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Adventure Travel International
Financial Plan
ATI’s financial plan is detailed in following sections. Preliminary estimates suggest that ATI will experience slow growth in the first two quarters of operation. This is partly due to ATI’s status as a start-up company and seasonal factors. Income estimates are based, in part, on anticipated revenues from accounts that were secured by ATI employees prior to their departure from former employers. ATI has sufficient cash to endure the negative cash flow situation that it may encounter initially. ATI also anticipates an increase in gross margin and sales volume. Thus, the overall financial plan presents a conservative but realistic depiction of ATI’s financial position.
7.1 Important Assumptions
ATI assumes the following:
- Market growth projections for the travel industry and for adventure travel are accurate.
- National economic conditions, which are favorable to the travel industry, will not experience significant decline in the next five years.
- International conditions will remain favorable for service providers and ATI will be able to maintain those relationships.
| 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 | 30.00% | 30.00% | 30.00% |
| Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
The following chart indicates ATI’s key financial indicators for the first three years. ATI anticipates growth in sales with relatively stable operating expenses. Favorable economic conditions and forecasts of continued growth in the adventure travel market support ATI’s planned financial success.
7.3 Break-even Analysis
The following table details ATI’s break-even analysis, including monthly sales break-even points.
Break-even calculations assume a 20% gross margin. This is a conservative estimate, and it will be improved as strategic relationships develop and the benefits of ATI’s offerings are realized by customers.
| Break-even Analysis | |
| Monthly Revenue Break-even | $33,902 |
| Assumptions: | |
| Average Percent Variable Cost | 78% |
| Estimated Monthly Fixed Cost | $7,375 |
7.4 Projected Profit and Loss
ATI’s profit picture improves as operations progress into the third quarter of the first year of operation. ATI anticipates improving its gross margin from 22% in year one to 23% in year two. Annual estimates of profit and loss are detailed in the following table.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $534,204 | $588,069 | $646,878 |
| Direct Cost of Sales | $417,993 | $452,813 | $491,627 |
| Other Costs of Sales | $0 | $0 | $0 |
| Total Cost of Sales | $417,993 | $452,813 | $491,627 |
| Gross Margin | $116,211 | $135,256 | $155,251 |
| Gross Margin % | 21.75% | 23.00% | 24.00% |
| Expenses | |||
| Payroll | $45,000 | $46,248 | $47,546 |
| Marketing/Promotion | $26,100 | $26,280 | $26,280 |
| Depreciation | $0 | $0 | $0 |
| Rent | $10,500 | $10,500 | $10,500 |
| Utilities | $4,500 | $4,500 | $4,500 |
| Insurance | $2,400 | $2,400 | $2,400 |
| Payroll Taxes | $0 | $0 | $0 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $88,500 | $89,928 | $91,226 |
| Profit Before Interest and Taxes | $27,711 | $45,328 | $64,025 |
| EBITDA | $27,711 | $45,328 | $64,025 |
| Interest Expense | $8,078 | $7,330 | $6,550 |
| Taxes Incurred | $5,890 | $11,399 | $17,243 |
| Net Profit | $13,743 | $26,599 | $40,233 |
| Net Profit/Sales | 2.57% | 4.52% | 6.22% |
7.5 Projected Cash Flow
Monthly cash flow is shown in the following illustration. Annual cash flow figures are estimated based on a 60-day collection period. Cash flow for the first year of operation becomes positive mid-year.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $400,653 | $441,052 | $485,159 |
| Cash from Receivables | $100,048 | $143,639 | $158,031 |
| Subtotal Cash from Operations | $500,701 | $584,691 | $643,190 |
| 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 | $500,701 | $584,691 | $643,190 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $45,000 | $46,248 | $47,546 |
| Bill Payments | $415,328 | $533,008 | $555,493 |
| Subtotal Spent on Operations | $460,328 | $579,256 | $603,039 |
| 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 | $7,800 | $7,800 | $7,800 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $468,128 | $587,056 | $610,839 |
| Net Cash Flow | $32,574 | ($2,365) | $32,351 |
| Cash Balance | $67,574 | $65,208 | $97,559 |
7.6 Projected Balance Sheet
The pro forma balance sheet indicates sustained and planned growth. Net worth improves considerably in year two and will provide ATI with a strong financial position. Monthly estimates are included in the appendix.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $67,574 | $65,208 | $97,559 |
| Accounts Receivable | $33,503 | $36,881 | $40,569 |
| Other Current Assets | $17,500 | $17,500 | $17,500 |
| Total Current Assets | $118,576 | $119,589 | $155,628 |
| Long-term Assets | |||
| Long-term Assets | $26,925 | $26,925 | $26,925 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $26,925 | $26,925 | $26,925 |
| Total Assets | $145,501 | $146,514 | $182,553 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $60,133 | $42,347 | $45,953 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $60,133 | $42,347 | $45,953 |
| Long-term Liabilities | $77,200 | $69,400 | $61,600 |
| Total Liabilities | $137,333 | $111,747 | $107,553 |
| Paid-in Capital | $18,000 | $18,000 | $18,000 |
| Retained Earnings | ($23,575) | ($9,832) | $16,767 |
| Earnings | $13,743 | $26,599 | $40,233 |
| Total Capital | $8,168 | $34,767 | $75,000 |
| Total Liabilities and Capital | $145,501 | $146,514 | $182,553 |
| Net Worth | $8,168 | $34,767 | $75,000 |
7.7 Business Ratios
The following table details our primary business ratios. Initial analysis indicates that ATI’s ratios for profitability, risk, and return are financially favorable and will improve greatly in year two of operation. Industry Profile ratios are based on Standard Industry Classification (SIC) Index code 4724.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 10.08% | 10.00% | 4.00% |
| Percent of Total Assets | ||||
| Accounts Receivable | 23.03% | 25.17% | 22.22% | 25.20% |
| Other Current Assets | 12.03% | 11.94% | 9.59% | 38.80% |
| Total Current Assets | 81.50% | 81.62% | 85.25% | 64.00% |
| Long-term Assets | 18.50% | 18.38% | 14.75% | 36.00% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 41.33% | 28.90% | 25.17% | 39.60% |
| Long-term Liabilities | 53.06% | 47.37% | 33.74% | 16.30% |
| Total Liabilities | 94.39% | 76.27% | 58.92% | 55.90% |
| Net Worth | 5.61% | 23.73% | 41.08% | 44.10% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 21.75% | 23.00% | 24.00% | 38.30% |
| Selling, General & Administrative Expenses | 19.18% | 18.48% | 17.78% | 27.50% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 0.40% |
| Profit Before Interest and Taxes | 5.19% | 7.71% | 9.90% | 1.30% |
| Main Ratios | ||||
| Current | 1.97 | 2.82 | 3.39 | 1.44 |
| Quick | 1.97 | 2.82 | 3.39 | 1.13 |
| Total Debt to Total Assets | 94.39% | 76.27% | 58.92% | 55.90% |
| Pre-tax Return on Net Worth | 240.36% | 109.29% | 76.63% | 3.20% |
| Pre-tax Return on Assets | 13.49% | 25.93% | 31.48% | 7.20% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 2.57% | 4.52% | 6.22% | n.a |
| Return on Equity | 168.25% | 76.51% | 53.64% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 3.99 | 3.99 | 3.99 | n.a |
| Collection Days | 56 | 87 | 87 | n.a |
| Accounts Payable Turnover | 7.91 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 36 | 29 | n.a |
| Total Asset Turnover | 3.67 | 4.01 | 3.54 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 16.81 | 3.21 | 1.43 | n.a |
| Current Liab. to Liab. | 0.44 | 0.38 | 0.43 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $58,443 | $77,242 | $109,675 | n.a |
| Interest Coverage | 3.43 | 6.18 | 9.77 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.27 | 0.25 | 0.28 | n.a |
| Current Debt/Total Assets | 41% | 29% | 25% | n.a |
| Acid Test | 1.41 | 1.95 | 2.50 | n.a |
| Sales/Net Worth | 65.40 | 16.91 | 8.63 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |