The $513,000 loan that the company expects to secure shortly will help cover the start-up expenses and provide operating cash. The following sections show in detail that Kingfishers will be profitable from the beginning. Its healthy profits will be sufficient to pay back the loan and provide return to the owners with room to grow.
8.1 Start-up Funding
Our start up funding table shows a start up requirement of $577,000, which includes $556,800 of non-cash assets, $5,200 of expenses and $15,000 cash. The owners will contribute $50,000 and $14,000, respectively, to the business. As shown in the table, Kingfishers only needs $513,000 in lending to get the business going. We will repay this loan over ten years at an 8% interest rate. We would like to defer initial repayments until April of the first year, when trout fishing picks up, in order to maintain a positive cash balance. We will make up these first three months of repayments with double payments for three months in the 3rd year. The major use of loan funds will be to buy the property of the former fly fishing business we plan to revive.
|Start-up Expenses to Fund||$5,200|
|Start-up Assets to Fund||$571,800|
|Total Funding Required||$577,000|
|Non-cash Assets from Start-up||$556,800|
|Cash Requirements from Start-up||$15,000|
|Additional Cash Raised||$0|
|Cash Balance on Starting Date||$15,000|
|Liabilities and Capital|
|Accounts Payable (Outstanding Bills)||$0|
|Other Current Liabilities (interest-free)||$0|
|Additional Investment Requirement||$0|
|Total Planned Investment||$64,000|
|Loss at Start-up (Start-up Expenses)||($5,200)|
|Total Capital and Liabilities||$571,800|
8.2 Important Assumptions
The financial plan depends on important assumptions. The key underlying assumptions are:
- We assume a steady growth economy, without major recession.
- We assume that there wont be a catastrophic event such as 9-11, or that if such an event happens it won’t stop tourism.
|Year 1||Year 2||Year 3|
|Current Interest Rate||8.00%||8.00%||8.00%|
|Long-term Interest Rate||8.00%||8.00%||8.00%|
8.3 Break-even Analysis
For our break-even analysis, we assume running costs which include our full payroll, loan principal repayment, and utilities, and an estimation of other running costs. Total direct costs for the first year average include inventory, payments to outside guides, cleaning and maintenance of the lodging, and credit card fees.
The table shows that we will surpass the break-even point in the second half of the first year. As the Fishing, Hunting and Tourism business is seasonal, we plan on making the majority of our revenues during the summer and fall months, which will carry us through the beginning of the next year until the next summer season starts.
|Monthly Revenue Break-even||$16,291|
|Average Percent Variable Cost||49%|
|Estimated Monthly Fixed Cost||$8,236|
8.4 Projected Profit and Loss
Our Pro Forma Profit and Loss statement was constructed from a conservative point-of-view, and is based in large part on past performance of the business under its former owner. By improving on the retail store and adding fresh ideas and spirit to the sales floor we can dramatically increase sales beyond our conservative estimates. By adding other services that are not highly labor intensive, such as lodging, to the business we can greatly increase revenue without greatly increasing costs. By strengthening our service position, and rebuilding our customer relationships, we will widen our customer base and increase sales.
Non-inventory costs of sales listed below include payments to the independently-contracted guides, license fees, credit card fees, and cleaning and maintenance on the cabins.
Despite the seasonal nature of the business, we expect to generate a small profit in the first year, based on the past performance of the business, as backed up by tax statements, and on a modest increase in sales from the remodeling and new revenue streams. We expect second year profits to dip slightly as we increase payroll to include Brassy Nymph and hire additional part-time employees. Month-to-month projections for Profit and Loss are included in the appendix.
|Pro Forma Profit and Loss|
|Year 1||Year 2||Year 3|
|Direct Cost of Sales||$66,172||$73,835||$83,652|
|Independant Guide Cost||$21,840||$40,800||$51,000|
|License Funds going back to state||$26,600||$28,200||$29,700|
|Credit Card Fees||$1,460||$2,011||$2,311|
|Lodging – cleaning and maintenance||$20,160||$20,160||$23,040|
|Total Cost of Sales||$136,232||$165,006||$189,703|
|Gross Margin %||50.56%||48.72%||48.69%|
|Total Operating Expenses||$60,360||$85,760||$96,760|
|Profit Before Interest and Taxes||$78,933||$71,022||$83,260|
8.5 Projected Cash Flow
The cash flow table and chart, below, shows our cash position during the first 6 months of the year until the summer tourist and fishing season starts, based on receiving the full amount of funding requested. The table also shows our planned repayment of the loan principal, on the terms outlined in the Start-up Funding table. May shows a near shortage of cash, but we believe that this is more due to our conservative forecasting than a real danger. The beginning of summer shows a decisive increase in cash, and is typical in a business such as this, where the total year’s earning are made in a season of about 5 months.
