West Pacific Marketing

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Global Marketing Business Plan

Financial Plan

The financial picture is quite encouraging. West Pacific Marketing Consultants does not foresee a debt situation.

The company does expect to be able to take some money out as dividends. The owners don't take overly generous salaries, so some draw is appropriate.

7.1 Important Assumptions

The accompanying table lists West Pacific Marketing Consultants' main assumptions for developing its financial projections. The most sensitive assumption is the collection days. West Pacific Marketing Consultants would like to improve collection days to take pressure off of its working capital.

General Assumptions
2001 2002 2003 2004 2005
Plan Month 1 2 3 4 5
Current Interest Rate 9.00% 9.00% 9.00% 9.00% 9.00%
Long-term Interest Rate 9.00% 9.00% 9.00% 9.00% 9.00%
Tax Rate 25.00% 25.00% 25.00% 25.00% 25.00%
Other 0 0 0 0 0

7.2 Business Ratios

The following table presents significant business ratios for West Pacific Marketing Consultants. The last column, Industry Profiles, contains ratios based on the management consulting services industry, as defined by the Standard Industry Classification (SIC) Index code 8742.

Ratio Analysis
2001 2002 2003 2004 2005 Industry Profile
Sales Growth 9.76% 20.00% 20.00% 20.00% 20.00% 8.60%
Percent of Total Assets
Accounts Receivable 9.13% 6.82% 5.61% 4.86% 4.36% 24.40%
Other Current Assets 0.00% 0.00% 0.00% 0.00% 0.00% 46.70%
Total Current Assets 93.28% 95.82% 97.14% 97.93% 98.45% 74.90%
Long-term Assets 6.72% 4.18% 2.86% 2.07% 1.55% 25.10%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 3.75% 2.92% 2.40% 2.09% 1.88% 42.80%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 17.20%
Total Liabilities 3.75% 2.92% 2.40% 2.09% 1.88% 60.00%
Net Worth 96.25% 97.08% 97.60% 97.91% 98.12% 40.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 80.18% 80.18% 80.18% 80.18% 80.18% 0.00%
Selling, General & Administrative Expenses 36.08% 35.14% 34.28% 33.49% 32.77% 83.50%
Advertising Expenses 1.27% 1.27% 1.27% 1.27% 1.27% 1.20%
Profit Before Interest and Taxes 58.80% 60.05% 61.20% 62.25% 63.21% 2.60%
Main Ratios
Current 24.86 32.86 40.41 46.87 52.42 1.59
Quick 24.86 32.86 40.41 46.87 52.42 1.26
Total Debt to Total Assets 3.75% 2.92% 2.40% 2.09% 1.88% 60.00%
Pre-tax Return on Net Worth 67.44% 51.02% 42.51% 37.35% 33.93% 4.40%
Pre-tax Return on Assets 64.91% 49.54% 41.49% 36.57% 33.29% 10.90%
Additional Ratios 2001 2002 2003 2004 2005
Net Profit Margin 44.10% 45.04% 45.90% 46.69% 47.41% n.a
Return on Equity 50.58% 38.27% 31.88% 28.01% 25.45% n.a
Activity Ratios
Accounts Receivable Turnover 6.04 6.04 6.04 6.04 6.04 n.a
Collection Days 59 55 55 55 55 n.a
Accounts Payable Turnover 12.61 12.17 12.17 12.17 12.17 n.a
Payment Days 27 27 27 27 27 n.a
Total Asset Turnover 1.10 0.82 0.68 0.59 0.53 n.a
Debt Ratios
Debt to Net Worth 0.04 0.03 0.02 0.02 0.02 n.a
Current Liab. to Liab. 1.00 1.00 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $1,686,804 $2,810,931 $4,185,741 $5,863,735 $7,908,464 n.a
Interest Coverage 0.00 0.00 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.91 1.21 1.48 1.70 1.90 n.a
Current Debt/Total Assets 4% 3% 2% 2% 2% n.a
Acid Test 22.42 30.52 38.08 44.54 50.10 n.a
Sales/Net Worth 1.15 0.85 0.69 0.60 0.54 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a

7.3 Break-even Analysis

The following chart and table summarize the break-even analysis, including monthly units and sales break-even points.

Break-even Analysis
Monthly Revenue Break-even $46,214
Assumptions:
Average Percent Variable Cost 20%
Estimated Monthly Fixed Cost $37,053

7.4 Projected Profit and Loss

The detailed monthly pro-forma income statement for the first year is included in the appendix. The annual estimates are included here.

