Construction Irrigation Business Plan

Hass Irrigation Systems

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Financial Plan

The following is the financial plan for Hass Irrigation Systems.

7.1 Break-even Analysis

The monthly break-even point is shown below, taking into account monthly running costs.

Break-even Analysis
Monthly Revenue Break-even $20,211
Assumptions:
Average Percent Variable Cost 28%
Estimated Monthly Fixed Cost $14,557

7.2 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 4971, Irrigation Systems, are shown for comparison.

The following is explanation of the plans divergence with industry ratio profile.

  • Sales Growth and Profit Before Interest and Taxes: will be double the industry average because of the increased housing development in the Lake Charles area over the next five years.
  • Short-term Assets: are higher than the average due the size of our start-up inventory.
  • Long Term Assets: are below the industry average but will be more in-line after additional equipment is purchased which is planned during the fourth year of operation.
  • Long Term Liabilities, and Expense of Sales: are higher than the industry average due to the start-up loan and the maintenance of a year-round staff.
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.29% 10.20% 4.70%
Percent of Total Assets
Accounts Receivable 18.84% 17.96% 18.26% 11.20%
Inventory 4.64% 4.38% 4.30% 1.40%
Other Current Assets 0.00% 0.00% 0.00% 36.30%
Total Current Assets 66.72% 73.93% 78.43% 48.90%
Long-term Assets 33.28% 26.07% 21.57% 51.10%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 8.57% 9.01% 8.87% 26.90%
Long-term Liabilities 65.52% 50.34% 40.65% 22.20%
Total Liabilities 74.09% 59.36% 49.52% 49.10%
Net Worth 25.91% 40.64% 50.48% 50.90%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 72.03% 72.30% 73.28% 64.10%
Selling, General & Administrative Expenses 63.05% 63.85% 67.37% 45.40%
Advertising Expenses 3.86% 4.37% 4.76% 0.20%
Profit Before Interest and Taxes 15.86% 14.55% 10.43% 5.20%
Main Ratios
Current 7.79 8.20 8.84 1.79
Quick 7.24 7.71 8.36 1.44
Total Debt to Total Assets 74.09% 59.36% 49.52% 49.10%
Pre-tax Return on Net Worth 111.96% 64.12% 36.71% 4.70%
Pre-tax Return on Assets 29.01% 26.06% 18.53% 9.30%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 8.97% 8.45% 5.91% n.a
Return on Equity 78.37% 44.88% 25.70% n.a
Activity Ratios
Accounts Receivable Turnover 9.01 9.01 9.01 n.a
Collection Days 58 39 39 n.a
Inventory Turnover 6.00 14.24 14.05 n.a
Accounts Payable Turnover 10.64 12.17 12.17 n.a
Payment Days 27 27 29 n.a
Total Asset Turnover 2.26 2.16 2.19 n.a
Debt Ratios
Debt to Net Worth 2.86 1.46 0.98 n.a
Current Liab. to Liab. 0.12 0.15 0.18 n.a
Liquidity Ratios
Net Working Capital $79,888 $103,167 $119,795 n.a
Interest Coverage 5.21 5.87 5.25 n.a
Additional Ratios
Assets to Sales 0.44 0.46 0.46 n.a
Current Debt/Total Assets 9% 9% 9% n.a
Acid Test 5.05 5.72 6.30 n.a
Sales/Net Worth 8.74 5.31 4.35 n.a
Dividend Payout 0.00 0.00 0.00 n.a

