JTB's financial plan is based on raising $225,000 by way of private equity to develop the Integrated Technologies Division of the corporation. To maintain Gross Margins of 36% or better, the Integrated Technologies division will develop, market and support P.C.-based industrial sales applications and marketing portals.These products will be developed in conjunction with input from our Industrial Sales, and Products and Services divisions, using our other divisions as a model and test bed. Our unique customer applications will help to speed the quotation and purchasing process of our 300,000 industrial products offered in our industrial divisions catalogs.
In just over one year, the Integrated Technologies Division will fully implement a large-scale Internet and catalog-based marketing program to develop its client base both locally and nationally.
We expect this division to show a net loss in the first two years, which will help to offset taxes on profits made by the other two divisions at the JTB Technologies level. The infrastructure built by this division will serve as a critical part of the daily operations of JTB Industrial Sales and JTB Products and Services beginning in month six. Given these benefits to the overall corporation, the long lead-time necessary for full software development is a worthwhile investment.
Important elements that will impact the financial plan include:
- How quickly the Industrial Sales division can pull its operations together, as this division will be situated within the same location as the other divisions. Management will have to develop and cross-train its sales teams as quickly as possible.
- While management is putting a lot of emphasis on the Internet based sales and marketing, we will initially implement a solid direct marketing plan with ads in many industrial magazines and websites.
- Although the business is a start-up company, the financial plan is solidly based on other software and application developers' business profiles and cost structures. We have eliminated some corporate overhead expenses, such as warehouse and administrative costs, inventory penalties, and corporate nominal interest, as this division will carry only 1/3 of many of the normal operating expenses once established.
With all these factors considered, this division is capable of developing $443,000 in sales by year 5 of the plan. With tough financial planning, these financial goals will be fully realized when all aspects of the business divisions are in place, functioning as a complete corporation.
8.1 Important Assumptions
This plan is one part of a multi-division business plan providing details of each business segment for more accurate projections. For full forecasts, see the main plan (JTB Technologies, Inc.), which shows the overall development of the business in its entirety. Key assumptions around which we have developed this plan are as follows:
- Current business, banking, and economic trends continue to be stable.
- Customer buying trends and orders remain strong.
- Overhead and other external operating costs grow as projected.
- External outsourced costs grow as anticipated.
- Internet buying trends continue to grow in the industrial sector.
Note 8.1.1 Management has selected a quality networked accounting system with capabilities of having multiple businesses running while still offering full consolidation of the business for accounting purposes. This system is complete with project management capabilities and budgeting. As such, management will implement a budgeted approach for the projects while adjusting costs in JTB's favor wherever possible.
All Profit and Loss forecasts in this plan include only the projections for the Industrial Products and Services Division . We suggest that each plan is reviewed, as each is quite different.
8.2 Break-even Analysis
As a start-up software firm, JTB Integrated Technologies will not reach break-even until year 3, although we will control costs to maintain a positive cash balance with the initial funding throughout the first two years.
The initial goal is to bring the subscription based products and services to market within 10 months, and to fully develop the linked websites for affiliate development in the first year. We will also offer numerous well accepted industrial software products for resale. What will set JTB apart from the other industrial entities is its ability for flexibility, expansion, and its individual divisions with key individuals all under one roof targeting each market segment JTB will pursue.
With this in mind, the goal is to build a solid base for the corporation with our primary products and services while continuing the development phase of our distribution software.
8.3 Projected Profit and Loss
Please be sure to read note 8.1.1 in the Important Assumptions, section 8.1 regarding our Accounting system and methodology.
The Projected Profit and Loss table takes into consideration all of the basic operating expenses for the Integrated Technologies Division only. When management produced the table, we would have preferred to project a softer startup with more of a gradual expense growth as we added equipment and services. However, in software and Web development, up-front research and development expenses are significant. The plan does show a full depreciation schedule of relevant long-term assets.
One consideration not included in the Profit and Loss statement is the burden of management, and management's output. Please remember when you do review the P&L, that the 3 JTB divisions will actually be operating under one roof; as such, management's role will be to fill in, in all areas of production wherever needed to complete orders. Jeremy Mitchell will have primary management oversight ni the Integrated Technologies Division.
The Profit and Loss statement, below, includes an additional direct cost of sales in the fees paid to a contracted Graphic Designer, who will work with our developers to create the "look" of the software application UI and the JTB websites. We will keep this graphic artist on retainer to provide updates as we develop new and more customized versions of the software, and as we update the look and functionality of the website over the next five years.
8.4 Projected Cash Flow
JTB's projected cash flow reflects the business' position to repay the initial investors and the long-term loan. Please remember when you review this table, it is for the Integrated Technologies Division only. This division will operate at a loss for the first two years in order to build a solid, integrated software package to support the other divisions and to serve as the basis for future customized software and hosting for outside clients.
As the cash flow projects only the base products described in the business plan, it's highly probable JTB will be involved with more outsourced products in years 2 thru 5 furthering our potential profitability. After initial decreases due to development lead-time, the cash position shows strong positive growth.
The Cash Flow table reflects one possible exit strategy for initial investors. Early in year three, as the business is becoming profitable with a stabilized software offering, we may seek a second round of outside investment and pay out our initial investors, with a $70,000 increase over the initial investment. We are confident that we can achieve this buy-out rate given the desperate need for software such as ours, the benefit of which will be proven after the first two years.
Please review section 8.1 regarding the Important Assumptions to get a better feel for the explained projected cash flow.
8.5 Projected Balance Sheet
JTB Integrated Technologies's projected Balance Sheet shows the expected decrease in asset values (including cash reserves) over the two years, as we build, test, and establish our products and services. Once sales begin to pick up, we will make up this loss, reaching a strong net worth in year five.
8.6 Business Ratios
JTB's business ratios are compared to standard industry ratios for the Business-Oriented Computer Software industry. Our ratios differ in some areas, as the industry profiles most likely reflect a complete business with a full overhead. Our ratios are lighter in overhead and assets, as most of the heavy assets are in our Industrial Products and Services Division, and are not shown in this division's balance sheet.
Our sales growth is substantially greater as we are adding new products and services each year to the plan, and our average Gross Margins reflect the time and expense invested up-front in the development of many of our products. Overall, we feel our ratios are better than the industry as we have maximized our marketing budgets and marketing avenues while keeping costs in check. Further maximization comes in the form of training the sales staff on maintaining profit-per-order levels when processing orders. Our unique order processing makes for streamlined repeat ordering by customers, further allowing our staff to process orders more efficiently, while reducing the internal costs.
8.7 Long-term Plan
JTB's Integrated Technologies Divisions long term plan has been projected out to a 10 year review to highlight the businesses long term results, and the added potential of the channel partnerships. Additionally, the fourth and fifth year cash position can be shown for pay-out analysis of the initial investors, this plan also give a much better equity picture.
- Gross Sales over $600,000 by year 8 of this plan.
- Gross Margins over $270,000 by year 5 of this plan.
- Net Income over $100,000 by year 5 of this plan.
- Current Assets back up over $200,000 by year 5 of the plan.
- Equity of over $260,000 by year 8 of this plan.