Michael's Video Service

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Video Production Business Plan

Financial Plan

We are requesting a loan of $300,000. The funds will be used to purchase video equipment and to cover initial operating expenses. 

Payback Strategy

Our repayment for this loan will come from cash in excess of profits, paid monthly. The increase in profits generated by business from television stations will provide funds to repay the loan in 10 years.

6.1 Important Assumptions

The table below highlights some assumptions that are key to the success of the company.

General Assumptions
Year 1 Year 2 Year 3
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 25.42% 25.00% 25.42%
Other 0 0 0

6.2 Break-even Analysis

For our Break-even Analysis, we assume running costs of approximately $9,000 per month, which includes gas, phone, and an estimation of other running costs. Variable costs mostly include video tapes. The chart and table below show our break-even point.

Break-even Analysis
Monthly Revenue Break-even $9,351
Assumptions:
Average Percent Variable Cost 3%
Estimated Monthly Fixed Cost $9,050

6.3 Projected Profit and Loss

The table below provides the projected income statements for Michael's Video Service. The company is basing its revenue projections on anticipated sales of services, initially to the television networks and video companies, then to other markets such as high school events and weddings.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $149,000 $175,000 $191,000
Direct Cost of Sales $4,800 $5,700 $6,600
Other $0 $0 $0
Total Cost of Sales $4,800 $5,700 $6,600
Gross Margin $144,200 $169,300 $184,400
Gross Margin % 96.78% 96.74% 96.54%
Expenses
Payroll $48,000 $62,000 $66,000
Sales and Marketing and Other Expenses $18,600 $21,400 $24,600
Depreciation $24,000 $24,000 $24,000
Gas $4,800 $5,700 $6,600
Utilities & phone $2,400 $3,000 $3,600
Rent $3,600 $3,600 $3,600
Payroll Taxes $7,200 $9,300 $9,900
Other $0 $0 $0
Total Operating Expenses $108,600 $129,000 $138,300
Profit Before Interest and Taxes $35,600 $40,300 $46,100
EBITDA $59,600 $64,300 $70,100
Interest Expense $30,000 $28,984 $26,844
Taxes Incurred $1,065 $2,829 $4,894
Net Profit $4,535 $8,487 $14,362
Net Profit/Sales 3.04% 4.85% 7.52%

6.4 Financial Risks and Contingencies

The company recognizes that it is subject to both market and industry risks. We believe our risks are as follows, and we are addressing each as indicated. We face all the risks associated with being a start-up company. We feel that we can overcome these with our experience in the industry and by quickly establishing desired relationships. The economy in south Ohio is based on the oil and gas industry, which is very unstable. Having seen the oil bust in the 1980's and its effects on the economy, we have diversified our efforts and will be going after markets that will not be affected by fluctuations in the oil and gas industry.

6.5 Projected Cash Flow

The following chart and table present the cash flow assumptions for the company.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $37,250 $43,750 $47,750
Cash from Receivables $90,375 $127,520 $140,955
Subtotal Cash from Operations $127,625 $171,270 $188,705
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 $127,625 $171,270 $188,705
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $48,000 $62,000 $66,000
Bill Payments $64,802 $80,965 $86,360
Subtotal Spent on Operations $112,802 $142,965 $152,360
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $20,330 $22,458
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $112,802 $163,295 $174,818
Net Cash Flow $14,823 $7,975 $13,887
Cash Balance $74,823 $82,798 $96,685

6.6 Projected Balance Sheet

Projected balance sheets are provided below.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $74,823 $82,798 $96,685
Accounts Receivable $21,375 $25,105 $27,400
Inventory $1,200 $1,425 $1,650
Other Current Assets $0 $0 $0
Total Current Assets $97,398 $109,328 $125,736
Long-term Assets
Long-term Assets $240,000 $240,000 $240,000
Accumulated Depreciation $24,000 $48,000 $72,000
Total Long-term Assets $216,000 $192,000 $168,000
Total Assets $313,398 $301,328 $293,736
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $6,863 $6,636 $7,139
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $6,863 $6,636 $7,139
Long-term Liabilities $300,000 $279,670 $257,212
Total Liabilities $306,863 $286,306 $264,351
Paid-in Capital $17,000 $17,000 $17,000
Retained Earnings ($15,000) ($10,465) ($1,978)
Earnings $4,535 $8,487 $14,362
Total Capital $6,535 $15,022 $29,384
Total Liabilities and Capital $313,398 $301,328 $293,736
Net Worth $6,535 $15,022 $29,384

6.7 Business Ratios

The following table presents important business ratios from the motion picture production industry, as determined by the Standard Industry Classification (SIC) Index code 7812, Motion Picture and Video Production.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 17.45% 9.14% 0.00%
Percent of Total Assets
Accounts Receivable 6.82% 8.33% 9.33% 0.00%
Inventory 0.38% 0.47% 0.56% 0.00%
Other Current Assets 0.00% 0.00% 0.00% 100.00%
Total Current Assets 31.08% 36.28% 42.81% 100.00%
Long-term Assets 68.92% 63.72% 57.19% 0.00%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 2.19% 2.20% 2.43% 0.00%
Long-term Liabilities 95.72% 92.81% 87.57% 0.00%
Total Liabilities 97.91% 95.01% 90.00% 0.00%
Net Worth 2.09% 4.99% 10.00% 100.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 96.78% 96.74% 96.54% 0.00%
Selling, General & Administrative Expenses 93.96% 91.89% 88.98% 0.00%
Advertising Expenses 4.03% 4.00% 4.19% 0.00%
Profit Before Interest and Taxes 23.89% 23.03% 24.14% 0.00%
Main Ratios
Current 14.19 16.48 17.61 0.00
Quick 14.02 16.26 17.38 0.00
Total Debt to Total Assets 97.91% 95.01% 90.00% 0.00%
Pre-tax Return on Net Worth 85.69% 75.33% 65.53% 0.00%
Pre-tax Return on Assets 1.79% 3.76% 6.56% 0.00%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 3.04% 4.85% 7.52% n.a
Return on Equity 69.40% 56.50% 48.88% n.a
Activity Ratios
Accounts Receivable Turnover 5.23 5.23 5.23 n.a
Collection Days 57 65 67 n.a
Inventory Turnover 4.50 4.34 4.29 n.a
Accounts Payable Turnover 10.44 12.17 12.17 n.a
Payment Days 27 31 29 n.a
Total Asset Turnover 0.48 0.58 0.65 n.a
Debt Ratios
Debt to Net Worth 46.96 19.06 9.00 n.a
Current Liab. to Liab. 0.02 0.02 0.03 n.a
Liquidity Ratios
Net Working Capital $90,535 $102,692 $118,596 n.a
Interest Coverage 1.19 1.39 1.72 n.a
Additional Ratios
Assets to Sales 2.10 1.72 1.54 n.a
Current Debt/Total Assets 2% 2% 2% n.a
Acid Test 10.90 12.48 13.54 n.a
Sales/Net Worth 22.80 11.65 6.50 n.a
Dividend Payout 0.00 0.00 0.00 n.a