Online Services Business Plan

Web Applications, Inc.

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Financial Plan

Funding Requirements and Uses
Based on our projections, we feel an investment in our company is a sound investment. In order to proceed, we are requesting an investment of $101,600 by June, 1999. The funds will be used to purchase equipment and to cover initial operating expenses. The $101,600 will be used to implement Phase 1 of our operations. Once the company is in full operation, we will require an additional capital investment to fund Phase 2 of our operations.

Phase 2
We will be in discussion with developers on the best direction to take and what cost savings we can achieve. The specific details for Phase 2 are still to be determined, but three major areas (server, small PBX, and business development funds) will require approximately $30,000 by January, 2000.

Exit/Payback Strategy
We can provide an exit for this investment within three years by a dividend of excess profits. The increase in profits generated by sales revenue will provide funds to repay the investment.

Conclusion
Based on our projections, we feel an investment to Web Applications is a sound business investment. In order to proceed, we are requesting an investment of $101,600 as soon as possible.

7.1 Break-even Analysis

With average first year fixed monthly costs and an average margin as shown below, Web Applications calculates it will break even at the sales volume presented in the table and chart. The company management plans to reach such level by the end of 2000.

Break-even Analysis
Monthly Revenue Break-even $25,333
Assumptions:
Average Percent Variable Cost 50%
Estimated Monthly Fixed Cost $12,667

7.2 Important Assumptions

The following chart contains assumptions important to the success of the company.

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 25.42% 25.00% 25.42%
Other 0 0 0

7.3 Projected Profit and Loss

The projected income statement for Web Applications is shown below. The company is basing its revenue projections on anticipated sales of products.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $200,000 $1,500,000 $2,200,000
Direct Cost of Sales $100,000 $300,000 $400,000
Other $5,000 $10,000 $15,000
Total Cost of Sales $105,000 $310,000 $415,000
Gross Margin $95,000 $1,190,000 $1,785,000
Gross Margin % 47.50% 79.33% 81.14%
Expenses
Payroll $95,652 $165,652 $234,783
Sales and Marketing and Other Expenses $23,400 $47,000 $80,000
Depreciation $0 $0 $0
Research and Development $15,000 $25,000 $40,000
Utilities $600 $800 $1,000
Insurance $600 $800 $1,000
Rent $2,400 $3,000 $5,000
Payroll Taxes $14,348 $24,848 $35,217
Other $0 $0 $0
Total Operating Expenses $152,000 $267,100 $397,000
Profit Before Interest and Taxes ($57,000) $922,900 $1,388,000
EBITDA ($57,000) $922,900 $1,388,000
Interest Expense $0 $0 $0
Taxes Incurred $0 $230,725 $352,783
Net Profit ($57,000) $692,175 $1,035,216
Net Profit/Sales -28.50% 46.15% 47.06%

7.4 Projected Cash Flow

The cash flow statement can be found in the chart and table below.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $50,000 $375,000 $550,000
Cash from Receivables $120,500 $933,250 $1,546,750
Subtotal Cash from Operations $170,500 $1,308,250 $2,096,750
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 $36,000 $0 $0
Subtotal Cash Received $206,500 $1,308,250 $2,096,750
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $95,652 $165,652 $234,783
Bill Payments $147,562 $604,177 $906,344
Subtotal Spent on Operations $243,214 $769,829 $1,141,127
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 $10,000 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $253,214 $769,829 $1,141,127
Net Cash Flow ($46,714) $538,421 $955,623
Cash Balance $5,786 $544,207 $1,499,830

