ISP Business Plan

Web Solutions, Inc.

Financial Plan

This section presents our financial projections for the term of the plan.

The company is raising a large investment for the purpose of growth and operations. This funding will cover operating expenses and product development during this period. The following is a breakdown of how the funds will be used.

Expenses:	Costs:
Advertising	$50,000
Legal Fees	$10,000
Office	$40,000
Working Capital	$100,000
Miscellaneous	$50,000
Sub-total	$250,000
Product Development:	$1,250,000
Total	$1,500,000

7.1 Important Assumptions

Nature and Limitation of Projections. This financial projection is based on sales volume at the levels described in the revenue section and presents, to the best of management’s knowledge and belief, the company’s expected assets, liabilities, capital, revenues, and expenses. The projections reflect management’s judgement of the expected conditions and its expected course of action, given the hypothetical assumptions.
Revenues. The company’s revenue is derived primarily from subscriptions. Revenue projections are based on the 1999 sales in the comparable market nationwide, based on industry average. The exact numbers can be found in the Sales Forecast table and chart section.
Expenses. The company’s expenses are primarily those of salaries, sales commissions, and administrative costs. Other expenses are based on management’s estimates and industry averages.

General Assumptions
	2000	2001	2002
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 Break-even Analysis

The following table and chart reflect the company’s break-even estimates. These are based on fixed and variable cost estimates derived from past income statement data. Given that Web Solutions has little in the way of marginal costs, the break even analysis reflects the industry’s high gross margins. Unless one of the potential future risks seriously impacts profitability, or the company loses its ability to rapidly adjust to changing market conditions, the company does not see this as a serious issue.

Isp business plan, financial plan chart image

Break-even Analysis


Monthly Revenue Break-even	$41,368

Assumptions:
Average Percent Variable Cost	5%
Estimated Monthly Fixed Cost	$39,228

7.3 Projected Profit and Loss

Web Solutions is in the early stage of development, thus initial projections have only been made on accounts that are believed to most drive the income statement. The following table provides Web Solution’s projected income statements for 2000-2002.

Pro Forma Profit and Loss
	2000	2001	2002
Sales	$1,500,000	$4,500,000	$7,500,000
Direct Cost of Sales	$77,596	$84,296	$88,796
Other	$0	$0	$0
Total Cost of Sales	$77,596	$84,296	$88,796

Gross Margin	$1,422,404	$4,415,704	$7,411,204
Gross Margin %	94.83%	98.13%	98.82%


Expenses
Payroll	$307,800	$342,400	$392,400
Sales and Marketing and Other Expenses	$41,468	$41,468	$41,468
Depreciation	$0	$0	$0
Legal Fees	$300	$300	$300
Utilities	$3,600	$3,600	$3,600
Insurance	$4,200	$4,200	$4,200
Mortgage	$67,200	$67,200	$67,200
Payroll Taxes	$46,170	$51,360	$58,860
Other	$0	$0	$0

Total Operating Expenses	$470,738	$510,528	$568,028

Profit Before Interest and Taxes	$951,666	$3,905,176	$6,843,176
EBITDA	$951,666	$3,905,176	$6,843,176
Interest Expense	$62,256	$43,614	$27,097
Taxes Incurred	$226,397	$965,390	$1,732,420

Net Profit	$663,013	$2,896,171	$5,083,659
Net Profit/Sales	44.20%	64.36%	67.78%

7.4 Projected Cash Flow

This chart and table show our cash flow and cash balance projections.

Pro Forma Cash Flow
	2000	2001	2002
Cash Received

Cash from Operations
Cash Sales	$1,275,000	$3,825,000	$6,375,000
Cash from Receivables	$213,735	$605,470	$1,055,470
Subtotal Cash from Operations	$1,488,735	$4,430,470	$7,430,470

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	$1,488,735	$4,430,470	$7,430,470

Expenditures	2000	2001	2002

Expenditures from Operations
Cash Spending	$307,800	$342,400	$392,400
Bill Payments	$560,320	$1,197,305	$1,961,269
Subtotal Spent on Operations	$868,120	$1,539,705	$2,353,669

Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	$0	$0	$0
Principal Repayment of Current Borrowing	$60,000	$30,338	$0
Other Liabilities Principal Repayment	$0	$0	$0
Long-term Liabilities Principal Repayment	$150,000	$150,000	$150,000
Purchase Other Current Assets	$0	$0	$0
Purchase Long-term Assets	$0	$0	$0
Dividends	$0	$0	$0
Subtotal Cash Spent	$1,078,120	$1,720,043	$2,503,669

Net Cash Flow	$410,615	$2,710,427	$4,926,801
Cash Balance	$523,228	$3,233,655	$8,160,456

7.5 Projected Balance Sheet

The following table outlines Web Solution’s projected balance sheets for fiscal years 2000-2002.

