Wishbone Pet Products

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Pet Products Manufacturer Business Plan

Financial Plan

Product sales generate the primary revenue stream for Wishbone Pet Products. As such, the financial projections are closely tied to the sales forecast. While we believe that the sales forecast presented is conservative and reflects a clear understanding of the market, we have considered scenarios in which sales lag or lead our projections.           

Lagging Sales
Rather than purchasing inventory in large lots we will purchase inventory approximately every three months on an as-needed basis. If actual sales volumes are less than projected, we can respond by reducing inventory purchases to reduce variable costs and maintain a positive cash balance. Our operations strategy is also an asset in this scenario as our fixed costs are very low with respect to our variable costs. If necessary we can further reduce our fixed costs by reducing personnel, as payroll constitutes the majority of our fixed costs.

Leading Sales
If actual sales volumes exceed our projections we will respond by increasing inventory purchases. Our suppliers capacity greatly exceeds the estimates in our current sales projections. While we should be able to finance the increased inventory purchases with revenue generated from the increased sales, this scenario may require additional infusions of cash. We may also consider financing accounts receivable with a factor to make cash for inventory purchases readily available.

The following subtopics highlight the financial plan for Wishbone Pet Products.

8.1 Assumptions

The table below presents the assumptions used in the financial calculations of 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% 6.00% 6.00%
Tax Rate 30.00% 30.00% 30.00%
Unit Sales - scoops 20,300 3,000 20,300
Unit Sales - bags (boxes of 25) 29,400 5,500 29,400

8.2 Break-even Analysis

Wishbone Pet Products revenues are generated from unit sales of Fetchâ„¢ (a one-time expense) and replacement liner bag sales (a recurring expense). The monthly break-even volume was determined using the sales forecast as a guide, and based on estimates for fixed costs and average revenue for Fetchâ„¢ and the replacement liner bags. We anticipate breaking even within the first year of operation.

Notes:

  • One scoop and one box of liners constitute one unit.
  • Average Per-Unit Revenue assumes only wholesale sales of one scoop and one box of bags.
  • Direct sales to retailers and catalogs will increase average per-unit revenue.
Break-even Analysis
Monthly Revenue Break-even $20,996
Assumptions:
Average Percent Variable Cost 42%
Estimated Monthly Fixed Cost $12,258

8.3 Projected Profit and Loss

Based on the sales projections and our low fixed cost operations strategy, Wishbone Pet Products will achieve profitability within one year. Profits in subsequent years will accelerate with an increase in anticipated sales volume, yielding approximately tripling of net profit in Year 2 and Year 3.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $398,650 $1,282,713 $2,716,825
Direct Cost of Sales $165,900 $541,650 $1,154,700
Shipping and Handling - scoops $8,398 $25,971 $35,027
Shipping and Handling - bags $7,970 $28,781 $64,279
Total Cost of Sales $182,268 $596,402 $1,254,006
Gross Margin $216,382 $686,311 $1,462,819
Gross Margin % 54.28% 53.50% 53.84%
Expenses
Payroll $66,000 $198,000 $228,000
Sales and Marketing and Other Expenses $59,798 $192,407 $407,524
Depreciation $0 $0 $0
Rent $6,000 $6,500 $7,000
Utilities $1,200 $1,500 $1,750
Insurance - liability $4,200 $4,200 $4,200
Payroll Taxes $9,900 $29,700 $34,200
Other $0 $0 $0
Total Operating Expenses $147,098 $432,307 $682,674
Profit Before Interest and Taxes $69,284 $254,004 $780,146
EBITDA $69,284 $254,004 $780,146
Interest Expense $4,638 $3,576 $2,376
Taxes Incurred $19,394 $75,128 $233,331
Net Profit $45,252 $175,299 $544,439
Net Profit/Sales 11.35% 13.67% 20.04%

8.4 Projected Cash Flow

We expect to manage cash flow with an initial investment and expect be profitable by the end of Year 1, with occasional negative cash flows corresponding to inventory purchases. Owner invests additional $10,000 in Year 2 as a hedge against Accounts Payable/Accounts Receivable flows.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $99,663 $320,678 $679,206
Cash from Receivables $208,143 $760,573 $1,710,811
Subtotal Cash from Operations $307,805 $1,081,251 $2,390,017
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 $10,000 $0
Subtotal Cash Received $307,805 $1,091,251 $2,390,017
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $66,000 $198,000 $228,000
Bill Payments $249,698 $921,205 $1,918,396
Subtotal Spent on Operations $315,698 $1,119,205 $2,146,396
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 $15,400 $20,000 $20,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $5,000 $7,500
Subtotal Cash Spent $331,098 $1,144,205 $2,173,896
Net Cash Flow ($23,293) ($52,954) $216,121
Cash Balance $76,707 $23,753 $239,873

8.5 Projected Balance Sheet

As shown on the balance sheet in the following table, we expect a healthy growth in net worth by the end of the plan period. The monthly projections for Year 1 are in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $76,707 $23,753 $239,873
Accounts Receivable $90,845 $292,307 $619,114
Inventory $28,875 $94,275 $200,976
Other Current Assets $15,000 $15,000 $15,000
Total Current Assets $211,427 $425,334 $1,074,964
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $211,427 $425,334 $1,074,964
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $66,575 $120,182 $252,874
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $66,575 $120,182 $252,874
Long-term Liabilities $69,600 $49,600 $29,600
Total Liabilities $136,175 $169,782 $282,474
Paid-in Capital $50,000 $60,000 $60,000
Retained Earnings ($20,000) $20,252 $188,051
Earnings $45,252 $175,299 $544,439
Total Capital $75,252 $255,551 $792,490
Total Liabilities and Capital $211,427 $425,334 $1,074,964
Net Worth $75,252 $255,551 $792,490

8.6 Business Ratios

The following table presents common business ratios for reference. Wishbone Pet Products NAICS classification is 339999 (SIC, 3999) - Manufacturing Industries, NEC (Not Elsewhere Classified).

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 221.76% 111.80% -3.08%
Percent of Total Assets
Accounts Receivable 42.97% 68.72% 57.59% 23.87%
Inventory 13.66% 22.16% 18.70% 22.83%
Other Current Assets 7.09% 3.53% 1.40% 27.81%
Total Current Assets 100.00% 100.00% 100.00% 74.51%
Long-term Assets 0.00% 0.00% 0.00% 25.49%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 31.49% 28.26% 23.52% 24.61%
Long-term Liabilities 32.92% 11.66% 2.75% 21.74%
Total Liabilities 64.41% 39.92% 26.28% 46.35%
Net Worth 35.59% 60.08% 73.72% 53.65%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 54.28% 53.50% 53.84% 37.64%
Selling, General & Administrative Expenses 40.11% 36.61% 30.46% 20.59%
Advertising Expenses 0.00% 0.00% 0.00% 1.38%
Profit Before Interest and Taxes 17.38% 19.80% 28.72% 4.79%
Main Ratios
Current 3.18 3.54 4.25 2.48
Quick 2.74 2.75 3.46 1.35
Total Debt to Total Assets 64.41% 39.92% 26.28% 6.29%
Pre-tax Return on Net Worth 85.91% 98.00% 98.14% 50.32%
Pre-tax Return on Assets 30.58% 58.88% 72.35% 12.65%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 11.35% 13.67% 20.04% n.a
Return on Equity 60.13% 68.60% 68.70% n.a
Activity Ratios
Accounts Receivable Turnover 3.29 3.29 3.29 n.a
Collection Days 55 73 82 n.a
Inventory Turnover 10.91 8.80 7.82 n.a
Accounts Payable Turnover 4.75 8.11 8.11 n.a
Payment Days 40 35 33 n.a
Total Asset Turnover 1.89 3.02 2.53 n.a
Debt Ratios
Debt to Net Worth 1.81 0.66 0.36 n.a
Current Liab. to Liab. 0.49 0.71 0.90 n.a
Liquidity Ratios
Net Working Capital $144,852 $305,151 $822,090 n.a
Interest Coverage 14.94 71.03 328.34 n.a
Additional Ratios
Assets to Sales 0.53 0.33 0.40 n.a
Current Debt/Total Assets 31% 28% 24% n.a
Acid Test 1.38 0.32 1.01 n.a
Sales/Net Worth 5.30 5.02 3.43 n.a
Dividend Payout 0.00 0.03 0.01 n.a