Music Recording Distribution Business Plan

HeavyMetal Praise Records

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Financial Plan

The following sections will outline the general financial assumptions, break-even analysis, profit and loss, cash flow, balance sheet and business ratios.

7.1 Important Assumptions

The following table shows some of the basic financial assumptions used in this business plan.

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 Break-even Analysis

The Break-even Analysis indicates approximately $1,700 is needed in monthly revenue to break even. The Estimated Monthly Fixed Cost varies over the course of the first year, as seen in the P & L appendix table, and this figure is an average based on the first-year totals.

Break-even Analysis
Monthly Revenue Break-even $17,022
Assumptions:
Average Percent Variable Cost 5%
Estimated Monthly Fixed Cost $16,171

7.3 Projected Profit and Loss

The following table will indicate projected profit and loss.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $238,000 $540,000 $700,000
Direct Cost of Sales $11,900 $27,000 $35,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $11,900 $27,000 $35,000
Gross Margin $226,100 $513,000 $665,000
Gross Margin % 95.00% 95.00% 95.00%
Expenses
Payroll $27,000 $35,000 $42,000
Sales and Marketing and Other Expenses $142,000 $190,000 $350,000
Depreciation $3,000 $3,000 $3,000
Leased Equipment $0 $0 $0
Utilities $0 $0 $0
Insurance $6,000 $8,000 $10,000
Rent $12,000 $15,000 $18,000
Payroll Taxes $4,050 $5,250 $6,300
Other $0 $0 $0
Total Operating Expenses $194,050 $256,250 $429,300
Profit Before Interest and Taxes $32,050 $256,750 $235,700
EBITDA $35,050 $259,750 $238,700
Interest Expense $0 $0 $0
Taxes Incurred $9,615 $77,025 $70,710
Net Profit $22,435 $179,725 $164,990
Net Profit/Sales 9.43% 33.28% 23.57%

7.4 Projected Cash Flow

Heavy Metal Praise will begin with adequate investment to cover the beginning months of negative cash flow and, as shown below, have an overall increase in cash balance by the end of the first plan year.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $166,600 $378,000 $490,000
Cash from Receivables $31,740 $111,675 $183,338
Subtotal Cash from Operations $198,340 $489,675 $673,338
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 $198,340 $489,675 $673,338
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $27,000 $35,000 $42,000
Bill Payments $140,307 $350,569 $479,397
Subtotal Spent on Operations $167,307 $385,569 $521,397
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 $167,307 $385,569 $521,397
Net Cash Flow $31,033 $104,107 $151,940
Cash Balance $114,933 $219,039 $370,980

7.5 Projected Balance Sheet

The following chart and table indicates balance sheet.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $114,933 $219,039 $370,980
Accounts Receivable $39,660 $89,985 $116,647
Inventory $4,400 $9,983 $12,941
Other Current Assets $15,000 $15,000 $15,000
Total Current Assets $173,993 $334,007 $515,568
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $3,000 $6,000 $9,000
Total Long-term Assets ($3,000) ($6,000) ($9,000)
Total Assets $170,993 $328,007 $506,568
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $49,658 $26,947 $40,518
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $49,658 $26,947 $40,518
Long-term Liabilities $0 $0 $0
Total Liabilities $49,658 $26,947 $40,518
Paid-in Capital $100,000 $100,000 $100,000
Retained Earnings ($1,100) $21,335 $201,060
Earnings $22,435 $179,725 $164,990
Total Capital $121,335 $301,060 $466,050
Total Liabilities and Capital $170,993 $328,007 $506,568
Net Worth $121,335 $301,060 $466,050

