Hang Toes Surfing
Financial Plan
With an increase in sales, we do expect to apply for a credit line to a limit of $150,000. The credit line will be supported by assets.
These are our strong points:
- We want to finance growth mainly through cash flow. We recognize that this means we will will have to grow at a slower pace than we would like, but this will enable us to build sales through more advertising.
- Our most important asset is inventory turnover. Our ability to schedule production from month to month will help to control inventory costs.
- We will be credited payment to our bank account within two days for all our credit card sales over the Internet. Sales on credit accounts for 25% of our overall sales.
Start-up Funding
Our initial startup expenses will amount to approximately $75,000. The anticipated funding sources are detailed in the table below.
| Start-up Funding | |
| Start-up Expenses to Fund | $75,625 |
| Start-up Assets to Fund | $273,000 |
| Total Funding Required | $348,625 |
| Assets | |
| Non-cash Assets from Start-up | $198,000 |
| Cash Requirements from Start-up | $75,000 |
| Additional Cash Raised | $0 |
| Cash Balance on Starting Date | $75,000 |
| Total Assets | $273,000 |
| Liabilities and Capital | |
| Liabilities | |
| Current Borrowing | $0 |
| Long-term Liabilities | $120,000 |
| Accounts Payable (Outstanding Bills) | $48,000 |
| Other Current Liabilities (interest-free) | $0 |
| Total Liabilities | $168,000 |
| Capital | |
| Planned Investment | |
| Owner | $180,625 |
| Investor | $0 |
| Additional Investment Requirement | $0 |
| Total Planned Investment | $180,625 |
| Loss at Start-up (Start-up Expenses) | ($75,625) |
| Total Capital | $105,000 |
| Total Capital and Liabilities | $273,000 |
| Total Funding | $348,625 |
Break-even Analysis
The following table shows our monthly break-even point. This includes costs associated with maintaining our business, such as rent and payroll, as outlined in our other tables.
| Break-even Analysis | |
| Monthly Revenue Break-even | $52,056 |
| Assumptions: | |
| Average Percent Variable Cost | 31% |
| Estimated Monthly Fixed Cost | $35,738 |
Projected Profit and Loss
As the profit and loss table shows, Hang Toes Surfing expects to continue slow but steady growth over the next three years of operations, with an estimated net profit of almost 15% for both years two and three.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $765,630 | $887,000 | $933,000 |
| Direct Cost of Sales | $240,000 | $194,000 | $210,000 |
| Other Costs of Sales | $60,000 | $65,000 | $70,000 |
| Total Cost of Sales | $300,000 | $259,000 | $280,000 |
| Gross Margin | $465,630 | $628,000 | $653,000 |
| Gross Margin % | 60.82% | 70.80% | 69.99% |
| Expenses | |||
| Payroll | $90,000 | $95,000 | $103,000 |
| Marketing/Promotion | $162,920 | $165,000 | $170,000 |
| Depreciation | $43,414 | $48,000 | $50,000 |
| Rent | $16,500 | $16,500 | $16,500 |
| Office utility, supplies | $56,023 | $50,000 | $50,000 |
| Insurance | $60,000 | $60,000 | $65,000 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $428,857 | $434,500 | $454,500 |
| Profit Before Interest and Taxes | $36,773 | $193,500 | $198,500 |
| EBITDA | $80,187 | $241,500 | $248,500 |
| Interest Expense | $11,110 | $8,448 | $5,998 |
| Taxes Incurred | $7,699 | $55,516 | $57,751 |
| Net Profit | $17,964 | $129,536 | $134,751 |
| Net Profit/Sales | 2.35% | 14.60% | 14.44% |
Projected Cash Flow
The financial outlook is positive as the company rolls out and meets its milestones. Initially our cash flow will fluctuate, with negative cash flow in several months for our first year. However, Hang Toes Surfing expects to be cash flow positive for years two and three.
- We want to finance our first year’s growth through a loan.
- The most important indicator is inventory turnover. Our ability to schedule production from month to month will help control inventory costs.
- Collection is not a problem for our direct sales, since we will be credited payment to our bank account in two days by our credit card company for Internet sales.
