Margarita Momma
Financial Plan
We want to finance growth mainly through cash flow. We recognize that this means we will have to grow slowly, adding machines one at a time, not in bulk. The most important indicator in our case is that minimal inventory will have to be stored for these rentals; this translates into very low overhead.
There are some seasonal variations, with the months of March through September being the hottest months in Texas. This will, as expected, mean a high rate of rentals for events such as pool parties, Fourth of July celebrations, and barbecues. However, we expect the winter months to be just as lucrative due to the number of holiday parties, football gatherings, and fundraising events. We expect a light seasonal variation, with sales increasing slightly during the cooler months. For the most part, Margarita Momma will experience a high rate of sales, regardless of weather variations.
7.1 Important Assumptions
The financial assumptions for Margarita Momma are included in the following table.
| 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
This topic was not included in the original business plan, but is included here as a placeholder for others using this plan as a guide. Please remember that the default outline is flexible on purpose, because every business plan is unique, so many excellent plans omit topics included in the standard outline and many add additional topics. The outline is a suggestion, not a checklist. You can add and delete topics easily. Make it your plan, not the software’s plan.
7.3 Break-even Analysis
The following table and chart summarize our break-even analysis. With estimated fixed costs as shown in the following table, we need to have 16 rentals by the end of the year to cover our costs.
| Break-even Analysis | |
| Monthly Units Break-even | 14 |
| Monthly Revenue Break-even | $1,052 |
| Assumptions: | |
| Average Per-Unit Revenue | $74.51 |
| Average Per-Unit Variable Cost | $6.76 |
| Estimated Monthly Fixed Cost | $957 |
7.4 Projected Profit and Loss
We expect net profits, and gross margins for FY 2001 through FY2003 as shown in the following table.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $60,875 | $69,500 | $80,250 |
| Direct Cost of Sales | $5,523 | $6,380 | $7,380 |
| Other | $0 | $0 | $0 |
| Total Cost of Sales | $5,523 | $6,380 | $7,380 |
| Gross Margin | $55,352 | $63,120 | $72,870 |
| Gross Margin % | 90.93% | 90.82% | 90.80% |
| Expenses | |||
| Payroll | $11,050 | $11,800 | $12,500 |
| Sales and Marketing and Other Expenses | $280 | $300 | $250 |
| Depreciation | $150 | $150 | $150 |
| Leased Equipment | $0 | $0 | $0 |
| Utilities | $0 | $0 | $0 |
| Insurance | $0 | $0 | $0 |
| Rent | $0 | $0 | $0 |
| Payroll Taxes | $0 | $0 | $0 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $11,480 | $12,250 | $12,900 |
| Profit Before Interest and Taxes | $43,872 | $50,870 | $59,970 |
| EBITDA | $44,022 | $51,020 | $60,120 |
| Interest Expense | $1,031 | $916 | $796 |
| Taxes Incurred | $10,803 | $12,489 | $15,040 |
| Net Profit | $32,038 | $37,466 | $44,134 |
| Net Profit/Sales | 52.63% | 53.91% | 55.00% |
7.5 Projected Cash Flow
The following cash flow projections show the annual amounts only. For a monthly breakdown, please see the appendix at the end of the business plan.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $60,875 | $69,500 | $80,250 |
| Subtotal Cash from Operations | $60,875 | $69,500 | $80,250 |
| 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 | $60,875 | $69,500 | $80,250 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $11,050 | $11,800 | $12,500 |
| Bill Payments | $16,121 | $20,595 | $23,399 |
