Integrity Auto Sales

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Used Auto Sales Business Plan

Financial Plan

  1. Growth will be moderate to good, cash flows steady with several months of loss in 2001-2002.
  2. Marketing will remain below 10% of sales.
  3. The company will invest residual profits (10%) into financial markets and approximately 50% into company expansion for the first year.

8.1 Important Assumptions

We will accept credit cards and trade-ins of any value. Credit cards will have a negative affect on cash flow in that we may not be paid for several days. Trade-ins will also impact cash flow in that they are an asset and have no real value until sold. We will have to limit the number of credit transactions, and only take in quality trades at a wholesale price to facilitate turning a quick profit. The personnel burden is very low because benefits are not paid to part-timers. And the short-term interest rate is extraordinarily low because of current market rates.

We also assume conservative earnings from selling loans and extended warranties will be made.

The other assumption is that current market conditions will remain for the next two to three years. Low rates will have a positive impact on sales and lending for the short term.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 7.00% 7.00% 7.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

8.2 Key Financial Indicators

The following chart shows that inventory turnover speeds up as sales increase. This correlation is important when evaluating past inventory control techniques.

8.3 Break-even Analysis

The following break-even analysis table has been completed on the basis of average costs/prices. With average per unit sold costs and average variable costs as shown, the table calculates what we need to make per month, or sell in units, to break even each month.

Break-even Analysis
Monthly Units Break-even 18
Monthly Revenue Break-even $49,867
Assumptions:
Average Per-Unit Revenue $2,821.09
Average Per-Unit Variable Cost $1,983.11
Estimated Monthly Fixed Cost $14,813

8.4 Projected Cash Flow

We are positioning ourselves in the market as a medium risk concern with steady cash flows. Accounts payable is paid at the end of each month, while sales generally in cash give Integrity an excellent cash structure. Initial cash flow in July will be negative, there will be steady increases until October has a negative flow. Again a steady increase in positive cash flow until another slow loss in May. For year 2002-2003 we see a solid overall increase. All cash flow over 50% will be re-invested into the company. At least 10% of which will be invested in long-term assets. We will reserve up to 5% for bonuses, sales awards, and professional training.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $2,488,200 $2,750,200 $3,027,000
Subtotal Cash from Operations $2,488,200 $2,750,200 $3,027,000
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $150,000 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $30,000 $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 $2,668,200 $2,750,200 $3,027,000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $113,350 $129,000 $147,500
Bill Payments $1,969,644 $2,181,397 $2,251,696
Subtotal Spent on Operations $2,082,994 $2,310,397 $2,399,196
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $24,000 $24,000 $24,000
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 $2,106,994 $2,334,397 $2,423,196
Net Cash Flow $561,206 $415,803 $603,804
Cash Balance $629,006 $1,044,809 $1,648,613

8.5 Projected Profit and Loss

The key to increasing overall sales is to focus on acquiring vehicles at, or below, wholesale price. Operating, advertising and consulting costs will increase at a slower rate than sales and profit in the next three years. Normally, a start-up company will operate with negative profits through the first two years. We predict a positive gross margin during 2003, increasing modestly to 2005.  This optimistic projection is based on the sales strategy and market analysis. Projected sales will support continued operations, and final success will be based on actual sales and an increasing gross margin.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $2,488,200 $2,750,200 $3,027,000
Direct Cost of Sales $1,749,100 $1,815,500 $1,867,000
Production Payroll $42,000 $50,000 $60,000
Other Production Expenses $0 $0 $0
Total Cost of Sales $1,791,100 $1,865,500 $1,927,000
Gross Margin $697,100 $884,700 $1,100,000
Gross Margin % 28.02% 32.17% 36.34%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $30,500 $35,000 $40,000
Advertising/Promotion $14,000 $5,000 $6,000
Web Page Maintenance $3,600 $2,500 $2,600
Cleaning/Maintenance $6,600 $6,000 $6,000
Travel/Auctions $3,200 $1,000 $2,000
Miscellaneous $0 $1,000 $1,000
Total Sales and Marketing Expenses $57,900 $50,500 $57,600
Sales and Marketing % 2.33% 1.84% 1.90%
General and Administrative Expenses
General and Administrative Payroll $38,850 $42,000 $45,500
Sales and Marketing and Other Expenses $0 $0 $0
Depreciation $400 $500 $600
Leased Equipment $1,200 $1,500 $2,000
Utilities $6,000 $5,500 $6,000
Insurance $4,800 $5,000 $5,500
Rent $48,000 $48,000 $50,000
Payroll Taxes $17,003 $19,350 $22,125
Other General and Administrative Expenses $0 $0 $0
Total General and Administrative Expenses $116,253 $121,850 $131,725
General and Administrative % 4.67% 4.43% 4.35%
Other Expenses:
Other Payroll $2,000 $2,000 $2,000
Consultants $0 $0 $0
Contract/Consultants-Accountant Review Books $1,600 $1,200 $1,200
Total Other Expenses $3,600 $3,200 $3,200
Other % 0.14% 0.12% 0.11%
Total Operating Expenses $177,753 $175,550 $192,525
Profit Before Interest and Taxes $519,348 $709,150 $907,475
EBITDA $519,748 $709,650 $908,075
Interest Expense $16,382 $17,980 $16,300
Taxes Incurred $150,890 $207,351 $267,353
Net Profit $352,076 $483,819 $623,823
Net Profit/Sales 14.15% 17.59% 20.61%

8.6 Projected Balance Sheet

As you can see in the projected balance sheet, our net worth will rise steadily each month and year. This is an increase in working capital and will fund future projects and expansion.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $629,006 $1,044,809 $1,648,613
Inventory $210,100 $218,076 $224,262
Other Current Assets $0 $0 $0
Total Current Assets $839,106 $1,262,885 $1,872,875
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $400 $900 $1,500
Total Long-term Assets ($400) ($900) ($1,500)
Total Assets $838,706 $1,261,985 $1,871,375
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $212,830 $176,290 $185,857
Current Borrowing $226,000 $202,000 $178,000
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $438,830 $378,290 $363,857
Long-term Liabilities $30,000 $30,000 $30,000
Total Liabilities $468,830 $408,290 $393,857
Paid-in Capital $30,000 $30,000 $30,000
Retained Earnings ($12,200) $339,876 $823,695
Earnings $352,076 $483,819 $623,823
Total Capital $369,876 $853,695 $1,477,518
Total Liabilities and Capital $838,706 $1,261,985 $1,871,375
Net Worth $369,876 $853,695 $1,477,518

8.7 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5521, (NAICS 441120) Used Car Dealers, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.53% 10.06% 14.00%
Percent of Total Assets
Inventory 25.05% 17.28% 11.98% 58.90%
Other Current Assets 0.00% 0.00% 0.00% 28.10%
Total Current Assets 100.05% 100.07% 100.08% 100.00%
Long-term Assets -0.05% -0.07% -0.08% 0.00%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 52.32% 29.98% 19.44% 0.00%
Long-term Liabilities 3.58% 2.38% 1.60% 0.00%
Total Liabilities 55.90% 32.35% 21.05% 0.00%
Net Worth 44.10% 67.65% 78.95% 100.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 28.02% 32.17% 36.34% 18.90%
Selling, General & Administrative Expenses 13.87% 15.62% 15.73% 10.20%
Advertising Expenses 0.56% 0.17% 0.20% 1.30%
Profit Before Interest and Taxes 20.87% 25.79% 29.98% 1.10%
Main Ratios
Current 1.91 3.34 5.15 1.92
Quick 1.43 2.76 4.53 0.47
Total Debt to Total Assets 55.90% 32.35% 21.05% 55.55%
Pre-tax Return on Net Worth 135.98% 80.96% 60.32% 55.55%
Pre-tax Return on Assets 59.97% 54.77% 47.62% 8.90%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 14.15% 17.59% 20.61% n.a
Return on Equity 95.19% 56.67% 42.22% n.a
Activity Ratios
Inventory Turnover 10.91 8.48 8.44 n.a
Accounts Payable Turnover 10.25 12.17 12.17 n.a
Payment Days 27 33 29 n.a
Total Asset Turnover 2.97 2.18 1.62 n.a
Debt Ratios
Debt to Net Worth 1.27 0.48 0.27 n.a
Current Liab. to Liab. 0.94 0.93 0.92 n.a
Liquidity Ratios
Net Working Capital $400,276 $884,595 $1,509,018 n.a
Interest Coverage 31.70 39.44 55.67 n.a
Additional Ratios
Assets to Sales 0.34 0.46 0.62 n.a
Current Debt/Total Assets 52% 30% 19% n.a
Acid Test 1.43 2.76 4.53 n.a
Sales/Net Worth 6.73 3.22 2.05 n.a
Dividend Payout 0.00 0.00 0.00 n.a