Kiowa Smoke Shops

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Tobacco Retail Business Plan

Financial Plan

The following sections are the financial projections for Kiowa Smoke Shops for the next three years. These tables represent a conservative estimate of revenues, expenses, and growth. We have placed much of the residual earnings into dividends for company employees, as in the past. However, we plan on basing dividend payouts on overall performance and health of the company and may decide to retain such earnings for future growth.

8.1 Important Assumptions

The following is our financial assumptions based on experience. Tax rates are average for a company of our size.

General Assumptions
FY 2004 FY 2005 FY 2006
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

8.2 Break-even Analysis

Our break-even analysis is based on average monthly fixed costs, which is based on historical figures, plus our average price per product. This estimate is also based on experience, however because of our wide range of products, its accuracy is somewhat less. The average variable costs are based on industry standards.

Break-even Analysis
Monthly Revenue Break-even $48,140
Assumptions:
Average Percent Variable Cost 69%
Estimated Monthly Fixed Cost $14,707

8.3 Projected Cash Flow

We do not expect to have any serious cash flow problems in the future. Most of our residual cash is being invested in our new cafe venture for the next two years. Our current liabilities are debt secured to finance our new website. Our long-term debt will be used to start our cafe venture.

Pro Forma Cash Flow
FY 2004 FY 2005 FY 2006
Cash Received
Cash from Operations
Cash Sales $650,052 $689,555 $721,395
Subtotal Cash from Operations $650,052 $689,555 $721,395
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 $650,052 $689,555 $721,395
Expenditures FY 2004 FY 2005 FY 2006
Expenditures from Operations
Cash Spending $130,400 $137,600 $137,600
Bill Payments $476,163 $532,556 $562,327
Subtotal Spent on Operations $606,563 $670,156 $699,927
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $1,000 $1,000
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $1,200 $1,000 $1,000
Purchase Other Current Assets $30,000 $2,000 $5,000
Purchase Long-term Assets $15,000 $7,000 $9,000
Dividends $0 $0 $0
Subtotal Cash Spent $652,763 $681,156 $715,927
Net Cash Flow ($2,711) $8,399 $5,468
Cash Balance $40,971 $49,371 $54,839

8.4 Projected Profit and Loss

The following is our best estimates of future revenues and costs, based on current market trends, past performance, and perceived revenue of our new cafe and website ventures.

Pro Forma Profit and Loss
FY 2004 FY 2005 FY 2006
Sales $650,052 $689,555 $721,395
Direct Cost of Sales $451,461 $462,140 $483,479
Other Costs of Goods $0 $2,000 $2,000
Total Cost of Sales $451,461 $464,140 $485,479
Gross Margin $198,591 $225,415 $235,916
Gross Margin % 30.55% 32.69% 32.70%
Expenses
Payroll $130,400 $137,600 $137,600
Sales and Marketing and Other Expenses $6,000 $12,000 $14,000
Depreciation $0 $2,000 $4,000
Rent $9,600 $9,900 $10,400
Utilities $1,320 $1,320 $1,600
Insurance $3,600 $3,800 $4,200
Payroll Taxes $19,560 $20,640 $20,640
Other $6,000 $11,000 $14,000
Total Operating Expenses $176,480 $198,260 $206,440
Profit Before Interest and Taxes $22,111 $27,155 $29,476
EBITDA $22,111 $29,155 $33,476
Interest Expense $5,493 $5,338 $5,138
Taxes Incurred $4,985 $6,545 $7,301
Net Profit $11,633 $15,272 $17,037
Net Profit/Sales 1.79% 2.21% 2.36%

8.5 Projected Balance Sheet

The following is a presentation of assets and liabilities. As we are a limited debt company, we tend to have a higher net worth than other comparable companies.

Pro Forma Balance Sheet
FY 2004 FY 2005 FY 2006
Assets
Current Assets
Cash $40,971 $49,371 $54,839
Inventory $41,384 $42,363 $44,319
Other Current Assets $41,558 $43,558 $48,558
Total Current Assets $123,913 $135,292 $147,716
Long-term Assets
Long-term Assets $71,820 $78,820 $87,820
Accumulated Depreciation $12,000 $14,000 $18,000
Total Long-term Assets $59,820 $64,820 $69,820
Total Assets $183,733 $200,112 $217,536
Liabilities and Capital FY 2004 FY 2005 FY 2006
Current Liabilities
Accounts Payable $40,921 $44,027 $46,415
Current Borrowing $24,820 $23,820 $22,820
Other Current Liabilities $5,600 $5,600 $5,600
Subtotal Current Liabilities $71,341 $73,447 $74,835
Long-term Liabilities $29,561 $28,561 $27,561
Total Liabilities $100,902 $102,008 $102,396
Paid-in Capital $0 $0 $0
Retained Earnings $71,199 $82,832 $98,104
Earnings $11,633 $15,272 $17,037
Total Capital $82,832 $98,104 $115,140
Total Liabilities and Capital $183,733 $200,112 $217,536
Net Worth $82,832 $98,104 $115,140

8.6 Business Ratios

The following is a presentation of industry standard ratios versus our own projections. For the most part, we follow the industry averages. We expect to see higher growths than average over the next two years due to our new ventures. Also our company has limited debt, meaning we have higher than average net worth.

Ratio Analysis
FY 2004 FY 2005 FY 2006 Industry Profile
Sales Growth -2.50% 6.08% 4.62% 6.22%
Percent of Total Assets
Inventory 22.52% 21.17% 20.37% 30.17%
Other Current Assets 22.62% 21.77% 22.32% 25.04%
Total Current Assets 67.44% 67.61% 67.90% 84.57%
Long-term Assets 32.56% 32.39% 32.10% 15.43%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 38.83% 36.70% 34.40% 38.68%
Long-term Liabilities 16.09% 14.27% 12.67% 12.41%
Total Liabilities 54.92% 50.98% 47.07% 51.09%
Net Worth 45.08% 49.02% 52.93% 48.91%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 30.55% 32.69% 32.70% 21.60%
Selling, General & Administrative Expenses 28.76% 30.48% 30.34% 9.18%
Advertising Expenses 0.00% 0.00% 0.00% 0.96%
Profit Before Interest and Taxes 3.40% 3.94% 4.09% 1.57%
Main Ratios
Current 1.74 1.84 1.97 1.91
Quick 1.16 1.27 1.38 1.04
Total Debt to Total Assets 54.92% 50.98% 47.07% 53.60%
Pre-tax Return on Net Worth 20.06% 22.24% 21.14% 4.72%
Pre-tax Return on Assets 9.04% 10.90% 11.19% 10.18%
Additional Ratios FY 2004 FY 2005 FY 2006
Net Profit Margin 1.79% 2.21% 2.36% n.a
Return on Equity 14.04% 15.57% 14.80% n.a
Activity Ratios
Inventory Turnover 10.91 11.04 11.16 n.a
Accounts Payable Turnover 11.56 12.17 12.17 n.a
Payment Days 30 29 29 n.a
Total Asset Turnover 3.54 3.45 3.32 n.a
Debt Ratios
Debt to Net Worth 1.22 1.04 0.89 n.a
Current Liab. to Liab. 0.71 0.72 0.73 n.a
Liquidity Ratios
Net Working Capital $52,573 $61,845 $72,881 n.a
Interest Coverage 4.03 5.09 5.74 n.a
Additional Ratios
Assets to Sales 0.28 0.29 0.30 n.a
Current Debt/Total Assets 39% 37% 34% n.a
Acid Test 1.16 1.27 1.38 n.a
Sales/Net Worth 7.85 7.03 6.27 n.a
Dividend Payout 0.00 0.00 0.00 n.a