Timely Trucking will establish its business with three trucks and a launch financed by the owner and investor’s equity. Starting debt-free will enable the business to take on debt once it has established cash flows to purchase additional trucks over the first three years. Profits will swing positive in the second year after a loss in the first year.
After the first three years, the business can sustain growth of at least three additional trucks per year, and begin to add additional bases of operation throughout the region so that truck drivers who do not live in the Portland area can be hired and trucks do not have to return to this base after all jobs.
Dividends will not be paid out, as cash will be used in the business to prepare for expansion to additional offices and purchase equipment on better terms going forward. After five years of operation, the business will seek a strategic sale to a national freight trucking operator for which Timely Trucking’s geographic and technological focus will be a good match.
Start-up Funding
Jim Kerrigan will provide the majority of start-up funding out of savings from the sale of his previous business. Additional investment will be from investing partners who will be granted 20% of shares in the business for their investment.
Start-up Funding
Start-up Expenses to Fund
$63,000
Start-up Assets to Fund
$660,000
Total Funding Required
$723,000
Assets
Non-cash Assets from Start-up
$570,000
Cash Requirements from Start-up
$90,000
Additional Cash Raised
$0
Cash Balance on Starting Date
$90,000
Total Assets
$660,000
Liabilities and Capital
Liabilities
Current Borrowing
$5,000
Long-term Liabilities
$0
Accounts Payable (Outstanding Bills)
$0
Other Current Liabilities (interest-free)
$0
Total Liabilities
$5,000
Capital
Planned Investment
Jim Kerrigan
$500,000
Investors
$218,000
Additional Investment Requirement
$0
Total Planned Investment
$718,000
Loss at Start-up (Start-up Expenses)
($63,000)
Total Capital
$655,000
Total Capital and Liabilities
$660,000
Total Funding
$723,000
Important Assumptions
The business assumes the cost of fuel at an average of the past two years, slightly higher than today’s fuel prices. This is considered a conservative estimate as it is possible that fuel will stay below this number during at least part of the start-up phase. However, if fuel becomes significantly more expensive, the gross margins of the business will drop.
Break-even Analysis
The break even point is shown in the table and chart, below.
Break-even Analysis
Monthly Units Break-even
52,272
Monthly Revenue Break-even
$75,608
Assumptions:
Average Per-Unit Revenue
$1.45
Average Per-Unit Variable Cost
$0.66
Estimated Monthly Fixed Cost
$40,869
Projected Profit and Loss
Major expenses include:
Payroll: Covers the management, staff, and truck driver wages (when not directly attributed to jobs)
Marketing/Promotion: Projected higher in the first year and then dropping due to extra marketing devoted to the launch and the weaning off of search engine marketing over time
Depreciation: Reflects the growing investment in trucks and equipment over the years. Trucks are depreciated on a 10 year straight-line schedule. The depreciation is $1,250 per month per truck or $1,458 per month including the additional equipment purchased with each truck. The business will grow from four trucks at the end of year 1 to six at the end of year 2 to eight at the end of year 3.
Truck Maintenance/Repair: Estimated at $200 per month per truck to start and rising to $225 in year 3 due to aging of some of the first trucks purchased.
Rent & Utilities: Projected to rise slightly due to inflationary increases
Insurance: Will grow with the number of trucks and size of operations
Payroll Taxes: Applied to payroll as listed and half of the direct cost of sales (truck driver wages)
Licensing and Permitting: Include ongoing renewals of licenses and additional licenses for new trucks as they are purchased
The business expects a net loss in the first year as operations and sales scale up appropriately. Net profits will begin in the second year.
