Seacliff Products

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Fishing Equipment Business Plan

Financial Plan

The financial plan will require outside sources of funds. It is hoped that this amount can be obtained from the SBA. Seacliff has already succeeded in attracting significant private funding through the sale of common stock. This source of funds is still attractive due to the exciting features of the patent. It is assumed that the necessary funding will be found, and that it will be repaid in the first year.

7.1 Break-even Analysis

In the first year of operations, monthly expenses are projected to include interest expenses on initial borrowing. Although some sales will certainly come via Seacliff's website at close to the suggested retail price of $129.95, for purposes of determining the break-even point we have assumed that all kits will be sold through the full distribution channel (representative, wholesaler, retailer).

The break-even chart shows the number kits needed to be sold each month to cover all variable and fixed costs. If we capitalize start-up costs (see section 2.2, Start-up Summary) and amortize them over five years and then added this to monthly fixed costs the break-even point would increase kits per month sold.

Break-even Analysis
Monthly Units Break-even 286
Monthly Revenue Break-even $14,280
Assumptions:
Average Per-Unit Revenue $50.00
Average Per-Unit Variable Cost $26.48
Estimated Monthly Fixed Cost $6,717

7.2 Important Assumptions

Although there is likely to be sales of replacement items from the kits, such as barbs, epoxy, etc. (see price list in the appendix) these items have been ignored in this business plan for projection purposes. The following table outlines the basic assumptions of Seacliff.

**appendix were not available for this sample plan.

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 24.96% 24.50% 24.96%
Other 0 0 0

7.3 Business Ratios

The following table outlines the important ratios of the sports and athletic goods manufacturing industry, as described in the Standard Industry Classification (SIC) Index, 3949.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 49.57% 27.79% -0.74%
Percent of Total Assets
Inventory 2.44% 2.76% 2.86% 28.00%
Other Current Assets 0.00% 0.00% 0.00% 24.40%
Total Current Assets 22.39% 34.20% 45.72% 76.79%
Long-term Assets 77.61% 65.80% 54.28% 23.21%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 2.83% 3.39% 3.48% 30.18%
Long-term Liabilities 16.08% 13.66% 11.29% 19.10%
Total Liabilities 18.92% 17.05% 14.77% 49.28%
Net Worth 81.08% 82.95% 85.23% 50.72%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 47.04% 52.71% 53.70% 36.97%
Selling, General & Administrative Expenses 32.34% 29.03% 27.51% 21.82%
Advertising Expenses 2.85% 1.29% 1.01% 1.40%
Profit Before Interest and Taxes 21.20% 31.37% 34.68% 2.71%
Main Ratios
Current 7.91 10.09 13.14 2.23
Quick 7.05 9.27 12.32 1.14
Total Debt to Total Assets 18.92% 17.05% 14.77% 53.80%
Pre-tax Return on Net Worth 11.14% 22.47% 26.08% 4.60%
Pre-tax Return on Assets 9.03% 18.63% 22.23% 9.97%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 13.51% 22.07% 24.77% n.a
Return on Equity 8.36% 16.96% 19.57% n.a
Activity Ratios
Inventory Turnover 8.65 12.48 12.13 n.a
Accounts Payable Turnover 10.09 12.17 12.17 n.a
Payment Days 27 26 27 n.a
Total Asset Turnover 0.50 0.64 0.67 n.a
Debt Ratios
Debt to Net Worth 0.23 0.21 0.17 n.a
Current Liab. to Liab. 0.15 0.20 0.24 n.a
Liquidity Ratios
Net Working Capital $121,588 $225,466 $374,082 n.a
Interest Coverage 6.62 14.64 20.68 n.a
Additional Ratios
Assets to Sales 1.99 1.57 1.49 n.a
Current Debt/Total Assets 3% 3% 3% n.a
Acid Test 7.05 9.27 12.32 n.a
Sales/Net Worth 0.62 0.77 0.79 n.a
Dividend Payout 0.00 0.00 0.00 n.a

7.4 Projected Profit and Loss

Because virtually all aspects of the production of the kits are being subcontracted, the ongoing monthly expenses are relatively small.

