Infotext Strategy Letter

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Newsletter Publishing Business Plan

Financial Plan

Our financial plan is based on conservative estimates and assumptions. We will need to plan on initial investment to make the financials work.

7.1 Important Assumptions

The following table summarizes key financial assumptions including sales entirely on invoice basis, and present-day interest rates. The annual numbers are shown here, monthlies in the appendix.

Additional assumptions include 45-day average collection days, expenses mainly on net 30 basis, and 35 days on average for payment of invoices.

General Assumptions
Year 1 Year 2 Year 3 Year 4 Year 5
Plan Month 1 2 3 4 5
Current Interest Rate 8.00% 8.00% 8.00% 8.00% 8.00%
Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00%
Tax Rate 25.42% 25.00% 25.42% 25.00% 25.42%
New subscriptions 383 37 383 37 383
Renewals 0 0 0 0 0
Cancellations 6 1 6 1 6
Subscribers 377 377 377 377 377

7.2 Break-even Analysis

The following table and chart summarize the break-even analysis, including monthly units and sales break-even points.

Break-even Analysis
Monthly Revenue Break-even $10,889
Assumptions:
Average Percent Variable Cost 25%
Estimated Monthly Fixed Cost $8,152

7.3 Projected Profit and Loss

The detailed monthly pro-forma income statement for the first year is included in the appendix. The annual estimates are included here.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $149,406 $209,020 $291,450 $406,650 $568,350
Direct Cost of Sales $37,555 $23,000 $24,000 $25,000 $27,000
Other $0 $0 $0 $0 $0
Total Cost of Sales $37,555 $23,000 $24,000 $25,000 $27,000
Gross Margin $111,851 $186,020 $267,450 $381,650 $541,350
Gross Margin % 74.86% 89.00% 91.77% 93.85% 95.25%
Expenses
Payroll $71,250 $134,000 $148,000 $224,000 $230,000
Marketing $14,500 $22,000 $33,000 $50,000 $75,000
Depreciation $0 $0 $0 $0 $0
Leased Equipment $1,200 $1,000 $1,000 $1,000 $1,000
Insurance $900 $1,000 $1,000 $1,000 $1,000
Payroll Taxes $9,975 $18,760 $20,720 $31,360 $32,200
Other $0 $0 $0 $0 $0
Total Operating Expenses $97,825 $176,760 $203,720 $307,360 $339,200
Profit Before Interest and Taxes $14,026 $9,260 $63,730 $74,290 $202,150
EBITDA $14,026 $9,260 $63,730 $74,290 $202,150
Interest Expense $1,067 $4,200 $4,200 $400 $400
Taxes Incurred $2,944 $1,265 $15,131 $18,473 $51,278
Net Profit $10,015 $3,795 $44,399 $55,418 $150,472
Net Profit/Sales 6.70% 1.82% 15.23% 13.63% 26.48%

7.4 Projected Cash Flow

Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month and the other representing the monthly balance. The annual cash flow figures are included here in the following table. Detailed monthly numbers are included in the appendix, and show as well in the following chart.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $0 $0 $0 $0 $0
Cash from Receivables $128,058 $200,502 $279,672 $390,190 $545,245
Subtotal Cash from Operations $128,058 $200,502 $279,672 $390,190 $545,245
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $15,000 $100,000 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0
Subtotal Cash Received $143,058 $300,502 $279,672 $390,190 $545,245
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $71,250 $134,000 $148,000 $224,000 $230,000
Bill Payments $61,961 $70,575 $96,382 $124,530 $182,063
Subtotal Spent on Operations $133,211 $204,575 $244,382 $348,530 $412,063
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $10,000 $5,000 $95,000 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0
Purchase Other Current Assets $0 $0 $0 $0 $0
Purchase Long-term Assets $0 $0 $0 $0 $0
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $143,211 $209,575 $339,382 $348,530 $412,063
Net Cash Flow ($153) $90,927 ($59,710) $41,659 $133,183
Cash Balance $14,847 $105,774 $46,064 $87,723 $220,906