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
$868,180
$1,453,712
$2,354,980
Direct Cost of Sales
$398,890
$615,976
$945,170
Other Costs of Sales
$0
$0
$0
Total Cost of Sales
$398,890
$615,976
$945,170
Gross Margin
$469,290
$837,736
$1,409,810
Gross Margin %
54.05%
57.63%
59.87%
Expenses
Payroll
$197,961
$260,000
$290,000
Marketing/Promotion
$102,000
$80,000
$100,000
Depreciation
$59,334
$89,952
$124,944
Truck Maintenance/Repair
$7,800
$12,000
$18,900
Rent
$36,000
$37,800
$39,690
Utilities
$3,600
$3,780
$3,969
Insurance
$12,000
$18,000
$25,000
Payroll Taxes
$59,611
$85,198
$114,388
Licenses and Permitting
$8,000
$10,000
$10,000
Web Hosting and Development
$4,125
$7,200
$7,560
Total Operating Expenses
$490,431
$603,930
$734,451
Profit Before Interest and Taxes
($21,141)
$233,806
$675,359
EBITDA
$38,193
$323,758
$800,303
Interest Expense
$3,889
$21,975
$35,250
Taxes Incurred
$0
$63,549
$192,033
Net Profit
($25,030)
$148,282
$448,077
Net Profit/Sales
-2.88%
10.20%
19.03%
Projected Cash Flow
Purchases of new trucks will be made with 3 year loans for 90% of the purchase price. The remaining $25,000 plus $25,000 in additional equipment (forklift, etc) for each purchase will be made in cash. Payments on these loans will be $3,750 per month, per truck loan for the life of the loans.
One additional truck will be purchased in the first year with a loan, two in the second year, and two in the third year.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Cash Received
Cash from Operations
Cash Sales
$217,045
$363,428
$588,745
Cash from Receivables
$531,566
$1,009,642
$1,642,109
Subtotal Cash from Operations
$748,611
$1,373,070
$2,230,854
Additional Cash Received
Sales Tax, VAT, HST/GST Received
$69,454
$116,297
$188,398
New Current Borrowing
$0
$0
$0
New Other Liabilities (interest-free)
$0
$0
$0
New Long-term Liabilities
$135,000
$270,000
$270,000
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
$953,065
$1,759,367
$2,689,252
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations
Cash Spending
$197,961
$260,000
$290,000
Bill Payments
$568,192
$944,669
$1,447,865
Subtotal Spent on Operations
$766,154
$1,204,669
$1,737,865
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out
$69,454
$116,297
$188,398
Principal Repayment of Current Borrowing
$2,000
$3,000
$0
Other Liabilities Principal Repayment
$0
$0
$0
Long-term Liabilities Principal Repayment
$7,500
$90,000
$180,000
Purchase Other Current Assets
$0
$0
$0
Purchase Long-term Assets
$175,000
$350,000
$350,000
Dividends
$0
$0
$0
Subtotal Cash Spent
$1,020,108
$1,763,966
$2,456,264
Net Cash Flow
($67,043)
($4,599)
$232,988
Cash Balance
$22,957
$18,358
$251,346
Projected Balance Sheet
The balance sheet illustrates the launch of the business on equity financing and augmented by safe debt over its first three years of operation to purchase additional trucks. This will allow cash and assets, as well as net worth, to continue to grow.
Retained earnings will be negative due to the loss sustained in the first year of operation and the start-up phase, but will move closer to positive in the third year after a profitable second year.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Assets
Current Assets
Cash
$22,957
$18,358
$251,346
Accounts Receivable
$119,570
$200,212
$324,339
Other Current Assets
$20,000
$20,000
$20,000
Total Current Assets
$162,527
$238,570
$595,685
Long-term Assets
Long-term Assets
$725,000
$1,075,000
$1,425,000
Accumulated Depreciation
$59,334
$149,286
$274,230
Total Long-term Assets
$665,666
$925,714
$1,150,770
Total Assets
$828,193
$1,164,284
$1,746,455
Liabilities and Capital
Year 1
Year 2
Year 3
Current Liabilities
Accounts Payable
$67,723
$78,532
$122,627
Current Borrowing
$3,000
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$70,723
$78,532
$122,627
Long-term Liabilities
$127,500
$307,500
$397,500
Total Liabilities
$198,223
$386,032
$520,127
Paid-in Capital
$718,000
$718,000
$718,000
Retained Earnings
($63,000)
($88,030)
$60,252
Earnings
($25,030)
$148,282
$448,077
Total Capital
$629,970
$778,252
$1,226,328
Total Liabilities and Capital
$828,193
$1,164,284
$1,746,455
Net Worth
$629,970
$778,252
$1,226,328
Business Ratios
The ratios of the business are compared to General Freight/Long-Distance Trucking for businesses of $1 million to $5 million in revenues.
