San Francisco Limo
The financial plan is to borrow $25,000 now from private sources or a financial institution, at an interest rate of 10%, to finance the marketing plan (brochures, logo design, and direct mail campaign), as well as to finance down payment on two new vehicles. (See “Milestones”). Most of the cost of the new vehicles will be dealer-financed. These new funds will be repaid through the increased cash flow of the company over the next two years. The $12,000 owed on one existing vehicle will need to be repaid before trading it in.
7.1 Important Assumptions
- Short-term Interest Rate: An interest rate of 10% is assumed on the $25,000 in borrowings to be obtained in May 1999 from private sources or a financial institution.
- Long-term Debt: An interest rate of .9% is assumed on auto dealer financing.
- Payment Days: This relates to normal accounts payable. Assume 30 days.
- Collection Days: This relates primarily to corporate client and CATA revenue. Assumption is 60 days. Since this represents only a portion of total revenues, we have assumed only 10% of sales are on credit. Most revenue is on a credit card basis with payment coming within a few days. See below – “sales on credit.”
- Tax Rate: The California corporate tax rate on profits is 9.5%. Added to this is the federal corporate tax rate on profits up to $50,000 of 15%. Total: 24.5%.
- Sales on Credit: Assume only 10% of total sales are on 60 days credit. We regard the credit card sales as a cash sale for projection purposes.
- Personnel Burden: The employer’s cost of various contributions totals 12.65% based on total payroll.
|Current Interest Rate||10.00%||10.00%||10.00%|
|Long-term Interest Rate||0.90%||0.90%||0.90%|
7.2 Key Financial Indicators
The following chart shows our past, as well as our projected, benchmarks.
7.3 Break-even Analysis
Assuming for every hour the San Francisco Limo hires out its services it will collect $45 net of any tolls, credit card charges, of other reimbursable fees, there are certain variable costs:
- Fuel and oil: $2.60
- Labor for Driver: $10.14 (all inclusive)
- Total variable: $12.74
For every hour that a car is hired, a net revenue is produced of $32.26 ($45 less $12.74) to go toward paying the company’s fixed costs. These fixed costs (not including the extraordinary marketing expenses planned for 1999) total $4,258. According to the Break-even Analysis, 132 hours of hired service per month need to be provided in order to break even. This compares favorably to a hire service capacity of 480 hours per month (40 hrs/wk for each of three cars). At an hourly hire of $43 the break-even point would be 141 hours. At $48 per hour break-even comes at 121 hours.
|Monthly Revenue Break-even||$6,551|
|Average Percent Variable Cost||35%|
|Estimated Monthly Fixed Cost||$4,258|
7.4 Projected Profit and Loss
- Yellow Pages Ads: San Francisco Limo has committed to quarter column ads in three local directories (directories #422, 540, and 584) at a monthly cost of $28, $35, and $32 respectively, as well as “one inch in-column” ads in directories #322 and #222 (Beverly, Topsfield, Danvers/San Francisco, San Jose, Danvers) at a monthly cost of $55 each. Total monthly expense is $205. These new directories are appearing in April/May 1999.
- Brochures: These brochures will primarily be delivered to B&Bs and assisted living institutions, as well as be mailed to targeted wealthy households in the area. The numbers for May reflect the $6,500 spent on these brochures. A logo needs to be designed for both the brochure and the letterhead $500.
- Depreciation: (A) Office furniture (total $2,000 as at 12/31/98) is being depreciated over seven years. Straight line method. $23.80 per month. (B) The two new sedans planned for acquisition in May 1999 (cost $27,205 each) will have an estimated depreciated value after 18 months of $15,500 each. Depreciation for both vehicles totals $1,300 monthly. It is assumed that at the end of an 18 month period, these vehicles will be sold at the net book value and will be replaced at the same acquisition cost by two similar vehicles. At the end of 1999 the 1991 Pontiac will be sold and replaced with a new vehicle also at a cost of $27,205, which will have monthly depreciation of $650 and will be replaced in similar manner as the other vehicles.
- Garage Rental: $200 monthly for garage located in Lynn that serves partly as home base/office.
- Fuel: Vehicle mileage is approximately 17-18 mpg. Fuel used is 93 octane costing about $1.20 per gallon. It is assumed that to achieve every $50 of revenue a vehicle will require two gallons of fuel. In 1999 the revenue is projected at $128,405. This would amount to 5,136 gallons @ $1.20 equalling $6,163.