  • Advertising and Promotion: The main focus is to try to get as much free publicity as possible. Once a licensee has been located to market the Supreme, sales of the kits will benefit from the advertising and promotional efforts of the licensee. However, some point-of-sale advertising is likely to be needed (assume $500 monthly). An extra $400 will be needed to join the ASA in January 2001, and to participate in the ASA trade show in July will require an additional $2,500.
  • Travel: Travel to trade shows, with the connected hotel and meal expenses, we estimate at $600 monthly.
  • Miscellaneous: We will allot $200 per month to cover any unexpected expenses.
  • Depreciation: The only fixed assets that will be depreciated are minor pieces of office equipment which will be depreciated over three years at $75 per month. The larger fixed asset (patent number 6,038,806) of $480,000 will not depreciate.
  • Utilities: Utilities are basically telephone, heat, and Internet connection. Assume $200 monthly in year one, increasing to $300 in years two and three.
  • Insurance: Standard business liability insurance should be arranged. Assume $1,200 yearly.
  • Rent: Free office space is available in premises owned by a family member.
  • Consultants: A provision is being made to cover periodic review and updating of the business plan. Assume $2,400 annually.
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $312,000 $466,650 $596,350
Direct Cost of Sales $165,235 $220,658 $276,107
Other $0 $0 $0
Total Cost of Sales $165,235 $220,658 $276,107
Gross Margin $146,765 $245,992 $320,243
Gross Margin % 47.04% 52.71% 53.70%
Expenses
Payroll $48,000 $66,000 $78,000
Sales and Marketing and Other Expenses $20,900 $18,000 $18,000
Depreciation $908 $908 $908
Leased Equipment $0 $0 $0
Utilities $2,400 $3,600 $3,600
Insurance $1,200 $1,200 $1,200
Rent $0 $0 $0
Payroll Taxes $7,200 $9,900 $11,700
Other $0 $0 $0
Total Operating Expenses $80,608 $99,608 $113,408
Profit Before Interest and Taxes $66,157 $146,384 $206,835
EBITDA $67,065 $147,292 $207,743
Interest Expense $10,000 $10,000 $10,000
Taxes Incurred $14,007 $33,414 $49,127
Net Profit $42,150 $102,970 $147,708
Net Profit/Sales 13.51% 22.07% 24.77%

7.5 Projected Cash Flow

The initial borrowing will be repaid monthly, beginning in the third month.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $312,000 $466,650 $596,350
Subtotal Cash from Operations $312,000 $466,650 $596,350
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 $312,000 $466,650 $596,350
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $48,000 $66,000 $78,000
Bill Payments $159,957 $294,644 $368,819
Subtotal Spent on Operations $207,957 $360,644 $446,819
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 $207,957 $360,644 $446,819
Net Cash Flow $104,043 $106,006 $149,531
Cash Balance $124,043 $230,049 $379,579

7.6 Projected Balance Sheet

The annual figures for the Pprojected Balance Sheet are presented below. First year monthlies are available in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $124,043 $230,049 $379,579
Inventory $15,147 $20,227 $25,310
Other Current Assets $0 $0 $0
Total Current Assets $139,189 $250,276 $404,889
Long-term Assets
Long-term Assets $483,425 $483,425 $483,425
Accumulated Depreciation $908 $1,816 $2,724
Total Long-term Assets $482,517 $481,609 $480,701
Total Assets $621,706 $731,885 $885,590
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $17,602 $24,810 $30,807
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $17,602 $24,810 $30,807
Long-term Liabilities $100,000 $100,000 $100,000
Total Liabilities $117,602 $124,810 $130,807
Paid-in Capital $545,205 $545,205 $545,205
Retained Earnings ($83,250) ($41,100) $61,870
Earnings $42,150 $102,970 $147,708
Total Capital $504,105 $607,075 $754,783
Total Liabilities and Capital $621,706 $731,885 $885,590
Net Worth $504,105 $607,075 $754,783