Austin Kinetic

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Outsourced Computer Support Business Plan

Financial Plan

Austin Kinetic will initially grow with project work, beginning to build service contracts from the six month point forward. The company will increase its project work to 2,560 man hours per month and increase its service contracts count by six each year. The initial growth will be financed primarily out of the pockets of its founders. The company will fund all growth from the cash flow of the business, remaining debt-free.

8.1 Important Assumptions

At the onset, the founding members of Austin Kinetic will take on much of the financial burden of running the company. There will be no need for dedicated office space until FY 2006 when we expect to open an office in Austin. Until then, Austin Kinetic will compensate travel-related expenses, if any, incurred in the course of business. The only foreseen recurring expenses will be voice mail services, marketing, insurance, Internet access, and Web presence. The lion's share of funds will be held by Austin Kinetic to develop cash reserves for future expansion and a business climate buffer.

Customers will be billed on an hourly basis of $120. Engineers will be paid a salary, plus $25 per hour for on-call and overtime. Employees who establish the new project/contract will be paid a 5% bonus of the total project / contract price. Business call time of cell phones will be reimbursed.

General Assumptions
Year 1 Year 2 Year 3 Year 4 Year 5
Plan Month 1 2 3 4 5
Current Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00%
Other 0 0 0 0 0

8.2 Break-even Analysis

The table and chart below show our break-even analysis. As a service business, we have no direct cost of sales. Our break-even point ni the first year is therefore equal to the amount needed to cover our operating expenses, including payroll. We will reach break even, in the third month.

Break-even Analysis
Monthly Revenue Break-even $7,325
Assumptions:
Average Percent Variable Cost 0%
Estimated Monthly Fixed Cost $7,325

8.3 Projected Profit and Loss

In the first year, we will be based out of the founders' homes. Adam Authortisement has renovated his garage for use as a meeting space and general office, when we need to get together as a group. Utilities in the first year represent the cost of home high-speed Internet access for all five employees ($45 each per month). This access is necessary for communications between personnel and for file transmission for all project and service work. 

After the first year, it will be more cost-effective and attuned to our growth to rent a space in downtown Austin, where we can consolidate equipment, combine utilities, and have a central location for our work and our secretary. Office space rented beginning FY 2006 is forecast to be $2,500 per month.

The Profit and Loss also includes a provision for charity donations, which we have deemed important to our mission, as well as to marketing and outreach in the community. Starting in the second year, 5% of net profits each will be set aside for charity on an annual basis based upon the previous year's performance.

After the first month, Marketing and Promotion expenses are set at 5% of the previous month's and year's sales.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $339,600 $813,600 $1,231,200 $1,648,800 $2,066,400
Direct Cost of Sales $0 $0 $0 $0 $0
Other Costs of Sales $0 $0 $0 $0 $0
Total Cost of Sales $0 $0 $0 $0 $0
Gross Margin $339,600 $813,600 $1,231,200 $1,648,800 $2,066,400
Gross Margin % 100.00% 100.00% 100.00% 100.00% 100.00%
Expenses
Payroll $72,000 $305,000 $360,250 $853,688 $1,022,839
Marketing/Promotion $200 $0 $0 $0 $0
Depreciation $0 $714 $2,038 $2,464 $3,540
Rent $0 $45,000 $45,000 $50,000 $50,000
Moving Expenses $5,000 $0 $0 $0 $0
Utilities $2,700 $2,000 $2,500 $2,500 $3,000
Insurance $3,000 $10,000 $10,000 $10,000 $10,000
Payroll Taxes $0 $0 $0 $0 $0
Expensed Computer Equipment $5,000 $15,000 $15,000 $15,000 $15,000
Charity (5% of previous year net profit) $0 $0 $0 $0 $0
Total Operating Expenses $87,900 $377,714 $434,788 $933,652 $1,104,379
Profit Before Interest and Taxes $251,700 $435,886 $796,412 $715,148 $962,021
EBITDA $251,700 $436,600 $798,450 $717,612 $965,561
Interest Expense $0 $0 $0 $0 $0
Taxes Incurred $75,510 $130,766 $238,924 $214,544 $288,606
Net Profit $176,190 $305,120 $557,488 $500,604 $673,415
Net Profit/Sales 51.88% 37.50% 45.28% 30.36% 32.59%

8.4 Projected Cash Flow

We have no sales on credit; all service accounts and projects are paid in advance, in installments. We anticipate no problems with our cash flow. By staying debt free and keeping expenses down, we expect a significant positive cash balance by the end of the first year.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $339,600 $813,600 $1,231,200 $1,648,800 $2,066,400
Subtotal Cash from Operations $339,600 $813,600 $1,231,200 $1,648,800 $2,066,400
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $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 $339,600 $813,600 $1,231,200 $1,648,800 $2,066,400
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $72,000 $305,000 $360,250 $853,688 $1,022,839
Bill Payments $76,482 $201,028 $302,493 $293,637 $360,478
Subtotal Spent on Operations $148,482 $506,028 $662,743 $1,147,325 $1,383,317
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0 $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 $5,000 $10,000 $5,000 $10,000
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $148,482 $511,028 $672,743 $1,152,325 $1,393,317
Net Cash Flow $191,118 $302,572 $558,457 $496,475 $673,083
Cash Balance $195,668 $498,240 $1,056,697 $1,553,172 $2,226,255

