Mirabile Dictu Advertising

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Display Case Marketing Business Plan

Financial Plan

The plan of Mirabile Dictu is based on conservative estimates and assumptions.  While the firm shows strong financials, the capital investment is needed to make the financials work.

7.1 Start-up Funding

Mirabile Dictu Advertising, LLC start-up costs are detailed above, in the Start-up Table.  The following table shows how these start-up costs will be funded by owner and investor capital.

Start-up Funding
Start-up Expenses to Fund $52,000
Start-up Assets to Fund $103,000
Total Funding Required $155,000
Assets
Non-cash Assets from Start-up $0
Cash Requirements from Start-up $103,000
Additional Cash Raised $145,000
Cash Balance on Starting Date $248,000
Total Assets $248,000
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $0
Capital
Planned Investment
Bossard $50,000
Hearndon $50,000
Investor $200,000
Additional Investment Requirement $0
Total Planned Investment $300,000
Loss at Start-up (Start-up Expenses) ($52,000)
Total Capital $248,000
Total Capital and Liabilities $248,000
Total Funding $300,000

7.2 The Investment Offering

Mirabile Dictu is offering up to 40% ownership of the company to one outside investor/owner with an investment of a minimum $200,000 in investment capital.  This owner/investor will share in the annual dividends.  Mirabile Dictu Advertising, LLC will be created as a Nebraska LLC based in Creighton County, owned by its principal operators and sole principal investor. 

Investment Offering
Proposed Year: 2005 2006 2007 2010
Valuation, Investment, Shares
Investment Amount $200,000 $0 $0
Equity Share Offering Percentage 40.00% 0.00% 0.00%
Valuation $500,000 $0 $0 $3,500,000
Investor Exit Payout $1,400,000 $0 $0
Investor Years Until Exit 5 4 3
Investor IRR 47.58% 0.00% 0.00%
Share Ownership Year 2005 Year 2006 Year 2007 Year 2010
Founders' Shares 200,000 200,000 200,000 200,000
Stock Split Multiple 0 0 0
Stock Options Issued 0 0 0 0
Investor Shares Issued 133,333 0 0
Price per share $1.50 $0.00 $0.00 $10.50
Options Holders' Shares 0 0 0 0
Year 2005 Investors' Shares 133,333 133,333 133,333 133,333
Year 2006 Investors' Shares 0 0 0
Year 2007 Investors' Shares 0 0
Total Shares Outstanding 333,333 333,333 333,333 333,333
Equity Ownership Percentage Year 2005 Year 2006 Year 2007 Year 2010
Founders' Equity 60.00% 60.00% 60.00% 60.00%
Option Holders' Equity 0.00% 0.00% 0.00% 0.00%
Year 2005 Investors' Equity 40.00% 40.00% 40.00% 40.00%
Year 2006 Investors' Equity 0.00% 0.00% 0.00%
Year 2007 Investors' Equity 0.00% 0.00%
Total Equity 100.00% 100.00% 100.00% 100.00%
Investors' Equity 40.00% 40.00% 40.00% 40.00%
Founders' & Employees' Equity 60.00% 60.00% 60.00% 60.00%

7.3 Important Assumptions

  • We are assuming steady growth from good management, barring any unforseen local, or national disasters such as the economic slowdown seen by most of the country following the September 11th, 2001 tragedies.
  • We are assuming adequate infusion of owner/investor funding to sustain the firm during start-up.
  • The owner/investor will be making a capital investment for a percentage of the firm and will receive annual dividend payments.

7.4 Break-even Analysis

The Break-even Analysis is based on the average of the first-year figures for total sales by promotion, and by operating expenses.  These are presented as verage percent variable cost, estimated monthly fixed costs, and monthly revenue break-even.  These conservative assumptions make for a more accurate estimate of real risk.

Break-even Analysis
Monthly Revenue Break-even $83,600
Assumptions:
Average Percent Variable Cost 50%
Estimated Monthly Fixed Cost $41,800

7.5 Projected Profit and Loss

Projected annual estimates of cumulative Profit and Loss of the firm are included here.  The detailed monthly pro-forma income statement for the first year is included in the appendix. 

The total "Direct Cost of Sales" as Advertising Printing and Distribution costs is estimated at 50% of revenue.  There is no risk in assuming these costs without having sufficient revenue on-hand to cover expenses.

Marketing Expenses are estimated at 10% of sales revenue or less.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $1,300,000 $2,550,000 $3,400,000
Direct Cost of Sales $650,000 $1,275,000 $1,700,000
Other Costs of Sales $0 $0 $0
Total Cost of Sales $650,000 $1,275,000 $1,700,000
Gross Margin $650,000 $1,275,000 $1,700,000
Gross Margin % 50.00% 50.00% 50.00%
Expenses
Payroll $332,000 $390,000 $475,000
Marketing/Promotion $130,000 $255,000 $340,000
Depreciation $0 $0 $0
Rent $9,000 $66,000 $66,000
Utilities $3,600 $4,000 $4,000
Insurance $3,000 $4,500 $6,000
Payroll Taxes $0 $0 $0
Travel $24,000 $35,000 $45,000
Total Operating Expenses $501,600 $754,500 $936,000
Profit Before Interest and Taxes $148,400 $520,500 $764,000
EBITDA $148,400 $520,500 $764,000
Interest Expense $0 $0 $0
Taxes Incurred $0 $0 $0
Net Profit $148,400 $520,500 $764,000
Net Profit/Sales 11.42% 20.41% 22.47%

7.6 Projected Cash Flow

The cash flow projection shows that provisions for ongoing expenses are adequate to meet the needs of the firm as the business generates sufficient cash flow to support operations.  Clients pay within 60 day after their promotion.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $1,040,000 $2,300,000 $3,230,000
Subtotal Cash from Operations $1,040,000 $2,300,000 $3,230,000
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 $1,040,000 $2,300,000 $3,230,000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $332,000 $390,000 $475,000
Bill Payments $657,110 $1,532,483 $2,075,274
Subtotal Spent on Operations $989,110 $1,922,483 $2,550,274
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 $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $30,000 $100,000 $200,000
Subtotal Cash Spent $1,019,110 $2,022,483 $2,750,274
Net Cash Flow $20,890 $277,517 $479,726
Cash Balance $268,890 $546,407 $1,026,133

7.7 Projected Balance Sheet

The balance sheet shows healthy growth of net worth, and strong financial position.  The monthly estimates are included in the appendix. 

