Grapevine Country Gifts

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Home, Garden Gifts Online Business Plan

Financial Plan

This section outlines our financial goals. Our plan is to maintain a 50% gross margin and a net margin of 6-9% (after the first quarter of 2004, once barn renovations are complete). This should allow us to remain profitable and have a solid cash flows that will help us repay both our long-term loan and the no-interest loans extended by the owner's husband, and to steadily grow the net worth of this business.

The Profit and Loss statement shows our operating expenses, including portions of the mortgage and utilities for business-only areas and usage. Our general marketing expenses are low, because most of our sales are currently being generated through personal contacts at events, and by word of mouth about our website. We are allocating roughly $500 per year for increased online marketing, which our research indicates will be sufficient for reaching our target market. We project net profit rebounding soon after property renovations are completed.

The Cash Flow shows our loan repayments, as well as money to be spent on barn renovations (as increased asset value). The long-term loans we are seeking will help us to maintain a positive Cash Balance while performing needed work on our storage area (the barn) and increasing sales.

The Balance Sheet shows our increasing net worth over the next three years, as we pay off loans, increase assets, and retain greater earnings within the business.

8.1 Important Assumptions

Our financial model is build on the following assumption:

  • All capital assets are depreciated on a 10-year, straight-line basis
  • No-interest loans provided by Mr. Hultquist in the total outstanding amount of $20,000 will be fully repaid within three years ($6,670 per year)
  • Long-term loans at 7% interest will be repaid within 8 years.
  • For cash flow planning purposes, all sales are treated as cash (no accounts receivable).
General Assumptions
2004 2005 2006
Plan Month 1 2 3
Current Interest Rate 6.50% 6.50% 6.50%
Long-term Interest Rate 7.00% 7.00% 7.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

8.2 Business Ratios

The table below summarizes our key business ratios and includes industry averages for comparison. Industry data comes from the "Gift, Novelty, and Souvenir Shops" industry (SIC Code 5947). Unlike most gift and small-art item retailers, the majority of our sales are online, so our asset and inventory ratios are unusual. 

As we accumulate cash and reduce loans, our solvency ratios will significantly improve. Since the bulk of our products will be sourced after we receive customer orders, our inventory levels of most popular items will be below the industry average ranges.

Ratio Analysis
2004 2005 2006 Industry Profile
Sales Growth 49.48% 49.57% 21.69% 0.24%
Percent of Total Assets
Inventory 11.38% 15.97% 16.21% 37.46%
Other Current Assets 0.00% 0.00% 0.00% 22.92%
Total Current Assets 40.55% 46.31% 56.99% 77.62%
Long-term Assets 59.45% 53.69% 43.01% 22.38%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 29.13% 19.16% 11.29% 35.33%
Long-term Liabilities 43.70% 34.47% 22.83% 14.48%
Total Liabilities 72.83% 53.64% 34.12% 49.81%
Net Worth 27.17% 46.36% 65.88% 50.19%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 51.61% 51.50% 51.31% 40.09%
Selling, General & Administrative Expenses 280.78% 0.00% 0.00% 24.66%
Advertising Expenses 0.00% 0.00% 0.00% 1.85%
Profit Before Interest and Taxes 15.43% 14.60% 18.12% 2.19%
Main Ratios
Current 1.39 2.42 5.05 1.96
Quick 1.00 1.58 3.61 0.78
Total Debt to Total Assets 72.83% 53.64% 34.12% 53.68%
Pre-tax Return on Net Worth 78.46% 64.50% 59.29% 3.96%
Pre-tax Return on Assets 21.32% 29.91% 39.06% 8.55%
Additional Ratios 2004 2005 2006
Net Profit Margin 9.37% 9.39% 12.12% n.a
Return on Equity 54.92% 45.15% 41.50% n.a
Activity Ratios
Inventory Turnover 9.29 8.13 7.45 n.a
Accounts Payable Turnover 8.63 12.17 12.17 n.a
Payment Days 28 30 28 n.a
Total Asset Turnover 1.59 2.23 2.26 n.a
Debt Ratios
Debt to Net Worth 2.68 1.16 0.52 n.a
Current Liab. to Liab. 0.40 0.36 0.33 n.a
Liquidity Ratios
Net Working Capital $9,150 $23,229 $47,038 n.a
Interest Coverage 7.54 12.34 22.67 n.a
Additional Ratios
Assets to Sales 0.63 0.45 0.44 n.a
Current Debt/Total Assets 29% 19% 11% n.a
Acid Test 1.00 1.58 3.61 n.a
Sales/Net Worth 5.86 4.81 3.42 n.a
Dividend Payout 0.00 0.00 0.00 n.a

8.3 Break-even Analysis

Assuming variable costs of 48% our analysis shows that to break-even we need to have monthly revenues as summarized in the table and chart below. After barn renovations are complete, we should surpass that sales volume by May of 2004.

