West Pacific Marketing
Financial Plan
The financial picture is quite encouraging. West Pacific Marketing Consultants does not foresee a debt situation.
The company does expect to be able to take some money out as dividends. The owners don’t take overly generous salaries, so some draw is appropriate.
7.1 Important Assumptions
The accompanying table lists West Pacific Marketing Consultants’ main assumptions for developing its financial projections. The most sensitive assumption is the collection days. West Pacific Marketing Consultants would like to improve collection days to take pressure off of its working capital.
| General Assumptions | |||||
| 2001 | 2002 | 2003 | 2004 | 2005 | |
| Plan Month | 1 | 2 | 3 | 4 | 5 |
| Current Interest Rate | 9.00% | 9.00% | 9.00% | 9.00% | 9.00% |
| Long-term Interest Rate | 9.00% | 9.00% | 9.00% | 9.00% | 9.00% |
| Tax Rate | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% |
| Other | 0 | 0 | 0 | 0 | 0 |
7.2 Business Ratios
The following table presents significant business ratios for West Pacific Marketing Consultants. The last column, Industry Profiles, contains ratios based on the management consulting services industry, as defined by the Standard Industry Classification (SIC) Index code 8742.
| Ratio Analysis | ||||||
| 2001 | 2002 | 2003 | 2004 | 2005 | Industry Profile | |
| Sales Growth | 9.76% | 20.00% | 20.00% | 20.00% | 20.00% | 8.60% |
| Percent of Total Assets | ||||||
| Accounts Receivable | 9.13% | 6.82% | 5.61% | 4.86% | 4.36% | 24.40% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 46.70% |
| Total Current Assets | 93.28% | 95.82% | 97.14% | 97.93% | 98.45% | 74.90% |
| Long-term Assets | 6.72% | 4.18% | 2.86% | 2.07% | 1.55% | 25.10% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 3.75% | 2.92% | 2.40% | 2.09% | 1.88% | 42.80% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 17.20% |
| Total Liabilities | 3.75% | 2.92% | 2.40% | 2.09% | 1.88% | 60.00% |
| Net Worth | 96.25% | 97.08% | 97.60% | 97.91% | 98.12% | 40.00% |
| Percent of Sales | ||||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 80.18% | 80.18% | 80.18% | 80.18% | 80.18% | 0.00% |
| Selling, General & Administrative Expenses | 36.08% | 35.14% | 34.28% | 33.49% | 32.77% | 83.50% |
| Advertising Expenses | 1.27% | 1.27% | 1.27% | 1.27% | 1.27% | 1.20% |
| Profit Before Interest and Taxes | 58.80% | 60.05% | 61.20% | 62.25% | 63.21% | 2.60% |
| Main Ratios | ||||||
| Current | 24.86 | 32.86 | 40.41 | 46.87 | 52.42 | 1.59 |
| Quick | 24.86 | 32.86 | 40.41 | 46.87 | 52.42 | 1.26 |
| Total Debt to Total Assets | 3.75% | 2.92% | 2.40% | 2.09% | 1.88% | 60.00% |
| Pre-tax Return on Net Worth | 67.44% | 51.02% | 42.51% | 37.35% | 33.93% | 4.40% |
| Pre-tax Return on Assets | 64.91% | 49.54% | 41.49% | 36.57% | 33.29% | 10.90% |
| Additional Ratios | 2001 | 2002 | 2003 | 2004 | 2005 | |
| Net Profit Margin | 44.10% | 45.04% | 45.90% | 46.69% | 47.41% | n.a |
| Return on Equity | 50.58% | 38.27% | 31.88% | 28.01% | 25.45% | n.a |
| Activity Ratios | ||||||
| Accounts Receivable Turnover | 6.04 | 6.04 | 6.04 | 6.04 | 6.04 | n.a |
| Collection Days | 59 | 55 | 55 | 55 | 55 | n.a |
| Accounts Payable Turnover | 12.61 | 12.17 | 12.17 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 27 | 27 | 27 | 27 | n.a |
| Total Asset Turnover | 1.10 | 0.82 | 0.68 | 0.59 | 0.53 | n.a |
| Debt Ratios | ||||||
| Debt to Net Worth | 0.04 | 0.03 | 0.02 | 0.02 | 0.02 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||||
| Net Working Capital | $1,686,804 | $2,810,931 | $4,185,741 | $5,863,735 | $7,908,464 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | ||||||
| Assets to Sales | 0.91 | 1.21 | 1.48 | 1.70 | 1.90 | n.a |
| Current Debt/Total Assets | 4% | 3% | 2% | 2% | 2% | n.a |
| Acid Test | 22.42 | 30.52 | 38.08 | 44.54 | 50.10 | n.a |
| Sales/Net Worth | 1.15 | 0.85 | 0.69 | 0.60 | 0.54 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | n.a |
7.3 Break-even Analysis
The following chart and table summarize the break-even analysis, including monthly units and sales break-even points.
