Hang Toes Surfing

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Surf Clothing and Sportswear Business Plan

Financial Plan

With an increase in sales, we do expect to apply for a credit line to a limit of $150,000. The credit line will be supported by assets.

These are our strong points:

  • We want to finance growth mainly through cash flow. We recognize that this means we will will have to grow at a slower pace than we would like, but this will enable us to build sales through more advertising.
  • Our most important asset is inventory turnover. Our ability to schedule production from month to month will help to control inventory costs.
  • We will be credited payment to our bank account within two days for all our credit card sales over the Internet. Sales on credit accounts for 25% of our overall sales.

Start-up Funding

Our initial startup expenses will amount to approximately $75,000. The anticipated funding sources are detailed in the table below.

Start-up Funding
Start-up Expenses to Fund $75,625
Start-up Assets to Fund $273,000
Total Funding Required $348,625
Assets
Non-cash Assets from Start-up $198,000
Cash Requirements from Start-up $75,000
Additional Cash Raised $0
Cash Balance on Starting Date $75,000
Total Assets $273,000
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $120,000
Accounts Payable (Outstanding Bills) $48,000
Other Current Liabilities (interest-free) $0
Total Liabilities $168,000
Capital
Planned Investment
Owner $180,625
Investor $0
Additional Investment Requirement $0
Total Planned Investment $180,625
Loss at Start-up (Start-up Expenses) ($75,625)
Total Capital $105,000
Total Capital and Liabilities $273,000
Total Funding $348,625

Break-even Analysis

The following table shows our monthly break-even point. This includes costs associated with maintaining our business, such as rent and payroll, as outlined in our other tables.

Break-even Analysis
Monthly Revenue Break-even $52,056
Assumptions:
Average Percent Variable Cost 31%
Estimated Monthly Fixed Cost $35,738

Projected Profit and Loss

As the profit and loss table shows, Hang Toes Surfing expects to continue slow but steady growth over the next three years of operations, with an estimated net profit of almost 15% for both years two and three.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $765,630 $887,000 $933,000
Direct Cost of Sales $240,000 $194,000 $210,000
Other Costs of Sales $60,000 $65,000 $70,000
Total Cost of Sales $300,000 $259,000 $280,000
Gross Margin $465,630 $628,000 $653,000
Gross Margin % 60.82% 70.80% 69.99%
Expenses
Payroll $90,000 $95,000 $103,000
Marketing/Promotion $162,920 $165,000 $170,000
Depreciation $43,414 $48,000 $50,000
Rent $16,500 $16,500 $16,500
Office utility, supplies $56,023 $50,000 $50,000
Insurance $60,000 $60,000 $65,000
Other $0 $0 $0
Total Operating Expenses $428,857 $434,500 $454,500
Profit Before Interest and Taxes $36,773 $193,500 $198,500
EBITDA $80,187 $241,500 $248,500
Interest Expense $11,110 $8,448 $5,998
Taxes Incurred $7,699 $55,516 $57,751
Net Profit $17,964 $129,536 $134,751
Net Profit/Sales 2.35% 14.60% 14.44%

Projected Cash Flow

The financial outlook is positive as the company rolls out and meets its milestones. Initially our cash flow will fluctuate, with negative cash flow in several months for our first year. However, Hang Toes Surfing expects to be cash flow positive for years two and three.

  • We want to finance our first year's growth through a loan.
  • The most important indicator is inventory turnover. Our ability to schedule production from month to month will help control inventory costs.
  • Collection is not a problem for our direct sales, since we will be credited payment to our bank account in two days by our credit card company for Internet sales.
  • Selling our products over the Internet will allow us full retail price and maximize our profit.
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $574,223 $665,250 $699,750
Cash from Receivables $166,175 $217,750 $231,734
Subtotal Cash from Operations $740,398 $883,000 $931,484
Additional Cash Received
Sales Tax, VAT, HST/GST Received $45,938 $53,220 $55,980
New Current Borrowing $16,072 $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 $802,407 $936,220 $987,464
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $90,000 $95,000 $103,000
Bill Payments $631,193 $588,145 $658,819
Subtotal Spent on Operations $721,193 $683,145 $761,819
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $42,859 $53,000 $56,000
Principal Repayment of Current Borrowing $16,072 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $23,521 $24,000 $25,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $803,645 $760,145 $842,819
Net Cash Flow ($1,237) $176,075 $144,645
Cash Balance $73,763 $249,838 $394,483

