Southeast Health Plans
Financial Plan
The financial plan for rapid, but controlled growth for Southeast Health Plans, Inc. is presented in detail in the following sections.
Initial capitalization (after $300 thousand founder’s seed funding) is pegged at $1 million (with cash streaming in from April through September).
The company will be debt free at that point (barring any interim management decisions to accelerate growth further). The company will also have significant IPO potential in the future and/or be an acquisition candidate in an industry that traditionally undergoes consolidation.
7.1 Important Assumptions
The financial assumptions upon which this plan is based are outlined in the following table:
| 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 | 8.00% | 8.00% | 8.00% |
| Tax Rate | 33.00% | 33.00% | 33.00% |
| Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
Key financial indicators are increasing sales volume coupled with maintenance and improvement of margins. On-going cost control is paramount to success.
7.3 Break-even Analysis
Monthly break-even, based upon fixed initial market overheads, will be attained prior to the end of year two.
Cost control and market maturation will then accelerate profitability which increases disproportionately as market development costs are offset with a critical mass of baseline business in each new market.
| Break-even Analysis | |
| Monthly Revenue Break-even | $72,637 |
| Assumptions: | |
| Average Percent Variable Cost | 20% |
| Estimated Monthly Fixed Cost | $58,291 |
7.4 Projected Profit and Loss
Southeast Health Plans, Inc. projects over-all profitability in year three.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $288,599 | $1,399,223 | $3,067,966 |
| Direct Cost of Sales | $57,000 | $201,000 | $427,500 |
| Other Costs of Sales | $0 | $0 | $0 |
| Total Cost of Sales | $57,000 | $201,000 | $427,500 |
| Gross Margin | $231,599 | $1,198,223 | $2,640,466 |
| Gross Margin % | 80.25% | 85.63% | 86.07% |
| Expenses | |||
| Payroll | $441,492 | $757,000 | $981,000 |
| Marketing/Promotion | $180,000 | $288,000 | $456,000 |
| Depreciation | $0 | $0 | $0 |
| Rent | $30,000 | $90,000 | $120,000 |
| Telephone/Utilities | $12,000 | $24,000 | $30,000 |
| Payroll Taxes | $0 | $0 | $0 |
| Contract/Consultants | $36,000 | $0 | $0 |
| Total Operating Expenses | $699,492 | $1,159,000 | $1,587,000 |
| Profit Before Interest and Taxes | ($467,893) | $39,223 | $1,053,466 |
| EBITDA | ($467,893) | $39,223 | $1,053,466 |
| Interest Expense | $0 | $0 | $0 |
| Taxes Incurred | $0 | $12,944 | $347,644 |
| Net Profit | ($467,893) | $26,279 | $705,822 |
| Net Profit/Sales | -162.13% | 1.88% | 23.01% |
7.5 Projected Cash Flow
Cash flow is the most critical indicator of business success.
At no point does our business model run out of cash. Significant margin for error is included. Initial and second round investment is procured prior to need and allowing for potential time lag to close.
All future growth is based upon a debt-free internally funded model. Attainment of targeted sales revenues will ensure the accumulation of required cash to execute expansion plans as presented.
Plans can always be curtailed or postponed in the event of future sales shortfalls.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $288,599 | $1,399,223 | $3,067,966 |
| Subtotal Cash from Operations | $288,599 | $1,399,223 | $3,067,966 |
| 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 | $1,000,000 | $0 | $0 |
| Subtotal Cash Received | $1,288,599 | $1,399,223 | $3,067,966 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $441,492 | $757,000 | $981,000 |
| Bill Payments | $286,967 | $593,351 | $1,318,251 |
| Subtotal Spent on Operations | $728,459 | $1,350,351 | $2,299,251 |
| 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 | $0 | $0 |
| Subtotal Cash Spent | $728,459 | $1,350,351 | $2,299,251 |
| Net Cash Flow | $560,140 | $48,872 | $768,715 |
| Cash Balance | $832,640 | $881,512 | $1,650,227 |
7.6 Projected Balance Sheet
Projected Balance Sheet follows.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $832,640 | $881,512 | $1,650,227 |
| Other Current Assets | $0 | $0 | $0 |
| Total Current Assets | $832,640 | $881,512 | $1,650,227 |
| Long-term Assets | |||
| Long-term Assets | $0 | $0 | $0 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $0 | $0 | $0 |
| Total Assets | $832,640 | $881,512 | $1,650,227 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $28,033 | $50,626 | $113,519 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $28,033 | $50,626 | $113,519 |
| Long-term Liabilities | $0 | $0 | $0 |
| Total Liabilities | $28,033 | $50,626 | $113,519 |
| Paid-in Capital | $1,300,000 | $1,300,000 | $1,300,000 |
| Retained Earnings | ($27,500) | ($495,393) | ($469,114) |
| Earnings | ($467,893) | $26,279 | $705,822 |
| Total Capital | $804,607 | $830,886 | $1,536,709 |
| Total Liabilities and Capital | $832,640 | $881,512 | $1,650,227 |
| Net Worth | $804,607 | $830,886 | $1,536,709 |
7.7 Business Ratios
These business ratios are only partially relevant as long as the business is able to remain debt free. Industry profile ratios based on the Standard Industrial Classification (SIC) code 6411, Insurance Agencies and Brokerages, are shown for comparison.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 384.83% | 119.26% | 3.95% |
| Percent of Total Assets | ||||
| Other Current Assets | 0.00% | 0.00% | 0.00% | 93.54% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 93.54% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 6.46% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 3.37% | 5.74% | 6.88% | 35.88% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 9.61% |
| Total Liabilities | 3.37% | 5.74% | 6.88% | 45.49% |
| Net Worth | 96.63% | 94.26% | 93.12% | 54.51% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 80.25% | 85.63% | 86.07% | 100.00% |
| Selling, General & Administrative Expenses | 242.38% | 83.76% | 63.06% | 59.40% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 1.23% |
| Profit Before Interest and Taxes | -162.13% | 2.80% | 34.34% | 6.74% |
| Main Ratios | ||||
| Current | 29.70 | 17.41 | 14.54 | 1.91 |
| Quick | 29.70 | 17.41 | 14.54 | 1.64 |
| Total Debt to Total Assets | 3.37% | 5.74% | 6.88% | 54.69% |
| Pre-tax Return on Net Worth | -58.15% | 4.72% | 68.55% | 7.55% |
| Pre-tax Return on Assets | -56.19% | 4.45% | 63.84% | 16.65% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | -162.13% | 1.88% | 23.01% | n.a |
| Return on Equity | -58.15% | 3.16% | 45.93% | n.a |
| Activity Ratios | ||||
| Accounts Payable Turnover | 11.24 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 23 | 22 | n.a |
| Total Asset Turnover | 0.35 | 1.59 | 1.86 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.03 | 0.06 | 0.07 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $804,607 | $830,886 | $1,536,709 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 2.89 | 0.63 | 0.54 | n.a |
| Current Debt/Total Assets | 3% | 6% | 7% | n.a |
| Acid Test | 29.70 | 17.41 | 14.54 | n.a |
| Sales/Net Worth | 0.36 | 1.68 | 2.00 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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