Staryoo.com

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Investment Website Business Plan

Financial Plan

Ideally, Staryoo.com wants to bring in as much as several million dollars of equity investment from investors compatible with our growth plans, management style, and vision, in return for a fair equity ownership. The infusion would allow for a buffer of excess cash so that the membership growth plan can be increased and revised on short notice. This plan does not refer to specifics regarding the structure of this equity partnership but will be discussed with suitable partners. As has been mentioned elsewhere in this plan, the exit strategy for any equity partner is through an IPO planned for Q4 2002.

We feel that the financial plan for Staryoo.com is based on conservative estimates and assumptions, but depend upon the initial equity investment to make it work. Membership growth is of paramount importance and is accomplished through increased advertising and customer service support. Initial break-even membership occurs at approximately 67,500 members, which is forecasted in October, 2001. Profitability is not expected until after 2002 due to increased capital expenditures each year and the resulting increased depreciation expenses.

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. 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 and stock market, without major recession.
  • We assume, of course, that there are no unforeseen changes in technology to make the Staryoo.com trading platform and website immediately obsolete.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 5.00% 5.00% 5.00%
Long-term Interest Rate 7.00% 7.00% 7.00%
Tax Rate 34.58% 35.00% 34.58%
Other 0 0 0

7.2 Key Financial Indicators

The following benchmark chart indicates our key financial indicators for the first three years. We foresee major growth in sales as well as corresponding operating expenses.

7.3 Break-even Analysis

The following chart and table summarize our break-even analysis, with fixed costs per month at the time of platform deployment, and the amount of revenue we need to establish to break even. Staryoo.com does not expect to reach break-even membership until October, 2001.
Break-even Analysis
Monthly Revenue Break-even $188,395
Assumptions:
Average Percent Variable Cost 10%
Estimated Monthly Fixed Cost $169,555

7.4 Projected Profit and Loss

Staryoo.com's projected profit and loss is shown on the following table, with sales increasing steadily from 2000 through 2002. Significant losses are incurred in the first two years as start-up expenses are sustained and profitability is not expected until after the third year due to increased capital expenditures resulting in increased depreciation expenses.

The following assumptions were made with respect to these projections:

  • All revenue streams except Membership Fees will be fully implemented at deployment (June 1, 2000).
  • Slightly higher direct costs of sales mainly due to creating advertising banners, etc. for advertisers and promotional items.
  • Facility Space increases - China: January 1, 2001 into 10,000 sq. ft. @ $5,000/mo., U.S.: June 1, 2001 into 2,500 sq. ft. @ $3.00/sq. ft./mo.
  • Technology expenses are associated with the continued development of infrastructure for the website.
  • Information expenses are associated with the purchase and translation of information including RT quotes, local and foreign news, and market information.
  • Capital expenditures are increased in 2002 and leads to the increased depreciation expense.
  • Depreciation expense is figured on a three-year, straight-line basis.
  • Line Charge expenses are associated with the rented bandwidth and telephone lines required for the pager alert features.
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $320,012 $3,594,920 $9,650,160
Direct Cost of Sales $32,001 $359,492 $965,016
Other $0 $0 $0
Total Cost of Sales $32,001 $359,492 $965,016
Gross Margin $288,011 $3,235,428 $8,685,144
Gross Margin % 90.00% 90.00% 90.00%
Expenses
Payroll $485,150 $1,152,200 $2,550,000
Sales and Marketing and Other Expenses $1,200,000 $1,975,000 $3,300,000
Depreciation $0 $0 $0
Line Charges $50,000 $75,000 $150,000
Utilities $16,000 $35,000 $75,000
Technology $200,000 $250,000 $400,000
Rent $35,000 $105,000 $200,000
Payroll Taxes $48,515 $115,220 $255,000
Other $0 $0 $0
Total Operating Expenses $2,034,665 $3,707,420 $6,930,000
Profit Before Interest and Taxes ($1,746,654) ($471,992) $1,755,144
EBITDA ($1,746,654) ($471,992) $1,755,144
Interest Expense $625 $0 $0
Taxes Incurred $0 $0 $606,987
Net Profit ($1,747,279) ($471,992) $1,148,157
Net Profit/Sales -546.00% -13.13% 11.90%

7.5 Projected Cash Flow

The projected cash flow reflects venture capital investment in 2000, Q1 2001, Q3 2001,Q1 2002 and an initial public offering in Q4 2002. The delay in venture investment required between 2000 and 2001 is due to the expected increases in equipment and software development required to:

  1. Make U.S. equities markets available to Chinese investors in Q1 2001, and
  2. Deploy the trading platform in the U.S. by Q2 2002.

Note that excluding the capital purchases in 2001 and the capital input, Staryoo.com has become marginally cash flow positive by the second year.

The timeline and amounts for the capital expenditures through 2001 are as follows:

ItemTime FrameAmount
Computer Equipment05/31/00$800,000
Computer Equipment (capacity increase-China)09/30/00$500,000
Leasehold Improvements01/01/01$100,000
Software01/15/01$750,000
Computer Equipment (capacity increase-China)01/15/01$1,000,000
Leasehold Improvements (2,500 sq. ft. facility-USA)06/01/01$150,000
Computer Equipment (equipment for USA)06/15/01$1,000,000
Equipment/Improvements2002$6,000,000

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $320,012 $3,594,920 $9,650,160
Subtotal Cash from Operations $320,012 $3,594,920 $9,650,160
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $50,000 $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 $4,000,000 $4,000,000 $18,600,000
Subtotal Cash Received $4,370,012 $7,594,920 $28,250,160
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $485,150 $1,152,200 $2,550,000
Bill Payments $1,374,290 $2,882,998 $5,702,363
Subtotal Spent on Operations $1,859,440 $4,035,198 $8,252,363
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $50,000 $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 $1,300,000 $3,000,000 $6,000,000
Dividends $0 $0 $0
Subtotal Cash Spent $3,209,440 $7,035,198 $14,252,363
Net Cash Flow $1,160,572 $559,722 $13,997,797
Cash Balance $1,260,572 $1,820,294 $15,818,091

7.6 Projected Balance Sheet

The following Balance Sheet shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $1,260,572 $1,820,294 $15,818,091
Other Current Assets $0 $0 $0
Total Current Assets $1,260,572 $1,820,294 $15,818,091
Long-term Assets
Long-term Assets $1,350,000 $4,350,000 $10,350,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $1,350,000 $4,350,000 $10,350,000
Total Assets $2,610,572 $6,170,294 $26,168,091
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $207,852 $239,565 $489,206
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $207,852 $239,565 $489,206
Long-term Liabilities $0 $0 $0
Total Liabilities $207,852 $239,565 $489,206
Paid-in Capital $4,435,000 $8,435,000 $27,035,000
Retained Earnings ($285,000) ($2,032,279) ($2,504,271)
Earnings ($1,747,279) ($471,992) $1,148,157
Total Capital $2,402,721 $5,930,729 $25,678,886
Total Liabilities and Capital $2,610,572 $6,170,294 $26,168,091
Net Worth $2,402,721 $5,930,729 $25,678,886

7.7 Business Ratios

We expect to maintain healthy ratios for risk and return, while steadily improving our Net Profit Margin, Return on Assets, and Return on Equity. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7379, Computer Related Services, nec., are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 1023.37% 168.44% 7.20%
Percent of Total Assets
Other Current Assets 0.00% 0.00% 0.00% 46.70%
Total Current Assets 48.29% 29.50% 60.45% 71.90%
Long-term Assets 51.71% 70.50% 39.55% 28.10%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 7.96% 3.88% 1.87% 51.40%
Long-term Liabilities 0.00% 0.00% 0.00% 19.10%
Total Liabilities 7.96% 3.88% 1.87% 70.50%
Net Worth 92.04% 96.12% 98.13% 29.50%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 90.00% 90.00% 90.00% 0.00%
Selling, General & Administrative Expenses 636.00% 103.13% 78.18% 80.70%
Advertising Expenses 218.74% 33.38% 17.62% 1.20%
Profit Before Interest and Taxes -545.81% -13.13% 18.19% 1.70%
Main Ratios
Current 6.06 7.60 32.33 1.27
Quick 6.06 7.60 32.33 1.01
Total Debt to Total Assets 7.96% 3.88% 1.87% 70.50%
Pre-tax Return on Net Worth -72.72% -7.96% 6.83% 3.50%
Pre-tax Return on Assets -66.93% -7.65% 6.71% 11.80%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -546.00% -13.13% 11.90% n.a
Return on Equity -72.72% -7.96% 4.47% n.a
Activity Ratios
Accounts Payable Turnover 7.61 12.17 12.17 n.a
Payment Days 27 28 22 n.a
Total Asset Turnover 0.12 0.58 0.37 n.a
Debt Ratios
Debt to Net Worth 0.09 0.04 0.02 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $1,052,721 $1,580,729 $15,328,886 n.a
Interest Coverage -2,794.65 0.00 0.00 n.a
Additional Ratios
Assets to Sales 8.16 1.72 2.71 n.a
Current Debt/Total Assets 8% 4% 2% n.a
Acid Test 6.06 7.60 32.33 n.a
Sales/Net Worth 0.13 0.61 0.38 n.a
Dividend Payout 0.00 0.00 0.00 n.a