Bluespa

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Cosmetics Manufacturing Business Plan

Financial Plan

Bluespa will become profitable in our third year of operation. Initial growth will be financed by a combination of equity investment and debt financing. Our ratios are well within prudent limits and our growth plans are challenging, but realistic. The tables in this section explain the detail behind our financing plan and our growth plans.

7.1 Important Assumptions

Our assumptions are detailed in the proceeding tables. We have planned for relatively slow but stable general economic growth and an interest rate on borrowing of 9.5%. Because our business is a combination of retail and wholesale our collection days may look somewhat optimistic. That is caused by our assumption that approximately 70% of our retail sales will be done on credit cards and debit cards. There is a three-day payment lag on these sales. We assumed that wholesale customers would pay on an average of 50 days and that in year one 60% of our business would be on terms. As we develop our customer base (at wholesale) this number is ramped up to 80% by year five. (Our terms will be C.O.D. on all opening orders.) Our payments to vendors are assumed at 45 days.

General Assumptions
Year 1 Year 2 Year 3 Year 4 Year 5
Plan Month 1 2 3 4 5
Current Interest Rate 9.50% 9.50% 9.50% 9.50% 9.50%
Long-term Interest Rate 9.00% 9.00% 9.00% 9.00% 9.00%
Tax Rate 0.00% 0.00% 0.00% 0.00% 0.00%
Other 0 0 0 0 0

7.2 Key Financial Indicators

This topic compares five key indicators in regards to how much they change over time. The indicators include sales, gross margin, operating expenses, inventory turnover, and collection days. We chose these five indicators because they all have real impact on the health of a business. We focus not on gross amounts as much as changes. The chart actually shows changes on a year-to-year basis, rather than gross amounts. For example, growing sales from $1 million to $2 million shows up exactly the same in the chart as growing sales from $20,000 to $40,000. That would also show up the same as increasing gross margin from 20% to 40%, or increasing collection days from 30 to 60, or increasing inventory turnover from four to eight. The chart uses indicator values that are set to compare changes with the base year showing up as 1.00 and all other years showing up as multiples from the base.

The indicator value is a good way to compare different concepts on the same chart. Sales and operating expenses are measured in gross amounts, gross margin is in percentage terms, collection days are in days (how many days do you wait to get the money), and inventory turnover is in turns per year (cost of goods sold divided by average inventory).

7.3 Break-even Analysis

Our break-even analysis is based upon 2001 planned expenses. We have included all operating expenses in fixed expenses. As the business grows this number will be updated. We consider it an important factor in our business and expense planning.

Break-even Analysis
Monthly Revenue Break-even $56,505
Assumptions:
Average Percent Variable Cost 31%
Estimated Monthly Fixed Cost $38,872

7.4 Projected Profit and Loss

Bluespa is expected to reach profitability in year three. Certain expenses in the early years may appear outside the accepted ranges (i.e. marketing) as a % of sales. This is a result of our strategy to bring the brand to prominence in five years and should be considered as a start-up cost. Likewise, our initial salary numbers and staffing reflect our growth plan rather than a stable or mature business. Our margin numbers may appear high. This is the result of a combined retail and wholesale strategy. Our retail stores and catalogue will calculate margin from first cost rather than wholesale. Our wholesale effort will not receive sales credit for internal sales (this reflects a more accurate picture of retail profitability and of wholesale growth). Our margins are projected lower in years two and three to account for promotions to wholesalers intended to assist in reaching our wholesale sales targets. In years four and five, margins move up again as the number of retail stores increases and the catalogue comes online. As the retail business overtakes the wholesale business we believe maintained margins can exceed median. Wholesale commissions are calculated at a straight percent of sales. We have assumed a continuation of outside sales management in these tables.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $470,301 $3,737,500 $10,033,500 $19,219,100 $38,803,942
Direct Cost of Sales $146,760 $1,324,375 $3,548,375 $6,754,775 $13,600,986
Production Payroll $28,830 $82,000 $109,000 $137,000 $146,000
Ecommerce & Catalog Production & Fulfillment $0 $125,000 $500,000 $900,000 $1,600,000
Total Cost of Sales $175,590 $1,531,375 $4,157,375 $7,791,775 $15,346,986
Gross Margin $294,711 $2,206,125 $5,876,125 $11,427,325 $23,456,957
Gross Margin % 62.66% 59.03% 58.57% 59.46% 60.45%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $56,134 $150,604 $347,208 $656,416 $967,624
Advertising/Promotion Retail $9,832 $19,500 $41,340 $88,764 $192,158
Advertising/Promotion Brand $80,000 $250,000 $500,000 $1,000,000 $2,000,000
Travel & Enterntainment $16,192 $74,750 $200,670 $384,382 $776,079
Selling Supplies $4,703 $37,375 $100,335 $192,191 $388,039
Wholesale Commissions $26,940 $360,000 $960,000 $1,800,000 $3,600,000
Total Sales and Marketing Expenses $193,801 $892,229 $2,149,553 $4,121,753 $7,923,900
Sales and Marketing % 41.21% 23.87% 21.42% 21.45% 20.42%
General and Administrative Expenses
General and Administrative Payroll $172,747 $640,000 $905,000 $1,020,500 $1,122,550
Depreciation $14,166 $37,170 $73,740 $146,880 $220,015
Leased Equipment $16,200 $21,600 $36,000 $50,400 $79,200
Utilities $1,820 $13,081 $35,117 $67,267 $135,814
Insurance $2,351 $7,475 $20,067 $38,438 $77,608
Bad Debt $1,327 $37,375 $100,335 $192,191 $388,039
Legal Fees $1,412 $7,475 $20,067 $28,829 $58,206
Licenses & Permits $471 $3,738 $10,034 $9,610 $19,402
Office Supplies $2,351 $18,688 $50,168 $96,096 $194,020
Telephone $1,819 $13,081 $35,117 $67,267 $135,814
Taxes/non-income tax $7,054 $56,063 $150,503 $288,287 $582,059
Payroll Taxes $38,657 $142,141 $224,281 $294,197 $359,747
Other General and Administrative Expenses $12,290 $24,375 $51,675 $110,955 $2,400,197
Total General and Administrative Expenses $272,665 $1,022,262 $1,712,104 $2,410,917 $5,772,671
General and Administrative % 57.98% 27.35% 17.06% 12.54% 14.88%
Creative Expenses:
Creative Payroll $0 $75,000 $134,000 $147,400 $162,140
Consultants $0 $0 $0 $0 $0
Contract/Consultants $0 $74,750 $200,670 $384,382 $388,039
Total Creative Expenses $0 $149,750 $334,670 $531,782 $550,179
Creative % 0.00% 4.01% 3.34% 2.77% 1.42%
Total Operating Expenses $466,466 $2,064,241 $4,196,327 $7,064,452 $14,246,750
Profit Before Interest and Taxes ($171,755) $141,884 $1,679,798 $4,362,873 $9,210,206
EBITDA ($157,589) $179,054 $1,753,538 $4,509,753 $9,430,221
Interest Expense $10,490 $2,375 $0 $0 $0
Taxes Incurred $0 $0 $0 $0 $0
Net Profit ($182,244) $139,509 $1,679,798 $4,362,873 $9,210,206
Net Profit/Sales -38.75% 3.73% 16.74% 22.70% 23.74%

7.5 Projected Cash Flow

Our cash flow projections are shown on the following table. Cash flow after capital expenditures and investment varies between positive and negative, depending upon our rate of expansion and increasing accounts receivable.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $247,196 $747,500 $2,006,700 $4,228,202 $8,924,907
Cash from Receivables $75,398 $1,158,168 $4,692,171 $10,380,295 $20,022,298
Subtotal Cash from Operations $322,594 $1,905,668 $6,698,871 $14,608,497 $28,947,205
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $100,000 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $1,500,000 $1,200,000 $1,500,000 $1,500,000 $0
Subtotal Cash Received $1,922,594 $3,105,668 $8,198,871 $16,108,497 $28,947,205
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $257,711 $947,604 $1,495,208 $1,961,316 $2,398,314
Bill Payments $283,496 $2,571,646 $6,645,289 $12,562,468 $26,443,599
Subtotal Spent on Operations $541,207 $3,519,250 $8,140,497 $14,523,784 $28,841,913
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $150,000 $50,000 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0
Purchase Other Current Assets $50,000 $0 $0 $0 $0
Purchase Long-term Assets $192,873 $242,846 $465,692 $806,384 $851,384
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $934,080 $3,812,096 $8,606,189 $15,330,168 $29,693,297
Net Cash Flow $988,514 ($706,428) ($407,318) $778,329 ($746,092)
Cash Balance $1,128,514 $422,086 $14,769 $793,098 $47,005

7.6 Projected Balance Sheet

The following table is our balance sheet projection through 2005.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $1,128,514 $422,086 $14,769 $793,098 $47,005
Accounts Receivable $147,707 $1,979,539 $5,314,168 $9,924,770 $19,781,508
Inventory $43,140 $127,473 $341,537 $654,211 $1,320,871
Other Current Assets $50,000 $50,000 $50,000 $50,000 $50,000
Total Current Assets $1,369,361 $2,579,098 $5,720,473 $11,422,079 $21,199,384
Long-term Assets
Long-term Assets $257,873 $500,719 $966,411 $1,772,795 $2,624,179
Accumulated Depreciation $14,166 $51,336 $125,076 $271,956 $491,971
Total Long-term Assets $243,707 $449,383 $841,335 $1,500,839 $2,132,208
Total Assets $1,613,068 $3,028,481 $6,561,808 $12,922,918 $23,331,592
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $95,813 $221,716 $575,245 $1,073,483 $2,271,951
Current Borrowing $50,000 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $145,813 $221,716 $575,245 $1,073,483 $2,271,951
Long-term Liabilities $0 $0 $0 $0 $0
Total Liabilities $145,813 $221,716 $575,245 $1,073,483 $2,271,951
Paid-in Capital $1,820,000 $3,020,000 $4,520,000 $6,020,000 $6,020,000
Retained Earnings ($170,500) ($352,744) ($213,235) $1,466,563 $5,829,435
Earnings ($182,244) $139,509 $1,679,798 $4,362,873 $9,210,206
Total Capital $1,467,256 $2,806,765 $5,986,563 $11,849,435 $21,059,642
Total Liabilities and Capital $1,613,068 $3,028,481 $6,561,808 $12,922,918 $23,331,592
Net Worth $1,467,256 $2,806,765 $5,986,563 $11,849,435 $21,059,642

7.7 Business Ratios

The following table outlines our ratios in several key areas. These are compared with the Industry profile average ratios as determined by for the Toilet Preparation Manufacturing industry, NAICS code 325620. One of our key objectives is to generate an acceptable return on shareholder equity and assets. 

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth 0.00% 694.70% 168.45% 91.55% 101.90% 10.59%
Percent of Total Assets
Accounts Receivable 9.16% 65.36% 80.99% 76.80% 84.78% 27.07%
Inventory 2.67% 4.21% 5.20% 5.06% 5.66% 25.40%
Other Current Assets 3.10% 1.65% 0.76% 0.39% 0.21% 24.02%
Total Current Assets 84.89% 85.16% 87.18% 88.39% 90.86% 76.49%
Long-term Assets 15.11% 14.84% 12.82% 11.61% 9.14% 23.51%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 9.04% 7.32% 8.77% 8.31% 9.74% 28.36%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 25.69%
Total Liabilities 9.04% 7.32% 8.77% 8.31% 9.74% 54.05%
Net Worth 90.96% 92.68% 91.23% 91.69% 90.26% 45.95%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 62.66% 59.03% 58.57% 59.46% 60.45% 35.83%
Selling, General & Administrative Expenses 101.41% 55.29% 41.82% 36.76% 36.71% 19.94%
Advertising Expenses 2.09% 0.52% 0.41% 0.46% 0.50% 4.44%
Profit Before Interest and Taxes -36.52% 3.80% 16.74% 22.70% 23.74% 3.15%
Main Ratios
Current 9.39 11.63 9.94 10.64 9.33 2.17
Quick 9.10 11.06 9.35 10.03 8.75 1.10
Total Debt to Total Assets 9.04% 7.32% 8.77% 8.31% 9.74% 58.41%
Pre-tax Return on Net Worth -12.42% 4.97% 28.06% 36.82% 43.73% 8.60%
Pre-tax Return on Assets -11.30% 4.61% 25.60% 33.76% 39.48% 3.58%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin -38.75% 3.73% 16.74% 22.70% 23.74% n.a
Return on Equity -12.42% 4.97% 28.06% 36.82% 43.73% n.a
Activity Ratios
Accounts Receivable Turnover 1.51 1.51 1.51 1.51 1.51 n.a
Collection Days 50 130 166 186 181 n.a
Inventory Turnover 3.93 15.52 15.13 13.57 13.77 n.a
Accounts Payable Turnover 3.96 12.17 12.17 12.17 12.17 n.a
Payment Days 27 21 21 23 22 n.a
Total Asset Turnover 0.29 1.23 1.53 1.49 1.66 n.a
Debt Ratios
Debt to Net Worth 0.10 0.08 0.10 0.09 0.11 n.a
Current Liab. to Liab. 1.00 1.00 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $1,223,549 $2,357,382 $5,145,228 $10,348,596 $18,927,434 n.a
Interest Coverage -16.37 59.74 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 3.43 0.81 0.65 0.67 0.60 n.a
Current Debt/Total Assets 9% 7% 9% 8% 10% n.a
Acid Test 8.08 2.13 0.11 0.79 0.04 n.a
Sales/Net Worth 0.32 1.33 1.68 1.62 1.84 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a

7.8 Long-term Plan

Bluespa will show the company growing to a multi-billion dollar a year distributor of high quality natural skin-care products and related fitness apparel for women. We will begin life as a wholesale company with a retail component and evolve to a retail company with a wholesale component within our first ten years. Our public offering in year five will provide the funding to launch a retail roll out that will take us to 500 stores in the following five years, expand our e-commerce program and grow our catalogue distribution. It will allow us to begin development of new product lines that complement Bluespa and further define our image. We will move to worldwide distribution. Once the brand has been established it will have significant cache with the Asian market and our European manufacturing ties will provide us a logical place in that market. Bluespa will become one of the most recognized brands in quality skin care and related products for the active female consumer.