Good Earth Resources

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Recycling Energy Conversion Business Plan

Financial Plan

The purchase of Barton landfill at the onset is essential.  Since Barton is currently operating, it allows GER the opportunity to augment the current waste stream by hauling from St. Louis and St. Charles, Missouri.  The present owners of Barton have been ready to retire for several years and have lost interest in increasing this business.  This affords GER the opportunity to build both businesses using Barton's cash flow and customer base. GER can solicit additional business in anticipation of Martin Creek's opening day.  Prior to opening, waste would be transported to Barton.  Thus, at Martin Creek's opening, there will be excellent revenue sources on the first day of business.

8.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the tables. GER expects a 30 to 45 day lag between services rendered and payment receipt because of the nature of the business. Interest rates, tax rates, and personnel burden are based on conservative assumptions.

Some of the more important underlying assumptions are:

  • GER assumes to be able to obtain the final Missouri Department of Natural Resources permit for operation of the landfill.
  • GER assumes, of course, that there are no unforeseen changes in technology to make landfills obsolete.
  • A recessionary economy would not have an major negative effect on the cash flow, however there may be adjustments in both income and expenses should the recession be extensive and long-term. Even during a recession municipalities generate trash and it must be removed to a landfill. This is a recession-proof business that flourishes in good times and bad.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 8.00% 8.00% 8.00%
Long-term Interest Rate 8.00% 8.00% 8.00%
Tax Rate 2.50% 0.00% 2.50%
Other 0 0 0

8.2 Break-even Analysis

This chart and table summarize the break-even analysis. GER expects to break even shortly after commencing operations as a result of GER personnel going to the hauler's transfer stations and using GER road tractors and divert the waste stream. Each trailer holds 80 yards. The monthly units refers to the number of trailer loads with approximately 27 tons (80 yards). Total truckloads for 690 tons daily is 673 loads per month, six days per week easily provided by seven road tractors.

Break-even Analysis
Monthly Units Break-even 11,417
Monthly Revenue Break-even $257,928
Assumptions:
Average Per-Unit Revenue $22.59
Average Per-Unit Variable Cost $0.30
Estimated Monthly Fixed Cost $254,477

8.3 Projected Profit and Loss

GER projected profit and loss is shown on the following table, with sales at $6,354,720 the first year and increasing each year thereafter. Due to expenditures in the first year, initial profits are lower in comparison to the second year. Once Martin Creek landfill is fully constructed, profits rise dramatically. This chart reflects 940 tons per day to Barton. GER has verbal commitments to bring in this amount starting with the first day of ownership. The Martin Creek Profit & Loss Statement in the Appendix shows 600 tons per day diverted to Barton in the first year and in the 13th month delivered to Martin Creek. By hauling to Barton during Martin Creek's construction phase, GER will both increase profits and secure this business for Martin Creek at the time it is ready to accept its own waste stream. The additional 600 tons per day provides an additional sales potential of between $4,492,800 on the low side and $5,241,600 on the high side, depending on the length of contract with this transfer station agreed upon.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $6,354,720 $6,990,000 $7,604,400
Direct Cost of Sales $85,022 $37,771 $40,754
Geothermal Mat $0 $0 $0
Total Cost of Sales $85,022 $37,771 $40,754
Gross Margin $6,269,698 $6,952,229 $7,563,646
Gross Margin % 98.66% 99.46% 99.46%
Expenses
Payroll $541,824 $569,002 $597,545
Sales and Marketing and Other Expenses $1,901,908 $2,019,908 $2,029,908
Depreciation $0 $0 $0
Truck Rental $280,800 $280,800 $280,800
Utilities $14,400 $14,400 $14,400
Insurance $64,392 $64,392 $64,392
Telephone $12,000 $12,000 $12,000
Payroll Taxes $238,403 $250,361 $262,920
Other $0 $0 $0
Total Operating Expenses $3,053,727 $3,210,863 $3,261,965
Profit Before Interest and Taxes $3,215,971 $3,741,366 $4,301,681
EBITDA $3,215,971 $3,741,366 $4,301,681
Interest Expense $43,287 $89,530 $101,582
Taxes Incurred $67,731 $0 $105,002
Net Profit $3,104,953 $3,651,836 $4,095,097
Net Profit/Sales 48.86% 52.24% 53.85%

8.4 Projected Cash Flow

Cash flow projections are shown in the table below.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $1,588,680 $1,747,500 $1,901,100
Cash from Receivables $3,984,939 $5,164,414 $5,627,780
Subtotal Cash from Operations $5,573,619 $6,911,914 $7,528,880
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $596,090 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $448,692 $448,692 $448,692
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $7,548,000 $0 $0
Subtotal Cash Received $14,166,401 $7,360,606 $7,977,572
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $541,824 $569,002 $597,545
Bill Payments $2,486,914 $2,762,588 $2,900,038
Subtotal Spent on Operations $3,028,738 $3,331,590 $3,497,583
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $3,500,000 $300,000 $296,090
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 $5,002,281 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $11,531,019 $3,631,590 $3,793,673
Net Cash Flow $2,635,382 $3,729,015 $4,183,899
Cash Balance $2,764,710 $6,493,725 $10,677,624

8.5 Projected Balance Sheet

The following table shows the projected balance sheet for Good Earth Resources.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $2,764,710 $6,493,725 $10,677,624
Accounts Receivable $781,101 $859,188 $934,708
Other Current Assets $350,000 $350,000 $350,000
Total Current Assets $3,895,811 $7,702,912 $11,962,331
Long-term Assets
Long-term Assets $12,002,281 $12,002,281 $12,002,281
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $12,002,281 $12,002,281 $12,002,281
Total Assets $15,898,092 $19,705,193 $23,964,612
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $221,029 $227,602 $239,323
Current Borrowing $596,090 $296,090 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $817,119 $523,692 $239,323
Long-term Liabilities $448,692 $897,384 $1,346,076
Total Liabilities $1,265,811 $1,421,076 $1,585,399
Paid-in Capital $11,548,000 $11,548,000 $11,548,000
Retained Earnings ($20,672) $3,084,281 $6,736,117
Earnings $3,104,953 $3,651,836 $4,095,097
Total Capital $14,632,281 $18,284,117 $22,379,214
Total Liabilities and Capital $15,898,092 $19,705,193 $23,964,612
Net Worth $14,632,281 $18,284,117 $22,379,214

8.6 Business Ratios

The following table compares the estimated ratios to the Standard Industry Code #4953, Solid Waste Landfill.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.00% 8.79% 7.24%
Percent of Total Assets
Accounts Receivable 4.91% 4.36% 3.90% 7.22%
Other Current Assets 2.20% 1.78% 1.46% 25.93%
Total Current Assets 24.50% 39.09% 49.92% 33.95%
Long-term Assets 75.50% 60.91% 50.08% 66.05%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 5.14% 2.66% 1.00% 17.37%
Long-term Liabilities 2.82% 4.55% 5.62% 23.19%
Total Liabilities 7.96% 7.21% 6.62% 40.56%
Net Worth 92.04% 92.79% 93.38% 59.44%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 98.66% 99.46% 99.46% 31.67%
Selling, General & Administrative Expenses 48.74% 47.76% 45.73% 14.70%
Advertising Expenses 2.05% 2.00% 1.97% 0.29%
Profit Before Interest and Taxes 50.61% 53.52% 56.57% 2.51%
Main Ratios
Current 4.77 14.71 49.98 1.24
Quick 4.77 14.71 49.98 0.84
Total Debt to Total Assets 7.96% 7.21% 6.62% 62.44%
Pre-tax Return on Net Worth 21.68% 19.97% 18.77% 2.35%
Pre-tax Return on Assets 19.96% 18.53% 17.53% 6.25%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 48.86% 52.24% 53.85% n.a
Return on Equity 21.22% 19.97% 18.30% n.a
Activity Ratios
Accounts Receivable Turnover 6.10 6.10 6.10 n.a
Collection Days 57 57 57 n.a
Accounts Payable Turnover 12.25 12.17 12.17 n.a
Payment Days 27 30 29 n.a
Total Asset Turnover 0.40 0.35 0.32 n.a
Debt Ratios
Debt to Net Worth 0.09 0.08 0.07 n.a
Current Liab. to Liab. 0.65 0.37 0.15 n.a
Liquidity Ratios
Net Working Capital $3,078,692 $7,179,220 $11,723,009 n.a
Interest Coverage 74.29 41.79 42.35 n.a
Additional Ratios
Assets to Sales 2.50 2.82 3.15 n.a
Current Debt/Total Assets 5% 3% 1% n.a
Acid Test 3.81 13.07 46.08 n.a
Sales/Net Worth 0.43 0.38 0.34 n.a
Dividend Payout 0.00 0.00 0.00 n.a