We have projected to end the year with enough cash to make it through the winter and spring of 2006 and to start the season in a good position. Based on this, we project our cash flows will increase steadily over the coming years, allowing us to improve our inventory, and increase our revenue-producing assets, such as cabins for lodging. We believe these cash flow projections are realistic, if not slightly conservative.
|Pro Forma Cash Flow|
|Year 1||Year 2||Year 3|
|Cash from Operations|
|Subtotal Cash from Operations||$275,525||$321,788||$369,723|
|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||$275,525||$321,788||$369,723|
|Expenditures||Year 1||Year 2||Year 3|
|Expenditures from Operations|
|Subtotal Spent on Operations||$233,869||$266,451||$301,945|
|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||$38,475||$52,000||$64,825|
|Purchase Other Current Assets||$0||$0||$0|
|Purchase Long-term Assets||$0||$0||$0|
|Subtotal Cash Spent||$272,344||$318,451||$366,770|
|Net Cash Flow||$3,181||$3,337||$2,953|
8.6 Projected Balance Sheet
Our Balance Sheet shows that we have planned for and expect steady growth in the business. Notice that our net worth is growing year by year, and that even in the first year we can show a profit. We fully expect to be able to fulfill all debt obligations easily. We will continue to take a conservative approach in our expectations and reinvest any profit that is above and beyond our forecasts. By doing this, we will be able to not only expand our holdings and improve our position, but we will be able to attract more customers and clients, leading to more revenue and a continued cycle of growth.
|Pro Forma Balance Sheet|
|Year 1||Year 2||Year 3|
|Other Current Assets||$6,400||$6,400||$6,400|
|Total Current Assets||$126,410||$135,912||$145,213|
|Total Long-term Assets||$437,340||$422,280||$407,220|
|Liabilities and Capital||Year 1||Year 2||Year 3|
|Other Current Liabilities||$0||$0||$0|
|Subtotal Current Liabilities||$3,002||$24,846||$47,476|
|Total Liabilities and Capital||$563,750||$558,192||$552,433|
8.7 Business Ratios
The company’s projected business ratios are provided in the table below. The final column, Industry Profile, shows significant ratios for the Retail Fishing Equipment and Supplies Industry, with the Standard Industry Classification (SIC) Code of 5091.03.
Please note the comparisons with our Gross Margin ratios as ours are significantly higher than the industry standard, as is our Profit before Interest ratio. Our high gross margin comes of an intimate knowledge of the inventory needs of a fly shop in this town, based on our own expertise and the advise of the previous owner, and on our plan to increase sales with high-margin items like the cabins, and food and beverage options.
Our Debt to Assets ratio is showing higher than the industry standard, but we expect that to level out and then surpass the standard in 6-7 years.
|Year 1||Year 2||Year 3||Industry Profile|
|Percent of Total Assets|
|Other Current Assets||1.14%||1.15%||1.16%||27.04%|
|Total Current Assets||22.42%||24.35%||26.29%||90.39%|
|Percent of Sales|
|Selling, General & Administrative Expenses||40.60%||41.08%||38.84%||19.58%|
|Profit Before Interest and Taxes||28.65%||22.07%||22.52%||1.83%|
|Total Debt to Total Assets||84.71%||80.15%||73.34%||52.38%|
|Pre-tax Return on Net Worth||45.44%||31.71%||35.35%||3.78%|
|Pre-tax Return on Assets||6.95%||6.30%||9.42%||7.95%|
|Additional Ratios||Year 1||Year 2||Year 3|
|Net Profit Margin||9.95%||7.64%||9.85%||n.a|
|Return on Equity||31.80%||22.20%||24.74%||n.a|
|Accounts Payable Turnover||69.52||9.50||5.57||n.a|
|Total Asset Turnover||0.49||0.58||0.67||n.a|
|Debt to Net Worth||5.54||4.04||2.75||n.a|
|Current Liab. to Liab.||0.01||0.06||0.12||n.a|
|Net Working Capital||$123,408||$111,066||$97,737||n.a|
|Assets to Sales||2.05||1.73||1.49||n.a|
|Current Debt/Total Assets||1%||4%||9%||n.a|