The following subtopics help present the financial plan for KnaelHaed ASPware.
8.1 Start-up Funding
Our start-up costs of $120,710 are to be financed by direct owner investment and investors'. The details are shown in the Start-up Funding Table below.
Start-up Funding
Start-up Expenses to Fund
$60,710
Start-up Assets to Fund
$60,000
Total Funding Required
$120,710
Assets
Non-cash Assets from Start-up
$0
Cash Requirements from Start-up
$60,000
Additional Cash Raised
$0
Cash Balance on Starting Date
$60,000
Total Assets
$60,000
Liabilities and Capital
Liabilities
Current Borrowing
$0
Long-term Liabilities
$0
Accounts Payable (Outstanding Bills)
$0
Other Current Liabilities (interest-free)
$0
Total Liabilities
$0
Capital
Planned Investment
Owner
$10,000
Investor
$60,710
Additional Investment Requirement
$50,000
Total Planned Investment
$120,710
Loss at Start-up (Start-up Expenses)
($60,710)
Total Capital
$60,000
Total Capital and Liabilities
$60,000
Total Funding
$120,710
8.2 The Investment Offering
We plan to raise $120,710 in initial investment (our Seed round) by offering investors 60% of KnaelHaed ASPware. The founder will retain control of the remaining 40% through the first two years of operations. Additional investment may be required to fund expansion plans in the 3rd year of operations. Please review the Start-up Funding section of the Financial Plan for a complete breakdown of KnaelHaed ASPware's start-up requirements and the start-up funding plan.
Investment Offering
Proposed Year:
2006
2007
2008
2011
Valuation, Investment, Shares
Investment Amount
$1,100,710
$0
$0
Equity Share Offering Percentage
60.00%
0.00%
0.00%
Valuation
$1,834,517
$0
$0
$860,000
Investor Exit Payout
$516,000
$0
$0
Investor Years Until Exit
5
4
3
Investor IRR
-14.06%
0.00%
0.00%
Share Ownership
Year 2006
Year 2007
Year 2008
Year 2011
Founders' Shares
10,000
10,000
10,000
10,000
Stock Split Multiple
0
0
0
Stock Options Issued
0
0
0
0
Investor Shares Issued
15,000
0
0
Price per share
$73.38
$0.00
$0.00
$34.40
Options Holders' Shares
0
0
0
0
Year 2006 Investors' Shares
15,000
15,000
15,000
15,000
Year 2007 Investors' Shares
0
0
0
Year 2008 Investors' Shares
0
0
Total Shares Outstanding
25,000
25,000
25,000
25,000
Equity Ownership Percentage
Year 2006
Year 2007
Year 2008
Year 2011
Founders' Equity
40.00%
40.00%
40.00%
40.00%
Option Holders' Equity
0.00%
0.00%
0.00%
0.00%
Year 2006 Investors' Equity
60.00%
60.00%
60.00%
60.00%
Year 2007 Investors' Equity
0.00%
0.00%
0.00%
Year 2008 Investors' Equity
0.00%
0.00%
Total Equity
100.00%
100.00%
100.00%
100.00%
Investors' Equity
60.00%
60.00%
60.00%
60.00%
Founders' & Employees' Equity
40.00%
40.00%
40.00%
40.00%
8.3 Key Financial Indicators
As shown in the Benchmarks chart below, our key financial indicators are:
Projected Sales: Projections are based on actual past performance, and are conservative. We will increase sales at an average rate of 8% per year.
Gross Margins: Average gross margins are based on 20% COGS of all FOSS services.
Operating Expenses: Operating expenses are based on providing our small team with above average wages and benefits, and providing superior performance.
