Pink Lady Bug Designs

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Specialty Gifts Business Plan

Financial Plan

  1. Growth will be moderate after Year Three, cash flows steady.
  2. We will conduct most of our sales by credit card, check, or money order. 
  3. We want to finance growth mainly through cash flow. We recognize that this means we will have to grow more slowly than we might like.
  4. Marketing will remain below 15% of sales.
  5. The company will invest residual profits into financial markets and not company expansion (unless absolutely necessary).

8.1 Important Assumptions

  • As women continue to be diagnosed with life-threatening diseases, there will be a growing market for our assistance services.
  • Benevolent corporate involvement with health causes will continue to be strong.
  • Upscale chocolates will continue to gain in popularity.
  • We can be first-to-market and establish a strong foothold within the first 8-12 months .
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 30.00% 30.00% 30.00%
Other 0 0 0

8.2 Key Financial Indicators

We chose these four indicators because they all have real impact on the health of a business. We focus not on gross amounts as much as changes. The chart actually shows changes on a year-to-year basis, rather than gross amounts. For example, growing sales from $1 million to $2 million shows up exactly the same in the chart as growing sales from $20,000 to $40,000. That would also show up the same as increasing gross margin from 20% to 40%, or increasing collection days from 30 to 60, or increasing inventory turnover from four to eight. 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.

8.3 Break-even Analysis

A break-even analysis table has been completed on the basis of average costs/prices. Our cost of goods is 50%. The table below shows our average monthly fixed costs, and the amount we need to sell per month to break-even.

Break-even Analysis
Monthly Revenue Break-even $13,450
Assumptions:
Average Percent Variable Cost 50%
Estimated Monthly Fixed Cost $6,724

8.4 Projected Cash Flow

We expect to manage cash flow through the cash balance from start-up Investments. No further plans have been made at this point for equity investments through Fiscal Year 2005.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $190,430 $402,480 $1,509,436
Cash from Receivables $8,549 $19,543 $70,880
Subtotal Cash from Operations $198,980 $422,022 $1,580,316
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 $198,980 $422,022 $1,580,316
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $40,000 $132,000 $217,600
Bill Payments $134,382 $277,619 $1,026,574
Subtotal Spent on Operations $174,382 $409,619 $1,244,174
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 $18,000
Dividends $0 $0 $0
Subtotal Cash Spent $174,382 $409,619 $1,262,174
Net Cash Flow $24,598 $12,404 $318,142
Cash Balance $60,098 $72,501 $390,643

8.5 Projected Profit and Loss

The first year of operations will be spent developing sales and business relationships with key companies and organizations. The sales goal for Year One is conservative and realistic.

We feel that doubling sales in Year Two is very attainable and necessary to fund marketing and personnel objectives. Net profits are reduced in Fiscal Year 2004 as staff members are added and marketing expenditures are increased. This strategy will allow Pink Lady Bug Designs attain the aggressive sales goal in Fiscal Year 2005.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $200,453 $423,663 $1,588,880
Direct Cost of Sales $100,233 $211,832 $794,441
Other Production Expenses $0 $0 $0
Total Cost of Sales $100,233 $211,832 $794,441
Gross Margin $100,220 $211,831 $794,439
Gross Margin % 50.00% 50.00% 50.00%
Expenses
Payroll $40,000 $132,000 $217,600
Sales and Marketing and Other Expenses $27,300 $44,500 $117,500
Depreciation $792 $1,600 $1,600
Leased Equipment $0 $0 $10,000
Utilities $3,000 $5,000 $6,000
Insurance $3,600 $3,600 $3,600
Rent $0 $5,000 $9,600
Payroll Taxes $6,000 $19,800 $32,640
Other $0 $0 $0
Total Operating Expenses $80,692 $211,500 $398,540
Profit Before Interest and Taxes $19,528 $331 $395,899
EBITDA $20,320 $1,931 $397,499
Interest Expense $0 $0 $0
Taxes Incurred $5,858 $99 $118,770
Net Profit $13,670 $232 $277,129
Net Profit/Sales 6.82% 0.05% 17.44%

8.6 Projected Balance Sheet

All of our tables will be updated monthly to reflect past performance and future assumptions. Future assumptions will not be based on past performance but rather on economic cycle activity, regional industry strength, and future cash flow possibilities. We expect solid growth in net worth beyond the year 2004.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $60,098 $72,501 $390,643
Accounts Receivable $1,473 $3,114 $11,678
Other Current Assets $0 $0 $0
Total Current Assets $61,571 $75,615 $402,321
Long-term Assets
Long-term Assets $0 $0 $18,000
Accumulated Depreciation $792 $2,392 $3,992
Total Long-term Assets ($792) ($2,392) $14,008
Total Assets $60,779 $73,223 $416,329
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $11,609 $23,822 $89,799
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $11,609 $23,822 $89,799
Long-term Liabilities $0 $0 $0
Total Liabilities $11,609 $23,822 $89,799
Paid-in Capital $65,000 $65,000 $65,000
Retained Earnings ($29,500) ($15,830) ($15,599)
Earnings $13,670 $232 $277,129
Total Capital $49,170 $49,401 $326,531
Total Liabilities and Capital $60,779 $73,223 $416,329
Net Worth $49,170 $49,401 $326,531

8.7 Business Ratios

Standard business ratios are included in the table. The ratios show a plan for balanced, healthy growth. The ratios use the Standard Industrial Classification code 5947.0103, Gift Baskets, retail, which is a close approximation of our business.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 111.35% 275.03% 3.34%
Percent of Total Assets
Accounts Receivable 2.42% 4.25% 2.81% 15.88%
Other Current Assets 0.00% 0.00% 0.00% 23.99%
Total Current Assets 101.30% 103.27% 96.64% 80.29%
Long-term Assets -1.30% -3.27% 3.36% 19.71%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 19.10% 32.53% 21.57% 36.19%
Long-term Liabilities 0.00% 0.00% 0.00% 15.42%
Total Liabilities 19.10% 32.53% 21.57% 51.61%
Net Worth 80.90% 67.47% 78.43% 48.39%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 50.00% 50.00% 50.00% 37.74%
Selling, General & Administrative Expenses 43.18% 49.95% 32.56% 23.72%
Advertising Expenses 5.99% 4.72% 4.72% 2.14%
Profit Before Interest and Taxes 9.74% 0.08% 24.92% 1.65%
Main Ratios
Current 5.30 3.17 4.48 1.98
Quick 5.30 3.17 4.48 0.74
Total Debt to Total Assets 19.10% 32.53% 21.57% 58.19%
Pre-tax Return on Net Worth 39.72% 0.67% 121.24% 3.65%
Pre-tax Return on Assets 32.13% 0.45% 95.09% 8.72%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 6.82% 0.05% 17.44% n.a
Return on Equity 27.80% 0.47% 84.87% n.a
Activity Ratios
Accounts Receivable Turnover 6.80 6.80 6.80 n.a
Collection Days 57 40 34 n.a
Accounts Payable Turnover 12.58 12.17 12.17 n.a
Payment Days 27 22 19 n.a
Total Asset Turnover 3.30 5.79 3.82 n.a
Debt Ratios
Debt to Net Worth 0.24 0.48 0.28 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $49,962 $51,793 $312,523 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.30 0.17 0.26 n.a
Current Debt/Total Assets 19% 33% 22% n.a
Acid Test 5.18 3.04 4.35 n.a
Sales/Net Worth 4.08 8.58 4.87 n.a
Dividend Payout 0.00 0.00 0.00 n.a