Bottlieb Innovations

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Surveyor Instrument Business Plan

Financial Plan

The financial picture is very encouraging.  Bottlieb Innovations has a great product.  If the company can successfully segment the market and generate interest in the Digital Geographer product, as well as meet the production volumes required, the financial targets are very achievable.

7.1 Important Assumptions

The financial plan depends on important assumptions, shown in the following General Assumptions table.

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 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Key Financial Indicators

The following chart shows changes in the following benchmark financial indicators:  sales, gross margin, operating expenses, collection days, and inventory turnover.  Sales are expected to almost double between FY2002 and FY2003, while operating expenses are only expected to increase by 22%.

7.3 Break-even Analysis

Bottlieb Innovations' break-even analysis is based on running costs, the "burn-rate" costs incurred to keep the business running, not on theoretical fixed costs that would be relevant only if the company were closing. Between payroll, rent, utilities, and basic marketing costs, a good estimate of monthly fixed costs is shown in the following chart and table, which details the break-even information.

The break-even analysis is based on an average sales revenue of $425 per unit.  An exact average is not necessary, $425 is close enough to help us understand what a real break-even point might be.  The essential insight here is that the expected sales level will keep the business running comfortably above break-even.

Break-even Analysis
Monthly Units Break-even 37
Monthly Revenue Break-even $15,830
Assumptions:
Average Per-Unit Revenue $425.00
Average Per-Unit Variable Cost $264.47
Estimated Monthly Fixed Cost $5,979

7.4 Projected Profit and Loss

Management's primary goal is to make Bottlieb Innovations profitable before the end of FY2001.  More specifically, management is aiming to make the business turn a profit in the month of September, the final month of FY2001.  Maintaining a high gross margin in the first year is a key component of the profitability goal.  The following chart illustrates the expected FY2001 monthly profit numbers.

Projected yearly profit numbers are shown in the following chart and table.  Although Bottlieb Innovations is expected to be profitable in September of 2001, it will still lose money in FY2001 overall, due to losses in earlier months of the fiscal year.  The business is expected to earn healthy profits in FY2001 and FY2002.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $161,500 $1,582,500 $2,752,000
Direct Cost of Sales $100,500 $883,500 $1,320,000
Production Payroll $6,000 $66,000 $89,000
Other $0 $0 $0
Total Cost of Sales $106,500 $949,500 $1,409,000
Gross Margin $55,000 $633,000 $1,343,000
Gross Margin % 34.06% 40.00% 48.80%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $0 $30,000 $40,000
Advertising/Promotion $1,350 $3,000 $6,000
Travel $3,000 $6,000 $9,000
Miscellaneous $900 $1,200 $1,500
Total Sales and Marketing Expenses $5,250 $40,200 $56,500
Sales and Marketing % 3.25% 2.54% 2.05%
General and Administrative Expenses
General and Administrative Payroll $46,000 $138,000 $162,000
Sales and Marketing and Other Expenses $0 $0 $0
Depreciation $0 $0 $0
Leased Equipment $0 $0 $0
Utilities $2,400 $2,400 $3,000
Insurance $1,200 $1,200 $1,500
Rent $8,400 $8,400 $9,600
Payroll Taxes $5,500 $24,200 $29,900
Other General and Administrative Expenses $0 $0 $0
Total General and Administrative Expenses $63,500 $174,200 $206,000
General and Administrative % 39.32% 11.01% 7.49%
Other Expenses:
Other Payroll $3,000 $8,000 $8,000
Consultants $0 $0 $0
Contract/Consultants $0 $0 $0
Total Other Expenses $3,000 $8,000 $8,000
Other % 1.86% 0.51% 0.29%
Total Operating Expenses $71,750 $222,400 $270,500
Profit Before Interest and Taxes ($16,750) $410,600 $1,072,500
EBITDA ($16,750) $410,600 $1,072,500
Interest Expense $0 $0 $0
Taxes Incurred $0 $123,180 $321,750
Net Profit ($16,750) $287,420 $750,750
Net Profit/Sales -10.37% 18.16% 27.28%