Ratio Analysis
Year 1
Year 2
Year 3
Industry Profile
Sales Growth
n.a.
67.44%
62.00%
-0.08%
Percent of Total Assets
Accounts Receivable
14.44%
17.20%
18.57%
28.96%
Other Current Assets
2.41%
1.72%
1.15%
28.54%
Total Current Assets
19.62%
20.49%
34.11%
58.36%
Long-term Assets
80.38%
79.51%
65.89%
41.64%
Total Assets
100.00%
100.00%
100.00%
100.00%
Current Liabilities
8.54%
6.75%
7.02%
34.65%
Long-term Liabilities
15.39%
26.41%
22.76%
34.50%
Total Liabilities
23.93%
33.16%
29.78%
69.15%
Net Worth
76.07%
66.84%
70.22%
30.85%
Percent of Sales
Sales
100.00%
100.00%
100.00%
100.00%
Gross Margin
54.05%
57.63%
59.87%
59.90%
Selling, General & Administrative Expenses
56.94%
47.43%
40.84%
15.68%
Advertising Expenses
11.75%
5.50%
4.25%
0.24%
Profit Before Interest and Taxes
-2.44%
16.08%
28.68%
4.09%
Main Ratios
Current
2.30
3.04
4.86
1.36
Quick
2.30
3.04
4.86
1.34
Total Debt to Total Assets
23.93%
33.16%
29.78%
69.15%
Pre-tax Return on Net Worth
-3.97%
27.22%
52.20%
42.38%
Pre-tax Return on Assets
-3.02%
18.19%
36.65%
13.08%
Additional Ratios
Year 1
Year 2
Year 3
Net Profit Margin
-2.88%
10.20%
19.03%
n.a
Return on Equity
-3.97%
19.05%
36.54%
n.a
Activity Ratios
Accounts Receivable Turnover
5.45
5.45
5.45
n.a
Collection Days
43
54
54
n.a
Accounts Payable Turnover
9.39
12.17
12.17
n.a
Payment Days
27
28
25
n.a
Total Asset Turnover
1.05
1.25
1.35
n.a
Debt Ratios
Debt to Net Worth
0.31
0.50
0.42
n.a
Current Liab. to Liab.
0.36
0.20
0.24
n.a
Liquidity Ratios
Net Working Capital
$91,804
$160,038
$473,058
n.a
Interest Coverage
-5.44
10.64
19.16
n.a
Additional Ratios
Assets to Sales
0.95
0.80
0.74
n.a
Current Debt/Total Assets
9%
7%
7%
n.a
Acid Test
0.61
0.49
2.21
n.a
Sales/Net Worth
1.38
1.87
1.92
n.a
Dividend Payout
0.00
0.00
0.00
n.a
Valuation
The valuation of the business after three years is estimated at an average between two methods of valuation, based on an earnings multiple and based on a sales multiple. Both methods yield similar results. The average valuation is $4.53 million.
Investors will be given 20% of shares for their capital contribution. Kerrigan will be given 46% for his capital contribution and 34% for his contribution as founder. Investors will see a 63% internal rate of return based on this valuation.
The market value of the business will be determined after five years, when the business is best poised for sale. The valuation of the business is expected to be between $10 and $15 million for a strategic sale to a national trucking operator at that point.
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