Equipment Rental
Financial Plan
ER was capitalized with $5,000 when it was formed in May 1997. A strong knowledge of the area and supply and demand needs led to the formation of the company. Most items purchased to this date (truck, trailer, computer, office supplies, envelopes, and stationery) have been financed through personal funds, and a $4,000 line of credit with Hibernia Bank.
ER’s first sales placed $5,145 into the business account, most of which was used to pay off initial purchases with the balance being used for office and truck expenses such as telephone bill, postage, and fuel. As of April 1, 2000, the truck has been paid in full along with several of the smaller home use items. The company has generated sales in the amount of $52,490 with cost being $38,870 and a profit of $13,620 (97-98 Income Tax Return).
Funding Requirements and Uses
The company is seeking a loan/credit line in the amount of $300,000 for the purpose of expanding the business. Expansion plans include the purchase of additional land and construction of a larger shop/service area, increase rental inventory, and hiring of additional personnel including a mechanic and delivery driver. The table below provides a breakdown of the use of funds.
Use of Funds
|
Purchase land 25′ X 175′ on the north side of existing building |
$7,000 |
|
Erect shop area 25′ X 32′ on land w/concrete slab, office area |
$10,000 |
|
Shop equipment |
$14,000 |
|
Rental inventory |
$60,000 |
|
Consolidate regions loan, Hibernia L. O. C., current equipment purchases Bosch electric breaker, 3.0 KW generator, shop items |
$50,000 |
|
Advertising |
$7,000 |
|
Balance for working capital, employee training, office equipment modernization, maintenance inventory (i.e.: oil, air, and hydraulic filters), unforeseen building/maintenance expense |
$152,000 |
Shop equipment to include: air compressor, air tools and accessories, blow torch, welding machine and accessories, 1 1/2 ton chain hoist, oil/water separator, holding tank, assorted hand tools, washing vat, chain saw sharpener and repair accessories.
Rental inventory to include: Trash and diaphragm pumps 2 ea. 2″ and 3″, 3/4″ submersible pump and accessories, 3 hp. concrete vibrator, 2-48″ concrete power trowels, Case 580L or JD 310 Backhoe, small trailer and larger trailer, 1-ton Ford F350 or F450 Diesel delivery truck, air compressor, 90 lb. air hammer and accessories, rotovator for tractor, 1 push mower, 1 lawn tractor.
8.1 General Assumptions
The following table lists the general assumptions.
| General Assumptions | |||
| 2000 | 2001 | 2002 | |
| Plan Month | 1 | 2 | 3 |
| Current Interest Rate | 10.00% | 10.00% | 10.00% |
| Long-term Interest Rate | 10.00% | 10.00% | 10.00% |
| Tax Rate | 30.00% | 30.00% | 30.00% |
| Other | 0 | 0 | 0 |
8.2 Key Financial Indicators
The following chart shows the important benchmarks for Equipment Rental.
8.3 Break-even Analysis
The table and chart below contain the Break-even Analysis for Equipment Rental.
| Break-even Analysis | |
| Monthly Revenue Break-even | $13,981 |
| Assumptions: | |
| Average Percent Variable Cost | 16% |
| Estimated Monthly Fixed Cost | $11,684 |
8.4 Projected Profit and Loss
The Projected Profit and Loss can be seen in the following table and charts.
| Pro Forma Profit and Loss | |||
| 2000 | 2001 | 2002 | |
| Sales | $210,000 | $420,000 | $840,000 |
| Direct Cost of Sales | $34,500 | $66,000 | $162,000 |
| Other Production Expenses | $3,000 | $42,000 | $126,000 |
| Total Cost of Sales | $37,500 | $108,000 | $288,000 |
| Gross Margin | $172,500 | $312,000 | $552,000 |
| Gross Margin % | 82.14% | 74.29% | 65.71% |
| Expenses | |||
| Payroll | $57,600 | $62,610 | $73,100 |
| Sales and Marketing and Other Expenses | $14,000 | $31,000 | $82,598 |
| Depreciation | $0 | $0 | $0 |
| Supplies and equipment | $9,924 | $19,851 | $39,702 |
| Utilities | $1,602 | $2,403 | $3,604 |
| Telephone | $7,812 | $7,810 | $7,810 |
| Insurance | $14,448 | $21,688 | $32,533 |
| Repairs and Maintenance | $10,932 | $20,397 | $30,596 |
| Services | $2,832 | $2,833 | $2,833 |
| Rent | $12,420 | $12,420 | $12,420 |
| Payroll Taxes | $8,640 | $9,392 | $10,965 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $140,210 | $190,404 | $296,161 |
| Profit Before Interest and Taxes | $32,290 | $121,597 | $255,839 |
| EBITDA | $32,290 | $121,597 | $255,839 |
| Interest Expense | $29,938 | $23,065 | $18,365 |
| Taxes Incurred | $706 | $29,559 | $71,242 |
| Net Profit | $1,646 | $68,972 | $166,232 |
| Net Profit/Sales | 0.78% | 16.42% | 19.79% |
8.5 Cash Flow
The following table and chart are the Projected Cash Flow figures for Equipment Rental.
