The most important element in the financial plan is the critical need for improving several of the key factors that impact cash flow:
The financial plan depends on important assumptions, most of which are shown in Table 7.1. The key underlying assumptions are:
The Benchmark Comparison chart highlights our ambitious plans to correct declining gross margin and inventory turnover. The chart illustrates why we think the ambitious sales increases we plan are reasonable. We have had similar increases in the recent past.
For our break-even analysis, we assume running costs which include our full payroll, rent, and utilities, and an estimation of other running costs. Payroll alone, at our present run rate, is only about $55,000. Margins are harder to assume. Our overall average is based on projections for the coming year. We hope to attain a margin that high in the future.
The chart shows how much we need to sell per month to break even, according to these assumptions.
The most important assumption in the Projected Profit and Loss statement is the gross margin, which is supposed to increase. This is up from barely 21% in the last year. The increase in gross margin is based on changing our sales mix, and it is critical. Month-by-month assumptions for profit and loss are included in the appendix.
The cash flow depends on assumptions for inventory turnover, payment days, and accounts receivable management. Our projected 60-day collection days is not ideal, but it is realistic in this market, and hard for us to effectively change. We're better off planning for it than ignoring it. We need significant new financing in March to get through a cash flow dip as we build up for mid-year sales.
The Projected Balance Sheet is quite solid. We do not project any real trouble meeting our debt obligations--as long as we can achieve our specific objectives.
The table follows with our main business ratios. We do intend to improve gross margin, collection days, and inventory turnover. The industry standards are taken for industry classification 5734 in the SIC code. We assume that the difference between our results and the standards is that the standards include