RA Concepts
Financial Plan
We do not expect Cash flow to be a problem. Since initial sales (first 6 months) will not cover expenses, we have budgeted a cash reserve to take us through the first year, and have additional resources for short-term, no-interest loans if necessary. We expect to generate a profit within the first six months, and even with this conservative forecast, we expect modest profits in the second year.
We plan to pace growth slowly at first until we have a larger, more stable cash balance. RA Concepts’ growth is based on internal financial resources.
7.1 Important Assumptions
- 100% of sales are on credit, with collection days for Receivables at 60.
- Payment days for Accounts Payable at 30.
- No unforeseen changes in technology to make our products obsolete.
- Only moderate increases or decreases in our raw material costs over time.
- A 5% annual raise in prices, typical for the golfing industry.
Due to the initial limited production in comparison to the market size, RA Concepts assumes that even a slow-growth economy will not affect our plan for the next five years.
RA Concepts assumes no substantial increases in our material costs, given the recent history of those supplies. In addition, as we buy raw materials in greater quantities in years 2 and 3, we should start to see economies of scale.
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 | 6.00% | 6.00% | 6.00% |
Tax Rate | 30.00% | 30.00% | 30.00% |
Other | 0 | 0 | 0 |
7.2 Break-even Analysis
RA Concepts’ break-even analysis is based on the average of the first-year figures for total sales, costs, and operating expenses. Our variable cost here consists of inventory (raw materials). We expect to surpass the break-even point by July.

Break-even Analysis | |
Monthly Revenue Break-even | $11,862 |
Assumptions: | |
Average Percent Variable Cost | 28% |
Estimated Monthly Fixed Cost | $8,517 |
7.3 Projected Profit and Loss
As the profit and loss table shows, RA Concepts forecasts steady growth in profitability over the next three years of operations. We show increased R&D costs in years 2 and 3 because putters are constantly changing; we expect feedback from customers and special requests to generate ideas for new designs, and we expect customers to show continued interest in the “newest,” most up to date designs over existing ones.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $177,425 | $305,053 | $335,557 |
Direct Cost of Sales | $50,034 | $86,603 | $95,259 |
Other Costs of Goods | $0 | $0 | $0 |
Total Cost of Sales | $50,034 | $86,603 | $95,259 |
Gross Margin | $127,391 | $218,450 | $240,298 |
Gross Margin % | 71.80% | 71.61% | 71.61% |
Expenses | |||
Payroll | $58,819 | $63,654 | $70,689 |
Sales and Marketing and Other Expenses | $17,900 | $19,360 | $21,296 |
Depreciation | $1,200 | $1,100 | $1,100 |
Rent | $13,200 | $12,100 | $12,100 |
Research and Development | $4,000 | $10,000 | $12,000 |
Equipment Maintenance and Repair | $0 | $5,000 | $8,500 |
Utilities | $4,380 | $4,416 | $4,857 |
Insurance | $1,200 | $1,100 | $1,100 |
Payroll Taxes | $0 | $0 | $0 |
Other | $1,500 | $1,512 | $1,663 |
Total Operating Expenses | $102,199 | $118,242 | $133,305 |
Profit Before Interest and Taxes | $25,192 | $100,208 | $106,993 |
EBITDA | $26,392 | $101,308 | $108,093 |
Interest Expense | $6,489 | $5,655 | $4,785 |
Taxes Incurred | $5,611 | $28,366 | $30,662 |
Net Profit | $13,093 | $66,187 | $71,546 |
Net Profit/Sales | 7.38% | 21.70% | 21.32% |
7.4 Projected Cash Flow
The table presents our projected cash flow balances. The critical first year reflects positive cash flow. Monthly cash balances are positive, which indicates adequate financial reserves and correct planning for the required working capital. The estimated results permit a margin of error and still appear strong, even though the numbers remain conservative. We expect that the low cash balance in the final month of the first year will be offset by spring sales to retailers in the next month. We do not plan to collect dividends until the fourth year.
The following chart shows the cash availability for the next 12 months. The bar labeled “Cash Balance” shows our projected cash balance for the first 12 months of the project. The second set of bars, labeled “Net Cash Flow”, indicates the change in the Cash Balance for each month.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $0 | $0 | $0 |
Cash from Receivables | $128,939 | $270,176 | $327,221 |
Subtotal Cash from Operations | $128,939 | $270,176 | $327,221 |
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 | $128,939 | $270,176 | $327,221 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $58,819 | $63,654 | $70,689 |
Bill Payments | $72,830 | $173,380 | $191,356 |
Subtotal Spent on Operations | $131,649 | $237,034 | $262,045 |
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 | $14,500 | $14,500 | $14,500 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $0 | $0 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $146,149 | $251,534 | $276,545 |
Net Cash Flow | ($17,209) | $18,642 | $50,676 |
Cash Balance | $6,281 | $24,923 | $75,599 |
7.5 Projected Balance Sheet
Our projected Balance Sheet shows a steadily increasing net worth, as we pay off loans and increase production over the first three years. Even with these conservative estimates, our balances are good.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $6,281 | $24,923 | $75,599 |
Accounts Receivable | $48,486 | $83,363 | $91,699 |
Inventory | $7,780 | $7,251 | $7,976 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $62,547 | $115,537 | $175,274 |
Long-term Assets | |||
Long-term Assets | $62,160 | $62,160 | $62,160 |
Accumulated Depreciation | $1,200 | $2,300 | $3,400 |
Total Long-term Assets | $60,960 | $59,860 | $58,760 |
Total Assets | $123,507 | $175,397 | $234,034 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $14,064 | $14,267 | $15,859 |
Current Borrowing | $0 | $0 | $0 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $14,064 | $14,267 | $15,859 |
Long-term Liabilities | $101,500 | $87,000 | $72,500 |
Total Liabilities | $115,564 | $101,267 | $88,359 |
Paid-in Capital | $10,000 | $10,000 | $10,000 |
Retained Earnings | ($15,150) | ($2,057) | $64,130 |
Earnings | $13,093 | $66,187 | $71,546 |
Total Capital | $7,943 | $74,130 | $145,675 |
Total Liabilities and Capital | $123,507 | $175,397 | $234,034 |
Net Worth | $7,943 | $74,130 | $145,675 |
7.6 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification for the Sporting Goods Manufacturing industry (SIC code 3069).
Our technological advances allow us to waste less raw material during production, changing ratios related to inventory. Our asset and liability structure is comparable to industry standards, but we are a smaller company than most golf club manufacturers, and the industry comparison is very broad – across all equipment categories. The ratios table shows an important steady increase in working capital, a a reasonable net profit margin for all years.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 71.93% | 10.00% | 8.66% |
Percent of Total Assets | ||||
Accounts Receivable | 39.26% | 47.53% | 39.18% | 30.00% |
Inventory | 6.30% | 4.13% | 3.41% | 23.04% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 22.61% |
Total Current Assets | 50.64% | 65.87% | 74.89% | 75.65% |
Long-term Assets | 49.36% | 34.13% | 25.11% | 24.35% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 11.39% | 8.13% | 6.78% | 37.93% |
Long-term Liabilities | 82.18% | 49.60% | 30.98% | 14.30% |
Total Liabilities | 93.57% | 57.74% | 37.75% | 52.23% |
Net Worth | 6.43% | 42.26% | 62.25% | 47.77% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 71.80% | 71.61% | 71.61% | 22.53% |
Selling, General & Administrative Expenses | 26.12% | 0.00% | 0.00% | 5.73% |
Advertising Expenses | 0.00% | 0.00% | 0.00% | 0.36% |
Profit Before Interest and Taxes | 14.20% | 32.85% | 31.89% | 2.95% |
Main Ratios | ||||
Current | 4.45 | 8.10 | 11.05 | 1.88 |
Quick | 3.89 | 7.59 | 10.55 | 1.19 |
Total Debt to Total Assets | 93.57% | 57.74% | 37.75% | 53.00% |
Pre-tax Return on Net Worth | 235.49% | 127.55% | 70.16% | 4.52% |
Pre-tax Return on Assets | 15.14% | 53.91% | 43.67% | 9.61% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 7.38% | 21.70% | 21.32% | n.a |
Return on Equity | 164.84% | 89.29% | 49.11% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 3.66 | 3.66 | 3.66 | n.a |
Collection Days | 56 | 79 | 95 | n.a |
Inventory Turnover | 4.31 | 11.52 | 12.51 | n.a |
Accounts Payable Turnover | 6.18 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 30 | 28 | n.a |
Total Asset Turnover | 1.44 | 1.74 | 1.43 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 14.55 | 1.37 | 0.61 | n.a |
Current Liab. to Liab. | 0.12 | 0.14 | 0.18 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $48,483 | $101,270 | $159,416 | n.a |
Interest Coverage | 3.88 | 17.72 | 22.36 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.70 | 0.57 | 0.70 | n.a |
Current Debt/Total Assets | 11% | 8% | 7% | n.a |
Acid Test | 0.45 | 1.75 | 4.77 | n.a |
Sales/Net Worth | 22.34 | 4.12 | 2.30 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |