Corporate Software Sales

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Software Sales Business Plan

Financial Plan

The most crucial issue affecting our financial plan is the receipt of start-up fees for the customization and installation of the software and extranet solution. This drives our cash flow, and all other aspects of our operation.

7.1 Important Assumptions

This table summarizes the general assumptions used to project our balance sheet.

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 8.00% 8.00% 8.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Key Financial Indicators

The chart below shows the relative relationships, year-to-year, of four business indicators; sales, gross margin, operating expenses, collection days of accounts receivable.

7.3 Break-even Analysis

We have a break-even point in sales/month for year one as shown below.

Break-even Analysis
Monthly Revenue Break-even $8,450
Assumptions:
Average Percent Variable Cost 11%
Estimated Monthly Fixed Cost $7,510

7.4 Projected Profit and Loss

Monthly P&L fluctuate drastically due to the work required before a sale is closed. One to two months prior to closing a sale, we will incur travel costs and other miscellaneous expenses associated with our consulting service. Expenses are approximately 40% of fees. Set-up costs to the client (our commission), drive revenue in the period a sale is made, as do training fees. Associated direct costs are 10% and 50% respectively; however, as we anticipate a learning curve in training costs, these decrease to a flat rate in year two of eight percent.

The direct cost of start-up fees is our major expense. As the client prepares to go live with the product, we will need to travel more frequently to the site, bring in their key end-customers, and travel to the manufacturer more frequently as well. We have anticipated that start-up fees will grow 10% in year two and 15% in year three. Consulting fees are projected to grow at a steady rate of 20% and training fees at 30%. As a result, net profit is projected to grow at a conservative and realistic rate for the first three years.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $154,950 $171,180 $198,096
Direct Cost of Sales $17,235 $15,516 $18,300
Other $0 $0 $0
Total Cost of Sales $17,235 $15,516 $18,300
Gross Margin $137,715 $155,664 $179,796
Gross Margin % 88.88% 90.94% 90.76%
Expenses
Payroll $80,000 $85,000 $90,000
Marketing/Promotion $4,000 $5,000 $6,000
Depreciation $0 $0 $0
Utilities $480 $500 $550
Insurance $1,440 $1,440 $1,440
Rent $4,200 $4,200 $4,350
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $90,120 $96,140 $102,340
Profit Before Interest and Taxes $47,595 $59,524 $77,456
EBITDA $47,595 $59,524 $77,456
Interest Expense $0 $0 $0
Taxes Incurred $14,279 $17,857 $23,237
Net Profit $33,317 $41,667 $54,219
Net Profit/Sales 21.50% 24.34% 27.37%

7.5 Projected Cash Flow

Our cash flow assumptions are dependent on the start-up fee. We will receive 15-20% of the total fee in commission. Historical values of start-up fees are from $150K to $200K and the accounts have taken from one to four months to close. Conservative estimates lead us to believe that we can attain sales revenue from start-up fees of between $135K and $140K in year one.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $77,475 $85,590 $99,048
Cash from Receivables $76,895 $85,529 $98,947
Subtotal Cash from Operations $154,370 $171,119 $197,995
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 $0 $0 $0
Subtotal Cash Received $154,370 $171,119 $197,995
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $80,000 $85,000 $90,000
Bill Payments $33,015 $49,973 $53,107
Subtotal Spent on Operations $113,015 $134,973 $143,107
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 $113,015 $134,973 $143,107
Net Cash Flow $41,355 $36,146 $54,888
Cash Balance $52,355 $88,501 $143,389

7.6 Projected Balance Sheet

Balance sheet is a result of key assumptions and estimated sales/cash flows.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $52,355 $88,501 $143,389
Accounts Receivable $580 $641 $742
Other Current Assets $0 $0 $0
Total Current Assets $52,935 $89,142 $144,131
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $52,935 $89,142 $144,131
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $9,119 $3,659 $4,428
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $9,119 $3,659 $4,428
Long-term Liabilities $0 $0 $0
Total Liabilities $9,119 $3,659 $4,428
Paid-in Capital $13,550 $13,550 $13,550
Retained Earnings ($3,050) $30,267 $71,933
Earnings $33,317 $41,667 $54,219
Total Capital $43,817 $85,483 $139,703
Total Liabilities and Capital $52,935 $89,142 $144,131
Net Worth $43,817 $85,483 $139,703

7.7 Business Ratios

The following table outlines important business ratios for pre-packaged software, as described by the standard industry classification (SIC) index, 7372.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.47% 15.72% 9.70%
Percent of Total Assets
Accounts Receivable 1.10% 0.72% 0.51% 21.50%
Other Current Assets 0.00% 0.00% 0.00% 45.70%
Total Current Assets 100.00% 100.00% 100.00% 70.20%
Long-term Assets 0.00% 0.00% 0.00% 29.80%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 17.23% 4.10% 3.07% 42.40%
Long-term Liabilities 0.00% 0.00% 0.00% 19.20%
Total Liabilities 17.23% 4.10% 3.07% 61.60%
Net Worth 82.77% 95.90% 96.93% 38.40%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 88.88% 90.94% 90.76% 100.00%
Selling, General & Administrative Expenses 65.84% 64.01% 60.68% 79.40%
Advertising Expenses 0.00% 0.00% 0.00% 1.30%
Profit Before Interest and Taxes 30.72% 34.77% 39.10% 2.20%
Main Ratios
Current 5.81 24.36 32.55 1.51
Quick 5.81 24.36 32.55 1.16
Total Debt to Total Assets 17.23% 4.10% 3.07% 61.60%
Pre-tax Return on Net Worth 108.62% 69.63% 55.44% 3.50%
Pre-tax Return on Assets 89.91% 66.77% 53.74% 9.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 21.50% 24.34% 27.37% n.a
Return on Equity 76.04% 48.74% 38.81% n.a
Activity Ratios
Accounts Receivable Turnover 133.58 133.58 133.58 n.a
Collection Days 60 3 3 n.a
Accounts Payable Turnover 4.57 12.17 12.17 n.a
Payment Days 67 52 27 n.a
Total Asset Turnover 2.93 1.92 1.37 n.a
Debt Ratios
Debt to Net Worth 0.21 0.04 0.03 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $43,817 $85,483 $139,703 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.34 0.52 0.73 n.a
Current Debt/Total Assets 17% 4% 3% n.a
Acid Test 5.74 24.19 32.38 n.a
Sales/Net Worth 3.54 2.00 1.42 n.a
Dividend Payout 0.00 0.00 0.00 n.a