Pro Forma Balance Sheet
	2000	2001	2002
Assets

Current Assets
Cash	$523,228	$3,233,655	$8,160,456
Accounts Receivable	$34,765	$104,295	$173,825
Other Current Assets	$34,650	$34,650	$34,650
Total Current Assets	$592,643	$3,372,600	$8,368,931

Long-term Assets
Long-term Assets	$331,650	$331,650	$331,650
Accumulated Depreciation	$0	$0	$0
Total Long-term Assets	$331,650	$331,650	$331,650
Total Assets	$924,293	$3,704,250	$8,700,581

Liabilities and Capital	2000	2001	2002

Current Liabilities
Accounts Payable	$39,555	$103,679	$166,351
Current Borrowing	$30,337	($1)	($1)
Other Current Liabilities	$0	$0	$0
Subtotal Current Liabilities	$69,892	$103,678	$166,350

Long-term Liabilities	$495,975	$345,975	$195,975
Total Liabilities	$565,867	$449,653	$362,325

Paid-in Capital	$0	$0	$0
Retained Earnings	($304,587)	$358,426	$3,254,597
Earnings	$663,013	$2,896,171	$5,083,659
Total Capital	$358,426	$3,254,597	$8,338,256
Total Liabilities and Capital	$924,293	$3,704,250	$8,700,581

Net Worth	$358,426	$3,254,597	$8,338,256

7.6 Business Ratios

Standard business ratios are shown in this table. Industry Profile ratios are based on NAICS code 518111 for Internet Service Providers.

Ratio Analysis
	2000	2001	2002	Industry Profile
Sales Growth	21.21%	200.00%	66.67%	15.97%

Percent of Total Assets
Accounts Receivable	3.76%	2.82%	2.00%	23.91%
Other Current Assets	3.75%	0.94%	0.40%	56.89%
Total Current Assets	64.12%	91.05%	96.19%	85.48%
Long-term Assets	35.88%	8.95%	3.81%	14.52%
Total Assets	100.00%	100.00%	100.00%	100.00%

Current Liabilities	7.56%	2.80%	1.91%	28.28%
Long-term Liabilities	53.66%	9.34%	2.25%	19.52%
Total Liabilities	61.22%	12.14%	4.16%	47.80%
Net Worth	38.78%	87.86%	95.84%	52.20%

Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	94.83%	98.13%	98.82%	100.00%
Selling, General & Administrative Expenses	50.52%	33.89%	30.75%	74.12%
Advertising Expenses	1.67%	0.56%	0.33%	1.33%
Profit Before Interest and Taxes	63.44%	86.78%	91.24%	2.07%

Main Ratios
Current	8.48	32.53	50.31	2.18
Quick	8.48	32.53	50.31	1.67
Total Debt to Total Assets	61.22%	12.14%	4.16%	59.04%
Pre-tax Return on Net Worth	248.14%	118.65%	81.74%	3.94%
Pre-tax Return on Assets	96.23%	104.25%	78.34%	9.61%

Additional Ratios	2000	2001	2002
Net Profit Margin	44.20%	64.36%	67.78%	n.a
Return on Equity	184.98%	88.99%	60.97%	n.a

Activity Ratios
Accounts Receivable Turnover	6.47	6.47	6.47	n.a
Collection Days	59	38	45	n.a
Accounts Payable Turnover	13.38	12.17	12.17	n.a
Payment Days	31	21	24	n.a
Total Asset Turnover	1.62	1.21	0.86	n.a

Debt Ratios
Debt to Net Worth	1.58	0.14	0.04	n.a
Current Liab. to Liab.	0.12	0.23	0.46	n.a

Liquidity Ratios
Net Working Capital	$522,751	$3,268,922	$8,202,581	n.a
Interest Coverage	15.29	89.54	252.54	n.a

Additional Ratios
Assets to Sales	0.62	0.82	1.16	n.a
Current Debt/Total Assets	8%	3%	2%	n.a
Acid Test	7.98	31.52	49.26	n.a
Sales/Net Worth	4.18	1.38	0.90	n.a
Dividend Payout	0.00	0.00	0.00	n.a