Cresta will finance growth with a long-term loan. We recognize that this means we will have to grow more slowly than we might like. The most important factor in our case is collection days. We can't push our clients hard on collection days, because they are in larger companies and our direct contacts will normally not have financial authority. Therefore we need to develop a permanent system of receivables financing, using one of the established accounting systems. In turn we intend to ensure that our investors are compatible with our growth plan, management style, and vision. Compatibility in this regard means:
- A fundamental respect for giving our customers value, and for maintaining a healthy and congenial workplace.
- Respect for realistic forecasts, conservative cash flow, and financial management.
- Cash flow as first priority, growth second, profits third.
- Willingness to follow the project objectives and contribute valuable input to strategy and implementation decisions.
Of these, only the last two are flexible.
8.1 Key Financial Indicators
We foresee major growth in sales and operating expenses, and a bump in our collection days as we spread the business during expansion. Collection days are very important. We do not want to let our average collection days get above 50 under any circumstances. This could cause a serious problem with cash flow, because our working capital situation is chronically tight. However, we recognize that we cannot control this factor easily, because of the relationship with our clients.
8.2 Projected Profit and Loss
Our projected profit and loss is shown on the following table, with sales increasing from more than $2.5 million the first year to more than $6.7 million the third, and profits slightly below the profit level achieved in 2000 on similar revenue. This difference in profit is attributable to pressure on rates in a competitive market as well as additional expenses incurred in building the business. We are projecting conservatively regarding cost of sales and gross margin. The detailed monthly projections are included in the appendix.
8.3 Projected Cash Flow
Cresta has unique timing issues with respect to managing cash. Consultants are used as a means of keeping overhead down but consultants require payment in a timely manner when compared to the timing of services rendered. Cresta's challenge is to ensure that customer payments for such services are collected in an equally timely manner to ensure sufficient cash to sustain operations. Notwithstanding the first plan year cash struggle, once the business reaches critical mass, the positive margins achieved enable the business to become relatively "cash rich."
8.4 Projected Balance Sheet
The balance sheet in the following table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.
8.5 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7371, Custom Computer Programming Industry, are shown for comparison.