Machine Tooling

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Machine Tooling Business Plan

Financial Plan

The company is seeking $500,000 for expansion purposes. The use of funds will be broken down as follows:

Marketing of new product lines$30,000
Growth into new markets$50,000
Purchasing additional equipment$270,000
Working Capital$100,000
Other (Debt Management)$50,000

7.1 Important Assumptions

Important assumptions for this plan are found in the following table.

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

Machine Tooling is operating well above the break-even point.

Break-even Analysis
Monthly Revenue Break-even $90,953
Assumptions:
Average Percent Variable Cost 20%
Estimated Monthly Fixed Cost $72,391

7.3 Projected Profit and Loss

The table below provides Machine Tooling's projected income statements for 2000-2002.

Pro Forma Profit and Loss
2000 2001 2002
Sales $1,960,000 $4,060,000 $5,260,000
Direct Cost of Sales $400,000 $827,000 $1,069,000
Production Personnel $350,040 $600,000 $650,000
Total Cost of Sales $750,040 $1,427,000 $1,719,000
Gross Margin $1,209,960 $2,633,000 $3,541,000
Gross Margin % 61.73% 64.85% 67.32%
Expenses
Payroll $285,000 $310,000 $350,000
Marketing/Promotion $167,900 $220,000 $265,000
Depreciation $9,996 $30,000 $40,000
Quality Assurance $93,800 $104,000 $125,000
General & Administrative $96,000 $124,000 $174,000
Manufacturing & Engineering $129,600 $130,000 $175,000
Machining & Systems Building $86,400 $100,000 $110,000
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $868,696 $1,018,000 $1,239,000
Profit Before Interest and Taxes $341,264 $1,615,000 $2,302,000
EBITDA $351,260 $1,645,000 $2,342,000
Interest Expense $47,705 $29,150 $12,470
Taxes Incurred $74,621 $396,463 $581,922
Net Profit $218,938 $1,189,388 $1,707,608
Net Profit/Sales 11.17% 29.30% 32.46%

7.4 Projected Cash Flow

The company's projected cash flow statements are presented below.

  • The existing short-term liabilities ($50,000 in total) are paid out in ten monthly payments of $5,000 each starting in March, 2000.

  • The $500,000 long-term loan is expected to be secured in January, 2000 (two payments of $250,000 each are expected in January and February). This loan will be repaid quarterly over three years.

  • In April, $50,000 from the expected loan will be used to completely repay the existing long-term obligations.

  • After that, in May and July, 2000, the company will purchase additional equipment and buildings in the total amount of $270,000.

  • In years 2001 and 2002, further capital expenditures in the amount of $200,000 and $300,000, respectively, are planned to accommodate for increased sales. In both cases, "ten year, straight-line" depreciation is assumed.
Pro Forma Cash Flow
2000 2001 2002
Cash Received
Cash from Operations
Cash Sales $490,000 $1,015,000 $1,315,000
Cash from Receivables $1,352,925 $2,780,277 $3,793,730
Subtotal Cash from Operations $1,842,925 $3,795,277 $5,108,730
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 $500,000 $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 $2,342,925 $3,795,277 $5,108,730
Expenditures 2000 2001 2002
Expenditures from Operations
Cash Spending $285,000 $310,000 $350,000
Bill Payments $1,350,401 $2,477,107 $3,134,443
Subtotal Spent on Operations $1,635,401 $2,787,107 $3,484,443
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 $175,100 $166,800 $166,800
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $270,000 $200,000 $300,000
Dividends $0 $0 $0
Subtotal Cash Spent $2,130,501 $3,153,907 $3,951,243
Net Cash Flow $212,424 $641,370 $1,157,487
Cash Balance $272,424 $913,793 $2,071,280

7.5 Balance Sheet

The company's projected balance sheets for 2000-2002 are presented below.

Pro Forma Balance Sheet
2000 2001 2002
Assets
Current Assets
Cash $272,424 $913,793 $2,071,280
Accounts Receivable $247,075 $511,798 $663,069
Inventory $37,290 $77,097 $99,658
Other Current Assets $15,000 $15,000 $15,000
Total Current Assets $571,789 $1,517,689 $2,849,006
Long-term Assets
Long-term Assets $370,000 $570,000 $870,000
Accumulated Depreciation $39,996 $69,996 $109,996
Total Long-term Assets $330,004 $500,004 $760,004
Total Assets $901,793 $2,017,693 $3,609,010
Liabilities and Capital 2000 2001 2002
Current Liabilities
Accounts Payable $117,955 $211,267 $261,777
Current Borrowing $0 $0 $0
Other Current Liabilities $10,000 $10,000 $10,000
Subtotal Current Liabilities $127,955 $221,267 $271,777
Long-term Liabilities $374,900 $208,100 $41,300
Total Liabilities $502,855 $429,367 $313,077
Paid-in Capital $50,000 $50,000 $50,000
Retained Earnings $130,000 $348,938 $1,538,325
Earnings $218,938 $1,189,388 $1,707,608
Total Capital $398,938 $1,588,325 $3,295,933
Total Liabilities and Capital $901,793 $2,017,693 $3,609,010
Net Worth $398,938 $1,588,325 $3,295,933

7.6 Business Ratios

The following table gives a detailed ratio analysis for Machine Tooling. The last column, Industry Profiles, is derived from the general machine industry, as described by the Standard Industry Classification (SIC) Index code 3569, General Industrial Machinery, NEC.

Ratio Analysis
2000 2001 2002 Industry Profile
Sales Growth 30.67% 107.14% 29.56% -0.50%
Percent of Total Assets
Accounts Receivable 27.40% 25.37% 18.37% 24.80%
Inventory 4.14% 3.82% 2.76% 26.10%
Other Current Assets 1.66% 0.74% 0.42% 24.20%
Total Current Assets 63.41% 75.22% 78.94% 75.10%
Long-term Assets 36.59% 24.78% 21.06% 24.90%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 14.19% 10.97% 7.53% 35.70%
Long-term Liabilities 41.57% 10.31% 1.14% 18.50%
Total Liabilities 55.76% 21.28% 8.67% 54.20%
Net Worth 44.24% 78.72% 91.33% 45.80%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 61.73% 64.85% 67.32% 35.80%
Selling, General & Administrative Expenses 72.00% 52.86% 49.17% 20.80%
Advertising Expenses 2.27% 1.60% 1.33% 0.70%
Profit Before Interest and Taxes 17.41% 39.78% 43.76% 4.00%
Main Ratios
Current 4.47 6.86 10.48 2.20
Quick 4.18 6.51 10.12 1.15
Total Debt to Total Assets 55.76% 21.28% 8.67% 54.20%
Pre-tax Return on Net Worth 73.59% 99.84% 69.47% 7.30%
Pre-tax Return on Assets 32.55% 78.60% 63.44% 16.00%
Additional Ratios 2000 2001 2002
Net Profit Margin 11.17% 29.30% 32.46% n.a
Return on Equity 54.88% 74.88% 51.81% n.a
Activity Ratios
Accounts Receivable Turnover 5.95 5.95 5.95 n.a
Collection Days 59 45 54 n.a
Inventory Turnover 10.42 14.46 12.10 n.a
Accounts Payable Turnover 11.81 12.17 12.17 n.a
Payment Days 29 23 27 n.a
Total Asset Turnover 2.17 2.01 1.46 n.a
Debt Ratios
Debt to Net Worth 1.26 0.27 0.09 n.a
Current Liab. to Liab. 0.25 0.52 0.87 n.a
Liquidity Ratios
Net Working Capital $443,834 $1,296,421 $2,577,229 n.a
Interest Coverage 7.15 55.40 184.60 n.a
Additional Ratios
Assets to Sales 0.46 0.50 0.69 n.a
Current Debt/Total Assets 14% 11% 8% n.a
Acid Test 2.25 4.20 7.68 n.a
Sales/Net Worth 4.91 2.56 1.60 n.a
Dividend Payout 0.00 0.00 0.00 n.a