7.5 Projected Balance Sheet

The projected balance sheet is provided below.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $5,786 $544,207 $1,499,830
Accounts Receivable $29,500 $221,250 $324,500
Other Current Assets $5,000 $5,000 $5,000
Total Current Assets $40,286 $770,457 $1,829,330
Long-term Assets
Long-term Assets $10,000 $10,000 $10,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $10,000 $10,000 $10,000
Total Assets $50,286 $780,457 $1,839,330
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $14,786 $52,781 $76,438
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $14,786 $52,781 $76,438
Long-term Liabilities $0 $0 $0
Total Liabilities $14,786 $52,781 $76,438
Paid-in Capital $152,600 $152,600 $152,600
Retained Earnings ($60,100) ($117,100) $575,075
Earnings ($57,000) $692,175 $1,035,216
Total Capital $35,500 $727,675 $1,762,892
Total Liabilities and Capital $50,286 $780,457 $1,839,330
Net Worth $35,500 $727,675 $1,762,892

7.6 Business Ratios

The following table outlines some of the more important ratios from the Computer Programming Services industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7371.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 650.00% 46.67% 10.40%
Percent of Total Assets
Accounts Receivable 58.66% 28.35% 17.64% 24.10%
Other Current Assets 9.94% 0.64% 0.27% 42.90%
Total Current Assets 80.11% 98.72% 99.46% 71.10%
Long-term Assets 19.89% 1.28% 0.54% 28.90%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 29.40% 6.76% 4.16% 47.80%
Long-term Liabilities 0.00% 0.00% 0.00% 19.10%
Total Liabilities 29.40% 6.76% 4.16% 66.90%
Net Worth 70.60% 93.24% 95.84% 33.10%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 47.50% 79.33% 81.14% 0.00%
Selling, General & Administrative Expenses 76.00% 33.19% 33.82% 82.10%
Advertising Expenses 9.00% 2.67% 3.18% 1.20%
Profit Before Interest and Taxes -28.50% 61.53% 63.09% 2.00%
Main Ratios
Current 2.72 14.60 23.93 1.30
Quick 2.72 14.60 23.93 1.03
Total Debt to Total Assets 29.40% 6.76% 4.16% 66.90%
Pre-tax Return on Net Worth -160.56% 126.83% 78.73% 3.10%
Pre-tax Return on Assets -113.35% 118.25% 75.46% 9.30%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -28.50% 46.15% 47.06% n.a
Return on Equity -160.56% 95.12% 58.72% n.a
Activity Ratios
Accounts Receivable Turnover 5.08 5.08 5.08 n.a
Collection Days 57 41 60 n.a
Accounts Payable Turnover 10.91 12.17 12.17 n.a
Payment Days 27 19 25 n.a
Total Asset Turnover 3.98 1.92 1.20 n.a
Debt Ratios
Debt to Net Worth 0.42 0.07 0.04 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $25,500 $717,675 $1,752,892 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.25 0.52 0.84 n.a
Current Debt/Total Assets 29% 7% 4% n.a
Acid Test 0.73 10.41 19.69 n.a
Sales/Net Worth 5.63 2.06 1.25 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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Break-even Analysis
Monthly Revenue Break-even $25,333
Assumptions:
Average Percent Variable Cost 50%
Estimated Monthly Fixed Cost $12,667
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 25.42% 25.00% 25.42%
Other 0 0 0
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $200,000 $1,500,000 $2,200,000
Direct Cost of Sales $100,000 $300,000 $400,000
Other $5,000 $10,000 $15,000
Total Cost of Sales $105,000 $310,000 $415,000
Gross Margin $95,000 $1,190,000 $1,785,000
Gross Margin % 47.50% 79.33% 81.14%
Expenses
Payroll $95,652 $165,652 $234,783
Sales and Marketing and Other Expenses $23,400 $47,000 $80,000
Depreciation $0 $0 $0
Research and Development $15,000 $25,000 $40,000
Utilities $600 $800 $1,000
Insurance $600 $800 $1,000
Rent $2,400 $3,000 $5,000
Payroll Taxes $14,348 $24,848 $35,217
Other $0 $0 $0
Total Operating Expenses $152,000 $267,100 $397,000
Profit Before Interest and Taxes ($57,000) $922,900 $1,388,000
EBITDA ($57,000) $922,900 $1,388,000
Interest Expense $0 $0 $0
Taxes Incurred $0 $230,725 $352,783
Net Profit ($57,000) $692,175 $1,035,216
Net Profit/Sales -28.50% 46.15% 47.06%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $50,000 $375,000 $550,000
Cash from Receivables $120,500 $933,250 $1,546,750
Subtotal Cash from Operations $170,500 $1,308,250 $2,096,750
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 $36,000 $0 $0
Subtotal Cash Received $206,500 $1,308,250 $2,096,750
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $95,652 $165,652 $234,783
Bill Payments $147,562 $604,177 $906,344
Subtotal Spent on Operations $243,214 $769,829 $1,141,127
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 $10,000 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $253,214 $769,829 $1,141,127
Net Cash Flow ($46,714) $538,421 $955,623
Cash Balance $5,786 $544,207 $1,499,830
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $5,786 $544,207 $1,499,830
Accounts Receivable $29,500 $221,250 $324,500
Other Current Assets $5,000 $5,000 $5,000
Total Current Assets $40,286 $770,457 $1,829,330
Long-term Assets
Long-term Assets $10,000 $10,000 $10,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $10,000 $10,000 $10,000
Total Assets $50,286 $780,457 $1,839,330
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $14,786 $52,781 $76,438
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $14,786 $52,781 $76,438
Long-term Liabilities $0 $0 $0
Total Liabilities $14,786 $52,781 $76,438
Paid-in Capital $152,600 $152,600 $152,600
Retained Earnings ($60,100) ($117,100) $575,075
Earnings ($57,000) $692,175 $1,035,216
Total Capital $35,500 $727,675 $1,762,892
Total Liabilities and Capital $50,286 $780,457 $1,839,330
Net Worth $35,500 $727,675 $1,762,892
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 650.00% 46.67% 10.40%
Percent of Total Assets
Accounts Receivable 58.66% 28.35% 17.64% 24.10%
Other Current Assets 9.94% 0.64% 0.27% 42.90%
Total Current Assets 80.11% 98.72% 99.46% 71.10%
Long-term Assets 19.89% 1.28% 0.54% 28.90%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 29.40% 6.76% 4.16% 47.80%
Long-term Liabilities 0.00% 0.00% 0.00% 19.10%
Total Liabilities 29.40% 6.76% 4.16% 66.90%
Net Worth 70.60% 93.24% 95.84% 33.10%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 47.50% 79.33% 81.14% 0.00%
Selling, General & Administrative Expenses 76.00% 33.19% 33.82% 82.10%
Advertising Expenses 9.00% 2.67% 3.18% 1.20%
Profit Before Interest and Taxes -28.50% 61.53% 63.09% 2.00%
Main Ratios
Current 2.72 14.60 23.93 1.30
Quick 2.72 14.60 23.93 1.03
Total Debt to Total Assets 29.40% 6.76% 4.16% 66.90%
Pre-tax Return on Net Worth -160.56% 126.83% 78.73% 3.10%
Pre-tax Return on Assets -113.35% 118.25% 75.46% 9.30%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -28.50% 46.15% 47.06% n.a
Return on Equity -160.56% 95.12% 58.72% n.a
Activity Ratios
Accounts Receivable Turnover 5.08 5.08 5.08 n.a
Collection Days 57 41 60 n.a
Accounts Payable Turnover 10.91 12.17 12.17 n.a
Payment Days 27 19 25 n.a
Total Asset Turnover 3.98 1.92 1.20 n.a
Debt Ratios
Debt to Net Worth 0.42 0.07 0.04 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $25,500 $717,675 $1,752,892 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.25 0.52 0.84 n.a
Current Debt/Total Assets 29% 7% 4% n.a
Acid Test 0.73 10.41 19.69 n.a
Sales/Net Worth 5.63 2.06 1.25 n.a
Dividend Payout 0.00 0.00 0.00 n.a