AMT Computers
Financial Plan
The most important element in the financial plan is the critical need for improving several of the key factors that impact cash flow:
- We must at any cost stop the slide in inventory turnover and develop better inventory management to bring the turnover back up to 6 turns by the third year. This should also be a function of the shift in focus towards service revenues to add to the hardware revenues.
- We must also bring the gross margin back up to 30%. This too is related to improving the mix between hardware and service revenues, because the service revenues offer much better margins.
- We plan to borrow another $100,000 long-term this year. The amount seems in line with the balance sheet capabilities.
7.1 Important Assumptions
The financial plan depends on important assumptions, most of which are shown in Table 7.1. 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 products immediately obsolete.
General Assumptions | |||
1996 | 1997 | 1998 | |
Plan Month | 1 | 2 | 3 |
Current Interest Rate | 8.00% | 8.00% | 8.00% |
Long-term Interest Rate | 8.50% | 8.50% | 8.50% |
Tax Rate | 20.18% | 20.18% | 20.18% |
Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
The Benchmark Comparison chart highlights our ambitious plans to correct declining gross margin and inventory turnover. The chart illustrates why we think the ambitious sales increases we plan are reasonable. We have had similar increases in the recent past.

7.3 Break-even Analysis
For our break-even analysis, we assume running costs which include our full payroll, rent, and utilities, and an estimation of other running costs. Payroll alone, at our present run rate, is only about $55,000. Margins are harder to assume. Our overall average is based on projections for the coming year. We hope to attain a margin that high in the future.
The chart shows how much we need to sell per month to break even, according to these assumptions.

Break-even Analysis | |
Monthly Units Break-even | 642 |
Monthly Revenue Break-even | $302,979 |
Assumptions: | |
Average Per-Unit Revenue | $471.65 |
Average Per-Unit Variable Cost | $336.91 |
Estimated Monthly Fixed Cost | $86,555 |
7.4 Projected Profit and Loss
The most important assumption in the Projected Profit and Loss statement is the gross margin, which is supposed to increase. This is up from barely 21% in the last year. The increase in gross margin is based on changing our sales mix, and it is critical. Month-by-month assumptions for profit and loss are included in the appendix.




Pro Forma Profit and Loss | |||
1996 | 1997 | 1998 | |
Sales | $6,468,634 | $7,478,250 | $9,182,740 |
Direct Cost of Sales | $4,620,673 | $5,266,450 | $6,078,104 |
Production Payroll | $139,000 | $202,500 | $203,500 |
Other Costs of Sales | $0 | $0 | $0 |
Total Cost of Sales | $4,759,673 | $5,468,950 | $6,281,604 |
Gross Margin | $1,708,961 | $2,009,300 | $2,901,136 |
Gross Margin % | 26.42% | 26.87% | 31.59% |
Operating Expenses | |||
Sales and Marketing Expenses | |||
Sales and Marketing Payroll | $344,000 | $422,000 | $486,000 |
Ads | $125,000 | $140,000 | $175,000 |
Catalog | $25,000 | $19,039 | $19,991 |
Mailing | $113,300 | $120,000 | $150,000 |
Promo | $16,000 | $20,000 | $25,000 |
Shows | $20,200 | $25,000 | $30,000 |
