The company is raising significant new investment for the purpose of growth and operations. This funding will cover operating expenses and product development during this period.
7.1 Important Assumptions
The company operates as a Virginia Corporation. The following financial projection is based on sales volume at the levels described in the revenue section and presents, to the best of management's knowledge and belief, the company's expected assets, liabilities, capital, revenues, and expenses. The projections reflect management's judgement of the expected conditions and its expected course of action given the hypothetical assumptions.
The table below provides significant assumptions that drive the company's financial projections.
General Assumptions
2000
2001
2002
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 Break-even Analysis
The following chart and table provide the Break-even Assumptions for Web Services Provider.
Break-even Analysis
Monthly Revenue Break-even
$106,438
Assumptions:
Average Percent Variable Cost
7%
Estimated Monthly Fixed Cost
$99,342
7.3 Projected Profit and Loss
Web Services Provider is in the early stage of development, thus initial projections have only been made on accounts that are believed to most drive the income statement.
Pro Forma Profit and Loss
2000
2001
2002
Sales
$1,500,000
$4,500,000
$7,500,000
Direct Cost of Sales
$100,000
$150,000
$200,000
Other
$50,000
$50,000
$50,000
Total Cost of Sales
$150,000
$200,000
$250,000
Gross Margin
$1,350,000
$4,300,000
$7,250,000
Gross Margin %
90.00%
95.56%
96.67%
Expenses
Payroll
$480,000
$627,000
$838,000
Sales and Marketing and Other Expenses
$249,500
$453,000
$675,000
Depreciation
$4,200
$4,500
$5,000
Repairs and Maintenance
$12,000
$18,000
$30,000
Bank Charges
$2,000
$2,000
$2,000
Insurance
$6,000
$7,000
$8,000
Rent
$40,000
$45,000
$48,000
Depreciation
$14,400
$20,000
$20,000
Software
$12,000
$15,000
$24,000
Product Development
$300,000
$300,000
$400,000
Payroll Taxes
$72,000
$94,050
$125,700
Other
$0
$0
$0
Total Operating Expenses
$1,192,100
$1,585,550
$2,175,700
Profit Before Interest and Taxes
$157,900
$2,714,450
$5,074,300
EBITDA
$162,100
$2,718,950
$5,079,300
Interest Expense
$0
$0
$0
Taxes Incurred
$39,802
$678,613
$1,289,718
Net Profit
$118,098
$2,035,838
$3,784,582
Net Profit/Sales
7.87%
45.24%
50.46%
7.4 Projected Cash Flow
The chart and table below depict the projected cash flow for the company.
Pro Forma Cash Flow
2000
2001
2002
Cash Received
Cash from Operations
Cash Sales
$0
$0
$0
Cash from Receivables
$1,268,367
$4,008,333
$7,008,333
Subtotal Cash from Operations
$1,268,367
$4,008,333
$7,008,333
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
$1,250,000
$0
$0
Subtotal Cash Received
$2,518,367
$4,008,333
$7,008,333
Expenditures
2000
2001
2002
Expenditures from Operations
Cash Spending
$480,000
$627,000
$838,000
Bill Payments
$835,682
$1,754,052
$2,786,959
Subtotal Spent on Operations
$1,315,682
$2,381,052
$3,624,959
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out
$0
$0
$0
Principal Repayment of Current Borrowing
$500
$0
$0
Other Liabilities Principal Repayment
$10,900
$0
$0
Long-term Liabilities Principal Repayment
$3,550
$0
$0
Purchase Other Current Assets
$0
$0
$0
Purchase Long-term Assets
$600,000
$300,000
$300,000
Dividends
$0
$0
$0
Subtotal Cash Spent
$1,930,632
$2,681,052
$3,924,959
Net Cash Flow
$587,734
$1,327,281
$3,083,375
Cash Balance
$590,184
$1,917,466
$5,000,840
7.5 Projected Balance Sheet
Projected Balance Sheets for 2000 - 2002 can be found in the table below, and in the appendices.
Pro Forma Balance Sheet
2000
2001
2002
Assets
Current Assets
Cash
$590,184
$1,917,466
$5,000,840
Accounts Receivable
$245,833
$737,500
$1,229,167
Other Current Assets
$1,050
$1,050
$1,050
Total Current Assets
$837,068
$2,656,016
$6,231,057
Long-term Assets
Long-term Assets
$605,250
$905,250
$1,205,250
Accumulated Depreciation
$5,200
$9,700
$14,700
Total Long-term Assets
$600,050
$895,550
$1,190,550
Total Assets
$1,437,118
$3,551,566
$7,421,607
Liabilities and Capital
2000
2001
2002
Current Liabilities
Accounts Payable
$72,019
$150,630
$236,089
Current Borrowing
$0
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$72,019
$150,630
$236,089
Long-term Liabilities
$0
$0
$0
Total Liabilities
$72,019
$150,630
$236,089
Paid-in Capital
$1,350,000
$1,350,000
$1,350,000
Retained Earnings
($103,000)
$15,098
$2,050,936
Earnings
$118,098
$2,035,838
$3,784,582
Total Capital
$1,365,098
$3,400,936
$7,185,518
Total Liabilities and Capital
$1,437,118
$3,551,566
$7,421,607
Net Worth
$1,365,098
$3,400,936
$7,185,518
7.6 Business Ratios
The following table outlines some of the more important ratios from the information retrieval industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7375.
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