Our main concerns will be aggressive time management, so that our labor costs stay under control, and proper purchasing, keeping costs down. Secondarily, hiring the best team, training them properly and retaining them will be a critical component to good costs. A good trainer does not sacrifice quality for quantity, but rather they optimize their time spent. Growth will be sustained through a contribution to a “roll-over” plan, and from potential future clients.
7.1 Start-up Funding
Total start-up expenses include legal costs, logo design, stationery and related expenses.
Expensed presentation and office equipment include computers and projectors. Start-up assets include initial cash to handle the first few months of consulting operations as accounts receivable play through the cash flow. Flowstone, Inc. is providing some of their used office furniture, chairs, as Other Current Assets.
Flowstone, Inc. will provide seed capital. Soren Aboukir and Khallie Locharnold will each invest at start-up, and anticipate loaning the company additional funds during the year.
|Start-up Expenses to Fund||$14,500|
|Start-up Assets to Fund||$25,500|
|Total Funding Required||$40,000|
|Non-cash Assets from Start-up||$1,000|
|Cash Requirements from Start-up||$24,500|
|Additional Cash Raised||$0|
|Cash Balance on Starting Date||$24,500|
|Liabilities and Capital|
|Accounts Payable (Outstanding Bills)||$0|
|Other Current Liabilities (interest-free)||$0|
|Additional Investment Requirement||$0|
|Total Planned Investment||$40,000|
|Loss at Start-up (Start-up Expenses)||($14,500)|
|Total Capital and Liabilities||$25,500|
7.2 Important Assumptions
- We are assuming steady growth from good management, barring any unforseen local, or state disasters, economic slowdown, or Medicaid budget cuts.
- We are assuming adequate funding by Flowstone, Inc. and the partners to sustain us during start-up.
- We are assuming that health care providers will respond to the new concept of outsourced training and value it enough to pay for it.
- We are assuming that the state will support us by referring health care provider clients.
- We are assuming that we will be able to market our offerings as high-end services, allowing us to have a large profit potential.
- We are assuming that this endeavor will not negatively affect those services already provided by Flowstone, Inc.
7.3 Projected Profit and Loss
Outlines in our Profit and Loss table are purely simplistic guesses on an ideal scenario with the assumption that clients will pay what has been estimated, operating /overhead expenses are minimal, and staff are satisfied with their compensation. Development will take place within the agency of Flowstone, Inc. to minimize overhead expenses since Flowstone would be able to simply absorb the start up expenses as a cost to improve their current services.
Initially, OutReSources will be housed in the Flowstone office spaces and and benefit from the established administrative support system. In January 2006, we anticipate that OutReSources will move to it’s own office when an adjacent suite is due to become available.
As noted earlier, salaries for owner/consultants, training supervisors and trainers are included in Cost of Sales. To correctly calculate the necessary payroll tax withholding, a formula was entered into the P&L table for a percentage of the combined salaried and hourly wages.
|Pro Forma Profit and Loss|
|Year 1||Year 2||Year 3|
|Direct Cost of Sales||$234,142||$305,163||$397,880|
|Other Costs of Sales||$7,800||$10,000||$13,000|
|Total Cost of Sales||$241,942||$315,163||$410,880|
|Gross Margin %||49.60%||49.81%||50.02%|
|Training Packet Production||$3,900||$5,820||$8,000|
|Total Operating Expenses||$69,035||$171,012||$189,577|
|Profit Before Interest and Taxes||$169,023||$141,725||$221,663|
7.4 Break-even Analysis
Our monthly break even figure is based on our anticipated cost of sales, and in-kind administrative support from Flowstone. Break even currently requires an average monthly sales as shown below. This will vary if cost of sales increases or decreases, and if overhead expenses such as administrative support is transferred from Flowstone to us sooner than expected.
|Monthly Revenue Break-even||$11,232|
|Average Percent Variable Cost||49%|
|Estimated Monthly Fixed Cost||$5,753|
7.5 Projected Cash Flow
The Cash Flow table is based on ideal numbers. The numbers where set as explained previously by basic business principles to permit room for adjustment as the company grows. As seen in the chart as the months go by the Cash Balance remains positive. This is dependent upon reaching sales forecasts each month and keeping our expenses in line. Over time we are assured to make adjustments as stated in the explanation of the forecasting. The key components we will need to monitor that will adjust the overall true numbers are:
- The Demand for Service
- Cost of Service (The service may be desired, but must be priced right for clients to see the benefit)
- Quality of Service (A fine balance of quality vs quantity)
- Quality Cost (Salaries will be the primary factor. Can we hire quality trainers and charge a quality price while still receiving a quality profit)
The founding partners anticipate loaning the company additional monies as a short-term loan in mid-year. If sales exceed forecast this may not be necessary. Additional computers and presentation equipment will need to be purchased as new trainers and supervisors are hired.
|Pro Forma Cash Flow|
|Year 1||Year 2||Year 3|
|Cash from Operations|
|Cash from Receivables||$341,008||$585,073||$765,880|
|Subtotal Cash from Operations||$341,008||$585,073||$765,880|
|Additional Cash Received|
|Sales Tax, VAT, HST/GST Received||$28,800||$37,674||$49,327|
|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||$0||$0||$0|
|Subtotal Cash Received||$369,808||$622,747||$815,208|
|Expenditures||Year 1||Year 2||Year 3|
|Expenditures from Operations|
|Subtotal Spent on Operations||$311,781||$543,114||$655,592|
|Additional Cash Spent|
|Sales Tax, VAT, HST/GST Paid Out||$28,800||$37,674||$49,327|
|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||$4,000||$4,000||$6,000|
|Purchase Long-term Assets||$0||$0||$0|
|Subtotal Cash Spent||$344,581||$584,788||$710,919|
|Net Cash Flow||$25,228||$37,959||$104,288|
7.6 Projected Balance Sheet
The balance sheet is not a key factor at this point since OutReSources, Inc. will be operating as a company within a company and utilizing Flowstone, Inc.’s assets. Given that any start-up cost or realized loss can be deemed as an assets expense for Flowstone there is truly little to no liability or risk thereof.
|Pro Forma Balance Sheet|
|Year 1||Year 2||Year 3|
|Other Current Assets||$5,000||$9,000||$15,000|
|Total Current Assets||$193,719||$278,505||$445,033|
|Total Long-term Assets||$0||$0||$0|
|Liabilities and Capital||Year 1||Year 2||Year 3|
|Other Current Liabilities||$0||$0||$0|
|Subtotal Current Liabilities||$49,903||$35,482||$46,846|
|Total Liabilities and Capital||$193,719||$278,505||$445,033|
7.7 Business Ratios
The following table shows the projected business ratios. We expect to maintain healthy ratios for profitability, risk, and return. The industry comparisons are for SIC 8742.0200, Human Resources Consulting, part of the larger Management Consulting Services category. The most noteworthy catagory is the percent of sales. You will notice that OutReSources, Inc. and Industry Standards are comparable until gross profit margin wherein OutReSources falls back by 50% from industry standards. This is primarily due to the majority of our expenses coming from staff compensation. However, OutReSources more than compensates in general administrative expenses. Though the numbers are based on ideal assumptions and are subject to change, OutReSources’ owner and management structure will continue to minimize general admin costs.
|Year 1||Year 2||Year 3||Industry Profile|
|Percent of Total Assets|
|Other Current Assets||2.58%||3.23%||3.37%||49.64%|
|Total Current Assets||100.00%||100.00%||100.00%||71.06%|
|Percent of Sales|
|Selling, General & Administrative Expenses||24.95%||34.01%||31.15%||83.35%|
|Profit Before Interest and Taxes||35.21%||22.57%||26.96%||2.92%|
|Total Debt to Total Assets||25.76%||12.74%||10.53%||60.96%|
|Pre-tax Return on Net Worth||117.53%||58.32%||55.67%||7.36%|
|Pre-tax Return on Assets||87.25%||50.89%||49.81%||18.86%|
|Additional Ratios||Year 1||Year 2||Year 3|
|Net Profit Margin||24.65%||15.80%||18.87%||n.a|
|Return on Equity||82.27%||40.82%||38.97%||n.a|
|Accounts Receivable Turnover||3.45||3.45||3.45||n.a|
|Accounts Payable Turnover||6.73||12.17||12.17||n.a|
|Total Asset Turnover||2.48||2.25||1.85||n.a|
|Debt to Net Worth||0.35||0.15||0.12||n.a|
|Current Liab. to Liab.||1.00||1.00||1.00||n.a|
|Net Working Capital||$143,816||$243,023||$398,187||n.a|
|Assets to Sales||0.40||0.44||0.54||n.a|
|Current Debt/Total Assets||26%||13%||11%||n.a|