| Break-even Analysis | |
| Monthly Revenue Break-even | $46,214 |
| Assumptions: | |
| Average Percent Variable Cost | 20% |
| Estimated Monthly Fixed Cost | $37,053 |
7.4 Projected Profit and Loss
The detailed monthly pro-forma income statement for the first year is included in the appendix. The annual estimates are included here.
| Pro Forma Profit and Loss | |||||
| 2001 | 2002 | 2003 | 2004 | 2005 | |
| Sales | $2,080,000 | $2,496,000 | $2,995,200 | $3,594,240 | $4,313,088 |
| Direct Cost of Sales | $412,320 | $494,784 | $593,651 | $712,489 | $854,983 |
| Other | $0 | $0 | $0 | $0 | $0 |
| Total Cost of Sales | $412,320 | $494,784 | $593,651 | $712,489 | $854,983 |
| Gross Margin | $1,667,680 | $2,001,216 | $2,401,549 | $2,881,751 | $3,458,105 |
| Gross Margin % | 80.18% | 80.18% | 80.18% | 80.18% | 80.18% |
| Expenses | |||||
| Payroll | $271,200 | $298,320 | $328,152 | $360,967 | $397,064 |
| Sales and Marketing and Other Expenses | $85,000 | $102,000 | $122,320 | $146,784 | $176,141 |
| Depreciation | $0 | $0 | $0 | $0 | $0 |
| Leased Equipment | $0 | $0 | $0 | $0 | $0 |
| Utilities | $7,200 | $8,640 | $10,368 | $12,442 | $14,930 |
| Insurance | $2,160 | $2,592 | $3,110 | $3,732 | $4,479 |
| Office Rent | $38,400 | $46,080 | $55,296 | $66,355 | $79,626 |
| Payroll Taxes | $40,680 | $44,748 | $49,223 | $54,145 | $59,560 |
| Other | $0 | $0 | $0 | $0 | $0 |
| Total Operating Expenses | $444,640 | $502,380 | $568,469 | $644,426 | $731,799 |
| Profit Before Interest and Taxes | $1,223,040 | $1,498,836 | $1,833,080 | $2,237,325 | $2,726,306 |
| EBITDA | $1,223,040 | $1,498,836 | $1,833,080 | $2,237,325 | $2,726,306 |
| Interest Expense | $0 | $0 | $0 | $0 | $0 |
| Taxes Incurred | $305,760 | $374,709 | $458,270 | $559,331 | $681,576 |
| Net Profit | $917,280 | $1,124,127 | $1,374,810 | $1,677,994 | $2,044,729 |
| Net Profit/Sales | 44.10% | 45.04% | 45.90% | 46.69% | 47.41% |
7.5 Projected Cash Flow
Cash flow projections are critical to West Pacific Marketing Consultants’ success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month and the other representing the monthly balance. The annual cash flow figures are included below in the following chart and table. Detailed monthly numbers are included in the appendix.
