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Our biggest savings of the year
Emerald Driving Range
Financial Plan
The financial plan contains these essential factors:
- A growth rate in sales of 5% for the year 2005, to $786,000 in total revenues.
- An average sales per business day (340 days per year) in excess of $2,300.
Difficulties and Risks:
- Slow sales resulting in less-than projected cash flow.
- A parallel entry into the market by another competitor.
- Unexpected cost increases compared with the forecasted sales.
7.1 Important Assumptions
The following assumptions will determine the potential for future success.
- A healthy economy that supports a moderate level of growth in our market.
- The ability to maintain at least a 5% growth each year.
- Keeping operating costs low, particularly in the area of personnel and ongoing monthly expenses.
| General Assumptions | |||
| Year 1 | Year 2 | Year 3 | |
| Plan Month | 1 | 2 | 3 |
| Current Interest Rate | 8.00% | 8.00% | 8.00% |
| Long-term Interest Rate | 7.50% | 7.50% | 7.50% |
| Tax Rate | 28.17% | 28.00% | 28.17% |
| Other | 0 | 0 | 0 |
7.2 Break-even Analysis
The following chart and table summarize our break-even analysis. We don’t really expect to reach break-even until a few months into the business operation. We will be charging $4.00 for a bucket of balls and we speculate that if for every two buckets of balls purchased we sell one drink at a cost of $2.00 we will have an average cost per unit of 25%.
| Break-even Analysis | |
| Monthly Revenue Break-even | $43,860 |
| Assumptions: | |
| Average Percent Variable Cost | 6% |
| Estimated Monthly Fixed Cost | $41,242 |
7.3 Projected Profit and Loss
The following represents the projected profit and loss for Emerald Driving Range based on sales and expense projections for 2004 and beyond.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $725,223 | $786,034 | $852,341 |
| Direct Cost of Sales | $43,289 | $45,454 | $47,726 |
| Other Costs of Sales | $0 | $0 | $0 |
| Total Cost of Sales | $43,289 | $45,454 | $47,726 |
| Gross Margin | $681,934 | $740,581 | $804,615 |
| Gross Margin % | 94.03% | 94.22% | 94.40% |
| Expenses | |||
| Payroll | $348,000 | $407,925 | $472,973 |
| Sales and Marketing and Other Expenses | $12,000 | $17,000 | $27,000 |
| Depreciation | $1,704 | $1,714 | $1,714 |
| Rent | $48,000 | $36,000 | $36,000 |
| Utilities | $12,000 | $13,000 | $13,000 |
| Insurance | $12,000 | $13,000 | $13,000 |
| Payroll Taxes | $52,200 | $61,189 | $70,946 |
| Other | $9,000 | $10,000 | $11,000 |
| Total Operating Expenses | $494,904 | $559,828 | $645,633 |
| Profit Before Interest and Taxes | $187,030 | $180,753 | $158,982 |
| EBITDA | $188,734 | $182,467 | $160,696 |
| Interest Expense | $0 | $0 | $0 |
| Taxes Incurred | $51,964 | $50,611 | $44,780 |
| Net Profit | $135,066 | $130,142 | $114,202 |
| Net Profit/Sales | 18.62% | 16.56% | 13.40% |
7.4 Projected Cash Flow
The cash flow projections are outlined below. Again, these projections are based on our basic assumptions with revenue generation factors carrying the most significant weight regarding the outcome.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $725,223 | $786,034 | $852,341 |
| Cash from Receivables | $0 | $0 | $0 |
| Subtotal Cash from Operations | $725,223 | $786,034 | $852,341 |
| 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 | $725,223 | $786,034 | $852,341 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $348,000 | $407,925 | $472,973 |
| Bill Payments | $227,159 | $239,307 | $262,039 |
| Subtotal Spent on Operations | $575,159 | $647,232 | $735,012 |
| 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 | $0 | $0 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $40,000 | $40,000 |
