Rocks by Request
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.
8.3 Projected Profit and Loss
Our estimated Net Profit for 2006 and 2007 is presented in the accompanying table and charts.
| 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.
| 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.
| 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 |
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