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Cell Phones Retailer Business Plan

Garbles Cellular Phones

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Financial Plan

It is assumed that the owner's private resources will be sufficient to finance any monthly cash-flow shortage. However, it would be advisable to establish a bank relationship as soon as possible. Sales could very well increase at a much sharper rate than assumed in these conservative projections. Sharper sales will result in a greater need for funds in support of inventory and receivables. An over-draft line of credit with the bank will be an excellent cushion to fall back on.

This is considered a very good time to start a new business. The economy is beginning its trek up, and consumer spending is up. The Commerce Department reported, "Consumers had increased their spending, the largest advance in nine months."

A shorter learning curve will be brought to the business by the owner due to his extensive background and in-depth market knowledge. He has a clear understanding of the need to manage costs and forecast future needs so that the business is not "broadsided" by the unexpected.

One other component on which the financial plan is based is wise purchases. Finding the right product, at the right price will enable the business to meet planned margins and maintain inventory at an attractive level with a high turn rate.

7.1 Start-up Funding

Mr. Seramed Garbles will invest $43,000 in Garbles Cellular Phones, Inc. to cover start-up costs. He will also invest an additional $50,000 when operation takes off in April 2005. The table below illustrates funding sources for our start-up costs.

Start-up Funding
Start-up Expenses to Fund $11,000
Start-up Assets to Fund $32,000
Total Funding Required $43,000
Assets
Non-cash Assets from Start-up $30,000
Cash Requirements from Start-up $2,000
Additional Cash Raised $0
Cash Balance on Starting Date $2,000
Total Assets $32,000
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 $43,000
Investor $0
Additional Investment Requirement $0
Total Planned Investment $43,000
Loss at Start-up (Start-up Expenses) ($11,000)
Total Capital $32,000
Total Capital and Liabilities $32,000
Total Funding $43,000

7.2 Important Assumptions

As a general rule our company will not sell on credit. However for very special cases we might offer short-term credit against valid assurances. We shall accept cash and checks, Visa, MasterCard, Discover and American Express, and PayPal on the Internet. All sales paid via credit cards will be deposited in our business checking account within 48 hours.

7.3 Break-even Analysis

Our break-even analysis is summarized by the following chart and table.

Break-even Analysis
Monthly Revenue Break-even $17,916
Assumptions:
Average Percent Variable Cost 24%
Estimated Monthly Fixed Cost $13,625

7.4 Projected Profit and Loss

There are many factors to include when determining a projected profit and loss statement, these are included in the following table.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $357,000 $500,000 $710,000
Direct Cost of Sales $85,510 $123,860 $175,900
Other Costs of Sales $26,824 $30,000 $45,000
Total Cost of Sales $112,334 $153,860 $220,900
Gross Margin $244,666 $346,140 $489,100
Gross Margin % 68.53% 69.23% 68.89%
Expenses
Payroll $123,000 $135,960 $148,600
Marketing/Promotion $4,500 $10,000 $25,000
Depreciation $0 $0 $0
Rent $24,000 $24,000 $24,000
Insurance $12,000 $12,000 $12,000
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $163,500 $181,960 $209,600
Profit Before Interest and Taxes $81,166 $164,180 $279,500
EBITDA $81,166 $164,180 $279,500
Interest Expense $0 $0 $0
Taxes Incurred $24,350 $49,254 $83,850
Net Profit $56,816 $114,926 $195,650
Net Profit/Sales 15.91% 22.99% 27.56%

7.5 Projected Cash Flow

Our projected cash flow is outlined in the following chart and table.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $357,000 $500,000 $710,000
Subtotal Cash from Operations $357,000 $500,000 $710,000
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 $50,000 $0 $0
Subtotal Cash Received $407,000 $500,000 $710,000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $123,000 $135,960 $148,600
Bill Payments $139,315 $247,800 $360,927
Subtotal Spent on Operations $262,315 $383,760 $509,527
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 $0 $0
Subtotal Cash Spent $262,315 $383,760 $509,527
Net Cash Flow $144,685 $116,240 $200,473
Cash Balance $146,685 $262,924 $463,397

