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MarketCamp

Financial Plan

MarketCamp will finance growth mainly through cash flow. We recognize that this means we will have to grow more slowly than we might like.

The most important factor to our success is collection days. We can’t push our clients hard on collection days, because they are in larger companies and will normally have marketing authority, not financial authority. Therefore, we need to develop a permanent system of receivables financing, using one of the established financial companies in that business.

We are also assuming start-up capital which will be more than enough to cover salaries, artwork and other expenses while the business begins to produce more cash.

We may take more financing than we originally planned to be able to bring in some very key investors as equity partners, more for their connections to potential clients in Mexico City than for the investment itself.

7.1 Important Assumptions

The Financial Plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendix. From the beginning, we recognize that collection days are critical, but are not a factor we can influence easily. Interest rates, tax rates, and personnel burden are based on conservative assumptions.

Some of the more important underlying assumptions are:

  • We assume an economy slightly crippled by the George W. Bush administration in the U.S. and by the skepticism caused by the fall of the dot-coms with terrible business models.
  • We assume that we can communicate the service to Mexican business owners.
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 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Key Financial Indicators

The Benchmarks chart shows our projections on an index basis for key financial indicators.

Marketing consulting business plan, financial plan chart image

7.3 Break-even Analysis

The following chart and table summarize our Break-even Analysis showing fixed costs in U.S. dollars per month at the outset (a bare minimum), and what we need to bill to cover our costs. We don’t really expect to reach break-even until a few months into the business operation.

Marketing consulting business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $17,510
Assumptions:
Average Percent Variable Cost 19%
Estimated Monthly Fixed Cost $14,142

7.4 Projected Profit and Loss

Projected Profit and Loss is presented in the following table and charts.

Marketing consulting business plan, financial plan chart image

Marketing consulting business plan, financial plan chart image

Marketing consulting business plan, financial plan chart image

Marketing consulting business plan, financial plan chart image

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $297,310 $420,000 $610,000
Direct Cost of Sales $57,183 $80,860 $117,561
Other $39,581 $44,000 $48,000
Total Cost of Sales $96,763 $124,860 $165,561
Gross Margin $200,547 $295,140 $444,439
Gross Margin % 67.45% 70.27% 72.86%
Expenses
Payroll $80,252 $113,000 $158,000
Sales and Marketing and Other Expenses $41,372 $48,000 $61,000
Depreciation $0 $0 $0
Leased Equipment $15,832 $17,000 $19,000
Utilities $1,800 $2,000 $2,000
Insurance $2,400 $3,000 $3,000
Rent $12,000 $24,000 $26,000
Payroll Taxes $16,050 $22,600 $31,600
Other $0 $0 $0
Total Operating Expenses $169,707 $229,600 $300,600
Profit Before Interest and Taxes $30,840 $65,540 $143,839
EBITDA $30,840 $65,540 $143,839
Interest Expense $667 $3,000 $3,500
Taxes Incurred $7,420 $15,635 $35,669
Net Profit $22,753 $46,905 $104,669
Net Profit/Sales 7.65% 11.17% 17.16%

7.5 Projected Cash Flow

Cash flow is going to rely on the time to collect from account receivables. Carlos Silva, Raul Garcia and others who have more experience working with Mexican businesses will be able to help us estimate both the collection and payment times. We are working on an assumption of 30 days to collect. Clients will pay at the beginning of each month except when this is impossible for them.

The present cash flow projection assumes sacrificed salaries taken as equity contribution for the first few months. The inputs for capital input are actually “sweat equity” contributions from the founder.

Marketing consulting business plan, financial plan chart image

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $197,360 $378,754 $546,126
Subtotal Cash from Operations $197,360 $378,754 $546,126
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $20,000 $40,000 $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 $14,000 $0 $0
Subtotal Cash Received $231,360 $418,754 $546,126
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $80,252 $113,000 $158,000
Bill Payments $159,263 $273,759 $340,161
Subtotal Spent on Operations $239,515 $386,759 $498,161
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $20,000 $10,000
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 $0
Subtotal Cash Spent $239,515 $406,759 $508,161
Net Cash Flow ($8,155) $11,995 $37,965
Cash Balance $11,845 $23,840 $61,805

7.6 Projected Balance Sheet

The Balance Sheet in the following table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $11,845 $23,840 $61,805
Accounts Receivable $99,950 $141,196 $205,070
Other Current Assets $0 $0 $0
Total Current Assets $111,795 $165,036 $266,875
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $111,795 $165,036 $266,875
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $35,041 $21,378 $28,548
Current Borrowing $20,000 $40,000 $30,000
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $55,041 $61,378 $58,548
Long-term Liabilities $0 $0 $0
Total Liabilities $55,041 $61,378 $58,548
Paid-in Capital $37,500 $37,500 $37,500
Retained Earnings ($3,500) $19,253 $66,158
Earnings $22,753 $46,905 $104,669
Total Capital $56,753 $103,658 $208,327
Total Liabilities and Capital $111,795 $165,036 $266,875
Net Worth $56,753 $103,658 $208,327

7.7 Business Ratios

Business Ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 8742, Management Consulting Services, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 41.27% 45.24% 8.60%
Percent of Total Assets
Accounts Receivable 89.40% 85.55% 76.84% 24.40%
Other Current Assets 0.00% 0.00% 0.00% 46.70%
Total Current Assets 100.00% 100.00% 100.00% 74.90%
Long-term Assets 0.00% 0.00% 0.00% 25.10%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 49.23% 37.19% 21.94% 42.80%
Long-term Liabilities 0.00% 0.00% 0.00% 17.20%
Total Liabilities 49.23% 37.19% 21.94% 60.00%
Net Worth 50.77% 62.81% 78.06% 40.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 67.45% 70.27% 72.86% 0.00%
Selling, General & Administrative Expenses 59.84% 59.10% 55.60% 83.50%
Advertising Expenses 1.01% 1.43% 2.46% 1.20%
Profit Before Interest and Taxes 10.37% 15.60% 23.58% 2.60%
Main Ratios
Current 2.03 2.69 4.56 1.59
Quick 2.03 2.69 4.56 1.26
Total Debt to Total Assets 49.23% 37.19% 21.94% 60.00%
Pre-tax Return on Net Worth 53.17% 60.33% 67.36% 4.40%
Pre-tax Return on Assets 26.99% 37.89% 52.59% 10.90%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 7.65% 11.17% 17.16% n.a
Return on Equity 40.09% 45.25% 50.24% n.a
Activity Ratios
Accounts Receivable Turnover 2.97 2.97 2.97 n.a
Collection Days 54 105 104 n.a
Accounts Payable Turnover 5.55 12.17 12.17 n.a
Payment Days 27 40 26 n.a
Total Asset Turnover 2.66 2.54 2.29 n.a
Debt Ratios
Debt to Net Worth 0.97 0.59 0.28 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $56,753 $103,658 $208,327 n.a
Interest Coverage 46.26 21.85 41.10 n.a
Additional Ratios
Assets to Sales 0.38 0.39 0.44 n.a
Current Debt/Total Assets 49% 37% 22% n.a
Acid Test 0.22 0.39 1.06 n.a
Sales/Net Worth 5.24 4.05 2.93 n.a
Dividend Payout 0.00 0.00 0.00 n.a