RA Concepts

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Golf Club Manufacturer Business Plan

Financial Plan

We do not expect Cash flow to be a problem. Since initial sales (first 6 months) will not cover expenses, we have budgeted a cash reserve to take us through the first year, and have additional resources for short-term, no-interest loans if necessary.  We expect to generate a profit within the first six months, and even with this conservative forecast, we expect modest profits in the second year.

We plan to pace growth slowly at first until we have a larger, more stable cash balance. RA Concepts' growth is based on internal financial resources.

7.1 Important Assumptions

  • 100% of sales are on credit, with collection days for Receivables at 60.
  • Payment days for Accounts Payable at 30. 
  • No unforeseen changes in technology to make our products obsolete.
  • Only moderate increases or decreases in our raw material costs over time.
  • A 5% annual raise in prices, typical for the golfing industry.

Due to the initial limited production in comparison to the market size, RA Concepts assumes that even a slow-growth economy will not affect our plan for the next five years.

RA Concepts assumes no substantial increases in our material costs, given the recent history of those supplies. In addition, as we buy raw materials in greater quantities in years 2 and 3, we should start to see economies of scale.

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 6.00% 6.00% 6.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Break-even Analysis

RA Concepts' break-even analysis is based on the average of the first-year figures for total sales, costs, and operating expenses. Our variable cost here consists of inventory (raw materials). We expect to surpass the break-even point by July. 

Break-even Analysis
Monthly Revenue Break-even $11,862
Assumptions:
Average Percent Variable Cost 28%
Estimated Monthly Fixed Cost $8,517

7.3 Projected Profit and Loss

As the profit and loss table shows, RA Concepts forecasts steady growth in profitability over the next three years of operations. We show increased R&D costs in years 2 and 3 because putters are constantly changing; we expect feedback from customers and special requests to generate ideas for new designs, and we expect customers to show continued interest in the "newest," most up to date designs over existing ones.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $177,425 $305,053 $335,557
Direct Cost of Sales $50,034 $86,603 $95,259
Other Costs of Goods $0 $0 $0
Total Cost of Sales $50,034 $86,603 $95,259
Gross Margin $127,391 $218,450 $240,298
Gross Margin % 71.80% 71.61% 71.61%
Expenses
Payroll $58,819 $63,654 $70,689
Sales and Marketing and Other Expenses $17,900 $19,360 $21,296
Depreciation $1,200 $1,100 $1,100
Rent $13,200 $12,100 $12,100
Research and Development $4,000 $10,000 $12,000
Equipment Maintenance and Repair $0 $5,000 $8,500
Utilities $4,380 $4,416 $4,857
Insurance $1,200 $1,100 $1,100
Payroll Taxes $0 $0 $0
Other $1,500 $1,512 $1,663
Total Operating Expenses $102,199 $118,242 $133,305
Profit Before Interest and Taxes $25,192 $100,208 $106,993
EBITDA $26,392 $101,308 $108,093
Interest Expense $6,489 $5,655 $4,785
Taxes Incurred $5,611 $28,366 $30,662
Net Profit $13,093 $66,187 $71,546
Net Profit/Sales 7.38% 21.70% 21.32%

7.4 Projected Cash Flow

The table presents our projected cash flow balances. The critical first year reflects positive cash flow. Monthly cash balances are positive, which indicates adequate financial reserves and correct planning for the required working capital. The estimated results permit a margin of error and still appear strong, even though the numbers remain conservative. We expect that the low cash balance in the final month of the first year will be offset by spring sales to retailers in the next month. We do not plan to collect dividends until the fourth year.

