InteliChild.com
Financial Plan
This is an Internet venture that, of course, depends on the developing financial prospects of the growing Internet world. To make it work financially, we need to increase valuation on schedule to bring in substantial additional capital. The following table defines the investment offering for investors. Specifically:
- The exit strategy is acquisition in 2003, valuing the company at more than $20 million.
- Equity plan and valuations at time of exit are detailed in the section that follows, “Exit Strategy.” The plan assumes an ending valuation of $20 million based on market trends, with IRR of more than 100% for all investors.
Important Assumptions
The general assumptions are listed in the following table. Obviously these are detailed financial assumptions, trivial compared to the underlying critical assumptions, which include:
- Continued growth of Internet usage. We accept published forecasts that say 4% of the world’s population presently uses the Internet, and that will grow to 11% by 2005. That’s strong growth.
- No e-commerce disaster scenarios. We’ll have no huge problems with credit card authorization, shipping, etc.
- Continued support of financial markets, which means continued rise in valuations of Internet companies, even Internet companies losing money. The increase in valuation is critical to our financial strategy.
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 | 0.00% | 0.00% | 0.00% |
Other | 0 | 0 | 0 |
Key Financial Indicators
The following benchmarks chart indicates a very ambitious increase in sales and matching increases in operating expenses. We expect to improve ratios of inventory, payable days, and collection days.
One of the more important assumptions is that we can increase sales at a very high rate without corresponding increase in operating expenses. This is because of the leverage available in use of Internet technology as our main marketing and sales channel.

Break-even Analysis
The break-even analysis is a good financial indicator. The following table and chart show break-even based on sales level per month and a high monthly fixed cost. Given those assumptions, we reach steady-state break-even by the end of this first year.

Break-even Analysis | |
Monthly Units Break-even | 8,948 |
Monthly Revenue Break-even | $264,916 |
Assumptions: | |
Average Per-Unit Revenue | $29.61 |
Average Per-Unit Variable Cost | $11.84 |
Estimated Monthly Fixed Cost | $158,950 |
Projected Profit and Loss
Despite the present trend towards investors encouraging losses for website businesses, we believe that we can turn a profit by the third year. We also intend to reduce losses significantly in the second year, as shown by the following table. Nevertheless, the investment in on-line and off-line advertising is substantial, and the traffic justifies the loss.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $765,200 | $2,887,500 | $6,375,000 |
Direct Cost of Sales | $306,080 | $1,155,000 | $2,550,000 |
Production Payroll | $81,000 | $225,000 | $305,000 |
Fulfillment | $45,845 | $0 | $0 |
Total Cost of Sales | $432,925 | $1,380,000 | $2,855,000 |
Gross Margin | $332,275 | $1,507,500 | $3,520,000 |
Gross Margin % | 43.42% | 52.21% | 55.22% |
Operating Expenses | |||
Sales and Marketing Expenses | |||
Sales and Marketing Payroll | $174,100 | $315,000 | $460,000 |
Online Advertising | $640,880 | $0 | $0 |
Other Advertising | $444,400 | $0 | $0 |
Collaterals | $42,000 | $0 | $0 |
Events | $20,000 | $0 | $0 |
Public Relations | $27,000 | $0 | $0 |
Website Infrastructure | $90,000 | $0 | $0 |
Other Sales and Marketing Expenses | $12,000 | $0 | $0 |