Literature | $7,000 | $10,000 | $12,500 |
PR | $1,000 | $1,250 | $1,500 |
Seminar | $31,000 | $45,000 | $60,000 |
Service | $10,250 | $12,000 | $15,000 |
Training | $5,400 | $7,000 | $15,000 |
Total Sales and Marketing Expenses | $698,150 | $821,289 | $989,991 |
Sales and Marketing % | 10.79% | 10.98% | 10.78% |
General and Administrative Expenses | |||
General and Administrative Payroll | $155,000 | $179,000 | $234,000 |
Marketing/Promotion | $0 | $0 | $0 |
Depreciation | $12,681 | $13,315 | $13,981 |
Leased Equipment | $30,000 | $31,500 | $33,075 |
Rent | $84,000 | $88,200 | $92,610 |
Utilities | $9,000 | $9,450 | $9,923 |
Insurance | $6,000 | $6,300 | $6,615 |
Payroll Taxes | $0 | $0 | $0 |
Other General and Administrative Expenses | $6,331 | $6,648 | $6,980 |
Total General and Administrative Expenses | $303,012 | $334,413 | $397,184 |
General and Administrative % | 4.68% | 4.47% | 4.33% |
Other Expenses: | |||
Other Payroll | $36,000 | $70,000 | $77,000 |
Contract/Consultants | $1,500 | $5,000 | $30,000 |
Other Expenses | $0 | $0 | $0 |
Total Other Expenses | $37,500 | $75,000 | $107,000 |
Other % | 0.58% | 1.00% | 1.17% |
Total Operating Expenses | $1,038,662 | $1,230,702 | $1,494,175 |
Profit Before Interest and Taxes | $670,299 | $778,598 | $1,406,961 |
EBITDA | $682,980 | $791,913 | $1,420,942 |
Interest Expense | $35,568 | $31,710 | $25,557 |
Taxes Incurred | $128,111 | $150,748 | $278,816 |
Net Profit | $506,619 | $596,140 | $1,102,588 |
Net Profit/Sales | 7.83% | 7.97% | 12.01% |
7.5 Projected Cash Flow
The cash flow depends on assumptions for inventory turnover, payment days, and accounts receivable management. Our projected 60-day collection days is not ideal, but it is realistic in this market, and hard for us to effectively change. We’re better off planning for it than ignoring it. We need significant new financing in March to get through a cash flow dip as we build up for mid-year sales.

Pro Forma Cash Flow | |||
1996 | 1997 | 1998 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $970,295 | $1,121,738 | $1,377,411 |
Cash from Receivables | $4,496,795 | $6,138,525 | $7,437,311 |
Subtotal Cash from Operations | $5,467,090 | $7,260,263 | $8,814,722 |
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 | $100,000 | $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 | $5,567,090 | $7,260,263 | $8,814,722 |
Expenditures | 1996 | 1997 | 1998 |
Expenditures from Operations | |||
Cash Spending | $674,000 | $873,500 | $1,000,500 |
Bill Payments | $4,807,920 | $6,016,976 | $7,073,860 |
Subtotal Spent on Operations | $5,481,920 | $6,890,476 | $8,074,360 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $26,000 | $32,000 | $32,000 |
Other Liabilities Principal Repayment | $0 | $0 | $0 |
Long-term Liabilities Principal Repayment | $36,709 | $40,543 | $43,989 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $0 | $0 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $5,544,629 | $6,963,019 | $8,150,349 |
Net Cash Flow | $22,461 | $297,244 | $664,373 |
Cash Balance | $77,893 | $375,137 | $1,039,509 |
7.6 Projected Balance Sheet
The Projected Balance Sheet is quite solid. We do not project any real trouble meeting our debt obligations–as long as we can achieve our specific objectives.
