Direct Mail Business Plan

Arrow Mail

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Financial Plan

The following is the financial plan for Arrow Mail.

7.1 Break-even Analysis

The monthly break-even point is approximately $38,400.

Break-even Analysis
Monthly Revenue Break-even $38,493
Assumptions:
Average Percent Variable Cost 4%
Estimated Monthly Fixed Cost $37,030

7.2 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 $538,000 $667,000 $811,000
Direct Cost of Sales $20,450 $59,000 $76,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $20,450 $59,000 $76,000
Gross Margin $517,550 $608,000 $735,000
Gross Margin % 96.20% 91.15% 90.63%
Expenses
Payroll $338,400 $388,000 $481,000
Sales and Marketing and Other Expenses $12,000 $8,000 $10,000
Depreciation $0 $0 $0
Leased Equipment $0 $0 $0
Utilities $7,200 $3,300 $3,300
Insurance $0 $0 $0
Rent $36,000 $18,000 $18,000
Payroll Taxes $50,760 $58,200 $72,150
Other $0 $0 $0
Total Operating Expenses $444,360 $475,500 $584,450
Profit Before Interest and Taxes $73,190 $132,500 $150,550
EBITDA $73,190 $132,500 $150,550
Interest Expense $11,460 $9,620 $7,700
Taxes Incurred $18,519 $36,864 $42,855
Net Profit $43,211 $86,016 $99,995
Net Profit/Sales 8.03% 12.90% 12.33%

7.3 Projected Cash Flow

The following table and chart highlights the projected cash flow for three years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $538,000 $667,000 $811,000
Subtotal Cash from Operations $538,000 $667,000 $811,000
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 $538,000 $667,000 $811,000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $338,400 $388,000 $481,000
Bill Payments $127,662 $210,258 $229,789
Subtotal Spent on Operations $466,062 $598,258 $710,789
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 $19,200 $19,200 $19,200
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $485,262 $617,458 $729,989
Net Cash Flow $52,738 $49,542 $81,011
Cash Balance $205,338 $254,880 $335,891

7.4 Projected Balance Sheet

The following table highlights the projected balance sheet for three years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $205,338 $254,880 $335,891
Inventory $3,080 $8,886 $11,446
Other Current Assets $0 $0 $0
Total Current Assets $208,418 $263,766 $347,337
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $208,418 $263,766 $347,337
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $27,807 $16,339 $19,115
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $27,807 $16,339 $19,115
Long-term Liabilities $105,800 $86,600 $67,400
Total Liabilities $133,607 $102,939 $86,515
Paid-in Capital $205,000 $205,000 $205,000
Retained Earnings ($173,400) ($130,189) ($44,173)
Earnings $43,211 $86,016 $99,995
Total Capital $74,811 $160,827 $260,822
Total Liabilities and Capital $208,418 $263,766 $347,337
Net Worth $74,811 $160,827 $260,822

