Environmental Engines

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Environmental Car Dealership Business Plan

Financial Plan

Environmental Engines Toyota Honda GM is expected to grow in sales at a rate of 20% per month, starting from the conservative estimate of six cars sold. The financing will come initially from the executive board, allowing plenty of opportunity for credit to cover unforeseen expenses, if necessary. Growth will be rapid and produce profits almost immediately.

Profits will initially be repaid to the business to finance any overhead costs related to purchasing inventory and to pay down the principal on outstanding debt, then to the rapidly expanding photovoltaic recharging station and mechanic's garage, then to pay off the initial investments.

Inventory will be purchased in advance to stock the showroom floor and to outfit every executive, sales person, and mechanic with a zero emissions vehicle to drive around town at their own cost. Their savings earned by investing in a zero emissions vehicle will spread by word-of-mouth, attract more customers, and bolster future growth at the same high rate of 20%.

8.1 Important Assumptions

Environmental Engines Toyota Honda GM has made some important assumptions about the costs of building business capacity and acquiring inventory. We will build our business capacity steadily based on the assumption of roughly $175,000 in annual payroll, 10% current and long-term interest rates, a 30% tax rate, and an available inventory totaling $9,616,733. Assuming demand does not outstrip supply, these conservative assumptions project immediate success for Environmental Engines Toyota Honda GM.

While we are prepared for our manufacturers to release new products during the next 12 months, drastic increases in the price of inventory could threaten the stability of our business. Such fluctuations would only be threatening if they were industry-wide (i.e., Toyota, Honda and GM all doubled the dealer's wholesale cost of purchasing inventory.) Barring monopolistic manipulations of the supply of inventory, success is just around the corner.

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

8.2 Break-even Analysis

For our break-even analysis, we assume normal monthly running costs per month, as shown below, which include our full payroll, lease, marketing, utilities, and an estimation of other running expences. Payroll alone, at our present run rate, is only about $48,000 for two mechanics while all sales staff operate on commission.

Margins are harder to assume as the average per unit costs do not include marketing costs, promotions, or salesman commissions. Our overall average per unit revenue over per unit costs is based on past sales from other dealerships. We hope to attain a margin that high in the future.

The chart shows what we need to sell per month to break-even, according to these assumptions. This is less than one percent of our planned 2003 sales level, and significantly below last year's average dealership sales level, so we believe we can maintain it.

Break-even Analysis
Monthly Revenue Break-even $203,450
Assumptions:
Average Percent Variable Cost 80%
Estimated Monthly Fixed Cost $40,690

8.3 Projected Profit and Loss

Environmental Engines Toyota Honda GM anticipates a heady monthly increase in sales starting small (selling 6 cars in the first month). The gross margin within the first year will be modest, rising in the second and third year.

Key budget items will include salary, rent, sales and marketing expenses, utilities (including costs of photovoltaic cell maintenance), insurance, taxes and licensing.

Net profits will reach outstanding levels in the first year, escalating in the second and the third year! All of these profits can then be fed back into research and development opening the doorway to a secondary market role for Environmental Engines Toyota Honda GM as a patent holding company and clearing house.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $10,093,028 $12,111,634 $14,533,960
Direct Cost of Sales $8,074,422 $8,478,144 $10,173,772
Sales Commission $504,651 $605,582 $726,698
Total Cost of Sales $8,579,074 $9,083,725 $10,900,470
Gross Margin $1,513,954 $3,027,908 $3,633,490
Gross Margin % 15.00% 25.00% 25.00%
Expenses
Payroll $175,200 $194,640 $227,532
Sales and Marketing and Other Expenses $180,000 $189,000 $198,450
Depreciation $14,400 $14,400 $14,400
Rent $60,000 $60,000 $60,000
Utilities (Including costs of photovoltaic cell maintenance) $18,000 $18,900 $19,845
Insurance $2,400 $2,400 $2,400
Payroll Taxes $26,280 $29,196 $34,130
Licensing $12,000 $12,000 $12,000
Total Operating Expenses $488,280 $520,536 $568,757
Profit Before Interest and Taxes $1,025,674 $2,507,372 $3,064,733
EBITDA $1,040,074 $2,521,772 $3,079,133
Interest Expense $304,500 $224,000 $140,000
Taxes Incurred $216,352 $685,012 $877,420
Net Profit $504,822 $1,598,361 $2,047,313
Net Profit/Sales 5.00% 13.20% 14.09%

8.4 Projected Cash Flow

This table and chart show our exciting month-by-month cash flow for the next three years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $2,523,257 $3,027,908 $3,633,490
Cash from Receivables $5,004,070 $8,570,585 $10,284,702
Subtotal Cash from Operations $7,527,327 $11,598,494 $13,918,192
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 $7,527,327 $11,598,494 $13,918,192
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $175,200 $194,640 $227,532
Bill Payments $9,005,828 $11,468,912 $12,413,432
Subtotal Spent on Operations $9,181,028 $11,663,552 $12,640,964
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $360,000 $360,000 $360,000
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $480,000 $480,000 $480,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $10,021,028 $12,503,552 $13,480,964
Net Cash Flow ($2,493,701) ($905,058) $437,228
Cash Balance $1,116,349 $211,291 $648,518

8.5 Projected Balance Sheet

The Balance Sheet includes all assets, liabilities, and capital of Environmental Engines Toyota Honda GM.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $1,116,349 $211,291 $648,518
Accounts Receivable $2,565,701 $3,078,841 $3,694,609
Inventory $1,667,311 $1,750,676 $2,100,812
Other Current Assets $189,500 $189,500 $189,500
Total Current Assets $5,538,860 $5,230,308 $6,633,439
Long-term Assets
Long-term Assets $440,000 $440,000 $440,000
Accumulated Depreciation $14,400 $28,800 $43,200
Total Long-term Assets $425,600 $411,200 $396,800
Total Assets $5,964,460 $5,641,508 $7,030,239
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $1,935,088 $853,775 $1,035,193
Current Borrowing $1,640,000 $1,280,000 $920,000
Other Current Liabilities $178,000 $178,000 $178,000
Subtotal Current Liabilities $3,753,088 $2,311,775 $2,133,193
Long-term Liabilities $1,020,000 $540,000 $60,000
Total Liabilities $4,773,088 $2,851,775 $2,193,193
Paid-in Capital $1,500,000 $1,500,000 $1,500,000
Retained Earnings ($813,450) ($308,628) $1,289,733
Earnings $504,822 $1,598,361 $2,047,313
Total Capital $1,191,372 $2,789,733 $4,837,046
Total Liabilities and Capital $5,964,460 $5,641,508 $7,030,239
Net Worth $1,191,372 $2,789,733 $4,837,046

8.6 Business Ratios

The business ratios table is based on accurate research of a collection of standard business ratios for a zero emissions car dealership specializing in hybrid and electric vehicles. Our projections for this niche market are compared to a collection of standard business ratios for other auto sales industries.

The variance between our ratios and those of other auto sales industries is a function of the exact nature of Environmental Engines Toyota Honda GM.

  • Where market saturation has stifled our competitors' sales growth, our sales growth reaches respecatable levels after the first year because this is a pre-boom market. Environmental Engines Toyota Honda GM is an industry-pioneer in an auto sales market that is about to experience tremendous growth.
  • Where our accounts receivable seem high relative to our competitors, we have targeted the younger generation as one of our key growth markets and have calculated a high ratio of sales on credit accordingly.
  • Our inventory will remain low, overcoming a weakness of other auto sales companies because we emphasize customized vehicle design, ensuring each vehicle satisfies every customer and limiting our overhead in inventory.

Each of these values are acceptable, and in fact, preferable to the ratios demonstrated by industry competitors.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 20.00% 20.00% 6.06%
Percent of Total Assets
Accounts Receivable 43.02% 54.57% 52.55% 14.27%
Inventory 27.95% 31.03% 29.88% 62.82%
Other Current Assets 3.18% 3.36% 2.70% 14.66%
Total Current Assets 92.86% 92.71% 94.36% 91.75%
Long-term Assets 7.14% 7.29% 5.64% 8.25%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 62.92% 40.98% 30.34% 40.75%
Long-term Liabilities 17.10% 9.57% 0.85% 8.35%
Total Liabilities 80.03% 50.55% 31.20% 49.10%
Net Worth 19.97% 49.45% 68.80% 50.90%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 15.00% 25.00% 25.00% 7.81%
Selling, General & Administrative Expenses 9.86% 11.49% 10.48% 3.80%
Advertising Expenses 0.00% 0.00% 0.00% 0.93%
Profit Before Interest and Taxes 10.16% 20.70% 21.09% 0.31%
Main Ratios
Current 1.48 2.26 3.11 2.16
Quick 1.03 1.51 2.12 0.56
Total Debt to Total Assets 80.03% 50.55% 31.20% 52.00%
Pre-tax Return on Net Worth 60.53% 81.85% 60.47% 2.74%
Pre-tax Return on Assets 12.09% 40.47% 41.60% 5.70%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 5.00% 13.20% 14.09% n.a
Return on Equity 42.37% 57.29% 42.33% n.a
Activity Ratios
Accounts Receivable Turnover 2.95 2.95 2.95 n.a
Collection Days 54 113 113 n.a
Inventory Turnover 10.91 4.96 5.28 n.a
Accounts Payable Turnover 5.65 12.17 12.17 n.a
Payment Days 27 49 27 n.a
Total Asset Turnover 1.69 2.15 2.07 n.a
Debt Ratios
Debt to Net Worth 4.01 1.02 0.45 n.a
Current Liab. to Liab. 0.79 0.81 0.97 n.a
Liquidity Ratios
Net Working Capital $1,785,772 $2,918,533 $4,500,246 n.a
Interest Coverage 3.37 11.19 21.89 n.a
Additional Ratios
Assets to Sales 0.59 0.47 0.48 n.a
Current Debt/Total Assets 63% 41% 30% n.a
Acid Test 0.35 0.17 0.39 n.a
Sales/Net Worth 8.47 4.34 3.00 n.a
Dividend Payout 0.00 0.00 0.00 n.a