Pegasus Sports

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Inline Skating Products Business Plan

Financial Plan

Our goal is to acquire a business loan for 10 years. Our present plan is to utilize the borrowed money for the first year's operating capital, with cash input on a monthly basis. Such cash input will aid our operating costs and salaries. We should reach our break-even point after our first year. Upon receiving our loan, we would like to incorporate, as this will protect our company, investors, lenders, products, and stockholders. We expect sales to be healthy the first year, and grow steadily through the third year.

If sales don't measure up to our expectations, this could add an additional six months and an influx of another $20,000, which could be carried by credit card, but we don't expect this to happen.

These are our strong points:

  • We want to finance growth mainly through cash flow. We recognize that this means we will will have to grow at a slower pace than we would like, but this will enable us to build sales through investing in more advertising.
  • Our most important asset is inventory turnover. Our ability to schedule production from month to month will help to control inventory costs.
  • Collection is not a problem, since we will be credited payment to our bank account in two days by American Merchant Center for all our credit card sales over the Internet.

7.1 Important Assumptions

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

  • A slow-growth economy, without major recession.
  • No unforeseen changes in technology to make our products immediately obsolete.
  • Access to equity capital and financing sufficient to maintain our financial plan as presented in this table.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 12.00% 12.00% 12.00%
Long-term Interest Rate 10.50% 10.50% 10.50%
Tax Rate 25.00% 25.00% 25.00%
Other 0 0 0

7.2 Break-even Analysis

Aside from the standard financial break-even shown, the following is a simplified breakdown of our first year's overall numbers in broad terms:

First Year's Projected Sales: $473,843
Less 25%Tax: - $11,846
-$461,997
Less Production Costs: -$129,520
-$332,477
Less Operating Costs: - $71,450
Profit: $261,027
Plus Loan: $ 50,000
Cash at end of the first year: $311,027
Production Costs for Year 2001: -$281,065
Projected Profit 1st Year: $29,962

For more detail, see the Projected Profit and Loss Table in the Appendix.

Break-even Analysis
Monthly Units Break-even 70
Monthly Revenue Break-even $8,756
Assumptions:
Average Per-Unit Revenue $125.62
Average Per-Unit Variable Cost $34.34
Estimated Monthly Fixed Cost $6,363

7.3 Key Financial Indicators

  • The most important indicator is inventory turnover. We have to make sure that turnover stays above 10, or we are clogged with inventory.
  • Collection is not a problem, since payment to our bank is two days after receiving our orders via credit card. However, by October 1999, we will initiate skate shop sales and experience an approximately 30-45 day average payment delay. This could cause a change in cash flow, but can be easily managed.

7.4 Projected Profit and Loss

Our goal is to acquire a business loan for a total of ten years. Our present plan is to utilize the borrowed money for the first year's operating expenses, with cash input on a monthly basis. Such cash input will aid in our advertising, operating costs, and salaries. This loan should help us maintain production and operating costs while developing our customer base and sales. Should sales lag, we plan to maintain solvency with credit card financing. We should reach our break-even point after our first year. Our sales projection is very conservative, considering the sales potential.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $473,843 $1,104,890 $1,699,830
Direct Cost of Sales $129,520 $281,000 $431,000
Other Costs of Goods $0 $0 $0
Total Cost of Sales $129,520 $281,000 $431,000
Gross Margin $344,323 $823,890 $1,268,830
Gross Margin % 72.67% 74.57% 74.64%
Expenses
Payroll $35,000 $280,000 $400,000
Sales and Marketing and Other Expenses $18,650 $36,300 $49,500
Depreciation $0 $0 $0
Leased Equipment $1,800 $5,000 $10,000
Utilities $600 $1,500 $2,000
Insurance $6,000 $12,000 $12,000
Rent $10,800 $12,000 $15,000
Payroll Taxes $3,500 $28,000 $40,000
Other $0 $0 $0
Total Operating Expenses $76,350 $374,800 $528,500
Profit Before Interest and Taxes $267,973 $449,090 $740,330
EBITDA $267,973 $449,090 $740,330
Interest Expense $5,330 $6,880 $8,148
Taxes Incurred $65,661 $110,552 $183,046
Net Profit $196,982 $331,657 $549,137
Net Profit/Sales 41.57% 30.02% 32.31%

7.5 Projected Cash Flow

  • We want to finance our first year's growth through a loan.
  • The most important indicator is inventory turnover. Our ability to schedule production from month to month will help control inventory costs.
  • Collection is not a problem since we will be credited payment to our bank account in two days by American Merchants Center, our credit card company for Internet sales.
  • Selling our products over the Internet will allow us full retail price and maximize our profit.
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $473,843 $1,104,890 $1,699,830
Subtotal Cash from Operations $473,843 $1,104,890 $1,699,830
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 $50,000 $34,500 $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 $523,843 $1,139,390 $1,699,830
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $35,000 $280,000 $400,000
Bill Payments $219,748 $532,692 $762,618
Subtotal Spent on Operations $254,748 $812,692 $1,162,618
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $4,500 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $3,450 $6,900
Purchase Other Current Assets $2,000 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $261,248 $816,142 $1,169,518
Net Cash Flow $262,595 $323,248 $530,312
Cash Balance $272,591 $595,839 $1,126,152

7.6 Projected Balance Sheet

As shown on the balance sheet in the following table, we expect a healthy growth in the net worth by the end of the third year.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $272,591 $595,839 $1,126,152
Inventory $28,545 $61,930 $94,988
Other Current Assets $2,000 $2,000 $2,000
Total Current Assets $303,136 $659,769 $1,223,140
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $303,136 $659,769 $1,223,140
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $49,358 $43,284 $64,418
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $49,358 $43,284 $64,418
Long-term Liabilities $50,000 $81,050 $74,150
Total Liabilities $99,358 $124,334 $138,568
Paid-in Capital $16,000 $16,000 $16,000
Retained Earnings ($9,204) $187,778 $519,436
Earnings $196,982 $331,657 $549,137
Total Capital $203,778 $535,436 $1,084,572
Total Liabilities and Capital $303,136 $659,769 $1,223,140
Net Worth $203,778 $535,436 $1,084,572

7.7 Business Ratios

Standard business ratios are included in the table, based on NAICS code 339920 for the Sporting and Athletic Goods Manufacturing industry. The ratio shows a plan for balanced and healthy growth.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 133.18% 53.85% 8.66%
Percent of Total Assets
Inventory 9.42% 9.39% 7.77% 23.04%
Other Current Assets 0.66% 0.30% 0.16% 22.61%
Total Current Assets 100.00% 100.00% 100.00% 75.65%
Long-term Assets 0.00% 0.00% 0.00% 24.35%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 16.28% 6.56% 5.27% 37.93%
Long-term Liabilities 16.49% 12.28% 6.06% 14.30%
Total Liabilities 32.78% 18.85% 11.33% 52.23%
Net Worth 67.22% 81.15% 88.67% 47.77%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 72.67% 74.57% 74.64% 22.53%
Selling, General & Administrative Expenses 30.26% 44.21% 42.22% 5.73%
Advertising Expenses 2.53% 2.26% 2.06% 0.36%
Profit Before Interest and Taxes 56.55% 40.65% 43.55% 2.95%
Main Ratios
Current 6.14 15.24 18.99 1.88
Quick 5.56 13.81 17.51 1.19
Total Debt to Total Assets 32.78% 18.85% 11.33% 53.00%
Pre-tax Return on Net Worth 128.89% 82.59% 67.51% 4.52%
Pre-tax Return on Assets 86.64% 67.02% 59.86% 9.61%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 41.57% 30.02% 32.31% n.a
Return on Equity 96.67% 61.94% 50.63% n.a
Activity Ratios
Inventory Turnover 10.85 6.21 5.49 n.a
Accounts Payable Turnover 5.45 12.17 12.17 n.a
Payment Days 27 32 25 n.a
Total Asset Turnover 1.56 1.67 1.39 n.a
Debt Ratios
Debt to Net Worth 0.49 0.23 0.13 n.a
Current Liab. to Liab. 0.50 0.35 0.46 n.a
Liquidity Ratios
Net Working Capital $253,778 $616,486 $1,158,722 n.a
Interest Coverage 50.28 65.27 90.86 n.a
Additional Ratios
Assets to Sales 0.64 0.60 0.72 n.a
Current Debt/Total Assets 16% 7% 5% n.a
Acid Test 5.56 13.81 17.51 n.a
Sales/Net Worth 2.33 2.06 1.57 n.a
Dividend Payout 0.00 0.00 0.00 n.a