Web Applications, Inc.
Financial Plan
Funding Requirements and Uses
Based on our projections, we feel an investment in our company is a sound investment. In order to proceed, we are requesting an investment of $101,600 by June, 1999. The funds will be used to purchase equipment and to cover initial operating expenses. The $101,600 will be used to implement Phase 1 of our operations. Once the company is in full operation, we will require an additional capital investment to fund Phase 2 of our operations.
Phase 2
We will be in discussion with developers on the best direction to take and what cost savings we can achieve. The specific details for Phase 2 are still to be determined, but three major areas (server, small PBX, and business development funds) will require approximately $30,000 by January, 2000.
Exit/Payback Strategy
We can provide an exit for this investment within three years by a dividend of excess profits. The increase in profits generated by sales revenue will provide funds to repay the investment.
Conclusion
Based on our projections, we feel an investment to Web Applications is a sound business investment. In order to proceed, we are requesting an investment of $101,600 as soon as possible.
7.1 Break-even Analysis
With average first year fixed monthly costs and an average margin as shown below, Web Applications calculates it will break even at the sales volume presented in the table and chart. The company management plans to reach such level by the end of 2000.
| Break-even Analysis | |
| Monthly Revenue Break-even | $25,333 |
| Assumptions: | |
| Average Percent Variable Cost | 50% |
| Estimated Monthly Fixed Cost | $12,667 |
7.2 Important Assumptions
The following chart contains assumptions important to the success of the company.
| 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 |
7.3 Projected Profit and Loss
The projected income statement for Web Applications is shown below. The company is basing its revenue projections on anticipated sales of products.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $200,000 | $1,500,000 | $2,200,000 |
| Direct Cost of Sales | $100,000 | $300,000 | $400,000 |
| Other | $5,000 | $10,000 | $15,000 |
| Total Cost of Sales | $105,000 | $310,000 | $415,000 |
| Gross Margin | $95,000 | $1,190,000 | $1,785,000 |
| Gross Margin % | 47.50% | 79.33% | 81.14% |
| Expenses | |||
| Payroll | $95,652 | $165,652 | $234,783 |
| Sales and Marketing and Other Expenses | $23,400 | $47,000 | $80,000 |
| Depreciation | $0 | $0 | $0 |
| Research and Development | $15,000 | $25,000 | $40,000 |
| Utilities | $600 | $800 | $1,000 |
| Insurance | $600 | $800 | $1,000 |
| Rent | $2,400 | $3,000 | $5,000 |
| Payroll Taxes | $14,348 | $24,848 | $35,217 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $152,000 | $267,100 | $397,000 |
| Profit Before Interest and Taxes | ($57,000) | $922,900 | $1,388,000 |
| EBITDA | ($57,000) | $922,900 | $1,388,000 |
| Interest Expense | $0 | $0 | $0 |
| Taxes Incurred | $0 | $230,725 | $352,783 |
| Net Profit | ($57,000) | $692,175 | $1,035,216 |
| Net Profit/Sales | -28.50% | 46.15% | 47.06% |
7.4 Projected Cash Flow
The cash flow statement can be found in the chart and table below.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $50,000 | $375,000 | $550,000 |
| Cash from Receivables | $120,500 | $933,250 | $1,546,750 |
| Subtotal Cash from Operations | $170,500 | $1,308,250 | $2,096,750 |
| 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 | $36,000 | $0 | $0 |
| Subtotal Cash Received | $206,500 | $1,308,250 | $2,096,750 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $95,652 | $165,652 | $234,783 |
| Bill Payments | $147,562 | $604,177 | $906,344 |
| Subtotal Spent on Operations | $243,214 | $769,829 | $1,141,127 |
| 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 | $10,000 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $253,214 | $769,829 | $1,141,127 |
| Net Cash Flow | ($46,714) | $538,421 | $955,623 |
| Cash Balance | $5,786 | $544,207 | $1,499,830 |
7.5 Projected Balance Sheet
The projected balance sheet is provided below.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $5,786 | $544,207 | $1,499,830 |
| Accounts Receivable | $29,500 | $221,250 | $324,500 |
| Other Current Assets | $5,000 | $5,000 | $5,000 |
| Total Current Assets | $40,286 | $770,457 | $1,829,330 |
| Long-term Assets | |||
| Long-term Assets | $10,000 | $10,000 | $10,000 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $10,000 | $10,000 | $10,000 |
| Total Assets | $50,286 | $780,457 | $1,839,330 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $14,786 | $52,781 | $76,438 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $14,786 | $52,781 | $76,438 |
| Long-term Liabilities | $0 | $0 | $0 |
| Total Liabilities | $14,786 | $52,781 | $76,438 |
| Paid-in Capital | $152,600 | $152,600 | $152,600 |
| Retained Earnings | ($60,100) | ($117,100) | $575,075 |
| Earnings | ($57,000) | $692,175 | $1,035,216 |
| Total Capital | $35,500 | $727,675 | $1,762,892 |
| Total Liabilities and Capital | $50,286 | $780,457 | $1,839,330 |
| Net Worth | $35,500 | $727,675 | $1,762,892 |
7.6 Business Ratios
The following table outlines some of the more important ratios from the Computer Programming Services industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7371.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 650.00% | 46.67% | 10.40% |
| Percent of Total Assets | ||||
| Accounts Receivable | 58.66% | 28.35% | 17.64% | 24.10% |
| Other Current Assets | 9.94% | 0.64% | 0.27% | 42.90% |
| Total Current Assets | 80.11% | 98.72% | 99.46% | 71.10% |
| Long-term Assets | 19.89% | 1.28% | 0.54% | 28.90% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 29.40% | 6.76% | 4.16% | 47.80% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 19.10% |
| Total Liabilities | 29.40% | 6.76% | 4.16% | 66.90% |
| Net Worth | 70.60% | 93.24% | 95.84% | 33.10% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 47.50% | 79.33% | 81.14% | 0.00% |
| Selling, General & Administrative Expenses | 76.00% | 33.19% | 33.82% | 82.10% |
| Advertising Expenses | 9.00% | 2.67% | 3.18% | 1.20% |
| Profit Before Interest and Taxes | -28.50% | 61.53% | 63.09% | 2.00% |
| Main Ratios | ||||
| Current | 2.72 | 14.60 | 23.93 | 1.30 |
| Quick | 2.72 | 14.60 | 23.93 | 1.03 |
| Total Debt to Total Assets | 29.40% | 6.76% | 4.16% | 66.90% |
| Pre-tax Return on Net Worth | -160.56% | 126.83% | 78.73% | 3.10% |
| Pre-tax Return on Assets | -113.35% | 118.25% | 75.46% | 9.30% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | -28.50% | 46.15% | 47.06% | n.a |
| Return on Equity | -160.56% | 95.12% | 58.72% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 5.08 | 5.08 | 5.08 | n.a |
| Collection Days | 57 | 41 | 60 | n.a |
| Accounts Payable Turnover | 10.91 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 19 | 25 | n.a |
| Total Asset Turnover | 3.98 | 1.92 | 1.20 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.42 | 0.07 | 0.04 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $25,500 | $717,675 | $1,752,892 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.25 | 0.52 | 0.84 | n.a |
| Current Debt/Total Assets | 29% | 7% | 4% | n.a |
| Acid Test | 0.73 | 10.41 | 19.69 | n.a |
| Sales/Net Worth | 5.63 | 2.06 | 1.25 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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