Cambridge Strategy Group

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Marketing Strategy Business Plan

Financial Plan

SUMMARY OF FINANCIALS
The market for the Cambridge Strategy Group's services is enormous. Success in this market will be limited only by the amount of time and effort that CSG spends on finding new clients and managing growth. Since none of CSG members are able to work full-time on this project, early growth will be stifled by lack of commitment. However, if CSG is able to generate substantial work in a pipeline, the members will then consider working for CSG full-time. This will also force CSG to obtain stronger accounting, legal, and financial skills than it currently has available.

7.1 Important Assumptions

FINANCIAL ASSUMPTIONS
Below is a list of assumptions that define the short-term business model:

  • 2001 will be spent preparing and learning how best to approach clients and building relationships with VCs;
  • All managers will hold full-time positions with other companies;
  • We will focus on business opportunities in NC until we create sufficient revenue to open foreign LLC's in other states;
  • 2001 financial model represents only three managers;
  • All revenue is realized when a project is finished;
  • If model proves true in 2001, we will invest more heavily in 2002.
General Assumptions
Year 1 Year 2 Year 3
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

7.2 Key Financial Indicators

The following chart shows the planned benchmarks for Cambridge Strategy Group.

7.3 Break-even Analysis

The following table and chart is the break-even analysis for Cambridge Strategy Group.

Break-even Analysis
Monthly Revenue Break-even $10,316
Assumptions:
Average Percent Variable Cost 13%
Estimated Monthly Fixed Cost $8,975

7.4 Projected Profit and Loss

The following table and chart show the projected profit and loss for Cambridge Strategy.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $18,000 $250,000 $450,000
Direct Cost of Sales $2,340 $46,800 $77,220
Other Production Expenses $0 $0 $0
Total Cost of Sales $2,340 $46,800 $77,220
Gross Margin $15,660 $203,200 $372,780
Gross Margin % 87.00% 81.28% 82.84%
Expenses
Payroll $90,000 $120,000 $260,000
Sales and Marketing and Other Expenses $2,099 $26,000 $46,700
Depreciation $0 $0 $0
Leased Equipment $0 $0 $0
Utilities $899 $2,000 $2,000
Insurance $1,200 $2,500 $2,500
Rent $0 $12,000 $12,000
Payroll Taxes $13,500 $18,000 $39,000
Other $0 $0 $0
Total Operating Expenses $107,698 $180,500 $362,200
Profit Before Interest and Taxes ($92,038) $22,700 $10,580
EBITDA ($92,038) $22,700 $10,580
Interest Expense $0 $0 $0
Taxes Incurred $0 $6,810 $3,174
Net Profit ($92,038) $15,890 $7,406
Net Profit/Sales -511.32% 6.36% 1.65%

7.5 Projected Cash Flow

The following table and chart are the projected cash flow figures for Cambridge Strategy.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $4,500 $62,500 $112,500
Cash from Receivables $11,288 $158,983 $312,917
Subtotal Cash from Operations $15,788 $221,483 $425,417
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 $9,000 $9,000
Subtotal Cash Received $15,788 $230,483 $434,417
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $90,000 $120,000 $260,000
Bill Payments $18,857 $106,412 $176,965
Subtotal Spent on Operations $108,857 $226,412 $436,965
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 $0 $0 $0
Purchase Other Current Assets $0 $4,000 $0
Purchase Long-term Assets $0 $4,000 $0
Dividends $0 $0 $0
Subtotal Cash Spent $108,857 $234,412 $436,965
Net Cash Flow ($93,069) ($3,929) ($2,549)
Cash Balance $14,781 $10,852 $8,303

7.6 Projected Balance Sheet

The following is the projected balance sheet for Cambridge Strategy Group.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $14,781 $10,852 $8,303
Accounts Receivable $2,213 $30,729 $55,313
Other Current Assets $3,000 $7,000 $7,000
Total Current Assets $19,993 $48,581 $70,616
Long-term Assets
Long-term Assets $0 $4,000 $4,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $4,000 $4,000
Total Assets $19,993 $52,581 $74,616
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $1,681 $9,379 $15,008
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $1,681 $9,379 $15,008
Long-term Liabilities $0 $0 $0
Total Liabilities $1,681 $9,379 $15,008
Paid-in Capital $115,000 $124,000 $133,000
Retained Earnings ($4,650) ($96,688) ($80,798)
Earnings ($92,038) $15,890 $7,406
Total Capital $18,312 $43,202 $59,608
Total Liabilities and Capital $19,993 $52,581 $74,616
Net Worth $18,312 $43,202 $59,608

7.7 Business Ratios

Business ratios need to be explained. The industry standards are for the business consulting industry. However, there are some deviation between CSG and the standards that reflect our focus on small businesses. First of all, CSG expects that its sales level will remain high as its seeks to establish itself and expand into new regions. Furthermore, the company expects to have a much higher current and quick ratio as it will need large amounts of cash to handle our expansion. Finally we will keep our advertising costs high to fuel our growing clientele.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 1288.89% 80.00% 8.60%
Percent of Total Assets
Accounts Receivable 11.07% 58.44% 74.13% 24.40%
Other Current Assets 15.01% 13.31% 9.38% 46.70%
Total Current Assets 100.00% 92.39% 94.64% 74.90%
Long-term Assets 0.00% 7.61% 5.36% 25.10%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 8.41% 17.84% 20.11% 42.80%
Long-term Liabilities 0.00% 0.00% 0.00% 17.20%
Total Liabilities 8.41% 17.84% 20.11% 60.00%
Net Worth 91.59% 82.16% 79.89% 40.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 87.00% 81.28% 82.84% 0.00%
Selling, General & Administrative Expenses 598.32% 74.92% 81.19% 83.50%
Advertising Expenses 4.99% 7.20% 6.60% 1.20%
Profit Before Interest and Taxes -511.32% 9.08% 2.35% 2.60%
Main Ratios
Current 11.89 5.18 4.71 1.59
Quick 11.89 5.18 4.71 1.26
Total Debt to Total Assets 8.41% 17.84% 20.11% 60.00%
Pre-tax Return on Net Worth -502.61% 52.54% 17.75% 4.40%
Pre-tax Return on Assets -460.35% 43.17% 14.18% 10.90%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -511.32% 6.36% 1.65% n.a
Return on Equity -502.61% 36.78% 12.42% n.a
Activity Ratios
Accounts Receivable Turnover 6.10 6.10 6.10 n.a
Collection Days 57 32 47 n.a
Accounts Payable Turnover 11.92 12.17 12.17 n.a
Payment Days 28 18 24 n.a
Total Asset Turnover 0.90 4.75 6.03 n.a
Debt Ratios
Debt to Net Worth 0.09 0.22 0.25 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $18,312 $39,202 $55,608 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 1.11 0.21 0.17 n.a
Current Debt/Total Assets 8% 18% 20% n.a
Acid Test 10.58 1.90 1.02 n.a
Sales/Net Worth 0.98 5.79 7.55 n.a
Dividend Payout 0.00 0.00 0.00 n.a

7.8 Financial Risks and Contingencies

FINANCIAL RISKS
Risks to the Cambridge Strategy Group in its current plan are minimal. While operating the firm as a second job, the only expenses incurred by it are basic in nature and include the creation of email accounts, business cards, a website, and other basic communications mechanisms. There are few ongoing expenses that are not directly related to revenue generation, and therefore intrinsically profitable. If a Venture Capital firm elects to fund the Cambridge Strategy Group by providing salaries to the founders of the firm, that firm risks the loss of its salaries if CSG is unable to build an ongoing client base.

RISKS AND MITIGATION PLANS
Risks to the Cambridge Strategy Group in its current plan are relatively minimal. Organic growth does not depend on capital market to remain viable. The small business space is largely unattractive to Big Five and other larger consulting organizations. Discussed below are risk areas and CSG's response to these forces:

Industry Competitors
Big Five consulting firms have extensive resources in both monetary and personnel. If they choose to enter the small business consulting market, the Big Five firms could bring to bear their name recognition, consulting staff, and financial clout to drive smaller firms out of the market. Additionally, venture capital firms could choose to expand their internal service offering and more actively manage portfolio companies. With tight public markets, the motivation for Big Five consulting firms to seek out small growth firms as clients has substantially declined. Without a public appetite for IPOs, growing firms cannot easily exchange services for equity. Without an equity payment option, small firms cannot readily afford the services of the Big Five firms. Venture capital firms are generally focused on portfolio money management and business plan evaluation. CSG seeks to partner with venture capital firms and offer a service of higher quality at a lower price than they could produce internally. As previously mentioned, with almost 800,000 new businesses starting every year, new demand for small business consulting services is continually created.

Management
CSG's management is relatively inexperienced. Experienced management will be needed if Cambridge Strategy Group is to grow into a multi-million dollar enterprise. Relationships with veteran business contacts will be sought and leveraged to provide additional, valuable insight as CSG grows. Its strategy focuses on steady, organic growth that will allow management to accurately measure the needs of management and then seek out candidates as needed.

Location/Lack of Clients
The Triangle Area of North Carolina could become a less attractive city for small businesses. Group resources have a local presence in other business hubs (Phoenix, AZ and Chicago, IL) to limit the reliance on any single geographic area to produce an entrepreneur-friendly atmosphere.

Labor Market
National unemployment levels are currently near historical lows. The economic boom has created a great demand for human capital, especially technology skills. The recent economic cooling has made talent more affordable across the board. Additionally, Group management will leverage an extensive network to find and hire the best talent when the client demand for additional skills and resources is warranted. Client Financial Stability Small businesses fail almost as quickly as new ones start. Consequently, small business can present a poor credit risk to suppliers. By working with venture capital-backed firms, CSG targets clients with means while minimizing delinquent accounts.