Trestle Creek Cabinets
Financial Plan
Below are the initial financial goals for the company:
- Obtain an operating line of credit from a financial institution.
- Finance growth through retained earnings.
- Operate on a 25-30% gross margin.
The financial plan for Trestle Creek Cabinets is outlined in the following sections.
7.1 Important Assumptions
The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions.
| General Assumptions | |||
| Year 1 | Year 2 | Year 3 | |
| 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 | 16.25% | 15.00% | 16.25% |
| Other | 0 | 0 | 0 |
7.2 Break-even Analysis
As the business settles in and start-up/showroom costs are met, average monthly operating costs will increase and then stabilize. The average per unit price is for a 24″ base unit. This table shows we need to sell 16 units or 32 lineal feet of cabinets a month to break even.
| Break-even Analysis | |
| Monthly Revenue Break-even | $38,806 |
| Assumptions: | |
| Average Percent Variable Cost | 68% |
| Estimated Monthly Fixed Cost | $12,327 |
7.3 Projected Profit and Loss
Our projected profit and loss is shown in the following table.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $442,000 | $1,000,000 | $1,500,000 |
| Direct Cost of Sales | $301,600 | $725,000 | $1,087,500 |
| Other | $0 | $0 | $0 |
| Total Cost of Sales | $301,600 | $725,000 | $1,087,500 |
| Gross Margin | $140,400 | $275,000 | $412,500 |
| Gross Margin % | 31.76% | 27.50% | 27.50% |
| Expenses | |||
| Payroll | $78,000 | $157,000 | $195,000 |
| Sales and Marketing and Other Expenses | $45,680 | $44,600 | $61,000 |
| Depreciation | $0 | $0 | $0 |
| Utilities | $3,000 | $4,000 | $5,000 |
| Insurance | $1,140 | $1,300 | $1,500 |
| Rent | $8,400 | $9,000 | $12,000 |
| Payroll Taxes | $11,700 | $23,550 | $29,250 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $147,920 | $239,450 | $303,750 |
| Profit Before Interest and Taxes | ($7,520) | $35,550 | $108,750 |
| EBITDA | ($7,520) | $35,550 | $108,750 |
| Interest Expense | $4,000 | $3,336 | $1,937 |
| Taxes Incurred | $0 | $4,832 | $17,357 |
| Net Profit | ($11,520) | $27,382 | $89,456 |
| Net Profit/Sales | -2.61% | 2.74% | 5.96% |
7.4 Projected Cash Flow
We do not expect to have major problems with cash flow as most of our contracts will require a 50% deposit upon signing.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $110,500 | $250,000 | $375,000 |
| Cash from Receivables | $281,813 | $687,272 | $1,068,792 |
| Subtotal Cash from Operations | $392,313 | $937,272 | $1,443,792 |
| 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 | $392,313 | $937,272 | $1,443,792 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $78,000 | $157,000 | $195,000 |
| Bill Payments | $349,852 | $774,249 | $1,182,673 |
| Subtotal Spent on Operations | $427,852 | $931,249 | $1,377,673 |
| 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 | $13,289 | $14,681 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $427,852 | $944,538 | $1,392,354 |
| Net Cash Flow | ($35,539) | ($7,266) | $51,438 |
| Cash Balance | $53,759 | $46,494 | $97,932 |
7.5 Projected Balance Sheet
The balance sheet shows a healthy growth of net worth and a strong financial position.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $53,759 | $46,494 | $97,932 |
| Accounts Receivable | $49,688 | $112,415 | $168,623 |
| Other Current Assets | $14,478 | $14,478 | $14,478 |
| Total Current Assets | $117,925 | $173,387 | $281,033 |
| Long-term Assets | |||
| Long-term Assets | $0 | $0 | $0 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $0 | $0 | $0 |
| Total Assets | $117,925 | $173,387 | $281,033 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $25,668 | $67,037 | $99,908 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $25,668 | $67,037 | $99,908 |
| Long-term Liabilities | $40,000 | $26,711 | $12,030 |
| Total Liabilities | $65,668 | $93,748 | $111,938 |
| Paid-in Capital | $88,419 | $88,419 | $88,419 |
| Retained Earnings | ($24,642) | ($36,162) | ($8,780) |
| Earnings | ($11,520) | $27,382 | $89,456 |
| Total Capital | $52,257 | $79,639 | $169,095 |
| Total Liabilities and Capital | $117,925 | $173,387 | $281,033 |
| Net Worth | $52,257 | $79,639 | $169,095 |
7.6 Business Ratios
The following table contains important ratios for the woodworking industry, as determined by the Standard Industry Classification (SIC) Code, #1751, .
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 126.24% | 50.00% | 7.90% |
| Percent of Total Assets | ||||
| Accounts Receivable | 42.13% | 64.83% | 60.00% | 35.00% |
| Other Current Assets | 12.28% | 8.35% | 5.15% | 30.30% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 71.50% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 28.50% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 21.77% | 38.66% | 35.55% | 42.70% |
| Long-term Liabilities | 33.92% | 15.41% | 4.28% | 14.30% |
| Total Liabilities | 55.69% | 54.07% | 39.83% | 57.00% |
| Net Worth | 44.31% | 45.93% | 60.17% | 43.00% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 31.76% | 27.50% | 27.50% | 31.60% |
| Selling, General & Administrative Expenses | 34.37% | 24.76% | 21.45% | 16.70% |
| Advertising Expenses | 1.27% | 0.80% | 1.00% | 0.50% |
| Profit Before Interest and Taxes | -1.70% | 3.56% | 7.25% | 3.40% |
| Main Ratios | ||||
| Current | 4.59 | 2.59 | 2.81 | 1.64 |
| Quick | 4.59 | 2.59 | 2.81 | 1.28 |
| Total Debt to Total Assets | 55.69% | 54.07% | 39.83% | 57.00% |
| Pre-tax Return on Net Worth | -22.04% | 40.45% | 63.17% | 7.50% |
| Pre-tax Return on Assets | -9.77% | 18.58% | 38.01% | 17.40% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | -2.61% | 2.74% | 5.96% | n.a |
| Return on Equity | -22.04% | 34.38% | 52.90% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 6.67 | 6.67 | 6.67 | n.a |
| Collection Days | 58 | 39 | 46 | n.a |
| Accounts Payable Turnover | 14.63 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 21 | 25 | n.a |
| Total Asset Turnover | 3.75 | 5.77 | 5.34 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 1.26 | 1.18 | 0.66 | n.a |
| Current Liab. to Liab. | 0.39 | 0.72 | 0.89 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $92,257 | $106,350 | $181,125 | n.a |
| Interest Coverage | -1.88 | 10.66 | 56.14 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.27 | 0.17 | 0.19 | n.a |
| Current Debt/Total Assets | 22% | 39% | 36% | n.a |
| Acid Test | 2.66 | 0.91 | 1.13 | n.a |
| Sales/Net Worth | 8.46 | 12.56 | 8.87 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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