Total Sales and Marketing Expenses | $1,450,380 | $315,000 | $460,000 |
Sales and Marketing % | 189.54% | 10.91% | 7.22% |
General and Administrative Expenses | |||
General and Administrative Payroll | $176,700 | $290,000 | $370,000 |
Marketing/Promotion | $0 | $0 | $0 |
Depreciation | $2,000 | $0 | $0 |
Leased Equipment | $9,000 | $0 | $0 |
Utilities | $2,400 | $0 | $0 |
Insurance | $500 | $0 | $0 |
Rent | $42,000 | $0 | $0 |
Payroll Taxes | $83,115 | $163,800 | $221,250 |
Other General and Administrative Expenses | $0 | $0 | $0 |
Total General and Administrative Expenses | $315,715 | $453,800 | $591,250 |
General and Administrative % | 41.26% | 15.72% | 9.27% |
Other Expenses: | |||
Other Payroll | $122,300 | $262,000 | $340,000 |
Consultants | $0 | $0 | $0 |
Software & Equipment | $19,000 | $0 | $0 |
Total Other Expenses | $141,300 | $262,000 | $340,000 |
Other % | 18.47% | 9.07% | 5.33% |
Total Operating Expenses | $1,907,395 | $1,030,800 | $1,391,250 |
Profit Before Interest and Taxes | ($1,575,120) | $476,700 | $2,128,750 |
EBITDA | ($1,573,120) | $476,700 | $2,128,750 |
Interest Expense | $6,667 | $32,750 | $32,750 |
Taxes Incurred | $0 | $0 | $0 |
Net Profit | ($1,581,787) | $443,950 | $2,096,000 |
Net Profit/Sales | -206.72% | 15.37% | 32.88% |
Projected Cash Flow
As is to be expected in this kind of venture, the cash flow is supported mainly by new capital from new investment in the company. We’ve scheduled additional rounds of financing to make that realistic.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $688,680 | $2,598,750 | $5,737,500 |
Cash from Receivables | $30,364 | $160,735 | $427,137 |
Subtotal Cash from Operations | $719,044 | $2,759,485 | $6,164,637 |
Additional Cash Received | |||
Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
New Current Borrowing | $0 | $15,000 | $0 |
New Other Liabilities (interest-free) | $0 | $0 | $0 |
New Long-term Liabilities | $400,000 | $0 | $0 |
Sales of Other Current Assets | $0 | $0 | $0 |
Sales of Long-term Assets | $0 | $0 | $0 |
New Investment Received | $750,000 | $0 | $0 |
Subtotal Cash Received | $1,869,044 | $2,774,485 | $6,164,637 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $554,100 | $1,092,000 | $1,475,000 |
Bill Payments | $1,543,999 | $1,864,092 | $2,814,373 |
Subtotal Spent on Operations | $2,098,099 | $2,956,092 | $4,289,373 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $0 | $0 | $15,000 |
Other Liabilities Principal Repayment | $0 | $0 | $0 |
Long-term Liabilities Principal Repayment | $80,000 | $0 | $0 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $0 | $0 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $2,178,099 | $2,956,092 | $4,304,373 |
Net Cash Flow | ($309,055) | ($181,607) | $1,860,264 |
Cash Balance | $184,945 | $3,338 | $1,863,603 |
Projected Balance Sheet
The balance sheet shows our projected financial position during the next three years. Obviously the key variable during this period, overall valuation, isn’t shown.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $184,945 | $3,338 | $1,863,603 |
Accounts Receivable | $46,156 | $174,171 | $384,534 |
Inventory | $122,342 | $399,522 | $516,071 |
Other Current Assets | $5,000 | $5,000 | $5,000 |
Total Current Assets | $358,443 | $582,032 | $2,769,209 |
Long-term Assets | |||
Long-term Assets | $0 | $0 | $0 |
Accumulated Depreciation | $2,000 | $2,000 | $2,000 |
Total Long-term Assets | ($2,000) | ($2,000) | ($2,000) |
Total Assets | $356,443 | $580,032 | $2,767,209 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $369,230 | $133,868 | $240,045 |
Current Borrowing | $0 | $15,000 | $0 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $369,230 | $148,868 | $240,045 |
