Heavy Equipment Maker Business Plan

Tricky Widgets Manufacturing

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Financial Plan

TWM expects to raise $4.5 million in loans along with $.5 million in private investment for start-up costs for the first three years. An additional $50 million in financing is expected to be raised in an initial public offering that is scheduled to occur between years three-five.  This will provide the bulk of the financing required to grow operations at the planned rate.

7.1 Important Assumptions

Important assumptions for this plan are found in the following table.

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 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Break-even Analysis

TWM's break-even analysis is based on the average of the first-year figures for total sales and by operating expenses.  These are presented as per-unit revenue, per-unit cost, and fixed costs.  These conservative assumptions make for a more accurate estimate of real risk.

Break-even Analysis
Monthly Units Break-even 44
Monthly Revenue Break-even $2,381,000
Assumptions:
Average Per-Unit Revenue $54,689.42
Average Per-Unit Variable Cost $43,751.53
Estimated Monthly Fixed Cost $476,200

7.3 Projected Profit and Loss

As the profit and loss table shows, TWM expects to continue its steady growth in profitability over the next three years of operations.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $54,251,903 $62,660,948 $75,819,747
Direct Cost of Sales $43,401,522 $49,217,326 $58,470,184
Other $0 $0 $0
Total Cost of Sales $43,401,522 $49,217,326 $58,470,184
Gross Margin $10,850,381 $13,443,622 $17,349,563
Gross Margin % 20.00% 21.45% 22.88%
Expenses
Payroll $5,160,000 $5,418,000 $5,688,900
Sales and Marketing and Other Expenses $242,400 $540,800 $829,200
Depreciation $300,000 $300,000 $300,000
Utilities $12,000 $14,000 $15,000
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $5,714,400 $6,272,800 $6,833,100
Profit Before Interest and Taxes $5,135,981 $7,170,822 $10,516,463
EBITDA $5,435,981 $7,470,822 $10,816,463
Interest Expense $673,381 $538,595 $380,991
Taxes Incurred $1,338,780 $1,989,668 $3,040,642
Net Profit $3,123,819 $4,642,559 $7,094,831
Net Profit/Sales 5.76% 7.41% 9.36%

7.4 Projected Cash Flow

The cash flow projection shows that provisions for ongoing expenses are adequate to meet TWM's needs as the business generates cash flow sufficient to support operations. The second and third month decrease in cash flow reflects the payment of initial cost of goods sold prior to a large number of receipts being paid. As can be seen, TWM has anticipated such a decrease and has arranged a line of credit to cover cash shortages.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $27,125,951 $31,330,474 $37,909,873
Cash from Receivables $22,227,991 $30,571,290 $36,721,873
Subtotal Cash from Operations $49,353,943 $61,901,764 $74,631,747
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $2,600,000 $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 $51,953,943 $61,901,764 $74,631,747
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $5,160,000 $5,418,000 $5,688,900
Bill Payments $45,818,085 $52,731,967 $62,793,055
Subtotal Spent on Operations $50,978,085 $58,149,967 $68,481,955
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $2,600,000 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $276,036 $276,038 $276,038
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $51,254,121 $61,026,005 $68,757,993
Net Cash Flow $699,822 $875,759 $5,873,754
Cash Balance $2,699,822 $3,575,580 $9,449,334

7.5 Projected Balance Sheet

TWM's projected company balance sheet follows.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $2,699,822 $3,575,580 $9,449,334
Accounts Receivable $4,897,960 $5,657,144 $6,845,144
Inventory $4,425,915 $5,018,988 $5,962,558
Other Current Assets $100,000 $100,000 $100,000
Total Current Assets $12,123,697 $14,351,712 $22,357,036
Long-term Assets
Long-term Assets $2,500,000 $2,500,000 $2,500,000
Accumulated Depreciation $300,000 $600,000 $900,000
Total Long-term Assets $2,200,000 $1,900,000 $1,600,000
Total Assets $14,323,697 $16,251,712 $23,957,036
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $4,185,913 $4,347,408 $5,233,939
Current Borrowing $2,600,000 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $6,785,913 $4,347,408 $5,233,939
Long-term Liabilities $4,223,964 $3,947,926 $3,671,888
Total Liabilities $11,009,877 $8,295,334 $8,905,827
Paid-in Capital $508,000 $508,000 $508,000
Retained Earnings ($318,000) $2,805,819 $7,448,378
Earnings $3,123,819 $4,642,559 $7,094,831
Total Capital $3,313,819 $7,956,378 $15,051,209
Total Liabilities and Capital $14,323,697 $16,251,712 $23,957,036
Net Worth $3,313,819 $7,956,378 $15,051,209

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 3531, Construction Machinery, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 15.50% 21.00% 0.10%
Percent of Total Assets
Accounts Receivable 34.19% 34.81% 28.57% 31.10%
Inventory 30.90% 30.88% 24.89% 29.10%
Other Current Assets 0.70% 0.62% 0.42% 20.00%
Total Current Assets 84.64% 88.31% 93.32% 80.20%
Long-term Assets 15.36% 11.69% 6.68% 19.80%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 47.38% 26.75% 21.85% 38.00%
Long-term Liabilities 29.49% 24.29% 15.33% 16.80%
Total Liabilities 76.86% 51.04% 37.17% 54.80%
Net Worth 23.14% 48.96% 62.83% 45.20%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 20.00% 21.45% 22.88% 28.00%
Selling, General & Administrative Expenses 14.59% 14.37% 13.73% 15.20%
Advertising Expenses 0.11% 0.13% 0.15% 0.50%
Profit Before Interest and Taxes 9.47% 11.44% 13.87% 3.30%
Main Ratios
Current 1.79 3.30 4.27 2.11
Quick 1.13 2.15 3.13 1.14
Total Debt to Total Assets 76.86% 51.04% 37.17% 54.80%
Pre-tax Return on Net Worth 134.67% 83.36% 67.34% 7.30%
Pre-tax Return on Assets 31.16% 40.81% 42.31% 16.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 5.76% 7.41% 9.36% n.a
Return on Equity 94.27% 58.35% 47.14% n.a
Activity Ratios
Accounts Receivable Turnover 5.54 5.54 5.54 n.a
Collection Days 57 61 60 n.a
Inventory Turnover 10.91 10.42 10.65 n.a
Accounts Payable Turnover 11.94 12.17 12.17 n.a
Payment Days 27 29 27 n.a
Total Asset Turnover 3.79 3.86 3.16 n.a
Debt Ratios
Debt to Net Worth 3.32 1.04 0.59 n.a
Current Liab. to Liab. 0.62 0.52 0.59 n.a
Liquidity Ratios
Net Working Capital $5,337,783 $10,004,304 $17,123,097 n.a
Interest Coverage 7.63 13.31 27.60 n.a
Additional Ratios
Assets to Sales 0.26 0.26 0.32 n.a
Current Debt/Total Assets 47% 27% 22% n.a
Acid Test 0.41 0.85 1.82 n.a
Sales/Net Worth 16.37 7.88 5.04 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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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 30.00% 30.00% 30.00%
Other 0 0 0
Break-even Analysis
Monthly Units Break-even 44
Monthly Revenue Break-even $2,381,000
Assumptions:
Average Per-Unit Revenue $54,689.42
Average Per-Unit Variable Cost $43,751.53
Estimated Monthly Fixed Cost $476,200
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $54,251,903 $62,660,948 $75,819,747
Direct Cost of Sales $43,401,522 $49,217,326 $58,470,184
Other $0 $0 $0
Total Cost of Sales $43,401,522 $49,217,326 $58,470,184
Gross Margin $10,850,381 $13,443,622 $17,349,563
Gross Margin % 20.00% 21.45% 22.88%
Expenses
Payroll $5,160,000 $5,418,000 $5,688,900
Sales and Marketing and Other Expenses $242,400 $540,800 $829,200
Depreciation $300,000 $300,000 $300,000
Utilities $12,000 $14,000 $15,000
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $5,714,400 $6,272,800 $6,833,100
Profit Before Interest and Taxes $5,135,981 $7,170,822 $10,516,463
EBITDA $5,435,981 $7,470,822 $10,816,463
Interest Expense $673,381 $538,595 $380,991
Taxes Incurred $1,338,780 $1,989,668 $3,040,642
Net Profit $3,123,819 $4,642,559 $7,094,831
Net Profit/Sales 5.76% 7.41% 9.36%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $27,125,951 $31,330,474 $37,909,873
Cash from Receivables $22,227,991 $30,571,290 $36,721,873
Subtotal Cash from Operations $49,353,943 $61,901,764 $74,631,747
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $2,600,000 $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 $51,953,943 $61,901,764 $74,631,747
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $5,160,000 $5,418,000 $5,688,900
Bill Payments $45,818,085 $52,731,967 $62,793,055
Subtotal Spent on Operations $50,978,085 $58,149,967 $68,481,955
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $2,600,000 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $276,036 $276,038 $276,038
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $51,254,121 $61,026,005 $68,757,993
Net Cash Flow $699,822 $875,759 $5,873,754
Cash Balance $2,699,822 $3,575,580 $9,449,334
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $2,699,822 $3,575,580 $9,449,334
Accounts Receivable $4,897,960 $5,657,144 $6,845,144
Inventory $4,425,915 $5,018,988 $5,962,558
Other Current Assets $100,000 $100,000 $100,000
Total Current Assets $12,123,697 $14,351,712 $22,357,036
Long-term Assets
Long-term Assets $2,500,000 $2,500,000 $2,500,000
Accumulated Depreciation $300,000 $600,000 $900,000
Total Long-term Assets $2,200,000 $1,900,000 $1,600,000
Total Assets $14,323,697 $16,251,712 $23,957,036
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $4,185,913 $4,347,408 $5,233,939
Current Borrowing $2,600,000 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $6,785,913 $4,347,408 $5,233,939
Long-term Liabilities $4,223,964 $3,947,926 $3,671,888
Total Liabilities $11,009,877 $8,295,334 $8,905,827
Paid-in Capital $508,000 $508,000 $508,000
Retained Earnings ($318,000) $2,805,819 $7,448,378
Earnings $3,123,819 $4,642,559 $7,094,831
Total Capital $3,313,819 $7,956,378 $15,051,209
Total Liabilities and Capital $14,323,697 $16,251,712 $23,957,036
Net Worth $3,313,819 $7,956,378 $15,051,209
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 15.50% 21.00% 0.10%
Percent of Total Assets
Accounts Receivable 34.19% 34.81% 28.57% 31.10%
Inventory 30.90% 30.88% 24.89% 29.10%
Other Current Assets 0.70% 0.62% 0.42% 20.00%
Total Current Assets 84.64% 88.31% 93.32% 80.20%
Long-term Assets 15.36% 11.69% 6.68% 19.80%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 47.38% 26.75% 21.85% 38.00%
Long-term Liabilities 29.49% 24.29% 15.33% 16.80%
Total Liabilities 76.86% 51.04% 37.17% 54.80%
Net Worth 23.14% 48.96% 62.83% 45.20%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 20.00% 21.45% 22.88% 28.00%
Selling, General & Administrative Expenses 14.59% 14.37% 13.73% 15.20%
Advertising Expenses 0.11% 0.13% 0.15% 0.50%
Profit Before Interest and Taxes 9.47% 11.44% 13.87% 3.30%
Main Ratios
Current 1.79 3.30 4.27 2.11
Quick 1.13 2.15 3.13 1.14
Total Debt to Total Assets 76.86% 51.04% 37.17% 54.80%
Pre-tax Return on Net Worth 134.67% 83.36% 67.34% 7.30%
Pre-tax Return on Assets 31.16% 40.81% 42.31% 16.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 5.76% 7.41% 9.36% n.a
Return on Equity 94.27% 58.35% 47.14% n.a
Activity Ratios
Accounts Receivable Turnover 5.54 5.54 5.54 n.a
Collection Days 57 61 60 n.a
Inventory Turnover 10.91 10.42 10.65 n.a
Accounts Payable Turnover 11.94 12.17 12.17 n.a
Payment Days 27 29 27 n.a
Total Asset Turnover 3.79 3.86 3.16 n.a
Debt Ratios
Debt to Net Worth 3.32 1.04 0.59 n.a
Current Liab. to Liab. 0.62 0.52 0.59 n.a
Liquidity Ratios
Net Working Capital $5,337,783 $10,004,304 $17,123,097 n.a
Interest Coverage 7.63 13.31 27.60 n.a
Additional Ratios
Assets to Sales 0.26 0.26 0.32 n.a
Current Debt/Total Assets 47% 27% 22% n.a
Acid Test 0.41 0.85 1.82 n.a
Sales/Net Worth 16.37 7.88 5.04 n.a
Dividend Payout 0.00 0.00 0.00 n.a