- Oil Changes: Oil changes are made every 3,000 miles and cost approximately $30. At 18 mpg and assuming two gallons per $50 revenue, for every $4,167 in revenue an oil change is necessary. STRONG>Repairs: The reasoning behind trading in vehicles every 18 months is to avoid downtime and expenditures in repairs. However, even new vehicles require some attention (including tires, etc). An expense of $800 per month per vehicles until the present vehicles are replaced with new ones, after which $100 per month per vehicle.
- Washing and Waxing: Assume 6 washes per month per vehicle @ $20.
- Airport Fees: An airport fee of $1.35 is charged on pickups at SFO but not on drop-offs. Assume that 90% of Transfer and Corporate Client revenue involves SFO Airport. Assume 50% of that involves a pickup.
- Dues and Subscriptions: Charges for daily newspapers supplied for clients. $660 annually.
- Registration and Transfers: $85 per vehicle every other year, and $35 on sale of vehicle to transfer plates.
- Excise Tax: This is set by the town at $13 per $1,000.
- Insurance: Insurance will depend on the coverage. According to John Walsh Insurance in San Francisco, they insure a livery company with five vehicles (not carrying passengers) at an annual cost of $12,000. Assume $2,000 per vehicle.
- Telephone: San Francisco Limo has an 800 number at $35/month, a cell phone from Nextel with 300 free minutes at $300 per month (.43/minute thereafter) averaging $350/month, three walkie-talkie units with unlimited usage at $40 each, and two land lines averaging $100/month. Total: $605/month. We have increased this in 2000 and 2001 to reflect increased sales activity.
- Payroll: See section “Payroll” for explanation of assumptions on salaries.
- Accounting: $680 payable every four months.
- Miscellaneous: Includes postage, uniforms, office supplies, fines and tickets, etc. Assume $100/month.
- Self-mailer Campaign: Once the brochures are ready (June), a list will be purchased (at approx. $300) of the $3,600 wealthy households in the area. The cost for mailing these will be spread out over a period of six months. Mailing, including folding, sticker closing, and franking will cost about .38 each ($380 June, September, and November).
- Leased Equipment: This $55 refers to monthly rental of credit card equipment.
|Pro Forma Profit and Loss|
|Direct Cost of Sales||$0||$0||$0|
|Total Cost of Sales||$0||$0||$0|
|Gross Margin %||100.00%||100.00%||100.00%|
|Sales and Marketing and Other Expenses||$50,754||$32,805||$36,087|
|Total Operating Expenses||$121,384||$129,977||$156,500|
|Profit Before Interest and Taxes||$7,021||$60,238||$70,060|
7.5 Projected Cash Flow
Capital Expenditures: The remaining $12,000 owed on the 1996 has to be repaid and the two present vehicles (the 1994 and the 1996) sold for a combined price of $9,500. To meet the cash requirements for this repayment, the company will secure a one-month $4,000 loan from its bank. This short-term loan is reflected as a corresponding increase in the April’s Current Borrowing and a subsequent decrease in the same line in May. The sales transaction of the two old vehicles in the amount of $9,500 is reflected in April’s cash flow. The purchase transaction in May for each car resulted in:
- Increase in Capital Assets (vehicle): $27,205
- Increase in Long-Term Borrowing (dealer financing): $21,764
- Monthly Depreciation Provision: $650
- Monthly Repayment Loan Principal: $613.
At the end of 18 months, these cars will be sold for an estimated price of $15,500 each and two new cars (same transaction as above) will replace them. The sale transaction for each car will be:
- Decrease Capital Assets (vehicle): $27,205
- Decrease Accumulated Depreciation: $11,705
- Repay Outstanding Loan Balance: $10,730
- Increase Cash From Sale: $15,500.
The net effect of the buy/sell per car is:
- Decrease Accumulated Depreciation: $11,705
- Increase Dealer Financing Per Car: $11,034
- Increase Cash From Sale: $15,500. In December of 1999 a 6-7 passenger van will be purchased. For sake of simplicity of projections, we will assume the same price and financial arrangements as for the Mercury Marquis. In similar fashion, this vehicle will also be traded in after 18 months.
