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Financial Plan

Our financial plan is based on our overall strategy of new market development. We will cut our margins from 40% to 30% to increase our appeal to a wider audience. With lower prices, we must rely on online marketing efforts and local jewelers to maintain and enhance the prestige of our brand.

8.1 Important Assumptions

Our assumption is based on the historical 20% annual sales growth since 2002. This is a rather conservative sales projection. As we expand our categories and revamp the technology, in addition to building a stronger image brand, we expect a higher growth percentage during three years of operation.

8.2 Key Financial Indicators

We will decrease our gross margin from 40% in previous years to 30% of all loose diamond sales, to boost sales volume. As mentioned in a previous chapter, we purchased a large amount of loose diamonds directly from our network of diamond cutters with 30 days collection days. Based on our estimated operating expense monthly, we expect to generate more sales to cover our fixed expenses.

Diamond retailer business plan, financial plan chart image

8.3 Projected Profit and Loss

Our estimated Net Profit for 2006 and 2007 is presented in the accompanying table and charts.

Diamond retailer business plan, financial plan chart image

Diamond retailer business plan, financial plan chart image

Diamond retailer business plan, financial plan chart image

Diamond retailer business plan, financial plan chart image

Pro Forma Profit and Loss
2006 2007 2008
Sales $5,360,000 $6,432,000 $7,716,900
Direct Cost of Sales $3,752,000 $4,502,800 $5,400,400
Other Costs of Sales $138,600 $166,400 $199,600
Total Cost of Sales $3,890,600 $4,669,200 $5,600,000
Gross Margin $1,469,400 $1,762,800 $2,116,900
Gross Margin % 27.41% 27.41% 27.43%
Expenses
Payroll $546,799 $546,800 $546,800
Marketing/Promotion $48,000 $48,000 $48,000
Depreciation $0 $0 $0
Rent @ Brannan Street $36,000 $36,000 $36,000
Utilities @ Brannan Street $4,200 $4,200 $4,200
Warehouse Utilities $7,200 $7,200 $7,200
Payroll Taxes $0 $0 $0
Warehouse Rent $72,000 $72,000 $72,000
Web Hosting $480 $480 $480
Database Maintainence $100 $100 $100
Shipping $30,000 $30,000 $30,000
Total Operating Expenses $744,779 $744,780 $744,780
Profit Before Interest and Taxes $724,621 $1,018,020 $1,372,120
EBITDA $724,621 $1,018,020 $1,372,120
Interest Expense $0 $0 $0
Taxes Incurred $217,386 $305,406 $411,636
Net Profit $507,234 $712,614 $960,484
Net Profit/Sales 9.46% 11.08% 12.45%

8.4 Break-even Analysis

With monthly fixed costs and variable costs, the table and chart below show what we need to sell in diamonds each month to break even. We are well past the break-even point, even with these lower margins.

Diamond retailer business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $206,883
Assumptions:
Average Percent Variable Cost 70%
Estimated Monthly Fixed Cost $62,065

8.5 Projected Cash Flow

Our projected cash flow is outlined in the following chart and table.

Diamond retailer business plan, financial plan chart image

Pro Forma Cash Flow
2006 2007 2008
Cash Received
Cash from Operations
Cash Sales $5,360,000 $6,432,000 $7,716,900
Subtotal Cash from Operations $5,360,000 $6,432,000 $7,716,900
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 $0 $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 $5,360,000 $6,432,000 $7,716,900
Expenditures 2006 2007 2008
Expenditures from Operations
Cash Spending $546,799 $546,800 $546,800
Bill Payments $3,791,764 $5,151,736 $6,198,175
Subtotal Spent on Operations $4,338,563 $5,698,536 $6,744,975
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 $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $4,338,563 $5,698,536 $6,744,975
Net Cash Flow $1,021,437 $733,464 $971,925
Cash Balance $3,308,437 $4,041,902 $5,013,827

8.6 Projected Balance Sheet

The table below outlines the projected balance sheet.

Pro Forma Balance Sheet
2006 2007 2008
Assets
Current Assets
Cash $3,308,437 $4,041,902 $5,013,827
Inventory $312,667 $375,233 $450,033
Other Current Assets $30,000 $30,000 $30,000
Total Current Assets $3,651,104 $4,447,135 $5,493,860
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $3,651,104 $4,447,135 $5,493,860
Liabilities and Capital 2006 2007 2008
Current Liabilities
Accounts Payable $346,869 $430,287 $516,527
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $346,869 $430,287 $516,527
Long-term Liabilities $0 $0 $0
Total Liabilities $346,869 $430,287 $516,527
Paid-in Capital $1,500,000 $1,500,000 $1,500,000
Retained Earnings $1,297,000 $1,804,234 $2,516,848
Earnings $507,234 $712,614 $960,484
Total Capital $3,304,234 $4,016,848 $4,977,332
Total Liabilities and Capital $3,651,104 $4,447,135 $5,493,860
Net Worth $3,304,234 $4,016,848 $4,977,332

8.7 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5999.15, Diamonds, Gems and Precious Stones.

Ratio Analysis
2006 2007 2008 Industry Profile
Sales Growth 34.23% 20.00% 19.98% 6.95%
Percent of Total Assets
Inventory 8.56% 8.44% 8.19% 35.78%
Other Current Assets 0.82% 0.67% 0.55% 21.61%
Total Current Assets 100.00% 100.00% 100.00% 89.85%
Long-term Assets 0.00% 0.00% 0.00% 10.15%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 9.50% 9.68% 9.40% 29.22%
Long-term Liabilities 0.00% 0.00% 0.00% 8.75%
Total Liabilities 9.50% 9.68% 9.40% 37.97%
Net Worth 90.50% 90.32% 90.60% 62.03%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 27.41% 27.41% 27.43% 19.18%
Selling, General & Administrative Expenses 17.95% 16.33% 14.99% 8.17%
Advertising Expenses 0.00% 0.00% 0.00% 0.93%
Profit Before Interest and Taxes 13.52% 15.83% 17.78% 2.22%
Main Ratios
Current 10.53 10.34 10.64 2.80
Quick 9.62 9.46 9.76 1.48
Total Debt to Total Assets 9.50% 9.68% 9.40% 45.68%
Pre-tax Return on Net Worth 21.93% 25.34% 27.57% 5.98%
Pre-tax Return on Assets 19.85% 22.89% 24.98% 11.00%
Additional Ratios 2006 2007 2008
Net Profit Margin 9.46% 11.08% 12.45% n.a
Return on Equity 15.35% 17.74% 19.30% n.a
Activity Ratios
Inventory Turnover 11.29 13.09 13.09 n.a
Accounts Payable Turnover 11.59 12.17 12.17 n.a
Payment Days 28 27 27 n.a
Total Asset Turnover 1.47 1.45 1.40 n.a
Debt Ratios
Debt to Net Worth 0.10 0.11 0.10 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $3,304,234 $4,016,848 $4,977,332 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.68 0.69 0.71 n.a
Current Debt/Total Assets 10% 10% 9% n.a
Acid Test 9.62 9.46 9.76 n.a
Sales/Net Worth 1.62 1.60 1.55 n.a
Dividend Payout 0.00 0.00 0.00 n.a