7.6 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7929, Musical Groups and Artists, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 126.89% 29.63% 15.20%
Percent of Total Assets
Accounts Receivable 23.19% 27.43% 23.03% 6.80%
Inventory 2.57% 3.04% 2.55% 3.10%
Other Current Assets 8.77% 4.57% 2.96% 33.90%
Total Current Assets 101.75% 101.83% 101.78% 43.80%
Long-term Assets -1.75% -1.83% -1.78% 56.20%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 29.04% 8.22% 8.00% 38.30%
Long-term Liabilities 0.00% 0.00% 0.00% 23.30%
Total Liabilities 29.04% 8.22% 8.00% 61.60%
Net Worth 70.96% 91.78% 92.00% 38.40%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 95.00% 95.00% 95.00% 0.00%
Selling, General & Administrative Expenses 84.69% 61.33% 71.13% 75.30%
Advertising Expenses 13.45% 7.41% 7.14% 2.90%
Profit Before Interest and Taxes 13.47% 47.55% 33.67% 2.90%
Main Ratios
Current 3.50 12.39 12.72 1.22
Quick 3.42 12.02 12.41 0.82
Total Debt to Total Assets 29.04% 8.22% 8.00% 61.60%
Pre-tax Return on Net Worth 26.41% 85.28% 50.57% 2.90%
Pre-tax Return on Assets 18.74% 78.28% 46.53% 7.40%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 9.43% 33.28% 23.57% n.a
Return on Equity 18.49% 59.70% 35.40% n.a
Activity Ratios
Accounts Receivable Turnover 1.80 1.80 1.80 n.a
Collection Days 50 146 180 n.a
Inventory Turnover 10.35 3.75 3.05 n.a
Accounts Payable Turnover 3.83 12.17 12.17 n.a
Payment Days 27 43 25 n.a
Total Asset Turnover 1.39 1.65 1.38 n.a
Debt Ratios
Debt to Net Worth 0.41 0.09 0.09 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $124,335 $307,060 $475,050 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.72 0.61 0.72 n.a
Current Debt/Total Assets 29% 8% 8% n.a
Acid Test 2.62 8.69 9.53 n.a
Sales/Net Worth 1.96 1.79 1.50 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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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
Break-even Analysis
Monthly Revenue Break-even $17,022
Assumptions:
Average Percent Variable Cost 5%
Estimated Monthly Fixed Cost $16,171
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $238,000 $540,000 $700,000
Direct Cost of Sales $11,900 $27,000 $35,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $11,900 $27,000 $35,000
Gross Margin $226,100 $513,000 $665,000
Gross Margin % 95.00% 95.00% 95.00%
Expenses
Payroll $27,000 $35,000 $42,000
Sales and Marketing and Other Expenses $142,000 $190,000 $350,000
Depreciation $3,000 $3,000 $3,000
Leased Equipment $0 $0 $0
Utilities $0 $0 $0
Insurance $6,000 $8,000 $10,000
Rent $12,000 $15,000 $18,000
Payroll Taxes $4,050 $5,250 $6,300
Other $0 $0 $0
Total Operating Expenses $194,050 $256,250 $429,300
Profit Before Interest and Taxes $32,050 $256,750 $235,700
EBITDA $35,050 $259,750 $238,700
Interest Expense $0 $0 $0
Taxes Incurred $9,615 $77,025 $70,710
Net Profit $22,435 $179,725 $164,990
Net Profit/Sales 9.43% 33.28% 23.57%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $166,600 $378,000 $490,000
Cash from Receivables $31,740 $111,675 $183,338
Subtotal Cash from Operations $198,340 $489,675 $673,338
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 $198,340 $489,675 $673,338
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $27,000 $35,000 $42,000
Bill Payments $140,307 $350,569 $479,397
Subtotal Spent on Operations $167,307 $385,569 $521,397
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 $167,307 $385,569 $521,397
Net Cash Flow $31,033 $104,107 $151,940
Cash Balance $114,933 $219,039 $370,980
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $114,933 $219,039 $370,980
Accounts Receivable $39,660 $89,985 $116,647
Inventory $4,400 $9,983 $12,941
Other Current Assets $15,000 $15,000 $15,000
Total Current Assets $173,993 $334,007 $515,568
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $3,000 $6,000 $9,000
Total Long-term Assets ($3,000) ($6,000) ($9,000)
Total Assets $170,993 $328,007 $506,568
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $49,658 $26,947 $40,518
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $49,658 $26,947 $40,518
Long-term Liabilities $0 $0 $0
Total Liabilities $49,658 $26,947 $40,518
Paid-in Capital $100,000 $100,000 $100,000
Retained Earnings ($1,100) $21,335 $201,060
Earnings $22,435 $179,725 $164,990
Total Capital $121,335 $301,060 $466,050
Total Liabilities and Capital $170,993 $328,007 $506,568
Net Worth $121,335 $301,060 $466,050
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 126.89% 29.63% 15.20%
Percent of Total Assets
Accounts Receivable 23.19% 27.43% 23.03% 6.80%
Inventory 2.57% 3.04% 2.55% 3.10%
Other Current Assets 8.77% 4.57% 2.96% 33.90%
Total Current Assets 101.75% 101.83% 101.78% 43.80%
Long-term Assets -1.75% -1.83% -1.78% 56.20%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 29.04% 8.22% 8.00% 38.30%
Long-term Liabilities 0.00% 0.00% 0.00% 23.30%
Total Liabilities 29.04% 8.22% 8.00% 61.60%
Net Worth 70.96% 91.78% 92.00% 38.40%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 95.00% 95.00% 95.00% 0.00%
Selling, General & Administrative Expenses 84.69% 61.33% 71.13% 75.30%
Advertising Expenses 13.45% 7.41% 7.14% 2.90%
Profit Before Interest and Taxes 13.47% 47.55% 33.67% 2.90%
Main Ratios
Current 3.50 12.39 12.72 1.22
Quick 3.42 12.02 12.41 0.82
Total Debt to Total Assets 29.04% 8.22% 8.00% 61.60%
Pre-tax Return on Net Worth 26.41% 85.28% 50.57% 2.90%
Pre-tax Return on Assets 18.74% 78.28% 46.53% 7.40%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 9.43% 33.28% 23.57% n.a
Return on Equity 18.49% 59.70% 35.40% n.a
Activity Ratios
Accounts Receivable Turnover 1.80 1.80 1.80 n.a
Collection Days 50 146 180 n.a
Inventory Turnover 10.35 3.75 3.05 n.a
Accounts Payable Turnover 3.83 12.17 12.17 n.a
Payment Days 27 43 25 n.a
Total Asset Turnover 1.39 1.65 1.38 n.a
Debt Ratios
Debt to Net Worth 0.41 0.09 0.09 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $124,335 $307,060 $475,050 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.72 0.61 0.72 n.a
Current Debt/Total Assets 29% 8% 8% n.a
Acid Test 2.62 8.69 9.53 n.a
Sales/Net Worth 1.96 1.79 1.50 n.a
Dividend Payout 0.00 0.00 0.00 n.a