InteliChild.com

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Children's Website Business Plan

Financial Plan

This is an Internet venture that, of course, depends on the developing financial prospects of the growing Internet world. To make it work financially, we need to increase valuation on schedule to bring in substantial additional capital. The following table defines the investment offering for investors. Specifically:

  1. The exit strategy is acquisition in 2003, valuing the company at more than $20 million.
  2. Equity plan and valuations at time of exit are detailed in the section that follows, "Exit Strategy." The plan assumes an ending valuation of $20 million based on market trends, with IRR of more than 100% for all investors.

Important Assumptions

The general assumptions are listed in the following table. Obviously these are detailed financial assumptions, trivial compared to the underlying critical assumptions, which include:

  1. Continued growth of Internet usage. We accept published forecasts that say 4% of the world's population presently uses the Internet, and that will grow to 11% by 2005. That's strong growth.
  2. No e-commerce disaster scenarios. We'll have no huge problems with credit card authorization, shipping, etc.
  3. Continued support of financial markets, which means continued rise in valuations of Internet companies, even Internet companies losing money. The increase in valuation is critical to our financial strategy.
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 0.00% 0.00% 0.00%
Other 0 0 0

Key Financial Indicators

The following benchmarks chart indicates a very ambitious increase in sales and matching increases in operating expenses. We expect to improve ratios of inventory, payable days, and collection days.

One of the more important assumptions is that we can increase sales at a very high rate without corresponding increase in operating expenses.  This is because of the leverage available in use of Internet technology as our main marketing and sales channel.

Break-even Analysis

The break-even analysis is a good financial indicator.  The following table and chart show break-even based on sales level per month and a high monthly fixed cost.  Given those assumptions, we reach steady-state break-even by the end of this first year.

Break-even Analysis
Monthly Units Break-even 8,948
Monthly Revenue Break-even $264,916
Assumptions:
Average Per-Unit Revenue $29.61
Average Per-Unit Variable Cost $11.84
Estimated Monthly Fixed Cost $158,950

Projected Profit and Loss

Despite the present trend towards investors encouraging losses for website businesses, we believe that we can turn a profit by the third year.  We also intend to reduce losses significantly in the second year, as shown by the following table. Nevertheless, the investment in on-line and off-line advertising is substantial, and the traffic justifies the loss.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $765,200 $2,887,500 $6,375,000
Direct Cost of Sales $306,080 $1,155,000 $2,550,000
Production Payroll $81,000 $225,000 $305,000
Fulfillment $45,845 $0 $0
Total Cost of Sales $432,925 $1,380,000 $2,855,000
Gross Margin $332,275 $1,507,500 $3,520,000
Gross Margin % 43.42% 52.21% 55.22%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $174,100 $315,000 $460,000
Online Advertising $640,880 $0 $0
Other Advertising $444,400 $0 $0
Collaterals $42,000 $0 $0
Events $20,000 $0 $0
Public Relations $27,000 $0 $0
Website Infrastructure $90,000 $0 $0
Other Sales and Marketing Expenses $12,000 $0 $0
Total Sales and Marketing Expenses $1,450,380 $315,000 $460,000
Sales and Marketing % 189.54% 10.91% 7.22%
General and Administrative Expenses
General and Administrative Payroll $176,700 $290,000 $370,000
Marketing/Promotion $0 $0 $0
Depreciation $2,000 $0 $0
Leased Equipment $9,000 $0 $0
Utilities $2,400 $0 $0
Insurance $500 $0 $0
Rent $42,000 $0 $0
Payroll Taxes $83,115 $163,800 $221,250
Other General and Administrative Expenses $0 $0 $0
Total General and Administrative Expenses $315,715 $453,800 $591,250
General and Administrative % 41.26% 15.72% 9.27%
Other Expenses:
Other Payroll $122,300 $262,000 $340,000
Consultants $0 $0 $0
Software & Equipment $19,000 $0 $0
Total Other Expenses $141,300 $262,000 $340,000
Other % 18.47% 9.07% 5.33%
Total Operating Expenses $1,907,395 $1,030,800 $1,391,250
Profit Before Interest and Taxes ($1,575,120) $476,700 $2,128,750
EBITDA ($1,573,120) $476,700 $2,128,750
Interest Expense $6,667 $32,750 $32,750
Taxes Incurred $0 $0 $0
Net Profit ($1,581,787) $443,950 $2,096,000
Net Profit/Sales -206.72% 15.37% 32.88%

Projected Cash Flow

As is to be expected in this kind of venture, the cash flow is supported mainly by new capital from new investment in the company. We've scheduled additional rounds of financing to make that realistic.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $688,680 $2,598,750 $5,737,500
Cash from Receivables $30,364 $160,735 $427,137
Subtotal Cash from Operations $719,044 $2,759,485 $6,164,637
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $15,000 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $400,000 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $750,000 $0 $0
Subtotal Cash Received $1,869,044 $2,774,485 $6,164,637
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $554,100 $1,092,000 $1,475,000
Bill Payments $1,543,999 $1,864,092 $2,814,373
Subtotal Spent on Operations $2,098,099 $2,956,092 $4,289,373
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $15,000
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $80,000 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $2,178,099 $2,956,092 $4,304,373
Net Cash Flow ($309,055) ($181,607) $1,860,264
Cash Balance $184,945 $3,338 $1,863,603

Projected Balance Sheet

The balance sheet shows our projected financial position during the next three years. Obviously the key variable during this period, overall valuation, isn't shown.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $184,945 $3,338 $1,863,603
Accounts Receivable $46,156 $174,171 $384,534
Inventory $122,342 $399,522 $516,071
Other Current Assets $5,000 $5,000 $5,000
Total Current Assets $358,443 $582,032 $2,769,209
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $2,000 $2,000 $2,000
Total Long-term Assets ($2,000) ($2,000) ($2,000)
Total Assets $356,443 $580,032 $2,767,209
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $369,230 $133,868 $240,045
Current Borrowing $0 $15,000 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $369,230 $148,868 $240,045
Long-term Liabilities $320,000 $320,000 $320,000
Total Liabilities $689,230 $468,868 $560,045
Paid-in Capital $1,282,750 $1,282,750 $1,282,750
Retained Earnings ($33,750) ($1,615,537) ($1,171,587)
Earnings ($1,581,787) $443,950 $2,096,000
Total Capital ($332,787) $111,163 $2,207,163
Total Liabilities and Capital $356,443 $580,032 $2,767,209
Net Worth ($332,787) $111,163 $2,207,163

Business Ratios

Our ratios, as projected here, are typical of the kind of growth company we project.  The comparisons are based on NAICS code 454111, Electronic Shopping.  We do expect our gross margin and sales per employee to be much higher than standard retail.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 277.35% 120.78% 7.56%
Percent of Total Assets
Accounts Receivable 12.95% 30.03% 13.90% 12.42%
Inventory 34.32% 68.88% 18.65% 38.62%
Other Current Assets 1.40% 0.86% 0.18% 26.81%
Total Current Assets 100.56% 100.34% 100.07% 77.85%
Long-term Assets -0.56% -0.34% -0.07% 22.15%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 103.59% 25.67% 8.67% 39.14%
Long-term Liabilities 89.78% 55.17% 11.56% 17.10%
Total Liabilities 193.36% 80.83% 20.24% 56.24%
Net Worth -93.36% 19.17% 79.76% 43.76%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 43.42% 52.21% 55.22% 35.35%
Selling, General & Administrative Expenses 250.14% 36.83% 22.34% 14.05%
Advertising Expenses 83.75% 0.00% 0.00% 4.21%
Profit Before Interest and Taxes -205.84% 16.51% 33.39% 1.42%
Main Ratios
Current 0.97 3.91 11.54 1.71
Quick 0.64 1.23 9.39 0.59
Total Debt to Total Assets 193.36% 80.83% 20.24% 64.96%
Pre-tax Return on Net Worth 475.32% 399.37% 94.96% 3.46%
Pre-tax Return on Assets -443.77% 76.54% 75.74% 9.88%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -206.72% 15.37% 32.88% n.a
Return on Equity 0.00% 399.37% 94.96% n.a
Activity Ratios
Accounts Receivable Turnover 1.66 1.66 1.66 n.a
Collection Days 49 139 160 n.a
Inventory Turnover 10.91 4.43 5.57 n.a
Accounts Payable Turnover 5.18 12.17 12.17 n.a
Payment Days 27 56 23 n.a
Total Asset Turnover 2.15 4.98 2.30 n.a
Debt Ratios
Debt to Net Worth 0.00 4.22 0.25 n.a
Current Liab. to Liab. 0.54 0.32 0.43 n.a
Liquidity Ratios
Net Working Capital ($10,787) $433,163 $2,529,163 n.a
Interest Coverage -236.27 14.56 65.00 n.a
Additional Ratios
Assets to Sales 0.47 0.20 0.43 n.a
Current Debt/Total Assets 104% 26% 9% n.a
Acid Test 0.51 0.06 7.78 n.a
Sales/Net Worth 0.00 25.98 2.89 n.a
Dividend Payout 0.00 0.00 0.00 n.a

Exit Strategy

Details of the exit strategy are included in two following tables:

  1. The Investment Analysis table details how we expect valuation to proceed over time, linked in to the planned rounds of financing.
  2. The table included here shows how we plan to distribute equity and shares over time, and planned ending valuation of $23 million and investment yield for three rounds of investment.

Equity Shares and Investment Return

Round Amount ($000) Shares Per share Year 2003 Value IRR %
Seed $500K 1.5 million $0.33 1999 $8.4 million 157 %
Round 1 $750K 750K $1.00 2000 $4.2 million 138%
Round 2 $2 million 800K $2.50 2001 $4.5 million 126%