Ereidi Farm
Financial Plan
Ereidi Farm is intending to grow its cash profits by expanding to a larger turn-key facility. Although more expensive to purchase, a turn-key facility of world class quality allows the immediate generation of cash flow at the higher end of the market. The facility we are purchasing does not require the additional expenditure of capital resources to be fully functional, it is ready for business.
Our farm sells a service and does not maintain an inventory.
We operate on a “Cash Only” basis and choose our clients accordingly. It is very rare that we except payments of any type although we may do so when selling one of our home-grown foals to a well-known and trusted client. Our cash only approach allows us to maintain sufficient cash on hand and not waste valuable time and resources collecting amounts due.
At this time, the owner’s husband supplies additional capital as needed from his current job. He will continue in his current employ.
8.1 Important Assumptions
Important assumptions concerning the thoroughbred market and Ereidi Farm’s targeted market include:
The thoroughbred market industry in Pennsylvania will continue to grow. The added slot machine legislation will cause a dramatic growth spurt in racing programs within the state, quickly causing an increase in the demand for services within the state.
Statistics will continue to indicate the decline of racing programs in traditionally strong racing states. Owners of bloodstock within these distressed states will actively seek out new locations in which to relocate their horses and operate a profitable, quality stable.
New owners will invest in the industry, they will be reached by large industry umbrella operations such as the NTRA and TOBA. (National Thoroughbred Racing Association and Thoroughbred Owners and Breeders Association) respectively.
Our targeted markets will continue to post personal income growth despite fluctuating economic conditions. They will continue to invest in non-traditional “exotic” investments such as thoroughbred racehorses.
General Assumptions | |||
FY 2004 | FY 2005 | FY 2006 | |
Plan Month | 1 | 2 | 3 |
Current Interest Rate | 5.88% | 6.00% | 5.88% |
Long-term Interest Rate | 7.00% | 7.00% | 7.00% |
Tax Rate | 23.58% | 23.00% | 23.58% |
Other | 0 | 0 | 0 |
8.2 Break-even Analysis
Break-even assumptions are as follows:
- Per unit cost is based off of one horse with total start up-units equal to 33 horses.
- Variable costs include: salaries, advertising, maintenance and office expenses.
- Fixed costs include: mortgage/loan, taxes, insurance, utilities and cost to keep 33 horses.
Break-even calculations are shown in the following table and chart.

Break-even Analysis | |
Monthly Revenue Break-even | $4,652 |
Assumptions: | |
Average Percent Variable Cost | 13% |
Estimated Monthly Fixed Cost | $4,036 |
8.3 Projected Profit and Loss
Our planned expansion realizes a profit after total expenses are deducted from gross profit. As growth occurs, expenses increase accordingly, however our net profit also continues to grow. This reflects the typical cost of doing business in the horse industry as a whole.




Pro Forma Profit and Loss | |||
FY 2004 | FY 2005 | FY 2006 | |
Sales | $264,250 | $292,617 | $327,381 |
Direct Cost of Sales | $35,000 | $41,485 | $50,247 |
Other Costs of Sales | $0 | $0 | $0 |
Total Cost of Sales | $35,000 | $41,485 | $50,247 |
Gross Margin | $229,250 | $251,132 | $277,135 |
Gross Margin % | 86.75% | 85.82% | 84.65% |
Expenses | |||
Payroll | $40,030 | $76,872 | $97,800 |
Sales and Marketing and Other Expenses | $0 | $0 | $0 |
Depreciation | $2,400 | $2,400 | $2,400 |
Rent | $0 | $0 | $0 |
Payroll Taxes | $6,005 | $11,531 | $14,670 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $48,435 | $90,803 | $114,870 |
Profit Before Interest and Taxes | $180,816 | $160,329 | $162,265 |
EBITDA | $183,216 | $162,729 | $164,665 |
Interest Expense | $14,274 | $14,290 | $14,274 |
Taxes Incurred | $38,402 | $33,589 | $34,901 |
Net Profit | $128,140 | $112,450 | $113,090 |
Net Profit/Sales | 48.49% | 38.43% | 34.54% |
8.4 Projected Cash Flow
Ereidi Farm is a “Cash Only” type of business. Although we do accept payments for the horses we raise and sell, the rest of our business is cash based in order to increase cash flow and limit the farm’s liabilities.

Pro Forma Cash Flow | |||
FY 2004 | FY 2005 | FY 2006 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $224,613 | $248,725 | $278,274 |
Cash from Receivables | $41,176 | $42,669 | $47,608 |
Subtotal Cash from Operations | $265,788 | $291,393 | $325,882 |
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 | $265,788 | $291,393 | $325,882 |
Expenditures | FY 2004 | FY 2005 | FY 2006 |
Expenditures from Operations | |||
Cash Spending | $40,030 | $76,872 | $97,800 |
Bill Payments | $81,830 | $104,452 | $113,007 |
Subtotal Spent on Operations | $121,860 | $181,324 | $210,807 |
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 | $121,860 | $181,324 | $210,807 |
Net Cash Flow | $143,928 | $110,069 | $115,075 |
Cash Balance | $147,210 | $257,280 | $372,354 |
8.5 Projected Balance Sheet
The balance sheet in the following table shows sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.
Please note that specific variable and fixed expense categories have intentionally been left blank as these expenses are already figured into our “cost-per-horse” expense.
Pro Forma Balance Sheet | |||
FY 2004 | FY 2005 | FY 2006 | |
Assets | |||
Current Assets | |||
Cash | $147,210 | $257,280 | $372,354 |
Accounts Receivable | $11,399 | $12,622 | $14,122 |
Other Current Assets | $87,684 | $87,684 | $87,684 |
Total Current Assets | $246,293 | $357,586 | $474,161 |
Long-term Assets | |||
Long-term Assets | $490,000 | $490,000 | $490,000 |
Accumulated Depreciation | $5,200 | $7,600 | $10,000 |
Total Long-term Assets | $484,800 | $482,400 | $480,000 |
Total Assets | $731,093 | $839,986 | $954,161 |
Liabilities and Capital | FY 2004 | FY 2005 | FY 2006 |
Current Liabilities | |||
Accounts Payable | $11,850 | $8,293 | $9,377 |
Current Borrowing | $13,000 | $13,000 | $13,000 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $24,850 | $21,293 | $22,377 |
Long-term Liabilities | $193,000 | $193,000 | $193,000 |
Total Liabilities | $217,850 | $214,293 | $215,377 |
Paid-in Capital | $0 | $0 | $0 |
Retained Earnings | $385,103 | $513,243 | $625,693 |
Earnings | $128,140 | $112,450 | $113,090 |
Total Capital | $513,243 | $625,693 | $738,783 |
Total Liabilities and Capital | $731,093 | $839,986 | $954,161 |
Net Worth | $513,243 | $625,693 | $738,783 |
8.6 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 0752.0102, [Breeding services, horses: racing and non-racing], are shown for comparison.
Ratio Analysis | ||||
FY 2004 | FY 2005 | FY 2006 | Industry Profile | |
Sales Growth | 1265.84% | 10.73% | 11.88% | 10.13% |
Percent of Total Assets | ||||
Accounts Receivable | 1.56% | 1.50% | 1.48% | 11.58% |
Other Current Assets | 11.99% | 10.44% | 9.19% | 31.09% |
Total Current Assets | 33.69% | 42.57% | 49.69% | 51.94% |
Long-term Assets | 66.31% | 57.43% | 50.31% | 48.06% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 3.40% | 2.53% | 2.35% | 23.95% |
Long-term Liabilities | 26.40% | 22.98% | 20.23% | 24.54% |
Total Liabilities | 29.80% | 25.51% | 22.57% | 48.49% |
Net Worth | 70.20% | 74.49% | 77.43% | 51.51% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 86.75% | 85.82% | 84.65% | 38.83% |
Selling, General & Administrative Expenses | 37.53% | 46.76% | 49.28% | 25.23% |
Advertising Expenses | 0.00% | 0.00% | 0.00% | 0.43% |
Profit Before Interest and Taxes | 68.43% | 54.79% | 49.56% | 1.11% |
Main Ratios | ||||
Current | 9.91 | 16.79 | 21.19 | 1.47 |
Quick | 9.91 | 16.79 | 21.19 | 0.89 |
Total Debt to Total Assets | 29.80% | 25.51% | 22.57% | 1.73% |
Pre-tax Return on Net Worth | 32.45% | 23.34% | 20.03% | 64.10% |
Pre-tax Return on Assets | 22.78% | 17.39% | 15.51% | 4.81% |
Additional Ratios | FY 2004 | FY 2005 | FY 2006 | |
Net Profit Margin | 48.49% | 38.43% | 34.54% | n.a |
Return on Equity | 24.97% | 17.97% | 15.31% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 3.48 | 3.48 | 3.48 | n.a |
Collection Days | 60 | 100 | 99 | n.a |
Accounts Payable Turnover | 7.91 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 36 | 28 | n.a |
Total Asset Turnover | 0.36 | 0.35 | 0.34 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.42 | 0.34 | 0.29 | n.a |
Current Liab. to Liab. | 0.11 | 0.10 | 0.10 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $221,443 | $336,293 | $451,783 | n.a |
Interest Coverage | 12.67 | 11.22 | 11.37 | n.a |
Additional Ratios | ||||
Assets to Sales | 2.77 | 2.87 | 2.91 | n.a |
Current Debt/Total Assets | 3% | 3% | 2% | n.a |
Acid Test | 9.45 | 16.20 | 20.56 | n.a |
Sales/Net Worth | 0.51 | 0.47 | 0.44 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |