We want to finance growth mainly through cash flow. We recognize that this means we will have to grow more slowly than we might like.
The most important indicator in our case is inventory turnover. We have to make sure that food inventory turnover stays at approximately four turns per month, or we risk loss through spoilage.
We do not want to let our average collection days get above 45 under any circumstances. This could cause a serious problem with cash flow, because our working capital situation is tight. Most credit sales will be via credit and debit cards. We do have plans to initiate direct billing for law firms and other businesses conducting regular visits.
We must target a net profit of 14% at the least, and hold marketing costs to no more than one to three percent of gross sales.
7.1 Important Assumptions
The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:
- We assume a slow-growth economy, without major recession.
- We assume of course that there are no unforeseen changes in technology to make equipment immediately obsolete.
- We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables.
7.2 Projected Cash Flow
We expect to manage cash flow over the next three years with minimal new investment required over the first two years. It is our expectation that revenue beyond projected sales will be invested in retiring long-term debt early.
7.3 Key Financial Indicators
The most important indicators in our case are are daily seating "counts" and weekly sales numbers. We must also make sure that we are turning our inventory rapidly so as to avoid food spoilage.
We must target net profit/sales figures toward the 14% level with gross margins never dipping below 38%. Marketing costs should never exceed three percent of sales.
7.4 Break-even Analysis
The Break-even Analysis shows that The Watertower has a good balance of fixed costs and sufficient sales strength to remain healthy. Our break-even point is $106,101 on sales averaging $12.54 per patron. This break-even position is achieved on a monthly fixed cost of $57,873 and and per unit/patron variable cost of $5.70.
7.5 Projected Profit and Loss
We expect income to approach $2.1 million for calendar year 2002. It should increase to $2.57 million by the end of the years covered in this plan.
7.6 Projected Balance Sheet
As shown in the Balance Sheet, we expect a healthy growth in net worth from approximately $172,000 at the end of 2002 to almost $1 million by the end of the plan period.
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 5812, Eating Places, are shown for comparison. The ratios show a plan for balanced, healthy growth.