Employee Benefits Administration

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Benefits Administration Business Plan

Financial Plan

Initially, the two principals of Employee Benefits Administrators invested into the business. This investment was used for the majority of start-up expenses. These purchases include IBM laptop computers, software licensing fees of Great Plains Software, computer accessories and a docking station, small business education, seminars on current employee benefit trends, memberships in organizations, rent and security deposit of an office, and various other start-up costs.  Expenses continue to be paid by the principals, including rent, utilities, and other working capital.

Considering the forecasts predict an overall loss for the first year of business, EBA will follow avenues for obtaining a small business loan, preferably one guaranteed by the Small Business Association.

EBA is forecasting sales based on their group benefits knowledge, marketing research, and their strategic alliances with brokers and other professional associations.

7.1 Important Assumptions

The financials are based on the following assumptions.

Sales Assumptions:

Projected sales figures are based on the four different services Employee Benefits Administrators provides. Each service has a different "AVERAGE" client.

  1. Level One is COBRA and HIPAA administration. This client has an average of 100 employees, however, the average number of employees for which a client will use this service is five.
  2. Level Two is Flexible Spending Account administration. This client also has an average of 100 employees. The average number of employees enrolling in a Flexible Spending Account is estimated at ten.
  3. Level Three is Basic Benefits administration, including a call center. This client also has an average of 100 employees, and it is likely that all 100 employees will enroll in one of the company's group benefit plans. The average number of employees enrolling in the Basic Benefits administration is 100.
  4. Level Four is All-Inclusive of the first three services. This client also has an average of 100 employees, and it is likely that all 100 employees will enroll in one of the company's group benefit plans.

The sales forecast is based on obtaining:

  • One client a month for COBRA and HIPAA administration. COBRA and HIPAA are federal mandates and must be provided to employees after their termination. This is not seasonal.
  • One Flexible Spending Account client for the first year, adding three new clients each calendar year (one per quarter, and two at the beginning of each year since that is when Employee Benefits Administrators can obtain clients who are renewing their flex plans.)
  • One Basic client added each quarter (100 employees), and two clients in January of each year for those companies whose plan year is the calendar year.
  • One All-Inclusive client added each quarter (100 employees), and two clients in January of each year for those companies whose plan year is the calendar year.
  • A signed service contract

Cost of Sales:

As EBA attains clients, the only direct cost of goods sold is the data storage fee paid to the Application Service Provider. This is a per employee per month charge and is related to Level One, Level Three and Level Four. (It is not related to Level Two, Flexible Spending Accounts, as it is not necessary to use the same information system to store the data.) This can be tracked in an ad-hoc database created by EBA. It is also forecasted that EBA will purchase a software package designed to track both Flexible Spending and COBRA. The cost of this software in 2000 was approximately $14,000 and is not scheduled to be purchased until the second calendar quarter of 2002. After this software is purchased, COGS will also decline for those clients who are contracted for COBRA and HIPAA administration only.

As stated above, the depreciable expense will be for the computer system/network. The non-depreciable start up expenses will include:

  • Advertising
  • Fax machine with limited copier capabilities
  • Printer
  • Professional association membership dues
  • Office furniture
  • Business insurance
  • Internet access
  • Software licensing fees and training
  • Phone, phone system, and installation
  • Postage machine lease
  • Professional fees
  • Rent with security deposit
  • Industry related seminars and meetings
  • Software
  • Web page design and hosting

Financial Assumptions Definitions and Explanations:

Accounts Payable: EBA will be applying for a working capital loan of which the status is not yet determined.

Average Client:

  • Level One is COBRA and HIPAA administration. This client has an average of 100 employees, however, the average number of employees for which a client will use this service is five.
  • Level Two is Flexible Spending Account administration. This client also has an average of 100 employees. The average number of employees enrolling in a Flexible Spending Account is estimated at ten.
  • Level Three is Basic Benefits administration, including a call center. This client also has an average of 100 employees, and it is likely that all 100 employees will enroll in one of the company's group benefit plans. The average number of employees enrolling in the Basic Benefits administration is 100.
  • Level Four is All-Inclusive of the first three services. This client also has an average of 100 employees, and it is likely that all 100 employees will enroll in one of the company's group benefit plans.

Depreciation: EBA is using straight line depreciation for their computer and other equipment.

Insurance Expense: Liability (Errors and Omissions) Insurance has been purchased and the cost is $100 per month.

