Business Analysis Publishing Business Plan

The Wonderkind

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Financial Plan

We want to finance growth mainly through free cash flow. We recognize that this means we will have to grow more slowly than we might like. We think that this strategy of more conservative financial management makes sense since we are not trying to create a conglomerate financial company, rather one that focuses on what we believe to be our core competencies and interests. We believe in financing opportunities that add value to our company from a cost/benefit analysis perspective. However, we will not blindly invest our resources in endeavors that do not have a high likelihood of bearing fruit in the future.

7.1 Important Assumptions

Our most important assumption is regarding the arrangement we have obtained with Vista whereby we are in essence being subsidized 100% for the first year. Vista, nonetheless, currently charges regular paying customers $100/month or $599/year.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 8.75% 8.75% 8.75%
Long-term Interest Rate 8.75% 8.75% 8.75%
Tax Rate 16.25% 15.00% 16.25%
Other 0 0 0

7.2 Key Financial Indicators

We foresee steadily rising service revenues starting in June of 2001. Our initial objectives for client retention should lend itself directly to our sales forecasts. It is important to note that these goals as stated are extremely subjective to change once we begin operating and acquire a better feel for our market.

7.3 Break-even Analysis

By the beginning of the second year, assuming that we pay the costs related to Vista's services, and assuming 10 analysts on the payroll, the Break-even Analysis below shows what is needed in sales to break even.

Break-even Analysis
Monthly Units Break-even 126
Monthly Revenue Break-even $1,866
Assumptions:
Average Per-Unit Revenue $14.76
Average Per-Unit Variable Cost $1.00
Estimated Monthly Fixed Cost $1,740

7.4 Projected Profit and Loss

The Wonderkind should be a profitable entity following the first year. This is possible because of our minimal start-up expenses and projections for consistent sales growth. Also, our arrangement with Vista for a full year's worth of service free of charge is a substantial financial subsidy. The primary expenses incurred will be marketing and payroll. Marketing expenses will include printing fees for brochures to be distributed and other promotional initiatives.

The following table shows the Projected Profit and Loss for The Wonderkind.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $23,032 $76,752 $196,400
Direct Cost of Sales $1,560 $5,040 $12,600
Other $0 $0 $0
Total Cost of Sales $1,560 $5,040 $12,600
Gross Margin $21,472 $71,712 $183,800
Gross Margin % 93.23% 93.43% 93.58%
Expenses
Payroll $13,300 $59,000 $118,000
Sales and Marketing and Other Expenses $6,250 $5,600 $5,600
Depreciation $0 $0 $0
Rent $0 $0 $7,200
Leased Equipment $0 $0 $0
Utilities $0 $0 $0
Insurance $0 $0 $0
Payroll Taxes $1,330 $5,900 $11,800
Other $0 $0 $0
Total Operating Expenses $20,880 $70,500 $142,600
Profit Before Interest and Taxes $592 $1,212 $41,200
EBITDA $592 $1,212 $41,200
Interest Expense $321 $481 $394
Taxes Incurred $41 $110 $6,631
Net Profit $231 $621 $34,176
Net Profit/Sales 1.00% 0.81% 17.40%

7.5 Projected Cash Flow

The following chart and table show the Projected Cash Flow for The Wonderkind.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $13,894 $55,438 $148,928
Subtotal Cash from Operations $13,894 $55,438 $148,928
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $2,000 $5,000 $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 $47,000 $0
Subtotal Cash Received $15,894 $107,438 $148,928
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $13,300 $59,000 $118,000
Bill Payments $7,842 $17,382 $41,998
Subtotal Spent on Operations $21,142 $76,382 $159,998
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $2,000 $5,000
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 $2,500
Dividends $0 $0 $0
Subtotal Cash Spent $21,142 $78,382 $167,498
Net Cash Flow ($5,248) $29,055 ($18,570)
Cash Balance $9,852 $38,907 $20,337

