Salvador's Sauces
Financial Plan
We have forecast a very rapid growth for Salvador’s this year. Although this may seem ambitious based on historic sales, this rate of growth is due to the large orders we have received to date from several distributors, letters of commitment from Meijer’s and Kroger’s, and the increasing number of orders from current clients.
7.1 Important Assumptions
The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:
- We assume a slow-growth economy, without major recession.
- We assume, of course, that there are no unforeseen changes in the consumer market to make products immediately obsolete or out of favor (or not increasing in popularity).
- We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables, addendum, and additional documentation.
General Assumptions | |||
1996 | 1997 | 1998 | |
Plan Month | 1 | 2 | 3 |
Current Interest Rate | 5.00% | 5.00% | 5.00% |
Long-term Interest Rate | 5.00% | 5.00% | 5.00% |
Tax Rate | 25.00% | 25.00% | 25.00% |
Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
The most important factor in our case is the ability to procure financing to go the the next level. The size of the orders currently being asked of us are well beyond our current production capacity, but well within the production capability of a local processor. *Note: purchasing from this supplier will also reduce our per unit production costs in excess of 30%. An additional alternative would be to purchase the production equipment necessary, and not be subject to the local manufacturer’s production scheduling.
We must maintain reasonably high gross margins, and hold marketing costs to no more than 20% of sales to provide the income to reduce out debt, and equip us to sustain the growth we anticipate. We will meet and exceed all of theses conditions through buying at increased volumes. Then we’ll pass the savings on to our customers through increases in the margins at which they retail the product.

7.3 Break-even Analysis
The break-even analysis shows that Salvador’s has a good balance of fixed costs and sufficient sales to remain healthy. We have already passed our monthly break-even point; last year’s overall loss reflects high costs in the first half of the year.
We have just recently contracted with another jar supplier that will reduce our costs by 18% per jar of salsa with the next supply order. This will further reduce the break-even point, and add to our goal of increasing the margin on our salsa.

Break-even Analysis | |
Monthly Revenue Break-even | $4,747 |
Assumptions: | |
Average Percent Variable Cost | 39% |
Estimated Monthly Fixed Cost | $2,919 |
7.4 Projected Profit and Loss
We expect to close out this year with good sales growth, and to increase our sales each year through the turn of the century, with comfortable net profit.




Pro Forma Profit and Loss | |||
1996 | 1997 | 1998 | |
Sales | $168,602 | $217,320 | $312,052 |
Direct Cost of Sales | $64,916 | $86,928 | $124,821 |
Other Costs of Sales | $0 | $0 | $0 |
Total Cost of Sales | $64,916 | $86,928 | $124,821 |
Gross Margin | $103,686 | $130,392 | $187,231 |
Gross Margin % | 61.50% | 60.00% | 60.00% |
Expenses | |||
Payroll | $9,600 | $43,500 | $72,800 |
Marketing/Promotion | $6,763 | $0 | $0 |
Depreciation | $5,520 | $0 | $0 |
Rent | $3,500 | $0 | $0 |
Utilities | $3,850 | $0 | $0 |
Leased Equipment | $465 | $0 | $0 |
Insurance | $1,044 | $0 | $0 |
Payroll Taxes | $0 | $0 | $0 |
Other | $4,290 | $4,225 | $6,275 |
Total Operating Expenses | $35,032 | $47,725 | $79,075 |
Profit Before Interest and Taxes | $68,654 | $82,667 | $108,156 |
EBITDA | $74,174 | $82,667 | $108,156 |
Interest Expense | $7,533 | $7,958 | $6,817 |
Taxes Incurred | $15,280 | $18,677 | $25,335 |
Net Profit | $45,841 | $56,032 | $76,004 |
Net Profit/Sales | 27.19% | 25.78% | 24.36% |
7.5 Projected Cash Flow
We expect to manage cash flow over the next three years with the assistance of a Small Business Administration supported loan. This financing assistance is required to provide the working capital to meet the current needs while providing a solid foundation to build the growth of the organization. After a six-month period, we anticipate requesting an open line of credit to further the company’s ability to meet and exceed sales projections, gross margin, and return on investment.

Pro Forma Cash Flow | |||
1996 | 1997 | 1998 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $143,312 | $184,722 | $265,244 |
Subtotal Cash from Operations | $164,267 | $216,067 | $309,616 |
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 | $165,000 | $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 | $329,267 | $216,067 | $309,616 |
Expenditures | 1996 | 1997 | 1998 |
Expenditures from Operations | |||
Cash Spending | $9,600 | $43,500 | $72,800 |
Bill Payments | $101,045 | $120,055 | $163,313 |
Subtotal Spent on Operations | $110,645 | $163,555 | $236,113 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $3,650 | $5,555 | $6,000 |
Other Liabilities Principal Repayment | $0 | $0 | $0 |
Long-term Liabilities Principal Repayment | $7,100 | $17,042 | $17,042 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $0 | $0 |
Dividends | $45,000 | $0 | $0 |
Subtotal Cash Spent | $166,395 | $186,152 | $259,155 |
Net Cash Flow | $162,872 | $29,916 | $50,461 |
Cash Balance | $162,998 | $192,913 | $243,375 |
7.6 Projected Balance Sheet
As shown by the balance sheet in the table, we expect a healthy growth in net worth through the end of the plan period.
Pro Forma Balance Sheet | |||
1996 | 1997 | 1998 | |
Assets | |||
Current Assets | |||
Cash | $162,998 | $192,913 | $243,375 |
Accounts Receivable | $4,335 | $5,587 | $8,023 |
Inventory | $6,745 | $9,032 | $12,970 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $174,078 | $207,533 | $264,367 |
Long-term Assets | |||
Long-term Assets | $23,368 | $23,368 | $23,368 |
Accumulated Depreciation | $15,312 | $15,312 | $15,312 |
Total Long-term Assets | $8,056 | $8,056 | $8,056 |
Total Assets | $182,134 | $215,589 | $272,423 |
Liabilities and Capital | 1996 | 1997 | 1998 |
Current Liabilities | |||
Accounts Payable | $9,849 | $9,869 | $13,741 |
Current Borrowing | $12,557 | $7,002 | $1,002 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $22,406 | $16,871 | $14,743 |
Long-term Liabilities | $157,900 | $140,858 | $123,816 |
Total Liabilities | $180,306 | $157,729 | $138,559 |
Paid-in Capital | $25,000 | $25,000 | $25,000 |
Retained Earnings | ($69,013) | ($23,172) | $32,860 |
Earnings | $45,841 | $56,032 | $76,004 |
Total Capital | $1,828 | $57,860 | $133,864 |
Total Liabilities and Capital | $182,134 | $215,589 | $272,423 |
Net Worth | $1,828 | $57,860 | $133,864 |
7.7 Business Ratios
Standard business ratios are included in the table that follows. The ratios show a plan for well balanced, healthy growth. The industry comparisons are for the Perishable Prepared Food Manufacturing industry, NAICS classification code 311991.
Ratio Analysis | ||||
1996 | 1997 | 1998 | Industry Profile | |
Sales Growth | 700.96% | 28.90% | 43.59% | 6.68% |
Percent of Total Assets | ||||
Accounts Receivable | 2.38% | 2.59% | 2.94% | 15.95% |
Inventory | 3.70% | 4.19% | 4.76% | 13.45% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 21.34% |
Total Current Assets | 95.58% | 96.26% | 97.04% | 50.74% |
Long-term Assets | 4.42% | 3.74% | 2.96% | 49.26% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 12.30% | 7.83% | 5.41% | 25.96% |
Long-term Liabilities | 86.69% | 65.34% | 45.45% | 29.44% |
Total Liabilities | 99.00% | 73.16% | 50.86% | 55.40% |
Net Worth | 1.00% | 26.84% | 49.14% | 44.60% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 61.50% | 60.00% | 60.00% | 19.36% |
Selling, General & Administrative Expenses | 34.31% | 34.22% | 35.64% | 11.01% |
Advertising Expenses | 3.27% | 0.00% | 0.00% | 0.60% |
Profit Before Interest and Taxes | 40.72% | 38.04% | 34.66% | 1.06% |
Main Ratios | ||||
Current | 7.77 | 12.30 | 17.93 | 1.56 |
Quick | 7.47 | 11.77 | 17.05 | 0.86 |
Total Debt to Total Assets | 99.00% | 73.16% | 50.86% | 63.95% |
Pre-tax Return on Net Worth | 3343.58% | 129.12% | 75.70% | 1.88% |
Pre-tax Return on Assets | 33.56% | 34.65% | 37.20% | 5.23% |
Additional Ratios | 1996 | 1997 | 1998 | |
Net Profit Margin | 27.19% | 25.78% | 24.36% | n.a |
Return on Equity | 2507.69% | 96.84% | 56.78% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 5.83 | 5.83 | 5.83 | n.a |
Collection Days | 57 | 56 | 53 | n.a |
Inventory Turnover | 10.91 | 11.02 | 11.35 | n.a |
Accounts Payable Turnover | 11.26 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 30 | 26 | n.a |
Total Asset Turnover | 0.93 | 1.01 | 1.15 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 98.63 | 2.73 | 1.04 | n.a |
Current Liab. to Liab. | 0.12 | 0.11 | 0.11 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $151,672 | $190,662 | $249,624 | n.a |
Interest Coverage | 9.11 | 10.39 | 15.87 | n.a |
Additional Ratios | ||||
Assets to Sales | 1.08 | 0.99 | 0.87 | n.a |
Current Debt/Total Assets | 12% | 8% | 5% | n.a |
Acid Test | 7.27 | 11.43 | 16.51 | n.a |
Sales/Net Worth | 92.23 | 3.76 | 2.33 | n.a |
Dividend Payout | 0.98 | 0.00 | 0.00 | n.a |