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $268,890 $546,407 $1,026,133
Accounts Receivable $260,000 $510,000 $680,000
Other Current Assets $0 $0 $0
Total Current Assets $528,890 $1,056,407 $1,706,133
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $528,890 $1,056,407 $1,706,133
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $162,490 $269,507 $355,233
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $162,490 $269,507 $355,233
Long-term Liabilities $0 $0 $0
Total Liabilities $162,490 $269,507 $355,233
Paid-in Capital $300,000 $300,000 $300,000
Retained Earnings ($82,000) ($33,600) $286,900
Earnings $148,400 $520,500 $764,000
Total Capital $366,400 $786,900 $1,350,900
Total Liabilities and Capital $528,890 $1,056,407 $1,706,133
Net Worth $366,400 $786,900 $1,350,900

7.8 Business Ratios

The company's projected business ratios are provided in the table below.  The final column, Industry Profile, shows significant ratios for the Sales and Promotions Industry, as determined by the Standard Industry Classification (SIC) code 8743.9904.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 96.15% 33.33% 6.42%
Percent of Total Assets
Accounts Receivable 49.16% 48.28% 39.86% 22.51%
Other Current Assets 0.00% 0.00% 0.00% 48.43%
Total Current Assets 100.00% 100.00% 100.00% 73.42%
Long-term Assets 0.00% 0.00% 0.00% 26.58%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 30.72% 25.51% 20.82% 26.78%
Long-term Liabilities 0.00% 0.00% 0.00% 13.27%
Total Liabilities 30.72% 25.51% 20.82% 40.05%
Net Worth 69.28% 74.49% 79.18% 59.95%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 50.00% 50.00% 50.00% 100.00%
Selling, General & Administrative Expenses 38.58% 29.59% 27.53% 80.13%
Advertising Expenses 0.00% 0.00% 0.00% 1.19%
Profit Before Interest and Taxes 11.42% 20.41% 22.47% 2.46%
Main Ratios
Current 3.25 3.92 4.80 2.06
Quick 3.25 3.92 4.80 1.71
Total Debt to Total Assets 30.72% 25.51% 20.82% 52.88%
Pre-tax Return on Net Worth 40.50% 66.15% 56.55% 5.19%
Pre-tax Return on Assets 28.06% 49.27% 44.78% 11.01%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 11.42% 20.41% 22.47% n.a
Return on Equity 40.50% 66.15% 56.55% n.a
Activity Ratios
Accounts Receivable Turnover 5.00 5.00 5.00 n.a
Collection Days 54 55 64 n.a
Accounts Payable Turnover 5.04 6.08 6.08 n.a
Payment Days 50 48 53 n.a
Total Asset Turnover 2.46 2.41 1.99 n.a
Debt Ratios
Debt to Net Worth 0.44 0.34 0.26 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $366,400 $786,900 $1,350,900 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.41 0.41 0.50 n.a
Current Debt/Total Assets 31% 26% 21% n.a
Acid Test 1.65 2.03 2.89 n.a
Sales/Net Worth 3.55 3.24 2.52 n.a
Dividend Payout 0.20 0.19 0.26 n.a

7.9 Use of Funds

The table below briefly outlines the intended uses for the funds acquired through investment.  The Start-up expenses are listed in more detail in the Start-up table.  The largest portion is earmarked to cover operations expenses for the first few months as the company gains market share and contracts, and builds accounts receivable.  The delay between invoicing of AR and the receipt of the Accounts Payables creates a cash flow lag which this investment cash reserve will cover.

Use of Funds
Use Amount
Start-up Expenses $52,000
Working Capital Reserves $103,000
Establish Office Space (Month 6+) $15,000
Computer and Data/Communications Additions $30,000
Total $200,000

7.10 Payback

As the table below shows, the initial owner/investor will find that the payback period on that investment will be three years. Our desire is to find an investor who recognizes the potential for long-term gain, again, as shown in the table, and is willing to keep their investment in Mirabile Dictu for at least three additional years. 

Payback
Projected Payback Calculation
Investment Year 1 Year 2 Year 3 Year 4 Year 5
Investment $500,000
Cash Returns by Year $100,000 $100,000 $100,000 $100,000 $100,000
Combination as Income Stream ($500,000) $100,000 $100,000 $100,000 $100,000 $100,000
Cumulative Net Cash Flow to Investors ($500,000) ($400,000) ($300,000) ($200,000) ($100,000) $0
Payback Period 5 years

7.11 Exit Strategy

The principal owners of Mirabile Dictu Advertising, founders McKenzie Bossard and Fernando Hearndon, believe in their business model, and in their experience-based view of the future.  They foresee the business growing steadily for many years, and plan to be active participants in the business.  By the end of year six the original principal investor will have been repaid several times over.

At that time, they envision several of their employees becoming full partners with concomitant investment.  If our original investor wishes to exit the company, this will be the time.