Country Crockery
Financial Plan
This section outlines our financial goals. Our plan is to maintain a 50% gross margin and a net margin of 6-9% (after the first quarter of 2004, once barn renovations are complete). This should allow us to remain profitable and have a solid cash flows that will help us repay both our long-term loan and the no-interest loans extended by the owner’s husband, and to steadily grow the net worth of this business.
The Profit and Loss statement shows our operating expenses, including portions of the mortgage and utilities for business-only areas and usage. Our general marketing expenses are low, because most of our sales are currently being generated through personal contacts at events, and by word of mouth about our website. We are allocating roughly $500 per year for increased online marketing, which our research indicates will be sufficient for reaching our target market. We project net profit rebounding soon after property renovations are completed.
The Cash Flow shows our loan repayments, as well as money to be spent on barn renovations (as increased asset value). The long-term loans we are seeking will help us to maintain a positive Cash Balance while performing needed work on our storage area (the barn) and increasing sales.
The Balance Sheet shows our increasing net worth over the next three years, as we pay off loans, increase assets, and retain greater earnings within the business.
8.1 Important Assumptions
Our financial model is build on the following assumption:
- All capital assets are depreciated on a 10-year, straight-line basis
- No-interest loans provided by Mr. Prenuer in the total outstanding amount of $20,000 will be fully repaid within three years ($6,670 per year)
- Long-term loans at 7% interest will be repaid within 8 years.
- For cash flow planning purposes, all sales are treated as cash (no accounts receivable).
General Assumptions | |||
2004 | 2005 | 2006 | |
Plan Month | 1 | 2 | 3 |
Current Interest Rate | 6.50% | 6.50% | 6.50% |
Long-term Interest Rate | 7.00% | 7.00% | 7.00% |
Tax Rate | 30.00% | 30.00% | 30.00% |
Other | 0 | 0 | 0 |
8.2 Business Ratios
The table below summarizes our key business ratios and includes industry averages for comparison. Industry data comes from the “Gift, Novelty, and Souvenir Shops” industry (SIC Code 5947). Unlike most gift and small-art item retailers, the majority of our sales are online, so our asset and inventory ratios are unusual.
As we accumulate cash and reduce loans, our solvency ratios will significantly improve. Since the bulk of our products will be sourced after we receive customer orders, our inventory levels of most popular items will be below the industry average ranges.
Ratio Analysis | ||||
2004 | 2005 | 2006 | Industry Profile | |
Sales Growth | 49.48% | 49.57% | 21.69% | 0.24% |
Percent of Total Assets | ||||
Inventory | 11.38% | 15.97% | 16.21% | 37.46% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 22.92% |
Total Current Assets | 40.55% | 46.31% | 56.99% | 77.62% |
Long-term Assets | 59.45% | 53.69% | 43.01% | 22.38% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 29.13% | 19.16% | 11.29% | 35.33% |
Long-term Liabilities | 43.70% | 34.47% | 22.83% | 14.48% |
Total Liabilities | 72.83% | 53.64% | 34.12% | 49.81% |
Net Worth | 27.17% | 46.36% | 65.88% | 50.19% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 51.61% | 51.50% | 51.31% | 40.09% |
Selling, General & Administrative Expenses | 280.78% | 0.00% | 0.00% | 24.66% |
Advertising Expenses | 0.00% | 0.00% | 0.00% | 1.85% |
Profit Before Interest and Taxes | 15.43% | 14.60% | 18.12% | 2.19% |
Main Ratios | ||||
Current | 1.39 | 2.42 | 5.05 | 1.96 |
Quick | 1.00 | 1.58 | 3.61 | 0.78 |
Total Debt to Total Assets | 72.83% | 53.64% | 34.12% | 53.68% |
Pre-tax Return on Net Worth | 78.46% | 64.50% | 59.29% | 3.96% |
Pre-tax Return on Assets | 21.32% | 29.91% | 39.06% | 8.55% |
Additional Ratios | 2004 | 2005 | 2006 | |
Net Profit Margin | 9.37% | 9.39% | 12.12% | n.a |
Return on Equity | 54.92% | 45.15% | 41.50% | n.a |
Activity Ratios | ||||
Inventory Turnover | 9.29 | 8.13 | 7.45 | n.a |
Accounts Payable Turnover | 8.63 | 12.17 | 12.17 | n.a |
Payment Days | 28 | 30 | 28 | n.a |
Total Asset Turnover | 1.59 | 2.23 | 2.26 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 2.68 | 1.16 | 0.52 | n.a |
Current Liab. to Liab. | 0.40 | 0.36 | 0.33 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $9,150 | $23,229 | $47,038 | n.a |
Interest Coverage | 7.54 | 12.34 | 22.67 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.63 | 0.45 | 0.44 | n.a |
Current Debt/Total Assets | 29% | 19% | 11% | n.a |
Acid Test | 1.00 | 1.58 | 3.61 | n.a |
Sales/Net Worth | 5.86 | 4.81 | 3.42 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
8.3 Break-even Analysis
Assuming variable costs of 48% our analysis shows that to break-even we need to have monthly revenues as summarized in the table and chart below. After barn renovations are complete, we should surpass that sales volume by May of 2004.

