Inventory Control Software Business Plan

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.

Inventory control software business plan, financial plan chart image

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