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.
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.
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.
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.
7.6 Projected Balance Sheet
The Balance Sheet below highlights the important numbers for the company.
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.