The Wonderkind
Financial Plan
We want to finance growth mainly through free cash flow. We recognize that this means we will have to grow more slowly than we might like. We think that this strategy of more conservative financial management makes sense since we are not trying to create a conglomerate financial company, rather one that focuses on what we believe to be our core competencies and interests. We believe in financing opportunities that add value to our company from a cost/benefit analysis perspective. However, we will not blindly invest our resources in endeavors that do not have a high likelihood of bearing fruit in the future.
7.1 Important Assumptions
Our most important assumption is regarding the arrangement we have obtained with Vista whereby we are in essence being subsidized 100% for the first year. Vista, nonetheless, currently charges regular paying customers $100/month or $599/year.
General Assumptions | |||
Year 1 | Year 2 | Year 3 | |
Plan Month | 1 | 2 | 3 |
Current Interest Rate | 8.75% | 8.75% | 8.75% |
Long-term Interest Rate | 8.75% | 8.75% | 8.75% |
Tax Rate | 16.25% | 15.00% | 16.25% |
Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
We foresee steadily rising service revenues starting in June of 2001. Our initial objectives for client retention should lend itself directly to our sales forecasts. It is important to note that these goals as stated are extremely subjective to change once we begin operating and acquire a better feel for our market.

7.3 Break-even Analysis
By the beginning of the second year, assuming that we pay the costs related to Vista’s services, and assuming 10 analysts on the payroll, the Break-even Analysis below shows what is needed in sales to break even.

Break-even Analysis | |
Monthly Units Break-even | 126 |
Monthly Revenue Break-even | $1,866 |
Assumptions: | |
Average Per-Unit Revenue | $14.76 |
Average Per-Unit Variable Cost | $1.00 |
Estimated Monthly Fixed Cost | $1,740 |
7.4 Projected Profit and Loss
The Wonderkind should be a profitable entity following the first year. This is possible because of our minimal start-up expenses and projections for consistent sales growth. Also, our arrangement with Vista for a full year’s worth of service free of charge is a substantial financial subsidy. The primary expenses incurred will be marketing and payroll. Marketing expenses will include printing fees for brochures to be distributed and other promotional initiatives.
The following table shows the Projected Profit and Loss for The Wonderkind.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $23,032 | $76,752 | $196,400 |
Direct Cost of Sales | $1,560 | $5,040 | $12,600 |
Other | $0 | $0 | $0 |
Total Cost of Sales | $1,560 | $5,040 | $12,600 |
Gross Margin | $21,472 | $71,712 | $183,800 |
Gross Margin % | 93.23% | 93.43% | 93.58% |
Expenses | |||
Payroll | $13,300 | $59,000 | $118,000 |
Sales and Marketing and Other Expenses | $6,250 | $5,600 | $5,600 |
Depreciation | $0 | $0 | $0 |
Rent | $0 | $0 | $7,200 |
Leased Equipment | $0 | $0 | $0 |
Utilities | $0 | $0 | $0 |
Insurance | $0 | $0 | $0 |
Payroll Taxes | $1,330 | $5,900 | $11,800 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $20,880 | $70,500 | $142,600 |
Profit Before Interest and Taxes | $592 | $1,212 | $41,200 |
EBITDA | $592 | $1,212 | $41,200 |
Interest Expense | $321 | $481 | $394 |
Taxes Incurred | $41 | $110 | $6,631 |
Net Profit | $231 | $621 | $34,176 |
Net Profit/Sales | 1.00% | 0.81% | 17.40% |
7.5 Projected Cash Flow
The following chart and table show the Projected Cash Flow for The Wonderkind.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $0 | $0 | $0 |
Cash from Receivables | $13,894 | $55,438 | $148,928 |
Subtotal Cash from Operations | $13,894 | $55,438 | $148,928 |
Additional Cash Received | |||
Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
New Current Borrowing | $2,000 | $5,000 | $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 | $47,000 | $0 |
Subtotal Cash Received | $15,894 | $107,438 | $148,928 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $13,300 | $59,000 | $118,000 |
Bill Payments | $7,842 | $17,382 | $41,998 |
