Group Publishing, Inc.
Financial Plan
After initial capitalization growth can be financed largely through internal cash flow provided subscription targets are met. In the event of a sales shortfall, marketing can be cut back temporarily to preserve cash. Or, more likely, additional investment may be sought to re-accelerate productive campaigns if growth demands more funding.
The company created by this plan will generate cash as soon as subscription base reaches critical mass.
7.1 Important Assumptions
The following table illustrates the financial assumptions used as the basis for this plan. The key element is six inventory turns per year. This reflects the issues of the magazine as well as ad revenue. Ad space is treated as an inventory item.
Subscriptions are paid in advance. Only 10% of receivables are collected in 30 days, primarily from wholesale accounts. These are notoriously slow payors, so care must be taken not to let these collections run past 60 days. This will be more significant if book sales become a higher-than-expected percentage of revenue.
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 Key Financial Indicators
The following chart represents changes in critical profit variables. Note that margins and expenses are consistently controlled and net profit increases nicely. Inventory turns slow down somewhat in the third year due to the burden of higher inventories for increasing book sales.

7.3 Break-even Analysis
This break-even analysis is applicable to the early 1997 time frame only. Key fixed costs represent the “burn” rate prior to major acceleration of marketing plans. Thus, if subscriptions didn’t flow in as planned this represents the point at which the company could continue to survive without increasing marketing. In that event, management could “buy” time to raise additional capital.

Break-even Analysis | |
Monthly Units Break-even | 7,584 |
Monthly Revenue Break-even | $92,759 |
Assumptions: | |
Average Per-Unit Revenue | $12.23 |
Average Per-Unit Variable Cost | $2.44 |
Estimated Monthly Fixed Cost | $74,223 |
7.4 Projected Profit and Loss
We expect net income to near $1 million in year one and $2.4 million in year three. Net profit margins will improve as subscriptions mature and marketing costs decrease.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $3,101,771 | $4,787,330 | $6,378,100 |
Direct Cost of Sales | $619,816 | $990,350 | $1,305,000 |
Production Payroll | $0 | $0 | $0 |
Author’s Royalties: 15% | $80,754 | $172,995 | $275,475 |
Total Cost of Sales | $700,570 | $1,163,345 | $1,580,475 |
Gross Margin | $2,401,201 | $3,623,985 | $4,797,625 |
Gross Margin % | 77.41% | 75.70% | 75.22% |
Operating Expenses | |||
Sales and Marketing Expenses | |||
Sales and Marketing Payroll | $51,000 | $70,000 | $77,000 |
Advertising/Promotion | $386,176 | $72,000 | $90,000 |
Travel | $7,500 | $9,000 | $11,000 |
Entertainment & Meals | $2,400 | $3,000 | $3,600 |
Miscellaneous | $12,000 | $15,000 | $18,000 |
Total Sales and Marketing Expenses | $459,076 | $169,000 | $199,600 |
Sales and Marketing % | 14.80% | 3.53% | 3.13% |
General and Administrative Expenses | |||
General and Administrative Payroll | $160,800 | $236,000 | $270,000 |
Marketing/Promotion | $0 | $0 | $0 |
Depreciation | $0 | $0 | $0 |
Leased Equipment | $10,200 | $12,500 | $14,000 |
Telephone | $7,200 | $7,500 | $7,800 |
Postage | $138,200 | $279,000 | $465,000 |
Rent | $30,000 | $30,000 | $36,000 |
Utilities | $9,000 | $10,000 | $10,500 |
Insurance | $12,000 | $12,000 | $14,000 |
Payroll Taxes | $0 | $0 | $0 |
Other General and Administrative Expenses | $0 | $0 | $0 |
Total General and Administrative Expenses | $367,400 | $587,000 | $817,300 |
General and Administrative % | 11.84% | 12.26% | 12.81% |
Other Expenses: | |||
Other Payroll | $64,200 | $66,000 | $72,000 |
Consultants | $0 | $0 | $0 |
Other Expenses | $0 | $0 | $0 |
Total Other Expenses | $64,200 | $66,000 | $72,000 |
Other % | 2.07% | 1.38% | 1.13% |
Total Operating Expenses | $890,676 | $822,000 | $1,088,900 |
Profit Before Interest and Taxes | $1,510,525 | $2,801,985 | $3,708,725 |
EBITDA | $1,510,525 | $2,801,985 | $3,708,725 |
Interest Expense | $0 | $0 | $0 |
Taxes Incurred | $453,157 | $840,596 | $1,112,618 |
Net Profit | $1,057,368 | $1,961,390 | $2,596,108 |
Net Profit/Sales | 34.09% | 40.97% | 40.70% |
7.5 Projected Cash Flow
The table below illustrates cash accumulation from the initial assumption of $150K capital infusion. At no point does the company run out of cash. We expect to buy back the initial outside investment in year three.
The chart illustrates the critical cash flow in year one. Note that early contributions on a monthly basis are minimal and only gain momentum in the second half of the year. If shortfalls occur early on more capital may be required.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $2,791,594 | $4,308,597 | $5,740,290 |
Cash from Receivables | $242,574 | $441,996 | $603,139 |
Subtotal Cash from Operations | $3,034,168 | $4,750,593 | $6,343,429 |
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 | $3,034,168 | $4,750,593 | $6,343,429 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $276,000 | $372,000 | $419,000 |
Bill Payments | $1,582,258 | $2,577,550 | $3,334,557 |
Subtotal Spent on Operations | $1,858,258 | $2,949,550 | $3,753,557 |
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 | $0 | $0 | $0 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $0 | $0 |
Dividends | $0 | $0 | $1,500,000 |
Subtotal Cash Spent | $1,858,258 | $2,949,550 | $5,253,557 |
Net Cash Flow | $1,175,910 | $1,801,044 | $1,089,872 |
Cash Balance | $1,242,910 | $3,043,954 | $4,133,826 |
7.6 Projected Balance Sheet
We project a strong growth in net worth over the next several years.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $1,242,910 | $3,043,954 | $4,133,826 |
Accounts Receivable | $67,603 | $104,339 | $139,010 |
Inventory | $89,856 | $143,573 | $189,188 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $1,400,369 | $3,291,866 | $4,462,024 |
Long-term Assets | |||
Long-term Assets | $0 | $0 | $0 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $0 | $0 | $0 |
Total Assets | $1,400,369 | $3,291,866 | $4,462,024 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $276,001 | $206,109 | $280,160 |
Current Borrowing | $0 | $0 | $0 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $276,001 | $206,109 | $280,160 |
Long-term Liabilities | $0 | $0 | $0 |
Total Liabilities | $276,001 | $206,109 | $280,160 |
Paid-in Capital | $150,000 | $150,000 | $150,000 |
Retained Earnings | ($83,000) | $974,368 | $1,435,757 |
Earnings | $1,057,368 | $1,961,390 | $2,596,108 |
Total Capital | $1,124,368 | $3,085,757 | $4,181,865 |
Total Liabilities and Capital | $1,400,369 | $3,291,866 | $4,462,024 |
Net Worth | $1,124,367 | $3,085,757 | $4,181,864 |
7.7 Business Ratios
These business ratios are limited in value since the company projects no debt. This will also be an advantage if debt capital is desired later without dilution to shareholders. Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 2721, Periodicals, are shown for comparison.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 54.34% | 33.23% | -1.70% |
Percent of Total Assets | ||||
Accounts Receivable | 4.83% | 3.17% | 3.12% | 25.50% |
Inventory | 6.42% | 4.36% | 4.24% | 5.40% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 54.10% |
Total Current Assets | 100.00% | 100.00% | 100.00% | 85.00% |
Long-term Assets | 0.00% | 0.00% | 0.00% | 15.00% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 19.71% | 6.26% | 6.28% | 42.30% |
Long-term Liabilities | 0.00% | 0.00% | 0.00% | 12.30% |
Total Liabilities | 19.71% | 6.26% | 6.28% | 54.60% |
Net Worth | 80.29% | 93.74% | 93.72% | 45.40% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 77.41% | 75.70% | 75.22% | 56.10% |
Selling, General & Administrative Expenses | 43.32% | 34.73% | 34.52% | 39.70% |
Advertising Expenses | 12.45% | 1.50% | 1.41% | 1.90% |
Profit Before Interest and Taxes | 48.70% | 58.53% | 58.15% | 4.20% |
Main Ratios | ||||
Current | 5.07 | 15.97 | 15.93 | 2.16 |
Quick | 4.75 | 15.27 | 15.25 | 1.71 |
Total Debt to Total Assets | 19.71% | 6.26% | 6.28% | 54.60% |
Pre-tax Return on Net Worth | 134.34% | 90.80% | 88.69% | 7.40% |
Pre-tax Return on Assets | 107.87% | 85.12% | 83.12% | 16.20% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 34.09% | 40.97% | 40.70% | n.a |
Return on Equity | 94.04% | 63.56% | 62.08% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 4.59 | 4.59 | 4.59 | n.a |
Collection Days | 56 | 66 | 70 | n.a |
Inventory Turnover | 10.91 | 8.49 | 7.84 | n.a |
Accounts Payable Turnover | 6.73 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 35 | 26 | n.a |
Total Asset Turnover | 2.21 | 1.45 | 1.43 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.25 | 0.07 | 0.07 | n.a |
Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $1,124,367 | $3,085,757 | $4,181,864 | n.a |
Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.45 | 0.69 | 0.70 | n.a |
Current Debt/Total Assets | 20% | 6% | 6% | n.a |
Acid Test | 4.50 | 14.77 | 14.76 | n.a |
Sales/Net Worth | 2.76 | 1.55 | 1.53 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.58 | n.a |