Plan Outline
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Technology Investment Business Plan
Center for Technology and Investment
Financial Plan
Attached is CTI's financial plan for review.
7.1 Important Assumptions
Below is a short list of some general assumptions:
- The rural economy is growing at 2.5%, much less than the 3-3.5% growth expected for urban areas.
- Due to the nonprofit status, no taxes are required.
- Short-term and long-term interest rates are based on Mr. Franklin's credit score.
| General Assumptions | |||
| Year 1 | Year 2 | Year 3 | |
| Plan Month | 1 | 2 | 3 |
| Current Interest Rate | 5.00% | 5.00% | 5.00% |
| Long-term Interest Rate | 8.00% | 8.00% | 8.00% |
| Tax Rate | 0.00% | 0.00% | 0.00% |
| Other | 0 | 0 | 0 |
7.2 Break-even Analysis
The break-even numbers demonstrate that we will break-even at well below our minimum established for the retainer. Books and other materials are not included in the break-even analysis due to the lower margins, lower revenue projections for those materials, and the fact that the company will not remain a going concern unless it can attract a minimum number of clients on retainer.
| Break-even Analysis | |
| Monthly Revenue Break-even | $9,352 |
| Assumptions: | |
| Average Percent Variable Cost | 1% |
| Estimated Monthly Fixed Cost | $9,270 |
7.3 Projected Balance Sheet
The attached balance sheet is very straightforward.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $108,738 | $199,844 | $322,075 |
| Accounts Receivable | $37,592 | $41,685 | $47,329 |
| Inventory | $854 | $854 | $854 |
| Other Current Assets | $0 | $0 | $0 |
| Total Current Assets | $147,185 | $242,383 | $370,258 |
| Long-term Assets | |||
| Long-term Assets | $30,000 | $40,000 | $40,000 |
| Accumulated Depreciation | $3,600 | $3,600 | $3,600 |
| Total Long-term Assets | $26,400 | $36,400 | $36,400 |
| Total Assets | $173,585 | $278,783 | $406,658 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $2,778 | $3,230 | $3,460 |
| Current Borrowing | $25,000 | $25,000 | $25,000 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $27,778 | $28,230 | $28,460 |
| Long-term Liabilities | $0 | $0 | $0 |
| Total Liabilities | $27,778 | $28,230 | $28,460 |
| Paid-in Capital | $35,000 | $35,000 | $35,000 |
| Accumulated Surplus/Deficit | ($19,050) | $110,806 | $215,553 |
| Surplus/Deficit | $129,856 | $104,747 | $127,645 |
| Total Capital | $145,806 | $250,553 | $378,198 |
| Total Liabilities and Capital | $173,585 | $278,783 | $406,658 |
| Net Worth | $145,806 | $250,553 | $378,198 |
7.4 Projected Surplus or Deficit
We expect to have a surplus in each of the next three years. Bill Franklin requires only a modest salary, thereby pushing up Net Surplus to a range in which the money may be reinvested into additional technology services and products for clients. This might include workstation upgrades, communication tools, demo hardware, and outsourcing of other essential business functions.
| Surplus and Deficit | |||
| Year 1 | Year 2 | Year 3 | |
| Funding | $244,429 | $271,042 | $307,741 |
| Direct Cost | $2,146 | $2,146 | $2,146 |
| Other Costs of Goods | $0 | $0 | $0 |
| Total Direct Cost | $2,146 | $2,146 | $2,146 |
| Gross Surplus | $242,284 | $268,897 | $305,595 |
| Gross Surplus % | 99.12% | 99.21% | 99.30% |
| Expenses | |||
| Payroll | $78,000 | $127,000 | $138,000 |
| Sales and Marketing and Other Expenses | $3,000 | $3,200 | $3,400 |
| Depreciation | $3,600 | $0 | $0 |
| Rent | $9,600 | $10,000 | $10,700 |
| Utilities | $1,800 | $2,000 | $2,200 |
| Insurance | $1,440 | $1,500 | $1,600 |
| Auto Lease/ Fuel | $6,000 | $6,500 | $7,000 |
| Payroll Taxes | $7,800 | $12,700 | $13,800 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $111,240 | $162,900 | $176,700 |
| Surplus Before Interest and Taxes | $131,044 | $105,997 | $128,895 |
| EBITDA | $134,644 | $105,997 | $128,895 |
| Interest Expense | $1,188 | $1,250 | $1,250 |
| Taxes Incurred | $0 | $0 | $0 |
| Net Surplus | $129,856 | $104,747 | $127,645 |
| Net Surplus/Funding | 53.13% | 38.65% | 41.48% |
7.5 Projected Cash Flow
Some short-term borrowing is necessary within the first three months of operations. This is simply borrowed off of the CEO's credit card balances in order to maintain a positive cash flow balance in the first few months. After month three or four, sales will stabilize and grow fast enough to supply ample cash for CTI.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Funding | $134,436 | $149,073 | $169,257 |
| Cash from Receivables | $72,401 | $117,876 | $132,839 |
| Subtotal Cash from Operations | $206,838 | $266,949 | $302,097 |
| Additional Cash Received | |||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
| New Current Borrowing | $15,000 | $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 | $221,838 | $266,949 | $302,097 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $78,000 | $127,000 | $138,000 |
| Bill Payments | $31,049 | $38,844 | $41,865 |
| Subtotal Spent on Operations | $109,049 | $165,844 | $179,865 |
| 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 | $20,000 | $10,000 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $129,049 | $175,844 | $179,865 |
| Net Cash Flow | $92,788 | $91,105 | $122,231 |
| Cash Balance | $108,738 | $199,844 | $322,075 |
7.6 Standard Ratios
Net working capital is very healthy, and interest coverage easily argues that by year two CTI could leverage itself with more borrowing if expansion is necessary. See attached table.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Funding Growth | 0.00% | 10.89% | 13.54% | 0.00% |
| Percent of Total Assets | ||||
| Accounts Receivable | 21.66% | 14.95% | 11.64% | 0.00% |
| Inventory | 0.49% | 0.31% | 0.21% | 0.00% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 100.00% |
| Total Current Assets | 84.79% | 86.94% | 91.05% | 100.00% |
| Long-term Assets | 15.21% | 13.06% | 8.95% | 0.00% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 16.00% | 10.13% | 7.00% | 0.00% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 0.00% |
| Total Liabilities | 16.00% | 10.13% | 7.00% | 0.00% |
| Net Worth | 84.00% | 89.87% | 93.00% | 100.00% |
| Percent of Funding | ||||
| Funding | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Surplus | 99.12% | 99.21% | 99.30% | 0.00% |
| Selling, General & Administrative Expenses | 46.00% | 60.56% | 57.82% | 0.00% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 0.00% |
| Surplus Before Interest and Taxes | 53.61% | 39.11% | 41.88% | 0.00% |
| Main Ratios | ||||
| Current | 5.30 | 8.59 | 13.01 | 0.00 |
| Quick | 5.27 | 8.56 | 12.98 | 0.00 |
| Total Debt to Total Assets | 16.00% | 10.13% | 7.00% | 0.00% |
| Pre-tax Return on Net Worth | 89.06% | 41.81% | 33.75% | 0.00% |
| Pre-tax Return on Assets | 74.81% | 37.57% | 31.39% | 0.00% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Surplus Margin | 53.13% | 38.65% | 41.48% | n.a |
| Return on Equity | 89.06% | 41.81% | 33.75% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 2.93 | 2.93 | 2.93 | n.a |
| Collection Days | 54 | 119 | 117 | n.a |
| Inventory Turnover | 3.10 | 2.51 | 2.51 | n.a |
| Accounts Payable Turnover | 12.18 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 28 | 29 | n.a |
| Total Asset Turnover | 1.41 | 0.97 | 0.76 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.19 | 0.11 | 0.08 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $119,406 | $214,153 | $341,798 | n.a |
| Interest Coverage | 110.35 | 84.80 | 103.12 | n.a |
| Additional Ratios | ||||
| Assets to Funding | 0.71 | 1.03 | 1.32 | n.a |
| Current Debt/Total Assets | 16% | 10% | 7% | n.a |
| Acid Test | 3.91 | 7.08 | 11.32 | n.a |
| Funding/Net Worth | 1.68 | 1.08 | 0.81 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
