PC Repair

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Computer Repair Business Plan

Financial Plan

The following sections include the annual estimates for the standard set of financial tables. Detailed monthly pro-forma tables are included in the appendix.

Our financial plan calls for limited growth in the first three months, followed by much higher sales when we move and hire additional employees. These projections are based on sound market research and ratios for comparable businesses. As we grow, we will keep our operating expenses down, and maintain a positive cash balance as we repay our three-year loan.

7.1 Important Assumptions

PC Repair's customer base would fluctuate if there was a recess in the economy or other extenuating circumstances that pertain directly to consumer or industry behavior. However, given the steady increase in computer users despite the recent recession, we assume that sales forecasts are unlikely to be dramatically altered by economic events. The table below shows some of our other assumptions.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 7.00% 70.00% 70.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Break-even Analysis

Fixed costs are projected at a monthly average for the first year. This includes payroll, moving expenses and rent, purchase of a company vehicle, and other necessities like cell phones and the answering service. Variable costs (inventory used in repairing or servicing computers) are projected as well. At these levels, what we need to bring in per month to break even is shown in the table and chart below. We will reach our break-even point mid-year, although we expect sales in November and December to dip below this level because of holidays.

Break-even Analysis
Monthly Units Break-even 52
Monthly Revenue Break-even $15,110
Assumptions:
Average Per-Unit Revenue $291.29
Average Per-Unit Variable Cost $70.00
Estimated Monthly Fixed Cost $11,479

7.3 Projected Profit and Loss

The table below shows our projected profit and loss. There are two lines for direct cost of sales - the second line shows projected inventory costs of fulfilling our maintenance contracts. The marketing/promotion line shows our planned advertising program expenses. Although these are aggressive, we must spend heavily in the first year in order to establish the brand recognition that will help us break in to the local market.

This table also shows our projected expense increases as we hire more employees and move into a larger rented space. Before the move, the owner will absorb expenses related to utilities. In years two and three, we have budgeted for additional expensed equipment to expand our diagnostic and repair capabilities to keep up with orders.

We are seeking a modest net profit in the first year. As our reputation grows, we will see higher revenues and net profit over the next three years.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $203,030 $276,000 $328,500
Direct Cost of Sales $42,604 $55,800 $64,350
Costs of Fulfilling Maintenance Contracts $1,488 $4,320 $6,120
Total Cost of Sales $44,092 $60,120 $70,470
Gross Margin $158,938 $215,880 $258,030
Gross Margin % 78.28% 78.22% 78.55%
Expenses
Payroll $69,000 $110,000 $115,000
Marketing/Promotion $28,000 $6,000 $12,000
Depreciation $0 $0 $0
Lease $10,000 $12,000 $12,000
Expensed Equipment $0 $10,000 $12,000
Insurance $3,150 $1,200 $1,200
Website $2,080 $480 $480
Answering Service $200 $2,400 $2,400
Mileage $2,660 $5,400 $5,400
Vehicles $13,200 $15,000 $17,000
Cell Phones $1,260 $1,260 $1,260
Utilities $5,000 $6,000 $7,000
Internet $1,200 $1,200 $1,200
Moving Expenses $2,000 $0 $0
Total Operating Expenses $137,750 $170,940 $186,940
Profit Before Interest and Taxes $21,188 $44,940 $71,090
EBITDA $21,188 $44,940 $71,090
Interest Expense $1,097 $6,570 $2,139
Taxes Incurred $6,027 $11,511 $20,685
Net Profit $14,064 $26,859 $48,266
Net Profit/Sales 6.93% 9.73% 14.69%

7.4 Projected Cash Flow

The Cash Flow chart, below, shows our projected cash position for the first year; the table following it shows highlights for the first three years. With the requested start-up funding, we will maintain a positive cash balance throughout, and repay the loan within three years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $203,030 $276,000 $328,500
Subtotal Cash from Operations $203,030 $276,000 $328,500
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 $203,030 $276,000 $328,500
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $69,000 $110,000 $115,000
Bill Payments $110,873 $141,877 $164,115
Subtotal Spent on Operations $179,873 $251,877 $279,115
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $6,564 $6,550 $6,111
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 $186,437 $258,427 $285,226
Net Cash Flow $16,593 $17,573 $43,274
Cash Balance $44,593 $62,165 $105,440

7.5 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7379, Computer Related Services, (NAICS 811212) are shown for comparison.

