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.
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