7.6 Projected Balance Sheet

The table shows the annual balance sheet results, with a healthy projected increase in net worth. Detailed monthly projections are in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $146,685 $262,924 $463,397
Inventory $8,000 $11,588 $16,457
Other Current Assets $0 $0 $0
Total Current Assets $154,685 $274,512 $479,854
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $154,685 $274,512 $479,854
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $15,869 $20,770 $30,462
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $15,869 $20,770 $30,462
Long-term Liabilities $0 $0 $0
Total Liabilities $15,869 $20,770 $30,462
Paid-in Capital $93,000 $93,000 $93,000
Retained Earnings ($11,000) $45,816 $160,742
Earnings $56,816 $114,926 $195,650
Total Capital $138,816 $253,742 $449,392
Total Liabilities and Capital $154,685 $274,512 $479,854
Net Worth $138,816 $253,742 $449,392

7.7 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5731.9902, Consumer electronic equipment, nec, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 40.06% 42.00% 5.90%
Percent of Total Assets
Inventory 5.17% 4.22% 3.43% 33.94%
Other Current Assets 0.00% 0.00% 0.00% 26.57%
Total Current Assets 100.00% 100.00% 100.00% 80.73%
Long-term Assets 0.00% 0.00% 0.00% 19.27%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 10.26% 7.57% 6.35% 41.85%
Long-term Liabilities 0.00% 0.00% 0.00% 11.83%
Total Liabilities 10.26% 7.57% 6.35% 53.68%
Net Worth 89.74% 92.43% 93.65% 46.32%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 68.53% 69.23% 68.89% 32.59%
Selling, General & Administrative Expenses 52.62% 46.24% 41.33% 17.11%
Advertising Expenses 0.00% 0.00% 0.00% 2.28%
Profit Before Interest and Taxes 22.74% 32.84% 39.37% 0.85%
Main Ratios
Current 9.75 13.22 15.75 1.73
Quick 9.24 12.66 15.21 0.79
Total Debt to Total Assets 10.26% 7.57% 6.35% 58.93%
Pre-tax Return on Net Worth 58.47% 64.70% 62.20% 2.27%
Pre-tax Return on Assets 52.47% 59.81% 58.25% 5.54%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 15.91% 22.99% 27.56% n.a
Return on Equity 40.93% 45.29% 43.54% n.a
Activity Ratios
Inventory Turnover 8.67 12.65 12.54 n.a
Accounts Payable Turnover 9.78 12.17 12.17 n.a
Payment Days 27 26 25 n.a
Total Asset Turnover 2.31 1.82 1.48 n.a
Debt Ratios
Debt to Net Worth 0.11 0.08 0.07 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $138,816 $253,742 $449,392 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.43 0.55 0.68 n.a
Current Debt/Total Assets 10% 8% 6% n.a
Acid Test 9.24 12.66 15.21 n.a
Sales/Net Worth 2.57 1.97 1.58 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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Start-up Funding
Start-up Expenses to Fund $11,000
Start-up Assets to Fund $32,000
Total Funding Required $43,000
Assets
Non-cash Assets from Start-up $30,000
Cash Requirements from Start-up $2,000
Additional Cash Raised $0
Cash Balance on Starting Date $2,000
Total Assets $32,000
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 $43,000
Investor $0
Additional Investment Requirement $0
Total Planned Investment $43,000
Loss at Start-up (Start-up Expenses) ($11,000)
Total Capital $32,000
Total Capital and Liabilities $32,000
Total Funding $43,000
Break-even Analysis
Monthly Revenue Break-even $17,916
Assumptions:
Average Percent Variable Cost 24%
Estimated Monthly Fixed Cost $13,625
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $357,000 $500,000 $710,000
Direct Cost of Sales $85,510 $123,860 $175,900
Other Costs of Sales $26,824 $30,000 $45,000