| Subtotal Spent on Operations | $27,171 | $32,395 | $35,899 |
| 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 | $1,200 | $1,200 | $1,200 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $28,371 | $33,595 | $37,099 |
| Net Cash Flow | $32,504 | $35,905 | $43,151 |
| Cash Balance | $33,343 | $69,249 | $112,400 |
7.6 Projected Balance Sheet
The following table represents our financial position at the end of each of the three upcoming fiscal years.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $33,343 | $69,249 | $112,400 |
| Inventory | $1,177 | $1,359 | $1,572 |
| Other Current Assets | $1,260 | $1,260 | $1,260 |
| Total Current Assets | $35,780 | $71,868 | $115,233 |
| Long-term Assets | |||
| Long-term Assets | $9,000 | $9,000 | $9,000 |
| Accumulated Depreciation | $150 | $300 | $450 |
| Total Long-term Assets | $8,851 | $8,701 | $8,551 |
| Total Assets | $44,631 | $80,569 | $123,783 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $1,993 | $1,666 | $1,946 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $1,993 | $1,666 | $1,946 |
| Long-term Liabilities | $9,760 | $8,560 | $7,360 |
| Total Liabilities | $11,753 | $10,226 | $9,306 |
| Paid-in Capital | $1,000 | $1,000 | $1,000 |
| Retained Earnings | ($161) | $31,877 | $69,343 |
| Earnings | $32,038 | $37,466 | $44,134 |
| Total Capital | $32,877 | $70,343 | $114,477 |
| Total Liabilities and Capital | $44,631 | $80,569 | $123,783 |
| Net Worth | $32,877 | $70,343 | $114,477 |
7.7 Business Ratios
The following table shows standard ratios and industry comparison for SIC code 7359, rental businesses.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 14.17% | 15.47% | 7.90% |
| Percent of Total Assets | ||||
| Inventory | 2.64% | 1.69% | 1.27% | 3.40% |
| Other Current Assets | 2.82% | 1.56% | 1.02% | 45.10% |
| Total Current Assets | 80.17% | 89.20% | 93.09% | 74.30% |
| Long-term Assets | 19.83% | 10.80% | 6.91% | 25.70% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 4.47% | 2.07% | 1.57% | 42.00% |
| Long-term Liabilities | 21.87% | 10.62% | 5.95% | 15.70% |
| Total Liabilities | 26.33% | 12.69% | 7.52% | 57.70% |
| Net Worth | 73.67% | 87.31% | 92.48% | 42.30% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 90.93% | 90.82% | 90.80% | 0.00% |
| Selling, General & Administrative Expenses | 38.15% | 36.91% | 35.50% | 82.90% |
| Advertising Expenses | 0.46% | 0.43% | 0.31% | 1.00% |
| Profit Before Interest and Taxes | 72.07% | 73.19% | 74.73% | 2.60% |
| Main Ratios | ||||
| Current | 17.95 | 43.14 | 59.21 | 1.68 |
| Quick | 17.36 | 42.33 | 58.40 | 1.33 |
| Total Debt to Total Assets | 26.33% | 12.69% | 7.52% | 57.70% |
| Pre-tax Return on Net Worth | 130.31% | 71.01% | 51.69% | 4.80% |
| Pre-tax Return on Assets | 95.99% | 62.00% | 47.80% | 11.40% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 52.63% | 53.91% | 55.00% | n.a |
| Return on Equity | 97.45% | 53.26% | 38.55% | n.a |
| Activity Ratios | ||||
| Inventory Turnover | 5.89 | 5.03 | 5.03 | n.a |
| Accounts Payable Turnover | 9.09 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 33 | 28 | n.a |
| Total Asset Turnover | 1.36 | 0.86 | 0.65 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.36 | 0.15 | 0.08 | n.a |
| Current Liab. to Liab. | 0.17 | 0.16 | 0.21 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $33,787 | $70,202 | $113,286 | n.a |
| Interest Coverage | 42.55 | 55.53 | 75.34 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.73 | 1.16 | 1.54 | n.a |
| Current Debt/Total Assets | 4% | 2% | 2% | n.a |
| Acid Test | 17.36 | 42.33 | 58.40 | n.a |
| Sales/Net Worth | 1.85 | 0.99 | 0.70 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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