Grutzen Watches

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Export Watch Manufacturer Business Plan

Financial Plan

Growth will be supported by cash flow and owner investment. This will keep initial growth slow and manageable, and will allow the management to have complete control over the firm.

7.1 Important Assumptions

Grutzen's financial plan relies on several important assumptions - most of which are shown in the following table.

The key assumptions are:

  • Sufficient access to capital.
  • Steady economy without a major recession.
  • No unforeseen drastic technology changes.
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 9.00% 9.00% 9.00%
Tax Rate 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Key Financial Indicators

  • Keeping average collection days at 60 days or below is very important as this could become a major cause of cash flow problems for the first year.
  • Gross margins must remain above 55%.

7.3 Break-even Analysis

The Break-even Analysis chart and table show that if the costs stay at the current, or relatively stable, level Grutzen Watches will be able to make a steady profit by the second year.

Break-even Analysis
Monthly Revenue Break-even $74,602
Assumptions:
Average Percent Variable Cost 38%
Estimated Monthly Fixed Cost $45,909

7.4 Projected Profit and Loss

The following table and chart shows Grutzen's expectations for profit and loss. The company will begin to make a profit in its second year of operation.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $1,066,000 $1,307,000 $1,515,000
Direct Cost of Sales $410,000 $500,000 $610,000
Other $33,000 $38,000 $43,000
Total Cost of Sales $443,000 $538,000 $653,000
Gross Margin $623,000 $769,000 $862,000
Gross Margin % 58.44% 58.84% 56.90%
Expenses
Payroll $296,400 $323,000 $349,000
Sales and Marketing and Other Expenses $100,675 $112,900 $129,200
Depreciation $3,504 $3,500 $3,500
Leased Equipment $72,000 $80,000 $81,000
Utilities $6,325 $7,000 $8,000
Insurance $18,000 $21,000 $23,000
Rent $48,000 $51,000 $55,000
Other $6,000 $6,300 $6,500
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $550,904 $604,700 $655,200
Profit Before Interest and Taxes $72,096 $164,300 $206,800
EBITDA $75,600 $167,800 $210,300
Interest Expense $6,180 $2,810 $900
Taxes Incurred $16,480 $40,373 $52,333
Net Profit $49,437 $121,118 $153,567
Net Profit/Sales 4.64% 9.27% 10.14%

7.5 Projected Cash Flow

Cash flow will be managed with a revolving line of credit. We expect to borrow $41,000 in the first year to cover our receivables.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $533,000 $653,500 $757,500
Cash from Receivables $453,350 $635,493 $741,959
Subtotal Cash from Operations $986,350 $1,288,993 $1,499,459
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $41,000 $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 $0 $0
Subtotal Cash Received $1,027,350 $1,288,993 $1,499,459
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $296,400 $323,000 $349,000
Bill Payments $677,740 $849,960 $1,005,944
Subtotal Spent on Operations $974,140 $1,172,960 $1,354,944
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $40,000 $31,000 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $4,000 $4,000 $4,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $1,018,140 $1,207,960 $1,358,944
Net Cash Flow $9,210 $81,033 $140,515
Cash Balance $79,210 $160,243 $300,758

7.6 Projected Balance Sheet

As seen in the balance sheet, a strong growth in net worth is expected over the next three years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $79,210 $160,243 $300,758
Accounts Receivable $79,650 $97,657 $113,199
Inventory $35,200 $42,927 $52,371
Other Current Assets $5,000 $5,000 $5,000
Total Current Assets $199,060 $305,827 $471,327
Long-term Assets
Long-term Assets $35,000 $35,000 $35,000
Accumulated Depreciation $3,504 $7,004 $10,504
Total Long-term Assets $31,496 $27,996 $24,496
Total Assets $230,556 $333,823 $495,823
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $54,120 $71,269 $83,702
Current Borrowing $31,000 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $85,120 $71,269 $83,702
Long-term Liabilities $16,000 $12,000 $8,000
Total Liabilities $101,120 $83,269 $91,702
Paid-in Capital $171,000 $171,000 $171,000
Retained Earnings ($91,000) ($41,563) $79,554
Earnings $49,437 $121,118 $153,567
Total Capital $129,437 $250,554 $404,121
Total Liabilities and Capital $230,556 $333,823 $495,823
Net Worth $129,437 $250,554 $404,121

7.7 Business Ratios

Standard business ratios are provided in the following table. The ratios show a strong, yet safe growth. Industry Profile ratios are based on Standard Industrial Classification (SIC) Index code 3873.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 22.61% 15.91% 3.90%
Percent of Total Assets
Accounts Receivable 34.55% 29.25% 22.83% 27.20%
Inventory 15.27% 12.86% 10.56% 29.70%
Other Current Assets 2.17% 1.50% 1.01% 26.70%
Total Current Assets 86.34% 91.61% 95.06% 83.60%
Long-term Assets 13.66% 8.39% 4.94% 16.40%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 36.92% 21.35% 16.88% 36.30%
Long-term Liabilities 6.94% 3.59% 1.61% 19.00%
Total Liabilities 43.86% 24.94% 18.49% 55.30%
Net Worth 56.14% 75.06% 81.51% 44.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 58.44% 58.84% 56.90% 34.40%
Selling, General & Administrative Expenses 58.66% 54.01% 50.88% 23.80%
Advertising Expenses 3.38% 3.21% 3.17% 0.70%
Profit Before Interest and Taxes 6.76% 12.57% 13.65% 1.70%
Main Ratios
Current 2.34 4.29 5.63 2.42
Quick 1.93 3.69 5.01 1.31
Total Debt to Total Assets 43.86% 24.94% 18.49% 55.30%
Pre-tax Return on Net Worth 50.93% 64.45% 50.95% 2.10%
Pre-tax Return on Assets 28.59% 48.38% 41.53% 4.80%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 4.64% 9.27% 10.14% n.a
Return on Equity 38.19% 48.34% 38.00% n.a
Activity Ratios
Accounts Receivable Turnover 6.69 6.69 6.69 n.a
Collection Days 58 50 51 n.a
Inventory Turnover 10.91 12.80 12.80 n.a
Accounts Payable Turnover 13.43 12.17 12.17 n.a
Payment Days 27 26 28 n.a
Total Asset Turnover 4.62 3.92 3.06 n.a
Debt Ratios
Debt to Net Worth 0.78 0.33 0.23 n.a
Current Liab. to Liab. 0.84 0.86 0.91 n.a
Liquidity Ratios
Net Working Capital $113,941 $234,558 $387,625 n.a
Interest Coverage 11.67 58.47 229.78 n.a
Additional Ratios
Assets to Sales 0.22 0.26 0.33 n.a
Current Debt/Total Assets 37% 21% 17% n.a
Acid Test 0.99 2.32 3.65 n.a
Sales/Net Worth 8.24 5.22 3.75 n.a
Dividend Payout 0.00 0.00 0.00 n.a