7.5 Projected Cash Flow

Although Bottlieb Innovations is expected to be profitable by the end of FY2001, there are still drains on the cash flow.  The cash flow numbers illustrated in the following chart are based on very conservative estimates of first year sales.  Since manufacturing and assembling the Digital Geographer is not capital intensive, profits should be directly tied to sales and variable costs.  Personnel costs will start to impact the cash flow more severely in FY2002.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $121,125 $1,186,875 $2,064,000
Cash from Receivables $21,533 $229,842 $551,558
Subtotal Cash from Operations $142,658 $1,416,717 $2,615,558
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 $142,658 $1,416,717 $2,615,558
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $55,000 $242,000 $299,000
Bill Payments $112,249 $1,167,711 $1,759,666
Subtotal Spent on Operations $167,249 $1,409,711 $2,058,666
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 $167,249 $1,409,711 $2,058,666
Net Cash Flow ($24,590) $7,006 $556,892
Cash Balance $72,410 $79,416 $636,308

7.6 Projected Balance Sheet

The projected balance sheet, shown in the following table, shows a healthy increase in net worth.  The company's value is projected to increase steadily over the first three years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $72,410 $79,416 $636,308
Accounts Receivable $18,842 $184,625 $321,067
Inventory $28,600 $211,191 $315,532
Other Current Assets $1,800 $1,800 $1,800
Total Current Assets $121,651 $477,032 $1,274,707
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $121,651 $477,032 $1,274,707
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $33,601 $101,562 $148,487
Current Borrowing $0 $0 $0
Other Current Liabilities $40,000 $40,000 $40,000
Subtotal Current Liabilities $73,601 $141,562 $188,487
Long-term Liabilities $0 $0 $0
Total Liabilities $73,601 $141,562 $188,487
Paid-in Capital $100,000 $100,000 $100,000
Retained Earnings ($35,200) ($51,950) $235,470
Earnings ($16,750) $287,420 $750,750
Total Capital $48,050 $335,470 $1,086,220
Total Liabilities and Capital $121,651 $477,032 $1,274,707
Net Worth $48,050 $335,470 $1,086,220

7.7 Business Ratios

Standard business ratios are included in the following table. Industry profile ratios based on the Standard Industrial Classification (SIC) code 8713, Surveying services, are shown for comparison. Bottlieb Innovations' ratios show a plan for healthy, solid growth.  Gross margin, net profit margin and ROA all show increases over time.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 879.88% 73.90% 7.10%
Percent of Total Assets
Accounts Receivable 15.49% 38.70% 25.19% 34.20%
Inventory 23.51% 44.27% 24.75% 2.80%
Other Current Assets 1.48% 0.38% 0.14% 43.00%
Total Current Assets 100.00% 100.00% 100.00% 80.00%
Long-term Assets 0.00% 0.00% 0.00% 20.00%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 60.50% 29.68% 14.79% 47.80%
Long-term Liabilities 0.00% 0.00% 0.00% 11.50%
Total Liabilities 60.50% 29.68% 14.79% 59.30%
Net Worth 39.50% 70.32% 85.21% 40.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 34.06% 40.00% 48.80% 0.00%
Selling, General & Administrative Expenses 44.43% 21.84% 21.52% 80.50%
Advertising Expenses 0.84% 0.19% 0.22% 0.20%
Profit Before Interest and Taxes -10.37% 25.95% 38.97% 3.00%
Main Ratios
Current 1.65 3.37 6.76 1.68
Quick 1.26 1.88 5.09 1.38
Total Debt to Total Assets 60.50% 29.68% 14.79% 59.30%
Pre-tax Return on Net Worth -34.86% 122.40% 98.74% 6.40%
Pre-tax Return on Assets -13.77% 86.07% 84.14% 15.70%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -10.37% 18.16% 27.28% n.a
Return on Equity -34.86% 85.68% 69.12% n.a
Activity Ratios
Accounts Receivable Turnover 2.14 2.14 2.14 n.a
Collection Days 52 94 134 n.a
Inventory Turnover 9.16 7.37 5.01 n.a
Accounts Payable Turnover 4.34 12.17 12.17 n.a
Payment Days 27 20 25 n.a
Total Asset Turnover 1.33 3.32 2.16 n.a
Debt Ratios
Debt to Net Worth 1.53 0.42 0.17 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $48,050 $335,470 $1,086,220 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.75 0.30 0.46 n.a
Current Debt/Total Assets 61% 30% 15% n.a
Acid Test 1.01 0.57 3.39 n.a
Sales/Net Worth 3.36 4.72 2.53 n.a
Dividend Payout 0.00 0.00 0.00 n.a