Morningstar Bakery
Financial Plan
The following sections will outline important financial assumptions.
7.1 Important Assumptions
The current economic climate in the U.S. appears to be on the brink of recession. However, we do not believe that if the country does enter a recession that our business will be unduly affected. Since our products are ones that help contribute to and maintain good health, we believe that people will continue to buy our products over traditional wheat bread. We are operating in a niche market, and in addition, the price of our breads and sweets although slightly higher than traditional bakeries they are not positioned as expensive, luxury items.
| General Assumptions | |||
| Year 1 | Year 2 | Year 3 | |
| Plan Month | 1 | 2 | 3 |
| Current Interest Rate | 9.00% | 9.00% | 9.00% |
| Long-term Interest Rate | 8.50% | 8.50% | 8.50% |
| Tax Rate | 25.42% | 25.00% | 25.42% |
| Other | 0 | 0 | 0 |
7.2 Break-even Analysis
Our Break-Even Analysis includes running costs of production. These are fairly low since we manufacture all of our goods at a low cost to us. Here are the items included in the average percent variable cost:
- Manufacturing ingredients, i.e. flour, sugar, yeast and butter.
- Payroll.
- Mortgage.
- Utilities.
- Advertising.
The Break-Even Analysis as it appears below indicates that the break-even point will be attainable each month.
| Break-even Analysis | |
| Monthly Revenue Break-even | $19,036 |
| Assumptions: | |
| Average Percent Variable Cost | 36% |
| Estimated Monthly Fixed Cost | $12,271 |
7.3 Projected Profit and Loss
The following table shows the projected profit and loss for Morningstar Bakery.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $251,700 | $324,000 | $400,000 |
| Direct Cost of Sales | $89,450 | $115,200 | $142,000 |
| Other | $0 | $0 | $0 |
| Total Cost of Sales | $89,450 | $115,200 | $142,000 |
| Gross Margin | $162,250 | $208,800 | $258,000 |
| Gross Margin % | 64.46% | 64.44% | 64.50% |
| Expenses | |||
| Payroll | $105,000 | $115,500 | $127,050 |
| Sales and Marketing and Other Expenses | $13,040 | $14,640 | $16,640 |
| Depreciation | $3,492 | $3,492 | $3,492 |
| Utilities | $519 | $600 | $800 |
| Insurance | $1,800 | $2,400 | $2,800 |
| Mortgage | $10,800 | $15,096 | $15,096 |
| Payroll Taxes | $12,600 | $13,860 | $15,246 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $147,251 | $165,588 | $181,124 |
| Profit Before Interest and Taxes | $14,999 | $43,212 | $76,876 |
| EBITDA | $18,491 | $46,704 | $80,368 |
| Interest Expense | $14,705 | $14,705 | $14,705 |
| Taxes Incurred | ($473) | $7,127 | $15,802 |
| Net Profit | $767 | $21,380 | $46,369 |
| Net Profit/Sales | 0.30% | 6.60% | 11.59% |
7.4 Projected Cash Flow
The following chart illustrates a healthy cash balance for the first three years, enabling the company to grow through reinvestment.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $251,700 | $324,000 | $400,000 |
| Subtotal Cash from Operations | $251,700 | $324,000 | $400,000 |
| 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 | $251,700 | $324,000 | $400,000 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $105,000 | $115,500 | $127,050 |
| Bill Payments | $128,199 | $182,776 | $219,845 |
| Subtotal Spent on Operations | $233,199 | $298,276 | $346,895 |
| 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 | $233,199 | $298,276 | $346,895 |
| Net Cash Flow | $18,501 | $25,724 | $53,105 |
| Cash Balance | $30,593 | $56,316 | $109,421 |
7.5 Projected Balance Sheet
The following table represents the financial position of the Morningstar Bakery at the end of each of the three upcoming fiscal years.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $30,593 | $56,316 | $109,421 |
| Other Current Assets | $0 | $0 | $0 |
| Total Current Assets | $30,593 | $56,316 | $109,421 |
| Long-term Assets | |||
| Long-term Assets | $175,000 | $175,000 | $175,000 |
| Accumulated Depreciation | $3,492 | $6,984 | $10,476 |
| Total Long-term Assets | $171,508 | $168,016 | $164,524 |
| Total Assets | $202,101 | $224,332 | $273,945 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $14,241 | $15,093 | $18,336 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $12,000 | $12,000 | $12,000 |
| Subtotal Current Liabilities | $26,241 | $27,093 | $30,336 |
| Long-term Liabilities | $173,000 | $173,000 | $173,000 |
| Total Liabilities | $199,241 | $200,093 | $203,336 |
| Paid-in Capital | $7,500 | $7,500 | $7,500 |
| Retained Earnings | ($5,408) | ($4,641) | $16,740 |
| Earnings | $767 | $21,380 | $46,369 |
| Total Capital | $2,859 | $24,240 | $70,609 |
| Total Liabilities and Capital | $202,101 | $224,332 | $273,945 |
| Net Worth | $2,859 | $24,240 | $70,609 |
7.6 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5461, Retail Bakeries, are shown for comparison.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 28.72% | 23.46% | 2.58% |
| Percent of Total Assets | ||||
| Other Current Assets | 0.00% | 0.00% | 0.00% | 29.82% |
| Total Current Assets | 15.14% | 25.10% | 39.94% | 55.20% |
| Long-term Assets | 84.86% | 74.90% | 60.06% | 44.80% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 12.98% | 12.08% | 11.07% | 25.40% |
| Long-term Liabilities | 85.60% | 77.12% | 63.15% | 23.07% |
| Total Liabilities | 98.59% | 89.19% | 74.23% | 48.47% |
| Net Worth | 1.41% | 10.81% | 25.77% | 51.53% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 64.46% | 64.44% | 64.50% | 36.64% |
| Selling, General & Administrative Expenses | 64.14% | 57.51% | 52.56% | 23.68% |
| Advertising Expenses | 4.13% | 3.70% | 3.50% | 1.65% |
| Profit Before Interest and Taxes | 5.96% | 13.34% | 19.22% | 1.92% |
| Main Ratios | ||||
| Current | 1.17 | 2.08 | 3.61 | 1.70 |
| Quick | 1.17 | 2.08 | 3.61 | 0.96 |
| Total Debt to Total Assets | 98.59% | 89.19% | 74.23% | 5.56% |
| Pre-tax Return on Net Worth | 10.28% | 117.61% | 88.05% | 56.30% |
| Pre-tax Return on Assets | 0.15% | 12.71% | 22.69% | 12.72% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 0.30% | 6.60% | 11.59% | n.a |
| Return on Equity | 26.84% | 88.20% | 65.67% | n.a |
| Activity Ratios | ||||
| Accounts Payable Turnover | 10.00 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 29 | 27 | n.a |
| Total Asset Turnover | 1.25 | 1.44 | 1.46 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 69.68 | 8.25 | 2.88 | n.a |
| Current Liab. to Liab. | 0.13 | 0.14 | 0.15 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $4,351 | $29,224 | $79,085 | n.a |
| Interest Coverage | 1.02 | 2.94 | 5.23 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.80 | 0.69 | 0.68 | n.a |
| Current Debt/Total Assets | 13% | 12% | 11% | n.a |
| Acid Test | 1.17 | 2.08 | 3.61 | n.a |
| Sales/Net Worth | 88.03 | 13.37 | 5.67 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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