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 8748, Business Consulting, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 23.98% 21.59% 12.40%
Percent of Total Assets
Inventory 1.48% 3.37% 3.30% 3.70%
Other Current Assets 0.00% 0.00% 0.00% 44.70%
Total Current Assets 100.00% 100.00% 100.00% 74.50%
Long-term Assets 0.00% 0.00% 0.00% 25.50%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 13.34% 6.19% 5.50% 44.30%
Long-term Liabilities 50.76% 32.83% 19.40% 16.00%
Total Liabilities 64.11% 39.03% 24.91% 60.30%
Net Worth 35.89% 60.97% 75.09% 39.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 96.20% 91.15% 90.63% 0.00%
Selling, General & Administrative Expenses 89.10% 78.51% 78.51% 80.80%
Advertising Expenses 2.23% 1.20% 1.23% 1.30%
Profit Before Interest and Taxes 13.60% 19.87% 18.56% 2.20%
Main Ratios
Current 7.50 16.14 18.17 1.75
Quick 7.38 15.60 17.57 1.38
Total Debt to Total Assets 64.11% 39.03% 24.91% 60.30%
Pre-tax Return on Net Worth 82.51% 76.41% 54.77% 3.80%
Pre-tax Return on Assets 29.62% 46.59% 41.13% 9.70%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 8.03% 12.90% 12.33% n.a
Return on Equity 57.76% 53.48% 38.34% n.a
Activity Ratios
Inventory Turnover 7.38 9.86 7.48 n.a
Accounts Payable Turnover 5.59 12.17 12.17 n.a
Payment Days 33 41 28 n.a
Total Asset Turnover 2.58 2.53 2.33 n.a
Debt Ratios
Debt to Net Worth 1.79 0.64 0.33 n.a
Current Liab. to Liab. 0.21 0.16 0.22 n.a
Liquidity Ratios
Net Working Capital $180,611 $247,427 $328,222 n.a
Interest Coverage 6.39 13.77 19.55 n.a
Additional Ratios
Assets to Sales 0.39 0.40 0.43 n.a
Current Debt/Total Assets 13% 6% 6% n.a
Acid Test 7.38 15.60 17.57 n.a
Sales/Net Worth 7.19 4.15 3.11 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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Break-even Analysis
Monthly Revenue Break-even $38,493
Assumptions:
Average Percent Variable Cost 4%
Estimated Monthly Fixed Cost $37,030
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $538,000 $667,000 $811,000
Direct Cost of Sales $20,450 $59,000 $76,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $20,450 $59,000 $76,000
Gross Margin $517,550 $608,000 $735,000
Gross Margin % 96.20% 91.15% 90.63%
Expenses
Payroll $338,400 $388,000 $481,000
Sales and Marketing and Other Expenses $12,000 $8,000 $10,000
Depreciation $0 $0 $0
Leased Equipment $0 $0 $0
Utilities $7,200 $3,300 $3,300
Insurance $0 $0 $0
Rent $36,000 $18,000 $18,000
Payroll Taxes $50,760 $58,200 $72,150
Other $0 $0 $0
Total Operating Expenses $444,360 $475,500 $584,450
Profit Before Interest and Taxes $73,190 $132,500 $150,550
EBITDA $73,190 $132,500 $150,550
Interest Expense $11,460 $9,620 $7,700
Taxes Incurred $18,519 $36,864 $42,855
Net Profit $43,211 $86,016 $99,995
Net Profit/Sales 8.03% 12.90% 12.33%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $538,000 $667,000 $811,000
Subtotal Cash from Operations $538,000 $667,000 $811,000
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 $538,000 $667,000 $811,000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $338,400 $388,000 $481,000
Bill Payments $127,662 $210,258 $229,789
Subtotal Spent on Operations $466,062 $598,258 $710,789
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 $19,200 $19,200 $19,200
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $485,262 $617,458 $729,989
Net Cash Flow $52,738 $49,542 $81,011
Cash Balance $205,338 $254,880 $335,891
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $205,338 $254,880 $335,891
Inventory $3,080 $8,886 $11,446
Other Current Assets $0 $0 $0
Total Current Assets $208,418 $263,766 $347,337
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $208,418 $263,766 $347,337
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $27,807 $16,339 $19,115
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $27,807 $16,339 $19,115
Long-term Liabilities $105,800 $86,600 $67,400
Total Liabilities $133,607 $102,939 $86,515
Paid-in Capital $205,000 $205,000 $205,000
Retained Earnings ($173,400) ($130,189) ($44,173)
Earnings $43,211 $86,016 $99,995
Total Capital $74,811 $160,827 $260,822
Total Liabilities and Capital $208,418 $263,766 $347,337
Net Worth $74,811 $160,827 $260,822
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 23.98% 21.59% 12.40%
Percent of Total Assets
Inventory 1.48% 3.37% 3.30% 3.70%
Other Current Assets 0.00% 0.00% 0.00% 44.70%
Total Current Assets 100.00% 100.00% 100.00% 74.50%
Long-term Assets 0.00% 0.00% 0.00% 25.50%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 13.34% 6.19% 5.50% 44.30%
Long-term Liabilities 50.76% 32.83% 19.40% 16.00%
Total Liabilities 64.11% 39.03% 24.91% 60.30%
Net Worth 35.89% 60.97% 75.09% 39.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 96.20% 91.15% 90.63% 0.00%
Selling, General & Administrative Expenses 89.10% 78.51% 78.51% 80.80%
Advertising Expenses 2.23% 1.20% 1.23% 1.30%
Profit Before Interest and Taxes 13.60% 19.87% 18.56% 2.20%
Main Ratios
Current 7.50 16.14 18.17 1.75
Quick 7.38 15.60 17.57 1.38
Total Debt to Total Assets 64.11% 39.03% 24.91% 60.30%
Pre-tax Return on Net Worth 82.51% 76.41% 54.77% 3.80%
Pre-tax Return on Assets 29.62% 46.59% 41.13% 9.70%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 8.03% 12.90% 12.33% n.a
Return on Equity 57.76% 53.48% 38.34% n.a
Activity Ratios
Inventory Turnover 7.38 9.86 7.48 n.a
Accounts Payable Turnover 5.59 12.17 12.17 n.a
Payment Days 33 41 28 n.a
Total Asset Turnover 2.58 2.53 2.33 n.a
Debt Ratios
Debt to Net Worth 1.79 0.64 0.33 n.a
Current Liab. to Liab. 0.21 0.16 0.22 n.a
Liquidity Ratios
Net Working Capital $180,611 $247,427 $328,222 n.a
Interest Coverage 6.39 13.77 19.55 n.a
Additional Ratios
Assets to Sales 0.39 0.40 0.43 n.a
Current Debt/Total Assets 13% 6% 6% n.a
Acid Test 7.38 15.60 17.57 n.a
Sales/Net Worth 7.19 4.15 3.11 n.a
Dividend Payout 0.00 0.00 0.00 n.a