Don't bother with copy and paste.

Get this complete sample business plan as a free text document.

Download for free

IT & Tech Support icon Information Technology Business Plan

Start your plan

Information Management Hawaii

Financial Plan

Although we are treating the business as a start-up company, the financial plan is solidly based on past performance. We have taken actual SIOT P&L income and expenses from the past three years, and eliminated corporate overhead expenses such as warehouse and administrative costs, inventory penalties, and corporate nominal interest. We then projected income based on actual past performance, and factored back in the revenue base that was relocated to Honolulu over the past two years (mainly service and supplies).

We approached the financial planning from a conservative standpoint, and based those numbers on achievable gross margins. Also, our actual interest and tax rates will most likely be lower than the assumed rates due to our being structured as an employee-owned corporation (ESOT).

7.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in Table 7.1. As mentioned previously, we assumed interest and tax rates based on a “worst case” scenario, and these will be adjusted once we have finalized the initial funding and establish the ESOT. We have also assumed our personnel burden at 30% of payroll in order to allow for above-average benefits for our employees. As we shop around for benefits vendors, this assumption will be subject to revision as well.

Other key business assumptions are:

  • We assume continued steady economic growth on the Neighbor Islands as predicted by Bank of Hawaii, and other Hawai’i economists.
  • We assume the continued move towards convergence technology in the Information Industry.
  • We assume access to the start-up funding necessary to re-shape and re-build the company, and to provide adequate initial capitalization.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 14.00% 14.00% 14.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 37.33% 38.00% 37.33%
Other 0 0 0

7.2 Key Financial Indicators

As shown in the Benchmarks chart below, our key financial indicators are:

  • Projected Sales: Projections are based on actual past performance, and are conservative. We will increase sales at an average rate of 15% per year.
  • Gross Margins: Average gross margins are based on: hardware sales = 37%; service = 57%; supplies = 52%; and, other = 50%, for an overall operating gross margin of 49%.
  • Operating Expenses: Operating expenses are based on providing our employee-owners with above average wages and benefits, and providing superior customer service. Expenses are projected to increase at the rate of 6% per year.
  • Collection Days (A/R): Based on the extensive use of leasing, and including service and supply agreements into leasing packages, we will maintain an average A/R turnover of 30 days. This is projected to be reduced to 28 days in subsequent years by increasing efficiencies in our internal business processes.
  • Inventory Turnover: We will maintain just-in-time inventory levels, or 11 turns per year. This will require accurate sales forecasting, and working closely with our manufacturers. We have already begun this process under SIOT, and the Neighbor Island inventory levels are well below previous years.
Information technology business plan, financial plan chart image

7.3 Break-even Analysis

For our break-even analysis, we assume running costs which include our full payroll, rent, and utilities, and an estimation of other running costs. Payroll alone, at present, is about $65,500 per month (including benefits and taxes).

We will monitor gross margins very closely, and maintain them at a midrange percentage by taking advantage of all promotions and discounts offered by our manufacturers. Canon USA has tentatively agreed to offer us “end column” pricing as a new dealer incentive.

The chart shows what we need to sell per month to break even, according to these assumptions. This is about 78% of our projected sales for our first year, and is well below what we have achieved annually over the past three years under more adverse operating conditions.

Information technology business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $209,018
Assumptions:
Average Percent Variable Cost 51%
Estimated Monthly Fixed Cost $101,932

7.4 Projected Profit and Loss

Our Pro Forma Profit and Loss statement was constructed from a conservative point-of-view, and is based in large part on past performance. By strengthening our service position, and rebuilding our customer relationships, we will widen our customer base and increase sales.

Month-to-month assumptions for profit and loss are included in the appendix.

Information technology business plan, financial plan chart image

Information technology business plan, financial plan chart image

Information technology business plan, financial plan chart image

Information technology business plan, financial plan chart image

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $3,190,329 $3,668,878 $4,219,209
Direct Cost of Sales $1,634,497 $1,863,326 $2,124,192
Production Payroll $0 $0 $0
Other $0 $0 $0
Total Cost of Sales $1,634,497 $1,863,326 $2,124,192
Gross Margin $1,555,832 $1,805,552 $2,095,017
Gross Margin % 48.77% 49.21% 49.65%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $153,000 $162,180 $171,911
Advertising/Promotion $10,500 $11,130 $11,798
Commissions $159,516 $169,087 $179,233
Travel – Sales $22,500 $23,850 $25,281
Learning & Growth – Sales $6,150 $6,519 $6,910
Entertainment $5,400 $5,724 $6,067
Total Sales and Marketing Expenses $357,066 $378,490 $401,200
Sales and Marketing % 11.19% 10.32% 9.51%
General and Administrative Expenses
General and Administrative Payroll $134,400 $142,464 $151,012
Sales and Marketing and Other Expenses $0 $0 $0
Depreciation $0 $0 $0
Depreciation $0 $0 $0
Utilities $9,000 $9,540 $10,112
Telephone & ISP $34,200 $36,252 $38,427
Office Supplies $4,200 $4,452 $4,719
Insurance $16,800 $17,808 $18,876
Bank Charges $6,000 $6,360 $6,742
Postage $10,020 $10,621 $11,258
Taxes & Licenses $10,200 $10,812 $11,461
Bonuses $0 $0 $0
Learning & Growth – Admin $3,150 $3,339 $3,539
Accounting $6,000 $6,360 $6,742
Rent $72,000 $72,000 $72,000
Payroll Taxes $181,350 $192,231 $203,765
Other General and Administrative Expenses $0 $0 $0
Total General and Administrative Expenses $487,320 $512,239 $538,654
General and Administrative % 15.27% 13.96% 12.77%
Other Expenses:
Other Payroll $317,100 $336,126 $356,294
Consultants $0 $0 $0
Learning & Growth – Service $9,200 $9,752 $10,337
Travel – Service $22,500 $23,850 $25,281
Freight & Cartage $30,000 $31,800 $33,708
Total Other Expenses $378,800 $401,528 $425,620
Other % 11.87% 10.94% 10.09%
Total Operating Expenses $1,223,186 $1,292,258 $1,365,473
Profit Before Interest and Taxes $332,645 $513,294 $729,544
EBITDA $332,645 $513,294 $729,544
Interest Expense $140,000 $127,050 $99,750
Taxes Incurred $72,797 $146,773 $235,123
Net Profit $119,848 $239,471 $394,671
Net Profit/Sales 3.76% 6.53% 9.35%

