Royal's Software
Financial Plan
The following is the financial plan for Royal’s Software. The plan includes:
- Break-even point;
- Projected profit and loss;
- Projected cash flow;
- Projected balance sheet.
7.1 Break-even Analysis
The estimated monthly fixed cost and monthly break-even point are shown below.

Break-even Analysis | |
Monthly Revenue Break-even | $37,152 |
Assumptions: | |
Average Percent Variable Cost | 2% |
Estimated Monthly Fixed Cost | $36,358 |
7.2 Projected Profit and Loss
The following table and charts highlight the projected profit and loss for the next three years.


Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $524,000 | $650,000 | $780,000 |
Direct Cost of Sales | $11,190 | $13,500 | $16,500 |
Other Production Expenses | $0 | $0 | $0 |
Total Cost of Sales | $11,190 | $13,500 | $16,500 |
Gross Margin | $512,810 | $636,500 | $763,500 |
Gross Margin % | 97.86% | 97.92% | 97.88% |
Expenses | |||
Payroll | $270,000 | $383,000 | $446,000 |
Sales and Marketing and Other Expenses | $101,600 | $146,000 | $174,000 |
Depreciation | $0 | $0 | $0 |
Leased Equipment | $5,000 | $0 | $0 |
Utilities | $4,800 | $4,800 | $4,800 |
Insurance | $2,400 | $2,400 | $2,400 |
Rent | $12,000 | $12,000 | $12,000 |
Payroll Taxes | $40,500 | $57,450 | $66,900 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $436,300 | $605,650 | $706,100 |
Profit Before Interest and Taxes | $76,510 | $30,850 | $57,400 |
EBITDA | $76,510 | $30,850 | $57,400 |
Interest Expense | $8,917 | $7,001 | $5,002 |
Taxes Incurred | $20,278 | $7,155 | $15,719 |
Net Profit | $47,315 | $16,694 | $36,679 |
Net Profit/Sales | 9.03% | 2.57% | 4.70% |
7.3 Projected Cash Flow
The following table and chart highlight the projected cash flow for the next three years.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $131,000 | $162,500 | $195,000 |
Cash from Receivables | $307,375 | $466,911 | $563,757 |
Subtotal Cash from Operations | $438,375 | $629,411 | $758,757 |
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 | $438,375 | $629,411 | $758,757 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $270,000 | $383,000 | $446,000 |
Bill Payments | $177,952 | $258,466 | $293,457 |
Subtotal Spent on Operations | $447,952 | $641,466 | $739,457 |
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 | $19,992 | $19,992 | $19,992 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $0 | $0 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $467,944 | $661,458 | $759,449 |
Net Cash Flow | ($29,569) | ($32,047) | ($692) |
Cash Balance | $144,931 | $112,884 | $112,192 |
7.4 Projected Balance Sheet
The following table highlights the projected balance sheet for the next three years.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $144,931 | $112,884 | $112,192 |
Accounts Receivable | $85,625 | $106,214 | $127,457 |
Other Current Assets | $10,000 | $10,000 | $10,000 |
Total Current Assets | $240,556 | $229,098 | $249,649 |
Long-term Assets | |||
Long-term Assets | $0 | $0 | $0 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $0 | $0 | $0 |
Total Assets | $240,556 | $229,098 | $249,649 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $28,733 | $20,573 | $24,437 |
Current Borrowing | $0 | $0 | $0 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $28,733 | $20,573 | $24,437 |
Long-term Liabilities | $80,008 | $60,016 | $40,024 |
Total Liabilities | $108,741 | $80,589 | $64,461 |
Paid-in Capital | $200,000 | $200,000 | $200,000 |
Retained Earnings | ($115,500) | ($68,185) | ($51,491) |
Earnings | $47,315 | $16,694 | $36,679 |
Total Capital | $131,815 | $148,509 | $185,188 |
Total Liabilities and Capital | $240,556 | $229,098 | $249,649 |
Net Worth | $131,815 | $148,509 | $185,188 |
7.5 Business Ratios
Industry profile ratios based on the Standard Industrial Classification (SIC) code 7372, Prepackaged Software, are shown for comparison.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 24.05% | 20.00% | 9.70% |
Percent of Total Assets | ||||
Accounts Receivable | 35.59% | 46.36% | 51.05% | 21.50% |
Other Current Assets | 4.16% | 4.36% | 4.01% | 45.70% |
Total Current Assets | 100.00% | 100.00% | 100.00% | 70.20% |
Long-term Assets | 0.00% | 0.00% | 0.00% | 29.80% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 11.94% | 8.98% | 9.79% | 42.40% |
Long-term Liabilities | 33.26% | 26.20% | 16.03% | 19.20% |
Total Liabilities | 45.20% | 35.18% | 25.82% | 61.60% |
Net Worth | 54.80% | 64.82% | 74.18% | 38.40% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 97.86% | 97.92% | 97.88% | 100.00% |
Selling, General & Administrative Expenses | 88.83% | 95.35% | 93.18% | 79.40% |
Advertising Expenses | 10.00% | 10.00% | 10.00% | 1.30% |
Profit Before Interest and Taxes | 14.60% | 4.75% | 7.36% | 2.20% |
Main Ratios | ||||
Current | 8.37 | 11.14 | 10.22 | 1.51 |
Quick | 8.37 | 11.14 | 10.22 | 1.16 |
Total Debt to Total Assets | 45.20% | 35.18% | 25.82% | 61.60% |
Pre-tax Return on Net Worth | 51.28% | 16.06% | 28.29% | 3.50% |
Pre-tax Return on Assets | 28.10% | 10.41% | 20.99% | 9.20% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 9.03% | 2.57% | 4.70% | n.a |
Return on Equity | 35.90% | 11.24% | 19.81% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 4.59 | 4.59 | 4.59 | n.a |
Collection Days | 56 | 72 | 73 | n.a |
Accounts Payable Turnover | 7.19 | 12.17 | 12.17 | n.a |
Payment Days | 31 | 36 | 28 | n.a |
Total Asset Turnover | 2.18 | 2.84 | 3.12 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.82 | 0.54 | 0.35 | n.a |
Current Liab. to Liab. | 0.26 | 0.26 | 0.38 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $211,823 | $208,525 | $225,212 | n.a |
Interest Coverage | 8.58 | 4.41 | 11.48 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.46 | 0.35 | 0.32 | n.a |
Current Debt/Total Assets | 12% | 9% | 10% | n.a |
Acid Test | 5.39 | 5.97 | 5.00 | n.a |
Sales/Net Worth | 3.98 | 4.38 | 4.21 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |