Adventure Travel International

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International Travel Agency Business Plan

Financial Plan

ATI's financial plan is detailed in following sections. Preliminary estimates suggest that ATI will experience slow growth in the first two quarters of operation. This is partly due to ATI's status as a start-up company and seasonal factors. Income estimates are based, in part, on anticipated revenues from accounts that were secured by ATI employees prior to their departure from former employers. ATI has sufficient cash to endure the negative cash flow situation that it may encounter initially. ATI also anticipates an increase in gross margin and sales volume. Thus, the overall financial plan presents a conservative but realistic depiction of ATI's financial position.

7.1 Important Assumptions

ATI assumes the following:

  • Market growth projections for the travel industry and for adventure travel are accurate.
  • National economic conditions, which are favorable to the travel industry, will not experience significant decline in the next five years.
  • International conditions will remain favorable for service providers and ATI will be able to maintain those relationships.
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 Key Financial Indicators

The following chart indicates ATI's key financial indicators for the first three years. ATI anticipates growth in sales with relatively stable operating expenses. Favorable economic conditions and forecasts of continued growth in the adventure travel market support ATI's planned financial success.

7.3 Break-even Analysis

The following table details ATI's break-even analysis, including monthly sales break-even points.

Break-even calculations assume a 20% gross margin. This is a conservative estimate, and it will be improved as strategic relationships develop and the benefits of ATI's offerings are realized by customers.

Break-even Analysis
Monthly Revenue Break-even $33,902
Assumptions:
Average Percent Variable Cost 78%
Estimated Monthly Fixed Cost $7,375

7.4 Projected Profit and Loss

ATI's profit picture improves as operations progress into the third quarter of the first year of operation. ATI anticipates improving its gross margin from 22% in year one to 23% in year two. Annual estimates of profit and loss are detailed in the following table.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $534,204 $588,069 $646,878
Direct Cost of Sales $417,993 $452,813 $491,627
Other Costs of Sales $0 $0 $0
Total Cost of Sales $417,993 $452,813 $491,627
Gross Margin $116,211 $135,256 $155,251
Gross Margin % 21.75% 23.00% 24.00%
Expenses
Payroll $45,000 $46,248 $47,546
Marketing/Promotion $26,100 $26,280 $26,280
Depreciation $0 $0 $0
Rent $10,500 $10,500 $10,500
Utilities $4,500 $4,500 $4,500
Insurance $2,400 $2,400 $2,400
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $88,500 $89,928 $91,226
Profit Before Interest and Taxes $27,711 $45,328 $64,025
EBITDA $27,711 $45,328 $64,025
Interest Expense $8,078 $7,330 $6,550
Taxes Incurred $5,890 $11,399 $17,243
Net Profit $13,743 $26,599 $40,233
Net Profit/Sales 2.57% 4.52% 6.22%

7.5 Projected Cash Flow

Monthly cash flow is shown in the following illustration. Annual cash flow figures are estimated based on a 60-day collection period. Cash flow for the first year of operation becomes positive mid-year.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $400,653 $441,052 $485,159
Cash from Receivables $100,048 $143,639 $158,031
Subtotal Cash from Operations $500,701 $584,691 $643,190
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 $500,701 $584,691 $643,190
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $45,000 $46,248 $47,546
Bill Payments $415,328 $533,008 $555,493
Subtotal Spent on Operations $460,328 $579,256 $603,039
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 $7,800 $7,800 $7,800
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $468,128 $587,056 $610,839
Net Cash Flow $32,574 ($2,365) $32,351
Cash Balance $67,574 $65,208 $97,559

7.6 Projected Balance Sheet

The pro forma balance sheet indicates sustained and planned growth. Net worth improves considerably in year two and will provide ATI with a strong financial position. Monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $67,574 $65,208 $97,559
Accounts Receivable $33,503 $36,881 $40,569
Other Current Assets $17,500 $17,500 $17,500
Total Current Assets $118,576 $119,589 $155,628
Long-term Assets
Long-term Assets $26,925 $26,925 $26,925
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $26,925 $26,925 $26,925
Total Assets $145,501 $146,514 $182,553
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $60,133 $42,347 $45,953
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $60,133 $42,347 $45,953
Long-term Liabilities $77,200 $69,400 $61,600
Total Liabilities $137,333 $111,747 $107,553
Paid-in Capital $18,000 $18,000 $18,000
Retained Earnings ($23,575) ($9,832) $16,767
Earnings $13,743 $26,599 $40,233
Total Capital $8,168 $34,767 $75,000
Total Liabilities and Capital $145,501 $146,514 $182,553
Net Worth $8,168 $34,767 $75,000

7.7 Business Ratios

The following table details our primary business ratios. Initial analysis indicates that ATI's ratios for profitability, risk, and return are financially favorable and will improve greatly in year two of operation. Industry Profile ratios are based on Standard Industry Classification (SIC) Index code 4724.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.08% 10.00% 4.00%
Percent of Total Assets
Accounts Receivable 23.03% 25.17% 22.22% 25.20%
Other Current Assets 12.03% 11.94% 9.59% 38.80%
Total Current Assets 81.50% 81.62% 85.25% 64.00%
Long-term Assets 18.50% 18.38% 14.75% 36.00%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 41.33% 28.90% 25.17% 39.60%
Long-term Liabilities 53.06% 47.37% 33.74% 16.30%
Total Liabilities 94.39% 76.27% 58.92% 55.90%
Net Worth 5.61% 23.73% 41.08% 44.10%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 21.75% 23.00% 24.00% 38.30%
Selling, General & Administrative Expenses 19.18% 18.48% 17.78% 27.50%
Advertising Expenses 0.00% 0.00% 0.00% 0.40%
Profit Before Interest and Taxes 5.19% 7.71% 9.90% 1.30%
Main Ratios
Current 1.97 2.82 3.39 1.44
Quick 1.97 2.82 3.39 1.13
Total Debt to Total Assets 94.39% 76.27% 58.92% 55.90%
Pre-tax Return on Net Worth 240.36% 109.29% 76.63% 3.20%
Pre-tax Return on Assets 13.49% 25.93% 31.48% 7.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 2.57% 4.52% 6.22% n.a
Return on Equity 168.25% 76.51% 53.64% n.a
Activity Ratios
Accounts Receivable Turnover 3.99 3.99 3.99 n.a
Collection Days 56 87 87 n.a
Accounts Payable Turnover 7.91 12.17 12.17 n.a
Payment Days 27 36 29 n.a
Total Asset Turnover 3.67 4.01 3.54 n.a
Debt Ratios
Debt to Net Worth 16.81 3.21 1.43 n.a
Current Liab. to Liab. 0.44 0.38 0.43 n.a
Liquidity Ratios
Net Working Capital $58,443 $77,242 $109,675 n.a
Interest Coverage 3.43 6.18 9.77 n.a
Additional Ratios
Assets to Sales 0.27 0.25 0.28 n.a
Current Debt/Total Assets 41% 29% 25% n.a
Acid Test 1.41 1.95 2.50 n.a
Sales/Net Worth 65.40 16.91 8.63 n.a
Dividend Payout 0.00 0.00 0.00 n.a