| Pro Forma Cash Flow | |||||
| 2001 | 2002 | 2003 | 2004 | 2005 | |
| Cash Received | |||||
| Cash from Operations | |||||
| Cash Sales | $1,040,000 | $1,248,000 | $1,497,600 | $1,797,120 | $2,156,544 |
| Cash from Receivables | $986,355 | $1,213,583 | $1,456,300 | $1,747,560 | $2,097,072 |
| Subtotal Cash from Operations | $2,026,355 | $2,461,583 | $2,953,900 | $3,544,680 | $4,253,616 |
| Additional Cash Received | |||||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 | $0 | $0 |
| New Current Borrowing | $0 | $0 | $0 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $0 | $0 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| New Investment Received | $0 | $0 | $0 | $0 | $0 |
| Subtotal Cash Received | $2,026,355 | $2,461,583 | $2,953,900 | $3,544,680 | $4,253,616 |
| Expenditures | 2001 | 2002 | 2003 | 2004 | 2005 |
| Expenditures from Operations | |||||
| Cash Spending | $271,200 | $298,320 | $328,152 | $360,967 | $397,064 |
| Bill Payments | $825,811 | $1,056,025 | $1,274,264 | $1,533,659 | $1,845,321 |
| Subtotal Spent on Operations | $1,097,011 | $1,354,345 | $1,602,416 | $1,894,626 | $2,242,385 |
| Additional Cash Spent | |||||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $0 | $0 | $0 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $0 | $0 | $0 | $0 | $0 |
| Purchase Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 | $0 | $0 |
| Subtotal Cash Spent | $1,097,011 | $1,354,345 | $1,602,416 | $1,894,626 | $2,242,385 |
| Net Cash Flow | $929,344 | $1,107,238 | $1,351,484 | $1,650,054 | $2,011,231 |
| Cash Balance | $1,585,430 | $2,692,668 | $4,044,152 | $5,694,206 | $7,705,437 |
7.6 Projected Balance Sheet
The following balance sheet shows healthy growth of net worth, and strong financial position. The monthly estimates are included in the appendix.
| Pro Forma Balance Sheet | |||||
| 2001 | 2002 | 2003 | 2004 | 2005 | |
| Assets | |||||
| Current Assets | |||||
| Cash | $1,585,430 | $2,692,668 | $4,044,152 | $5,694,206 | $7,705,437 |
| Accounts Receivable | $172,083 | $206,500 | $247,800 | $297,360 | $356,832 |
| Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Total Current Assets | $1,757,513 | $2,899,168 | $4,291,952 | $5,991,566 | $8,062,269 |
| Long-term Assets | |||||
| Long-term Assets | $126,588 | $126,588 | $126,588 | $126,588 | $126,588 |
| Accumulated Depreciation | $0 | $0 | $0 | $0 | $0 |
| Total Long-term Assets | $126,588 | $126,588 | $126,588 | $126,588 | $126,588 |
| Total Assets | $1,884,101 | $3,025,756 | $4,418,540 | $6,118,154 | $8,188,857 |
| Liabilities and Capital | 2001 | 2002 | 2003 | 2004 | 2005 |
| Current Liabilities | |||||
| Accounts Payable | $70,709 | $88,237 | $106,211 | $127,831 | $153,805 |
| Current Borrowing | $0 | $0 | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 | $0 | $0 |
| Subtotal Current Liabilities | $70,709 | $88,237 | $106,211 | $127,831 | $153,805 |
| Long-term Liabilities | $0 | $0 | $0 | $0 | $0 |
| Total Liabilities | $70,709 | $88,237 | $106,211 | $127,831 | $153,805 |
| Paid-in Capital | $37,800 | $37,800 | $37,800 | $37,800 | $37,800 |
| Retained Earnings | $858,312 | $1,775,592 | $2,899,719 | $4,274,528 | $5,952,522 |
| Earnings | $917,280 | $1,124,127 | $1,374,810 | $1,677,994 | $2,044,729 |
| Total Capital | $1,813,392 | $2,937,519 | $4,312,328 | $5,990,322 | $8,035,052 |
| Total Liabilities and Capital | $1,884,101 | $3,025,756 | $4,418,540 | $6,118,154 | $8,188,857 |
| Net Worth | $1,813,392 | $2,937,519 | $4,312,328 | $5,990,322 | $8,035,052 |
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