Aero Technologies
Financial Plan
We want to finance growth mainly through cash flow and equity. We recognize that this means we will have to grow more slowly than we might like.
The most important factor in our case is collection days. We can’t push our clients hard on collection days, because they are in larger companies and will normally have marketing authority, not financial authority. Therefore we need to develop a permanent system of receivables financing, using one of the established accounting systems. In turn we intend to ensure that our investors are compatible with our growth plan, management style and vision. Compatibility in this regard means:
- A fundamental respect for giving our customers value, and for maintaining a healthy and congenial workplace.
- Respect for realistic forecasts, and conservative cash flow and financial management.
- Cash flow as first priority, growth second, profits third.
- Willingness to follow the project objectives and contribute valuable input to strategy and implementation decisions.
With sufficient working capital the forecasted revenues and sales should be within the forecasted market demands for the company’s services. From the second year onwards, the various divisions should be able to bring in adequate sales revenues. It is assumed that by then the objective of investing in computer equipment and retraining will have taken effect, the trained technicians will have become adept at their crafts and new service offers for corporate clients will be added to the company’s product line on a regular basis.
7.1 Important Assumptions
The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendix. From the beginning, we recognize that collection days are critical, but not a factor we can influence easily. At least we are planning on the problem, and dealing with it. Interest rates, tax rates, and personnel burden are based on conservative assumptions.
Some of the more important underlying assumptions are:
- We assume a strong economy, without major recession.
- We assume, of course, that there are no unforeseen changes in economic policy to make our clients’ products immediately obsolete, though we do forecast technological changes.
General Assumptions | |||
Year 1 | Year 2 | Year 3 | |
Plan Month | 1 | 2 | 3 |
Current Interest Rate | 10.00% | 10.00% | 10.00% |
Long-term Interest Rate | 10.00% | 10.00% | 10.00% |
Tax Rate | 25.42% | 25.00% | 25.42% |
Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
We foresee a slow initial growth in sales, though operating expenses will be relatively high, and a bump in our sales and revenue generation as we spread our services during expansion.
Collection days are very important. We do not want to let our average collection days get above the client’s actual subscription period under any circumstances. This could cause a serious problem with cash flow, because our working capital situation is chronically tight. However, we recognize that we cannot control this factor easily, because of the relationship we wish to create with our clients.

7.3 Break-even Analysis
Our Break-even Analysis will be based on running costs, that is, costs we shall incur in keeping the business running, including salaries and wages, rent, computer maintenance costs, water and electricity, and insurance amongst others. Hence many fixed costs shall be included in these costs. We will thus ensure that our sales levels are running comfortably above break-even.
The following table summarizes our break-even analysis.

Break-even Analysis | |
Monthly Revenue Break-even | $93,300 |
Assumptions: | |
Average Percent Variable Cost | 50% |
Estimated Monthly Fixed Cost | $46,650 |
7.4 Projected Profit and Loss
The following table presents the profit and loss information for Aero Technologies.
Initial marketing and training expenses will be relatively high as we seek to become known on the market and staff get trained in provision of our services. This will be brought about by the development of sales literature, advertising expenses, function expenses including lunches and dinners with interested stakeholders. As our market share increases and capital is generated, further marketing programs and the expansion of those in existence at the time will be undertaken, to ensure market development. However with time these programs will start generating revenue for the business, which we shall in turn reinvest.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $820,000 | $1,230,000 | $1,835,000 |
Direct Cost of Sales | $410,000 | $492,000 | $734,000 |
Other | $0 | $0 | $0 |
Total Cost of Sales | $410,000 | $492,000 | $734,000 |
Gross Margin | $410,000 | $738,000 | $1,101,000 |
Gross Margin % | 50.00% | 60.00% | 60.00% |
Expenses | |||
Payroll | $474,600 | $557,280 | $689,520 |
Sales and Marketing and Other Expenses | $39,600 | $0 | $0 |
Depreciation | $0 | $0 | $0 |
Leased Equipment | $0 | $0 | $0 |
