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Pet Supplies Business Plan

Financial Plan

We expect sales growth will be slow to moderate, and that cash flows will be steady with annual sales projected to equal $143,800, $223,180 and $248,748 for the years 2005 – 2007.

Once the company reaches a sufficient level of profitability and accumulates a cash reserve, it plans to invest 50% of profits in research and development of new products, existing product and operational improvements, and to expand marketing and sales efforts to foreign markets. 38% of profits will be invested in low risk financial instruments. 10% of profits will be used for employee bonuses. 1% of profits will be used to support non-profit organizations that support the health and welfare of women in the United States. The remaining 1% will be used to support non-profit organizations that promote the health and welfare of pets in the United States. These expenses will be itemized in the later years of the business plans.

In the event that the company does not earn a profit, additional funds will be sought to finance research and development (R&D) activities. 100% of funding obtained during break-even or loss periods will be used for R&D, while the investment in financial instruments, employee bonuses and charitable giving activities will be foregone.

 

8.1 General Assumptions

The general assumptions for this plan are shown in the following table.

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

The following break-even analysis table and chart show that with average estimated monthly fixed cost of $7,325 and a 28% variable cost, the company needs to generate approximately $10,000 in sales to break even.

Break-even Analysis
Monthly Revenue Break-even $9,438
Assumptions:
Average Percent Variable Cost 28%
Estimated Monthly Fixed Cost $6,839

8.3 Projected Profit and Loss

We will operate at a profit beginning in the first year based on our worst case sales forecasts. Though we project that we will operate at a loss for the first six months, we will make up for the losses in the second half of 2005 to break even for the year. We also anticipate earning a profit in subsequent years. These projections are conservatively based on solid market research and initial responses from local pet care professionals.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $143,800 $223,180 $248,748
Direct Cost of Sales $39,600 $67,145 $72,607
Other Costs of Goods $0 $0 $0
Total Cost of Sales $39,600 $67,145 $72,607
Gross Margin $104,200 $156,035 $176,141
Gross Margin % 72.46% 69.91% 70.81%
Expenses
Payroll $39,225 $70,000 $80,000
Sales and Marketing and Other Expenses $5,000 $5,000 $5,000
Depreciation $0 $0 $0
Rent $20,400 $20,400 $20,400
Utilities $2,400 $2,400 $2,400
Insurance $238 $238 $238
Payroll Taxes $0 $0 $0
Web site management $6,400 $12,000 $15,000
Business travel $6,000 $8,000 $10,000
Miscellaneous $2,400 $3,000 $5,000
Total Operating Expenses $82,063 $121,038 $138,038
Profit Before Interest and Taxes $22,137 $34,997 $38,103
EBITDA $22,137 $34,997 $38,103
Interest Expense $4,461 $3,506 $2,510
Taxes Incurred $5,303 $9,447 $10,678
Net Profit $12,374 $22,044 $24,915
Net Profit/Sales 8.60% 9.88% 10.02%

8.4 Projected Cash Flow

The cash flow table shows that cash flow for our worst case sales scenario (i.e., slow sales for the first three years) provides steady cash balance increases. Once the loan is fully repaid, the cash balance should provide a cushion for future expenses.

The cash flow chart shows monthly projections for 2005.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $35,950 $55,795 $62,187
Cash from Receivables $46,790 $133,679 $175,704
Subtotal Cash from Operations $82,740 $189,474 $237,891
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 $75,000 $0 $0
Subtotal Cash Received $157,740 $189,474 $237,891
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $39,225 $70,000 $80,000
Bill Payments $78,089 $155,278 $145,235
Subtotal Spent on Operations $117,314 $225,278 $225,235
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $9,960 $9,960 $9,960
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 $127,274 $235,238 $235,195
Net Cash Flow $30,466 ($45,764) $2,696
Cash Balance $70,466 $24,702 $27,398

8.5 Projected Balance Sheet

Our projected balance sheet is shown in the following table. Monthly projections are shown in the appendix. The Balance Sheet, even with these conservative forecasts, shows a steadily increasing net worth.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $70,466 $24,702 $27,398
Accounts Receivable $61,060 $94,766 $105,623
Inventory $13,310 $22,568 $24,404
Other Current Assets $0 $0 $0
Total Current Assets $144,836 $142,037 $157,425
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $144,836 $142,037 $157,425
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $26,422 $11,539 $11,973
Current Borrowing $40,040 $30,080 $20,120
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $66,462 $41,619 $32,093
Long-term Liabilities $0 $0 $0
Total Liabilities $66,462 $41,619 $32,093
Paid-in Capital $97,200 $97,200 $97,200
Retained Earnings ($31,200) ($18,826) $3,217
Earnings $12,374 $22,044 $24,915
Total Capital $78,374 $100,417 $125,332
Total Liabilities and Capital $144,836 $142,037 $157,425
Net Worth $78,374 $100,417 $125,332

8.6 Business Ratios

The following table outlines some of the more important ratios from the Pet Supplies industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 5999.1103.

Our asset ratios differ from the industry standard for two reasons:

  1. Because we are operating initially as a home office with outsourced manufacturing, we do not require any long-term assets at this stage.
  2. Because our first sales approaches are to other professionals and the government, rather than to individual consumers, we have a higher percentage of assets as accounts receivable.
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 55.20% 11.46% 1.08%
Percent of Total Assets
Accounts Receivable 42.16% 66.72% 67.09% 22.01%
Inventory 9.19% 15.89% 15.50% 18.65%
Other Current Assets 0.00% 0.00% 0.00% 36.34%
Total Current Assets 100.00% 100.00% 100.00% 77.00%
Long-term Assets 0.00% 0.00% 0.00% 23.00%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 45.89% 29.30% 20.39% 27.21%
Long-term Liabilities 0.00% 0.00% 0.00% 18.98%
Total Liabilities 45.89% 29.30% 20.39% 46.19%
Net Worth 54.11% 70.70% 79.61% 53.81%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 72.46% 69.91% 70.81% 38.34%
Selling, General & Administrative Expenses 49.91% 49.23% 49.60% 15.66%
Advertising Expenses 0.00% 0.00% 0.00% 1.52%
Profit Before Interest and Taxes 15.39% 15.68% 15.32% 3.70%
Main Ratios
Current 2.18 3.41 4.91 1.83
Quick 1.98 2.87 4.14 1.01
Total Debt to Total Assets 45.89% 29.30% 20.39% 58.09%
Pre-tax Return on Net Worth 22.55% 31.36% 28.40% 3.95%
Pre-tax Return on Assets 12.20% 22.17% 22.61% 9.42%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 8.60% 9.88% 10.02% n.a
Return on Equity 15.79% 21.95% 19.88% n.a
Activity Ratios
Accounts Receivable Turnover 1.77 1.77 1.77 n.a
Collection Days 50 170 196 n.a
Inventory Turnover 8.74 3.74 3.09 n.a
Accounts Payable Turnover 3.96 12.17 12.17 n.a
Payment Days 27 49 29 n.a
Total Asset Turnover 0.99 1.57 1.58 n.a
Debt Ratios
Debt to Net Worth 0.85 0.41 0.26 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $78,374 $100,417 $125,332 n.a
Interest Coverage 4.96 9.98 15.18 n.a
Additional Ratios
Assets to Sales 1.01 0.64 0.63 n.a
Current Debt/Total Assets 46% 29% 20% n.a
Acid Test 1.06 0.59 0.85 n.a
Sales/Net Worth 1.83 2.22 1.98 n.a
Dividend Payout 0.00 0.00 0.00 n.a