Projected Balance Sheet

Hang Toes Surfing's projected company balance sheet follows.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $73,763 $249,838 $394,483
Accounts Receivable $25,232 $29,232 $30,748
Inventory $48,000 $40,511 $58,724
Other Current Assets $50,000 $50,000 $50,000
Total Current Assets $196,995 $369,581 $533,956
Long-term Assets
Long-term Assets $100,000 $100,000 $100,000
Accumulated Depreciation $43,414 $91,414 $141,414
Total Long-term Assets $56,586 $8,586 ($41,414)
Total Assets $253,581 $378,167 $492,542
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $31,059 $49,888 $54,531
Current Borrowing $0 $0 $0
Other Current Liabilities $3,079 $3,299 $3,279
Subtotal Current Liabilities $34,138 $53,188 $57,810
Long-term Liabilities $96,479 $72,479 $47,479
Total Liabilities $130,617 $125,667 $105,290
Paid-in Capital $180,625 $180,625 $180,625
Retained Earnings ($75,625) ($57,661) $71,876
Earnings $17,964 $129,536 $134,751
Total Capital $122,964 $252,501 $387,252
Total Liabilities and Capital $253,581 $378,167 $492,542
Net Worth $122,964 $252,501 $387,252

Business Ratios

Standard business ratios are included in the following table. The ratios show an aggressive plan for growth in order to reach maximum production within three years. Return on investment increases each year as we bring the new facility to maximum capacity and production. Return on sales and assets remain strong and cost of goods decreases.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 15.85% 5.19% 6.06%
Percent of Total Assets
Accounts Receivable 9.95% 7.73% 6.24% 6.51%
Inventory 18.93% 10.71% 11.92% 56.31%
Other Current Assets 19.72% 13.22% 10.15% 22.81%
Total Current Assets 77.69% 97.73% 108.41% 85.63%
Long-term Assets 22.31% 2.27% -8.41% 14.37%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 13.46% 14.06% 11.74% 30.47%
Long-term Liabilities 38.05% 19.17% 9.64% 12.59%
Total Liabilities 51.51% 33.23% 21.38% 43.06%
Net Worth 48.49% 66.77% 78.62% 56.94%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 60.82% 70.80% 69.99% 40.20%
Selling, General & Administrative Expenses 58.47% 56.20% 55.55% 19.35%
Advertising Expenses 0.00% 0.00% 0.00% 3.27%
Profit Before Interest and Taxes 4.80% 21.82% 21.28% 1.20%
Main Ratios
Current 5.77 6.95 9.24 2.60
Quick 4.36 6.19 8.22 0.71
Total Debt to Total Assets 51.51% 33.23% 21.38% 59.60%
Pre-tax Return on Net Worth 20.87% 73.29% 49.71% 3.62%
Pre-tax Return on Assets 10.12% 48.93% 39.08% 8.97%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 2.35% 14.60% 14.44% n.a
Return on Equity 14.61% 51.30% 34.80% n.a
Activity Ratios
Accounts Receivable Turnover 7.59 7.59 7.59 n.a
Collection Days 58 45 47 n.a
Inventory Turnover 3.87 4.38 4.23 n.a
Accounts Payable Turnover 19.78 12.17 12.17 n.a
Payment Days 29 24 29 n.a
Total Asset Turnover 3.02 2.35 1.89 n.a
Debt Ratios
Debt to Net Worth 1.06 0.50 0.27 n.a
Current Liab. to Liab. 0.26 0.42 0.55 n.a
Liquidity Ratios
Net Working Capital $162,857 $316,394 $476,145 n.a
Interest Coverage 3.31 22.91 33.09 n.a
Additional Ratios
Assets to Sales 0.33 0.43 0.53 n.a
Current Debt/Total Assets 13% 14% 12% n.a
Acid Test 3.63 5.64 7.69 n.a
Sales/Net Worth 6.23 3.51 2.41 n.a
Dividend Payout 0.00 0.00 0.00 n.a