StructureAll Ltd.

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Engineering Consulting Business Plan

Financial Plan

The financial plan which follows summarizes information regarding the following items:

  • Important Assumptions.
  • Key Financial Indicators.
  • Break-Even Analysis.
  • Projected Profit and Loss.
  • Projected Cash Flow.
  • Projected Balance Sheet.
  • Business Ratios.

7.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendix.

Some of the more important underlying assumptions are:

  • We assume a strong economy, without major recession.
  • We assume the creation of Nunavut will not dramatically change the delivery of engineering services.
  • Interest rates, tax rates, and personnel burdens are based on conservative assumptions.
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

7.2 Key Financial Indicators

The following benchmark chart indicates our key financial indicators for the first three years. We foresee modest growth in sales and a marginal reduction in operating expenses for the years presented.

7.3 Break-even Analysis

The following table and chart summarize our break-even analysis. With our estimated monthly fixed costs, the table and chart below show the number of billing targets per month we will need to cover our costs. We don't really expect to reach break-even until a few months into the business operation.

The break-even assumes unit variable costs at 30 percent of unit revenue. The unit revenue value of $60/hour is an aggregate measure for all the types of services which will be offered.

Break-even Analysis
Monthly Units Break-even 111
Monthly Revenue Break-even $6,845
Assumptions:
Average Per-Unit Revenue $61.42
Average Per-Unit Variable Cost $18.43
Estimated Monthly Fixed Cost $4,792

7.4 Projected Profit and Loss

The gross margin for a service-based business is a reflection of the efficiency at which those services are offered. In the initial year of operations, we have targeted a high gross margin. This is not an unreasonable figure for a consulting business. For the second and third year of operations, we have targeted slightly increased gross margins to indicate overall improved efficiency at service delivery. Net Profit/Sales is determined to be modest the first year, again increasing slightly in the second year and the third year. In order to fulfill the requirements of the mission statement and simultaneously reduce start up costs, we have made arrangements to purchase software on quarterly repayment options:

  • Staad-Pro Core is a structural engineering design and drafting suite offered through Research Engineers Ltd. This program fulfills the need to carry out three-dimensional analysis and design requirements and is a key feature of the business plan. This program supports Canadian codes and standards. We have contacted the authorized Canadian reseller (Detech Corporation Ltd.) and will made arrangements to purchase this tool on four payments of $1,550 over the first year of operations.
  • Errors and Omissions Insurance is required for all consultants working on behalf of the Territorial Governments. Through Falconair Insurance, we have received a quotation of $1,200/year for this coverage. The first year's premium payments are included in the start-up costs, with subsequent years indicated at the same annual premium.
  • Website hosting fees are included as quarterly payments to Internic.com, the Web host. As part of this service, we will have at our disposal file transfer protocol capabilities. This feature permits us to place electronic media on the Internet for our clients and strategic allies.
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $117,680 $129,600 $180,000
Direct Cost of Sales $35,304 $32,400 $27,600
Other Costs of Sales $0 $0 $0
Total Cost of Sales $35,304 $32,400 $27,600
Gross Margin $82,376 $97,200 $152,400
Gross Margin % 70.00% 75.00% 84.67%
Expenses
Payroll $50,000 $60,000 $70,000
Marketing/Promotion $0 $0 $0
Depreciation $0 $0 $0
Website Hosting Fees $0 $0 $0
Engineering Assoc Annual Fees $0 $0 $0
Continuing Education $0 $0 $0
Yellow Pages/White Pages $0 $0 $0
Telephone/Fax $0 $0 $0
Software Purchases (Staad-Pro Core) $0 $0 $0
Utilities $0 $0 $0
Errors and Omissions Insurance $0 $0 $0
Rent $0 $0 $0
Payroll Taxes $7,500 $9,000 $10,500
Contract/Consultants $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $57,500 $69,000 $80,500
Profit Before Interest and Taxes $24,876 $28,200 $71,900
EBITDA $24,876 $28,200 $71,900
Interest Expense $0 $0 $0
Taxes Incurred $7,463 $8,460 $21,570
Net Profit $17,413 $19,740 $50,330
Net Profit/Sales 14.80% 15.23% 27.96%

7.5 Projected Cash Flow

Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month, and the other the monthly balance. The first few months are critical. It may be necessary to inject additional capital in this time-frame if the need arises. The annual cash flow figures are included here and the more important detailed monthly numbers are included in the appendix.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Subtotal Cash from Operations $97,541 $127,560 $171,375
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 $97,541 $127,560 $171,375
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $50,000 $60,000 $70,000
Bill Payments $46,161 $49,868 $58,864
Subtotal Spent on Operations $96,161 $109,868 $128,864
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 $0 $0 $0
Subtotal Cash Spent $96,161 $109,868 $128,864
Net Cash Flow $1,380 $17,692 $42,511
Cash Balance $13,380 $31,073 $73,584

7.6 Projected Balance Sheet

The balance sheet in the following table shows managed but sufficient growth of net worth and a sufficiently healthy financial position. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $13,380 $31,073 $73,584
Accounts Receivable $20,139 $22,179 $30,804
Other Current Assets $0 $0 $0
Total Current Assets $33,519 $53,251 $104,388
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $33,519 $53,251 $104,388
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $4,106 $4,098 $4,904
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $4,106 $4,098 $4,904
Long-term Liabilities $0 $0 $0
Total Liabilities $4,106 $4,098 $4,904
Paid-in Capital $25,000 $25,000 $25,000
Retained Earnings ($13,000) $4,413 $24,153
Earnings $17,413 $19,740 $50,330
Total Capital $29,413 $49,153 $99,483
Total Liabilities and Capital $33,519 $53,251 $104,388
Net Worth $29,413 $49,153 $99,483

7.7 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 8711, Engineering Services, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.13% 38.89% 8.20%
Percent of Total Assets
Accounts Receivable 60.08% 41.65% 29.51% 37.24%
Other Current Assets 0.00% 0.00% 0.00% 41.14%
Total Current Assets 100.00% 100.00% 100.00% 82.48%
Long-term Assets 0.00% 0.00% 0.00% 17.52%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 12.25% 7.70% 4.70% 35.91%
Long-term Liabilities 0.00% 0.00% 0.00% 11.35%
Total Liabilities 12.25% 7.70% 4.70% 47.26%
Net Worth 87.75% 92.30% 95.30% 52.74%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 70.00% 75.00% 84.67% 100.00%
Selling, General & Administrative Expenses 55.20% 59.77% 56.71% 73.63%
Advertising Expenses 0.00% 0.00% 0.00% 0.42%
Profit Before Interest and Taxes 21.14% 21.76% 39.94% 2.67%
Main Ratios
Current 8.16 12.99 21.28 1.76
Quick 8.16 12.99 21.28 1.40
Total Debt to Total Assets 12.25% 7.70% 4.70% 51.71%
Pre-tax Return on Net Worth 84.57% 57.37% 72.27% 11.13%
Pre-tax Return on Assets 74.21% 52.96% 68.88% 23.06%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 14.80% 15.23% 27.96% n.a
Return on Equity 59.20% 40.16% 50.59% n.a
Activity Ratios
Accounts Receivable Turnover 5.84 5.84 5.84 n.a
Collection Days 57 60 54 n.a
Accounts Payable Turnover 12.24 12.17 12.17 n.a
Payment Days 27 30 28 n.a
Total Asset Turnover 3.51 2.43 1.72 n.a
Debt Ratios
Debt to Net Worth 0.14 0.08 0.05 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $29,413 $49,153 $99,483 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.28 0.41 0.58 n.a
Current Debt/Total Assets 12% 8% 5% n.a
Acid Test 3.26 7.58 15.00 n.a
Sales/Net Worth 4.00 2.64 1.81 n.a
Dividend Payout 0.00 0.00 0.00 n.a