7.3 Projected Profit and Loss

The following table and chart highlights the projected profit and loss for three years.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $311,000 $343,000 $378,000
Direct Cost of Sales $87,000 $95,000 $101,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $87,000 $95,000 $101,000
Gross Margin $224,000 $248,000 $277,000
Gross Margin % 72.03% 72.30% 73.28%
Expenses
Payroll $120,000 $136,000 $166,000
Sales and Marketing and Other Expenses $18,000 $23,000 $28,000
Depreciation $4,284 $4,284 $4,284
Leased Equipment $0 $0 $0
Utilities $2,400 $2,400 $2,400
Insurance $0 $0 $0
Rent $12,000 $12,000 $12,000
Payroll Taxes $18,000 $20,400 $24,900
Other $0 $0 $0
Total Operating Expenses $174,684 $198,084 $237,584
Profit Before Interest and Taxes $49,316 $49,916 $39,416
EBITDA $53,600 $54,200 $43,700
Interest Expense $9,459 $8,501 $7,501
Taxes Incurred $11,957 $12,425 $9,575
Net Profit $27,900 $28,991 $22,341
Net Profit/Sales 8.97% 8.45% 5.91%

7.4 Projected Cash Flow

The following is the projected cash flow for three years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $77,750 $85,750 $94,500
Cash from Receivables $207,375 $254,588 $280,588
Subtotal Cash from Operations $285,125 $340,338 $375,088
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 $5,000 $0 $0
Subtotal Cash Received $290,125 $340,338 $375,088
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $120,000 $136,000 $166,000
Bill Payments $113,424 $171,757 $184,870
Subtotal Spent on Operations $233,424 $307,757 $350,870
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 $9,996 $9,996 $9,996
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $243,420 $317,753 $360,866
Net Cash Flow $46,705 $22,585 $14,222
Cash Balance $59,405 $81,990 $96,212

7.5 Projected Balance Sheet

The following is the projected balance sheet for three years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $59,405 $81,990 $96,212
Accounts Receivable $25,875 $28,537 $31,449
Inventory $6,380 $6,967 $7,407
Other Current Assets $0 $0 $0
Total Current Assets $91,660 $117,494 $135,068
Long-term Assets
Long-term Assets $50,000 $50,000 $50,000
Accumulated Depreciation $4,284 $8,568 $12,852
Total Long-term Assets $45,716 $41,432 $37,148
Total Assets $137,376 $158,926 $172,216
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $11,772 $14,327 $15,273
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $11,772 $14,327 $15,273
Long-term Liabilities $90,004 $80,008 $70,012
Total Liabilities $101,776 $94,335 $85,285
Paid-in Capital $65,000 $65,000 $65,000
Retained Earnings ($57,300) ($29,400) ($409)
Earnings $27,900 $28,991 $22,341
Total Capital $35,600 $64,591 $86,931
Total Liabilities and Capital $137,376 $158,926 $172,216
Net Worth $35,600 $64,591 $86,931
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Break-even Analysis
Monthly Revenue Break-even $20,211
Assumptions:
Average Percent Variable Cost 28%
Estimated Monthly Fixed Cost $14,557
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.29% 10.20% 4.70%
Percent of Total Assets
Accounts Receivable 18.84% 17.96% 18.26% 11.20%
Inventory 4.64% 4.38% 4.30% 1.40%
Other Current Assets 0.00% 0.00% 0.00% 36.30%
Total Current Assets 66.72% 73.93% 78.43% 48.90%
Long-term Assets 33.28% 26.07% 21.57% 51.10%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 8.57% 9.01% 8.87% 26.90%
Long-term Liabilities 65.52% 50.34% 40.65% 22.20%
Total Liabilities 74.09% 59.36% 49.52% 49.10%
Net Worth 25.91% 40.64% 50.48% 50.90%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 72.03% 72.30% 73.28% 64.10%
Selling, General & Administrative Expenses 63.05% 63.85% 67.37% 45.40%
Advertising Expenses 3.86% 4.37% 4.76% 0.20%
Profit Before Interest and Taxes 15.86% 14.55% 10.43% 5.20%
Main Ratios
Current 7.79 8.20 8.84 1.79
Quick 7.24 7.71 8.36 1.44
Total Debt to Total Assets 74.09% 59.36% 49.52% 49.10%
Pre-tax Return on Net Worth 111.96% 64.12% 36.71% 4.70%
Pre-tax Return on Assets 29.01% 26.06% 18.53% 9.30%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 8.97% 8.45% 5.91% n.a
Return on Equity 78.37% 44.88% 25.70% n.a
Activity Ratios
Accounts Receivable Turnover 9.01 9.01 9.01 n.a
Collection Days 58 39 39 n.a
Inventory Turnover 6.00 14.24 14.05 n.a
Accounts Payable Turnover 10.64 12.17 12.17 n.a
Payment Days 27 27 29 n.a
Total Asset Turnover 2.26 2.16 2.19 n.a
Debt Ratios
Debt to Net Worth 2.86 1.46 0.98 n.a
Current Liab. to Liab. 0.12 0.15 0.18 n.a
Liquidity Ratios
Net Working Capital $79,888 $103,167 $119,795 n.a
Interest Coverage 5.21 5.87 5.25 n.a
Additional Ratios
Assets to Sales 0.44 0.46 0.46 n.a
Current Debt/Total Assets 9% 9% 9% n.a
Acid Test 5.05 5.72 6.30 n.a
Sales/Net Worth 8.74 5.31 4.35 n.a
Dividend Payout 0.00 0.00 0.00 n.a
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $311,000 $343,000 $378,000
Direct Cost of Sales $87,000 $95,000 $101,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $87,000 $95,000 $101,000
Gross Margin $224,000 $248,000 $277,000
Gross Margin % 72.03% 72.30% 73.28%
Expenses
Payroll $120,000 $136,000 $166,000
Sales and Marketing and Other Expenses $18,000 $23,000 $28,000
Depreciation $4,284 $4,284 $4,284
Leased Equipment $0 $0 $0
Utilities $2,400 $2,400 $2,400
Insurance $0 $0 $0
Rent $12,000 $12,000 $12,000
Payroll Taxes $18,000 $20,400 $24,900
Other $0 $0 $0
Total Operating Expenses $174,684 $198,084 $237,584
Profit Before Interest and Taxes $49,316 $49,916 $39,416
EBITDA $53,600 $54,200 $43,700
Interest Expense $9,459 $8,501 $7,501
Taxes Incurred $11,957 $12,425 $9,575
Net Profit $27,900 $28,991 $22,341
Net Profit/Sales 8.97% 8.45% 5.91%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $77,750 $85,750 $94,500
Cash from Receivables $207,375 $254,588 $280,588
Subtotal Cash from Operations $285,125 $340,338 $375,088
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 $5,000 $0 $0
Subtotal Cash Received $290,125 $340,338 $375,088
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $120,000 $136,000 $166,000
Bill Payments $113,424 $171,757 $184,870
Subtotal Spent on Operations $233,424 $307,757 $350,870
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 $9,996 $9,996 $9,996
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $243,420 $317,753 $360,866
Net Cash Flow $46,705 $22,585 $14,222
Cash Balance $59,405 $81,990 $96,212
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $59,405 $81,990 $96,212
Accounts Receivable $25,875 $28,537 $31,449
Inventory $6,380 $6,967 $7,407
Other Current Assets $0 $0 $0
Total Current Assets $91,660 $117,494 $135,068
Long-term Assets
Long-term Assets $50,000 $50,000 $50,000
Accumulated Depreciation $4,284 $8,568 $12,852
Total Long-term Assets $45,716 $41,432 $37,148
Total Assets $137,376 $158,926 $172,216
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $11,772 $14,327 $15,273
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $11,772 $14,327 $15,273
Long-term Liabilities $90,004 $80,008 $70,012
Total Liabilities $101,776 $94,335 $85,285
Paid-in Capital $65,000 $65,000 $65,000
Retained Earnings ($57,300) ($29,400) ($409)
Earnings $27,900 $28,991 $22,341
Total Capital $35,600 $64,591 $86,931
Total Liabilities and Capital $137,376 $158,926 $172,216
Net Worth $35,600 $64,591 $86,931