Elsewares Promotional Products & Packaging

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Promotional Products Maker Business Plan

Financial Plan

Elsewares is seeking a financial package based on a note due in five years, but amortized over 15 years. The note will be personally guaranteed by the Greenbaums' assets. By amortizing the note over 15 years, the company will be afforded the opportunity to establish a healthy track record which will enable the company to seek alternate financing for the balance. In light of that strategy, Elsewares proposes the following payback schedule:

  • Months 1-12: No payback of principal or interest
  • Months 13-24: 15% interest plus 10% net profit
  • Months 25-48: 10% interest plus 15% net profit
  • Months 49-60: 10% interest plus 20% net profit

It should be noted that the owners of Elsewares do not intend to take any profits out of the business until the long-term debt has been satisfied. Whatever profits remain after the above debt payments will be used to finance growth, mainly through the acquisition of additional inventory.

7.1 Important Assumptions

General assumptions for this plan are on 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 0.00% 0.00% 0.00%
Other 0 0 0

7.2 Key Financial Indicators

The most important indicator in our case is inventory turnover. We have to make sure that our inventory of drawstring bags and any other packaging products turns over a minimum of five times to avoid a negative impact on our cost of goods sold and on our cash flow.

  • Collection Days: These are very important. It may be necessary to implement a variety of payment terms with different distributors, depending on their payment history. In extreme cases, prepayment of orders may be the only extendible terms. We will rely heavily on our subscription to the ASI Credit Service for this valuable pre-sale information.
  • Gross Margins: We must maintain gross margins of 90% at the least, and hold marketing costs to no more than 20% of sales.

7.3 Break-even Analysis

The following table and chart illustrate our break-even analysis with our per month fixed cost estimate, and what we need to sell to break-even in a month. Given the estimates, we hit running monthly break-even after the fourth month.

Break-even Analysis
Monthly Units Break-even 150,522
Monthly Revenue Break-even $43,608
Assumptions:
Average Per-Unit Revenue $0.29
Average Per-Unit Variable Cost $0.16
Estimated Monthly Fixed Cost $20,042

7.4 Projected Profit and Loss

The following table shows the projected profits. Monthly projections are included in the appendix.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $522,348 $686,372 $904,422
Direct Cost of Sales $282,283 $355,373 $452,320
Production Payroll $28,000 $30,000 $32,000
Other Costs of Sales $0 $0 $0
Total Cost of Sales $310,283 $385,373 $484,320
Gross Margin $212,065 $300,999 $420,102
Gross Margin % 40.60% 43.85% 46.45%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $54,000 $59,000 $64,000
Advertising/Promotion $44,000 $48,400 $53,240
Travel $18,900 $20,790 $22,869
Miscellaneous $6,000 $6,600 $7,260
Other Sales and Marketing Expenses $0 $0 $0
Total Sales and Marketing Expenses $122,900 $134,790 $147,369
Sales and Marketing % 23.53% 19.64% 16.29%
General and Administrative Expenses
General and Administrative Payroll $36,000 $40,000 $45,000
Marketing/Promotion $0 $0 $0
Depreciation $0 $0 $0
Rent $36,000 $39,600 $43,560
Utilities $42,000 $46,200 $50,820
Insurance $3,600 $3,960 $4,356
Payroll Taxes $0 $0 $0
Other General and Administrative Expenses $0 $0 $0
Total General and Administrative Expenses $117,600 $129,760 $143,736
General and Administrative % 22.51% 18.91% 15.89%
Other Expenses:
Other Payroll $0 $0 $0
Consultants $0 $0 $0
Other Expenses $0 $0 $0
Total Other Expenses $0 $0 $0
Other % 0.00% 0.00% 0.00%
Total Operating Expenses $240,500 $264,550 $291,105
Profit Before Interest and Taxes ($28,435) $36,449 $128,997
EBITDA ($28,435) $36,449 $128,997
Interest Expense $1,042 $13,750 $25,000
Taxes Incurred $0 $0 $0
Net Profit ($29,477) $22,699 $103,997
Net Profit/Sales -5.64% 3.31% 11.50%

7.5 Projected Cash Flow

The following table shows cash flow for the three years, and the chart illustrates monthly cash flow in the first year. Monthly cash flow projections are included in the appendix.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $329,034 $625,669 $823,725
Subtotal Cash from Operations $329,034 $625,669 $823,725
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $75,000 $125,000 $100,000
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 $100,000 $0 $0
Subtotal Cash Received $504,034 $750,669 $923,725
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $118,000 $129,000 $141,000
Bill Payments $388,415 $568,478 $668,840
Subtotal Spent on Operations $506,415 $697,478 $809,840
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 $506,415 $697,478 $809,840
Net Cash Flow ($2,381) $53,191 $113,885
Cash Balance $115,019 $168,210 $282,094

7.6 Projected Balance Sheet

The projected balance sheet is shown in the following table, with monthly projections in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $115,019 $168,210 $282,094
Accounts Receivable $193,314 $254,016 $334,714
Inventory $58,451 $73,586 $93,660
Other Current Assets $20,000 $20,000 $20,000
Total Current Assets $386,784 $515,812 $730,469
Long-term Assets
Long-term Assets $5,000 $5,000 $5,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $5,000 $5,000 $5,000
Total Assets $391,784 $520,812 $735,469
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $63,860 $45,190 $55,849
Current Borrowing $75,000 $200,000 $300,000
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $138,860 $245,190 $355,849
Long-term Liabilities $0 $0 $0
Total Liabilities $138,860 $245,190 $355,849
Paid-in Capital $300,000 $300,000 $300,000
Retained Earnings ($17,600) ($47,077) ($24,378)
Earnings ($29,477) $22,699 $103,997
Total Capital $252,923 $275,622 $379,619
Total Liabilities and Capital $391,784 $520,812 $735,469
Net Worth $252,923 $275,622 $379,619

7.7 Business Ratios

The table shows projected business ratios. The Industry Profile columns show statistics for Standard Industry Code (SIC) #5199, Nondurable Goods.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 31.40% 31.77% 6.22%
Percent of Total Assets
Accounts Receivable 49.34% 48.77% 45.51% 25.36%
Inventory 14.92% 14.13% 12.73% 29.49%
Other Current Assets 5.10% 3.84% 2.72% 32.72%
Total Current Assets 98.72% 99.04% 99.32% 87.57%
Long-term Assets 1.28% 0.96% 0.68% 12.43%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 35.44% 47.08% 48.38% 40.17%
Long-term Liabilities 0.00% 0.00% 0.00% 13.54%
Total Liabilities 35.44% 47.08% 48.38% 53.71%
Net Worth 64.56% 52.92% 51.62% 46.29%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 40.60% 43.85% 46.45% 20.49%
Selling, General & Administrative Expenses 50.66% 46.18% 40.34% 7.02%
Advertising Expenses 8.41% 7.40% 6.17% 0.70%
Profit Before Interest and Taxes -5.44% 5.31% 14.26% 1.79%
Main Ratios
Current 2.79 2.10 2.05 1.87
Quick 2.36 1.80 1.79 1.00
Total Debt to Total Assets 35.44% 47.08% 48.38% 57.19%
Pre-tax Return on Net Worth -11.65% 8.24% 27.40% 4.61%
Pre-tax Return on Assets -7.52% 4.36% 14.14% 10.77%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -5.64% 3.31% 11.50% n.a
Return on Equity -11.65% 8.24% 27.40% n.a
Activity Ratios
Accounts Receivable Turnover 2.70 2.70 2.70 n.a
Collection Days 54 119 119 n.a
Inventory Turnover 9.21 5.38 5.41 n.a
Accounts Payable Turnover 7.08 12.17 12.17 n.a
Payment Days 27 36 27 n.a
Total Asset Turnover 1.33 1.32 1.23 n.a
Debt Ratios
Debt to Net Worth 0.55 0.89 0.94 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $247,923 $270,622 $374,619 n.a
Interest Coverage -27.30 2.65 5.16 n.a
Additional Ratios
Assets to Sales 0.75 0.76 0.81 n.a
Current Debt/Total Assets 35% 47% 48% n.a
Acid Test 0.97 0.77 0.85 n.a
Sales/Net Worth 2.07 2.49 2.38 n.a
Dividend Payout 0.00 0.00 0.00 n.a