Infotext Strategy Letter
Financial Plan
Our financial plan is based on conservative estimates and assumptions. We will need to plan on initial investment to make the financials work.
7.1 Important Assumptions
The following table summarizes key financial assumptions including sales entirely on invoice basis, and present-day interest rates. The annual numbers are shown here, monthlies in the appendix.
Additional assumptions include 45-day average collection days, expenses mainly on net 30 basis, and 35 days on average for payment of invoices.
| General Assumptions | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Plan Month | 1 | 2 | 3 | 4 | 5 |
| Current Interest Rate | 8.00% | 8.00% | 8.00% | 8.00% | 8.00% |
| Long-term Interest Rate | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% |
| Tax Rate | 25.42% | 25.00% | 25.42% | 25.00% | 25.42% |
| New subscriptions | 383 | 37 | 383 | 37 | 383 |
| Renewals | 0 | 0 | 0 | 0 | 0 |
| Cancellations | 6 | 1 | 6 | 1 | 6 |
| Subscribers | 377 | 377 | 377 | 377 | 377 |
7.2 Break-even Analysis
The following table and chart summarize the break-even analysis, including monthly units and sales break-even points.
| Break-even Analysis | |
| Monthly Revenue Break-even | $10,889 |
| Assumptions: | |
| Average Percent Variable Cost | 25% |
| Estimated Monthly Fixed Cost | $8,152 |
7.3 Projected Profit and Loss
The detailed monthly pro-forma income statement for the first year is included in the appendix. The annual estimates are included here.
| Pro Forma Profit and Loss | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Sales | $149,406 | $209,020 | $291,450 | $406,650 | $568,350 |
| Direct Cost of Sales | $37,555 | $23,000 | $24,000 | $25,000 | $27,000 |
| Other | $0 | $0 | $0 | $0 | $0 |
| Total Cost of Sales | $37,555 | $23,000 | $24,000 | $25,000 | $27,000 |
| Gross Margin | $111,851 | $186,020 | $267,450 | $381,650 | $541,350 |
| Gross Margin % | 74.86% | 89.00% | 91.77% | 93.85% | 95.25% |
| Expenses | |||||
| Payroll | $71,250 | $134,000 | $148,000 | $224,000 | $230,000 |
| Marketing | $14,500 | $22,000 | $33,000 | $50,000 | $75,000 |
| Depreciation | $0 | $0 | $0 | $0 | $0 |
| Leased Equipment | $1,200 | $1,000 | $1,000 | $1,000 | $1,000 |
| Insurance | $900 | $1,000 | $1,000 | $1,000 | $1,000 |
| Payroll Taxes | $9,975 | $18,760 | $20,720 | $31,360 | $32,200 |
| Other | $0 | $0 | $0 | $0 | $0 |
| Total Operating Expenses | $97,825 | $176,760 | $203,720 | $307,360 | $339,200 |
| Profit Before Interest and Taxes | $14,026 | $9,260 | $63,730 | $74,290 | $202,150 |
| EBITDA | $14,026 | $9,260 | $63,730 | $74,290 | $202,150 |
| Interest Expense | $1,067 | $4,200 | $4,200 | $400 | $400 |
| Taxes Incurred | $2,944 | $1,265 | $15,131 | $18,473 | $51,278 |
| Net Profit | $10,015 | $3,795 | $44,399 | $55,418 | $150,472 |
| Net Profit/Sales | 6.70% | 1.82% | 15.23% | 13.63% | 26.48% |
7.4 Projected Cash Flow
Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month and the other representing the monthly balance. The annual cash flow figures are included here in the following table. Detailed monthly numbers are included in the appendix, and show as well in the following chart.
| Pro Forma Cash Flow | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Cash Received | |||||
| Cash from Operations | |||||
| Cash Sales | $0 | $0 | $0 | $0 | $0 |
| Cash from Receivables | $128,058 | $200,502 | $279,672 | $390,190 | $545,245 |
| Subtotal Cash from Operations | $128,058 | $200,502 | $279,672 | $390,190 | $545,245 |
| Additional Cash Received | |||||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 | $0 | $0 |
| New Current Borrowing | $15,000 | $100,000 | $0 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $0 | $0 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| New Investment Received | $0 | $0 | $0 | $0 | $0 |
| Subtotal Cash Received | $143,058 | $300,502 | $279,672 | $390,190 | $545,245 |
| Expenditures | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Expenditures from Operations | |||||
| Cash Spending | $71,250 | $134,000 | $148,000 | $224,000 | $230,000 |
| Bill Payments | $61,961 | $70,575 | $96,382 | $124,530 | $182,063 |
| Subtotal Spent on Operations | $133,211 | $204,575 | $244,382 | $348,530 | $412,063 |
| Additional Cash Spent | |||||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $10,000 | $5,000 | $95,000 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $0 | $0 | $0 | $0 | $0 |
| Purchase Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 | $0 | $0 |
| Subtotal Cash Spent | $143,211 | $209,575 | $339,382 | $348,530 | $412,063 |
| Net Cash Flow | ($153) | $90,927 | ($59,710) | $41,659 | $133,183 |
| Cash Balance | $14,847 | $105,774 | $46,064 | $87,723 | $220,906 |
7.5 Projected Balance Sheet
The balance sheet shows healthy growth of net worth, and strong financial position. The monthly estimates are included in the appendix.
| Pro Forma Balance Sheet | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Assets | |||||
| Current Assets | |||||
| Cash | $14,847 | $105,774 | $46,064 | $87,723 | $220,906 |
| Accounts Receivable | $21,348 | $29,866 | $41,644 | $58,104 | $81,209 |
| Other Current Assets | $7,000 | $7,000 | $7,000 | $7,000 | $7,000 |
| Total Current Assets | $43,195 | $142,640 | $94,708 | $152,828 | $309,115 |
| Long-term Assets | |||||
| Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| Accumulated Depreciation | $0 | $0 | $0 | $0 | $0 |
| Total Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| Total Assets | $43,195 | $142,640 | $94,708 | $152,828 | $309,115 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Current Liabilities | |||||
| Accounts Payable | $6,180 | $6,830 | $9,498 | $12,200 | $18,016 |
| Current Borrowing | $5,000 | $100,000 | $5,000 | $5,000 | $5,000 |
| Other Current Liabilities | $0 | $0 | $0 | $0 | $0 |
| Subtotal Current Liabilities | $11,180 | $106,830 | $14,498 | $17,200 | $23,016 |
| Long-term Liabilities | $0 | $0 | $0 | $0 | $0 |
| Total Liabilities | $11,180 | $106,830 | $14,498 | $17,200 | $23,016 |
| Paid-in Capital | $50,000 | $50,000 | $50,000 | $50,000 | $50,000 |
| Retained Earnings | ($28,000) | ($17,985) | ($14,190) | $30,210 | $85,627 |
| Earnings | $10,015 | $3,795 | $44,399 | $55,418 | $150,472 |
| Total Capital | $32,015 | $35,810 | $80,210 | $135,627 | $286,099 |
| Total Liabilities and Capital | $43,195 | $142,640 | $94,708 | $152,828 | $309,115 |
| Net Worth | $32,015 | $35,810 | $80,210 | $135,627 | $286,099 |
7.6 Business Ratios
The following table shows the projected business ratios. We expect to maintain healthy ratios for profitability, risk, and return. Industry profile ratios based on the Standard Industrial Classification (SIC) code 2741, Newsletter Publishing, are shown for comparison.
| Ratio Analysis | ||||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Industry Profile | |
| Sales Growth | 0.00% | 39.90% | 39.44% | 39.53% | 39.76% | 11.27% |
| Percent of Total Assets | ||||||
| Accounts Receivable | 49.42% | 20.94% | 43.97% | 38.02% | 26.27% | 36.32% |
| Other Current Assets | 16.21% | 4.91% | 7.39% | 4.58% | 2.26% | 31.17% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 83.20% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 16.80% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 25.88% | 74.89% | 15.31% | 11.25% | 7.45% | 31.26% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 20.58% |
| Total Liabilities | 25.88% | 74.89% | 15.31% | 11.25% | 7.45% | 51.84% |
| Net Worth | 74.12% | 25.11% | 84.69% | 88.75% | 92.55% | 48.16% |
| Percent of Sales | ||||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 74.86% | 89.00% | 91.77% | 93.85% | 95.25% | 51.42% |
| Selling, General & Administrative Expenses | 69.36% | 87.90% | 77.94% | 81.99% | 69.89% | 34.28% |
| Advertising Expenses | 24.10% | 19.14% | 15.10% | 0.00% | 0.00% | 2.77% |
| Profit Before Interest and Taxes | 9.39% | 4.43% | 21.87% | 18.27% | 35.57% | 2.19% |
| Main Ratios | ||||||
| Current | 3.86 | 1.34 | 6.53 | 8.89 | 13.43 | 2.32 |
| Quick | 3.86 | 1.34 | 6.53 | 8.89 | 13.43 | 1.50 |
| Total Debt to Total Assets | 25.88% | 74.89% | 15.31% | 11.25% | 7.45% | 56.90% |
| Pre-tax Return on Net Worth | 40.48% | 14.13% | 74.22% | 54.48% | 70.52% | 3.39% |
| Pre-tax Return on Assets | 30.00% | 3.55% | 62.86% | 48.35% | 65.27% | 7.88% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Net Profit Margin | 6.70% | 1.82% | 15.23% | 13.63% | 26.48% | n.a |
| Return on Equity | 31.28% | 10.60% | 55.35% | 40.86% | 52.59% | n.a |
| Activity Ratios | ||||||
| Accounts Receivable Turnover | 7.00 | 7.00 | 7.00 | 7.00 | 7.00 | n.a |
| Collection Days | 43 | 45 | 45 | 45 | 45 | n.a |
| Accounts Payable Turnover | 11.03 | 10.43 | 10.43 | 10.43 | 10.43 | n.a |
| Payment Days | 32 | 33 | 30 | 31 | 29 | n.a |
| Total Asset Turnover | 3.46 | 1.47 | 3.08 | 2.66 | 1.84 | n.a |
| Debt Ratios | ||||||
| Debt to Net Worth | 0.35 | 2.98 | 0.18 | 0.13 | 0.08 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||||
| Net Working Capital | $32,015 | $35,810 | $80,210 | $135,627 | $286,099 | n.a |
| Interest Coverage | 13.15 | 2.20 | 15.17 | 185.73 | 505.38 | n.a |
| Additional Ratios | ||||||
| Assets to Sales | 0.29 | 0.68 | 0.32 | 0.38 | 0.54 | n.a |
| Current Debt/Total Assets | 26% | 75% | 15% | 11% | 7% | n.a |
| Acid Test | 1.95 | 1.06 | 3.66 | 5.51 | 9.90 | n.a |
| Sales/Net Worth | 4.67 | 5.84 | 3.63 | 3.00 | 1.99 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | n.a |
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