Elsewares is seeking a financial package based on a note due in five years, but amortized over 15 years. The note will be personally guaranteed by the Greenbaums' assets. By amortizing the note over 15 years, the company will be afforded the opportunity to establish a healthy track record which will enable the company to seek alternate financing for the balance. In light of that strategy, Elsewares proposes the following payback schedule:
- Months 1-12: No payback of principal or interest
- Months 13-24: 15% interest plus 10% net profit
- Months 25-48: 10% interest plus 15% net profit
- Months 49-60: 10% interest plus 20% net profit
It should be noted that the owners of Elsewares do not intend to take any profits out of the business until the long-term debt has been satisfied. Whatever profits remain after the above debt payments will be used to finance growth, mainly through the acquisition of additional inventory.
7.1 Important Assumptions
General assumptions for this plan are on the following table.
7.2 Key Financial Indicators
The most important indicator in our case is inventory turnover. We have to make sure that our inventory of drawstring bags and any other packaging products turns over a minimum of five times to avoid a negative impact on our cost of goods sold and on our cash flow.
- Collection Days: These are very important. It may be necessary to implement a variety of payment terms with different distributors, depending on their payment history. In extreme cases, prepayment of orders may be the only extendible terms. We will rely heavily on our subscription to the ASI Credit Service for this valuable pre-sale information.
- Gross Margins: We must maintain gross margins of 90% at the least, and hold marketing costs to no more than 20% of sales.
7.3 Break-even Analysis
The following table and chart illustrate our break-even analysis with our per month fixed cost estimate, and what we need to sell to break-even in a month. Given the estimates, we hit running monthly break-even after the fourth month.
7.4 Projected Profit and Loss
The following table shows the projected profits. Monthly projections are included in the appendix.
7.5 Projected Cash Flow
The following table shows cash flow for the three years, and the chart illustrates monthly cash flow in the first year. Monthly cash flow projections are included in the appendix.
7.6 Projected Balance Sheet
The projected balance sheet is shown in the following table, with monthly projections in the appendix.
7.7 Business Ratios
The table shows projected business ratios. The Industry Profile columns show statistics for Standard Industry Code (SIC) #5199, Nondurable Goods.