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.
| 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 |
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