Our projected growth is much higher than the industry average; in part, this is because we are a start-up, growing sales steadily in these first three years. We are sure that our sales forecast is conservative, given the dissatisfaction among local computer users with existing options, and our planned aggressive marketing campaign.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 35.94% 19.02% 5.23%
Percent of Total Assets
Inventory 8.22% 8.15% 6.01% 2.79%
Other Current Assets 16.81% 12.73% 8.14% 51.19%
Total Current Assets 100.00% 100.00% 100.00% 75.09%
Long-term Assets 0.00% 0.00% 0.00% 24.91%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 42.77% 22.49% 11.12% 31.75%
Long-term Liabilities 0.00% 0.00% 0.00% 18.48%
Total Liabilities 42.77% 22.49% 11.12% 50.23%
Net Worth 57.23% 77.51% 88.88% 49.77%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 78.28% 78.22% 78.55% 100.00%
Selling, General & Administrative Expenses 38.70% 65.72% 64.96% 80.06%
Advertising Expenses 0.00% 0.00% 0.00% 1.23%
Profit Before Interest and Taxes 10.44% 16.28% 21.64% 1.95%
Main Ratios
Current 2.34 4.45 8.99 1.53
Quick 2.15 4.08 8.45 1.24
Total Debt to Total Assets 42.77% 22.49% 11.12% 57.27%
Pre-tax Return on Net Worth 59.02% 63.01% 63.16% 2.73%
Pre-tax Return on Assets 33.78% 48.84% 56.14% 6.39%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 6.93% 9.73% 14.69% n.a
Return on Equity 41.32% 44.10% 44.21% n.a
Activity Ratios
Inventory Turnover 10.25 9.88 9.33 n.a
Accounts Payable Turnover 9.67 12.17 12.17 n.a
Payment Days 27 32 28 n.a
Total Asset Turnover 3.41 3.51 2.67 n.a
Debt Ratios
Debt to Net Worth 0.75 0.29 0.13 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $34,039 $60,898 $109,163 n.a
Interest Coverage 19.32 6.84 33.24 n.a
Additional Ratios
Assets to Sales 0.29 0.28 0.37 n.a
Current Debt/Total Assets 43% 22% 11% n.a
Acid Test 2.15 4.08 8.45 n.a
Sales/Net Worth 5.96 4.53 3.01 n.a
Dividend Payout 0.00 0.00 0.00 n.a

7.6 Projected Balance Sheet

The Balance Sheet shows a steadily increasing net worth over the next three years. Since we are planning to rent, and because computer technology changes so rapidly, we will have only short-term assets, such as computer equipment and furniture. This will make our net worth much more liquid than many similar businesses. 

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $44,593 $62,165 $105,440
Inventory $4,890 $6,404 $7,385
Other Current Assets $10,000 $10,000 $10,000
Total Current Assets $59,482 $78,569 $122,825
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $59,482 $78,569 $122,825
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $12,783 $11,561 $13,662
Current Borrowing $12,661 $6,111 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $25,444 $17,672 $13,662
Long-term Liabilities $0 $0 $0
Total Liabilities $25,444 $17,672 $13,662
Paid-in Capital $23,000 $23,000 $23,000
Retained Earnings ($3,025) $11,039 $37,898
Earnings $14,064 $26,859 $48,266
Total Capital $34,039 $60,898 $109,163
Total Liabilities and Capital $59,482 $78,569 $122,825
Net Worth $34,039 $60,898 $109,163