Supple Software--UK

Start your own business plan »

UK Software Publishing Business Plan

Financial Plan

Ideally, we would want to bring in as much as £1 million of equity investment from investors compatible with our growth plan, management style, and vision, in return for some equity ownership. We are not going to talk about specifics of a deal until we have met the right partners. This plan does not call for equity from outside investors.

If and when the time for outside investors comes, we want compatible investors or no investors at all. Compatibility means:

  1. A fundamental respect for giving our customers value, and for maintaining a healthy and happy workplace.
  2. Respect for realistic forecasts, and conservative cash flow and financial management.
  3. Cash flow as first priority, growth second, profits third.
  4. Located in the UK or Ireland.
  5. Willingness to follow the company carefully and contribute valuable input to strategy and implementation decisions.

Of these, only the last two are flexible.

We want to establish a mechanism for employees to acquire fair stock options that can become valuable as the company grows.

7.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:

  • We assume a slow-growth economy, without major recession.
  • We assume of course that there are no unforeseen changes in technology to make products immediately obsolete.
  • We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables.
General Assumptions
2005 2006 2007
Plan Month 1 2 3
Current Interest Rate 10.50% 10.50% 10.50%
Long-term Interest Rate 11.00% 11.00% 11.00%
Tax Rate 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Projected Profit and Loss

The following table shows that we expect to maintain gross margin but increase net profit margin during the next three years. The single most important factor in the improving profit margin is the economies of scale in our general and administrative expenses. These expenses should decline as a percentage of sales, from more than 15 percent of sales in 2005 to less than 9% in 2007.

We don't expect to decrease sales and marketing expenses as a percent of sales. The packaged software business requires heavy marketing expenses.

We also intend to maintain and increase the percent of revenue spent on development. By 2007 we'll be spending almost 7% of sales on product development. This is the key to our future.

The following table shows just the annual numbers. The detailed monthly projections for 2005 are included in the appendix.

Pro Forma Profit and Loss
2005 2006 2007
Sales £1,032,920 £1,903,500 £3,744,000
Direct Cost of Sales £143,051 £305,460 £564,060
Production Payroll £24,000 £53,000 £83,000
Freight £20,547 £29,000 £33,800
Royalties £103,292 £197,550 £385,200
Total Cost of Sales £290,890 £585,010 £1,066,060
Gross Margin £742,030 £1,318,490 £2,677,940
Gross Margin % 71.84% 69.27% 71.53%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll £48,000 £53,000 £58,000
Advertising £210,000 £400,000 £770,000
Sales commissions £61,975 £118,530 £231,120
Graphics and collaterals £35,000 £70,000 £140,000
Printing £28,700 £57,000 £114,000
Public relations £14,400 £29,000 £58,000
Research £2,000 £4,000 £8,000
Tollfree Telephone £6,000 £12,000 £24,000
Trade Shows and Events £6,000 £12,000 £24,000
Meals £4,300 £9,000 £18,000
Travel £12,800 £26,000 £52,000
Miscellaneous £12,000 £24,000 £48,000
Total Sales and Marketing Expenses £441,175 £814,530 £1,545,120
Sales and Marketing % 42.71% 42.79% 41.27%
General and Administrative Expenses
General and Administrative Payroll £90,000 £99,000 £109,000
Sales and Marketing and Other Expenses £0 £0 £0
Depreciation £1,000 £1,250 £1,563
Online services £3,600 £4,500 £5,625
Contributions £300 £375 £469
Dues and subscriptions £600 £750 £938
Insurance £6,000 £7,500 £9,375
Maintenance and repairs £1,800 £2,250 £2,813
Office supplies £1,200 £1,500 £1,875
Postage £2,400 £3,000 £3,750
Professional fees £6,000 £7,500 £9,375
Telephone £9,000 £11,250 £14,063
Rent £10,800 £13,500 £16,875
Other £3,000 £3,750 £4,688
Payroll Taxes £18,749 £24,863 £34,125
Other General and Administrative Expenses £0 £0 £0
Total General and Administrative Expenses £154,449 £180,988 £214,531
General and Administrative % 14.95% 9.51% 5.73%
Other Expenses:
Other Payroll £30,300 £50,000 £100,000
Consultants £0 £0 £0
Product Development £1,200 £15,000 £100,000
Total Other Expenses £31,500 £65,000 £200,000
Other % 3.05% 3.41% 5.34%
Total Operating Expenses £627,124 £1,060,518 £1,959,651
Profit Before Interest and Taxes £114,906 £257,973 £718,289
EBITDA £115,906 £259,223 £719,851
Interest Expense £1,820 £123 (£0)
Taxes Incurred £28,811 £64,462 £182,565
Net Profit £84,274 £193,387 £535,724
Net Profit/Sales 8.16% 10.16% 14.31%

