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.
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.
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.
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.
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.
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.
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.