The financial plan shall be essential if we are to meet our objectives. The intention is to finance growth through cash flow and equity.
One of the most important factors will be the payment terms as agreed between the client or customer. We can't push our customers hard on collection days, because they are extremely sensitive and will normally judge us on our terms. Therefore there is need to develop a permanent system of receivables financing systems mutually agreed between both parties. Hence in the financial plan we intend to have the following:
The financial plan depends on important assumptions. From the beginning, we recognize that payment terms and hence collection days are critical, but not a factor we can influence easily. At least we are planning on the problem, and dealing with it. Interest rates, tax rates, and personnel burden are based on conservative assumptions.
Some of the more important underlying assumptions are:
We assume amongst other things a 60-day average collection period, sales entirely on invoice basis except for individuals who come directly to us, expenses mainly on a net 30 day basis, 30 days on average for payment of invoices, and present-day interest rates.
We foresee a slow initial growth in sales, as we strive to ensure we are known on the market, though operating expenses will be relatively high, and a bump in our sales and revenue generation as we spread our services during expansion.
Collection days are very important. We do not want to let our average collection days get above the client's actual subscription period under any circumstances. This could cause a serious problem with cash flow, because our working capital situation is chronically tight. However, we recognize that we cannot control this factor easily, because of the relationship we wish to create with our clients.
Our projected profit and loss is shown in the table below, with sales increasing from more than P350,000 the first year to more than P556,500 the second, and P630,000 in the third year. Our net profit margin is relatively good for a start-up organization in our line of business. Hence we do expect to more than break-even in the first year of operation.
As with the break-even, we are projecting very conservatively regarding cost of sales and gross margin. Our cost of sales may be much lower, and gross margin higher, than in this projection. We prefer to project conservatively so that we make sure we have enough cash. The detailed monthly projections are included in the appendix.
Our break-even analysis will be based on running costs, that is costs we shall incur in keeping the business running, including salaries and wages, rent, vehicle and computer maintenance costs, water and electricity, insurance amongst others. Hence many fixed costs shall be included in these costs. We will thus ensure that our sales levels are running comfortably above break-even.
The following chart and table highlights the projected Cash Flow statement for Sephats Tours.
The table below outlines the company's Balance Sheet.
The following table shows some important ratios for the Tour Operators industry, as determined by the Standard Industry Classification (SIC) Code, 4725.