Austin Kinetic will initially grow with project work, beginning to build service contracts from the six month point forward. The company will increase its project work to 2,560 man hours per month and increase its service contracts count by six each year. The initial growth will be financed primarily out of the pockets of its founders. The company will fund all growth from the cash flow of the business, remaining debt-free.
8.1 Important Assumptions
At the onset, the founding members of Austin Kinetic will take on much of the financial burden of running the company. There will be no need for dedicated office space until FY 2006 when we expect to open an office in Austin. Until then, Austin Kinetic will compensate travel-related expenses, if any, incurred in the course of business. The only foreseen recurring expenses will be voice mail services, marketing, insurance, Internet access, and Web presence. The lion's share of funds will be held by Austin Kinetic to develop cash reserves for future expansion and a business climate buffer.
Customers will be billed on an hourly basis of $120. Engineers will be paid a salary, plus $25 per hour for on-call and overtime. Employees who establish the new project/contract will be paid a 5% bonus of the total project / contract price. Business call time of cell phones will be reimbursed.
8.2 Break-even Analysis
The table and chart below show our break-even analysis. As a service business, we have no direct cost of sales. Our break-even point ni the first year is therefore equal to the amount needed to cover our operating expenses, including payroll. We will reach break even, in the third month.
8.3 Projected Profit and Loss
In the first year, we will be based out of the founders' homes. Adam Authortisement has renovated his garage for use as a meeting space and general office, when we need to get together as a group. Utilities in the first year represent the cost of home high-speed Internet access for all five employees ($45 each per month). This access is necessary for communications between personnel and for file transmission for all project and service work.
After the first year, it will be more cost-effective and attuned to our growth to rent a space in downtown Austin, where we can consolidate equipment, combine utilities, and have a central location for our work and our secretary. Office space rented beginning FY 2006 is forecast to be $2,500 per month.
The Profit and Loss also includes a provision for charity donations, which we have deemed important to our mission, as well as to marketing and outreach in the community. Starting in the second year, 5% of net profits each will be set aside for charity on an annual basis based upon the previous year's performance.
After the first month, Marketing and Promotion expenses are set at 5% of the previous month's and year's sales.
8.4 Projected Cash Flow
We have no sales on credit; all service accounts and projects are paid in advance, in installments. We anticipate no problems with our cash flow. By staying debt free and keeping expenses down, we expect a significant positive cash balance by the end of the first year.
8.5 Projected Balance Sheet
Our Balance Sheet is quite solid. We will build our asset base slowly over the first five years, expensing most of our computer and hardware equipment to offset taxes, since they will need replacing every two to three years.
8.6 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7379.02, Computer Related Consulting Services, are shown for comparison.
8.7 Long-term Plan
Austin Kinetic anticipates maintaining a steady profit percentage and plans to build cash reserves to an amount which would cover operating expenses for twelve months should any catastrophic event occur. This will be a moving target and be recalculated on an annual basis as the business cash flow changes. There has been no pre-set limit placed upon Austin Kinetic. Its founders see the possibility of expanding the company into a global force ranked equal to today's top Fortune 500 companies.