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Hamlin and Park Design

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Financial Plan

The following is the financial plan for Hamlin and Park Design.

7.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendix. From the beginning, we recognize that collection days are critical, but not a factor we can influence easily. At least we are planning on the problem, and dealing with it. Interest rates, tax rates, and personnel burden are based on conservative assumptions. Some of the more important underlying assumptions are:

  • We assume a strong economy, without major recession.
  • We assume, of course, that there are no unforeseen changes in the economy that would change our estimations.
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

The following table and chart will summarize our break-even analysis. The monthly break-even point is approximately $14,800.

Break-even Analysis
Monthly Revenue Break-even $14,874
Assumptions:
Average Percent Variable Cost 11%
Estimated Monthly Fixed Cost $13,300

7.3 Projected Profit and Loss

Our projected profit and loss is shown on the following table and charts.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $219,411 $239,765 $260,500
Direct Cost of Sales $23,225 $25,800 $27,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $23,225 $25,800 $27,000
Gross Margin $196,186 $213,965 $233,500
Gross Margin % 89.41% 89.24% 89.64%
Expenses
Payroll $96,000 $108,000 $120,000
Sales and Marketing and Other Expenses $6,000 $7,000 $10,000
Depreciation $0 $0 $0
Leased Equipment $2,400 $2,400 $2,400
Utilities $2,400 $2,400 $2,400
Insurance $2,400 $2,400 $2,400
Rent $36,000 $36,000 $36,000
Payroll Taxes $14,400 $16,200 $18,000
Other $0 $0 $0
Total Operating Expenses $159,600 $174,400 $191,200
Profit Before Interest and Taxes $36,586 $39,565 $42,300
EBITDA $36,586 $39,565 $42,300
Interest Expense $2,643 $2,010 $1,350
Taxes Incurred $10,183 $11,267 $12,285
Net Profit $23,760 $26,289 $28,665
Net Profit/Sales 10.83% 10.96% 11.00%

7.4 Projected Cash Flow

Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month, and the other the monthly balance. The annual cash flow figures are included here and the more important detailed monthly numbers are included in the appendix.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $109,706 $119,883 $130,250
Cash from Receivables $101,608 $119,131 $129,485
Subtotal Cash from Operations $211,313 $239,014 $259,735
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 $211,313 $239,014 $259,735
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $96,000 $108,000 $120,000
Bill Payments $105,544 $100,914 $111,312
Subtotal Spent on Operations $201,544 $208,914 $231,312
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 $6,600 $6,600 $6,600
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $208,144 $215,514 $237,912
Net Cash Flow $3,170 $23,500 $21,822
Cash Balance $62,620 $86,119 $107,942

7.5 Projected Balance Sheet

The balance sheet in the following table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $62,620 $86,119 $107,942
Accounts Receivable $8,098 $8,849 $9,614
Other Current Assets $20,000 $20,000 $20,000
Total Current Assets $90,717 $114,968 $137,556
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $90,717 $114,968 $137,556
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $4,107 $8,669 $9,192
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $4,107 $8,669 $9,192
Long-term Liabilities $23,400 $16,800 $10,200
Total Liabilities $27,507 $25,469 $19,392
Paid-in Capital $60,000 $60,000 $60,000
Retained Earnings ($20,550) $3,210 $29,499
Earnings $23,760 $26,289 $28,665
Total Capital $63,210 $89,499 $118,164
Total Liabilities and Capital $90,717 $114,968 $137,556
Net Worth $63,210 $89,499 $118,164

7.6 Business Ratios

The following table provides important ratios for the real estate industry, as determined by the Standard Industry Classification (SIC) Index, 8999, Services.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 9.28% 8.65% 8.50%
Percent of Total Assets
Accounts Receivable 8.93% 7.70% 6.99% 20.90%
Other Current Assets 22.05% 17.40% 14.54% 55.70%
Total Current Assets 100.00% 100.00% 100.00% 81.60%
Long-term Assets 0.00% 0.00% 0.00% 18.40%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 4.53% 7.54% 6.68% 48.20%
Long-term Liabilities 25.79% 14.61% 7.42% 15.50%
Total Liabilities 30.32% 22.15% 14.10% 63.70%
Net Worth 69.68% 77.85% 85.90% 36.30%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 89.41% 89.24% 89.64% 0.00%
Selling, General & Administrative Expenses 78.59% 78.28% 78.63% 82.60%
Advertising Expenses 2.73% 2.92% 3.84% 0.60%
Profit Before Interest and Taxes 16.67% 16.50% 16.24% 1.50%
Main Ratios
Current 22.09 13.26 14.96 1.57
Quick 22.09 13.26 14.96 1.13
Total Debt to Total Assets 30.32% 22.15% 14.10% 63.70%
Pre-tax Return on Net Worth 53.70% 41.96% 34.66% 1.90%
Pre-tax Return on Assets 37.42% 32.67% 29.77% 5.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 10.83% 10.96% 11.00% n.a
Return on Equity 37.59% 29.37% 24.26% n.a
Activity Ratios
Accounts Receivable Turnover 13.55 13.55 13.55 n.a
Collection Days 59 26 26 n.a
Accounts Payable Turnover 24.26 12.17 12.17 n.a
Payment Days 30 22 29 n.a
Total Asset Turnover 2.42 2.09 1.89 n.a
Debt Ratios
Debt to Net Worth 0.44 0.28 0.16 n.a
Current Liab. to Liab. 0.15 0.34 0.47 n.a
Liquidity Ratios
Net Working Capital $86,610 $106,299 $128,364 n.a
Interest Coverage 13.85 19.68 31.33 n.a
Additional Ratios
Assets to Sales 0.41 0.48 0.53 n.a
Current Debt/Total Assets 5% 8% 7% n.a
Acid Test 20.12 12.24 13.92 n.a
Sales/Net Worth 3.47 2.68 2.20 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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