Our biggest savings of the year
Corporate Software Sales
Financial Plan
The most crucial issue affecting our financial plan is the receipt of start-up fees for the customization and installation of the software and extranet solution. This drives our cash flow, and all other aspects of our operation.
7.1 Important Assumptions
This table summarizes the general assumptions used to project our balance sheet.
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 | 8.00% | 8.00% | 8.00% |
Tax Rate | 30.00% | 30.00% | 30.00% |
Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
The chart below shows the relative relationships, year-to-year, of four business indicators; sales, gross margin, operating expenses, collection days of accounts receivable.

7.3 Break-even Analysis
We have a break-even point in sales/month for year one as shown below.

Break-even Analysis | |
Monthly Revenue Break-even | $8,450 |
Assumptions: | |
Average Percent Variable Cost | 11% |
Estimated Monthly Fixed Cost | $7,510 |
7.4 Projected Profit and Loss
Monthly P&L fluctuate drastically due to the work required before a sale is closed. One to two months prior to closing a sale, we will incur travel costs and other miscellaneous expenses associated with our consulting service. Expenses are approximately 40% of fees. Set-up costs to the client (our commission), drive revenue in the period a sale is made, as do training fees. Associated direct costs are 10% and 50% respectively; however, as we anticipate a learning curve in training costs, these decrease to a flat rate in year two of eight percent.
The direct cost of start-up fees is our major expense. As the client prepares to go live with the product, we will need to travel more frequently to the site, bring in their key end-customers, and travel to the manufacturer more frequently as well. We have anticipated that start-up fees will grow 10% in year two and 15% in year three. Consulting fees are projected to grow at a steady rate of 20% and training fees at 30%. As a result, net profit is projected to grow at a conservative and realistic rate for the first three years.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $154,950 | $171,180 | $198,096 |
Direct Cost of Sales | $17,235 | $15,516 | $18,300 |
Other | $0 | $0 | $0 |
Total Cost of Sales | $17,235 | $15,516 | $18,300 |
Gross Margin | $137,715 | $155,664 | $179,796 |
Gross Margin % | 88.88% | 90.94% | 90.76% |
Expenses | |||
Payroll | $80,000 | $85,000 | $90,000 |
Marketing/Promotion | $4,000 | $5,000 | $6,000 |
Depreciation | $0 | $0 | $0 |
Utilities | $480 | $500 | $550 |
Insurance | $1,440 | $1,440 | $1,440 |
Rent | $4,200 | $4,200 | $4,350 |
Payroll Taxes | $0 | $0 | $0 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $90,120 | $96,140 | $102,340 |
Profit Before Interest and Taxes | $47,595 | $59,524 | $77,456 |
EBITDA | $47,595 | $59,524 | $77,456 |
Interest Expense | $0 | $0 | $0 |
Taxes Incurred | $14,279 | $17,857 | $23,237 |
Net Profit | $33,317 | $41,667 | $54,219 |
Net Profit/Sales | 21.50% | 24.34% | 27.37% |
7.5 Projected Cash Flow
Our cash flow assumptions are dependent on the start-up fee. We will receive 15-20% of the total fee in commission. Historical values of start-up fees are from $150K to $200K and the accounts have taken from one to four months to close. Conservative estimates lead us to believe that we can attain sales revenue from start-up fees of between $135K and $140K in year one.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $77,475 | $85,590 | $99,048 |
Cash from Receivables | $76,895 | $85,529 | $98,947 |
Subtotal Cash from Operations | $154,370 | $171,119 | $197,995 |
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 | $0 | $0 | $0 |
Sales of Long-term Assets | $0 | $0 | $0 |
New Investment Received | $0 | $0 | $0 |
Subtotal Cash Received | $154,370 | $171,119 | $197,995 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $80,000 | $85,000 | $90,000 |
Bill Payments | $33,015 | $49,973 | $53,107 |
Subtotal Spent on Operations | $113,015 | $134,973 | $143,107 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
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 | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $0 | $0 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $113,015 | $134,973 | $143,107 |
Net Cash Flow | $41,355 | $36,146 | $54,888 |
Cash Balance | $52,355 | $88,501 | $143,389 |
7.6 Projected Balance Sheet
Balance sheet is a result of key assumptions and estimated sales/cash flows.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $52,355 | $88,501 | $143,389 |
Accounts Receivable | $580 | $641 | $742 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $52,935 | $89,142 | $144,131 |
Long-term Assets | |||
Long-term Assets | $0 | $0 | $0 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $0 | $0 | $0 |
Total Assets | $52,935 | $89,142 | $144,131 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $9,119 | $3,659 | $4,428 |
Current Borrowing | $0 | $0 | $0 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $9,119 | $3,659 | $4,428 |
Long-term Liabilities | $0 | $0 | $0 |
Total Liabilities | $9,119 | $3,659 | $4,428 |
Paid-in Capital | $13,550 | $13,550 | $13,550 |
Retained Earnings | ($3,050) | $30,267 | $71,933 |
Earnings | $33,317 | $41,667 | $54,219 |
Total Capital | $43,817 | $85,483 | $139,703 |
Total Liabilities and Capital | $52,935 | $89,142 | $144,131 |
Net Worth | $43,817 | $85,483 | $139,703 |
7.7 Business Ratios
The following table outlines important business ratios for pre-packaged software, as described by the standard industry classification (SIC) index, 7372.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 10.47% | 15.72% | 9.70% |
Percent of Total Assets | ||||
Accounts Receivable | 1.10% | 0.72% | 0.51% | 21.50% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 45.70% |
Total Current Assets | 100.00% | 100.00% | 100.00% | 70.20% |
Long-term Assets | 0.00% | 0.00% | 0.00% | 29.80% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 17.23% | 4.10% | 3.07% | 42.40% |
Long-term Liabilities | 0.00% | 0.00% | 0.00% | 19.20% |
Total Liabilities | 17.23% | 4.10% | 3.07% | 61.60% |
Net Worth | 82.77% | 95.90% | 96.93% | 38.40% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 88.88% | 90.94% | 90.76% | 100.00% |
Selling, General & Administrative Expenses | 65.84% | 64.01% | 60.68% | 79.40% |
Advertising Expenses | 0.00% | 0.00% | 0.00% | 1.30% |
Profit Before Interest and Taxes | 30.72% | 34.77% | 39.10% | 2.20% |
Main Ratios | ||||
Current | 5.81 | 24.36 | 32.55 | 1.51 |
Quick | 5.81 | 24.36 | 32.55 | 1.16 |
Total Debt to Total Assets | 17.23% | 4.10% | 3.07% | 61.60% |
Pre-tax Return on Net Worth | 108.62% | 69.63% | 55.44% | 3.50% |
Pre-tax Return on Assets | 89.91% | 66.77% | 53.74% | 9.20% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 21.50% | 24.34% | 27.37% | n.a |
Return on Equity | 76.04% | 48.74% | 38.81% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 133.58 | 133.58 | 133.58 | n.a |
Collection Days | 60 | 3 | 3 | n.a |
Accounts Payable Turnover | 4.57 | 12.17 | 12.17 | n.a |
Payment Days | 67 | 52 | 27 | n.a |
Total Asset Turnover | 2.93 | 1.92 | 1.37 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.21 | 0.04 | 0.03 | n.a |
Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $43,817 | $85,483 | $139,703 | n.a |
Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.34 | 0.52 | 0.73 | n.a |
Current Debt/Total Assets | 17% | 4% | 3% | n.a |
Acid Test | 5.74 | 24.19 | 32.38 | n.a |
Sales/Net Worth | 3.54 | 2.00 | 1.42 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |