Sedibeng Breweries

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Brewery Business Plan

Financial Plan

We want to finance growth mainly through cash flow and equity. We recognize that this means we will have to grow more slowly than we might like.

The most important factor in our case is collection days, particularly with the bulk order customers. We can't push our customers hard on collection days, because they are extremely sensitive and will normally judge us on our terms. Hence they tend to have a certain degree of financial authority. Therefore we need to develop a permanent system of receivables financing systems, using a well-coordinated accounting department. In turn we intend to ensure that our investors are compatible with our growth plan, management style and vision.

Compatibility in this regard means:

  • Fundamental respect for giving our customers value, and for maintaining a healthy and congenial workplace.
  • Respect for realistic forecasts, and conservative cash flow and financial management.
  • Cash flow as first priority, growth second, profits third.
  • Willingness to follow the company and contribute valuable input to strategy and implementation decisions.

9.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendix. From the beginning, we recognize that collection days are critical, but not a factor we can influence easily. Interest rates, tax rates, and personnel burden are based on conservative assumptions.

Some of the more important underlying assumptions are:

  • We assume a strong economy, without major recession.
  • We assume, of course, that there are no unforeseen changes in economic policy to make our products immediately obsolete.
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

9.2 Break-even Analysis

Our break-even analysis will be based on running costs, that is costs we shall incur in keeping the business running, including salaries and wages, rent, water and electricity, insurance amongst others. Hence many fixed costs shall be included in these costs. We will thus aim to ensure that our sales levels are running comfortably above break-even.

The following chart and table summarize our break-even analysis. With fixed costs of approximately $41,040 per month at the outset (a bare minimum), we need to bill approximately $93,000to cover our costs. We don't really expect to reach break-even until several months into the business operation.

Break-even Analysis
Monthly Revenue Break-even $93,273
Assumptions:
Average Percent Variable Cost 56%
Estimated Monthly Fixed Cost $41,040

9.3 Projected Profit and Loss

Our projected profit and loss is shown on the following table, with sales increasing from more than $1,466,000 the first year to more than $1,612,000 the second, and approximately $1,806,000 in the third year. Profits are calculated to be around $152,000 before tax the first year during the start-up phase of this business. This will be representative of a net profit margin of approximately 7%, which though may not seem that impressive is relatively good for a start-up firm in our line of business. As with the break-even, we are projecting very conservatively regarding cost of sales and gross margin. Our cost of sales should be much lower, and gross margin higher, than in this projection.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $1,466,026 $1,612,629 $1,806,144
Direct Cost of Sales $820,975 $903,072 $1,011,441
Other $0 $0 $0
Total Cost of Sales $820,975 $903,072 $1,011,441
Gross Margin $645,051 $709,557 $794,703
Gross Margin % 44.00% 44.00% 44.00%
Expenses
Payroll $331,200 $331,200 $383,000
Sales and Marketing and Other Expenses $54,000 $56,700 $59,535
Depreciation $10,200 $10,200 $10,200
Leased Equipment $2,400 $2,520 $2,646
Utilities $4,800 $5,040 $5,292
Insurance $4,200 $4,410 $4,631
Rent $36,000 $37,800 $39,690
Payroll Taxes $49,680 $49,680 $57,450
Other $0 $0 $0
Total Operating Expenses $492,480 $497,550 $562,444
Profit Before Interest and Taxes $152,571 $212,007 $232,260
EBITDA $162,771 $222,207 $242,460
Interest Expense $2,000 $1,000 $0
Taxes Incurred $37,020 $52,752 $59,033
Net Profit $113,552 $158,255 $173,227
Net Profit/Sales 7.75% 9.81% 9.59%

9.4 Key Financial Indicators

The following benchmark chart indicates our key financial indicators for the first three years. We foresee major growth in sales and operating expenses, and a bump in our collection days as we spread the business during expansion.

Collection days are very important. We do not want to let our average collection days get above 30 under any circumstances. This could cause a serious problem with cash flow, because our working capital situation is chronically tight. However, we recognize that we cannot control this factor easily, because of the relationship with our clients.

9.5 Expense Forecast

Initial marketing expenses are relatively high as we seek to become known on the market. This will be brought about by the development of sales literature, advertising expenses, and function expenses (including lunches and dinners with interested stakeholders). As our market share increases and capital is generated, further marketing programs and the expansion of those in existence at the time will be undertaken, to ensure market development. Once these programs will start generating revenue for the business, which we shall in turn reinvest.

9.6 Projected Cash Flow

Cash flow projections are critical to our success. Detailed monthly numbers are included in the appendix. However it should be noted that they do not take into account the required capital injection.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $366,507 $403,157 $451,536
Cash from Receivables $821,689 $1,181,688 $1,317,934
Subtotal Cash from Operations $1,188,195 $1,584,846 $1,769,470
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 $77,000 $0 $0
Subtotal Cash Received $1,265,195 $1,584,846 $1,769,470
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $331,200 $331,200 $383,000
Bill Payments $977,833 $1,179,479 $1,245,266
Subtotal Spent on Operations $1,309,033 $1,510,679 $1,628,266
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $20,000 $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 $1,309,033 $1,530,679 $1,628,266
Net Cash Flow ($43,838) $54,167 $141,205
Cash Balance $36,162 $90,329 $231,533

9.7 Projected Balance Sheet

The balance sheet shows healthy growth of net worth, and strong financial position. The three-year estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $36,162 $90,329 $231,533
Accounts Receivable $277,831 $305,614 $342,287
Inventory $123,414 $135,756 $152,047
Other Current Assets $0 $0 $0
Total Current Assets $437,407 $531,698 $725,867
Long-term Assets
Long-term Assets $750,000 $750,000 $750,000
Accumulated Depreciation $10,200 $20,400 $30,600
Total Long-term Assets $739,800 $729,600 $719,400
Total Assets $1,177,207 $1,261,298 $1,445,267
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $146,655 $92,492 $103,233
Current Borrowing $20,000 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $166,655 $92,492 $103,233
Long-term Liabilities $0 $0 $0
Total Liabilities $166,655 $92,492 $103,233
Paid-in Capital $938,700 $938,700 $938,700
Retained Earnings ($41,700) $71,852 $230,107
Earnings $113,552 $158,255 $173,227
Total Capital $1,010,552 $1,168,807 $1,342,034
Total Liabilities and Capital $1,177,207 $1,261,298 $1,445,267
Net Worth $1,010,552 $1,168,807 $1,342,034

9.8 Business Ratios

The table below shows our business ratios.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.00% 12.00% 4.60%
Percent of Total Assets
Accounts Receivable 23.60% 24.23% 23.68% 5.30%
Inventory 10.48% 10.76% 10.52% 0.70%
Other Current Assets 0.00% 0.00% 0.00% 24.80%
Total Current Assets 37.16% 42.15% 50.22% 30.80%
Long-term Assets 62.84% 57.85% 49.78% 69.20%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 14.16% 7.33% 7.14% 20.20%
Long-term Liabilities 0.00% 0.00% 0.00% 30.70%
Total Liabilities 14.16% 7.33% 7.14% 50.90%
Net Worth 85.84% 92.67% 92.86% 49.10%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 44.00% 44.00% 44.00% 49.60%
Selling, General & Administrative Expenses 36.30% 34.19% 34.36% 26.10%
Advertising Expenses 1.64% 1.56% 1.46% 2.50%
Profit Before Interest and Taxes 10.41% 13.15% 12.86% 10.60%
Main Ratios
Current 2.62 5.75 7.03 1.67
Quick 1.88 4.28 5.56 1.42
Total Debt to Total Assets 14.16% 7.33% 7.14% 50.90%
Pre-tax Return on Net Worth 14.90% 18.05% 17.31% 8.20%
Pre-tax Return on Assets 12.79% 16.73% 16.07% 16.70%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 7.75% 9.81% 9.59% n.a
Return on Equity 11.24% 13.54% 12.91% n.a
Activity Ratios
Accounts Receivable Turnover 3.96 3.96 3.96 n.a
Collection Days 56 88 87 n.a
Inventory Turnover 10.91 6.97 7.03 n.a
Accounts Payable Turnover 7.67 12.17 12.17 n.a
Payment Days 27 39 28 n.a
Total Asset Turnover 1.25 1.28 1.25 n.a
Debt Ratios
Debt to Net Worth 0.16 0.08 0.08 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $270,752 $439,207 $622,634 n.a
Interest Coverage 76.29 212.01 0.00 n.a
Additional Ratios
Assets to Sales 0.80 0.78 0.80 n.a
Current Debt/Total Assets 14% 7% 7% n.a
Acid Test 0.22 0.98 2.24 n.a
Sales/Net Worth 1.45 1.38 1.35 n.a
Dividend Payout 0.00 0.00 0.00 n.a