Pro Forma Profit and Loss
2001 2002 2003 2004 2005
Sales $2,080,000 $2,496,000 $2,995,200 $3,594,240 $4,313,088
Direct Cost of Sales $412,320 $494,784 $593,651 $712,489 $854,983
Other $0 $0 $0 $0 $0
Total Cost of Sales $412,320 $494,784 $593,651 $712,489 $854,983
Gross Margin $1,667,680 $2,001,216 $2,401,549 $2,881,751 $3,458,105
Gross Margin % 80.18% 80.18% 80.18% 80.18% 80.18%
Expenses
Payroll $271,200 $298,320 $328,152 $360,967 $397,064
Sales and Marketing and Other Expenses $85,000 $102,000 $122,320 $146,784 $176,141
Depreciation $0 $0 $0 $0 $0
Leased Equipment $0 $0 $0 $0 $0
Utilities $7,200 $8,640 $10,368 $12,442 $14,930
Insurance $2,160 $2,592 $3,110 $3,732 $4,479
Office Rent $38,400 $46,080 $55,296 $66,355 $79,626
Payroll Taxes $40,680 $44,748 $49,223 $54,145 $59,560
Other $0 $0 $0 $0 $0
Total Operating Expenses $444,640 $502,380 $568,469 $644,426 $731,799
Profit Before Interest and Taxes $1,223,040 $1,498,836 $1,833,080 $2,237,325 $2,726,306
EBITDA $1,223,040 $1,498,836 $1,833,080 $2,237,325 $2,726,306
Interest Expense $0 $0 $0 $0 $0
Taxes Incurred $305,760 $374,709 $458,270 $559,331 $681,576
Net Profit $917,280 $1,124,127 $1,374,810 $1,677,994 $2,044,729
Net Profit/Sales 44.10% 45.04% 45.90% 46.69% 47.41%

7.5 Projected Cash Flow

Cash flow projections are critical to West Pacific Marketing Consultants' success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month and the other representing the monthly balance. The annual cash flow figures are included below in the following chart and table. Detailed monthly numbers are included in the appendix.

Pro Forma Cash Flow
2001 2002 2003 2004 2005
Cash Received
Cash from Operations
Cash Sales $1,040,000 $1,248,000 $1,497,600 $1,797,120 $2,156,544
Cash from Receivables $986,355 $1,213,583 $1,456,300 $1,747,560 $2,097,072
Subtotal Cash from Operations $2,026,355 $2,461,583 $2,953,900 $3,544,680 $4,253,616
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0
Subtotal Cash Received $2,026,355 $2,461,583 $2,953,900 $3,544,680 $4,253,616
Expenditures 2001 2002 2003 2004 2005
Expenditures from Operations
Cash Spending $271,200 $298,320 $328,152 $360,967 $397,064
Bill Payments $825,811 $1,056,025 $1,274,264 $1,533,659 $1,845,321
Subtotal Spent on Operations $1,097,011 $1,354,345 $1,602,416 $1,894,626 $2,242,385
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0
Purchase Other Current Assets $0 $0 $0 $0 $0
Purchase Long-term Assets $0 $0 $0 $0 $0
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $1,097,011 $1,354,345 $1,602,416 $1,894,626 $2,242,385
Net Cash Flow $929,344 $1,107,238 $1,351,484 $1,650,054 $2,011,231
Cash Balance $1,585,430 $2,692,668 $4,044,152 $5,694,206 $7,705,437

7.6 Projected Balance Sheet

The following balance sheet shows healthy growth of net worth, and strong financial position. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
2001 2002 2003 2004 2005
Assets
Current Assets
Cash $1,585,430 $2,692,668 $4,044,152 $5,694,206 $7,705,437
Accounts Receivable $172,083 $206,500 $247,800 $297,360 $356,832
Other Current Assets $0 $0 $0 $0 $0
Total Current Assets $1,757,513 $2,899,168 $4,291,952 $5,991,566 $8,062,269
Long-term Assets
Long-term Assets $126,588 $126,588 $126,588 $126,588 $126,588
Accumulated Depreciation $0 $0 $0 $0 $0
Total Long-term Assets $126,588 $126,588 $126,588 $126,588 $126,588
Total Assets $1,884,101 $3,025,756 $4,418,540 $6,118,154 $8,188,857
Liabilities and Capital 2001 2002 2003 2004 2005
Current Liabilities
Accounts Payable $70,709 $88,237 $106,211 $127,831 $153,805
Current Borrowing $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $70,709 $88,237 $106,211 $127,831 $153,805
Long-term Liabilities $0 $0 $0 $0 $0
Total Liabilities $70,709 $88,237 $106,211 $127,831 $153,805
Paid-in Capital $37,800 $37,800 $37,800 $37,800 $37,800
Retained Earnings $858,312 $1,775,592 $2,899,719 $4,274,528 $5,952,522
Earnings $917,280 $1,124,127 $1,374,810 $1,677,994 $2,044,729
Total Capital $1,813,392 $2,937,519 $4,312,328 $5,990,322 $8,035,052
Total Liabilities and Capital $1,884,101 $3,025,756 $4,418,540 $6,118,154 $8,188,857
Net Worth $1,813,392 $2,937,519 $4,312,328 $5,990,322 $8,035,052