| Subtotal Cash Spent | $575,159 | $687,232 | $775,012 |
| Net Cash Flow | $150,064 | $98,802 | $77,329 |
| Cash Balance | $190,064 | $288,866 | $366,196 |
7.5 Projected Balance Sheet
Emerald Driving Range’s balance sheet is outlined below.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $190,064 | $288,866 | $366,196 |
| Accounts Receivable | $0 | $0 | $0 |
| Other Current Assets | $0 | $0 | $0 |
| Total Current Assets | $190,064 | $288,866 | $366,196 |
| Long-term Assets | |||
| Long-term Assets | $27,000 | $27,000 | $27,000 |
| Accumulated Depreciation | $1,704 | $3,418 | $5,132 |
| Total Long-term Assets | $25,296 | $23,582 | $21,868 |
| Total Assets | $215,360 | $312,448 | $388,064 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $13,294 | $20,240 | $21,654 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $13,294 | $20,240 | $21,654 |
| Long-term Liabilities | $0 | $0 | $0 |
| Total Liabilities | $13,294 | $20,240 | $21,654 |
| Paid-in Capital | $130,000 | $130,000 | $130,000 |
| Retained Earnings | ($63,000) | $32,066 | $122,208 |
| Earnings | $135,066 | $130,142 | $114,202 |
| Total Capital | $202,066 | $292,208 | $366,410 |
| Total Liabilities and Capital | $215,360 | $312,448 | $388,064 |
| Net Worth | $202,066 | $292,208 | $366,410 |
7.6 Business Ratios
Business Ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7999-0202 Driving Ranges are shown for comparison. The following will enable us to keep on track. If we fail in any of these areas, we will need to re-evaluate our business model.
- Gross margins at or above 80%.
- Month-to-month annual comparisons indicate an increase of 5% or greater.
- Do not depend on a credit line to meet cash requirements.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 8.39% | 8.44% | 5.73% |
| Percent of Total Assets | ||||
| Accounts Receivable | 0.00% | 0.00% | 0.00% | 7.08% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 33.26% |
| Total Current Assets | 88.25% | 92.45% | 94.36% | 43.21% |
| Long-term Assets | 11.75% | 7.55% | 5.64% | 56.79% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 6.17% | 6.48% | 5.58% | 21.91% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 28.81% |
| Total Liabilities | 6.17% | 6.48% | 5.58% | 50.72% |
| Net Worth | 93.83% | 93.52% | 94.42% | 49.28% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 94.03% | 94.22% | 94.40% | 100.00% |
| Selling, General & Administrative Expenses | 75.46% | 77.66% | 80.97% | 76.43% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 2.77% |
| Profit Before Interest and Taxes | 25.79% | 23.00% | 18.65% | 1.89% |
| Main Ratios | ||||
| Current | 14.30 | 14.27 | 16.91 | 1.18 |
| Quick | 14.30 | 14.27 | 16.91 | 0.80 |
| Total Debt to Total Assets | 6.17% | 6.48% | 5.58% | 61.12% |
| Pre-tax Return on Net Worth | 92.56% | 61.86% | 43.39% | 1.76% |
| Pre-tax Return on Assets | 86.85% | 57.85% | 40.97% | 4.52% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 18.62% | 16.56% | 13.40% | n.a |
| Return on Equity | 66.84% | 44.54% | 31.17% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 0.00 | 0.00 | 0.00 | n.a |
| Collection Days | 0 | 0 | 0 | n.a |
| Accounts Payable Turnover | 18.09 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 25 | 29 | n.a |
| Total Asset Turnover | 3.37 | 2.52 | 2.20 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.07 | 0.07 | 0.06 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $176,770 | $268,626 | $344,542 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.30 | 0.40 | 0.46 | n.a |
| Current Debt/Total Assets | 6% | 6% | 6% | n.a |
| Acid Test | 14.30 | 14.27 | 16.91 | n.a |
| Sales/Net Worth | 3.59 | 2.69 | 2.33 | n.a |
| Dividend Payout | 0.00 | 0.31 | 0.35 | n.a |