Insurance Solutions, LLC

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Industry-specific Software Business Plan

Financial Plan

The most important element in the financial plan is delivering on our key cash flow drivers:

  1. Focus on building revenues through innovative approaches to the market.
  2. Ensure gross and net margin efficiency through a very competitive cost structure.
  3. Ensure adequate funding for operational and development expenses that is in line with our balance sheet needs and capabilities.

8.1 Important Assumptions

The financial plan depends on a number of important assumptions, most of which are shown in the following table. The key underlying assumptions are:

  • A medium-growth economy, without major recession
  • No unforeseen changes in technology to make our solutions immediately obsolete
  • Continued growth in the utilization of technology and the internet by consumers and organizations for access to and the delivery of products and services
  • Access to equity capital and financing sufficient to maintain our financial plans and estimates

We have applied conservative growth estimates to both the commercial and consumer direct business lines. As an example, we have assumed a 10% monthly growth rate in our Documents Plus storage solution and a 25% monthly growth rate for our Insurance Valuer - Consumer solution. A similar, although noncompeting credit education and monitoring service, with which we are in the process of affiliating, has grown to 3.5 million customers and over 5.1 million transactions in only three years.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 6.00% 6.00% 6.00%
Long-term Interest Rate 6.50% 6.50% 6.50%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

8.2 Break-even Analysis

For our break-even analysis, we assume running costs based on when we are fully operational. These costs include our full payroll, rent, utilities, website maintenance, and an estimation of other licensing, data acquisition costs, and marketing budgets. 

While margins are harder to estimate, based on sales achieved in our Australian operations, we are confident that we can achieve gross margins above 90% and solid net profits in the first year. These margins will improve as we are able to develop our revenue streams while utilizing existing infrastructure and system functionality.

In accordance with the aforementioned assumptions, the break-even analysis shows what we need to sell per month to break-even. This is in line with our planned 2005 to 2007 sales levels, and we are very confident that we can achieve and exceed these targets.

Break-even Analysis
Monthly Revenue Break-even $99,674
Assumptions:
Average Percent Variable Cost 8%
Estimated Monthly Fixed Cost $91,700

8.3 Projected Profit and Loss

Our Gross and Net Margin targets are based on very achievable first year sales figures, and annual growth targets are based on the experience of our affiliate in the Australian market, International Cost Research.

We are extremely confident that we will be able to achieve and exceed these estimates, partly through our direct-to-consumer offers of the Insurance Valuer and Documents Plus services.

Both our Gross and Net Margins are significantly above the Risk Management Association (RMA) averages for similarly sized organizations with $1 million to $3 Million in sales. Margins will continue to improve as our revenues increase exponentially without significant increases in costs.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $2,539,134 $3,319,866 $4,416,000
Direct Cost of Sales $203,131 $265,589 $485,760
Other Costs of Goods $0 $0 $0
Total Cost of Sales $203,131 $265,589 $485,760
Gross Margin $2,336,003 $3,054,276 $3,930,240
Gross Margin % 92.00% 92.00% 89.00%
Expenses
Payroll $739,800 $780,000 $852,000
Marketing/Promotion $96,000 $75,000 $75,000
Depreciation $0 $0 $0
Rent $24,000 $48,000 $48,000
Web Services Hosting $48,000 $48,000 $48,000
Travel $24,000 $24,000 $26,000
Stationary and Postage $1,200 $2,000 $2,000
Legal Advisory Services $10,800 $5,000 $9,000
Accounting/Tax Advisor $2,400 $2,000 $4,000
Property Data Access License Fee $75,000 $100,000 $125,000
Software Distribution License Fee $75,000 $100,000 $125,000
Utilities $1,800 $2,000 $3,000
Insurance $2,400 $3,000 $3,200
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $1,100,400 $1,189,000 $1,320,200
Profit Before Interest and Taxes $1,235,603 $1,865,276 $2,610,040
EBITDA $1,235,603 $1,865,276 $2,610,040
Interest Expense $0 $0 $0
Taxes Incurred $370,681 $559,583 $783,012
Net Profit $864,922 $1,305,694 $1,827,028
Net Profit/Sales 34.06% 39.33% 41.37%

8.4 Projected Cash Flow

Cash flow from operations is based on a conservative set of assumptions, both in terms of our sales forecast and expenses. The principal uses of funds are to assist in covering the initial expenses as outlined in the Start-up Table, salary expenses, as outlined in the Sales Forecast Table and day-to-day expenses outlined in the Pro-Forma Profit and Loss Table. The major operational expense include the licensing fee for the property valuation software at $100,000 per year, initial branding and marketing campaign expenses at approximately $75,000 for the first year and the licensing fee for the property valuation data at $50,000 per year.

While we are in the process of raising $200,000 from the two company founders and the two senior executives who will be joining the organization, in order to effectively launch the business, we project a total need for $92,500 in start-up financing to provide funding for the first year of operations.

Based on market research and data from our Australian affiliate, we project that the company will be profitable in its first year. By the end of the third year, investors will be bought out by the founding partners. Details of the investment offering and buyout are negotiable; projected minimum dividend amounts can be found below, in the Cash Flow table.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $2,539,134 $3,319,866 $4,416,000
Subtotal Cash from Operations $2,539,134 $3,319,866 $4,416,000
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 $1,000,000 $0 $0
Subtotal Cash Received $3,539,134 $3,319,866 $4,416,000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $739,800 $780,000 $852,000
Bill Payments $741,162 $1,325,983 $1,695,646
Subtotal Spent on Operations $1,480,962 $2,105,983 $2,547,646
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 $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $200,000 $350,000 $400,000
Subtotal Cash Spent $1,680,962 $2,455,983 $2,947,646
Net Cash Flow $1,858,172 $863,883 $1,468,354
Cash Balance $1,962,172 $2,826,055 $4,294,409

8.5 Projected Balance Sheet

With the inclusion of start-up funding, our balance sheet is solid and we do not project any issues in meeting our obligations. With our innovative solutions and determination to keep costs low, our balance sheet will continue to strengthen as we increase our revenues and retained earnings, allowing us to decrease our initial reliance on outside funding.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $1,962,172 $2,826,055 $4,294,409
Other Current Assets $15,000 $15,000 $15,000
Total Current Assets $1,977,172 $2,841,055 $4,309,409
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $1,977,172 $2,841,055 $4,309,409
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $193,250 $101,439 $142,765
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $193,250 $101,439 $142,765
Long-term Liabilities $0 $0 $0
Total Liabilities $193,250 $101,439 $142,765
Paid-in Capital $1,292,250 $1,292,250 $1,292,250
Retained Earnings ($373,250) $141,672 $1,047,366
Earnings $864,922 $1,305,694 $1,827,028
Total Capital $1,783,922 $2,739,616 $4,166,644
Total Liabilities and Capital $1,977,172 $2,841,055 $4,309,409
Net Worth $1,783,922 $2,739,616 $4,166,644

8.6 Business Ratios

ISL is part of the Business-Oriented Computer Software industry (SIC Code 7372.9902). The Ratios Table, below, shows some standard ratios for our company with comparisons to industry standards. The additional measurements shown in the Ratios Table are significantly above the Risk Management Association (RMA) averages for similarly sized organizations with $1 million to $3 Million in sales. Again, our margins will continue to remain high, as our revenues increase.

With the availability of the start-up financing we are seeking in addition to the up-front investments by the founders and senior executives, the organization will have a solid financial position. As with our gross and net margins, our debt to equity and current ratios, as well as our Net Working Capital are particularly strong when compared to RMA and other providers of standard industry data and benchmarks.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 30.75% 33.02% 10.27%
Percent of Total Assets
Other Current Assets 0.76% 0.53% 0.35% 41.50%
Total Current Assets 100.00% 100.00% 100.00% 68.84%
Long-term Assets 0.00% 0.00% 0.00% 31.16%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 9.77% 3.57% 3.31% 35.07%
Long-term Liabilities 0.00% 0.00% 0.00% 20.22%
Total Liabilities 9.77% 3.57% 3.31% 55.29%
Net Worth 90.23% 96.43% 96.69% 44.71%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 92.00% 92.00% 89.00% 100.00%
Selling, General & Administrative Expenses 57.94% 52.67% 47.63% 81.88%
Advertising Expenses 0.00% 0.00% 0.00% 1.23%
Profit Before Interest and Taxes 48.66% 56.19% 59.10% 1.18%
Main Ratios
Current 10.23 28.01 30.19 1.46
Quick 10.23 28.01 30.19 1.12
Total Debt to Total Assets 9.77% 3.57% 3.31% 1.98%
Pre-tax Return on Net Worth 69.26% 68.09% 62.64% 64.10%
Pre-tax Return on Assets 62.49% 65.65% 60.57% 5.51%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 34.06% 39.33% 41.37% n.a
Return on Equity 48.48% 47.66% 43.85% n.a
Activity Ratios
Accounts Payable Turnover 4.84 12.17 12.17 n.a
Payment Days 29 44 26 n.a
Total Asset Turnover 1.28 1.17 1.02 n.a
Debt Ratios
Debt to Net Worth 0.11 0.04 0.03 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $1,783,922 $2,739,616 $4,166,644 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.78 0.86 0.98 n.a
Current Debt/Total Assets 10% 4% 3% n.a
Acid Test 10.23 28.01 30.19 n.a
Sales/Net Worth 1.42 1.21 1.06 n.a
Dividend Payout 0.23 0.27 0.22 n.a