Bottlieb Innovations
Financial Plan
The financial picture is very encouraging. Bottlieb Innovations has a great product. If the company can successfully segment the market and generate interest in the Digital Geographer product, as well as meet the production volumes required, the financial targets are very achievable.
7.1 Important Assumptions
The financial plan depends on important assumptions, shown in the following General Assumptions table.
General Assumptions | |||
Year 1 | Year 2 | Year 3 | |
Plan Month | 1 | 2 | 3 |
Current Interest Rate | 10.00% | 10.00% | 10.00% |
Long-term Interest Rate | 10.00% | 10.00% | 10.00% |
Tax Rate | 30.00% | 30.00% | 30.00% |
Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
The following chart shows changes in the following benchmark financial indicators: sales, gross margin, operating expenses, collection days, and inventory turnover. Sales are expected to almost double between FY2002 and FY2003, while operating expenses are only expected to increase by 22%.

7.3 Break-even Analysis
Bottlieb Innovations’ break-even analysis is based on running costs, the “burn-rate” costs incurred to keep the business running, not on theoretical fixed costs that would be relevant only if the company were closing. Between payroll, rent, utilities, and basic marketing costs, a good estimate of monthly fixed costs is shown in the following chart and table, which details the break-even information.
The break-even analysis is based on an average sales revenue of $425 per unit. An exact average is not necessary, $425 is close enough to help us understand what a real break-even point might be. The essential insight here is that the expected sales level will keep the business running comfortably above break-even.

Break-even Analysis | |
Monthly Units Break-even | 37 |
Monthly Revenue Break-even | $15,830 |
Assumptions: | |
Average Per-Unit Revenue | $425.00 |
Average Per-Unit Variable Cost | $264.47 |
Estimated Monthly Fixed Cost | $5,979 |
7.4 Projected Profit and Loss
Management’s primary goal is to make Bottlieb Innovations profitable before the end of FY2001. More specifically, management is aiming to make the business turn a profit in the month of September, the final month of FY2001. Maintaining a high gross margin in the first year is a key component of the profitability goal. The following chart illustrates the expected FY2001 monthly profit numbers.
Projected yearly profit numbers are shown in the following chart and table. Although Bottlieb Innovations is expected to be profitable in September of 2001, it will still lose money in FY2001 overall, due to losses in earlier months of the fiscal year. The business is expected to earn healthy profits in FY2001 and FY2002.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $161,500 | $1,582,500 | $2,752,000 |
Direct Cost of Sales | $100,500 | $883,500 | $1,320,000 |
Production Payroll | $6,000 | $66,000 | $89,000 |
Other | $0 | $0 | $0 |
Total Cost of Sales | $106,500 | $949,500 | $1,409,000 |
Gross Margin | $55,000 | $633,000 | $1,343,000 |
Gross Margin % | 34.06% | 40.00% | 48.80% |
Operating Expenses | |||
Sales and Marketing Expenses | |||
Sales and Marketing Payroll | $0 | $30,000 | $40,000 |
Advertising/Promotion | $1,350 | $3,000 | $6,000 |
Travel | $3,000 | $6,000 | $9,000 |
Miscellaneous | $900 | $1,200 | $1,500 |
Total Sales and Marketing Expenses | $5,250 | $40,200 | $56,500 |
Sales and Marketing % | 3.25% | 2.54% | 2.05% |
General and Administrative Expenses | |||
General and Administrative Payroll | $46,000 | $138,000 | $162,000 |
Sales and Marketing and Other Expenses | $0 | $0 | $0 |
Depreciation | $0 | $0 | $0 |
Leased Equipment | $0 | $0 | $0 |
Utilities | $2,400 | $2,400 | $3,000 |
Insurance | $1,200 | $1,200 | $1,500 |
Rent | $8,400 | $8,400 | $9,600 |
Payroll Taxes | $5,500 | $24,200 | $29,900 |
Other General and Administrative Expenses | $0 | $0 | $0 |
Total General and Administrative Expenses | $63,500 | $174,200 | $206,000 |
General and Administrative % | 39.32% | 11.01% | 7.49% |
Other Expenses: | |||
Other Payroll | $3,000 | $8,000 | $8,000 |
Consultants | $0 | $0 | $0 |
Contract/Consultants | $0 | $0 | $0 |
Total Other Expenses | $3,000 | $8,000 | $8,000 |
Other % | 1.86% | 0.51% | 0.29% |
Total Operating Expenses | $71,750 | $222,400 | $270,500 |
Profit Before Interest and Taxes | ($16,750) | $410,600 | $1,072,500 |
EBITDA | ($16,750) | $410,600 | $1,072,500 |
Interest Expense | $0 | $0 | $0 |
Taxes Incurred | $0 | $123,180 | $321,750 |
Net Profit | ($16,750) | $287,420 | $750,750 |
Net Profit/Sales | -10.37% | 18.16% | 27.28% |
7.5 Projected Cash Flow
