00% 0.00% 20.26%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 68.89% 24.08% 7.93% 35.02%
Long-term Liabilities 0.00% 0.00% 0.00% 21.48%
Total Liabilities 68.89% 24.08% 7.93% 56.50%
Net Worth 31.11% 75.92% 92.07% 43.50%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 98.77% 99.40% 99.50% 100.00%
Selling, General & Administrative Expenses 101.81% 95.72% 79.60% 75.67%
Advertising Expenses 0.00% 0.95% 4.00% 2.64%
Profit Before Interest and Taxes 1.76% 22.50% 29.51% 1.56%
Main Ratios
Current 1.45 4.15 12.61 1.67
Quick 1.41 4.10 12.50 1.32
Total Debt to Total Assets 68.89% 24.08% 7.93% 62.06%
Pre-tax Return on Net Worth 3.84% 109.93% 96.93% 4.93%
Pre-tax Return on Assets 1.20% 83.46% 89.24% 12.99%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -0.09% 16.48% 21.91% n.a
Return on Equity -1.23% 82.45% 72.29% n.a
Activity Ratios
Accounts Receivable Turnover 7.34 7.34 7.34 n.a
Collection Days 57 37 35 n.a
Inventory Turnover 1.74 1.67 2.22 n.a
Accounts Payable Turnover 10.41 12.17 12.17 n.a
Payment Days 27 25 23 n.a
Total Asset Turnover 4.31 3.80 3.04 n.a
Debt Ratios
Debt to Net Worth 2.21 0.32 0.09 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $7,370 $41,984 $151,526 n.a
Interest Coverage 1.19 43.07 223.87 n.a
Additional Ratios
Assets to Sales 0.23 0.26 0.33 n.a
Current Debt/Total Assets 69% 24% 8% n.a
Acid Test 0.55 1.95 7.28 n.a
Sales/Net Worth 13.84 5.00 3.30 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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General Assumptions
Year 1 Year 2 Year 3
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 25.42% 25.00% 25.42%
Other 0 0 0
Break-even Analysis
Monthly Revenue Break-even $8,348
Assumptions:
Average Percent Variable Cost 1%
Estimated Monthly Fixed Cost $8,246
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $102,000 $210,000 $500,000
Direct Cost of Sales $1,250 $1,250 $2,500
Other $0 $0 $0
Total Cost of Sales $1,250 $1,250 $2,500
Gross Margin $100,750 $208,750 $497,500
Gross Margin % 98.77% 99.40% 99.50%
Expenses
Payroll $70,000 $120,200 $286,000
Sales and Marketing and Other Expenses $8,200 $12,800 $34,500
Depreciation $0 $0 $0
Leased Equipment $1,440 $1,680 $1,920
Utilities $480 $620 $650
Insurance $1,800 $2,800 $3,500
Rent $17,030 $23,400 $23,400
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $98,950 $161,500 $349,970
Profit Before Interest and Taxes $1,800 $47,250 $147,530
EBITDA $1,800 $47,250 $147,530
Interest Expense $1,517 $1,097 $659
Taxes Incurred $374 $11,538 $37,330
Net Profit ($90) $34,615 $109,541
Net Profit/Sales -0.09% 16.48% 21.91%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $88,100 $195,282 $460,480
Subtotal Cash from Operations $88,100 $195,282 $460,480
Additional Cash Received
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 $6,000 $0 $0
Subtotal Cash Received $94,100 $195,282 $460,480
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $70,000 $120,200 $286,000
Bill Payments $29,684 $53,805 $101,097
Subtotal Spent on Operations $99,684 $174,005 $387,097
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $4,380 $4,380 $4,380
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 $104,064 $178,385 $391,477
Net Cash Flow ($9,964) $16,897 $69,003
Cash Balance $9,036 $25,932 $94,936
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $9,036 $25,932 $94,936
Accounts Receivable $13,900 $28,618 $68,137
Inventory $750 $750 $1,500
Other Current Assets $0 $0 $0
Total Current Assets $23,686 $55,300 $164,573
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $23,686 $55,300 $164,573
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $3,156 $4,536 $8,647
Current Borrowing $13,160 $8,780 $4,400
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $16,316 $13,316 $13,047
Long-term Liabilities $0 $0 $0
Total Liabilities $16,316 $13,316 $13,047
Paid-in Capital $25,000 $25,000 $25,000
Retained Earnings ($17,540) ($17,630) $16,984
Earnings ($90) $34,615 $109,541
Total Capital $7,370 $41,984 $151,526
Total Liabilities and Capital $23,686 $55,300 $164,573
Net Worth $7,370 $41,984 $151,526
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 105.88% 138.10% 11.74%
Percent of Total Assets
Accounts Receivable 58.69% 51.75% 41.40% 26.18%
Inventory 3.17% 1.36% 0.91% 3.42%
Other Current Assets 0.00% 0.00% 0.00% 50.14%
Total Current Assets 100.00% 100.00% 100.00% 79.74%
Long-term Assets 0.00% 0.00% 0.00% 20.26%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 68.89% 24.08% 7.93% 35.02%
Long-term Liabilities 0.00% 0.00% 0.00% 21.48%
Total Liabilities 68.89% 24.08% 7.93% 56.50%
Net Worth 31.11% 75.92% 92.07% 43.50%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 98.77% 99.40% 99.50% 100.00%
Selling, General & Administrative Expenses 101.81% 95.72% 79.60% 75.67%
Advertising Expenses 0.00% 0.95% 4.00% 2.64%
Profit Before Interest and Taxes 1.76% 22.50% 29.51% 1.56%
Main Ratios
Current 1.45 4.15 12.61 1.67
Quick 1.41 4.10 12.50 1.32
Total Debt to Total Assets 68.89% 24.08% 7.93% 62.06%
Pre-tax Return on Net Worth 3.84% 109.93% 96.93% 4.93%
Pre-tax Return on Assets 1.20% 83.46% 89.24% 12.99%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -0.09% 16.48% 21.91% n.a
Return on Equity -1.23% 82.45% 72.29% n.a
Activity Ratios
Accounts Receivable Turnover 7.34 7.34 7.34 n.a
Collection Days 57 37 35 n.a
Inventory Turnover 1.74 1.67 2.22 n.a
Accounts Payable Turnover 10.41 12.17 12.17 n.a
Payment Days 27 25 23 n.a
Total Asset Turnover 4.31 3.80 3.04 n.a
Debt Ratios
Debt to Net Worth 2.21 0.32 0.09 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $7,370 $41,984 $151,526 n.a
Interest Coverage 1.19 43.07 223.87 n.a
Additional Ratios
Assets to Sales 0.23 0.26 0.33 n.a
Current Debt/Total Assets 69% 24% 8% n.a
Acid Test 0.55 1.95 7.28 n.a
Sales/Net Worth 13.84 5.00 3.30 n.a
Dividend Payout 0.00 0.00 0.00 n.a