The initial cash balance is substantial after start-up expenses. According to this business plan, the cash balance bottoms out at about in the seventh month of operation. Cash flow enters positive territory during month eight (August 2004). The net worth of the company is estimated to grow steadly through 2006. At the end of 2006, a dividend may need to be paid out to the equity investors, if they choose to exit the venture.
During the first month of operation, the gross margin is positive but the net profit is negative, as a loss occurs. The first profitable month is July 2004, the seventh month of business. As sales ramp up, the monthly gross margin rises through December 2004. For the first year overall, the gross margin is good and the net profit is meager, according to the financial plan. As consulting sales continue to increase, year two and three imorove profitability. Net profit over the three-year period is moderate. The pro forma profit-and-loss statement for 2004-2006 is show below. See the Appendix for the monthly profit-and-loss table for 2004.
The financial plan depends on important assumptions, some of which are shown in th General Assumptions table as annual assumptions. Section 5.2 includes many of the sales-specific assumptions.
The following Break-even Analysis shows the break-even point for the business in necessary revenue. Neglecting outsourcing surcharges or other sources of revenue, 102 hours would need to be billed (if partner and associate hours were equal). This amount of consulting service represents 59% of the potential monthly billable hours.
The annual cash flow is highlighted in the next table. The monthly numbers for 2004 are depicted in the Appendix). The net cash flow is worst (most negative) for month two, February 2004. Cash flow becomes positive in September 2004. The net cash flow for 2004 is negative overall. The cash balance at the end of 2006 is respectable.
The pro forma balance sheet follows. The net worth of O'Connor & Partners increases steadily from the end of 2004 to 2006 year-end.
Industy ratios for the Process, Physical, Distribution and Logistics Consulting industry, NAICS code 541614, are shown in comparison to the ratios calculated from the financial forecasts of this plan.