Pro Forma Balance Sheet | |||
1996 | 1997 | 1998 | |
Assets | |||
Current Assets | |||
Cash | $77,893 | $375,137 | $1,039,509 |
Accounts Receivable | $1,396,650 | $1,614,638 | $1,982,656 |
Inventory | $556,810 | $634,629 | $732,436 |
Other Current Assets | $25,000 | $25,000 | $25,000 |
Total Current Assets | $2,056,353 | $2,649,403 | $3,779,602 |
Long-term Assets | |||
Long-term Assets | $350,000 | $350,000 | $350,000 |
Accumulated Depreciation | $62,681 | $75,996 | $89,977 |
Total Long-term Assets | $287,319 | $274,004 | $260,023 |
Total Assets | $2,343,672 | $2,923,407 | $4,039,625 |
Liabilities and Capital | 1996 | 1997 | 1998 |
Current Liabilities | |||
Accounts Payable | $443,022 | $499,160 | $588,779 |
Current Borrowing | $64,000 | $32,000 | $0 |
Other Current Liabilities | $15,000 | $15,000 | $15,000 |
Subtotal Current Liabilities | $522,022 | $546,160 | $603,779 |
Long-term Liabilities | $348,153 | $307,610 | $263,621 |
Total Liabilities | $870,175 | $853,770 | $867,400 |
Paid-in Capital | $500,000 | $500,000 | $500,000 |
Retained Earnings | $466,878 | $973,497 | $1,569,637 |
Earnings | $506,619 | $596,140 | $1,102,588 |
Total Capital | $1,473,497 | $2,069,637 | $3,172,225 |
Total Liabilities and Capital | $2,343,672 | $2,923,407 | $4,039,625 |
Net Worth | $1,473,497 | $2,069,637 | $3,172,225 |
7.7 Business Ratios
The table follows with our main business ratios. We do intend to improve gross margin, collection days, and inventory turnover. The industry standards are taken for industry classification 5734 in the SIC code. We assume that the difference between our results and the standards is that the standards include
Ratio Analysis | ||||
1996 | 1997 | 1998 | Industry Profile | |
Sales Growth | 22.03% | 15.61% | 22.79% | 10.50% |
Percent of Total Assets | ||||
Accounts Receivable | 59.59% | 55.23% | 49.08% | 19.20% |
Inventory | 23.76% | 21.71% | 18.13% | 38.00% |
Other Current Assets | 1.07% | 0.86% | 0.62% | 20.80% |
Total Current Assets | 87.74% | 90.63% | 93.56% | 78.00% |
Long-term Assets | 12.26% | 9.37% | 6.44% | 22.00% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 22.27% | 18.68% | 14.95% | 44.60% |
Long-term Liabilities | 14.86% | 10.52% | 6.53% | 14.10% |
Total Liabilities | 37.13% | 29.20% | 21.47% | 58.70% |
Net Worth | 62.87% | 70.80% | 78.53% | 41.30% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 26.42% | 26.87% | 31.59% | 37.20% |
Selling, General & Administrative Expenses | 18.59% | 18.90% | 19.59% | 22.30% |
Advertising Expenses | 1.93% | 1.87% | 1.91% | 4.10% |
Profit Before Interest and Taxes | 10.36% | 10.41% | 15.32% | 1.50% |
Main Ratios | ||||
Current | 3.94 | 4.85 | 6.26 | 1.78 |
Quick | 2.87 | 3.69 | 5.05 | 0.75 |
Total Debt to Total Assets | 37.13% | 29.20% | 21.47% | 58.70% |
Pre-tax Return on Net Worth | 43.08% | 36.09% | 43.55% | 3.80% |
Pre-tax Return on Assets | 27.08% | 25.55% | 34.20% | 9.30% |
Additional Ratios | 1996 | 1997 | 1998 | |
Net Profit Margin | 7.83% | 7.97% | 12.01% | n.a |
Return on Equity | 34.38% | 28.80% | 34.76% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 3.94 | 3.94 | 3.94 | n.a |
Collection Days | 58 | 86 | 84 | n.a |
Inventory Turnover | 10.68 | 8.84 | 8.89 | n.a |
Accounts Payable Turnover | 11.35 | 12.17 | 12.17 | n.a |
Payment Days | 28 | 28 | 28 | n.a |
Total Asset Turnover | 2.76 | 2.56 | 2.27 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.59 | 0.41 | 0.27 | n.a |
Current Liab. to Liab. | 0.60 | 0.64 | 0.70 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $1,534,331 | $2,103,243 | $3,175,823 | n.a |
Interest Coverage | 18.85 | 24.55 | 55.05 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.36 | 0.39 | 0.44 | n.a |
Current Debt/Total Assets | 22% | 19% | 15% | n.a |
Acid Test | 0.20 | 0.73 | 1.76 | n.a |
Sales/Net Worth | 4.39 | 3.61 | 2.89 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |