Cellular Providers
Financial Plan
The following sections outline the financial plan for Cellular Providers.
8.1 Use of Funds
Cellular Providers is currently seeking funding in the amount of $100,000 for the purpose of increasing market share, opening up additional retail locations, hiring additional staff, and effectively advertising and promoting its services.
Use and distribution of proceeds: Integrate new services, develop website, and expand into other markets. Produce media relations package(s); further build the brand name through marketing, advertising, and promotion; and acquire additional products. Funding proceeds will also be used to increase Cellular Providers’ capabilities, enhance brand name, and extend Cellular Providers’ market area. Funds will also be directed into business relations, television advertising, press releases, print advertising, Internet advertising, and website development and maintenance. The initial investment will be used as a “kick off” marketing budget. It is expected that from this point on the company will self finance its expansion and marketing programs.
| Use of Funds | |
| Use | Amount |
| Office Furniture and Fixtures | $50,000 |
| Marketing | $10,000 |
| Inventory | $20,000 |
| Miscellaneous (Inventory Control, Service Centers, etc.) | $20,000 |
| Total | $100,000 |
8.2 Important Assumptions
Basic assumptions are presented in the table below.
Corporate Tax: Figure is estimated at 30% of profits.
Interest: Figure is estimated at 10% annually.
| General Assumptions | |||
| 2000 | 2001 | 2002 | |
| 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 | 0.00% | 30.00% | 30.00% |
| Other | 0 | 0 | 0 |
8.3 Break-even Analysis
The break-even analysis shows the monthly sales revenues needed to break even.
| Break-even Analysis | |
| Monthly Revenue Break-even | $165,042 |
| Assumptions: | |
| Average Percent Variable Cost | 43% |
| Estimated Monthly Fixed Cost | $94,759 |
8.4 Projected Profit and Loss
The financial projections present the company’s expected financial position, results of operations and cash flow for the three years ending December 31, 2004. Accordingly, the forecast reflects its judgment as of April 4, 2000, the date of this forecast, of the expected conditions and its expected course of action. There will usually be differences between forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material.
Financial projections are based on sales volume at the levels described in the revenue section and presents, to the best of management’s knowledge and belief, the company’s expected assets, liabilities, capital, revenues, and expenses. Further, the projections reflect management’s judgement of the expected conditions and its expected course of action given the hypothetical assumptions.
Revenues are derived from sales of wireless communications services, products, and accessories to businesses and consumers.
Annual Growth: We expect growth to increase by 200% per year on the basis that the company will be stepping up marketing and sales efforts, as well as initiating new partnerships and alliances that will foster growth and extensions of our existing markets. These strategies are aimed to build momentum and critical mass within the company and its overall sales results.
Cost of Goods: Cellular Providers expects that its products will bear a reasonably high markup, which translates to a relatively low cost of goods. Our cost of goods includes consideration cost of products, shipping charges (which may be passed along to the consumer), and sales commissions.
Marketing/Promotion: We group advertising, promotions, and retail outlet marketing under this category.
Retail Outlets: We estimate that each retail location will cost $30,000 to set up and we anticipate opening up 10 new stores.
Other: We estimate that we may need additional funds for other promotions and this is set aside in a special fund.
Rent: It is assumed that rent will be an average $1,500 per month per store.
Repairs and Maintenance: This is an estimated figure which is expected to grow with the setup of service centers.
Salary: Figures are estimated based on the national average for similar positions. They assume however, the hiring of a store manager, a regional manager, a CFO, an HR manager, and acquiring the services of a marketing company.
