Our Start-up requirements for cash, inventory, expenses and assets will see us through the first year, as we hire our contracted sales representatives and secure increasing market share. Even with our conservative estimates, based on market research and the industry knowledge of the the founders, we will far surpass the break-even point from the first month of sales. This financial advantage is largely a result of the deferred salaries of the principals, who will take salaries starting in the second year based on the success of the business (projections below).
Our commission structure for contracted sales representatives, along with our shipping methods, means that our variable costs always exceed our fixed costs - we have low overhead, and are investing in low-risk face-to-face sales time to generate profits. Rent, travel for the founders, and payroll for our part-time office manager are the largest operating expenses. With a qualified medical biller, we should collect quickly on reimbursements, and maintain a positive cash balance throughout.
We will repay the initial loan within three years, at 10% interest. If sales go better than projected, we may pay it off sooner. We do not expect future rounds of investment or loans, since the business will be self-sustaining by the end of year one. By the end of the third year, Zenergy will have a respectable net worth.
As mentioned previously, we plan to personally invest to cover portion of the initial start-up costs for the business. For the first year, our requirements will be met as follows:
We will seek credit terms of 60 days from our suppliers until we build up sufficient cash flow to be able to accept net 30 terms.
We are assuming the following key points:
The following table and chart show our break-even point in the first year, when the three VPs are deferring compensation. With a low monthly fixed cost and variable costs (including commission and shipping), we need to sell per month the amount calculated below to break even. Market research and previous experience assures us that we will easily surpass the break-even point even in our first month of sales.
Notes on Profit and Loss statement for year one:
Notes on Years two and three growth assumptions:
Because of the relatively quick ramp-up process for sales people, and our relatively low start-up expenses, we believe we can start generating very positive cash flow within the first year. This is all contingent on achieving our expense targets for rent, insurance and other "fixed" items, plus contracting and training new sales reps per our plan and achieving successful reimbursement cycles from the DMERCs.
The Balance Sheet reflects the fact that many of our Assets will be tied up in Accounts Receivable; billing correctly and promptly, and following up on unpaid reimbursement claims, will be critical to the Cash balance. The Starting Balances are the requirements from the Start-up table and the Start-up Funding. By the end of the first year, we will increase the net worth of the business handsomely. Net Worth will continue to rise dramatically as we secure a higher market share and continue to contain costs.
Our comparison industry is Medical Equipment and Supplies, SIC Code 5047.03. Because we are a start-up, our sales growth rates will be much higher than the industry, especially given that we are competing in a small niche with fragmented competition. We have constructed our operation to keep start-up capital requirements to a minimum, building much of our expense into our variable cost structure (sales compensation, reimbursement/collections,) or farming it out (legal, accounting).
Because we do not have a retail storefront or extensive distribution facilities, our fixed overhead costs are extremely low. None of our three managing executives are on the payroll in the first year, and our sales team will be contract reps on straight commission. We have farmed out all legal, accounting, and reimbursement/collections to outside services to keep overhead and risk to a minimum.
As a result, we will have extremely favorable margins, SG&A, and current/quick ratios compared to industry standards.