WorkChairs

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Office Furniture Store Business Plan

Financial Plan

The financial plan of WorkChairs is very simple and conservative. We aim to keep our expenses low while growing sales very slowly and under control. Because we don't have any major expenditures to make, we don't need to have huge amounts of cash on hand. We just need enough to pay our bills and our salary, and provide additional cushion to our account.

We expect to have a positive cash balance at all times.

We expect to be profitable in 2002 and 2004 while losing a little bit of money in 2003 as our payroll growth jumps up.

We expect our cash on hand to be stable and growing steadily by 2004.

8.1 Important Assumptions

We assume that interest rates and tax rates will stay the same as can be seen in our general assumptions table. We assume the economy will not become much worse than it is right now. At the current level of the economy we believe our goals and projections are attainable.

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

8.2 Break-even Analysis

Our Break-even Analysis is based on an average revenue per sale. This is an average because although we sell high-priced chairs that range from $200-$2,000, we also sell a larger number of cheaper products like copy holders, mice, wrist rests, keyboards, keyboard trays, monitor glare screens, and other products.

We aim to take a keystone mark-up on our products, i.e. 100%.

Our monthly fixed costs consist of three salaries and operating expenses.

The table and chart below calculate our break-even point in revenue per month.

Break-even Analysis
Monthly Revenue Break-even $10,950
Assumptions:
Average Percent Variable Cost 50%
Estimated Monthly Fixed Cost $5,475

8.3 Projected Profit and Loss

The accompanying Profit and Loss table is a good example of how we will be keeping our expenses and payroll low while we grow sales. This will cause us to lose a little money in 2003, but we'll be profitable from 2004 on. Our sales projections are very conservative, so we're actually hoping that we'll be profitable in 2003 as well, but we're going with the conservative estimates shown in the table.

We aim to keep our gross margin up, and we think we can improve this over time as we gain more customers because we won't have to battle on price with other retailers.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $139,554 $167,464 $200,957
Direct Cost of Sales $69,777 $73,266 $76,929
Other Costs of Goods $0 $0 $0
Total Cost of Sales $69,777 $73,266 $76,929
Gross Margin $69,777 $94,198 $124,028
Gross Margin % 50.00% 56.25% 61.72%
Expenses
Payroll $54,000 $84,000 $92,000
Sales and Marketing and Other Expenses $1,200 $1,200 $1,200
Depreciation $0 $0 $0
Rent $0 $0 $0
Utilities $0 $0 $0
Insurance $1,200 $1,200 $1,200
Payroll Taxes $8,100 $12,600 $13,800
Web Hosting $1,200 $1,200 $1,200
Total Operating Expenses $65,700 $100,200 $109,400
Profit Before Interest and Taxes $4,077 ($6,002) $14,628
EBITDA $4,077 ($6,002) $14,628
Interest Expense $0 $0 $0
Taxes Incurred $1,223 $0 $4,388
Net Profit $2,854 ($6,002) $10,240
Net Profit/Sales 2.04% -3.58% 5.10%

8.4 Projected Cash Flow

Our Projected Cash Flow table and chart show that we have little risk in this business as we'll always keep a sizeable cash balance. We have a projected period of three months in the slow summer period were we'll see a negative net cash flow, but our balance will stay positive so we'll be able to pay our bills and stay in the positive.
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $139,554 $167,464 $200,957
Subtotal Cash from Operations $139,554 $167,464 $200,957
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 $139,554 $167,464 $200,957
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $54,000 $84,000 $92,000
Bill Payments $68,052 $96,760 $97,957
Subtotal Spent on Operations $122,052 $180,760 $189,957
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 $122,052 $180,760 $189,957
Net Cash Flow $17,501 ($13,296) $11,000
Cash Balance $23,676 $10,380 $21,381

8.5 Projected Balance Sheet

WorkChairs is not looking to grow at a super-fast pace, but we do project to grow our net-worth and cash slowly as time goes on. By 2004 we project to have a cushion of cash on hand while still paying our three employees decent salaries for their work.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $23,676 $10,380 $21,381
Other Current Assets $2,000 $2,000 $2,000
Total Current Assets $25,676 $12,380 $23,381
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $25,676 $12,380 $23,381
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $14,647 $7,353 $8,114
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $14,647 $7,353 $8,114
Long-term Liabilities $0 $0 $0
Total Liabilities $14,647 $7,353 $8,114
Paid-in Capital $12,000 $12,000 $12,000
Retained Earnings ($3,825) ($971) ($6,973)
Earnings $2,854 ($6,002) $10,240
Total Capital $11,029 $5,027 $15,267
Total Liabilities and Capital $25,676 $12,380 $23,381
Net Worth $11,029 $5,027 $15,267

8.6 Business Ratios

The following table outlines some of the more important ratios from the Office Furniture industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 5712.9904. Our Gross Margin will increase from 2002-2004 as well are our profit ratio. Both will dip in 2003 as our expense ratio grows from a payroll increase.
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 20.00% 20.00% 2.90%
Percent of Total Assets
Other Current Assets 7.79% 16.15% 8.55% 22.82%
Total Current Assets 100.00% 100.00% 100.00% 85.19%
Long-term Assets 0.00% 0.00% 0.00% 14.81%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 57.05% 59.40% 34.70% 39.96%
Long-term Liabilities 0.00% 0.00% 0.00% 11.39%
Total Liabilities 57.05% 59.40% 34.70% 51.35%
Net Worth 42.95% 40.60% 65.30% 48.65%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 50.00% 56.25% 61.72% 33.55%
Selling, General & Administrative Expenses 47.96% 59.83% 56.62% 20.02%
Advertising Expenses 0.00% 0.00% 0.00% 2.63%
Profit Before Interest and Taxes 2.92% -3.58% 7.28% 0.94%
Main Ratios
Current 1.75 1.68 2.88 1.95
Quick 1.75 1.68 2.88 0.98
Total Debt to Total Assets 57.05% 59.40% 34.70% 55.92%
Pre-tax Return on Net Worth 36.97% -119.39% 95.82% 2.53%
Pre-tax Return on Assets 15.88% -48.48% 62.57% 5.73%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 2.04% -3.58% 5.10% n.a
Return on Equity 25.88% -119.39% 67.07% n.a
Activity Ratios
Accounts Payable Turnover 5.65 12.17 12.17 n.a
Payment Days 27 45 29 n.a
Total Asset Turnover 5.44 13.53 8.60 n.a
Debt Ratios
Debt to Net Worth 1.33 1.46 0.53 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $11,029 $5,027 $15,267 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.18 0.07 0.12 n.a
Current Debt/Total Assets 57% 59% 35% n.a
Acid Test 1.75 1.68 2.88 n.a
Sales/Net Worth 12.65 33.31 13.16 n.a
Dividend Payout 0.00 0.00 0.00 n.a