NW Architecture
Financial Plan
NW Architecture will increase growth and technology with cash flow as it increases through the years. Further money will be set aside to pay for further consulting as needed.
7.1 Important Assumptions
The annual assumptions made in the following table are based on a stable economy. We will adjust these assumptions as changes occur in the now tumultuous ecomony the Bay Area is experiencing.
| 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 |
7.2 Key Financial Indicators
The following benchmark chart indicates our key financial indicators for the first three years.
7.3 Break-even Analysis
The following chart and table summarize our break-even analysis.
| Break-even Analysis | |
| Monthly Revenue Break-even | $8,348 |
| Assumptions: | |
| Average Percent Variable Cost | 1% |
| Estimated Monthly Fixed Cost | $8,246 |
7.4 Projected Profit and Loss
Net profit is virtually nonexistent for the first two years of operation, with respectable increases after that time. Our projected profit and loss is shown on the following table, with sales starting at $102,000 for the first year and climbing to $500,000 the third year.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $102,000 | $210,000 | $500,000 |
| Direct Cost of Sales | $1,250 | $1,250 | $2,500 |
| Other | $0 | $0 | $0 |
| Total Cost of Sales | $1,250 | $1,250 | $2,500 |
| Gross Margin | $100,750 | $208,750 | $497,500 |
| Gross Margin % | 98.77% | 99.40% | 99.50% |
| Expenses | |||
| Payroll | $70,000 | $120,200 | $286,000 |
| Sales and Marketing and Other Expenses | $8,200 | $12,800 | $34,500 |
| Depreciation | $0 | $0 | $0 |
| Leased Equipment | $1,440 | $1,680 | $1,920 |
| Utilities | $480 | $620 | $650 |
| Insurance | $1,800 | $2,800 | $3,500 |
| Rent | $17,030 | $23,400 | $23,400 |
| Payroll Taxes | $0 | $0 | $0 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $98,950 | $161,500 | $349,970 |
| Profit Before Interest and Taxes | $1,800 | $47,250 | $147,530 |
| EBITDA | $1,800 | $47,250 | $147,530 |
| Interest Expense | $1,517 | $1,097 | $659 |
| Taxes Incurred | $374 | $11,538 | $37,330 |
| Net Profit | ($90) | $34,615 | $109,541 |
| Net Profit/Sales | -0.09% | 16.48% | 21.91% |
7.5 Projected Cash Flow
Cash flow is vital to the well being of this company because of the duration of payment. The following chart and table below show cash flow projections.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $0 | $0 | $0 |
| Cash from Receivables | $88,100 | $195,282 | $460,480 |
| Subtotal Cash from Operations | $88,100 | $195,282 | $460,480 |
| 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 | $6,000 | $0 | $0 |
| Subtotal Cash Received | $94,100 | $195,282 | $460,480 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $70,000 | $120,200 | $286,000 |
| Bill Payments | $29,684 | $53,805 | $101,097 |
| Subtotal Spent on Operations | $99,684 | $174,005 | $387,097 |
| Additional Cash Spent | |||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $4,380 | $4,380 | $4,380 |
| 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 | $104,064 | $178,385 | $391,477 |
| Net Cash Flow | ($9,964) | $16,897 | $69,003 |
| Cash Balance | $9,036 | $25,932 | $94,936 |
7.6 Projected Balance Sheet
The following table shows our projected Balance Sheet and net worth over the next three years.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $9,036 | $25,932 | $94,936 |
| Accounts Receivable | $13,900 | $28,618 | $68,137 |
| Inventory | $750 | $750 | $1,500 |
| Other Current Assets | $0 | $0 | $0 |
| Total Current Assets | $23,686 | $55,300 | $164,573 |
| Long-term Assets | |||
| Long-term Assets | $0 | $0 | $0 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $0 | $0 | $0 |
| Total Assets | $23,686 | $55,300 | $164,573 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $3,156 | $4,536 | $8,647 |
| Current Borrowing | $13,160 | $8,780 | $4,400 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $16,316 | $13,316 | $13,047 |
| Long-term Liabilities | $0 | $0 | $0 |
| Total Liabilities | $16,316 | $13,316 | $13,047 |
| Paid-in Capital | $25,000 | $25,000 | $25,000 |
| Retained Earnings | ($17,540) | ($17,630) | $16,984 |
| Earnings | ($90) | $34,615 | $109,541 |
| Total Capital | $7,370 | $41,984 | $151,526 |
| Total Liabilities and Capital | $23,686 | $55,300 | $164,573 |
| Net Worth | $7,370 | $41,984 | $151,526 |
7.7 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7383, Independent Artists (including Architects), are shown for comparison.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 105.88% | 138.10% | 11.74% |
| Percent of Total Assets | ||||
| Accounts Receivable | 58.69% | 51.75% | 41.40% | 26.18% |
| Inventory | 3.17% | 1.36% | 0.91% | 3.42% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 50.14% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 79.74% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 20.26% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 68.89% | 24.08% | 7.93% | 35.02% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 21.48% |
| Total Liabilities | 68.89% | 24.08% | 7.93% | 56.50% |
| Net Worth | 31.11% | 75.92% | 92.07% | 43.50% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 98.77% | 99.40% | 99.50% | 100.00% |
| Selling, General & Administrative Expenses | 101.81% | 95.72% | 79.60% | 75.67% |
| Advertising Expenses | 0.00% | 0.95% | 4.00% | 2.64% |
| Profit Before Interest and Taxes | 1.76% | 22.50% | 29.51% | 1.56% |
| Main Ratios | ||||
| Current | 1.45 | 4.15 | 12.61 | 1.67 |
| Quick | 1.41 | 4.10 | 12.50 | 1.32 |
| Total Debt to Total Assets | 68.89% | 24.08% | 7.93% | 62.06% |
| Pre-tax Return on Net Worth | 3.84% | 109.93% | 96.93% | 4.93% |
| Pre-tax Return on Assets | 1.20% | 83.46% | 89.24% | 12.99% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | -0.09% | 16.48% | 21.91% | n.a |
| Return on Equity | -1.23% | 82.45% | 72.29% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 7.34 | 7.34 | 7.34 | n.a |
| Collection Days | 57 | 37 | 35 | n.a |
| Inventory Turnover | 1.74 | 1.67 | 2.22 | n.a |
| Accounts Payable Turnover | 10.41 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 25 | 23 | n.a |
| Total Asset Turnover | 4.31 | 3.80 | 3.04 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 2.21 | 0.32 | 0.09 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $7,370 | $41,984 | $151,526 | n.a |
| Interest Coverage | 1.19 | 43.07 | 223.87 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.23 | 0.26 | 0.33 | n.a |
| Current Debt/Total Assets | 69% | 24% | 8% | n.a |
| Acid Test | 0.55 | 1.95 | 7.28 | n.a |
| Sales/Net Worth | 13.84 | 5.00 | 3.30 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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