Total Cost of Sales $112,334 $153,860 $220,900
Gross Margin $244,666 $346,140 $489,100
Gross Margin % 68.53% 69.23% 68.89%
Expenses
Payroll $123,000 $135,960 $148,600
Marketing/Promotion $4,500 $10,000 $25,000
Depreciation $0 $0 $0
Rent $24,000 $24,000 $24,000
Insurance $12,000 $12,000 $12,000
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $163,500 $181,960 $209,600
Profit Before Interest and Taxes $81,166 $164,180 $279,500
EBITDA $81,166 $164,180 $279,500
Interest Expense $0 $0 $0
Taxes Incurred $24,350 $49,254 $83,850
Net Profit $56,816 $114,926 $195,650
Net Profit/Sales 15.91% 22.99% 27.56%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $357,000 $500,000 $710,000
Subtotal Cash from Operations $357,000 $500,000 $710,000
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 $50,000 $0 $0
Subtotal Cash Received $407,000 $500,000 $710,000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $123,000 $135,960 $148,600
Bill Payments $139,315 $247,800 $360,927
Subtotal Spent on Operations $262,315 $383,760 $509,527
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 $0 $0
Subtotal Cash Spent $262,315 $383,760 $509,527
Net Cash Flow $144,685 $116,240 $200,473
Cash Balance $146,685 $262,924 $463,397
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $146,685 $262,924 $463,397
Inventory $8,000 $11,588 $16,457
Other Current Assets $0 $0 $0
Total Current Assets $154,685 $274,512 $479,854
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $154,685 $274,512 $479,854
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $15,869 $20,770 $30,462
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $15,869 $20,770 $30,462
Long-term Liabilities $0 $0 $0
Total Liabilities $15,869 $20,770 $30,462
Paid-in Capital $93,000 $93,000 $93,000
Retained Earnings ($11,000) $45,816 $160,742
Earnings $56,816 $114,926 $195,650
Total Capital $138,816 $253,742 $449,392
Total Liabilities and Capital $154,685 $274,512 $479,854
Net Worth $138,816 $253,742 $449,392
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 40.06% 42.00% 5.90%
Percent of Total Assets
Inventory 5.17% 4.22% 3.43% 33.94%
Other Current Assets 0.00% 0.00% 0.00% 26.57%
Total Current Assets 100.00% 100.00% 100.00% 80.73%
Long-term Assets 0.00% 0.00% 0.00% 19.27%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 10.26% 7.57% 6.35% 41.85%
Long-term Liabilities 0.00% 0.00% 0.00% 11.83%
Total Liabilities 10.26% 7.57% 6.35% 53.68%
Net Worth 89.74% 92.43% 93.65% 46.32%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 68.53% 69.23% 68.89% 32.59%
Selling, General & Administrative Expenses 52.62% 46.24% 41.33% 17.11%
Advertising Expenses 0.00% 0.00% 0.00% 2.28%
Profit Before Interest and Taxes 22.74% 32.84% 39.37% 0.85%
Main Ratios
Current 9.75 13.22 15.75 1.73
Quick 9.24 12.66 15.21 0.79
Total Debt to Total Assets 10.26% 7.57% 6.35% 58.93%
Pre-tax Return on Net Worth 58.47% 64.70% 62.20% 2.27%
Pre-tax Return on Assets 52.47% 59.81% 58.25% 5.54%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 15.91% 22.99% 27.56% n.a
Return on Equity 40.93% 45.29% 43.54% n.a
Activity Ratios
Inventory Turnover 8.67 12.65 12.54 n.a
Accounts Payable Turnover 9.78 12.17 12.17 n.a
Payment Days 27 26 25 n.a
Total Asset Turnover 2.31 1.82 1.48 n.a
Debt Ratios
Debt to Net Worth 0.11 0.08 0.07 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $138,816 $253,742 $449,392 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.43 0.55 0.68 n.a
Current Debt/Total Assets 10% 8% 6% n.a
Acid Test 9.24 12.66 15.21 n.a
Sales/Net Worth 2.57 1.97 1.58 n.a
Dividend Payout 0.00 0.00 0.00 n.a