8.5 Projected Balance Sheet

Our Balance Sheet is quite solid. We will build our asset base slowly over the first five years, expensing most of our computer and hardware equipment to offset taxes, since they will need replacing every two to three years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $195,668 $498,240 $1,056,697 $1,553,172 $2,226,255
Other Current Assets $0 $0 $0 $0 $0
Total Current Assets $195,668 $498,240 $1,056,697 $1,553,172 $2,226,255
Long-term Assets
Long-term Assets $0 $5,000 $15,000 $20,000 $30,000
Accumulated Depreciation $0 $714 $2,752 $5,216 $8,756
Total Long-term Assets $0 $4,286 $12,248 $14,784 $21,244
Total Assets $195,668 $502,526 $1,068,945 $1,567,956 $2,247,499
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $14,928 $16,666 $25,596 $24,004 $30,132
Current Borrowing $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $14,928 $16,666 $25,596 $24,004 $30,132
Long-term Liabilities $0 $0 $0 $0 $0
Total Liabilities $14,928 $16,666 $25,596 $24,004 $30,132
Paid-in Capital $12,100 $12,100 $12,100 $12,100 $12,100
Retained Earnings ($7,550) $168,640 $473,760 $1,031,249 $1,531,852
Earnings $176,190 $305,120 $557,488 $500,604 $673,415
Total Capital $180,740 $485,860 $1,043,349 $1,543,952 $2,217,367
Total Liabilities and Capital $195,668 $502,526 $1,068,945 $1,567,956 $2,247,499
Net Worth $180,740 $485,860 $1,043,349 $1,543,952 $2,217,367

8.6 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7379.02, Computer Related Consulting Services, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth 0.00% 139.58% 51.33% 33.92% 25.33% 16.45%
Percent of Total Assets
Other Current Assets 0.00% 0.00% 0.00% 0.00% 0.00% 61.43%
Total Current Assets 100.00% 99.15% 98.85% 99.06% 99.05% 87.72%
Long-term Assets 0.00% 0.85% 1.15% 0.94% 0.95% 12.28%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 7.63% 3.32% 2.39% 1.53% 1.34% 34.35%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 20.47%
Total Liabilities 7.63% 3.32% 2.39% 1.53% 1.34% 54.82%
Net Worth 92.37% 96.68% 97.61% 98.47% 98.66% 45.18%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Selling, General & Administrative Expenses 47.42% 59.67% 73.67% 70.43% 69.19% 76.51%
Advertising Expenses 0.21% 0.09% 0.17% 0.15% 0.17% 1.17%
Profit Before Interest and Taxes 74.12% 53.57% 64.69% 43.37% 46.56% 1.40%
Main Ratios
Current 13.11 29.90 41.28 64.71 73.88 1.85
Quick 13.11 29.90 41.28 64.71 73.88 1.53
Total Debt to Total Assets 7.63% 3.32% 2.39% 1.53% 1.34% 61.46%
Pre-tax Return on Net Worth 139.26% 89.71% 76.33% 46.32% 43.39% 2.74%
Pre-tax Return on Assets 128.64% 86.74% 74.50% 45.61% 42.80% 7.10%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin 51.88% 37.50% 45.28% 30.36% 32.59% n.a
Return on Equity 97.48% 62.80% 53.43% 32.42% 30.37% n.a
Activity Ratios
Accounts Payable Turnover 6.12 12.17 12.17 12.17 12.17 n.a
Payment Days 27 28 25 31 27 n.a
Total Asset Turnover 1.74 1.62 1.15 1.05 0.92 n.a
Debt Ratios
Debt to Net Worth 0.08 0.03 0.02 0.02 0.01 n.a
Current Liab. to Liab. 1.00 1.00 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $180,740 $481,574 $1,031,101 $1,529,168 $2,196,123 n.a
Interest Coverage 0.00 0.00 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.58 0.62 0.87 0.95 1.09 n.a
Current Debt/Total Assets 8% 3% 2% 2% 1% n.a
Acid Test 13.11 29.90 41.28 64.71 73.88 n.a
Sales/Net Worth 1.88 1.67 1.18 1.07 0.93 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a

8.7 Long-term Plan

Austin Kinetic anticipates maintaining a steady profit percentage and plans to build cash reserves to an amount which would cover operating expenses for twelve months should any catastrophic event occur.  This will be a moving target and be recalculated on an annual basis as the business cash flow changes.  There has been no pre-set limit placed upon Austin Kinetic. Its founders see the possibility of expanding the company into a global force ranked equal to today's top Fortune 500 companies.