Break-even Analysis | |
Monthly Revenue Break-even | $7,451 |
Assumptions: | |
Average Percent Variable Cost | 48% |
Estimated Monthly Fixed Cost | $3,846 |
8.4 Projected Profit and Loss
The table below shows our profit and loss projections. Although we expect to sell some higher margin products in the first months of 2004, we expect that our overall gross margin will stabilize at around 50%. We believe that our new strategy will allow us to average a healthy net margin in 2004, which will eventually stabilize over the next two years.




Pro Forma Profit and Loss | |||
2004 | 2005 | 2006 | |
Sales | $127,541 | $190,756 | $232,132 |
Direct Cost of Sales | $61,712 | $92,513 | $113,021 |
Other Costs of Goods | $0 | $0 | $0 |
Total Cost of Sales | $61,712 | $92,513 | $113,021 |
Gross Margin | $65,829 | $98,243 | $119,111 |
Gross Margin % | 51.61% | 51.50% | 51.31% |
Expenses | |||
Payroll | $31,224 | $57,280 | $63,936 |
Sales and Marketing and Other Expenses | $600 | $600 | $600 |
Depreciation | $1,252 | $1,669 | $1,669 |
Mortgage % for Business-only Areas | $4,200 | $4,200 | $4,200 |
Telephone & Utilities | $3,000 | $3,000 | $3,000 |
Insurance | $575 | $855 | $855 |
Payroll Taxes | $0 | $0 | $0 |
Web Store & Internet | $840 | $840 | $840 |
Maintenance & Repair | $756 | $756 | $756 |
Business Supplies | $300 | $300 | $300 |
Professional Services | $600 | $600 | $600 |
Expensed Barn Renovations | $2,500 | $0 | $0 |
Miscellaneous | $300 | $300 | $300 |
Total Operating Expenses | $46,147 | $70,400 | $77,056 |
Profit Before Interest and Taxes | $19,682 | $27,843 | $42,056 |
EBITDA | $20,933 | $29,512 | $43,724 |
Interest Expense | $2,610 | $2,257 | $1,855 |
Taxes Incurred | $5,121 | $7,676 | $12,060 |
Net Profit | $11,950 | $17,910 | $28,141 |
Net Profit/Sales | 9.37% | 9.39% | 12.12% |
8.5 Projected Cash Flow
Our cash flow projections are summarized in the table below. The fact that all of our sales are treated as cash-only helps us avoid possible collection problems. More importantly, growth in sales and profits will allow us to start repaying the no-interest loans that have been extended by the owner’s husband, Mr. Prenuer, as well as our long-term loans.
Overall, our new strategy should allow us to end 2004 with a cash level sufficient for smooth inventory management.

Pro Forma Cash Flow | |||
2004 | 2005 | 2006 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $127,541 | $190,756 | $232,132 |
Subtotal Cash from Operations | $127,541 | $190,756 | $232,132 |
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 | $40,000 | $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 | $167,541 | $190,756 | $232,132 |
Expenditures | 2004 | 2005 | 2006 |
Expenditures from Operations | |||
Cash Spending | $31,224 | $57,280 | $63,936 |
Bill Payments | $77,434 | $118,704 | $139,527 |
Subtotal Spent on Operations | $108,658 | $175,984 | $203,463 |
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 | $6,670 | $6,670 | $6,660 |
Long-term Liabilities Principal Repayment | $5,004 | $5,500 | $6,000 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $37,500 | $0 | $0 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $157,832 | $188,154 | $216,123 |
Net Cash Flow | $9,709 | $2,602 | $16,009 |
Cash Balance | $23,362 | $25,964 | $41,973 |
8.6 Projected Balance Sheet
The table below summarizes our balance sheet projections. Our asset base will grow through accumulated cash balances. As mentioned earlier in this business plan, we also plan to re-pay the no-interest loans in equal installments over three years. This should allow us to end 2004 with a solid accounting net worth, which should then steadily grow over the next two years.
Pro Forma Balance Sheet | |||
2004 | 2005 | 2006 | |
Assets | |||
Current Assets | |||
Cash | $23,362 | $25,964 | $41,973 |
Inventory | $9,112 | $13,660 | $16,688 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $32,474 | $39,624 | $58,661 |
Long-term Assets | |||
Long-term Assets | $50,055 | $50,055 | $50,055 |
Accumulated Depreciation | $2,452 | $4,121 | $5,789 |
Total Long-term Assets | $47,603 | $45,934 | $44,266 |
Total Assets | $80,077 | $85,558 | $102,927 |
Liabilities and Capital | 2004 | 2005 | 2006 |
Current Liabilities | |||
Accounts Payable | $9,994 | $9,735 | $11,623 |
Current Borrowing | $0 | $0 | $0 |
Other Current Liabilities | $13,330 | $6,660 | $0 |
Subtotal Current Liabilities | $23,324 | $16,395 | $11,623 |
Long-term Liabilities | $34,996 | $29,496 | $23,496 |
Total Liabilities | $58,320 | $45,891 | $35,119 |
Paid-in Capital | $1,000 | $1,000 | $1,000 |
Retained Earnings | $8,807 | $20,757 | $38,667 |
Earnings | $11,950 | $17,910 | $28,141 |
Total Capital | $21,757 | $39,667 | $67,808 |
Total Liabilities and Capital | $80,077 | $85,558 | $102,927 |
Net Worth | $21,757 | $39,667 | $67,808 |