Legal and Accounting Fees: Employee Benefits Administrators has retained legal counsel. The hourly rate for counsel is $250, and hourly legal assistance is $60. Accounting will be handled by a local CPA yet to be determined.

Loan Expenses: The amounts noted in the financial statements are based on a $50,000 loan for five years at 9% interest.

Payroll Expense: Besides the two principals, the following additions to staff are planned:

  • Jan 2002, Hire, Part-time Administrative Assistant at $13,000
  • July 2002, Hire, Part-time Marketer at $25,000
  • Oct 2002, Hire, Benefits Administrator at $25,000
  • Mar 2003, Hire, Part-time Receptionist at $13,000
  • July 2003, Hire, Benefits Administrator at $25,000

Rent Expense: Employee Benefits Administrators is leasing a 500 square foot office in Morgantown, PA. The monthly rental is $600.

Salaries Expense: Each of the two principals of Employee Benefits Administrators will receive a yearly salary of $30,000.

Start-up Fee: A one time fee for transfer of employee data into the Human Resources Information System. Each COBRA/HIPAA client will pay $500; each Flexible Spending Account client will pay $500; each Basic Benefits and All-Inclusive client will pay $2,000.

Taxes: EBA is an LLC and as an entity is not taxed. However there is a payroll tax burden to include the employer's portion of Social Security and Medicare as well as state and federal unemployment.

Utilities Expense: The monthly electric expense is projected to be $200. The monthly phone expense is projected to be $200.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 9.00% 9.00% 9.00%
Long-term Interest Rate 8.00% 8.00% 8.00%
Tax Rate 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Key Financial Indicators

The following chart represents key financial indicators. The factors are Sales, Gross Margin%, Operating Expense, and Accounts Receivable.

7.3 Break-even Analysis

The break-even point is based on other estimates and the projections contained in the financials. Based on an average fixed monthly cost, the break-even point in units is based on an average charge per unit with a variable cost per unit, as shown in the table and chart below. It should be noted that based in the fixed monthly cost is the cost of goods sold which, of course, increases with the number of units sold.

Break-even Analysis
Monthly Units Break-even 460
Monthly Revenue Break-even $8,586
Assumptions:
Average Per-Unit Revenue $18.66
Average Per-Unit Variable Cost $2.52
Estimated Monthly Fixed Cost $7,428

7.4 Projected Profit and Loss

The projected Profit and Loss for the first three years is shown on the following table.

For the first year in business, EBA is expecting a loss. Please note that this first twelve months shows no sales in the first three months as the company is becoming established. Year two shows a net profit and year three shows a hefty increase in profit. These projections are conservative considering this is a service business and can greatly depend on the economy and the level of benefits employers can afford.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $92,940 $291,103 $485,683
Direct Cost of Sales $12,540 $47,603 $82,583
Production Payroll $0 $0 $0
Other $0 $0 $0
Total Cost of Sales $12,540 $47,603 $82,583
Gross Margin $80,400 $243,500 $403,100
Gross Margin % 86.51% 83.65% 83.00%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $0 $18,750 $25,000
Advertising/Promotion $1,200 $1,200 $1,200
Travel $0 $0 $0
Miscellaneous $600 $600 $600
Total Sales and Marketing Expenses $1,800 $20,550 $26,800
Sales and Marketing % 1.94% 7.06% 5.52%
General and Administrative Expenses
General and Administrative Payroll $63,252 $79,250 $120,250
Sales and Marketing and Other Expenses $0 $0 $0
Depreciation $1,020 $1,020 $1,020
Dues and Subscriptions $1,800 $1,800 $1,800
Professional Fees $600 $600 $600
Rent $7,200 $7,200 $7,200
Software Purchases $0 $14,000 $0
Insurance $1,200 $1,200 $1,200
Telephone and Internet Access $2,400 $2,400 $2,400
Utilities $2,400 $2,400 $2,400
Miscellaneous $2,400 $2,400 $2,400
Payroll Taxes $5,060 $7,840 $11,620
Other General and Administrative Expenses $0 $0 $0
Total General and Administrative Expenses $87,332 $120,110 $150,890
General and Administrative % 93.97% 41.26% 31.07%
Other Expenses:
Other Payroll $0 $0 $0
Consultants $0 $0 $0
Contract/Consultants $0 $0 $0
Total Other Expenses $0 $0 $0
Other % 0.00% 0.00% 0.00%
Total Operating Expenses $89,132 $140,660 $177,690
Profit Before Interest and Taxes ($8,732) $102,840 $225,410
EBITDA ($7,712) $103,860 $226,430
Interest Expense $3,897 $3,632 $2,957
Taxes Incurred $0 $24,802 $56,540
Net Profit ($12,629) $74,406 $165,913
Net Profit/Sales -13.59% 25.56% 34.16%

7.5 Projected Cash Flow

Cash flow projections are demonstrated by the following table and charts. Operating capital is needed and shown as a Current Borrowing capital loan. Cash flow is negative until the projected loan is received in May.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $66,324 $234,353 $429,959
Subtotal Cash from Operations $66,324 $234,353 $429,959
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $50,000 $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 $0 $0 $0
Subtotal Cash Received $116,324 $234,353 $429,959
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $63,252 $98,000 $145,250
Bill Payments $36,627 $112,674 $168,911
Subtotal Spent on Operations $99,879 $210,674 $314,161
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $6,150 $7,000 $8,000
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 $106,029 $217,674 $322,161
Net Cash Flow $10,295 $16,679 $107,798
Cash Balance $21,295 $37,973 $145,771

7.6 Projected Balance Sheet

The projected balance sheet follows.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $21,295 $37,973 $145,771
Accounts Receivable $26,616 $83,366 $139,090
Other Current Assets $0 $0 $0
Total Current Assets $47,911 $121,340 $284,861
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $1,020 $2,040 $3,060
Total Long-term Assets ($1,020) ($2,040) ($3,060)
Total Assets $46,891 $119,300 $281,801
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $4,670 $9,672 $14,260
Current Borrowing $43,850 $36,850 $28,850
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $48,520 $46,522 $43,110
Long-term Liabilities $0 $0 $0
Total Liabilities $48,520 $46,522 $43,110
Paid-in Capital $31,428 $31,428 $31,428
Retained Earnings ($20,428) ($33,057) $41,350
Earnings ($12,629) $74,406 $165,913
Total Capital ($1,629) $72,778 $238,691
Total Liabilities and Capital $46,891 $119,300 $281,801
Net Worth ($1,629) $72,778 $238,691

7.7 Business Ratios

Table of business ratios follows. A comparison of Industry standard ratios is provided based on Standard Industrial Classification code, 8741, Management Services.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 213.22% 66.84% 8.50%
Percent of Total Assets
Accounts Receivable 56.76% 69.88% 49.36% 25.80%
Other Current Assets 0.00% 0.00% 0.00% 46.60%
Total Current Assets 102.18% 101.71% 101.09% 76.40%
Long-term Assets -2.18% -1.71% -1.09% 23.60%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 103.47% 39.00% 15.30% 44.00%
Long-term Liabilities 0.00% 0.00% 0.00% 17.30%
Total Liabilities 103.47% 39.00% 15.30% 61.30%
Net Worth -3.47% 61.00% 84.70% 38.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 86.51% 83.65% 83.00% 0.00%
Selling, General & Administrative Expenses 100.10% 58.17% 48.80% 82.30%
Advertising Expenses 1.29% 0.41% 0.25% 1.30%
Profit Before Interest and Taxes -9.40% 35.33% 46.41% 2.40%
Main Ratios
Current 0.99 2.61 6.61 1.56
Quick 0.99 2.61 6.61 1.21
Total Debt to Total Assets 103.47% 39.00% 15.30% 61.30%
Pre-tax Return on Net Worth 775.34% 136.32% 93.20% 3.90%
Pre-tax Return on Assets -26.93% 83.16% 78.94% 10.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -13.59% 25.56% 34.16% n.a
Return on Equity 0.00% 102.24% 69.51% n.a
Activity Ratios
Accounts Receivable Turnover 3.49 3.49 3.49 n.a
Collection Days 56 69 84 n.a
Accounts Payable Turnover 8.84 12.17 12.17 n.a
Payment Days 27 22 25 n.a
Total Asset Turnover 1.98 2.44 1.72 n.a
Debt Ratios
Debt to Net Worth 0.00 0.64 0.18 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital ($609) $74,818 $241,751 n.a
Interest Coverage -2.24 28.32 76.24 n.a
Additional Ratios
Assets to Sales 0.50 0.41 0.58 n.a
Current Debt/Total Assets 103% 39% 15% n.a
Acid Test 0.44 0.82 3.38 n.a
Sales/Net Worth 0.00 4.00 2.03 n.a
Dividend Payout 0.00 0.00 0.00 n.a