7.6 Business Ratios

The Industry standard ratios are for the Other Management Consulting service industry, NAICS code 541618. A quick comparison between the industry standards and Wonderkind shows that our company is in a class all by itself. Therefore, some explanation is necessary. First of all, because it is primarily an Internet company, all sales will be on credit. This means that the company has a very high amount of accounts receivable. In addition, the company has a very high gross margin for the same reasons. Furthermore, because it is a service company utilizing currently owned assets, the company has few long-term assets. We expect the company to have a decreasing net worth as the sales growth slows down, however it may seem abnormally high for some time.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 233.24% 155.89% 7.29%
Percent of Total Assets
Accounts Receivable 48.12% 43.91% 77.34% 27.65%
Other Current Assets 0.00% 0.00% 0.00% 50.47%
Total Current Assets 100.00% 100.00% 97.52% 81.73%
Long-term Assets 0.00% 0.00% 2.48% 18.27%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 19.27% 9.24% 3.61% 32.03%
Long-term Liabilities 10.53% 2.88% 1.98% 21.13%
Total Liabilities 29.80% 12.12% 5.59% 53.16%
Net Worth 70.20% 87.88% 94.41% 46.84%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 93.23% 93.43% 93.58% 100.00%
Selling, General & Administrative Expenses 92.23% 92.62% 75.92% 75.12%
Advertising Expenses 16.93% 6.51% 2.55% 1.53%
Profit Before Interest and Taxes 2.57% 1.58% 20.98% 1.69%
Main Ratios
Current 5.19 10.82 27.03 1.82
Quick 5.19 10.82 27.03 1.42
Total Debt to Total Assets 29.80% 12.12% 5.59% 63.28%
Pre-tax Return on Net Worth 2.03% 1.20% 42.90% 3.39%
Pre-tax Return on Assets 1.43% 1.05% 40.50% 9.24%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 1.00% 0.81% 17.40% n.a
Return on Equity 1.73% 1.02% 35.93% n.a
Activity Ratios
Accounts Receivable Turnover 2.52 2.52 2.52 n.a
Collection Days 41 94 101 n.a
Accounts Payable Turnover 5.73 12.17 12.17 n.a
Payment Days 27 33 21 n.a
Total Asset Turnover 1.21 1.11 1.95 n.a
Debt Ratios
Debt to Net Worth 0.42 0.14 0.06 n.a
Current Liab. to Liab. 0.65 0.76 0.65 n.a
Liquidity Ratios
Net Working Capital $15,331 $62,952 $94,627 n.a
Interest Coverage 1.85 2.52 104.64 n.a
Additional Ratios
Assets to Sales 0.82 0.90 0.51 n.a
Current Debt/Total Assets 19% 9% 4% n.a
Acid Test 2.69 6.07 5.59 n.a
Sales/Net Worth 1.73 1.26 2.06 n.a
Dividend Payout 0.00 0.00 0.00 n.a