Utilities: Figures are estimated. Management estimates that utilities will be at $800 per month per store.
| Pro Forma Profit and Loss | |||
| 2000 | 2001 | 2002 | |
| Sales | $2,154,083 | $5,760,000 | $9,920,000 |
| Direct Cost of Sales | $917,309 | $2,436,480 | $4,212,160 |
| Other | $0 | $0 | $0 |
| Total Cost of Sales | $917,309 | $2,436,480 | $4,212,160 |
| Gross Margin | $1,236,774 | $3,323,520 | $5,707,840 |
| Gross Margin % | 57.42% | 57.70% | 57.54% |
| Expenses | |||
| Payroll | $391,658 | $951,500 | $1,310,500 |
| Marketing/Promotion | $473,712 | $917,200 | $1,476,200 |
| Depreciation | $4,992 | $5,000 | $5,000 |
| Store Set Up Costs | $90,000 | $60,000 | $90,000 |
| Repairs and Maintenance | $6,000 | $6,000 | $6,000 |
| Utilities | $22,400 | $57,600 | $76,800 |
| Insurance | $21,600 | $50,000 | $66,000 |
| Rent | $42,000 | $78,000 | $134,000 |
| Payroll Taxes | $58,749 | $142,725 | $196,575 |
| Legal/Consultants | $6,000 | $6,000 | $6,000 |
| Inventory Control systems | $20,000 | $0 | $0 |
| Total Operating Expenses | $1,137,111 | $2,274,025 | $3,367,075 |
| Profit Before Interest and Taxes | $99,663 | $1,049,495 | $2,340,765 |
| EBITDA | $104,655 | $1,054,495 | $2,345,765 |
| Interest Expense | $166,180 | $142,460 | $99,140 |
| Taxes Incurred | $0 | $272,111 | $672,488 |
| Net Profit | ($66,517) | $634,925 | $1,569,138 |
| Net Profit/Sales | -3.09% | 11.02% | 15.82% |
8.5 Projected Cash Flow
The following table and chart shows the projected cash flow of Cellular Providers.
| Pro Forma Cash Flow | |||
| 2000 | 2001 | 2002 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $1,550,940 | $4,147,200 | $7,142,400 |
| Cash from Receivables | $658,468 | $1,406,261 | $2,539,325 |
| Subtotal Cash from Operations | $2,209,408 | $5,553,461 | $9,681,725 |
| Additional Cash Received | |||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
| New Current Borrowing | $100,000 | $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 | $2,309,408 | $5,553,461 | $9,681,725 |
| Expenditures | 2000 | 2001 | 2002 |
| Expenditures from Operations | |||
| Cash Spending | $391,658 | $951,500 | $1,310,500 |
| Bill Payments | $1,702,342 | $4,215,061 | $7,014,849 |
| Subtotal Spent on Operations | $2,094,000 | $5,166,561 | $8,325,349 |
| Additional Cash Spent | |||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $33,600 | $33,600 | $32,800 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $125,000 | $300,000 | $500,000 |
| Purchase Other Current Assets | $37,000 | $50,000 | $100,000 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $2,289,600 | $5,550,161 | $8,958,149 |
| Net Cash Flow | $19,808 | $3,300 | $723,576 |
| Cash Balance | $194,808 | $198,108 | $921,684 |
8.6 Projected Balance Sheet
The following table is the projected balance sheet.