Although Bottlieb Innovations is expected to be profitable by the end of FY2001, there are still drains on the cash flow. The cash flow numbers illustrated in the following chart are based on very conservative estimates of first year sales. Since manufacturing and assembling the Digital Geographer is not capital intensive, profits should be directly tied to sales and variable costs. Personnel costs will start to impact the cash flow more severely in FY2002.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $121,125 | $1,186,875 | $2,064,000 |
Cash from Receivables | $21,533 | $229,842 | $551,558 |
Subtotal Cash from Operations | $142,658 | $1,416,717 | $2,615,558 |
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 | $142,658 | $1,416,717 | $2,615,558 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $55,000 | $242,000 | $299,000 |
Bill Payments | $112,249 | $1,167,711 | $1,759,666 |
Subtotal Spent on Operations | $167,249 | $1,409,711 | $2,058,666 |
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 | $167,249 | $1,409,711 | $2,058,666 |
Net Cash Flow | ($24,590) | $7,006 | $556,892 |
Cash Balance | $72,410 | $79,416 | $636,308 |
7.6 Projected Balance Sheet
The projected balance sheet, shown in the following table, shows a healthy increase in net worth. The company’s value is projected to increase steadily over the first three years.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $72,410 | $79,416 | $636,308 |
Accounts Receivable | $18,842 | $184,625 | $321,067 |
Inventory | $28,600 | $211,191 | $315,532 |
Other Current Assets | $1,800 | $1,800 | $1,800 |
Total Current Assets | $121,651 | $477,032 | $1,274,707 |
Long-term Assets | |||
Long-term Assets | $0 | $0 | $0 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $0 | $0 | $0 |
Total Assets | $121,651 | $477,032 | $1,274,707 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $33,601 | $101,562 | $148,487 |
Current Borrowing | $0 | $0 | $0 |
Other Current Liabilities | $40,000 | $40,000 | $40,000 |
Subtotal Current Liabilities | $73,601 | $141,562 | $188,487 |
Long-term Liabilities | $0 | $0 | $0 |
Total Liabilities | $73,601 | $141,562 | $188,487 |
Paid-in Capital | $100,000 | $100,000 | $100,000 |
Retained Earnings | ($35,200) | ($51,950) | $235,470 |
Earnings | ($16,750) | $287,420 | $750,750 |
Total Capital | $48,050 | $335,470 | $1,086,220 |
Total Liabilities and Capital | $121,651 | $477,032 | $1,274,707 |
Net Worth | $48,050 | $335,470 | $1,086,220 |
7.7 Business Ratios
Standard business ratios are included in the following table. Industry profile ratios based on the Standard Industrial Classification (SIC) code 8713, Surveying services, are shown for comparison. Bottlieb Innovations’ ratios show a plan for healthy, solid growth. Gross margin, net profit margin and ROA all show increases over time.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 879.88% | 73.90% | 7.10% |
Percent of Total Assets | ||||
Accounts Receivable | 15.49% | 38.70% | 25.19% | 34.20% |
Inventory | 23.51% | 44.27% | 24.75% | 2.80% |
Other Current Assets | 1.48% | 0.38% | 0.14% | 43.00% |
Total Current Assets | 100.00% | 100.00% | 100.00% | 80.00% |
Long-term Assets | 0.00% | 0.00% | 0.00% | 20.00% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 60.50% | 29.68% | 14.79% | 47.80% |
Long-term Liabilities | 0.00% | 0.00% | 0.00% | 11.50% |
Total Liabilities | 60.50% | 29.68% | 14.79% | 59.30% |
Net Worth | 39.50% | 70.32% | 85.21% | 40.70% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 34.06% | 40.00% | 48.80% | 0.00% |
Selling, General & Administrative Expenses | 44.43% | 21.84% | 21.52% | 80.50% |
Advertising Expenses | 0.84% | 0.19% | 0.22% | 0.20% |
Profit Before Interest and Taxes | -10.37% | 25.95% | 38.97% | 3.00% |
Main Ratios | ||||
Current | 1.65 | 3.37 | 6.76 | 1.68 |
Quick | 1.26 | 1.88 | 5.09 | 1.38 |
Total Debt to Total Assets | 60.50% | 29.68% | 14.79% | 59.30% |
Pre-tax Return on Net Worth | -34.86% | 122.40% | 98.74% | 6.40% |
Pre-tax Return on Assets | -13.77% | 86.07% | 84.14% | 15.70% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | -10.37% | 18.16% | 27.28% | n.a |
Return on Equity | -34.86% | 85.68% | 69.12% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 2.14 | 2.14 | 2.14 | n.a |
Collection Days | 52 | 94 | 134 | n.a |
Inventory Turnover | 9.16 | 7.37 | 5.01 | n.a |
Accounts Payable Turnover | 4.34 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 20 | 25 | n.a |
Total Asset Turnover | 1.33 | 3.32 | 2.16 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 1.53 | 0.42 | 0.17 | n.a |
Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $48,050 | $335,470 | $1,086,220 | n.a |
Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.75 | 0.30 | 0.46 | n.a |
Current Debt/Total Assets | 61% | 30% | 15% | n.a |
Acid Test | 1.01 | 0.57 | 3.39 | n.a |
Sales/Net Worth | 3.36 | 4.72 | 2.53 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |