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