Long-term Liabilities | $320,000 | $320,000 | $320,000 |
Total Liabilities | $689,230 | $468,868 | $560,045 |
Paid-in Capital | $1,282,750 | $1,282,750 | $1,282,750 |
Retained Earnings | ($33,750) | ($1,615,537) | ($1,171,587) |
Earnings | ($1,581,787) | $443,950 | $2,096,000 |
Total Capital | ($332,787) | $111,163 | $2,207,163 |
Total Liabilities and Capital | $356,443 | $580,032 | $2,767,209 |
Net Worth | ($332,787) | $111,163 | $2,207,163 |
Business Ratios
Our ratios, as projected here, are typical of the kind of growth company we project. The comparisons are based on NAICS code 454111, Electronic Shopping. We do expect our gross margin and sales per employee to be much higher than standard retail.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | n.a. | 277.35% | 120.78% | 7.56% |
Percent of Total Assets | ||||
Accounts Receivable | 12.95% | 30.03% | 13.90% | 12.42% |
Inventory | 34.32% | 68.88% | 18.65% | 38.62% |
Other Current Assets | 1.40% | 0.86% | 0.18% | 26.81% |
Total Current Assets | 100.56% | 100.34% | 100.07% | 77.85% |
Long-term Assets | -0.56% | -0.34% | -0.07% | 22.15% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 103.59% | 25.67% | 8.67% | 39.14% |
Long-term Liabilities | 89.78% | 55.17% | 11.56% | 17.10% |
Total Liabilities | 193.36% | 80.83% | 20.24% | 56.24% |
Net Worth | -93.36% | 19.17% | 79.76% | 43.76% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 43.42% | 52.21% | 55.22% | 35.35% |
Selling, General & Administrative Expenses | 250.14% | 36.83% | 22.34% | 14.05% |
Advertising Expenses | 83.75% | 0.00% | 0.00% | 4.21% |
Profit Before Interest and Taxes | -205.84% | 16.51% | 33.39% | 1.42% |
Main Ratios | ||||
Current | 0.97 | 3.91 | 11.54 | 1.71 |
Quick | 0.64 | 1.23 | 9.39 | 0.59 |
Total Debt to Total Assets | 193.36% | 80.83% | 20.24% | 64.96% |
Pre-tax Return on Net Worth | 475.32% | 399.37% | 94.96% | 3.46% |
Pre-tax Return on Assets | -443.77% | 76.54% | 75.74% | 9.88% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | -206.72% | 15.37% | 32.88% | n.a |
Return on Equity | 0.00% | 399.37% | 94.96% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 1.66 | 1.66 | 1.66 | n.a |
Collection Days | 49 | 139 | 160 | n.a |
Inventory Turnover | 10.91 | 4.43 | 5.57 | n.a |
Accounts Payable Turnover | 5.18 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 56 | 23 | n.a |
Total Asset Turnover | 2.15 | 4.98 | 2.30 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.00 | 4.22 | 0.25 | n.a |
Current Liab. to Liab. | 0.54 | 0.32 | 0.43 | n.a |
Liquidity Ratios | ||||
Net Working Capital | ($10,787) | $433,163 | $2,529,163 | n.a |
Interest Coverage | -236.27 | 14.56 | 65.00 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.47 | 0.20 | 0.43 | n.a |
Current Debt/Total Assets | 104% | 26% | 9% | n.a |
Acid Test | 0.51 | 0.06 | 7.78 | n.a |
Sales/Net Worth | 0.00 | 25.98 | 2.89 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
Exit Strategy
Details of the exit strategy are included in two following tables:
- The Investment Analysis table details how we expect valuation to proceed over time, linked in to the planned rounds of financing.
- The table included here shows how we plan to distribute equity and shares over time, and planned ending valuation of $23 million and investment yield for three rounds of investment.
Equity Shares and Investment Return
Round | Amount ($000) | Shares | Per share | Year | 2003 Value | IRR % |
Seed | $500K | 1.5 million | $0.33 | 1999 | $8.4 million | 157 % |
Round 1 | $750K | 750K | $1.00 | 2000 | $4.2 million | 138% |
Round 2 | $2 million | 800K | $2.50 | 2001 | $4.5 million | 126% |