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Commercial Construction Business Plan

Hard Hats Construction

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Financial Plan

HHC expects to raise $390,000 as its own capital, and to borrow $4.2 million guaranteed by the SBA as a ten-year loan. This provides the bulk of the current financing required for company growth.

7.1 Break-even Analysis

HHC's break-even analysis is based on the average of the first-year figures for total sales by project, and by operating expenses.  These are presented as per-project revenue, per-project cost, and fixed costs.  These conservative assumptions make for a more accurate estimate of real risk.
Break-even Analysis
Monthly Units Break-even 1
Monthly Revenue Break-even $1,966,721
Assumptions:
Average Per-Unit Revenue $1,621,390.50
Average Per-Unit Variable Cost $735,725.73
Estimated Monthly Fixed Cost $1,074,298

7.2 Projected Balance Sheet

HHC's projected balance sheet follows.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $6,817,122 $18,293,084 $33,561,391
Other Current Assets $100,000 $100,000 $100,000
Total Current Assets $6,917,122 $18,393,084 $33,661,391
Long-term Assets
Long-term Assets $4,600,000 $8,200,000 $13,500,000
Accumulated Depreciation $300,000 $1,400,000 $3,000,000
Total Long-term Assets $4,300,000 $6,800,000 $10,500,000
Total Assets $11,217,122 $25,193,084 $44,161,391
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $1,167,159 $2,766,028 $3,364,481
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $1,167,159 $2,766,028 $3,364,481
Long-term Liabilities $4,233,200 $3,833,200 $3,233,200
Total Liabilities $5,400,359 $6,599,228 $6,597,681
Paid-in Capital $390,000 $390,000 $390,000
Retained Earnings ($1,193,284) $5,426,763 $18,203,855
Earnings $6,620,047 $12,777,092 $18,969,854
Total Capital $5,816,763 $18,593,855 $37,563,710
Total Liabilities and Capital $11,217,122 $25,193,084 $44,161,391
Net Worth $5,816,763 $18,593,855 $37,563,710

7.3 Projected Profit and Loss

As the Highlights chart shows below, HHC's sales are expected to increase by $10,000,000 each year, with a net gain of $6,000,000 per year. The following Profit and Loss table demonstrates HHC's expectation of continuing steady growth over the next three years of operation.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $40,534,763 $51,268,225 $65,429,054
Direct Cost of Sales $18,393,143 $22,205,783 $27,075,327
Other $0 $0 $0
Total Cost of Sales $18,393,143 $22,205,783 $27,075,327
Gross Margin $22,141,619 $29,062,442 $38,353,728
Gross Margin % 54.62% 56.69% 58.62%
Expenses
Payroll $3,559,800 $3,737,790 $3,924,680
Sales and Marketing and Other Expenses $8,489,400 $6,215,720 $6,584,626
Depreciation $300,000 $1,100,000 $1,600,000
Utilities $8,400 $8,820 $9,261
Payroll Taxes $533,970 $560,669 $588,702
Other $0 $0 $0
Total Operating Expenses $12,891,570 $11,622,999 $12,707,268
Profit Before Interest and Taxes $9,250,049 $17,439,443 $25,646,459
EBITDA $9,550,049 $18,539,443 $27,246,459
Interest Expense $423,320 $403,320 $353,320
Taxes Incurred $2,206,682 $4,259,031 $6,323,285
Net Profit $6,620,047 $12,777,092 $18,969,854
Net Profit/Sales 16.33% 24.92% 28.99%

7.4 Projected Cash Flow

The cash flow projection shows that provisions for ongoing expenses are adequate to meet HHC's needs as the business generates sufficient cash flow to support operations. As the construction business is seasonal, the company will build up cash reserves during the busy summer months to cover cash flow decreases during the slower winter months.

It is estimated that the company will aggressively seek to pay off it's SBA loan sooner than the required ten-year period. This is reflected in the higher principle payments in year 2002-2003.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $40,534,763 $51,268,225 $65,429,054
Subtotal Cash from Operations $40,534,763 $51,268,225 $65,429,054
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 $0 $0 $0
Subtotal Cash Received $40,534,763 $51,268,225 $65,429,054
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $3,559,800 $3,737,790 $3,924,680
Bill Payments $28,888,757 $32,054,473 $40,336,067
Subtotal Spent on Operations $32,448,557 $35,792,263 $44,260,747
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 $400,000 $600,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $2,100,000 $3,600,000 $5,300,000
Dividends $669,084 $0 $0
Subtotal Cash Spent $35,217,641 $39,792,263 $50,160,747
Net Cash Flow $5,317,122 $11,475,962 $15,268,307
Cash Balance $6,817,122 $18,293,084 $33,561,391

7.5 Business Ratios

The following table presents important ratios from the construction industry, as determined by the Standard Industry Classification (SIC) Index #1542, Non-residential Construction.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 26.48% 27.62% 2.30%
Percent of Total Assets
Other Current Assets 0.89% 0.40% 0.23% 37.80%
Total Current Assets 61.67% 73.01% 76.22% 86.20%
Long-term Assets 38.33% 26.99% 23.78% 13.80%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 10.41% 10.98% 7.62% 47.40%
Long-term Liabilities 37.74% 15.22% 7.32% 12.90%
Total Liabilities 48.14% 26.19% 14.94% 60.30%
Net Worth 51.86% 73.81% 85.06% 39.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 54.62% 56.69% 58.62% 16.30%
Selling, General & Administrative Expenses 38.29% 31.76% 29.63% 8.80%
Advertising Expenses 0.15% 0.20% 0.20% 0.30%
Profit Before Interest and Taxes 22.82% 34.02% 39.20% 1.50%
Main Ratios
Current 5.93 6.65 10.00 1.83
Quick 5.93 6.65 10.00 0.92
Total Debt to Total Assets 48.14% 26.19% 14.94% 60.30%
Pre-tax Return on Net Worth 151.75% 91.62% 67.33% 3.20%
Pre-tax Return on Assets 78.69% 67.62% 57.27% 8.10%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 16.33% 24.92% 28.99% n.a
Return on Equity 113.81% 68.72% 50.50% n.a
Activity Ratios
Accounts Payable Turnover 25.75 12.17 12.17 n.a
Payment Days 27 21 27 n.a
Total Asset Turnover 3.61 2.04 1.48 n.a
Debt Ratios
Debt to Net Worth 0.93 0.35 0.18 n.a
Current Liab. to Liab. 0.22 0.42 0.51 n.a
Liquidity Ratios
Net Working Capital $5,749,963 $15,627,055 $30,296,910 n.a
Interest Coverage 21.85 43.24 72.59 n.a
Additional Ratios
Assets to Sales 0.28 0.49 0.67 n.a
Current Debt/Total Assets 10% 11% 8% n.a
Acid Test 5.93 6.65 10.00 n.a
Sales/Net Worth 6.97 2.76 1.74 n.a
Dividend Payout 0.10 0.00 0.00 n.a
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Break-even Analysis
Monthly Units Break-even 1
Monthly Revenue Break-even $1,966,721
Assumptions:
Average Per-Unit Revenue $1,621,390.50
Average Per-Unit Variable Cost $735,725.73
Estimated Monthly Fixed Cost $1,074,298
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $6,817,122 $18,293,084 $33,561,391
Other Current Assets $100,000 $100,000 $100,000
Total Current Assets $6,917,122 $18,393,084 $33,661,391
Long-term Assets
Long-term Assets $4,600,000 $8,200,000 $13,500,000
Accumulated Depreciation $300,000 $1,400,000 $3,000,000
Total Long-term Assets $4,300,000 $6,800,000 $10,500,000
Total Assets $11,217,122 $25,193,084 $44,161,391
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $1,167,159 $2,766,028 $3,364,481
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $1,167,159 $2,766,028 $3,364,481
Long-term Liabilities $4,233,200 $3,833,200 $3,233,200
Total Liabilities $5,400,359 $6,599,228 $6,597,681
Paid-in Capital $390,000 $390,000 $390,000
Retained Earnings ($1,193,284) $5,426,763 $18,203,855
Earnings $6,620,047 $12,777,092 $18,969,854
Total Capital $5,816,763 $18,593,855 $37,563,710
Total Liabilities and Capital $11,217,122 $25,193,084 $44,161,391
Net Worth $5,816,763 $18,593,855 $37,563,710
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $40,534,763 $51,268,225 $65,429,054
Direct Cost of Sales $18,393,143 $22,205,783 $27,075,327
Other $0 $0 $0
Total Cost of Sales $18,393,143 $22,205,783 $27,075,327
Gross Margin $22,141,619 $29,062,442 $38,353,728
Gross Margin % 54.62% 56.69% 58.62%
Expenses
Payroll $3,559,800 $3,737,790 $3,924,680
Sales and Marketing and Other Expenses $8,489,400 $6,215,720 $6,584,626
Depreciation $300,000 $1,100,000 $1,600,000
Utilities $8,400 $8,820 $9,261
Payroll Taxes $533,970 $560,669 $588,702
Other $0 $0 $0
Total Operating Expenses $12,891,570 $11,622,999 $12,707,268
Profit Before Interest and Taxes $9,250,049 $17,439,443 $25,646,459
EBITDA $9,550,049 $18,539,443 $27,246,459
Interest Expense $423,320 $403,320 $353,320
Taxes Incurred $2,206,682 $4,259,031 $6,323,285
Net Profit $6,620,047 $12,777,092 $18,969,854
Net Profit/Sales 16.33% 24.92% 28.99%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $40,534,763 $51,268,225 $65,429,054
Subtotal Cash from Operations $40,534,763 $51,268,225 $65,429,054
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 $0 $0 $0
Subtotal Cash Received $40,534,763 $51,268,225 $65,429,054
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $3,559,800 $3,737,790 $3,924,680
Bill Payments $28,888,757 $32,054,473 $40,336,067
Subtotal Spent on Operations $32,448,557 $35,792,263 $44,260,747
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 $400,000 $600,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $2,100,000 $3,600,000 $5,300,000
Dividends $669,084 $0 $0
Subtotal Cash Spent $35,217,641 $39,792,263 $50,160,747
Net Cash Flow $5,317,122 $11,475,962 $15,268,307
Cash Balance $6,817,122 $18,293,084 $33,561,391
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 26.48% 27.62% 2.30%
Percent of Total Assets
Other Current Assets 0.89% 0.40% 0.23% 37.80%
Total Current Assets 61.67% 73.01% 76.22% 86.20%
Long-term Assets 38.33% 26.99% 23.78% 13.80%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 10.41% 10.98% 7.62% 47.40%
Long-term Liabilities 37.74% 15.22% 7.32% 12.90%
Total Liabilities 48.14% 26.19% 14.94% 60.30%
Net Worth 51.86% 73.81% 85.06% 39.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 54.62% 56.69% 58.62% 16.30%
Selling, General & Administrative Expenses 38.29% 31.76% 29.63% 8.80%
Advertising Expenses 0.15% 0.20% 0.20% 0.30%
Profit Before Interest and Taxes 22.82% 34.02% 39.20% 1.50%
Main Ratios
Current 5.93 6.65 10.00 1.83
Quick 5.93 6.65 10.00 0.92
Total Debt to Total Assets 48.14% 26.19% 14.94% 60.30%
Pre-tax Return on Net Worth 151.75% 91.62% 67.33% 3.20%
Pre-tax Return on Assets 78.69% 67.62% 57.27% 8.10%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 16.33% 24.92% 28.99% n.a
Return on Equity 113.81% 68.72% 50.50% n.a
Activity Ratios
Accounts Payable Turnover 25.75 12.17 12.17 n.a
Payment Days 27 21 27 n.a
Total Asset Turnover 3.61 2.04 1.48 n.a
Debt Ratios
Debt to Net Worth 0.93 0.35 0.18 n.a
Current Liab. to Liab. 0.22 0.42 0.51 n.a
Liquidity Ratios
Net Working Capital $5,749,963 $15,627,055 $30,296,910 n.a
Interest Coverage 21.85 43.24 72.59 n.a
Additional Ratios
Assets to Sales 0.28 0.49 0.67 n.a
Current Debt/Total Assets 10% 11% 8% n.a
Acid Test 5.93 6.65 10.00 n.a
Sales/Net Worth 6.97 2.76 1.74 n.a
Dividend Payout 0.10 0.00 0.00 n.a