This financial plan was developed based upon previous years' data for the existing store, tracking trends in revenues and expenses. A five-month track of sales, accounts receivables and payables, and inventory from a year-end benchmark was made.
The seller, buyer, and the accountant worked together on the plan to balance optimism with reality.
An attorney was consulted on specifics of the sale contract.
The topics which follow present specific projections.
Payment days are averaged at 45. This is an average figure used for planning purposes. Bicycle manufacturers and some accessories suppliers offer dating programs where shops order product at the annual trade show in September for delivery in February or March so that new product will be available to customers at the beginning of the cycling season. Shops are invoiced for payment due, depending upon the program, somewhere between May and July.
The financial projections presented here are based on the assumption that suppliers will continue their current invoicing programs with University Cycle Works. We are thankful for the active support and advocacy of the various sales representatives who deal with us.
Other products are ordered on a monthly basis to replace items sold, such as tires, tubes, aptitude and cages, ball bearings, drive chains, etc. These are invoiced at net 30. Some special orders are C.O.D.
We also assume that:
The following chart compares five key indicators as they change over time. The indicators include sales, gross margin, operating expenses, inventory turnover, and collection days. The chart uses indicator values that are set to compare changes with the base year showing up as 1.00 and all other years showing up as multiples from the base.
The Average Percent Variable Cost and Estimated Monthly Fixed Cost figures in the break-even table and chart below are drawn from data in the Profit and Loss and Sales Forecast tables. The table and chart give us a rough estimate on how much product and service we need to sell each month to cover all our expenses.
In negotiating the smooth transition in ownership, the landlord agreed with Hub to continue the current lease unchanged. As surety, one month's rent was required as a deposit at the time of sale. This is shown in the Start-up table. Further, the landlord agreed that if, after 11 months operation the new company was solvent and current in lease payments, that the deposit could be applied to the twelfth month's rent.
The mid-summer months of July and August are slow months when a large part of the university population is gone on summer break. The mid-winter months are traditionally loss months. The weather is the most inclement and discretionary income is at its lowest after the holiday binges. However, we try to keep our entire staff on board to work on our own inventory, store refurbishing, and staff training.
The Cash Flow chart and table reflect the seasonality of bicycle sales and the varying payment programs. At times, the business is inventory heavy, stocking up for the beginning of school rush, or specific sales. At other times, there is substantial negative cash flow as long-term accounts payable, net 90, net 60 payments coincide with regular net 30 invoices.
Our goal is to repay the loans from our family within the first year, and we project paying Han Delbar his entire purchase price within five years. Other balance sheet information is shown in the table below.
Business ratio analysis for our first three years appears in the table below. For comparison, industry standard ratios for Standard Industrial Classification (SIC) code 5941, Sporting Goods and Bicycle Shops, are presented as well.