Subtotal Spent on Operations | $21,142 | $76,382 | $159,998 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $0 | $2,000 | $5,000 |
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 | $2,500 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $21,142 | $78,382 | $167,498 |
Net Cash Flow | ($5,248) | $29,055 | ($18,570) |
Cash Balance | $9,852 | $38,907 | $20,337 |
7.6 Business Ratios
The Industry standard ratios are for the Other Management Consulting service industry, NAICS code 541618. A quick comparison between the industry standards and Wonderkind shows that our company is in a class all by itself. Therefore, some explanation is necessary. First of all, because it is primarily an Internet company, all sales will be on credit. This means that the company has a very high amount of accounts receivable. In addition, the company has a very high gross margin for the same reasons. Furthermore, because it is a service company utilizing currently owned assets, the company has few long-term assets. We expect the company to have a decreasing net worth as the sales growth slows down, however it may seem abnormally high for some time.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 233.24% | 155.89% | 7.29% |
Percent of Total Assets | ||||
Accounts Receivable | 48.12% | 43.91% | 77.34% | 27.65% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 50.47% |
Total Current Assets | 100.00% | 100.00% | 97.52% | 81.73% |
Long-term Assets | 0.00% | 0.00% | 2.48% | 18.27% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 19.27% | 9.24% | 3.61% | 32.03% |
Long-term Liabilities | 10.53% | 2.88% | 1.98% | 21.13% |
Total Liabilities | 29.80% | 12.12% | 5.59% | 53.16% |
Net Worth | 70.20% | 87.88% | 94.41% | 46.84% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 93.23% | 93.43% | 93.58% | 100.00% |
Selling, General & Administrative Expenses | 92.23% | 92.62% | 75.92% | 75.12% |
Advertising Expenses | 16.93% | 6.51% | 2.55% | 1.53% |
Profit Before Interest and Taxes | 2.57% | 1.58% | 20.98% | 1.69% |
Main Ratios | ||||
Current | 5.19 | 10.82 | 27.03 | 1.82 |
Quick | 5.19 | 10.82 | 27.03 | 1.42 |
Total Debt to Total Assets | 29.80% | 12.12% | 5.59% | 63.28% |
Pre-tax Return on Net Worth | 2.03% | 1.20% | 42.90% | 3.39% |
Pre-tax Return on Assets | 1.43% | 1.05% | 40.50% | 9.24% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 1.00% | 0.81% | 17.40% | n.a |
Return on Equity | 1.73% | 1.02% | 35.93% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 2.52 | 2.52 | 2.52 | n.a |
Collection Days | 41 | 94 | 101 | n.a |
Accounts Payable Turnover | 5.73 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 33 | 21 | n.a |
Total Asset Turnover | 1.21 | 1.11 | 1.95 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.42 | 0.14 | 0.06 | n.a |
Current Liab. to Liab. | 0.65 | 0.76 | 0.65 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $15,331 | $62,952 | $94,627 | n.a |
Interest Coverage | 1.85 | 2.52 | 104.64 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.82 | 0.90 | 0.51 | n.a |
Current Debt/Total Assets | 19% | 9% | 4% | n.a |
Acid Test | 2.69 | 6.07 | 5.59 | n.a |
Sales/Net Worth | 1.73 | 1.26 | 2.06 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
7.7 Projected Balance Sheet
The table below is the Project Balance Sheet.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $9,852 | $38,907 | $20,337 |
Accounts Receivable | $9,138 | $30,453 | $77,925 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $18,990 | $69,360 | $98,262 |
Long-term Assets | |||
Long-term Assets | $0 | $0 | $2,500 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $0 | $0 | $2,500 |
Total Assets | $18,990 | $69,360 | $100,762 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $1,659 | $1,408 | $3,635 |
Current Borrowing | $2,000 | $5,000 | $0 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $3,659 | $6,408 | $3,635 |
Long-term Liabilities | $2,000 | $2,000 | $2,000 |
Total Liabilities | $5,659 | $8,408 | $5,635 |
Paid-in Capital | $14,000 | $61,000 | $61,000 |
Retained Earnings | ($900) | ($669) | ($48) |
Earnings | $231 | $621 | $34,176 |
Total Capital | $13,331 | $60,952 | $95,127 |
Total Liabilities and Capital | $18,990 | $69,360 | $100,762 |
Net Worth | $13,331 | $60,952 | $95,127 |