The financial picture is quite encouraging. Sales are projected to start slowly, but this is due to the necessity of receiving CE mark. We need a second round of financing in April 2000 to start the sales on the market. The company has financed all machinery and tools and does not have any credit line. The original investors have been financing the development.
We want to finance growth mainly through cash flow. Collection days is very important. We do not want to let our average collection days get above 45 under any circumstances. We must maintain gross profit margins of 90% at the least, and hold marketing costs to no more than 5%. We are planning to receive tax exemption from the Canton of Vaud, which means that only federal tax is due to payment on net profit (around 10%) in FY2000. In the following years the total tax rate will be 25%
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 that there are no unforeseen changes in technology to make products immediately obsolete.
We assume access to equity capital and financing sufficient to maintain our financial plan.
General Assumptions
Year 1
Year 2
Year 3
Plan Month
1
2
3
Current Interest Rate
6.00%
6.00%
6.00%
Long-term Interest Rate
5.00%
5.00%
5.00%
Tax Rate
11.67%
10.00%
11.67%
Other
0
0
0
7.2 Key Financial Indicators
The following chart shows changes in key financial indicators: sales, gross margin, operating expenses, collection days, and inventory turnover.
7.3 Break-even Analysis
Our Break-even Analysis is based on running costs, the “burn-rate” costs we incur to keep the business running, not on theoretical fixed costs that would be relevant only if we were closing. Between payroll, rent, utilities, and basic marketing costs, we think the number shown in the table is a good estimate of fixed costs.
The Break-even Analysis shows that Bioring has a good balance of fixed costs and sufficient sales strength to remain healthy. The essential insight here is that our sales level seems to be running comfortably above break-even.
Break-even Analysis
Monthly Units Break-even
38
Monthly Revenue Break-even
$23,710
Assumptions:
Average Per-Unit Revenue
$625.00
Average Per-Unit Variable Cost
$35.00
Estimated Monthly Fixed Cost
$22,382
7.4 Projected Profit and Loss
We expect sales to hit $2,500,000 for this year. It should increase to $10 million by the second year of this plan, as net earnings increase steadily. Our high sales volume has lowered our cost of goods and increased our gross margin. This increase in gross margin is important to profitability.
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
$2,500,000
$10,000,000
$15,000,000
Direct Cost of Sales
$140,000
$560,000
$840,000
Production Payroll
$14,730
$70,200
$74,500
Other
$0
$0
$0
Total Cost of Sales
$154,730
$630,200
$914,500
Gross Margin
$2,345,270
$9,369,800
$14,085,500
Gross Margin %
93.81%
93.70%
93.90%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll
$65,250
$78,000
$181,250
Advertising/Promotion
$0
$35,000
$50,000
Travel
$6,000
$24,000
$35,000
Miscellaneous
$13,500
$20,000
$30,000
Total Sales and Marketing Expenses
$84,750
$157,000
$296,250
Sales and Marketing %
3.39%
1.57%
1.98%
General and Administrative Expenses
General and Administrative Payroll
$29,115
$65,500
$359,000
Sales and Marketing and Other Expenses
$0
$0
$0
Depreciation
$72,000
$96,000
$96,000
Patent fees for PCT
$10,000
$70,000
$70,000
Utilities
$3,150
$5,400
$6,000
Insurance
$9,000
$12,000
$13,000
Rent
$33,300
$444,400
$45,000
Payroll Taxes
$27,274
$75,925
$178,688
Other General and Administrative Expenses
$0
$0
$0
Total General and Administrative Expenses
$183,839
$769,225
$767,688
General and Administrative %
7.35%
7.69%
5.12%
Other Expenses:
Other Payroll
$0
$90,000
$100,000
Consultants
$0
$0
$0
Royalties Dr. A.Kalangos
$0
$125,000
$493,750
Total Other Expenses
$0
$215,000
$593,750
Other %
0.00%
2.15%
3.96%
Total Operating Expenses
$268,589
$1,141,225
$1,657,688
Profit Before Interest and Taxes
$2,076,681
$8,228,575
$12,427,813
EBITDA
$2,148,681
$8,324,575
$12,523,813
Interest Expense
$0
$0
$0
Taxes Incurred
$207,668
$822,858
$1,449,911
Net Profit
$1,869,013
$7,405,718
$10,977,901
Net Profit/Sales
74.76%
74.06%
73.19%
7.5 Projected Cash Flow
We expect to manage cash flow over the next three years with $100,000 of new investment in April 2000. This additional financing resources are required to finance the working capital.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Cash Received
Cash from Operations
Cash Sales
$625,000
$2,500,000
$3,750,000
Cash from Receivables
$1,414,063
$6,117,188
$10,328,125
Subtotal Cash from Operations
$2,039,063
$8,617,188
$14,078,125
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
$100,000
$0
$0
Subtotal Cash Received
$2,139,063
$8,617,188
$14,078,125
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations
Cash Spending
$109,095
$303,700
$714,750
Bill Payments
$333,104
$2,128,248
$3,167,861
Subtotal Spent on Operations
$442,199
$2,431,948
$3,882,611
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
$100,000
$200,000
Dividends
$0
$0
$0
Subtotal Cash Spent
$442,199
$2,531,948
$4,082,611
Net Cash Flow
$1,696,864
$6,085,240
$9,995,514
Cash Balance
$1,725,864
$7,811,104
$17,806,618
7.6 Projected Balance Sheet
As shown in the balance sheet in the following table, we expect a healthy growth in net worth. The monthly projections are in the appendix.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Assets
Current Assets
Cash
$1,725,864
$7,811,104
$17,806,618
Accounts Receivable
$460,938
$1,843,750
$2,765,625
Inventory
$19,250
$77,000
$115,500
Other Current Assets
$0
$0
$0
Total Current Assets
$2,206,051
$9,731,854
$20,687,743
Long-term Assets
Long-term Assets
$280,000
$380,000
$580,000
Accumulated Depreciation
$72,000
$168,000
$264,000
Total Long-term Assets
$208,000
$212,000
$316,000
Total Assets
$2,414,051
$9,943,854
$21,003,743
Liabilities and Capital
Year 1
Year 2
Year 3
Current Liabilities
Accounts Payable
$61,038
$185,123
$267,111
Current Borrowing
$0
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$61,038
$185,123
$267,111
Long-term Liabilities
$0
$0
$0
Total Liabilities
$61,038
$185,123
$267,111
Paid-in Capital
$742,500
$742,500
$742,500
Retained Earnings
($258,500)
$1,610,513
$9,016,231
Earnings
$1,869,013
$7,405,718
$10,977,901
Total Capital
$2,353,013
$9,758,731
$20,736,632
Total Liabilities and Capital
$2,414,051
$9,943,854
$21,003,743
Net Worth
$2,353,013
$9,758,731
$20,736,632
7.7 Business Ratios
Our ratios look healthy and solid. Gross margin is projected to stay above 95%, and return on assets and return on equity are very sound. Debt and liquidity ratios also look very good, with debt to net worth running at respectively 0,34, 0,05 and 0,02. The projections, if we make them, are those of a very solid company. Industry profile ratios based on the Standard Industrial Classification (SIC) code 3842, Surgical Appliances and Supplies, are shown for comparison.
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