Aero Technologies

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Integrated Communications Business Plan

Financial Plan

We want to finance growth mainly through cash flow and equity. We recognize that this means we will have to grow more slowly than we might like.

The most important factor in our case is collection days. We can't push our clients hard on collection days, because they are in larger companies and will normally have marketing authority, not financial authority. Therefore we need to develop a permanent system of receivables financing, using one of the established accounting systems. In turn we intend to ensure that our investors are compatible with our growth plan, management style and vision. Compatibility in this regard means:

  • A fundamental respect for giving our customers value, and for maintaining a healthy and congenial workplace.
  • Respect for realistic forecasts, and conservative cash flow and financial management.
  • Cash flow as first priority, growth second, profits third.
  • Willingness to follow the project objectives and contribute valuable input to strategy and implementation decisions.

With sufficient working capital the forecasted revenues and sales should be within the forecasted market demands for the company's services. From the second year onwards, the various divisions should be able to bring in adequate sales revenues. It is assumed that by then the objective of investing in computer equipment and retraining will have taken effect, the trained technicians will have become adept at their crafts and new service offers for corporate clients will be added to the company's product line on a regular basis.

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 economic policy to make our clients' products immediately obsolete, though we do forecast technological changes.
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 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Key Financial Indicators

We foresee a slow initial growth in sales, though operating expenses will be relatively high, and a bump in our sales and revenue generation as we spread our services during expansion.

Collection days are very important. We do not want to let our average collection days get above the client's actual subscription period under any circumstances. This could cause a serious problem with cash flow, because our working capital situation is chronically tight. However, we recognize that we cannot control this factor easily, because of the relationship we wish to create with our clients.

7.3 Break-even Analysis

Our Break-even Analysis will be based on running costs, that is, costs we shall incur in keeping the business running, including salaries and wages, rent, computer maintenance costs, water and electricity, and insurance amongst others. Hence many fixed costs shall be included in these costs. We will thus ensure that our sales levels are running comfortably above break-even.

The following table summarizes our break-even analysis.

Break-even Analysis
Monthly Revenue Break-even $93,300
Assumptions:
Average Percent Variable Cost 50%
Estimated Monthly Fixed Cost $46,650

7.4 Projected Profit and Loss

The following table presents the profit and loss information for Aero Technologies.

Initial marketing and training expenses will be relatively high as we seek to become known on the market and staff get trained in provision of our services. This will be brought about by the development of sales literature, advertising expenses, function expenses including lunches and dinners with interested stakeholders. As our market share increases and capital is generated, further marketing programs and the expansion of those in existence at the time will be undertaken, to ensure market development. However with time these programs will start generating revenue for the business, which we shall in turn reinvest.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $820,000 $1,230,000 $1,835,000
Direct Cost of Sales $410,000 $492,000 $734,000
Other $0 $0 $0
Total Cost of Sales $410,000 $492,000 $734,000
Gross Margin $410,000 $738,000 $1,101,000
Gross Margin % 50.00% 60.00% 60.00%
Expenses
Payroll $474,600 $557,280 $689,520
Sales and Marketing and Other Expenses $39,600 $0 $0
Depreciation $0 $0 $0
Leased Equipment $0 $0 $0
Utilities $3,600 $0 $0
Insurance $18,000 $0 $0
Rent $24,000 $0 $0
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $559,800 $557,280 $689,520
Profit Before Interest and Taxes ($149,800) $180,720 $411,480
EBITDA ($149,800) $180,720 $411,480
Interest Expense $0 $0 $0
Taxes Incurred $0 $45,180 $104,585
Net Profit ($149,800) $135,540 $306,895
Net Profit/Sales -18.27% 11.02% 16.72%

