The business of Truckbay does not require substantial outlays for inventory and all sales are on a cash basis, so increases in sales will not be accompanied by initial cash-flow deficits. Once the new listing services are put in place, we expect rapid growth through aggressive, proactive selling by our commissioned sales team. Our financial plan is dependent upon a major change in focus and marketing, to switch from a dealer-based network to a retail one. It also relies on increasing our accessibility with a network of 10 related websites, all driving traffic to the main paid listings. With the advice of Mr. Y and Mr. X, we are confident that we can turn around the financial history of the company, to create a very profitable business. The financial projections are as follows.
8.1 Valuation
We understand that an investor's concern is to recoup his investment with a high profit in a short period of time. Based on the experience of Company X, and with the help of its founders, we conservatively estimate an earnings-based valuation of $5,500,000 for Truckbay in 2007. For an investor contributing $475,000 now, that works out to an ending valuation of $1,043,000, with an IRR of 109%. This valuation is based on an exit strategy of selling the company within 3-5 years to a related corporation (such as eBay). Details of the Investment Analysis can be found below.
Investment Analysis
Start
2005
2006
2007
Initial Investment
Investment
$0
$475,000
$0
$0
Dividends
$0
$0
$300,000
$300,000
Ending Valuation
$0
$0
$0
$1,138,100
Combination as Income Stream
$0
($475,000)
$300,000
$1,438,100
Percent Equity Acquired
19%
Net Present Value (NPV)
$815,074
Internal Rate of Return (IRR)
108%
Assumptions
Discount Rate
10.00%
Valuation Earnings Multiple
10
10
10
Valuation Sales Multiple
2
2
2
Investment (calculated)
$55,000
$475,000
$0
$0
Dividends
$0
$300,000
$300,000
Calculated Earnings-based Valuation
$1,820,000
$4,360,000
$5,990,000
Calculated Sales-based Valuation
$1,650,000
$2,580,000
$3,320,000
Calculated Average Valuation
$1,735,000
$3,470,000
$4,655,000
8.2 Important Assumptions
NOTES FOR PROJECTIONS All sales projections/assumptions are based on historical data referenced from the first three years of Company X.
Other Assumptions:
We can find adequate office space to rent below $11 per square foot - full service in the Atlanta market.
We can recruit a highly skilled Web Developer for $78,000 salary plus bonus incentives.
The website development is completed by March 1, 2005.
Truckbay's success will be based on the participation level of Mr. Y and Mr. Z.
General Assumptions
2005
2006
2007
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
8.3 Break-even Analysis
The following table shows the break-even analysis for Truckbay's new websites and sales strategy. The table shows that we need to sell roughly $29,000 of listings each month to break even in the next year. Truckbay will reach its break-even point in April.
Break-even Analysis
Monthly Revenue Break-even
$23,478
Assumptions:
Average Percent Variable Cost
15%
Estimated Monthly Fixed Cost
$20,063
8.4 Projected Profit and Loss
The following table and charts shows our projected Profit and Loss for the next three years. Monthly details can be found in the Appendix. Our sales team salaries are counted as part of our direct cost of sales, for the purpose of calculating our gross margin.
Pro Forma Profit and Loss
2005
2006
2007
Sales
$824,870
$1,291,500
$1,662,000
Direct Cost of Sales
$120,000
$150,000
$250,000
Sales Team Payroll
$203,928
$270,050
$307,100
Other Costs of Sales
$0
$0
$0
Total Cost of Sales
$323,928
$420,050
$557,100
Gross Margin
$500,942
$871,450
$1,104,900
Gross Margin %
60.73%
67.48%
66.48%
Operating Expenses
Development Expenses
Development Payroll
$108,000
$113,000
$113,000
Training
$4,000
$6,000
$6,000
Other Development Expenses
$0
$0
$0
Total Development Expenses
$112,000
$119,000
$119,000
Development %
13.58%
9.21%
7.16%
General and Administrative Expenses
General and Administrative Payroll
$60,000
$60,000
$60,000
Marketing/Promotion
$5,000
$5,000
$5,000
Depreciation
$2,400
$2,400
$2,400
Rent
$19,200
$19,200
$19,200
Utilities
$6,000
$6,000
$6,000
Insurance
$3,000
$3,000
$3,000
Payroll Taxes
$0
$0
$0
Other
$12,000
$12,000
$12,000
Total General and Administrative Expenses
$107,600
$107,600
$107,600
General and Administrative %
13.04%
8.33%
6.47%
Other Expenses:
Other Payroll
$0
$0
$0
Meals and Entertainment
$4,000
$6,000
$6,000
Trade Shows and Association Dues
$4,000
$4,000
$4,000
Subscriptions
$150
$150
$150
Business Travel
$13,000
$12,000
$12,000
Total Other Expenses
$21,150
$22,150
$22,150
Other %
2.56%
1.72%
1.33%
Total Operating Expenses
$240,750
$248,750
$248,750
Profit Before Interest and Taxes
$260,191
$622,700
$856,150
EBITDA
$262,591
$625,100
$858,550
Interest Expense
$510
$175
$0
Taxes Incurred
$77,904
$186,757
$256,845
Net Profit
$181,777
$435,768
$599,305
Net Profit/Sales
22.04%
33.74%
36.06%
8.5 Projected Cash Flow
The cash flow projection shows that provisions for ongoing expenses are adequate to meet the needs of the company as the business generates sufficient cash flow to support operations. We will collect all fees up front from our customers and pay commissions at the end of each month.
Pro Forma Cash Flow
2005
2006
2007
Cash Received
Cash from Operations
Cash Sales
$824,870
$1,291,500
$1,662,000
Subtotal Cash from Operations
$824,870
$1,291,500
$1,662,000
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
$475,000
$0
$0
Subtotal Cash Received
$1,299,870
$1,291,500
$1,662,000
Expenditures
2005
2006
2007
Expenditures from Operations
Cash Spending
$371,928
$443,050
$480,100
Bill Payments
$240,028
$405,298
$566,230
Subtotal Spent on Operations
$611,956
$848,348
$1,046,330
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out
$0
$0
$0
Principal Repayment of Current Borrowing
$3,500
$3,500
$0
Other Liabilities Principal Repayment
$0
$0
$0
Long-term Liabilities Principal Repayment
$0
$0
$0
Purchase Other Current Assets
$10,000
$0
$0
Purchase Long-term Assets
$0
$0
$0
Dividends
$0
$300,000
$300,000
Subtotal Cash Spent
$625,456
$1,151,848
$1,346,330
Net Cash Flow
$674,414
$139,652
$315,670
Cash Balance
$678,414
$818,066
$1,133,737
8.6 Projected Balance Sheet
The following table shows our projected Balance Sheet. We plan to repay our current credit card debt within two years. With the help help of Company X's founders, we should increase the net worth of the business significantly over the next three years.
Pro Forma Balance Sheet
2005
2006
2007
Assets
Current Assets
Cash
$678,414
$818,066
$1,133,737
Other Current Assets
$10,001
$10,001
$10,001
Total Current Assets
$688,415
$828,067
$1,143,738
Long-term Assets
Long-term Assets
$26,000
$26,000
$26,000
Accumulated Depreciation
$13,400
$15,800
$18,200
Total Long-term Assets
$12,600
$10,200
$7,800
Total Assets
$701,015
$838,267
$1,151,538
Liabilities and Capital
2005
2006
2007
Current Liabilities
Accounts Payable
$28,737
$33,722
$47,687
Current Borrowing
$3,500
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$32,237
$33,722
$47,687
Long-term Liabilities
$0
$0
$0
Total Liabilities
$32,237
$33,722
$47,687
Paid-in Capital
$530,000
$530,000
$530,000
Retained Earnings
($42,999)
($161,222)
($25,455)
Earnings
$181,777
$435,768
$599,305
Total Capital
$668,778
$804,545
$1,103,850
Total Liabilities and Capital
$701,015
$838,267
$1,151,538
Net Worth
$668,778
$804,545
$1,103,850
8.7 Business Ratios
Truckbay's ratios can be seen in the table below. For comparison, we have included standard business ratios for the Electronic media advertising representatives industry, SIC Code 7313.01.
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