Morningstar Bakery

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Specialty Baker Business Plan

Financial Plan

The following sections will outline important financial assumptions.

7.1 Important Assumptions

The current economic climate in the U.S. appears to be on the brink of recession. However, we do not believe that if the country does enter a recession that our business will be unduly affected. Since our products are ones that help contribute to and maintain good health, we believe that people will continue to buy our products over traditional wheat bread. We are operating in a niche market, and in addition, the price of our breads and sweets although slightly higher than traditional bakeries they are not positioned as expensive, luxury items.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 9.00% 9.00% 9.00%
Long-term Interest Rate 8.50% 8.50% 8.50%
Tax Rate 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Break-even Analysis

Our Break-Even Analysis includes running costs of production. These are fairly low since we manufacture all of our goods at a low cost to us. Here are the items included in the average percent variable cost:

  • Manufacturing ingredients, i.e. flour, sugar, yeast and butter.
  • Payroll.
  • Mortgage.
  • Utilities.
  • Advertising.

The Break-Even Analysis as it appears below indicates that the break-even point will be attainable each month.

Break-even Analysis
Monthly Revenue Break-even $19,036
Assumptions:
Average Percent Variable Cost 36%
Estimated Monthly Fixed Cost $12,271

7.3 Projected Profit and Loss

The following table shows the projected profit and loss for Morningstar Bakery.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $251,700 $324,000 $400,000
Direct Cost of Sales $89,450 $115,200 $142,000
Other $0 $0 $0
Total Cost of Sales $89,450 $115,200 $142,000
Gross Margin $162,250 $208,800 $258,000
Gross Margin % 64.46% 64.44% 64.50%
Expenses
Payroll $105,000 $115,500 $127,050
Sales and Marketing and Other Expenses $13,040 $14,640 $16,640
Depreciation $3,492 $3,492 $3,492
Utilities $519 $600 $800
Insurance $1,800 $2,400 $2,800
Mortgage $10,800 $15,096 $15,096
Payroll Taxes $12,600 $13,860 $15,246
Other $0 $0 $0
Total Operating Expenses $147,251 $165,588 $181,124
Profit Before Interest and Taxes $14,999 $43,212 $76,876
EBITDA $18,491 $46,704 $80,368
Interest Expense $14,705 $14,705 $14,705
Taxes Incurred ($473) $7,127 $15,802
Net Profit $767 $21,380 $46,369
Net Profit/Sales 0.30% 6.60% 11.59%

7.4 Projected Cash Flow

The following chart illustrates a healthy cash balance for the first three years, enabling the company to grow through reinvestment.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $251,700 $324,000 $400,000
Subtotal Cash from Operations $251,700 $324,000 $400,000
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 $251,700 $324,000 $400,000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $105,000 $115,500 $127,050
Bill Payments $128,199 $182,776 $219,845
Subtotal Spent on Operations $233,199 $298,276 $346,895
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 $233,199 $298,276 $346,895
Net Cash Flow $18,501 $25,724 $53,105
Cash Balance $30,593 $56,316 $109,421

7.5 Projected Balance Sheet

The following table represents the financial position of the Morningstar Bakery at the end of each of the three upcoming fiscal years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $30,593 $56,316 $109,421
Other Current Assets $0 $0 $0
Total Current Assets $30,593 $56,316 $109,421
Long-term Assets
Long-term Assets $175,000 $175,000 $175,000
Accumulated Depreciation $3,492 $6,984 $10,476
Total Long-term Assets $171,508 $168,016 $164,524
Total Assets $202,101 $224,332 $273,945
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $14,241 $15,093 $18,336
Current Borrowing $0 $0 $0
Other Current Liabilities $12,000 $12,000 $12,000
Subtotal Current Liabilities $26,241 $27,093 $30,336
Long-term Liabilities $173,000 $173,000 $173,000
Total Liabilities $199,241 $200,093 $203,336
Paid-in Capital $7,500 $7,500 $7,500
Retained Earnings ($5,408) ($4,641) $16,740
Earnings $767 $21,380 $46,369
Total Capital $2,859 $24,240 $70,609
Total Liabilities and Capital $202,101 $224,332 $273,945
Net Worth $2,859 $24,240 $70,609

7.6 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5461, Retail Bakeries, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 28.72% 23.46% 2.58%
Percent of Total Assets
Other Current Assets 0.00% 0.00% 0.00% 29.82%
Total Current Assets 15.14% 25.10% 39.94% 55.20%
Long-term Assets 84.86% 74.90% 60.06% 44.80%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 12.98% 12.08% 11.07% 25.40%
Long-term Liabilities 85.60% 77.12% 63.15% 23.07%
Total Liabilities 98.59% 89.19% 74.23% 48.47%
Net Worth 1.41% 10.81% 25.77% 51.53%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 64.46% 64.44% 64.50% 36.64%
Selling, General & Administrative Expenses 64.14% 57.51% 52.56% 23.68%
Advertising Expenses 4.13% 3.70% 3.50% 1.65%
Profit Before Interest and Taxes 5.96% 13.34% 19.22% 1.92%
Main Ratios
Current 1.17 2.08 3.61 1.70
Quick 1.17 2.08 3.61 0.96
Total Debt to Total Assets 98.59% 89.19% 74.23% 5.56%
Pre-tax Return on Net Worth 10.28% 117.61% 88.05% 56.30%
Pre-tax Return on Assets 0.15% 12.71% 22.69% 12.72%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 0.30% 6.60% 11.59% n.a
Return on Equity 26.84% 88.20% 65.67% n.a
Activity Ratios
Accounts Payable Turnover 10.00 12.17 12.17 n.a
Payment Days 27 29 27 n.a
Total Asset Turnover 1.25 1.44 1.46 n.a
Debt Ratios
Debt to Net Worth 69.68 8.25 2.88 n.a
Current Liab. to Liab. 0.13 0.14 0.15 n.a
Liquidity Ratios
Net Working Capital $4,351 $29,224 $79,085 n.a
Interest Coverage 1.02 2.94 5.23 n.a
Additional Ratios
Assets to Sales 0.80 0.69 0.68 n.a
Current Debt/Total Assets 13% 12% 11% n.a
Acid Test 1.17 2.08 3.61 n.a
Sales/Net Worth 88.03 13.37 5.67 n.a
Dividend Payout 0.00 0.00 0.00 n.a