Eagle Computers

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Computer Software Retailer Business Plan

Financial Plan

The following subtopics help present the financial plan for Eagle Computers.

7.1 Important Assumptions

The key underlying assumptions of our financial plan shown in the following general assumption table are:

  • We assume access to the start-up funding necessary to provide adequate initial capitalization and establish our company.
  • We assume continued steady economic growth in Hawaii as predicted by Bank of Hawaii, and other Hawaii economists.
  • We assume continued steady population growth of the West Hawaii community.
  • We assume continued steady increase in tourism to the Kona area as predicted by the Department of Business, Economic Development and Tourism for the State of Hawaii.
  • We assume continued usage of IBM-compatible computers in the home and at work.
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 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Break-even Analysis

For our break-even analysis, we assume running costs which include our full payroll, rent and utilities, and an estimation of other running costs.

We will monitor gross margins very closely, and maintain them at or above 50% by taking advantage of all promotions and discounts offered by our manufacturers and by our higher-profit revenue generators of computer service and Computer Rental Stations.

The chart shows what we need to sell per month to break even, according to these assumptions. This is about 6% of our projected sales for our first year.

Break-even Analysis
Monthly Revenue Break-even $12,868
Assumptions:
Average Percent Variable Cost 50%
Estimated Monthly Fixed Cost $6,447

7.3 Projected Profit and Loss

There are two important assumptions with our Projected Profit and Loss statement:

  1. Our revenue is based on minimum estimated averages against highest expense expectations.
  2. Our major expense of rent is fixed for the next three years.
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $219,550 $232,977 $247,333
Direct Cost of Sales $109,550 $111,741 $113,976
Other Costs of Goods $0 $0 $0
Total Cost of Sales $109,550 $111,741 $113,976
Gross Margin $110,000 $121,236 $133,357
Gross Margin % 50.10% 52.04% 53.92%
Expenses
Payroll $49,500 $57,000 $65,000
Sales and Marketing and Other Expenses $280 $280 $280
Depreciation $0 $0 $0
Rent $15,600 $15,600 $15,600
Utilities $3,600 $3,600 $3,600
Security Alarm System $360 $360 $360
Insurance $600 $600 $600
Payroll Taxes $7,425 $8,550 $9,750
Other $0 $0 $0
Total Operating Expenses $77,365 $85,990 $95,190
Profit Before Interest and Taxes $32,635 $35,246 $38,167
EBITDA $32,635 $35,246 $38,167
Interest Expense $3,310 $2,974 $2,624
Taxes Incurred $8,797 $9,681 $10,663
Net Profit $20,527 $22,590 $24,880
Net Profit/Sales 9.35% 9.70% 10.06%

7.4 Projected Cash Flow

Our projected cash flow includes planned borrowing to increase our capital and thereby ensure a positive cash balance while our business is becoming established. Though the cash flow is negative on and off throughout the year, we will maintain a healthy cash balance, which steadily increases in both the second and third years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $219,550 $232,977 $247,333
Subtotal Cash from Operations $219,550 $232,977 $247,333
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 $35,000 $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 $254,550 $232,977 $247,333
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $49,500 $57,000 $65,000
Bill Payments $136,766 $156,082 $157,370
Subtotal Spent on Operations $186,266 $213,082 $222,370
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 $3,504 $3,504 $3,504
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $189,770 $216,586 $225,874
Net Cash Flow $64,780 $16,390 $21,460
Cash Balance $66,805 $83,195 $104,655

7.5 Projected Balance Sheet

Our Projected Balance Sheet shows we will not have any difficulty meeting our debt obligations as long as our revenue projections are met.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $66,805 $83,195 $104,655
Inventory $12,320 $12,566 $12,818
Other Current Assets $0 $0 $0
Total Current Assets $79,125 $95,762 $117,473
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $79,125 $95,762 $117,473
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $15,076 $12,627 $12,962
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $15,076 $12,627 $12,962
Long-term Liabilities $31,496 $27,992 $24,488
Total Liabilities $46,572 $40,619 $37,450
Paid-in Capital $20,000 $20,000 $20,000
Retained Earnings ($7,975) $12,552 $35,142
Earnings $20,527 $22,590 $24,880
Total Capital $32,552 $55,142 $80,023
Total Liabilities and Capital $79,125 $95,762 $117,473
Net Worth $32,552 $55,142 $80,023

7.6 Business Ratios

The company's projected business ratios are provided in the table below. The final column, Industry Profile, shows the industry profile ratios based on the Standard Industrial Classification (SIC) code 5734, Computer and Software Stores.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 6.12% 6.16% 5.90%
Percent of Total Assets
Inventory 15.57% 13.12% 10.91% 28.69%
Other Current Assets 0.00% 0.00% 0.00% 23.57%
Total Current Assets 100.00% 100.00% 100.00% 76.76%
Long-term Assets 0.00% 0.00% 0.00% 23.24%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 19.05% 13.19% 11.03% 38.11%
Long-term Liabilities 39.81% 29.23% 20.85% 12.34%
Total Liabilities 58.86% 42.42% 31.88% 50.45%
Net Worth 41.14% 57.58% 68.12% 49.55%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 50.10% 52.04% 53.92% 32.91%
Selling, General & Administrative Expenses 40.75% 42.34% 43.86% 16.33%
Advertising Expenses 0.00% 0.00% 0.00% 3.48%
Profit Before Interest and Taxes 14.86% 15.13% 15.43% 1.13%
Main Ratios
Current 5.25 7.58 9.06 1.84
Quick 4.43 6.59 8.07 0.96
Total Debt to Total Assets 58.86% 42.42% 31.88% 53.76%
Pre-tax Return on Net Worth 90.09% 58.52% 44.42% 2.48%
Pre-tax Return on Assets 37.06% 33.70% 30.26% 5.36%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 9.35% 9.70% 10.06% n.a
Return on Equity 63.06% 40.97% 31.09% n.a
Activity Ratios
Inventory Turnover 10.91 8.98 8.98 n.a
Accounts Payable Turnover 10.07 12.17 12.17 n.a
Payment Days 27 33 30 n.a
Total Asset Turnover 2.77 2.43 2.11 n.a
Debt Ratios
Debt to Net Worth 1.43 0.74 0.47 n.a
Current Liab. to Liab. 0.32 0.31 0.35 n.a
Liquidity Ratios
Net Working Capital $64,048 $83,134 $104,511 n.a
Interest Coverage 9.86 11.85 14.55 n.a
Additional Ratios
Assets to Sales 0.36 0.41 0.47 n.a
Current Debt/Total Assets 19% 13% 11% n.a
Acid Test 4.43 6.59 8.07 n.a
Sales/Net Worth 6.74 4.23 3.09 n.a
Dividend Payout 0.00 0.00 0.00 n.a