7.5 Projected Cash Flow

Because we are treating the new company as a start-up, the cash flow for FY2002 is somewhat exaggerated by the instant influx of new capital. Subsequent years however show a healthy growth in cash flow, mainly due to the short 60-month repayment of the start-up loan and increased sales.

Information technology business plan, financial plan chart image

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $2,073,714 $2,384,771 $2,742,486
Cash from Receivables $906,354 $1,252,568 $1,440,453
Subtotal Cash from Operations $2,980,067 $3,637,339 $4,182,939
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 $30,000 $0 $0
Subtotal Cash Received $3,010,067 $3,637,339 $4,182,939
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $604,500 $640,770 $679,216
Bill Payments $2,210,315 $2,809,360 $3,143,202
Subtotal Spent on Operations $2,814,815 $3,450,130 $3,822,418
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $185,000 $205,000
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 $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $2,814,815 $3,635,130 $4,027,418
Net Cash Flow $195,252 $2,209 $155,521
Cash Balance $420,252 $422,461 $577,982

7.6 Projected Balance Sheet

The Projected Balance Sheet is quite solid. We do not project any trouble meeting our debt obligations as long as we achieve our specific objectives.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $420,252 $422,461 $577,982
Accounts Receivable $210,261 $241,801 $278,071
Inventory $172,142 $196,241 $223,715
Other Current Assets $0 $0 $0
Total Current Assets $802,655 $860,503 $1,079,768
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $802,655 $860,503 $1,079,768
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $227,807 $231,184 $260,778
Current Borrowing $1,000,000 $815,000 $610,000
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $1,227,807 $1,046,184 $870,778
Long-term Liabilities $0 $0 $0
Total Liabilities $1,227,807 $1,046,184 $870,778
Paid-in Capital $30,000 $30,000 $30,000
Retained Earnings ($575,000) ($455,152) ($215,681)
Earnings $119,848 $239,471 $394,671
Total Capital ($425,152) ($185,681) $208,990
Total Liabilities and Capital $802,655 $860,503 $1,079,768
Net Worth ($425,152) ($185,681) $208,990

7.7 Business Ratios

The following table shows our main business ratios, and is compared to national averages. Our SIC industry class is currently: Office equipment, nec – 5044.99.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 15.00% 15.00% 1.50%
Percent of Total Assets
Accounts Receivable 26.20% 28.10% 25.75% 30.97%
Inventory 21.45% 22.81% 20.72% 38.08%
Other Current Assets 0.00% 0.00% 0.00% 16.04%
Total Current Assets 100.00% 100.00% 100.00% 85.09%
Long-term Assets 0.00% 0.00% 0.00% 14.91%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 152.97% 121.58% 80.64% 44.30%
Long-term Liabilities 0.00% 0.00% 0.00% 8.46%
Total Liabilities 152.97% 121.58% 80.64% 52.76%
Net Worth -52.97% -21.58% 19.36% 47.24%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 48.77% 49.21% 49.65% 26.76%
Selling, General & Administrative Expenses 45.02% 42.69% 40.40% 15.95%
Advertising Expenses 0.33% 0.30% 0.28% 0.95%
Profit Before Interest and Taxes 10.43% 13.99% 17.29% 2.55%
Main Ratios
Current 0.65 0.82 1.24 1.80
Quick 0.51 0.63 0.98 0.87
Total Debt to Total Assets 152.97% 121.58% 80.64% 6.22%
Pre-tax Return on Net Worth -45.31% -208.01% 301.35% 55.95%
Pre-tax Return on Assets 24.00% 44.89% 58.33% 14.11%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 3.76% 6.53% 9.35% n.a
Return on Equity 0.00% 0.00% 188.85% n.a
Activity Ratios
Accounts Receivable Turnover 5.31 5.31 5.31 n.a
Collection Days 57 64 64 n.a
Inventory Turnover 10.91 10.12 10.12 n.a
Accounts Payable Turnover 10.70 12.17 12.17 n.a
Payment Days 27 30 28 n.a
Total Asset Turnover 3.97 4.26 3.91 n.a
Debt Ratios
Debt to Net Worth 0.00 0.00 4.17 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital ($425,152) ($185,681) $208,990 n.a
Interest Coverage 2.38 4.04 7.31 n.a
Additional Ratios
Assets to Sales 0.25 0.23 0.26 n.a
Current Debt/Total Assets 153% 122% 81% n.a
Acid Test 0.34 0.40 0.66 n.a
Sales/Net Worth 0.00 0.00 20.19 n.a
Dividend Payout 0.00 0.00 0.00 n.a