Salvador's Sauces

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Salsa Manufacturer Business Plan

Financial Plan

We have forecast a very rapid growth for Salvador's this year. Although this may seem ambitious based on historic sales, this rate of growth is due to the large orders we have received to date from several distributors, letters of commitment from Meijer's and Kroger's, and the increasing number of orders from current clients.

7.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:

  • We assume a slow-growth economy, without major recession.
  • We assume, of course, that there are no unforeseen changes in the consumer market to make products immediately obsolete or out of favor (or not increasing in popularity).
  • We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables, addendum, and additional documentation.
General Assumptions
1996 1997 1998
Plan Month 1 2 3
Current Interest Rate 5.00% 5.00% 5.00%
Long-term Interest Rate 5.00% 5.00% 5.00%
Tax Rate 25.00% 25.00% 25.00%
Other 0 0 0

7.2 Key Financial Indicators

The most important factor in our case is the ability to procure financing to go the the next level. The size of the orders currently being asked of us are well beyond our current production capacity, but well within the production capability of a local processor. *Note: purchasing from this supplier will also reduce our per unit production costs in excess of 30%. An additional alternative would be to purchase the production equipment necessary, and not be subject to the local manufacturer's production scheduling.

We must maintain reasonably high gross margins, and hold marketing costs to no more than 20% of sales to provide the income to reduce out debt, and equip us to sustain the growth we anticipate. We will meet and exceed all of theses conditions through buying at increased volumes. Then we'll pass the savings on to our customers through increases in the margins at which they retail the product.

7.3 Break-even Analysis

The break-even analysis shows that Salvador's has a good balance of fixed costs and sufficient sales to remain healthy. We have already passed our monthly break-even point; last year's overall loss reflects high costs in the first half of the year.

We have just recently contracted with another jar supplier that will reduce our costs by 18% per jar of salsa with the next supply order. This will further reduce the break-even point, and add to our goal of increasing the margin on our salsa.

Break-even Analysis
Monthly Revenue Break-even $4,747
Assumptions:
Average Percent Variable Cost 39%
Estimated Monthly Fixed Cost $2,919

7.4 Projected Profit and Loss

We expect to close out this year with good sales growth, and to increase our sales each year through the turn of the century, with comfortable net profit.

Pro Forma Profit and Loss
1996 1997 1998
Sales $168,602 $217,320 $312,052
Direct Cost of Sales $64,916 $86,928 $124,821
Other Costs of Sales $0 $0 $0
Total Cost of Sales $64,916 $86,928 $124,821
Gross Margin $103,686 $130,392 $187,231
Gross Margin % 61.50% 60.00% 60.00%
Expenses
Payroll $9,600 $43,500 $72,800
Marketing/Promotion $6,763 $0 $0
Depreciation $5,520 $0 $0
Rent $3,500 $0 $0
Utilities $3,850 $0 $0
Leased Equipment $465 $0 $0
Insurance $1,044 $0 $0
Payroll Taxes $0 $0 $0
Other $4,290 $4,225 $6,275
Total Operating Expenses $35,032 $47,725 $79,075
Profit Before Interest and Taxes $68,654 $82,667 $108,156
EBITDA $74,174 $82,667 $108,156
Interest Expense $7,533 $7,958 $6,817
Taxes Incurred $15,280 $18,677 $25,335
Net Profit $45,841 $56,032 $76,004
Net Profit/Sales 27.19% 25.78% 24.36%

7.5 Projected Cash Flow

We expect to manage cash flow over the next three years with the assistance of a Small Business Administration supported loan. This financing assistance is required to provide the working capital to meet the current needs while providing a solid foundation to build the growth of the organization. After a six-month period, we anticipate requesting an open line of credit to further the company's ability to meet and exceed sales projections, gross margin, and return on investment.

Pro Forma Cash Flow
1996 1997 1998
Cash Received
Cash from Operations
Cash Sales $143,312 $184,722 $265,244
Subtotal Cash from Operations $164,267 $216,067 $309,616
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 $165,000 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $329,267 $216,067 $309,616
Expenditures 1996 1997 1998
Expenditures from Operations
Cash Spending $9,600 $43,500 $72,800
Bill Payments $101,045 $120,055 $163,313
Subtotal Spent on Operations $110,645 $163,555 $236,113
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $3,650 $5,555 $6,000
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $7,100 $17,042 $17,042
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $45,000 $0 $0
Subtotal Cash Spent $166,395 $186,152 $259,155
Net Cash Flow $162,872 $29,916 $50,461
Cash Balance $162,998 $192,913 $243,375

7.6 Projected Balance Sheet

As shown by the balance sheet in the table, we expect a healthy growth in net worth through the end of the plan period.

Pro Forma Balance Sheet
1996 1997 1998
Assets
Current Assets
Cash $162,998 $192,913 $243,375
Accounts Receivable $4,335 $5,587 $8,023
Inventory $6,745 $9,032 $12,970
Other Current Assets $0 $0 $0
Total Current Assets $174,078 $207,533 $264,367
Long-term Assets
Long-term Assets $23,368 $23,368 $23,368
Accumulated Depreciation $15,312 $15,312 $15,312
Total Long-term Assets $8,056 $8,056 $8,056
Total Assets $182,134 $215,589 $272,423
Liabilities and Capital 1996 1997 1998
Current Liabilities
Accounts Payable $9,849 $9,869 $13,741
Current Borrowing $12,557 $7,002 $1,002
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $22,406 $16,871 $14,743
Long-term Liabilities $157,900 $140,858 $123,816
Total Liabilities $180,306 $157,729 $138,559
Paid-in Capital $25,000 $25,000 $25,000
Retained Earnings ($69,013) ($23,172) $32,860
Earnings $45,841 $56,032 $76,004
Total Capital $1,828 $57,860 $133,864
Total Liabilities and Capital $182,134 $215,589 $272,423
Net Worth $1,828 $57,860 $133,864

7.7 Business Ratios

Standard business ratios are included in the table that follows. The ratios show a plan for well balanced, healthy growth. The industry comparisons are for the Perishable Prepared Food Manufacturing industry, NAICS classification code 311991.

Ratio Analysis
1996 1997 1998 Industry Profile
Sales Growth 700.96% 28.90% 43.59% 6.68%
Percent of Total Assets
Accounts Receivable 2.38% 2.59% 2.94% 15.95%
Inventory 3.70% 4.19% 4.76% 13.45%
Other Current Assets 0.00% 0.00% 0.00% 21.34%
Total Current Assets 95.58% 96.26% 97.04% 50.74%
Long-term Assets 4.42% 3.74% 2.96% 49.26%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 12.30% 7.83% 5.41% 25.96%
Long-term Liabilities 86.69% 65.34% 45.45% 29.44%
Total Liabilities 99.00% 73.16% 50.86% 55.40%
Net Worth 1.00% 26.84% 49.14% 44.60%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 61.50% 60.00% 60.00% 19.36%
Selling, General & Administrative Expenses 34.31% 34.22% 35.64% 11.01%
Advertising Expenses 3.27% 0.00% 0.00% 0.60%
Profit Before Interest and Taxes 40.72% 38.04% 34.66% 1.06%
Main Ratios
Current 7.77 12.30 17.93 1.56
Quick 7.47 11.77 17.05 0.86
Total Debt to Total Assets 99.00% 73.16% 50.86% 63.95%
Pre-tax Return on Net Worth 3343.58% 129.12% 75.70% 1.88%
Pre-tax Return on Assets 33.56% 34.65% 37.20% 5.23%
Additional Ratios 1996 1997 1998
Net Profit Margin 27.19% 25.78% 24.36% n.a
Return on Equity 2507.69% 96.84% 56.78% n.a
Activity Ratios
Accounts Receivable Turnover 5.83 5.83 5.83 n.a
Collection Days 57 56 53 n.a
Inventory Turnover 10.91 11.02 11.35 n.a
Accounts Payable Turnover 11.26 12.17 12.17 n.a
Payment Days 27 30 26 n.a
Total Asset Turnover 0.93 1.01 1.15 n.a
Debt Ratios
Debt to Net Worth 98.63 2.73 1.04 n.a
Current Liab. to Liab. 0.12 0.11 0.11 n.a
Liquidity Ratios
Net Working Capital $151,672 $190,662 $249,624 n.a
Interest Coverage 9.11 10.39 15.87 n.a
Additional Ratios
Assets to Sales 1.08 0.99 0.87 n.a
Current Debt/Total Assets 12% 8% 5% n.a
Acid Test 7.27 11.43 16.51 n.a
Sales/Net Worth 92.23 3.76 2.33 n.a
Dividend Payout 0.98 0.00 0.00 n.a