7.3 Key Financial Indicators

The following chart shows changes in key financial indicators: sales, gross margin, operating expenses, collection days, and stock turnover. The growth in sales is the most obvious change, and operating expenses with sales. We believe the growing market for our products, the larger potential market, justifies the growth projections.

We expect to maintain gross margin at a high level without major changes.

The projections for collection days and stock turnover show that we are already expecting improvements as our increasing sales gives us greater economies of scale, and greater negotiation strength with our channel partners.

7.4 Break-even Analysis

Our break-even analysis is based on our cost and price structure at present. As we grow, the fixed costs will grow in proportion to our employee numbers.

Break-even Analysis
Monthly Units Break-even 1,087
Monthly Revenue Break-even £60,661
Assumptions:
Average Per-Unit Revenue £55.78
Average Per-Unit Variable Cost £7.73
Estimated Monthly Fixed Cost £52,260

7.5 Projected Cash Flow

The following chart is most important for illustrating our cash projections for the next 12 months. Because of our dependence on sales through channels, and the channels' tendency to pay slow, there are wide variations that must be supported with working capital acquired through short-term credit on receivables and stock.

The table shows just the annual results, which are less significant. The key to our business plan is the monthly cash flow table, in the appendix, which also shows up as the key numbers of the following chart.

Pro Forma Cash Flow
2005 2006 2007
Cash Received
Cash from Operations
Cash Sales £774,690 £1,427,625 £2,808,000
Cash from Receivables £345,775 £445,102 £870,943
Subtotal Cash from Operations £1,120,465 £1,872,727 £3,678,943
Additional Cash Received
Sales Tax, VAT, HST/GST Received £0 £0 £0
New Current Borrowing £20,000 £0 £0
New Other Liabilities (interest-free) £24,966 £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 £1,165,432 £1,872,727 £3,678,943
Expenditures 2005 2006 2007
Expenditures from Operations
Cash Spending £192,300 £255,000 £350,000
Bill Payments £736,628 £1,417,390 £2,779,200
Subtotal Spent on Operations £928,928 £1,672,390 £3,129,200
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out £0 £0 £0
Principal Repayment of Current Borrowing £40,000 £2,336 £0
Other Liabilities Principal Repayment £34,453 £0 £0
Long-term Liabilities Principal Repayment £0 £0 £0
Purchase Other Current Assets £0 £0 £0
Purchase Long-term Assets £0 £50,000 £100,000
Dividends £0 £0 £0
Subtotal Cash Spent £1,003,381 £1,724,726 £3,229,200
Net Cash Flow £162,051 £148,001 £449,743
Cash Balance £162,676 £310,678 £760,421

7.6 Projected Balance Sheet

The table shows the annual balance sheet results, with a healthy projected increase in net worth. Detailed monthly projections are in the appendix.

