Royal's Software

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Inventory Control Software Business Plan

Financial Plan

The following is the financial plan for Royal's Software. The plan includes:

  • Break-even point;
  • Projected profit and loss;
  • Projected cash flow;
  • Projected balance sheet.

7.1 Break-even Analysis

The estimated monthly fixed cost and monthly break-even point are shown below.

Break-even Analysis
Monthly Revenue Break-even $37,152
Assumptions:
Average Percent Variable Cost 2%
Estimated Monthly Fixed Cost $36,358

7.2 Projected Profit and Loss

The following table and charts highlight the projected profit and loss for the next three years.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $524,000 $650,000 $780,000
Direct Cost of Sales $11,190 $13,500 $16,500
Other Production Expenses $0 $0 $0
Total Cost of Sales $11,190 $13,500 $16,500
Gross Margin $512,810 $636,500 $763,500
Gross Margin % 97.86% 97.92% 97.88%
Expenses
Payroll $270,000 $383,000 $446,000
Sales and Marketing and Other Expenses $101,600 $146,000 $174,000
Depreciation $0 $0 $0
Leased Equipment $5,000 $0 $0
Utilities $4,800 $4,800 $4,800
Insurance $2,400 $2,400 $2,400
Rent $12,000 $12,000 $12,000
Payroll Taxes $40,500 $57,450 $66,900
Other $0 $0 $0
Total Operating Expenses $436,300 $605,650 $706,100
Profit Before Interest and Taxes $76,510 $30,850 $57,400
EBITDA $76,510 $30,850 $57,400
Interest Expense $8,917 $7,001 $5,002
Taxes Incurred $20,278 $7,155 $15,719
Net Profit $47,315 $16,694 $36,679
Net Profit/Sales 9.03% 2.57% 4.70%

7.3 Projected Cash Flow

The following table and chart highlight the projected cash flow for the next three years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $131,000 $162,500 $195,000
Cash from Receivables $307,375 $466,911 $563,757
Subtotal Cash from Operations $438,375 $629,411 $758,757
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 $438,375 $629,411 $758,757
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $270,000 $383,000 $446,000
Bill Payments $177,952 $258,466 $293,457
Subtotal Spent on Operations $447,952 $641,466 $739,457
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 $19,992 $19,992 $19,992
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $467,944 $661,458 $759,449
Net Cash Flow ($29,569) ($32,047) ($692)
Cash Balance $144,931 $112,884 $112,192

7.4 Projected Balance Sheet

The following table highlights the projected balance sheet for the next three years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $144,931 $112,884 $112,192
Accounts Receivable $85,625 $106,214 $127,457
Other Current Assets $10,000 $10,000 $10,000
Total Current Assets $240,556 $229,098 $249,649
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $240,556 $229,098 $249,649
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $28,733 $20,573 $24,437
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $28,733 $20,573 $24,437
Long-term Liabilities $80,008 $60,016 $40,024
Total Liabilities $108,741 $80,589 $64,461
Paid-in Capital $200,000 $200,000 $200,000
Retained Earnings ($115,500) ($68,185) ($51,491)
Earnings $47,315 $16,694 $36,679
Total Capital $131,815 $148,509 $185,188
Total Liabilities and Capital $240,556 $229,098 $249,649
Net Worth $131,815 $148,509 $185,188

7.5 Business Ratios

Industry profile ratios based on the Standard Industrial Classification (SIC) code 7372, Prepackaged Software, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 24.05% 20.00% 9.70%
Percent of Total Assets
Accounts Receivable 35.59% 46.36% 51.05% 21.50%
Other Current Assets 4.16% 4.36% 4.01% 45.70%
Total Current Assets 100.00% 100.00% 100.00% 70.20%
Long-term Assets 0.00% 0.00% 0.00% 29.80%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 11.94% 8.98% 9.79% 42.40%
Long-term Liabilities 33.26% 26.20% 16.03% 19.20%
Total Liabilities 45.20% 35.18% 25.82% 61.60%
Net Worth 54.80% 64.82% 74.18% 38.40%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 97.86% 97.92% 97.88% 100.00%
Selling, General & Administrative Expenses 88.83% 95.35% 93.18% 79.40%
Advertising Expenses 10.00% 10.00% 10.00% 1.30%
Profit Before Interest and Taxes 14.60% 4.75% 7.36% 2.20%
Main Ratios
Current 8.37 11.14 10.22 1.51
Quick 8.37 11.14 10.22 1.16
Total Debt to Total Assets 45.20% 35.18% 25.82% 61.60%
Pre-tax Return on Net Worth 51.28% 16.06% 28.29% 3.50%
Pre-tax Return on Assets 28.10% 10.41% 20.99% 9.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 9.03% 2.57% 4.70% n.a
Return on Equity 35.90% 11.24% 19.81% n.a
Activity Ratios
Accounts Receivable Turnover 4.59 4.59 4.59 n.a
Collection Days 56 72 73 n.a
Accounts Payable Turnover 7.19 12.17 12.17 n.a
Payment Days 31 36 28 n.a
Total Asset Turnover 2.18 2.84 3.12 n.a
Debt Ratios
Debt to Net Worth 0.82 0.54 0.35 n.a
Current Liab. to Liab. 0.26 0.26 0.38 n.a
Liquidity Ratios
Net Working Capital $211,823 $208,525 $225,212 n.a
Interest Coverage 8.58 4.41 11.48 n.a
Additional Ratios
Assets to Sales 0.46 0.35 0.32 n.a
Current Debt/Total Assets 12% 9% 10% n.a
Acid Test 5.39 5.97 5.00 n.a
Sales/Net Worth 3.98 4.38 4.21 n.a
Dividend Payout 0.00 0.00 0.00 n.a