| Pro Forma Balance Sheet | |||
| 2000 | 2001 | 2002 | |
| Assets | |||
| Current Assets | |||
| Cash | $194,808 | $198,108 | $921,684 |
| Accounts Receivable | $123,381 | $329,920 | $568,195 |
| Inventory | $112,462 | $298,712 | $516,409 |
| Other Current Assets | $40,000 | $90,000 | $190,000 |
| Total Current Assets | $470,651 | $916,739 | $2,196,288 |
| Long-term Assets | |||
| Long-term Assets | $50,000 | $50,000 | $50,000 |
| Accumulated Depreciation | $4,992 | $9,992 | $14,992 |
| Total Long-term Assets | $45,008 | $40,008 | $35,008 |
| Total Assets | $515,659 | $956,747 | $2,231,296 |
| Liabilities and Capital | 2000 | 2001 | 2002 |
| Current Liabilities | |||
| Accounts Payable | $218,167 | $357,931 | $596,142 |
| Current Borrowing | $66,400 | $32,800 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $284,567 | $390,731 | $596,142 |
| Long-term Liabilities | $1,525,000 | $1,225,000 | $725,000 |
| Total Liabilities | $1,809,567 | $1,615,731 | $1,321,142 |
| Paid-in Capital | $0 | $0 | $0 |
| Retained Earnings | ($1,227,391) | ($1,293,908) | ($658,983) |
| Earnings | ($66,517) | $634,925 | $1,569,138 |
| Total Capital | ($1,293,908) | ($658,983) | $910,154 |
| Total Liabilities and Capital | $515,659 | $956,747 | $2,231,296 |
| Net Worth | ($1,293,908) | ($658,983) | $910,154 |
8.7 Business Ratios
Cellular Providers is a company that is seeking to grow rapidly in order to seize market share in a dynamic industry. As the company is, on average, in the high growth phase of the product life cycle for its telecommunications products, the company is experiencing higher leverage of its assets and a lower ROA than the industry standard.
| Ratio Analysis | ||||
| 2000 | 2001 | 2002 | Industry Profile | |
| Sales Growth | 141.08% | 167.40% | 72.22% | 4.80% |
| Percent of Total Assets | ||||
| Accounts Receivable | 23.93% | 34.48% | 25.46% | 14.30% |
| Inventory | 21.81% | 31.22% | 23.14% | 2.50% |
| Other Current Assets | 7.76% | 9.41% | 8.52% | 46.50% |
| Total Current Assets | 91.27% | 95.82% | 98.43% | 63.30% |
| Long-term Assets | 8.73% | 4.18% | 1.57% | 36.70% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 55.19% | 40.84% | 26.72% | 43.60% |
| Long-term Liabilities | 295.74% | 128.04% | 32.49% | 26.30% |
| Total Liabilities | 350.92% | 168.88% | 59.21% | 69.90% |
| Net Worth | -250.92% | -68.88% | 40.79% | 30.10% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 57.42% | 57.70% | 57.54% | 57.80% |
| Selling, General & Administrative Expenses | 58.41% | 45.60% | 40.45% | 35.50% |
| Advertising Expenses | 10.00% | 10.00% | 10.00% | 1.00% |
| Profit Before Interest and Taxes | 4.63% | 18.22% | 23.60% | 1.90% |
| Main Ratios | ||||
| Current | 1.65 | 2.35 | 3.68 | 1.17 |
| Quick | 1.26 | 1.58 | 2.82 | 0.95 |
| Total Debt to Total Assets | 350.92% | 168.88% | 59.21% | 69.90% |
| Pre-tax Return on Net Worth | 5.14% | -137.64% | 246.29% | 4.20% |
| Pre-tax Return on Assets | -12.90% | 94.80% | 100.46% | 14.00% |
| Additional Ratios | 2000 | 2001 | 2002 | |
| Net Profit Margin | -3.09% | 11.02% | 15.82% | n.a |
| Return on Equity | 0.00% | 0.00% | 172.40% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 4.89 | 4.89 | 4.89 | n.a |
| Collection Days | 61 | 51 | 59 | n.a |
| Inventory Turnover | 10.91 | 11.85 | 10.34 | n.a |
| Accounts Payable Turnover | 8.72 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 24 | 24 | n.a |
| Total Asset Turnover | 4.18 | 6.02 | 4.45 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.00 | 0.00 | 1.45 | n.a |
| Current Liab. to Liab. | 0.16 | 0.24 | 0.45 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $186,084 | $526,009 | $1,600,146 | n.a |
| Interest Coverage | 0.60 | 7.37 | 23.61 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.24 | 0.17 | 0.22 | n.a |
| Current Debt/Total Assets | 55% | 41% | 27% | n.a |
| Acid Test | 0.83 | 0.74 | 1.86 | n.a |
| Sales/Net Worth | 0.00 | 0.00 | 10.90 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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