7.5 Projected Balance Sheet

The balance sheet shows healthy growth of net worth, and strong financial position. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $14,847 $105,774 $46,064 $87,723 $220,906
Accounts Receivable $21,348 $29,866 $41,644 $58,104 $81,209
Other Current Assets $7,000 $7,000 $7,000 $7,000 $7,000
Total Current Assets $43,195 $142,640 $94,708 $152,828 $309,115
Long-term Assets
Long-term Assets $0 $0 $0 $0 $0
Accumulated Depreciation $0 $0 $0 $0 $0
Total Long-term Assets $0 $0 $0 $0 $0
Total Assets $43,195 $142,640 $94,708 $152,828 $309,115
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $6,180 $6,830 $9,498 $12,200 $18,016
Current Borrowing $5,000 $100,000 $5,000 $5,000 $5,000
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $11,180 $106,830 $14,498 $17,200 $23,016
Long-term Liabilities $0 $0 $0 $0 $0
Total Liabilities $11,180 $106,830 $14,498 $17,200 $23,016
Paid-in Capital $50,000 $50,000 $50,000 $50,000 $50,000
Retained Earnings ($28,000) ($17,985) ($14,190) $30,210 $85,627
Earnings $10,015 $3,795 $44,399 $55,418 $150,472
Total Capital $32,015 $35,810 $80,210 $135,627 $286,099
Total Liabilities and Capital $43,195 $142,640 $94,708 $152,828 $309,115
Net Worth $32,015 $35,810 $80,210 $135,627 $286,099

7.6 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 Standard Industrial Classification (SIC) code 2741, Newsletter Publishing, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth 0.00% 39.90% 39.44% 39.53% 39.76% 11.27%
Percent of Total Assets
Accounts Receivable 49.42% 20.94% 43.97% 38.02% 26.27% 36.32%
Other Current Assets 16.21% 4.91% 7.39% 4.58% 2.26% 31.17%
Total Current Assets 100.00% 100.00% 100.00% 100.00% 100.00% 83.20%
Long-term Assets 0.00% 0.00% 0.00% 0.00% 0.00% 16.80%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 25.88% 74.89% 15.31% 11.25% 7.45% 31.26%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 20.58%
Total Liabilities 25.88% 74.89% 15.31% 11.25% 7.45% 51.84%
Net Worth 74.12% 25.11% 84.69% 88.75% 92.55% 48.16%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 74.86% 89.00% 91.77% 93.85% 95.25% 51.42%
Selling, General & Administrative Expenses 69.36% 87.90% 77.94% 81.99% 69.89% 34.28%
Advertising Expenses 24.10% 19.14% 15.10% 0.00% 0.00% 2.77%
Profit Before Interest and Taxes 9.39% 4.43% 21.87% 18.27% 35.57% 2.19%
Main Ratios
Current 3.86 1.34 6.53 8.89 13.43 2.32
Quick 3.86 1.34 6.53 8.89 13.43 1.50
Total Debt to Total Assets 25.88% 74.89% 15.31% 11.25% 7.45% 56.90%
Pre-tax Return on Net Worth 40.48% 14.13% 74.22% 54.48% 70.52% 3.39%
Pre-tax Return on Assets 30.00% 3.55% 62.86% 48.35% 65.27% 7.88%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin 6.70% 1.82% 15.23% 13.63% 26.48% n.a
Return on Equity 31.28% 10.60% 55.35% 40.86% 52.59% n.a
Activity Ratios
Accounts Receivable Turnover 7.00 7.00 7.00 7.00 7.00 n.a
Collection Days 43 45 45 45 45 n.a
Accounts Payable Turnover 11.03 10.43 10.43 10.43 10.43 n.a
Payment Days 32 33 30 31 29 n.a
Total Asset Turnover 3.46 1.47 3.08 2.66 1.84 n.a
Debt Ratios
Debt to Net Worth 0.35 2.98 0.18 0.13 0.08 n.a
Current Liab. to Liab. 1.00 1.00 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $32,015 $35,810 $80,210 $135,627 $286,099 n.a
Interest Coverage 13.15 2.20 15.17 185.73 505.38 n.a
Additional Ratios
Assets to Sales 0.29 0.68 0.32 0.38 0.54 n.a
Current Debt/Total Assets 26% 75% 15% 11% 7% n.a
Acid Test 1.95 1.06 3.66 5.51 9.90 n.a
Sales/Net Worth 4.67 5.84 3.63 3.00 1.99 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a