Utilities | $3,600 | $0 | $0 |
Insurance | $18,000 | $0 | $0 |
Rent | $24,000 | $0 | $0 |
Payroll Taxes | $0 | $0 | $0 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $559,800 | $557,280 | $689,520 |
Profit Before Interest and Taxes | ($149,800) | $180,720 | $411,480 |
EBITDA | ($149,800) | $180,720 | $411,480 |
Interest Expense | $0 | $0 | $0 |
Taxes Incurred | $0 | $45,180 | $104,585 |
Net Profit | ($149,800) | $135,540 | $306,895 |
Net Profit/Sales | -18.27% | 11.02% | 16.72% |
7.5 Projected Cash Flow
The chart and table below provide details to the company’s cash flow situation. The chart shows a monthly breakdown while the table shows a year-end statement.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $205,000 | $307,500 | $458,750 |
Cash from Receivables | $474,875 | $852,438 | $1,272,865 |
Subtotal Cash from Operations | $679,875 | $1,159,938 | $1,731,615 |
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 | $679,875 | $1,159,938 | $1,731,615 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $474,600 | $557,280 | $689,520 |
Bill Payments | $495,395 | $554,674 | $842,976 |
Subtotal Spent on Operations | $969,995 | $1,111,954 | $1,532,496 |
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 | $969,995 | $1,111,954 | $1,532,496 |
Net Cash Flow | ($290,120) | $47,983 | $199,119 |
Cash Balance | $59,880 | $107,863 | $306,982 |
7.6 Projected Balance Sheet
The Balance Sheet below highlights the important numbers for the company.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $59,880 | $107,863 | $306,982 |
Accounts Receivable | $140,125 | $210,188 | $313,572 |
Inventory | $52,250 | $62,700 | $93,540 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $252,255 | $380,751 | $714,095 |
Long-term Assets | |||
Long-term Assets | $1,012,400 | $1,012,400 | $1,012,400 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $1,012,400 | $1,012,400 | $1,012,400 |
Total Assets | $1,264,655 | $1,393,151 | $1,726,495 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $52,055 | $45,011 | $71,460 |
Current Borrowing | $0 | $0 | $0 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $52,055 | $45,011 | $71,460 |
Long-term Liabilities | $0 | $0 | $0 |
Total Liabilities | $52,055 | $45,011 | $71,460 |
Paid-in Capital | $2,554,400 | $2,554,400 | $2,554,400 |
Retained Earnings | ($1,192,000) | ($1,341,800) | ($1,206,260) |
Earnings | ($149,800) | $135,540 | $306,895 |
Total Capital | $1,212,600 | $1,348,140 | $1,655,036 |
Total Liabilities and Capital | $1,264,655 | $1,393,151 | $1,726,495 |
Net Worth | $1,212,600 | $1,348,140 | $1,655,035 |
7.7 Business Ratios
The following table presents important business ratios for Aero Technology. These figures come from the communications services industry, as determined by the Standard Industry Classification (SIC) Index.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 50.00% | 49.19% | 0.00% |
Percent of Total Assets | ||||
Accounts Receivable | 11.08% | 15.09% | 18.16% | 0.00% |
Inventory | 4.13% | 4.50% | 5.42% | 0.00% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 100.00% |
Total Current Assets | 19.95% | 27.33% | 41.36% | 100.00% |
Long-term Assets | 80.05% | 72.67% | 58.64% | 0.00% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 4.12% | 3.23% | 4.14% | 0.00% |
Long-term Liabilities | 0.00% | 0.00% | 0.00% | 0.00% |
Total Liabilities | 4.12% | 3.23% | 4.14% | 0.00% |
Net Worth | 95.88% | 96.77% | 95.86% | 100.00% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 50.00% | 60.00% | 60.00% | 0.00% |
Selling, General & Administrative Expenses | 79.98% | 48.98% | 43.18% | 0.00% |
Advertising Expenses | 2.56% | 0.00% | 0.00% | 0.00% |
Profit Before Interest and Taxes | -18.27% | 14.69% | 22.42% | 0.00% |
Main Ratios | ||||
Current | 4.85 | 8.46 | 9.99 | 0.00 |
Quick | 3.84 | 7.07 | 8.68 | 0.00 |
Total Debt to Total Assets | 4.12% | 3.23% | 4.14% | 0.00% |
Pre-tax Return on Net Worth | -12.35% | 13.41% | 24.86% | 0.00% |
Pre-tax Return on Assets | -11.85% | 12.97% | 23.83% | 0.00% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | -18.27% | 11.02% | 16.72% | n.a |
Return on Equity | -12.35% | 10.05% | 18.54% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 4.39 | 4.39 | 4.39 | n.a |
Collection Days | 56 | 69 | 69 | n.a |
Inventory Turnover | 10.91 | 8.56 | 9.40 | n.a |
Accounts Payable Turnover | 10.52 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 32 | 24 | n.a |
Total Asset Turnover | 0.65 | 0.88 | 1.06 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.04 | 0.03 | 0.04 | n.a |
Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $200,200 | $335,740 | $642,635 | n.a |
Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
Additional Ratios | ||||
Assets to Sales | 1.54 | 1.13 | 0.94 | n.a |
Current Debt/Total Assets | 4% | 3% | 4% | n.a |
Acid Test | 1.15 | 2.40 | 4.30 | n.a |
Sales/Net Worth | 0.68 | 0.91 | 1.11 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |