University Cycle Works
Financial Plan
This financial plan was developed based upon previous years’ data for the existing store, tracking trends in revenues and expenses. A five-month track of sales, accounts receivables and payables, and inventory from a year-end benchmark was made.
The seller, buyer, and the accountant worked together on the plan to balance optimism with reality.
An attorney was consulted on specifics of the sale contract.
The topics which follow present specific projections.
7.1 Important Assumptions
Payment days are averaged at 45. This is an average figure used for planning purposes. Bicycle manufacturers and some accessories suppliers offer dating programs where shops order product at the annual trade show in September for delivery in February or March so that new product will be available to customers at the beginning of the cycling season. Shops are invoiced for payment due, depending upon the program, somewhere between May and July.
The financial projections presented here are based on the assumption that suppliers will continue their current invoicing programs with University Cycle Works. We are thankful for the active support and advocacy of the various sales representatives who deal with us.
Other products are ordered on a monthly basis to replace items sold, such as tires, tubes, aptitude and cages, ball bearings, drive chains, etc. These are invoiced at net 30. Some special orders are C.O.D.
We also assume that:
- Interest rates will fluctuate only slightly.
- The level of discretionary income will remain steady or increase.
- The current enrollment at the university will continue at or above its current level.
- That the lack of auto parking in the university area will continue.
- That gasoline prices will continue to encourage alternative transportation, e.g. bicycle commuting.
- World trade treaties will continue to allow shipping of material and product across all borders, continents and oceans.
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 | 7.00% | 7.00% | 7.00% |
Tax Rate | 25.42% | 25.00% | 25.42% |
Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
The following chart compares five key indicators as they change over time. The indicators include sales, gross margin, operating expenses, inventory turnover, and collection days. The chart uses indicator values that are set to compare changes with the base year showing up as 1.00 and all other years showing up as multiples from the base.

7.3 Break-even Analysis
The Average Percent Variable Cost and Estimated Monthly Fixed Cost figures in the break-even table and chart below are drawn from data in the Profit and Loss and Sales Forecast tables. The table and chart give us a rough estimate on how much product and service we need to sell each month to cover all our expenses.

Break-even Analysis | |
Monthly Revenue Break-even | $37,354 |
Assumptions: | |
Average Percent Variable Cost | 35% |
Estimated Monthly Fixed Cost | $24,112 |
7.4 Projected Profit and Loss
In negotiating the smooth transition in ownership, the landlord agreed with Hub to continue the current lease unchanged. As surety, one month’s rent was required as a deposit at the time of sale. This is shown in the Start-up table. Further, the landlord agreed that if, after 11 months operation the new company was solvent and current in lease payments, that the deposit could be applied to the twelfth month’s rent.
The mid-summer months of July and August are slow months when a large part of the university population is gone on summer break. The mid-winter months are traditionally loss months. The weather is the most inclement and discretionary income is at its lowest after the holiday binges. However, we try to keep our entire staff on board to work on our own inventory, store refurbishing, and staff training.


Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $501,200 | $576,380 | $662,837 |
Direct Cost of Sales | $177,680 | $204,332 | $234,982 |
Other | $0 | $0 | $0 |
Total Cost of Sales | $177,680 | $204,332 | $234,982 |
Gross Margin | $323,520 | $372,048 | $427,855 |
Gross Margin % | 64.55% | 64.55% | 64.55% |
Expenses | |||
Payroll | $123,900 | $135,450 | $162,828 |
Sales and Marketing and Other Expenses | $24,866 | $27,420 | $30,521 |
Depreciation | $12,000 | $13,500 | $15,000 |
Leased Equipment | $1,800 | $1,800 | $1,800 |
Utilities | $3,600 | $3,600 | $3,780 |
Insurance | $4,200 | $4,500 | $4,725 |
Rent | $88,000 | $88,000 | $88,000 |
Payroll Taxes | $30,975 | $33,863 | $40,707 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $289,341 | $308,132 | $347,361 |
Profit Before Interest and Taxes | $34,179 | $63,916 | $80,494 |
EBITDA | $46,179 | $77,416 | $95,494 |
Interest Expense | $8,433 | $6,730 | $5,040 |
Taxes Incurred | $6,445 | $14,296 | $19,178 |
Net Profit | $19,302 | $42,889 | $56,276 |
Net Profit/Sales | 3.85% | 7.44% | 8.49% |
7.5 Projected Cash Flow
The Cash Flow chart and table reflect the seasonality of bicycle sales and the varying payment programs. At times, the business is inventory heavy, stocking up for the beginning of school rush, or specific sales. At other times, there is substantial negative cash flow as long-term accounts payable, net 90, net 60 payments coincide with regular net 30 invoices.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $501,200 | $576,380 | $662,837 |
Subtotal Cash from Operations | $501,200 | $576,380 | $662,837 |
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 | $8,000 | $0 | $0 |
Sales of Long-term Assets | $0 | $0 | $0 |
New Investment Received | $0 | $0 | $0 |
Subtotal Cash Received | $509,200 | $576,380 | $662,837 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $123,900 | $135,450 | $162,828 |
Bill Payments | $335,368 | $377,512 | $426,127 |
Subtotal Spent on Operations | $459,268 | $512,962 | $588,955 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $1,800 | $200 | $0 |
Other Liabilities Principal Repayment | $10,000 | $0 | $0 |
Long-term Liabilities Principal Repayment | $22,000 | $24,000 | $24,000 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $1,200 | $0 | $0 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $494,268 | $537,162 | $612,955 |
Net Cash Flow | $14,932 | $39,218 | $49,882 |
Cash Balance | $109,932 | $149,150 | $199,033 |
7.6 Projected Balance Sheet
Our goal is to repay the loans from our family within the first year, and we project paying Han Delbar his entire purchase price within five years. Other balance sheet information is shown in the table below.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $109,932 | $149,150 | $199,033 |
Inventory | $16,748 | $19,260 | $22,149 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $126,680 | $168,410 | $221,181 |
Long-term Assets | |||
Long-term Assets | $62,700 | $62,700 | $62,700 |
Accumulated Depreciation | $12,000 | $25,500 | $40,500 |
Total Long-term Assets | $50,700 | $37,200 | $22,200 |
Total Assets | $177,380 | $205,610 | $243,381 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $38,178 | $47,719 | $53,214 |
Current Borrowing | $200 | $0 | $0 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $38,378 | $47,719 | $53,214 |
Long-term Liabilities | $108,000 | $84,000 | $60,000 |
Total Liabilities | $146,378 | $131,719 | $113,214 |
Paid-in Capital | $25,000 | $25,000 | $25,000 |
Retained Earnings | ($13,300) | $6,002 | $48,891 |
Earnings | $19,302 | $42,889 | $56,276 |
Total Capital | $31,002 | $73,891 | $130,167 |
Total Liabilities and Capital | $177,380 | $205,610 | $243,381 |
Net Worth | $31,002 | $73,891 | $130,167 |
7.7 Business Ratios
Business ratio analysis for our first three years appears in the table below. For comparison, industry standard ratios for Standard Industrial Classification (SIC) code 5941, Sporting Goods and Bicycle Shops, are presented as well.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 15.00% | 15.00% | 4.20% |
Percent of Total Assets | ||||
Inventory | 9.44% | 9.37% | 9.10% | 40.20% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 24.30% |
Total Current Assets | 71.42% | 81.91% | 90.88% | 81.10% |
Long-term Assets | 28.58% | 18.09% | 9.12% | 18.90% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 21.64% | 23.21% | 21.86% | 44.70% |
Long-term Liabilities | 60.89% | 40.85% | 24.65% | 13.00% |
Total Liabilities | 82.52% | 64.06% | 46.52% | 57.70% |
Net Worth | 17.48% | 35.94% | 53.48% | 42.30% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 64.55% | 64.55% | 64.55% | 31.80% |
Selling, General & Administrative Expenses | 60.70% | 57.11% | 56.01% | 19.00% |
Advertising Expenses | 0.75% | 0.69% | 0.68% | 1.90% |
Profit Before Interest and Taxes | 6.82% | 11.09% | 12.14% | 1.40% |
Main Ratios | ||||
Current | 3.30 | 3.53 | 4.16 | 1.97 |
Quick | 2.86 | 3.13 | 3.74 | 0.75 |
Total Debt to Total Assets | 82.52% | 64.06% | 46.52% | 57.70% |
Pre-tax Return on Net Worth | 83.05% | 77.39% | 57.97% | 3.40% |
Pre-tax Return on Assets | 14.51% | 27.81% | 31.00% | 8.20% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 3.85% | 7.44% | 8.49% | n.a |
Return on Equity | 62.26% | 58.04% | 43.23% | n.a |
Activity Ratios | ||||
Inventory Turnover | 10.91 | 11.35 | 11.35 | n.a |
Accounts Payable Turnover | 9.06 | 8.11 | 8.11 | n.a |
Payment Days | 44 | 41 | 43 | n.a |
Total Asset Turnover | 2.83 | 2.80 | 2.72 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 4.72 | 1.78 | 0.87 | n.a |
Current Liab. to Liab. | 0.26 | 0.36 | 0.47 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $88,302 | $120,691 | $167,967 | n.a |
Interest Coverage | 4.05 | 9.50 | 15.97 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.35 | 0.36 | 0.37 | n.a |
Current Debt/Total Assets | 22% | 23% | 22% | n.a |
Acid Test | 2.86 | 3.13 | 3.74 | n.a |
Sales/Net Worth | 16.17 | 7.80 | 5.09 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |