ExpectingU.com projects the gross margin to be at approximately 65% percent. Sales projections for Year 1 are over $1,000,000. A monthly breakdown of the cash-flow analysis, balance sheet, business ratio, break-even analysis, and other financial details are shown in the appendix. Annual projections will be highlighted in the following sub-topics.
8.1 Start-up Funding
The company owner, Mary Lenton, will use personal funds to finance the start of this business. Since a home office is already established and there is a large area in the basement available for inventory storage, the primary start-up costs are associated with website store design, starting inventory, and licensing approval.
Start-up Funding
Start-up Expenses to Fund
$22,750
Start-up Assets to Fund
$41,000
Total Funding Required
$63,750
Assets
Non-cash Assets from Start-up
$35,000
Cash Requirements from Start-up
$6,000
Additional Cash Raised
$0
Cash Balance on Starting Date
$6,000
Total Assets
$41,000
Liabilities and Capital
Liabilities
Current Borrowing
$0
Long-term Liabilities
$0
Accounts Payable (Outstanding Bills)
$0
Other Current Liabilities (interest-free)
$0
Total Liabilities
$0
Capital
Planned Investment
Owner
$63,750
Investor
$0
Additional Investment Requirement
$0
Total Planned Investment
$63,750
Loss at Start-up (Start-up Expenses)
($22,750)
Total Capital
$41,000
Total Capital and Liabilities
$41,000
Total Funding
$63,750
8.2 Break-even Analysis
The following Break-even Analysis shows the monthly sales needed to break even.
Break-even Analysis
Monthly Units Break-even
1,009
Monthly Revenue Break-even
$30,270
Assumptions:
Average Per-Unit Revenue
$29.99
Average Per-Unit Variable Cost
$9.87
Estimated Monthly Fixed Cost
$20,308
8.3 Projected Profit and Loss
The following table and charts show the projected profit and loss. Monthly projections are included in the appendix.
We must track our eBay and PayPal fees to make sure they are projected appropriately in the Other Cost of Goods section in the Profit and Loss statement. As we gain experience with what the average cost is for Item Fees, Final Value Fees, and PayPal fees, we may need to change the Profit and Loss table to reflect the correct cost. At this point we have placed high estimates to make sure that we are realistic about the cost of doing business on eBay.
The fees are based on the following:
eBay fees (only apply to eBay store sales): Insertion fee of $.35 per item, plus Final Fee at 5.25% of total sale price on each sale
PayPal fees (apply to all sales): First two months: Standard rate of $0.30 per sale, plus 2.9% of total sale price on each sale Afterwards: Merchant rate of $0.30 per sale, plus 2.5% of total sale price on each sale*
These fees are very conservative, assuming that each unit sale is one complete sale. It is likely that at least 1/5 of our sales in the heavy sales months will be for multiple shirts, since pregnant couples often know other pregnant couples and buy each other gifts.
We will also be spending marketing dollars to promote our products with eBay's promotion tools. We want to make sure that we have enough money to buy some search placements as well as buying "bolded" listings in the eBay search results. As we sell more items we will adjust the marketing expenses either lower or higher -- depending on what is working for us.
*Obtaining the lower merchant rate requires qualifying, both in terms of account in good standing and dollar amount of sales in previous month. Based on our research, we don't expect any problems meeting either of those goals early in our plan.
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
$1,094,635
$1,149,367
$1,206,835
Direct Cost of Sales
$273,661
$287,407
$301,777
eBay fees (eBay sales only)
$47,919
$50,315
$52,831
PayPal fees (all sales)
$38,617
$40,232
$42,243
Total Cost of Sales
$360,197
$377,954
$396,851
Gross Margin
$734,438
$771,413
$809,984
Gross Margin %
67.09%
67.12%
67.12%
Expenses
Payroll
$58,000
$86,000
$95,000
Marketing/Promotion
$120,000
$126,000
$132,300
Depreciation
$0
$0
$0
Web Design and Maintenance
$33,000
$36,300
$39,930
Payroll Taxes
$8,700
$12,900
$14,250
Other
$24,000
$0
$0
Total Operating Expenses
$243,700
$261,200
$281,480
Profit Before Interest and Taxes
$490,738
$510,213
$528,504
EBITDA
$490,738
$510,213
$528,504
Interest Expense
$0
$0
$0
Taxes Incurred
$147,221
$153,064
$158,551
Net Profit
$343,516
$357,149
$369,953
Net Profit/Sales
31.38%
31.07%
30.65%
8.4 Projected Cash Flow
The monthly cash flow is shown in the illustration, with one bar representing cash flow per month and the other representing the monthly balance. The annual cash flow figures are included in the following table.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Cash Received
Cash from Operations
Cash Sales
$1,094,635
$1,149,367
$1,206,835
Subtotal Cash from Operations
$1,094,635
$1,149,367
$1,206,835
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
$1,094,635
$1,149,367
$1,206,835
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations
Cash Spending
$58,000
$86,000
$95,000
Bill Payments
$628,740
$701,080
$740,128
Subtotal Spent on Operations
$686,740
$787,080
$835,128
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
$0
$0
Purchase Long-term Assets
$0
$0
$0
Dividends
$0
$0
$0
Subtotal Cash Spent
$686,740
$787,080
$835,128
Net Cash Flow
$407,895
$362,287
$371,707
Cash Balance
$413,895
$776,181
$1,147,888
8.5 Projected Balance Sheet
The following table is the Projected Balance Sheet.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Assets
Current Assets
Cash
$413,895
$776,181
$1,147,888
Inventory
$22,493
$23,622
$24,803
Other Current Assets
$0
$0
$0
Total Current Assets
$436,387
$799,803
$1,172,692
Long-term Assets
Long-term Assets
$0
$0
$0
Accumulated Depreciation
$0
$0
$0
Total Long-term Assets
$0
$0
$0
Total Assets
$436,387
$799,803
$1,172,692
Liabilities and Capital
Year 1
Year 2
Year 3
Current Liabilities
Accounts Payable
$51,871
$58,138
$61,074
Current Borrowing
$0
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$51,871
$58,138
$61,074
Long-term Liabilities
$0
$0
$0
Total Liabilities
$51,871
$58,138
$61,074
Paid-in Capital
$63,750
$63,750
$63,750
Retained Earnings
($22,750)
$320,766
$677,915
Earnings
$343,516
$357,149
$369,953
Total Capital
$384,516
$741,665
$1,111,618
Total Liabilities and Capital
$436,387
$799,803
$1,172,692
Net Worth
$384,516
$741,665
$1,111,618
8.6 Business Ratios
The following table shows the projected business ratios. We expect to maintain healthy ratios for profitability, risk, and return. Industry profile ratios based on the North American Industry Classification (NAICS) and Standard Industrial Classification (SIC) data for the Maternity Wear industry.
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