8.4 Projected Cash Flow
The following chart and table show the project cash flow for KnaelHaed ASPware.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Cash Received
Cash from Operations
Cash Sales
$3,087,836
$3,313,188
$3,676,190
Subtotal Cash from Operations
$3,087,836
$3,313,188
$3,676,190
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
$0
$0
$0
Subtotal Cash Received
$3,087,836
$3,313,188
$3,676,190
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations
Cash Spending
$201,200
$228,570
$258,484
Bill Payments
$1,188,059
$1,863,445
$1,992,763
Subtotal Spent on Operations
$1,389,259
$2,092,015
$2,251,247
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
$200,000
$400,000
Subtotal Cash Spent
$1,389,259
$2,292,015
$2,651,247
Net Cash Flow
$1,698,577
$1,021,173
$1,024,943
Cash Balance
$1,758,577
$2,779,750
$3,804,692
8.5 Break-even Analysis
For our break-even analysis, we assume running costs which include our full payroll, rent, and utilities, and an estimation of other running costs. Payroll alone, at our present run rate, is only about $16,767 per month.
The chart shows the average revenue we need each month to break even, according to these assumptions.
Break-even Analysis
Monthly Units Break-even
1,232
Monthly Revenue Break-even
$35,952
Assumptions:
Average Per-Unit Revenue
$29.18
Average Per-Unit Variable Cost
$5.84
Estimated Monthly Fixed Cost
$28,762
8.6 Projected Profit and Loss
Month-by-month assumptions for profit and loss are included in the appendix.
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
$3,087,836
$3,313,188
$3,676,190
Direct Cost of Sales
$617,567
$1,142,638
$1,295,238
Other Costs of Sales
$0
$0
$0
Total Cost of Sales
$617,567
$1,142,638
$1,295,238
Gross Margin
$2,470,269
$2,170,550
$2,380,952
Gross Margin %
80.00%
65.51%
64.77%
Expenses
Payroll
$201,200
$228,570
$258,484
Marketing/Promotion
$3,000
$3,000
$3,000
Depreciation
$0
$0
$0
Rent
$57,600
$57,600
$57,600
Utilities
$3,840
$3,840
$3,840
Insurance
$600
$600
$600
Payroll Taxes
$0
$0
$0
Research and Development
$20,400
$20,400
$20,400
Outsourced Offshore Labor
$42,000
$4,000
$5,000
Website/Server/Hosting Expenses
$10,500
$12,000
$15,000
Contracts/Consultants
$6,000
$6,000
$6,000
Total Operating Expenses
$345,140
$336,010
$369,924
Profit Before Interest and Taxes
$2,125,129
$1,834,540
$2,011,028
EBITDA
$2,125,129
$1,834,540
$2,011,028
Interest Expense
$0
$0
$0
Taxes Incurred
$637,539
$550,362
$603,308
Net Profit
$1,487,590
$1,284,178
$1,407,720
Net Profit/Sales
48.18%
38.76%
38.29%
8.7 Projected Balance Sheet
The table below presents the balance sheet for KnaelHaed ASPware. This table reflects a positive cash position through out the period of this financial plan and growth in net worth.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Assets
Current Assets
Cash
$1,758,577
$2,779,750
$3,804,692
Other Current Assets
$0
$0
$0
Total Current Assets
$1,758,577
$2,779,750
$3,804,692
Long-term Assets
Long-term Assets
$0
$0
$0
Accumulated Depreciation
$0
$0
$0
Total Long-term Assets
$0
$0
$0
Total Assets
$1,758,577
$2,779,750
$3,804,692
Liabilities and Capital
Year 1
Year 2
Year 3
Current Liabilities
Accounts Payable
$210,987
$147,981
$165,204
Current Borrowing
$0
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$210,987
$147,981
$165,204
Long-term Liabilities
$0
$0
$0
Total Liabilities
$210,987
$147,981
$165,204
Paid-in Capital
$120,710
$120,710
$120,710
Retained Earnings
($60,710)
$1,226,880
$2,111,058
Earnings
$1,487,590
$1,284,178
$1,407,720
Total Capital
$1,547,590
$2,631,768
$3,639,488
Total Liabilities and Capital
$1,758,577
$2,779,750
$3,804,692
Net Worth
$1,547,590
$2,631,768
$3,639,488
8.8 Business Ratios
The following table outlines some of the more important ratios from the Computer software development and applications industry, SIC 7371.0300. The final column, Industry Profile, details specific ratios based on the Custom computer programming services industry as it is classified by the Standard Industry Classification (SIC) code, 7371.
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