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.
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.
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.
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.
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.
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.