The financial plan contains these essential factors:
A growth rate of 20% in sales for the year 2005, to total in excess of $379,000 in total revenues.
Average in sales per business day (305 days per year) in excess of $900.00.
Difficulties and Risks
Slow sales resulting in less-than projected cash flow.
Overly aggressive and debilitating actions by competitors.
A parallel entry by a new competitor.
Sluggish economic conditions.
7.1 Important Assumptions
The following critical assumptions will determine the potential for future success.
A healthy economy that supports moderate growth in our market.
Low operating expenses, particularly in the area of buying plants that could be grown on-site.
General Assumptions
Year 1
Year 2
Year 3
Plan Month
1
2
3
Current Interest Rate
9.00%
9.00%
9.00%
Long-term Interest Rate
7.00%
7.00%
7.00%
Tax Rate
25.42%
25.00%
25.42%
Other
0
0
0
7.2 Break-even Analysis
The following chart and table summarize our break-even analysis. Our fixed costs will be approximately $14,800 per month at the onset and we expect to reach the break-even point in the third year of operation.
Break-even Analysis
Monthly Revenue Break-even
$29,767
Assumptions:
Average Percent Variable Cost
50%
Estimated Monthly Fixed Cost
$14,883
7.3 Projected Profit and Loss
The following represents the projected profit and loss for Rose Petal Nursery based, on sales and expenses, for 2004 and beyond. We are anticipating a steady increase in sales through July. Business is expected to slow during the autumn and winter.
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
$316,000
$379,200
$455,040
Direct Cost of Sales
$158,000
$189,600
$227,520
Other Costs of Goods
$0
$0
$0
Total Cost of Sales
$158,000
$189,600
$227,520
Gross Margin
$158,000
$189,600
$227,520
Gross Margin %
50.00%
50.00%
50.00%
Expenses
Payroll
$136,000
$157,000
$169,000
Sales and Marketing and Other Expenses
$6,000
$5,000
$5,000
Depreciation
$0
$0
$0
Rent
$12,000
$0
$0
Utilities
$3,600
$4,000
$4,000
Insurance
$600
$700
$800
Payroll Taxes
$20,400
$23,550
$25,350
Total Operating Expenses
$178,600
$190,250
$204,150
Profit Before Interest and Taxes
($20,600)
($650)
$23,370
EBITDA
($20,600)
($650)
$23,370
Interest Expense
$0
$0
$0
Taxes Incurred
$0
$0
$5,940
Net Profit
($20,600)
($650)
$17,430
Net Profit/Sales
-6.52%
-0.17%
3.83%
7.4 Projected Cash Flow
The cash flow projections are outlined below. These projections are based on our basic assumptions with revenue generation factors carrying the most significant weight regarding the outcome. We are anticipating that we will have a steadily increasing cash flow as the business continues to grow.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Cash Received
Cash from Operations
Cash Sales
$79,000
$94,800
$113,760
Cash from Receivables
$217,825
$280,565
$336,678
Subtotal Cash from Operations
$296,825
$375,365
$450,438
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
$5,000
$0
$0
Subtotal Cash Received
$301,825
$375,365
$450,438
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations
Cash Spending
$136,000
$157,000
$169,000
Bill Payments
$171,632
$215,464
$266,541
Subtotal Spent on Operations
$307,632
$372,464
$435,541
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
$307,632
$372,464
$435,541
Net Cash Flow
($5,807)
$2,901
$14,897
Cash Balance
$14,193
$17,094
$31,991
7.5 Projected Balance Sheet
Rose Petal Nursery's balance sheet is outlined below.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Assets
Current Assets
Cash
$14,193
$17,094
$31,991
Accounts Receivable
$19,175
$23,010
$27,612
Inventory
$7,150
$8,580
$10,296
Other Current Assets
$0
$0
$0
Total Current Assets
$40,518
$48,684
$69,899
Long-term Assets
Long-term Assets
$12,000
$12,000
$12,000
Accumulated Depreciation
$0
$0
$0
Total Long-term Assets
$12,000
$12,000
$12,000
Total Assets
$52,518
$60,684
$81,899
Liabilities and Capital
Year 1
Year 2
Year 3
Current Liabilities
Accounts Payable
$9,618
$18,434
$22,219
Current Borrowing
$0
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$9,618
$18,434
$22,219
Long-term Liabilities
$0
$0
$0
Total Liabilities
$9,618
$18,434
$22,219
Paid-in Capital
$105,000
$105,000
$105,000
Retained Earnings
($41,500)
($62,100)
($62,750)
Earnings
($20,600)
($650)
$17,430
Total Capital
$42,900
$42,250
$59,680
Total Liabilities and Capital
$52,518
$60,684
$81,899
Net Worth
$42,900
$42,250
$59,680
7.6 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) Code 5193.02, Flowers and Nursery Stock are shown for comparison.
The following will enable us to keep on track. If we fail in any of these areas, we will need to re-evaluate our business model:
Gross margins at or above 50%.
Month-to-month annual comparisons indicate an increase of 15% or greater.
Do not depend on a credit line to meet cash requirements.
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