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.
Our financial model is build on the following assumption:
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.
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.
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.
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.
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.