Break-even Analysis
Monthly Revenue Break-even $7,451
Assumptions:
Average Percent Variable Cost 48%
Estimated Monthly Fixed Cost $3,846

8.4 Projected Profit and Loss

The table below shows our profit and loss projections. Although we expect to sell some higher margin products in the first months of 2004, we expect that our overall gross margin will stabilize at around 50%. We believe that our new strategy will allow us to average a healthy net margin in 2004, which will eventually stabilize over the next two years.

Pro Forma Profit and Loss
2004 2005 2006
Sales $127,541 $190,756 $232,132
Direct Cost of Sales $61,712 $92,513 $113,021
Other Costs of Goods $0 $0 $0
Total Cost of Sales $61,712 $92,513 $113,021
Gross Margin $65,829 $98,243 $119,111
Gross Margin % 51.61% 51.50% 51.31%
Expenses
Payroll $31,224 $57,280 $63,936
Sales and Marketing and Other Expenses $600 $600 $600
Depreciation $1,252 $1,669 $1,669
Mortgage % for Business-only Areas $4,200 $4,200 $4,200
Telephone & Utilities $3,000 $3,000 $3,000
Insurance $575 $855 $855
Payroll Taxes $0 $0 $0
Web Store & Internet $840 $840 $840
Maintenance & Repair $756 $756 $756
Business Supplies $300 $300 $300
Professional Services $600 $600 $600
Expensed Barn Renovations $2,500 $0 $0
Miscellaneous $300 $300 $300
Total Operating Expenses $46,147 $70,400 $77,056
Profit Before Interest and Taxes $19,682 $27,843 $42,056
EBITDA $20,933 $29,512 $43,724
Interest Expense $2,610 $2,257 $1,855
Taxes Incurred $5,121 $7,676 $12,060
Net Profit $11,950 $17,910 $28,141
Net Profit/Sales 9.37% 9.39% 12.12%

8.5 Projected Cash Flow

Our cash flow projections are summarized in the table below. The fact that all of our sales are treated as cash-only helps us avoid possible collection problems. More importantly, growth in sales and profits will allow us to start repaying the no-interest loans that have been extended by the owner's husband, Mr. Hultquist, as well as our long-term loans.

Overall, our new strategy should allow us to end 2004 with a cash level sufficient for smooth inventory management.

Pro Forma Cash Flow
2004 2005 2006
Cash Received
Cash from Operations
Cash Sales $127,541 $190,756 $232,132
Subtotal Cash from Operations $127,541 $190,756 $232,132
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 $40,000 $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 $167,541 $190,756 $232,132
Expenditures 2004 2005 2006
Expenditures from Operations
Cash Spending $31,224 $57,280 $63,936
Bill Payments $77,434 $118,704 $139,527
Subtotal Spent on Operations $108,658 $175,984 $203,463
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 $6,670 $6,670 $6,660
Long-term Liabilities Principal Repayment $5,004 $5,500 $6,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $37,500 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $157,832 $188,154 $216,123
Net Cash Flow $9,709 $2,602 $16,009
Cash Balance $23,362 $25,964 $41,973

8.6 Projected Balance Sheet

The table below summarizes our balance sheet projections. Our asset base will grow through accumulated cash balances. As mentioned earlier in this business plan, we also plan to re-pay the no-interest loans in equal installments over three years. This should allow us to end 2004 with a solid accounting net worth, which should then steadily grow over the next two years.

Pro Forma Balance Sheet
2004 2005 2006
Assets
Current Assets
Cash $23,362 $25,964 $41,973
Inventory $9,112 $13,660 $16,688
Other Current Assets $0 $0 $0
Total Current Assets $32,474 $39,624 $58,661
Long-term Assets
Long-term Assets $50,055 $50,055 $50,055
Accumulated Depreciation $2,452 $4,121 $5,789
Total Long-term Assets $47,603 $45,934 $44,266
Total Assets $80,077 $85,558 $102,927
Liabilities and Capital 2004 2005 2006
Current Liabilities
Accounts Payable $9,994 $9,735 $11,623
Current Borrowing $0 $0 $0
Other Current Liabilities $13,330 $6,660 $0
Subtotal Current Liabilities $23,324 $16,395 $11,623
Long-term Liabilities $34,996 $29,496 $23,496
Total Liabilities $58,320 $45,891 $35,119
Paid-in Capital $1,000 $1,000 $1,000
Retained Earnings $8,807 $20,757 $38,667
Earnings $11,950 $17,910 $28,141
Total Capital $21,757 $39,667 $67,808
Total Liabilities and Capital $80,077 $85,558 $102,927
Net Worth $21,757 $39,667 $67,808