Our financial picture is encouraging. If we can secure the levels of financial support we are now seeking, we will be able to improve on forecasted results.
7.1 Important Assumptions
The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are as follows:
General Assumptions
2001
2002
2003
Plan Month
1
2
3
Current Interest Rate
12.00%
12.00%
12.00%
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
Our Break-even Analysis is based on true observed expenses over the last three years. Including payroll, rent, utilities, insurance, and basic marketing costs, our observation is that $80,000 is a realistic estimate.
Break-even Analysis
Monthly Units Break-even
1,554
Monthly Revenue Break-even
$142,484
Assumptions:
Average Per-Unit Revenue
$91.70
Average Per-Unit Variable Cost
$39.68
Estimated Monthly Fixed Cost
$80,822
7.3 Projected Profit and Loss
The company’s projected Income Statements are presented below.
Pro Forma Profit and Loss
2001
2002
2003
Sales
$4,479,283
$10,087,800
$18,048,700
Direct Cost of Sales
$1,938,489
$4,845,600
$8,975,300
Production Payroll
$99,600
$129,000
$266,000
Comissions
$67,577
$166,000
$325,000
Total Cost of Sales
$2,105,666
$5,140,600
$9,566,300
Gross Margin
$2,373,617
$4,947,200
$8,482,400
Gross Margin %
52.99%
49.04%
47.00%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll
$116,000
$261,000
$455,000
Advertising/Promotion
$323,171
$400,000
$500,000
Travel
$84,000
$100,000
$200,000
Miscellaneous
$69,000
$100,000
$125,000
Total Sales and Marketing Expenses
$592,171
$861,000
$1,280,000
Sales and Marketing %
13.22%
8.54%
7.09%
General and Administrative Expenses
General and Administrative Payroll
$66,000
$124,000
$154,000
Sales and Marketing and Other Expenses
$0
$0
$0
Depreciation
$72,000
$72,000
$72,000
Leased Equipment
$18,784
$25,000
$60,000
Utilities/Phone/Postage
$28,484
$90,000
$200,000
Insurance
$37,440
$75,000
$100,000
Rent
$22,500
$30,000
$50,000
Payroll Taxes
$84,480
$190,200
$319,500
Other General and Administrative Expenses
$0
$0
$0
Total General and Administrative Expenses
$329,688
$606,200
$955,500
General and Administrative %
7.36%
6.01%
5.29%
Other Expenses:
Other Payroll
$0
$120,000
$190,000
Consultants
$0
$0
$0
Contract/Consultants
$48,000
$30,000
$50,000
Total Other Expenses
$48,000
$150,000
$240,000
Other %
1.07%
1.49%
1.33%
Total Operating Expenses
$969,859
$1,617,200
$2,475,500
Profit Before Interest and Taxes
$1,403,758
$3,330,000
$6,006,900
EBITDA
$1,475,758
$3,402,000
$6,078,900
Interest Expense
$137,050
$138,700
$124,900
Taxes Incurred
$314,915
$797,825
$1,495,008
Net Profit
$951,794
$2,393,475
$4,386,992
Net Profit/Sales
21.25%
23.73%
24.31%
7.4 Projected Cash Flow
The chart and table below outlines the projected annual Cash Flow for the first three years of this plan.
Pro Forma Cash Flow
2001
2002
2003
Cash Received
Cash from Operations
Cash Sales
$0
$0
$0
Cash from Receivables
$3,142,915
$8,381,237
$15,626,353
Subtotal Cash from Operations
$3,142,915
$8,381,237
$15,626,353
Additional Cash Received
Sales Tax, VAT, HST/GST Received
$0
$0
$0
New Current Borrowing
$175,000
$0
$0
New Other Liabilities (interest-free)
$0
$0
$0
New Long-term Liabilities
$500,000
$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
$3,817,915
$8,381,237
$15,626,353
Expenditures
2001
2002
2003
Expenditures from Operations
Cash Spending
$281,600
$634,000
$1,065,000
Bill Payments
$2,833,305
$7,681,212
$12,979,610
Subtotal Spent on Operations
$3,114,905
$8,315,212
$14,044,610
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out
$0
$0
$0
Principal Repayment of Current Borrowing
$75,000
$75,000
$75,000
Other Liabilities Principal Repayment
$0
$0
$0
Long-term Liabilities Principal Repayment
$48,000
$48,000
$48,000
Purchase Other Current Assets
$0
$0
$0
Purchase Long-term Assets
$0
$0
$0
Dividends
$0
$0
$0
Subtotal Cash Spent
$3,237,905
$8,438,212
$14,167,610
Net Cash Flow
$580,010
($56,975)
$1,458,743
Cash Balance
$582,816
$525,842
$1,984,585
7.5 Projected Balance Sheet
Load Hog’s projected Balance Sheet is presented below.
Pro Forma Balance Sheet
2001
2002
2003
Assets
Current Assets
Cash
$582,816
$525,842
$1,984,585
Accounts Receivable
$1,362,959
$3,069,521
$5,491,868
Inventory
$437,784
$1,094,318
$2,026,959
Other Current Assets
$5,418
$5,418
$5,418
Total Current Assets
$2,388,977
$4,695,099
$9,508,830
Long-term Assets
Long-term Assets
$362,502
$362,502
$362,502
Accumulated Depreciation
$140,330
$212,330
$284,330
Total Long-term Assets
$222,172
$150,172
$78,172
Total Assets
$2,611,149
$4,845,271
$9,587,002
Liabilities and Capital
2001
2002
2003
Current Liabilities
Accounts Payable
$664,697
$628,345
$1,106,083
Current Borrowing
$485,239
$410,239
$335,239
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$1,149,936
$1,038,584
$1,441,322
Long-term Liabilities
$873,710
$825,710
$777,710
Total Liabilities
$2,023,646
$1,864,294
$2,219,032
Paid-in Capital
$375,886
$375,886
$375,886
Retained Earnings
($740,177)
$211,617
$2,605,092
Earnings
$951,794
$2,393,475
$4,386,992
Total Capital
$587,503
$2,980,978
$7,367,970
Total Liabilities and Capital
$2,611,149
$4,845,271
$9,587,002
Net Worth
$587,503
$2,980,978
$7,367,970
7.6 Business Ratios
The company’s business ratios are presented below, the final column, Industry Profile, contains ratios for the motor vehicle parts and accessories industry, as determined by the standard industry classification (SIC) index code 3714, Motor Vehicle Parts and Accessories.
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