Home Decoration Fabrics Business Plan

Interior Views LLC

Financial Plan

This section offers a financial overview of Interior Views eBay store, our website and online marketing activities. We will address break-even information, sales forecasts, expense forecasts, and how those link to our marketing strategy. We do not have enough data to make seasonal adjustment in sales revenues at this point and we expect that the growth in sales will mitigate seasonal trends. eBay has become a mainstream retail channel, and because of its 24/365 availability, product lines which were once seasonal have become viable 12 month sellers. As our eBay store becomes established and know we expect to see our online sales grow consistently, without severe high or low spikes. This is an area that we will watch as we gather additional data, customer feedback, and experience.

The financial plan contains these essential factors:

A modest growth rate in sales for Year 1, and a commensurate increase in total revenues.
Positive sales for all 365 business days per year.
Reduce the existing credit line substantially.

<p Difficulties and Risks

Slow sales resulting in less-than-projected cash flow.
Unexpected cost increases compared with the forecasted sales.
Overly aggressive and debilitating actions by competitors.
A parallel entry by a new competitor.

Worst case risks might include:

Determining the business cannot support itself on an ongoing basis.
Having to liquidate the inventory to pay back the bank loan.
Locating a tenant to occupy the leased space for the duration of the five year lease (January of 2006).
Losing the assets of the investors used for collateral.
Dealing with the financial, business, and personal devastation of the store’s failure.

8.1 Important Assumptions

The following critical assumptions will determine the potential for future success.

A healthy economy that supports a moderate level of growth in our market.
The ability to support a healthy gross margin percentage.
Keeping operating costs low, particularly in the areas of personnel and ongoing monthly expenses.
Making wise purchases that keeps inventory at an attractive level with a high turn rate.

General Assumptions
	2005	2006	2007
Plan Month	1	2	3
Current Interest Rate	9.50%	9.50%	9.50%
Long-term Interest Rate	8.50%	8.50%	8.50%
Tax Rate	28.17%	28.00%	28.17%
Other	0	0	0

8.2 Key Financial Indicators

Marketing expenses are to be budgeted at approximately 5% of total sales. Expenses are tracked in the major marketing categories of television advertisements, newspaper advertisements, the newsletter and postcard mailings, Web marketing support, printed promotional materials, public relations, and other.

Home decoration fabrics business plan, financial plan chart image

8.3 Break-even Analysis

The Break-even Analysis below illustrates the amount of sales that we must realize to break even. This is based on the average sale and costs per transaction.

Break-even Analysis


Monthly Revenue Break-even	$21,130

Assumptions:
Average Percent Variable Cost	46%
Estimated Monthly Fixed Cost	$11,439

8.4 Projected Profit and Loss

The following represents the Projected Profit and Loss for Interior Views based on sales and expense projections for Year 1 and beyond. We are anticipating that we will need to add investment into the business in January to address cash flow concerns.

The P&L table lists the expenses we anticipate in establishing our eBay presence and store. Legal expenses will cover our initial fees with eBay, PayPal, and our business bank, and any other legal requirements, such as establishing compliance with Sarbanes-Oxley legislation.

Website development costs cover both our eBay site design as well as a freshening of our existing informational website.

In anticipation of significant sales activity we have decided to purchase additional computer hardware which will be dedicated to eBay sales fulfillment, customer database, shipping, etc.

A portion of Doug’s time will be spent doing the ramp-up marketing for the eBay store, and subsequent online marketing efforts. We want to track this carefully so we are adding those expenses in here, and ongoing expenses in the P & L table.

Fulfillment of all products sold will come from the overall Interior Views inventory. For accounting purposes, value for products sold on line will be transferred from the the main store. For planning purposes, start-up inventory value will equal two times anticipated Month 1 sales.

Pro Forma Profit and Loss
	2005	2006	2007
Sales	$490,425	$613,592	$827,541
Direct Cost of Sales	$224,934	$282,128	$352,440
Production Payroll	$12,681	$14,686	$17,123
Final Value Fees	$10,626	$16,227	$26,364
Item Fees	$5,313	$8,114	$13,182
PayPal Fees	$3,851	$5,882	$9,557
Other	$6,000	$6,600	$7,200
Total Cost of Sales	$263,405	$333,637	$425,866

Gross Margin	$227,020	$279,955	$401,675
Gross Margin %	46.29%	45.63%	48.54%

Operating Expenses

Sales and Marketing Expenses
Sales and Marketing Payroll	$20,530	$22,669	$24,892
Advertising/Promotion	$12,300	$15,500	$22,000
Travel	$3,050	$3,500	$4,000
Online Ramp-up Marketing	$2,000	$0	$0
eBay Promotion	$1,700	$2,000	$2,000
Miscellaneous	$3,120	$3,300	$3,550
Total Sales and Marketing Expenses	$42,700	$46,969	$56,442
Sales and Marketing %	8.71%	7.65%	6.82%

General and Administrative Expenses
General and Administrative Payroll	$35,840	$36,880	$37,880
Sales and Marketing and Other Expenses	$0	$0	$0
Depreciation	$2,150	$3,000	$3,000
eBay Store Fees	$600	$700	$800
Internet Access/Wesite Hosting	$780	$900	$1,200
Leased Equipment	$0	$0	$0
Utilities	$2,705	$3,000	$3,175
Insurance	$2,544	$2,750	$3,000
Rent	$34,176	$35,400	$37,680
Payroll Taxes	$8,058	$8,428	$8,811
Legal Fees for eBay Store Start-up	$1,500	$0	$0
Other General and Administrative Expenses	$0	$0	$0
Total General and Administrative Expenses	$88,353	$91,058	$95,546
General and Administrative %	18.02%	14.84%	11.55%

Other Expenses:
Other Payroll	$0	$0	$0
Consultants – Website Design	$5,000	$3,000	$3,000
Contract/Consultants	$1,212	$1,380	$1,500
Total Other Expenses	$6,212	$4,380	$4,500
Other %	1.27%	0.71%	0.54%

Total Operating Expenses	$137,265	$142,407	$156,488

Profit Before Interest and Taxes	$89,755	$137,548	$245,187
EBITDA	$91,905	$140,548	$248,187
Interest Expense	$2,407	$2,201	$1,251
Taxes Incurred	$24,636	$37,897	$68,709

Net Profit	$62,711	$97,450	$175,227
Net Profit/Sales	12.79%	15.88%	21.17%

8.5 Projected Cash Flow

The cash flow projections are outlined below. Again, these projects are based on our basic assumptions with revenue generation factors carrying the most significant weight regarding the outcome. We are anticipating that we will need to add investment into the business in January to address cash flow concerns.

As planned, our eBay store should bring in adequate revenue to cover its own expenses and bring a net increase of revenue into Interior Views. Cash flow and cash balance appear to be comfortably adequate. We have planned conservatively. However, other companies have seen tremendous growth in sales through the eBay store retail channel, and other Internet direct sales channels.

If our sales do indeed skyrocket, Interior Views will certainly need to increase inventory purchases, site maintenance, personnel, and perhaps facilities space and computer hardware.

All of this impacts expenses and cash flow/cash balance. Interior Views would then have to borrow against its bank line of credit or take out business loans to until the revenue from cash receivables/PayPal begin to flow into the company. Such borrowing would be included in the eBay store business plan and accounting records. It may be that if the growth is fast, but smoothly incremental, we will be able to accomplish the growth with the projected cash flow.

We are purchasing $7,500 of new computer hardware and upgrades to support the renovation of our website and establishment of our eBay store.

Pro Forma Cash Flow
	2005	2006	2007
Cash Received

Cash from Operations
Cash Sales	$490,425	$613,592	$827,541
Subtotal Cash from Operations	$490,425	$613,592	$827,541

Additional Cash Received
Sales Tax, VAT, HST/GST Received	$0	$0	$0
New Current Borrowing	$14,568	$0	$0
New Other Liabilities (interest-free)	$1,224	$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	$59,000	$0	$0
Subtotal Cash Received	$565,217	$613,592	$827,541

Expenditures	2005	2006	2007

Expenditures from Operations
Cash Spending	$69,051	$74,235	$79,895
Bill Payments	$206,171	$435,263	$564,703
Subtotal Spent on Operations	$275,222	$509,498	$644,598

Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	$0	$0	$0
Principal Repayment of Current Borrowing	$8,400	$10,000	$10,000
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	$7,500	$3,000	$3,000
Dividends	$0	$0	$0
Subtotal Cash Spent	$291,122	$522,498	$657,598

Net Cash Flow	$274,095	$91,094	$169,943
Cash Balance	$275,295	$366,388	$536,331

8.6 Projected Balance Sheet

Interior View’s balance sheet is outlined below.

This initial eBay store plan projects a modest return on the company’s internal investment, with full return in the third year. The cash balance is comfortable, revenue input into the company justifies the entry into this channel.

Pro Forma Balance Sheet
	2005	2006	2007
Assets

Current Assets
Cash	$275,295	$366,388	$536,331
Inventory	$19,531	$24,497	$30,602
Other Current Assets	$2,300	$2,300	$2,300
Total Current Assets	$297,126	$393,186	$569,234

Long-term Assets
Long-term Assets	$11,700	$14,700	$17,700
Accumulated Depreciation	$4,200	$7,200	$10,200
Total Long-term Assets	$7,500	$7,500	$7,500
Total Assets	$304,626	$400,686	$576,734

Liabilities and Capital	2005	2006	2007

Current Liabilities
Accounts Payable	$27,872	$36,483	$47,303
Current Borrowing	$28,168	$18,168	$8,168
Other Current Liabilities	$2,374	$2,374	$2,374
Subtotal Current Liabilities	$58,414	$57,025	$57,845

Long-term Liabilities	$0	$0	$0
Total Liabilities	$58,414	$57,025	$57,845

Paid-in Capital	$59,000	$59,000	$59,000
Retained Earnings	$124,500	$187,211	$284,661
Earnings	$62,711	$97,450	$175,227
Total Capital	$246,211	$343,661	$518,888
Total Liabilities and Capital	$304,626	$400,686	$576,734

Net Worth	$246,211	$343,661	$518,888

8.7 Business Ratios

Business Ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5949, Sewing, Needlework, and Piece Goods, 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 42%.
Month-to-month annual comparisons indicate an increase of 12% or greater.
Do not depend on the credit line to meet cash requirements.
Continue to pay down the credit line at a minimum of $24,000 per year.

Ratio Analysis
	2005	2006	2007	Industry Profile
Sales Growth	69.11%	25.11%	34.87%	5.27%

Percent of Total Assets
Inventory	6.41%	6.11%	5.31%	38.70%
Other Current Assets	0.76%	0.57%	0.40%	28.89%
Total Current Assets	97.54%	98.13%	98.70%	90.95%
Long-term Assets	2.46%	1.87%	1.30%	9.05%
Total Assets	100.00%	100.00%	100.00%	100.00%

Current Liabilities	19.18%	14.23%	10.03%	27.10%
Long-term Liabilities	0.00%	0.00%	0.00%	4.25%
Total Liabilities	19.18%	14.23%	10.03%	31.35%
Net Worth	80.82%	85.77%	89.97%	68.65%

Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	46.29%	45.63%	48.54%	20.33%
Selling, General & Administrative Expenses	40.69%	39.47%	39.16%	8.95%
Advertising Expenses	3.40%	3.76%	4.40%	1.10%
Profit Before Interest and Taxes	18.30%	22.42%	29.63%	2.03%

Main Ratios
Current	5.09	6.89	9.84	2.90
Quick	4.75	6.47	9.31	1.20
Total Debt to Total Assets	19.18%	14.23%	10.03%	37.41%
Pre-tax Return on Net Worth	35.48%	39.38%	47.01%	7.94%
Pre-tax Return on Assets	28.67%	33.78%	42.30%	12.69%

Additional Ratios	2005	2006	2007
Net Profit Margin	12.79%	15.88%	21.17%	n.a
Return on Equity	25.47%	28.36%	33.77%	n.a

Activity Ratios
Inventory Turnover	3.96	12.82	12.79	n.a
Accounts Payable Turnover	8.11	12.17	12.17	n.a
Payment Days	28	26	27	n.a
Total Asset Turnover	1.61	1.53	1.43	n.a

Debt Ratios
Debt to Net Worth	0.24	0.17	0.11	n.a
Current Liab. to Liab.	1.00	1.00	1.00	n.a

Liquidity Ratios
Net Working Capital	$238,711	$336,161	$511,388	n.a
Interest Coverage	37.28	62.49	196.00	n.a

Additional Ratios
Assets to Sales	0.62	0.65	0.70	n.a
Current Debt/Total Assets	19%	14%	10%	n.a
Acid Test	4.75	6.47	9.31	n.a
Sales/Net Worth	1.99	1.79	1.59	n.a
Dividend Payout	0.00	0.00	0.00	n.a

8.8 Financial Risks and Contingencies

Difficulties and Risks

Slow sales resulting in less-than-projected cash flow.
Unexpected and excessive cost increases compared to the forecasted sales.
Overly aggressive and debilitating actions by competitors.
A parallel entry by a new competitor.
Expansion into e-commerce via eBay store does not realize projected sales.