| Pro Forma Cash Flow | |||
| 2000 | 2001 | 2002 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $42,000 | $84,000 | $168,000 |
| Cash from Receivables | $157,400 | $316,400 | $632,800 |
| Subtotal Cash from Operations | $199,400 | $400,400 | $800,800 |
| Additional Cash Received | |||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
| New Current Borrowing | $149,000 | $20,000 | $20,000 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 |
| New Long-term Liabilities | $151,000 | $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 | $499,400 | $420,400 | $820,800 |
| Expenditures | 2000 | 2001 | 2002 |
| Expenditures from Operations | |||
| Cash Spending | $57,600 | $62,610 | $73,100 |
| Bill Payments | $134,408 | $274,735 | $580,262 |
| Subtotal Spent on Operations | $192,008 | $337,345 | $653,362 |
| Additional Cash Spent | |||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $45,248 | $30,000 | $60,000 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $29,100 | $19,000 | $25,000 |
| Purchase Other Current Assets | $58,000 | $2,000 | $22,000 |
| Purchase Long-term Assets | $91,000 | $4,000 | $9,000 |
| Dividends | $65,000 | $10,000 | $20,000 |
| Subtotal Cash Spent | $480,356 | $402,345 | $789,362 |
| Net Cash Flow | $19,044 | $18,055 | $31,438 |
| Cash Balance | $21,544 | $39,600 | $71,038 |
8.6 Projected Balance Sheet
ER’s projected balance sheets for 2000-2002.
| Pro Forma Balance Sheet | |||
| 2000 | 2001 | 2002 | |
| Assets | |||
| Current Assets | |||
| Cash | $21,544 | $39,600 | $71,038 |
| Accounts Receivable | $19,600 | $39,200 | $78,400 |
| Inventory | $2,000 | $3,826 | $9,391 |
| Other Current Assets | $64,000 | $66,000 | $88,000 |
| Total Current Assets | $107,144 | $148,626 | $246,829 |
| Long-term Assets | |||
| Long-term Assets | $99,000 | $103,000 | $112,000 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $99,000 | $103,000 | $112,000 |
| Total Assets | $206,144 | $251,626 | $358,829 |
| Liabilities and Capital | 2000 | 2001 | 2002 |
| Current Liabilities | |||
| Accounts Payable | $8,346 | $23,856 | $49,827 |
| Current Borrowing | $113,252 | $103,252 | $63,252 |
| Other Current Liabilities | $3,700 | $3,700 | $3,700 |
| Subtotal Current Liabilities | $125,298 | $130,808 | $116,779 |
| Long-term Liabilities | $131,900 | $112,900 | $87,900 |
| Total Liabilities | $257,198 | $243,708 | $204,679 |
| Paid-in Capital | $0 | $0 | $0 |
| Retained Earnings | ($52,700) | ($61,054) | ($12,082) |
| Earnings | $1,646 | $68,972 | $166,232 |
| Total Capital | ($51,054) | $7,918 | $154,150 |
| Total Liabilities and Capital | $206,144 | $251,626 | $358,829 |
| Net Worth | ($51,054) | $7,918 | $154,150 |
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 7359, [Equipment Rental and Leasing, nec], are shown for comparison.
| Ratio Analysis | ||||
| 2000 | 2001 | 2002 | Industry Profile | |
| Sales Growth | 110.00% | 100.00% | 100.00% | 7.07% |
| Percent of Total Assets | ||||
| Accounts Receivable | 9.51% | 15.58% | 21.85% | 27.61% |
| Inventory | 0.97% | 1.52% | 2.62% | 3.96% |
| Other Current Assets | 31.05% | 26.23% | 24.52% | 44.65% |
| Total Current Assets | 51.98% | 59.07% | 68.79% | 76.22% |
| Long-term Assets | 48.02% | 40.93% | 31.21% | 23.78% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 60.78% | 51.98% | 32.54% | 33.47% |
| Long-term Liabilities | 63.98% | 44.87% | 24.50% | 16.23% |
| Total Liabilities | 124.77% | 96.85% | 57.04% | 49.70% |
| Net Worth | -24.77% | 3.15% | 42.96% | 50.30% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 82.14% | 74.29% | 65.71% | 100.00% |
| Selling, General & Administrative Expenses | 81.36% | 57.86% | 45.92% | 84.88% |
| Advertising Expenses | 3.33% | 5.71% | 6.90% | 1.01% |
| Profit Before Interest and Taxes | 15.38% | 28.95% | 30.46% | 1.94% |
| Main Ratios | ||||
| Current | 0.86 | 1.14 | 2.11 | 1.73 |
| Quick | 0.84 | 1.11 | 2.03 | 1.33 |
| Total Debt to Total Assets | 124.77% | 96.85% | 57.04% | 57.72% |
| Pre-tax Return on Net Worth | -4.61% | 1244.37% | 154.05% | 3.77% |
| Pre-tax Return on Assets | 1.14% | 39.16% | 66.18% | 8.92% |
| Additional Ratios | 2000 | 2001 | 2002 | |
| Net Profit Margin | 0.78% | 16.42% | 19.79% | n.a |
| Return on Equity | 0.00% | 871.06% | 107.84% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 8.57 | 8.57 | 8.57 | n.a |
| Collection Days | 59 | 32 | 32 | n.a |
| Inventory Turnover | 4.44 | 22.66 | 24.51 | n.a |
| Accounts Payable Turnover | 16.03 | 12.17 | 12.17 | n.a |
| Payment Days | 29 | 20 | 22 | n.a |
| Total Asset Turnover | 1.02 | 1.67 | 2.34 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.00 | 30.78 | 1.33 | n.a |
| Current Liab. to Liab. | 0.49 | 0.54 | 0.57 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | ($18,154) | $17,818 | $130,050 | n.a |
| Interest Coverage | 1.08 | 5.27 | 13.93 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.98 | 0.60 | 0.43 | n.a |
| Current Debt/Total Assets | 61% | 52% | 33% | n.a |
| Acid Test | 0.68 | 0.81 | 1.36 | n.a |
| Sales/Net Worth | 0.00 | 53.04 | 5.45 | n.a |
| Dividend Payout | 39.49 | 0.14 | 0.12 | n.a |
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