Silvera and Sons

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Coffee Export Business Plan

Financial Plan

We want to finance growth through a combination of long-term debt and cash flow. Purchase of the larger facility and equipment will require approximately eighty percent debt financing. Additional technology will be primarily financed with cash-flow. Inventory turnover must remain at or above four or we run the risk of backing up orders and jeopardizing our freshness guarantees. We have had no problems with accounts receivable and we expect to maintain our collection days at 30 with thirty percent of sales on credit.

In addition, we must achieve gross margins of thirty-five percent and hold operating costs no more than sixty-five percent of sales.

7.1 Break-even Analysis

The break-even analysis shows that Silvera & Sons has sufficient sales strength to remain viable. Our per month break-even point projections are detailed in the following table and chart.

Break-even Analysis
Monthly Units Break-even 2,049
Monthly Revenue Break-even $537,078
Assumptions:
Average Per-Unit Revenue $262.08
Average Per-Unit Variable Cost $212.00
Estimated Monthly Fixed Cost $102,629

7.2 Important Assumptions

Important assumptions for this plan are found in the following table. These assumptions largely determine the financial plan and require that we secure additional financing.

General Assumptions
1999 2000 2001
Plan Month 1 2 3
Current Interest Rate 14.00% 14.00% 14.00%
Long-term Interest Rate 9.00% 9.00% 9.00%
Tax Rate 47.00% 47.00% 47.00%
Other 0 0 0

7.3 Key Financial Indicators

The most important factor to Silvera & Sons anticipated growth is the procurement of necessary financing. The size of the orders currently requested by importers are larger than what can be produced given our present plant capacity.

The following chart shows changes in key financial indicators: sales, gross margin, operating expenses, collection days, and inventory turnover. The growth in sales goes above thirty percent in the first year, twenty percent in second, and back to thirty percent in year three after which it will settle. We expect to increase gross margin but our projections show a decline in the first two years following the purchase of the new facility. This is due to the facilities not being run at maximum capacity. The projections for collection days and inventory turnover show that we expect a decline in these indicators.

7.4 Projected Profit and Loss

We expect to close the first year of production in the new facility with quite exempary ($BRL) sales and to increase our sales in the second and third years. Net earnings will be above industry average ($BRL).

Pro Forma Profit and Loss
1999 2000 2001
Sales $26,260,416 $33,021,600 $46,126,400
Direct Cost of Sales $21,242,400 $26,712,000 $37,312,000
Production Payroll $300,396 $316,884 $331,912
Other Costs of Sales $300,000 $345,000 $410,000
Total Cost of Sales $21,842,796 $27,373,884 $38,053,912
Gross Margin $4,417,620 $5,647,716 $8,072,488
Gross Margin % 16.82% 17.10% 17.50%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $225,492 $128,150 $136,521
Advertising/Promotion $144,000 $165,000 $165,000
Travel $21,000 $22,500 $24,000
Other Sales and Marketing Expenses $24,000 $26,500 $28,500
Total Sales and Marketing Expenses $414,492 $342,150 $354,021
Sales and Marketing % 1.58% 1.04% 0.77%
General and Administrative Expenses
General and Administrative Payroll $119,400 $130,228 $173,377
Marketing/Promotion $0 $0 $0
Depreciation $216,000 $216,000 $216,000
Leased Equipment $50,400 $50,400 $50,400
Utilities $36,000 $36,000 $36,000
Insurance $72,000 $75,000 $78,000
Rent $305,250 $300,000 $300,000
Payroll Taxes $0 $0 $0
Other General and Administrative Expenses $0 $0 $0
Total General and Administrative Expenses $799,050 $807,628 $853,777
General and Administrative % 3.04% 2.45% 1.85%
Other Expenses:
Other Payroll $0 $0 $0
Consultants $18,000 $24,000 $30,000
Other Expenses $0 $0 $0
Total Other Expenses $18,000 $24,000 $30,000
Other % 0.07% 0.07% 0.07%
Total Operating Expenses $1,231,542 $1,173,778 $1,237,798
Profit Before Interest and Taxes $3,186,078 $4,473,938 $6,834,690
EBITDA $3,402,078 $4,689,938 $7,050,690
Interest Expense $269,166 $238,449 $225,191
Taxes Incurred $1,370,949 $1,990,680 $3,106,465
Net Profit $1,545,964 $2,244,809 $3,503,035
Net Profit/Sales 5.89% 6.80% 7.59%

7.5 Projected Cash Flow

Silvera & Sons expects to manage cash flow over the next three years with the assistance of a loan supported by the Central Bank of Brazil. This financing assistance is required to provide the working capital to meet the current needs for the construction of the new production facility and additional personnel, distribution costs, and other related expenses.

