Product sales generate the primary revenue stream for Wishbone Pet Products. As such, the financial projections are closely tied to the sales forecast. While we believe that the sales forecast presented is conservative and reflects a clear understanding of the market, we have considered scenarios in which sales lag or lead our projections.
Rather than purchasing inventory in large lots we will purchase inventory approximately every three months on an as-needed basis. If actual sales volumes are less than projected, we can respond by reducing inventory purchases to reduce variable costs and maintain a positive cash balance. Our operations strategy is also an asset in this scenario as our fixed costs are very low with respect to our variable costs. If necessary we can further reduce our fixed costs by reducing personnel, as payroll constitutes the majority of our fixed costs.
If actual sales volumes exceed our projections we will respond by increasing inventory purchases. Our suppliers capacity greatly exceeds the estimates in our current sales projections. While we should be able to finance the increased inventory purchases with revenue generated from the increased sales, this scenario may require additional infusions of cash. We may also consider financing accounts receivable with a factor to make cash for inventory purchases readily available.
The following subtopics highlight the financial plan for Wishbone Pet Products.
The table below presents the assumptions used in the financial calculations of this business plan.
8.2 Break-even Analysis
Wishbone Pet Products revenues are generated from unit sales of Fetch™ (a one-time expense) and replacement liner bag sales (a recurring expense). The monthly break-even volume was determined using the sales forecast as a guide, and based on estimates for fixed costs and average revenue for Fetch™ and the replacement liner bags. We anticipate breaking even within the first year of operation.
- One scoop and one box of liners constitute one unit.
- Average Per-Unit Revenue assumes only wholesale sales of one scoop and one box of bags.
- Direct sales to retailers and catalogs will increase average per-unit revenue.
8.3 Projected Profit and Loss
Based on the sales projections and our low fixed cost operations strategy, Wishbone Pet Products will achieve profitability within one year. Profits in subsequent years will accelerate with an increase in anticipated sales volume, yielding approximately tripling of net profit in Year 2 and Year 3.
8.4 Projected Cash Flow
We expect to manage cash flow with an initial investment and expect be profitable by the end of Year 1, with occasional negative cash flows corresponding to inventory purchases. Owner invests additional $10,000 in Year 2 as a hedge against Accounts Payable/Accounts Receivable flows.
8.5 Projected Balance Sheet
As shown on the balance sheet in the following table, we expect a healthy growth in net worth by the end of the plan period. The monthly projections for Year 1 are in the appendix.
8.6 Business Ratios
The following table presents common business ratios for reference. Wishbone Pet Products NAICS classification is 339999 (SIC, 3999) - Manufacturing Industries, NEC (Not Elsewhere Classified).