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Fargo Medical Laboratories
Financial Plan
The following sections will outline important financial information.
7.1 Important Assumptions
The following table includes important financial assumptions.
| 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 Break-even Analysis
The Break-even Analysis indicates what will be needed in monthly revenue to reach the break even point.
| Break-even Analysis | |
| Monthly Revenue Break-even | $15,388 |
| Assumptions: | |
| Average Percent Variable Cost | 35% |
| Estimated Monthly Fixed Cost | $10,002 |
7.3 Business Ratios
The following chart provides business ratios for Fargo Medical Laboratories as well as for the blood-related health industry, SIC Code 8099.01. Fargo Medical Laboratories’ ratios are consistent with the industry, with the exception of liabilities because it is a start-up organization that is relying on financing for its start-up costs.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 157.46% | 10.45% | 7.73% |
| Percent of Total Assets | ||||
| Accounts Receivable | 28.45% | 57.95% | 60.94% | 28.59% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 42.01% |
| Total Current Assets | 35.47% | 61.72% | 75.71% | 72.68% |
| Long-term Assets | 64.53% | 38.28% | 24.29% | 27.32% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 11.14% | 10.18% | 10.66% | 36.54% |
| Long-term Liabilities | 174.60% | 127.62% | 111.54% | 22.81% |
| Total Liabilities | 185.74% | 137.80% | 122.20% | 59.35% |
| Net Worth | -85.74% | -37.80% | -22.20% | 40.65% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 65.00% | 65.00% | 65.00% | 100.00% |
| Selling, General & Administrative Expenses | 138.75% | 61.53% | 58.82% | 81.83% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 1.10% |
| Profit Before Interest and Taxes | -57.31% | 10.73% | 13.50% | 0.61% |
| Main Ratios | ||||
| Current | 3.18 | 6.06 | 7.10 | 1.64 |
| Quick | 3.18 | 6.06 | 7.10 | 1.32 |
| Total Debt to Total Assets | 185.74% | 137.80% | 122.20% | 0.81% |
| Pre-tax Return on Net Worth | 93.56% | -27.56% | -88.79% | 66.74% |
| Pre-tax Return on Assets | -80.22% | 10.42% | 19.71% | 2.43% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | -73.97% | 3.30% | 5.94% | n.a |
| Return on Equity | 0.00% | 0.00% | 0.00% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 2.86 | 2.86 | 2.86 | n.a |
| Collection Days | 54 | 89 | 122 | n.a |
| Accounts Payable Turnover | 7.99 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 28 | 29 | n.a |
| Total Asset Turnover | 1.08 | 2.21 | 2.32 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.00 | 0.00 | 0.00 | n.a |
| Current Liab. to Liab. | 0.06 | 0.07 | 0.09 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $22,012 | $58,961 | $78,141 | n.a |
| Interest Coverage | -3.44 | 1.78 | 2.69 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.92 | 0.45 | 0.43 | n.a |
| Current Debt/Total Assets | 11% | 10% | 11% | n.a |
| Acid Test | 0.63 | 0.37 | 1.38 | n.a |
| Sales/Net Worth | 0.00 | 0.00 | 0.00 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
7.4 Projected Profit and Loss
The following table will show annual projected profit and loss. A net loss will occur the first year, with well developed profit in year two and year three.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $98,134 | $252,654 | $279,054 |
| Direct Cost of Sales | $34,347 | $88,429 | $97,669 |
| Other Costs of Sales | $0 | $0 | $0 |
| Total Cost of Sales | $34,347 | $88,429 | $97,669 |
| Gross Margin | $63,787 | $164,225 | $181,385 |
| Gross Margin % | 65.00% | 65.00% | 65.00% |
| Expenses | |||
| Payroll | $75,500 | $88,000 | $92,000 |
| Sales and Marketing and Other Expenses | $2,400 | $3,000 | $3,500 |
| Depreciation | $14,604 | $14,604 | $14,604 |
| Rent | $12,000 | $13,500 | $14,500 |
| Utilities | $1,800 | $1,800 | $1,800 |
| Insurance | $2,400 | $3,000 | $3,500 |
| Payroll Taxes | $11,325 | $13,200 | $13,800 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $120,029 | $137,104 | $143,704 |
| Profit Before Interest and Taxes | ($56,242) | $27,121 | $37,681 |
| EBITDA | ($41,638) | $41,725 | $52,285 |
| Interest Expense | $16,350 | $15,200 | $14,000 |
| Taxes Incurred | $0 | $3,576 | $7,104 |
| Net Profit | ($72,592) | $8,345 | $16,577 |
| Net Profit/Sales | -73.97% | 3.30% | 5.94% |
7.5 Projected Cash Flow
The following chart and table describe the projected cash flow. Because we will have a large starting balance because of our initial bank loan, our cash flow should be strong enough to cover our expenses as the business becomes established. The only concern will be to monitor the accounts receivable balances, since the majority of our revenue will be in receivables.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $24,533 | $63,164 | $69,764 |
| Cash from Receivables | $47,853 | $148,948 | $202,364 |
| Subtotal Cash from Operations | $72,386 | $212,112 | $272,127 |
| 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 | $26,000 | $0 |
| Subtotal Cash Received | $72,386 | $238,112 | $272,127 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $75,500 | $88,000 | $92,000 |
| Bill Payments | $70,537 | $140,143 | $154,709 |
| Subtotal Spent on Operations | $146,037 | $228,143 | $246,709 |
| 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 | $12,000 | $12,000 | $12,000 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $158,037 | $240,143 | $258,709 |
| Net Cash Flow | ($85,651) | ($2,031) | $13,419 |
| Cash Balance | $6,349 | $4,318 | $17,737 |
7.6 Projected Balance Sheet
The following table will indicate the projected balance sheet. We will achieve positive Net Worth in the second and third years.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $6,349 | $4,318 | $17,737 |
| Accounts Receivable | $25,748 | $66,290 | $73,216 |
| Other Current Assets | $0 | $0 | $0 |
| Total Current Assets | $32,097 | $70,608 | $90,953 |
| Long-term Assets | |||
| Long-term Assets | $73,000 | $73,000 | $73,000 |
| Accumulated Depreciation | $14,604 | $29,208 | $43,812 |
| Total Long-term Assets | $58,396 | $43,792 | $29,188 |
| Total Assets | $90,493 | $114,400 | $120,141 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $10,085 | $11,647 | $12,811 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $10,085 | $11,647 | $12,811 |
| Long-term Liabilities | $158,000 | $146,000 | $134,000 |
| Total Liabilities | $168,085 | $157,647 | $146,811 |
| Paid-in Capital | $0 | $26,000 | $26,000 |
| Retained Earnings | ($5,000) | ($77,592) | ($69,247) |
| Earnings | ($72,592) | $8,345 | $16,577 |
| Total Capital | ($77,592) | ($43,247) | ($26,671) |
| Total Liabilities and Capital | $90,493 | $114,400 | $120,141 |
| Net Worth | ($77,592) | ($43,247) | ($26,671) |