Tucson Electronics

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Electronics Repair Shop Business Plan

Financial Plan

The following sections outline the financial plan for Tucson Electronics.

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

8.1 Break-even Analysis

The company's break-even analysis is based on an average company's running costs within this industry, including payroll, and its fixed costs for such things as rent, utilities, etc. As Tucson Electronics operates as a job-shop, with each task a unique, customized service, it is difficult to estimate revenue per unit and variable costs. The reader must understand that there is a high degree of variance within these estimates.

The reader will also note that the company is not expected to reach its break-even point until the last three months of sales of the first year.

Break-even Analysis
Monthly Revenue Break-even $17,844
Assumptions:
Average Percent Variable Cost 10%
Estimated Monthly Fixed Cost $16,059

8.2 Projected Profit and Loss

The following table and charts are the projected profit and loss for Tucson Electronics.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $197,950 $287,573 $308,566
Direct Cost of Sales $19,795 $36,000 $36,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $19,795 $36,000 $36,000
Gross Margin $178,155 $251,573 $272,566
Gross Margin % 90.00% 87.48% 88.33%
Expenses
Payroll $88,800 $135,000 $139,000
Sales and Marketing and Other Expenses $28,600 $36,000 $26,000
Depreciation $1,992 $2,000 $2,000
Leased Equipment $6,000 $2,000 $2,000
Utilities $4,800 $5,000 $5,000
Insurance $7,200 $7,400 $7,400
Rent $42,000 $44,000 $44,000
Payroll Taxes $13,320 $20,250 $20,850
Other $0 $0 $0
Total Operating Expenses $192,712 $251,650 $246,250
Profit Before Interest and Taxes ($14,557) ($77) $26,316
EBITDA ($12,565) $1,923 $28,316
Interest Expense $1,370 $1,000 $640
Taxes Incurred $0 $0 $7,703
Net Profit ($15,927) ($1,077) $17,973
Net Profit/Sales -8.05% -0.37% 5.82%

8.3 Projected Cash Flow

The following chart and table is the projected cash flow for Tucson Electronics.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $197,950 $287,573 $308,566
Subtotal Cash from Operations $197,950 $287,573 $308,566
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $1,000 $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 $3,000 $0
Subtotal Cash Received $198,950 $290,573 $308,566
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $88,800 $135,000 $139,000
Bill Payments $111,148 $153,016 $149,950
Subtotal Spent on Operations $199,948 $288,016 $288,950
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $1,000 $0 $0
Other Liabilities Principal Repayment $3,600 $3,600 $3,600
Long-term Liabilities Principal Repayment $3,600 $3,600 $3,600
Purchase Other Current Assets $0 $2,000 $3,000
Purchase Long-term Assets $0 $5,000 $5,000
Dividends $0 $0 $0
Subtotal Cash Spent $208,148 $302,216 $304,150
Net Cash Flow ($9,198) ($11,643) $4,416
Cash Balance $27,002 $15,359 $19,775

8.4 Projected Balance Sheet

The following table is the projected balance sheet for Tucson Electronics.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $27,002 $15,359 $19,775
Inventory $2,794 $5,081 $5,081
Other Current Assets $8,000 $10,000 $13,000
Total Current Assets $37,796 $30,440 $37,856
Long-term Assets
Long-term Assets $4,000 $9,000 $14,000
Accumulated Depreciation $1,992 $3,992 $5,992
Total Long-term Assets $2,008 $5,008 $8,008
Total Assets $39,804 $35,448 $45,864
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $11,731 $12,652 $12,295
Current Borrowing $0 $0 $0
Other Current Liabilities $10,000 $6,400 $2,800
Subtotal Current Liabilities $21,731 $19,052 $15,095
Long-term Liabilities $11,800 $8,200 $4,600
Total Liabilities $33,531 $27,252 $19,695
Paid-in Capital $48,500 $51,500 $51,500
Retained Earnings ($26,300) ($42,227) ($43,304)
Earnings ($15,927) ($1,077) $17,973
Total Capital $6,273 $8,196 $26,169
Total Liabilities and Capital $39,804 $35,448 $45,864
Net Worth $6,273 $8,196 $26,169

8.5 Business Ratios

The Business ratios give an overall idea of how profitable, and at what risk level, Tucson Electronics will operate at. The ratio table gives both time series analysis and cross-sectional analysis by including industry average ratios. Industry Profile ratios are based on Standard Industrial Classification (SIC) code 7622, Radio and Television Repair. As can be seen from the comparison between industry standards and Tucson Electronics own ratios, there are some differences. Most of these are due to the fact that there is a very large variance in assets, liabilities, financing, and net income between companies in this industry due to the vast differences in company size. The reader will also note that there is a fair amount of variability between the various years. This is due to the fact that the company is expected to grow quickly and have a large variance in profitability from year to year at first.

Overall the company's projections show a company that faces the usual risks of companies in this industry and one that will be profitable in the long-run. The company shows that it has higher advertising and start-up costs than other competitors, however management has deliberately overstated costs and minimized profits in order to create a "safe" or "buffer" zone in case of hard times or other unforeseeable problems. Pre-tax return on net worth and pre-tax return on assets appears to be very high, especially within the first two years, however again this is due to the fact that the company will be facing highly variable revenue and costs over the first few years.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 45.28% 7.30% 6.10%
Percent of Total Assets
Inventory 7.02% 14.33% 11.08% 19.00%
Other Current Assets 20.10% 28.21% 28.34% 27.50%
Total Current Assets 94.96% 85.87% 82.54% 76.90%
Long-term Assets 5.04% 14.13% 17.46% 23.10%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 54.59% 53.75% 32.91% 36.90%
Long-term Liabilities 29.65% 23.13% 10.03% 15.80%
Total Liabilities 84.24% 76.88% 42.94% 52.70%
Net Worth 15.76% 23.12% 57.06% 47.30%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 90.00% 87.48% 88.33% 0.00%
Selling, General & Administrative Expenses 97.70% 87.54% 82.32% 83.50%
Advertising Expenses 7.07% 8.69% 4.86% 0.50%
Profit Before Interest and Taxes -7.35% -0.03% 8.53% 3.10%
Main Ratios
Current 1.74 1.60 2.51 2.26
Quick 1.61 1.33 2.17 1.47
Total Debt to Total Assets 84.24% 76.88% 42.94% 52.70%
Pre-tax Return on Net Worth -253.90% -13.14% 98.12% 7.00%
Pre-tax Return on Assets -40.01% -3.04% 55.98% 14.70%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -8.05% -0.37% 5.82% n.a
Return on Equity -253.90% -13.14% 68.68% n.a
Activity Ratios
Inventory Turnover 10.71 9.14 7.08 n.a
Accounts Payable Turnover 10.47 12.17 12.17 n.a
Payment Days 27 29 30 n.a
Total Asset Turnover 4.97 8.11 6.73 n.a
Debt Ratios
Debt to Net Worth 5.35 3.33 0.75 n.a
Current Liab. to Liab. 0.65 0.70 0.77 n.a
Liquidity Ratios
Net Working Capital $16,065 $11,388 $22,761 n.a
Interest Coverage -10.63 -0.08 41.12 n.a
Additional Ratios
Assets to Sales 0.20 0.12 0.15 n.a
Current Debt/Total Assets 55% 54% 33% n.a
Acid Test 1.61 1.33 2.17 n.a
Sales/Net Worth 31.56 35.09 11.79 n.a
Dividend Payout 0.00 0.00 0.00 n.a