Twin Brothers Construction
Financial Plan
The brothers have long-term experience in the local construction industry. They are willing to invest heavily in this new company and their accumulated experience will insure success for the new venture. It will be important to watch closely the salaries and regular expenses to assure that the company will not suffer from lack of sufficient cash to fund its operations.
- We assume a conservative entrance and steady growth in the market.
- We assume a slow financial progress based on initially conservative sales against highest expenses.
- We assume there will not be an economic crash that would greatly hinder our target market’s access to their personal luxury finds.
The following sections describe the financials for TBC:
8.1 Projected Profit and Loss
Twin Brothers Construction is in the early stage of development, thus initial projections have only been made based on the sales projections and efficient cost control measures in place. Our first year monthly net profits will become positive by October, but we will still close the year with negative profit. This is primarily because of personnel expenses, which include salaries and the cost of sales for sub-contractors.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $267,000 | $488,750 | $772,938 |
| Direct Cost of Sales | $112,200 | $177,500 | $265,575 |
| Other | $0 | $0 | $0 |
| Total Cost of Sales | $112,200 | $177,500 | $265,575 |
| Gross Margin | $154,800 | $311,250 | $507,363 |
| Gross Margin % | 57.98% | 63.68% | 65.64% |
| Expenses | |||
| Payroll | $83,850 | $149,000 | $219,000 |
| Sales and Marketing and Other Expenses | $7,500 | $10,000 | $0 |
| Depreciation | $0 | $0 | $0 |
| Gasoline and oil | $3,600 | $3,750 | $4,800 |
| Telephone | $1,500 | $2,400 | $3,500 |
| Utilities | $4,800 | $11,250 | $10,282 |
| Insurance | $9,000 | $8,226 | $24,000 |
| Rent | $7,478 | $20,000 | $25,000 |
| Payroll Taxes | $6,522 | $0 | $0 |
| Website Maintenance & Support | $4,200 | $6,000 | $9,375 |
| Consultants | $6,000 | $7,500 | $9,000 |
| Advertising | $6,000 | $1,980 | $3,500 |
| Misc. Other Expenses | $1,800 | $2,500 | $267,127 |
| Total Operating Expenses | $142,250 | $222,606 | $575,584 |
| Profit Before Interest and Taxes | $12,550 | $88,644 | ($68,222) |
| EBITDA | $12,550 | $88,644 | ($68,222) |
| Interest Expense | $625 | $7,500 | $11,250 |
| Taxes Incurred | $3,578 | $24,343 | $0 |
| Net Profit | $8,348 | $56,801 | ($79,472) |
| Net Profit/Sales | 3.13% | 11.62% | -10.28% |
8.2 Break-even Analysis
During the first year of operations, the break-even monthly sales volume is estimated as shown below. Our average percent variable reflects our cost of sales which covers contracted construction payroll costs.
| Break-even Analysis | |
| Monthly Revenue Break-even | $20,446 |
| Assumptions: | |
| Average Percent Variable Cost | 42% |
| Estimated Monthly Fixed Cost | $11,854 |
8.3 Projected Cash Flow
We have set our initial Cash at $50,000 so that we have flexibility in handling any unexpected changes in cash flow in the early months to cover expenses. The following table outlines are cash flow estimates.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $267,000 | $488,750 | $772,938 |
| Subtotal Cash from Operations | $267,000 | $488,750 | $772,938 |
| 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 | $75,000 | $0 | $75,000 |
| 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 | $342,000 | $488,750 | $847,938 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $83,850 | $149,000 | $219,000 |
| Bill Payments | $152,974 | $281,521 | $604,604 |
| Subtotal Spent on Operations | $236,824 | $430,521 | $823,604 |
| 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 | $0 | $0 | $0 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $100,000 | $0 | $100,000 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $336,824 | $430,521 | $923,604 |
| Net Cash Flow | $5,176 | $58,229 | ($75,667) |
| Cash Balance | $55,176 | $113,405 | $37,738 |
8.4 Projected Balance Sheet
The following table outlines our Balance Sheet.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $55,176 | $113,405 | $37,738 |
| Other Current Assets | $5,000 | $5,000 | $5,000 |
| Total Current Assets | $60,176 | $118,405 | $42,738 |
| Long-term Assets | |||
| Long-term Assets | $100,000 | $100,000 | $200,000 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $100,000 | $100,000 | $200,000 |
| Total Assets | $160,176 | $218,405 | $242,738 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $21,828 | $23,256 | $52,061 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $21,828 | $23,256 | $52,061 |
| Long-term Liabilities | $75,000 | $75,000 | $150,000 |
| Total Liabilities | $96,828 | $98,256 | $202,061 |
| Paid-in Capital | $90,000 | $90,000 | $90,000 |
| Retained Earnings | ($35,000) | ($26,652) | $30,149 |
| Earnings | $8,348 | $56,801 | ($79,472) |
| Total Capital | $63,348 | $120,149 | $40,677 |
| Total Liabilities and Capital | $160,176 | $218,405 | $242,738 |
| Net Worth | $63,348 | $120,149 | $40,677 |
8.5 Business Ratios
The following Ratios table includes industry profile comparison ratios for Commercial and Office Building Contractors (Standard Industry Code #1542).
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 83.05% | 58.15% | -3.57% |
| Percent of Total Assets | ||||
| Other Current Assets | 3.12% | 2.29% | 2.06% | 39.87% |
| Total Current Assets | 37.57% | 54.21% | 17.61% | 91.45% |
| Long-term Assets | 62.43% | 45.79% | 82.39% | 8.55% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 13.63% | 10.65% | 21.45% | 34.87% |
| Long-term Liabilities | 46.82% | 34.34% | 61.79% | 15.42% |
| Total Liabilities | 60.45% | 44.99% | 83.24% | 50.29% |
| Net Worth | 39.55% | 55.01% | 16.76% | 49.71% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 57.98% | 63.68% | 65.64% | 17.83% |
| Selling, General & Administrative Expenses | 50.39% | 31.80% | 27.73% | 7.07% |
| Advertising Expenses | 4.95% | 6.32% | 5.54% | 0.25% |
| Profit Before Interest and Taxes | 4.70% | 18.14% | -8.83% | 1.85% |
| Main Ratios | ||||
| Current | 2.76 | 5.09 | 0.82 | 2.34 |
| Quick | 2.76 | 5.09 | 0.82 | 1.12 |
| Total Debt to Total Assets | 60.45% | 44.99% | 83.24% | 57.63% |
| Pre-tax Return on Net Worth | 18.83% | 67.54% | -195.37% | 4.01% |
| Pre-tax Return on Assets | 7.45% | 37.15% | -32.74% | 9.46% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 3.13% | 11.62% | -10.28% | n.a |
| Return on Equity | 13.18% | 47.28% | -195.37% | n.a |
| Activity Ratios | ||||
| Accounts Payable Turnover | 8.01 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 29 | 22 | n.a |
| Total Asset Turnover | 1.67 | 2.24 | 3.18 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 1.53 | 0.82 | 4.97 | n.a |
| Current Liab. to Liab. | 0.23 | 0.24 | 0.26 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $38,348 | $95,149 | ($9,323) | n.a |
| Interest Coverage | 20.08 | 11.82 | -6.06 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.60 | 0.45 | 0.31 | n.a |
| Current Debt/Total Assets | 14% | 11% | 21% | n.a |
| Acid Test | 2.76 | 5.09 | 0.82 | n.a |
| Sales/Net Worth | 4.21 | 4.07 | 19.00 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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