- Other Liabilities: Some outstanding debts remain from the start-up period, including tunnel charges (Fast Lane) amounting to $3,500. This amount is repaid in 2001 in a lump sum. There is also the matter of repayment of the $26,500 borrowed from private sources at the start of the business.
|Pro Forma Cash Flow|
|Cash from Operations|
|Cash from Receivables||$14,115||$17,709||$21,885|
|Subtotal Cash from Operations||$129,679||$188,903||$225,789|
|Additional Cash Received|
|Sales Tax, VAT, HST/GST Received||$0||$0||$0|
|New Current Borrowing||$21,000||$0||$0|
|New Other Liabilities (interest-free)||$0||$0||$0|
|New Long-term Liabilities||$64,099||$0||$0|
|Sales of Other Current Assets||$0||$0||$0|
|Sales of Long-term Assets||$12,000||$0||$0|
|New Investment Received||$0||$0||$0|
|Subtotal Cash Received||$226,778||$188,903||$225,789|
|Expenditures from Operations|
|Subtotal Spent on Operations||$109,450||$145,397||$162,386|
|Additional Cash Spent|
|Sales Tax, VAT, HST/GST Paid Out||$0||$0||$0|
|Principal Repayment of Current Borrowing||$8,000||$15,000||$10,000|
|Other Liabilities Principal Repayment||$0||$0||$3,500|
|Long-term Liabilities Principal Repayment||$7,164||$0||$10,494|
|Purchase Other Current Assets||$0||$0||$0|
|Purchase Long-term Assets||$81,615||$0||$0|
|Subtotal Cash Spent||$206,229||$160,397||$186,380|
|Net Cash Flow||$20,550||$28,506||$39,408|
7.6 Projected Balance Sheet
Except for $2,000 in office equipment at the end of 1998, capital assets represents three vehicles. The 1994 and 1996 sedans will be sold in May and replaced by two new Mercury Marquis at a book value of $27,205 each. The third vehicle (1991 Pontiac) will remain in service until the end of 1999, at which time it will be replaced by a Town and Country six to seven passenger van at an acquisition price of $27,205.
Capital assets of $12,000 (net of above equipment) represents the net book value of three vehicles which are to be traded in during 1999. This figure of $12,000 is the net amount expected to be realized at the time of the planned trade-ins. Therefore no further depreciation has been provided for these vehicles. Inventory represents uniforms purchased but not yet written off.
|Pro Forma Balance Sheet|
|Other Current Assets||$0||$0||$0|
|Total Current Assets||$24,475||$54,293||$94,473|
|Total Long-term Assets||$72,930||$72,652||$60,669|
|Liabilities and Capital||1999||2000||2001|
|Other Current Liabilities||$3,500||$3,500||$0|
|Subtotal Current Liabilities||$33,320||$19,269||$6,288|
|Total Liabilities and Capital||$97,405||$126,945||$155,142|
7.7 Business Ratios
The following table represents San Francisco Limo’s Business Ratios. Industry standards are taken from SIC code 4119, “other local transportation.”
|Percent of Total Assets|
|Other Current Assets||0.00%||0.00%||0.00%||47.00%|
|Total Current Assets||25.13%||42.77%||60.89%||64.90%|
|Percent of Sales|
|Selling, General & Administrative Expenses||97.34%||77.08%||77.06%||55.40%|
|Profit Before Interest and Taxes||5.47%||31.67%||30.92%||2.10%|
|Total Debt to Total Assets||119.87%||80.90%||51.07%||56.20%|
|Pre-tax Return on Net Worth||-23.41%||238.17%||90.70%||3.50%|
|Pre-tax Return on Assets||4.65%||45.48%||44.38%||8.10%|
|Net Profit Margin||2.69%||22.92%||22.81%||n.a|
|Return on Equity||0.00%||179.82%||68.07%||n.a|
|Accounts Receivable Turnover||4.71||4.71||4.71||n.a|
|Accounts Payable Turnover||14.71||12.17||12.17||n.a|
|Total Asset Turnover||1.32||1.50||1.46||n.a|
|Debt to Net Worth||0.00||4.24||1.04||n.a|
|Current Liab. to Liab.||0.29||0.19||0.08||n.a|
|Net Working Capital||($8,845)||$35,025||$88,185||n.a|
|Assets to Sales||0.76||0.67||0.68||n.a|
|Current Debt/Total Assets||34%||15%||4%||n.a|