- Selling our products over the Internet will allow us full retail price and maximize our profit.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $574,223 | $665,250 | $699,750 |
| Cash from Receivables | $166,175 | $217,750 | $231,734 |
| Subtotal Cash from Operations | $740,398 | $883,000 | $931,484 |
| Additional Cash Received | |||
| Sales Tax, VAT, HST/GST Received | $45,938 | $53,220 | $55,980 |
| New Current Borrowing | $16,072 | $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 | $802,407 | $936,220 | $987,464 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $90,000 | $95,000 | $103,000 |
| Bill Payments | $631,193 | $588,145 | $658,819 |
| Subtotal Spent on Operations | $721,193 | $683,145 | $761,819 |
| Additional Cash Spent | |||
| Sales Tax, VAT, HST/GST Paid Out | $42,859 | $53,000 | $56,000 |
| Principal Repayment of Current Borrowing | $16,072 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $23,521 | $24,000 | $25,000 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $803,645 | $760,145 | $842,819 |
| Net Cash Flow | ($1,237) | $176,075 | $144,645 |
| Cash Balance | $73,763 | $249,838 | $394,483 |
Projected Balance Sheet
Hang Toes Surfing’s projected company balance sheet follows.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $73,763 | $249,838 | $394,483 |
| Accounts Receivable | $25,232 | $29,232 | $30,748 |
| Inventory | $48,000 | $40,511 | $58,724 |
| Other Current Assets | $50,000 | $50,000 | $50,000 |
| Total Current Assets | $196,995 | $369,581 | $533,956 |
| Long-term Assets | |||
| Long-term Assets | $100,000 | $100,000 | $100,000 |
| Accumulated Depreciation | $43,414 | $91,414 | $141,414 |
| Total Long-term Assets | $56,586 | $8,586 | ($41,414) |
| Total Assets | $253,581 | $378,167 | $492,542 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $31,059 | $49,888 | $54,531 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $3,079 | $3,299 | $3,279 |
| Subtotal Current Liabilities | $34,138 | $53,188 | $57,810 |
| Long-term Liabilities | $96,479 | $72,479 | $47,479 |
| Total Liabilities | $130,617 | $125,667 | $105,290 |
| Paid-in Capital | $180,625 | $180,625 | $180,625 |
| Retained Earnings | ($75,625) | ($57,661) | $71,876 |
| Earnings | $17,964 | $129,536 | $134,751 |
| Total Capital | $122,964 | $252,501 | $387,252 |
| Total Liabilities and Capital | $253,581 | $378,167 | $492,542 |
| Net Worth | $122,964 | $252,501 | $387,252 |
Business Ratios
Standard business ratios are included in the following table. The ratios show an aggressive plan for growth in order to reach maximum production within three years. Return on investment increases each year as we bring the new facility to maximum capacity and production. Return on sales and assets remain strong and cost of goods decreases.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | n.a. | 15.85% | 5.19% | 6.06% |
| Percent of Total Assets | ||||
| Accounts Receivable | 9.95% | 7.73% | 6.24% | 6.51% |
| Inventory | 18.93% | 10.71% | 11.92% | 56.31% |
| Other Current Assets | 19.72% | 13.22% | 10.15% | 22.81% |
| Total Current Assets | 77.69% | 97.73% | 108.41% | 85.63% |
| Long-term Assets | 22.31% | 2.27% | -8.41% | 14.37% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 13.46% | 14.06% | 11.74% | 30.47% |
| Long-term Liabilities | 38.05% | 19.17% | 9.64% | 12.59% |
| Total Liabilities | 51.51% | 33.23% | 21.38% | 43.06% |
| Net Worth | 48.49% | 66.77% | 78.62% | 56.94% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 60.82% | 70.80% | 69.99% | 40.20% |
| Selling, General & Administrative Expenses | 58.47% | 56.20% | 55.55% | 19.35% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 3.27% |
| Profit Before Interest and Taxes | 4.80% | 21.82% | 21.28% | 1.20% |
| Main Ratios | ||||
| Current | 5.77 | 6.95 | 9.24 | 2.60 |
| Quick | 4.36 | 6.19 | 8.22 | 0.71 |
| Total Debt to Total Assets | 51.51% | 33.23% | 21.38% | 59.60% |
| Pre-tax Return on Net Worth | 20.87% | 73.29% | 49.71% | 3.62% |
| Pre-tax Return on Assets | 10.12% | 48.93% | 39.08% | 8.97% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 2.35% | 14.60% | 14.44% | n.a |
| Return on Equity | 14.61% | 51.30% | 34.80% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 7.59 | 7.59 | 7.59 | n.a |
| Collection Days | 58 | 45 | 47 | n.a |
| Inventory Turnover | 3.87 | 4.38 | 4.23 | n.a |
| Accounts Payable Turnover | 19.78 | 12.17 | 12.17 | n.a |
| Payment Days | 29 | 24 | 29 | n.a |
| Total Asset Turnover | 3.02 | 2.35 | 1.89 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 1.06 | 0.50 | 0.27 | n.a |
| Current Liab. to Liab. | 0.26 | 0.42 | 0.55 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $162,857 | $316,394 | $476,145 | n.a |
| Interest Coverage | 3.31 | 22.91 | 33.09 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.33 | 0.43 | 0.53 | n.a |
| Current Debt/Total Assets | 13% | 14% | 12% | n.a |
| Acid Test | 3.63 | 5.64 | 7.69 | n.a |
| Sales/Net Worth | 6.23 | 3.51 | 2.41 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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