Pro Forma Cash Flow
1999 2000 2001
Cash Received
Cash from Operations
Cash Sales $26,260,416 $33,021,600 $46,126,400
Subtotal Cash from Operations $26,260,416 $33,021,600 $46,126,400
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 $2,700,000 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $650,000 $650,000
Subtotal Cash Received $28,960,416 $33,671,600 $46,776,400
Expenditures 1999 2000 2001
Expenditures from Operations
Cash Spending $645,288 $575,262 $641,810
Bill Payments $23,678,478 $29,770,693 $41,735,934
Subtotal Spent on Operations $24,323,766 $30,345,955 $42,377,744
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $57,996 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $305,250 $294,636 $0
Purchase Other Current Assets $60,000 $75,000 $85,000
Purchase Long-term Assets $2,700,000 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $27,447,012 $30,715,591 $42,462,744
Net Cash Flow $1,513,404 $2,956,009 $4,313,656
Cash Balance $2,507,664 $5,463,673 $9,777,329

7.6 Projected Balance Sheet

As shown in the balance sheet in the following table, our net will grow quickly by the end of 1999 and to continue steadily through the end of the plan period. The monthly projections are in the appendix.

Pro Forma Balance Sheet
1999 2000 2001
Assets
Current Assets
Cash $2,507,664 $5,463,673 $9,777,329
Inventory $1,958,880 $2,463,262 $3,440,747
Other Current Assets $303,936 $378,936 $463,936
Total Current Assets $4,770,480 $8,305,872 $13,682,013
Long-term Assets
Long-term Assets $3,221,650 $3,221,650 $3,221,650
Accumulated Depreciation $316,000 $532,000 $748,000
Total Long-term Assets $2,905,650 $2,689,650 $2,473,650
Total Assets $7,676,130 $10,995,522 $16,155,663
Liabilities and Capital 1999 2000 2001
Current Liabilities
Accounts Payable $1,786,801 $2,506,020 $3,513,127
Current Borrowing $4 $4 $4
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $1,786,805 $2,506,024 $3,513,131
Long-term Liabilities $2,796,750 $2,502,114 $2,502,114
Total Liabilities $4,583,555 $5,008,138 $6,015,245
Paid-in Capital $525,000 $1,175,000 $1,825,000
Retained Earnings $1,021,611 $2,567,575 $4,812,383
Earnings $1,545,964 $2,244,809 $3,503,035
Total Capital $3,092,575 $5,987,383 $10,140,418
Total Liabilities and Capital $7,676,130 $10,995,522 $16,155,663
Net Worth $3,092,575 $5,987,383 $10,140,418

7.7 Business Ratios

Standard business ratios are included in the following table. The ratios show an aggressive plan for growth in order to reach maximum production within three years. Return on investment increases each year as we bring the new facility to maximum capacity and production. Return on sales and assets remain strong and cost of goods decreases based upon efficiency projections. Projections are based on the 1997/98 selling price. Industry Profile is based on NAICS code 311920, Coffee and Tea Manufacturing.

Ratio Analysis
1999 2000 2001 Industry Profile
Sales Growth 43.14% 25.75% 39.69% 5.50%
Percent of Total Assets
Inventory 25.52% 22.40% 21.30% 12.43%
Other Current Assets 3.96% 3.45% 2.87% 27.50%
Total Current Assets 62.15% 75.54% 84.69% 60.13%
Long-term Assets 37.85% 24.46% 15.31% 39.87%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 23.28% 22.79% 21.75% 8.46%
Long-term Liabilities 36.43% 22.76% 15.49% 16.54%
Total Liabilities 59.71% 45.55% 37.23% 25.00%
Net Worth 40.29% 54.45% 62.77% 75.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 16.82% 17.10% 17.50% 23.32%
Selling, General & Administrative Expenses 10.94% 10.31% 9.91% 9.39%
Advertising Expenses 0.55% 0.50% 0.36% 2.06%
Profit Before Interest and Taxes 12.13% 13.55% 14.82% 4.36%
Main Ratios
Current 2.67 3.31 3.89 5.32
Quick 1.57 2.33 2.92 3.45
Total Debt to Total Assets 59.71% 45.55% 37.23% 27.13%
Pre-tax Return on Net Worth 94.32% 70.74% 65.18% 12.79%
Pre-tax Return on Assets 38.00% 38.52% 40.91% 17.55%
Additional Ratios 1999 2000 2001
Net Profit Margin 5.89% 6.80% 7.59% n.a
Return on Equity 49.99% 37.49% 34.55% n.a
Activity Ratios
Inventory Turnover 10.91 12.08 12.64 n.a
Accounts Payable Turnover 14.25 12.17 12.17 n.a
Payment Days 27 26 26 n.a
Total Asset Turnover 3.42 3.00 2.86 n.a
Debt Ratios
Debt to Net Worth 1.48 0.84 0.59 n.a
Current Liab. to Liab. 0.39 0.50 0.58 n.a
Liquidity Ratios
Net Working Capital $2,983,675 $5,799,847 $10,168,882 n.a
Interest Coverage 11.84 18.76 30.35 n.a
Additional Ratios
Assets to Sales 0.29 0.33 0.35 n.a
Current Debt/Total Assets 23% 23% 22% n.a
Acid Test 1.57 2.33 2.92 n.a
Sales/Net Worth 8.49 5.52 4.55 n.a
Dividend Payout 0.00 0.00 0.00 n.a