Vashon Solicitation Services

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Call Center Business Plan

Financial Plan

Our financial plan anticipates two years of negative profits as we gain sales volume. We have budgeted enough investment to cover these losses and have an additional credit line available if sales do not match predictions.

7.1 Important Assumptions

We are assuming approximately 75% sales on credit and average interest rates of 10%. These are considered to be conservative in case our predictions are erroneous.

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 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Break-even Analysis

Our break-even analysis is based on the assumptions that our gross margin is approximately 100%. In other words, we will have insignificant direct cost of sales. Since each contract will be of different scope, length, and complexity, it is difficult to assign and average per unit revenue figure. However, it is conservatively believed that during the first three years, average profitability per month per segment will be moderate. This is because we will be dealing with smaller companies at first that have smaller contracts. We expect that about three ongoing contracts per month will guarantee a break-even point.

Break-even Analysis
Monthly Revenue Break-even $27,234
Assumptions:
Average Percent Variable Cost 0%
Estimated Monthly Fixed Cost $27,234

7.3 Projected Profit and Loss

The following table itemizes our revenues and associated costs. We expect to be paying higher costs in marketing and advertising than other companies as we attempt to build sales volume. As shown in the table in the Appendix, we expect monthly profits to begin in December 2003.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $278,000 $423,000 $585,000
Direct Cost of Sales $0 $0 $0
Other Costs of Sales $4,300 $6,000 $6,000
Total Cost of Sales $4,300 $6,000 $6,000
Gross Margin $273,700 $417,000 $579,000
Gross Margin % 98.45% 98.58% 98.97%
Expenses
Payroll $209,050 $311,000 $359,000
Sales and Marketing and Other Expenses $18,000 $10,000 $10,000
Depreciation $0 $0 $2,500
Rent $18,000 $18,000 $18,000
Utilities $7,200 $8,000 $9,000
Insurance $13,200 $14,000 $15,000
Payroll Taxes $31,358 $46,650 $53,850
Travel $12,000 $8,000 $4,000
Other $18,000 $15,000 $15,000
Total Operating Expenses $326,808 $430,650 $486,350
Profit Before Interest and Taxes ($53,108) ($13,650) $92,650
EBITDA ($53,108) ($13,650) $95,150
Interest Expense $8,183 $9,400 $9,100
Taxes Incurred $0 $0 $25,065
Net Profit ($61,291) ($23,050) $58,485
Net Profit/Sales -22.05% -5.45% 10.00%

7.4 Projected Cash Flow

The following is our cash flow chart and diagram. We do not expect to have any short-term cash flow problems even though we will be operating at a loss for the first nine months. Our short-term loan will be repaid in two equal payments in 2004-2005. Our long-term loan will be paid off in ten years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $69,500 $105,750 $146,250
Cash from Receivables $159,050 $291,458 $409,934
Subtotal Cash from Operations $228,550 $397,208 $556,184
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $20,000 $6,000 $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 $3,000 $5,000 $0
Subtotal Cash Received $251,550 $408,208 $556,184
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $209,050 $311,000 $359,000
Bill Payments $121,806 $135,385 $162,552
Subtotal Spent on Operations $330,856 $446,385 $521,552
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $8,000
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $4,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $330,856 $446,385 $533,552
Net Cash Flow ($79,306) ($38,177) $22,632
Cash Balance $38,494 $317 $22,949

7.5 Projected Balance Sheet

The following table shows the projected balance sheet for VSS.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $38,494 $317 $22,949
Accounts Receivable $49,450 $75,242 $104,058
Other Current Assets $3,500 $3,500 $3,500
Total Current Assets $91,444 $79,059 $130,507
Long-term Assets
Long-term Assets $25,000 $25,000 $25,000
Accumulated Depreciation $0 $0 $2,500
Total Long-term Assets $25,000 $25,000 $22,500
Total Assets $116,444 $104,059 $153,007
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $11,435 $11,100 $13,563
Current Borrowing $36,000 $42,000 $34,000
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $47,435 $53,100 $47,563
Long-term Liabilities $55,000 $55,000 $51,000
Total Liabilities $102,435 $108,100 $98,563
Paid-in Capital $103,000 $108,000 $108,000
Retained Earnings ($27,700) ($88,991) ($112,041)
Earnings ($61,291) ($23,050) $58,485
Total Capital $14,009 ($4,041) $54,444
Total Liabilities and Capital $116,444 $104,059 $153,007
Net Worth $14,009 ($4,041) $54,444

7.6 Business Ratios

We have included industry standard ratios from the telemarketing solicitation services industry to compare with ours. These ratios are as closely matched to our industry as management could find, however there are some significant differences, especially in sales growth, financing ratios, long-term asset investments and net worth. However, our projections indicate a healthy company that will be able to obtain and retain long-term profitability.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 52.16% 38.30% 8.79%
Percent of Total Assets
Accounts Receivable 42.47% 72.31% 68.01% 28.12%
Other Current Assets 3.01% 3.36% 2.29% 44.18%
Total Current Assets 78.53% 75.98% 85.29% 76.27%
Long-term Assets 21.47% 24.02% 14.71% 23.73%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 40.74% 51.03% 31.09% 38.61%
Long-term Liabilities 47.23% 52.85% 33.33% 13.60%
Total Liabilities 87.97% 103.88% 64.42% 52.21%
Net Worth 12.03% -3.88% 35.58% 47.79%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 98.45% 98.58% 98.97% 100.00%
Selling, General & Administrative Expenses 120.50% 104.03% 88.98% 82.68%
Advertising Expenses 0.00% 0.00% 0.00% 1.66%
Profit Before Interest and Taxes -19.10% -3.23% 15.84% 1.37%
Main Ratios
Current 1.93 1.49 2.74 1.59
Quick 1.93 1.49 2.74 1.22
Total Debt to Total Assets 87.97% 103.88% 64.42% 3.09%
Pre-tax Return on Net Worth -437.51% 570.43% 153.46% 60.22%
Pre-tax Return on Assets -52.64% -22.15% 54.61% 7.76%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -22.05% -5.45% 10.00% n.a
Return on Equity -437.51% 0.00% 107.42% n.a
Activity Ratios
Accounts Receivable Turnover 4.22 4.22 4.22 n.a
Collection Days 56 72 75 n.a
Accounts Payable Turnover 11.39 12.17 12.17 n.a
Payment Days 28 30 27 n.a
Total Asset Turnover 2.39 4.06 3.82 n.a
Debt Ratios
Debt to Net Worth 7.31 0.00 1.81 n.a
Current Liab. to Liab. 0.46 0.49 0.48 n.a
Liquidity Ratios
Net Working Capital $44,009 $25,959 $82,944 n.a
Interest Coverage -6.49 -1.45 10.18 n.a
Additional Ratios
Assets to Sales 0.42 0.25 0.26 n.a
Current Debt/Total Assets 41% 51% 31% n.a
Acid Test 0.89 0.07 0.56 n.a
Sales/Net Worth 19.84 0.00 10.74 n.a
Dividend Payout 0.00 0.00 0.00 n.a