The following chart shows the cash availability for the next 12 months. The bar labeled "Cash Balance" shows our projected cash balance for the first 12 months of the project. The second set of bars, labeled "Net Cash Flow", indicates the change in the Cash Balance for each month.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $128,939 $270,176 $327,221
Subtotal Cash from Operations $128,939 $270,176 $327,221
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 $128,939 $270,176 $327,221
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $58,819 $63,654 $70,689
Bill Payments $72,830 $173,380 $191,356
Subtotal Spent on Operations $131,649 $237,034 $262,045
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 $14,500 $14,500 $14,500
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $146,149 $251,534 $276,545
Net Cash Flow ($17,209) $18,642 $50,676
Cash Balance $6,281 $24,923 $75,599

7.5 Projected Balance Sheet

Our projected Balance Sheet shows a steadily increasing net worth, as we pay off loans and increase production over the first three years. Even with these conservative estimates, our balances are good.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $6,281 $24,923 $75,599
Accounts Receivable $48,486 $83,363 $91,699
Inventory $7,780 $7,251 $7,976
Other Current Assets $0 $0 $0
Total Current Assets $62,547 $115,537 $175,274
Long-term Assets
Long-term Assets $62,160 $62,160 $62,160
Accumulated Depreciation $1,200 $2,300 $3,400
Total Long-term Assets $60,960 $59,860 $58,760
Total Assets $123,507 $175,397 $234,034
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $14,064 $14,267 $15,859
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $14,064 $14,267 $15,859
Long-term Liabilities $101,500 $87,000 $72,500
Total Liabilities $115,564 $101,267 $88,359
Paid-in Capital $10,000 $10,000 $10,000
Retained Earnings ($15,150) ($2,057) $64,130
Earnings $13,093 $66,187 $71,546
Total Capital $7,943 $74,130 $145,675
Total Liabilities and Capital $123,507 $175,397 $234,034
Net Worth $7,943 $74,130 $145,675

7.6 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification for the Sporting Goods Manufacturing industry (SIC code 3069).

Our technological advances allow us to waste less raw material during production, changing ratios related to inventory. Our asset and liability structure is comparable to industry standards, but we are a smaller company than most golf club manufacturers, and the industry comparison is very broad - across all equipment categories. The ratios table shows an important steady increase in working capital, a a reasonable net profit margin for all years.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 71.93% 10.00% 8.66%
Percent of Total Assets
Accounts Receivable 39.26% 47.53% 39.18% 30.00%
Inventory 6.30% 4.13% 3.41% 23.04%
Other Current Assets 0.00% 0.00% 0.00% 22.61%
Total Current Assets 50.64% 65.87% 74.89% 75.65%
Long-term Assets 49.36% 34.13% 25.11% 24.35%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 11.39% 8.13% 6.78% 37.93%
Long-term Liabilities 82.18% 49.60% 30.98% 14.30%
Total Liabilities 93.57% 57.74% 37.75% 52.23%
Net Worth 6.43% 42.26% 62.25% 47.77%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 71.80% 71.61% 71.61% 22.53%
Selling, General & Administrative Expenses 26.12% 0.00% 0.00% 5.73%
Advertising Expenses 0.00% 0.00% 0.00% 0.36%
Profit Before Interest and Taxes 14.20% 32.85% 31.89% 2.95%
Main Ratios
Current 4.45 8.10 11.05 1.88
Quick 3.89 7.59 10.55 1.19
Total Debt to Total Assets 93.57% 57.74% 37.75% 53.00%
Pre-tax Return on Net Worth 235.49% 127.55% 70.16% 4.52%
Pre-tax Return on Assets 15.14% 53.91% 43.67% 9.61%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 7.38% 21.70% 21.32% n.a
Return on Equity 164.84% 89.29% 49.11% n.a
Activity Ratios
Accounts Receivable Turnover 3.66 3.66 3.66 n.a
Collection Days 56 79 95 n.a
Inventory Turnover 4.31 11.52 12.51 n.a
Accounts Payable Turnover 6.18 12.17 12.17 n.a
Payment Days 27 30 28 n.a
Total Asset Turnover 1.44 1.74 1.43 n.a
Debt Ratios
Debt to Net Worth 14.55 1.37 0.61 n.a
Current Liab. to Liab. 0.12 0.14 0.18 n.a
Liquidity Ratios
Net Working Capital $48,483 $101,270 $159,416 n.a
Interest Coverage 3.88 17.72 22.36 n.a
Additional Ratios
Assets to Sales 0.70 0.57 0.70 n.a
Current Debt/Total Assets 11% 8% 7% n.a
Acid Test 0.45 1.75 4.77 n.a
Sales/Net Worth 22.34 4.12 2.30 n.a
Dividend Payout 0.00 0.00 0.00 n.a