7.5 Projected Cash Flow

The chart and table below provide details to the company's cash flow situation. The chart shows a monthly breakdown while the table shows a year-end statement.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $205,000 $307,500 $458,750
Cash from Receivables $474,875 $852,438 $1,272,865
Subtotal Cash from Operations $679,875 $1,159,938 $1,731,615
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 $679,875 $1,159,938 $1,731,615
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $474,600 $557,280 $689,520
Bill Payments $495,395 $554,674 $842,976
Subtotal Spent on Operations $969,995 $1,111,954 $1,532,496
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 $0 $0 $0
Subtotal Cash Spent $969,995 $1,111,954 $1,532,496
Net Cash Flow ($290,120) $47,983 $199,119
Cash Balance $59,880 $107,863 $306,982

7.6 Projected Balance Sheet

The Balance Sheet below highlights the important numbers for the company.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $59,880 $107,863 $306,982
Accounts Receivable $140,125 $210,188 $313,572
Inventory $52,250 $62,700 $93,540
Other Current Assets $0 $0 $0
Total Current Assets $252,255 $380,751 $714,095
Long-term Assets
Long-term Assets $1,012,400 $1,012,400 $1,012,400
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $1,012,400 $1,012,400 $1,012,400
Total Assets $1,264,655 $1,393,151 $1,726,495
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $52,055 $45,011 $71,460
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $52,055 $45,011 $71,460
Long-term Liabilities $0 $0 $0
Total Liabilities $52,055 $45,011 $71,460
Paid-in Capital $2,554,400 $2,554,400 $2,554,400
Retained Earnings ($1,192,000) ($1,341,800) ($1,206,260)
Earnings ($149,800) $135,540 $306,895
Total Capital $1,212,600 $1,348,140 $1,655,036
Total Liabilities and Capital $1,264,655 $1,393,151 $1,726,495
Net Worth $1,212,600 $1,348,140 $1,655,035

7.7 Business Ratios

The following table presents important business ratios for Aero Technology. These figures come from the communications services industry, as determined by the Standard Industry Classification (SIC) Index.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 50.00% 49.19% 0.00%
Percent of Total Assets
Accounts Receivable 11.08% 15.09% 18.16% 0.00%
Inventory 4.13% 4.50% 5.42% 0.00%
Other Current Assets 0.00% 0.00% 0.00% 100.00%
Total Current Assets 19.95% 27.33% 41.36% 100.00%
Long-term Assets 80.05% 72.67% 58.64% 0.00%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 4.12% 3.23% 4.14% 0.00%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00%
Total Liabilities 4.12% 3.23% 4.14% 0.00%
Net Worth 95.88% 96.77% 95.86% 100.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 50.00% 60.00% 60.00% 0.00%
Selling, General & Administrative Expenses 79.98% 48.98% 43.18% 0.00%
Advertising Expenses 2.56% 0.00% 0.00% 0.00%
Profit Before Interest and Taxes -18.27% 14.69% 22.42% 0.00%
Main Ratios
Current 4.85 8.46 9.99 0.00
Quick 3.84 7.07 8.68 0.00
Total Debt to Total Assets 4.12% 3.23% 4.14% 0.00%
Pre-tax Return on Net Worth -12.35% 13.41% 24.86% 0.00%
Pre-tax Return on Assets -11.85% 12.97% 23.83% 0.00%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -18.27% 11.02% 16.72% n.a
Return on Equity -12.35% 10.05% 18.54% n.a
Activity Ratios
Accounts Receivable Turnover 4.39 4.39 4.39 n.a
Collection Days 56 69 69 n.a
Inventory Turnover 10.91 8.56 9.40 n.a
Accounts Payable Turnover 10.52 12.17 12.17 n.a
Payment Days 27 32 24 n.a
Total Asset Turnover 0.65 0.88 1.06 n.a
Debt Ratios
Debt to Net Worth 0.04 0.03 0.04 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $200,200 $335,740 $642,635 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 1.54 1.13 0.94 n.a
Current Debt/Total Assets 4% 3% 4% n.a
Acid Test 1.15 2.40 4.30 n.a
Sales/Net Worth 0.68 0.91 1.11 n.a
Dividend Payout 0.00 0.00 0.00 n.a