7.7 Projected Balance Sheet

The table below is the Project Balance Sheet.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $9,852 $38,907 $20,337
Accounts Receivable $9,138 $30,453 $77,925
Other Current Assets $0 $0 $0
Total Current Assets $18,990 $69,360 $98,262
Long-term Assets
Long-term Assets $0 $0 $2,500
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $2,500
Total Assets $18,990 $69,360 $100,762
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $1,659 $1,408 $3,635
Current Borrowing $2,000 $5,000 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $3,659 $6,408 $3,635
Long-term Liabilities $2,000 $2,000 $2,000
Total Liabilities $5,659 $8,408 $5,635
Paid-in Capital $14,000 $61,000 $61,000
Retained Earnings ($900) ($669) ($48)
Earnings $231 $621 $34,176
Total Capital $13,331 $60,952 $95,127
Total Liabilities and Capital $18,990 $69,360 $100,762
Net Worth $13,331 $60,952 $95,127
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General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 8.75% 8.75% 8.75%
Long-term Interest Rate 8.75% 8.75% 8.75%
Tax Rate 16.25% 15.00% 16.25%
Other 0 0 0
Break-even Analysis
Monthly Units Break-even 126
Monthly Revenue Break-even $1,866
Assumptions:
Average Per-Unit Revenue $14.76
Average Per-Unit Variable Cost $1.00
Estimated Monthly Fixed Cost $1,740
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $23,032 $76,752 $196,400
Direct Cost of Sales $1,560 $5,040 $12,600
Other $0 $0 $0
Total Cost of Sales $1,560 $5,040 $12,600
Gross Margin $21,472 $71,712 $183,800
Gross Margin % 93.23% 93.43% 93.58%
Expenses
Payroll $13,300 $59,000 $118,000
Sales and Marketing and Other Expenses $6,250 $5,600 $5,600
Depreciation $0 $0 $0
Rent $0 $0 $7,200
Leased Equipment $0 $0 $0
Utilities $0 $0 $0
Insurance $0 $0 $0
Payroll Taxes $1,330 $5,900 $11,800
Other $0 $0 $0
Total Operating Expenses $20,880 $70,500 $142,600
Profit Before Interest and Taxes $592 $1,212 $41,200
EBITDA $592 $1,212 $41,200
Interest Expense $321 $481 $394
Taxes Incurred $41 $110 $6,631
Net Profit $231 $621 $34,176
Net Profit/Sales 1.00% 0.81% 17.40%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $13,894 $55,438 $148,928
Subtotal Cash from Operations $13,894 $55,438 $148,928
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $2,000 $5,000 $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 $47,000 $0
Subtotal Cash Received $15,894 $107,438 $148,928
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $13,300 $59,000 $118,000
Bill Payments $7,842 $17,382 $41,998
Subtotal Spent on Operations $21,142 $76,382 $159,998
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $2,000 $5,000
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 $2,500
Dividends $0 $0 $0
Subtotal Cash Spent $21,142 $78,382 $167,498
Net Cash Flow ($5,248) $29,055 ($18,570)
Cash Balance $9,852 $38,907 $20,337
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 233.24% 155.89% 7.29%
Percent of Total Assets
Accounts Receivable 48.12% 43.91% 77.34% 27.65%
Other Current Assets 0.00% 0.00% 0.00% 50.47%
Total Current Assets 100.00% 100.00% 97.52% 81.73%
Long-term Assets 0.00% 0.00% 2.48% 18.27%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 19.27% 9.24% 3.61% 32.03%
Long-term Liabilities 10.53% 2.88% 1.98% 21.13%
Total Liabilities 29.80% 12.12% 5.59% 53.16%
Net Worth 70.20% 87.88% 94.41% 46.84%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 93.23% 93.43% 93.58% 100.00%
Selling, General & Administrative Expenses 92.23% 92.62% 75.92% 75.12%
Advertising Expenses 16.93% 6.51% 2.55% 1.53%
Profit Before Interest and Taxes 2.57% 1.58% 20.98% 1.69%
Main Ratios
Current 5.19 10.82 27.03 1.82
Quick 5.19 10.82 27.03 1.42
Total Debt to Total Assets 29.80% 12.12% 5.59% 63.28%
Pre-tax Return on Net Worth 2.03% 1.20% 42.90% 3.39%
Pre-tax Return on Assets 1.43% 1.05% 40.50% 9.24%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 1.00% 0.81% 17.40% n.a
Return on Equity 1.73% 1.02% 35.93% n.a
Activity Ratios
Accounts Receivable Turnover 2.52 2.52 2.52 n.a
Collection Days 41 94 101 n.a
Accounts Payable Turnover 5.73 12.17 12.17 n.a
Payment Days 27 33 21 n.a
Total Asset Turnover 1.21 1.11 1.95 n.a
Debt Ratios
Debt to Net Worth 0.42 0.14 0.06 n.a
Current Liab. to Liab. 0.65 0.76 0.65 n.a
Liquidity Ratios
Net Working Capital $15,331 $62,952 $94,627 n.a
Interest Coverage 1.85 2.52 104.64 n.a
Additional Ratios
Assets to Sales 0.82 0.90 0.51 n.a
Current Debt/Total Assets 19% 9% 4% n.a
Acid Test 2.69 6.07 5.59 n.a
Sales/Net Worth 1.73 1.26 2.06 n.a
Dividend Payout 0.00 0.00 0.00 n.a
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $9,852 $38,907 $20,337
Accounts Receivable $9,138 $30,453 $77,925
Other Current Assets $0 $0 $0
Total Current Assets $18,990 $69,360 $98,262
Long-term Assets
Long-term Assets $0 $0 $2,500
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $2,500
Total Assets $18,990 $69,360 $100,762
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $1,659 $1,408 $3,635
Current Borrowing $2,000 $5,000 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $3,659 $6,408 $3,635
Long-term Liabilities $2,000 $2,000 $2,000
Total Liabilities $5,659 $8,408 $5,635
Paid-in Capital $14,000 $61,000 $61,000
Retained Earnings ($900) ($669) ($48)
Earnings $231 $621 $34,176
Total Capital $13,331 $60,952 $95,127
Total Liabilities and Capital $18,990 $69,360 $100,762
Net Worth $13,331 $60,952 $95,127