Pro Forma Balance Sheet
2005 2006 2007
Assets
Current Assets
Cash £162,676 £310,678 £760,421
Accounts Receivable £36,511 £67,284 £132,341
Inventory £6,541 £60,833 £97,144
Other Current Assets £431 £431 £431
Total Current Assets £206,159 £439,225 £990,336
Long-term Assets
Long-term Assets £35,577 £85,577 £185,577
Accumulated Depreciation £25,247 £26,497 £28,060
Total Long-term Assets £10,330 £59,080 £157,518
Total Assets £216,489 £498,305 £1,147,854
Liabilities and Capital 2005 2006 2007
Current Liabilities
Accounts Payable £33,193 £123,958 £237,783
Current Borrowing £2,336 (£0) (£0)
Other Current Liabilities £16,040 £16,040 £16,040
Subtotal Current Liabilities £51,569 £139,998 £253,823
Long-term Liabilities £0 £0 £0
Total Liabilities £51,569 £139,998 £253,823
Paid-in Capital £76,960 £76,960 £76,960
Retained Earnings £3,686 £87,960 £281,348
Earnings £84,274 £193,387 £535,724
Total Capital £164,920 £358,308 £894,031
Total Liabilities and Capital £216,489 £498,305 £1,147,854
Net Worth £164,920 £358,308 £894,031

7.7 Business Ratios

Standard business ratios are included in the following table. The ratios show a plan for balanced, healthy growth. One of the more important indicators is the increase in working capital, which is critical to our channel sales strategy and our financial health.

The ratios for collection days and stock turnover are different than the ones in the assumptions table, because those are used as estimators to project balance sheet items for every month, while the ratios shown in this table are calculated on annual basis, using the same formulas used by our accountants, after the fact.

The standard comparisons are for this particular industry, software publishers.  We feel that they illustrate the difference between software publishing and most other publishing businesses. 

Ratio Analysis
2005 2006 2007 Industry Profile
Sales Growth 48.59% 84.28% 96.69% 4.70%
Percent of Total Assets
Accounts Receivable 16.87% 13.50% 11.53% 26.60%
Inventory 3.02% 12.21% 8.46% 13.90%
Other Current Assets 0.20% 0.09% 0.04% 46.10%
Total Current Assets 95.23% 88.14% 86.28% 86.60%
Long-term Assets 4.77% 11.86% 13.72% 13.40%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 23.82% 28.09% 22.11% 32.50%
Long-term Liabilities 0.00% 0.00% 0.00% 19.60%
Total Liabilities 23.82% 28.09% 22.11% 52.10%
Net Worth 76.18% 71.91% 77.89% 47.90%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 71.84% 69.27% 71.53% 62.70%
Selling, General & Administrative Expenses 63.63% 57.87% 56.24% 50.00%
Advertising Expenses 20.33% 20.25% 19.99% 2.30%
Profit Before Interest and Taxes 11.12% 13.55% 19.19% 1.30%
Main Ratios
Current 4.00 3.14 3.90 2.05
Quick 3.87 2.70 3.52 1.17
Total Debt to Total Assets 23.82% 28.09% 22.11% 52.10%
Pre-tax Return on Net Worth 68.57% 71.96% 80.34% 2.10%
Pre-tax Return on Assets 52.24% 51.75% 62.58% 4.30%
Additional Ratios 2005 2006 2007
Net Profit Margin 8.16% 10.16% 14.31% n.a
Return on Equity 51.10% 53.97% 59.92% n.a
Activity Ratios
Accounts Receivable Turnover 7.07 7.07 7.07 n.a
Collection Days 65 40 39 n.a
Inventory Turnover 10.72 9.07 7.14 n.a
Accounts Payable Turnover 22.09 12.17 12.17 n.a
Payment Days 29 19 23 n.a
Total Asset Turnover 4.77 3.82 3.26 n.a
Debt Ratios
Debt to Net Worth 0.31 0.39 0.28 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital £154,590 £299,228 £736,514 n.a
Interest Coverage 63.13 2,103.71 0.00 n.a
Additional Ratios
Assets to Sales 0.21 0.26 0.31 n.a
Current Debt/Total Assets 24% 28% 22% n.a
Acid Test 3.16 2.22 3.00 n.a
Sales/Net Worth 6.26 5.31 4.19 n.a
Dividend Payout 0.00 0.00 0.00 n.a