Kiowa Smoke Shops
Financial Plan
The following sections are the financial projections for Kiowa Smoke Shops for the next three years. These tables represent a conservative estimate of revenues, expenses, and growth. We have placed much of the residual earnings into dividends for company employees, as in the past. However, we plan on basing dividend payouts on overall performance and health of the company and may decide to retain such earnings for future growth.
8.1 Important Assumptions
The following is our financial assumptions based on experience. Tax rates are average for a company of our size.
General Assumptions | |||
FY 2004 | FY 2005 | FY 2006 | |
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 |
8.2 Break-even Analysis
Our break-even analysis is based on average monthly fixed costs, which is based on historical figures, plus our average price per product. This estimate is also based on experience, however because of our wide range of products, its accuracy is somewhat less. The average variable costs are based on industry standards.

Break-even Analysis | |
Monthly Revenue Break-even | $48,140 |
Assumptions: | |
Average Percent Variable Cost | 69% |
Estimated Monthly Fixed Cost | $14,707 |
8.3 Projected Cash Flow
We do not expect to have any serious cash flow problems in the future. Most of our residual cash is being invested in our new cafe venture for the next two years. Our current liabilities are debt secured to finance our new website. Our long-term debt will be used to start our cafe venture.

Pro Forma Cash Flow | |||
FY 2004 | FY 2005 | FY 2006 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $650,052 | $689,555 | $721,395 |
Subtotal Cash from Operations | $650,052 | $689,555 | $721,395 |
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 | $650,052 | $689,555 | $721,395 |
Expenditures | FY 2004 | FY 2005 | FY 2006 |
Expenditures from Operations | |||
Cash Spending | $130,400 | $137,600 | $137,600 |
Bill Payments | $476,163 | $532,556 | $562,327 |
Subtotal Spent on Operations | $606,563 | $670,156 | $699,927 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $0 | $1,000 | $1,000 |
Other Liabilities Principal Repayment | $0 | $0 | $0 |
Long-term Liabilities Principal Repayment | $1,200 | $1,000 | $1,000 |
Purchase Other Current Assets | $30,000 | $2,000 | $5,000 |
Purchase Long-term Assets | $15,000 | $7,000 | $9,000 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $652,763 | $681,156 | $715,927 |
Net Cash Flow | ($2,711) | $8,399 | $5,468 |
Cash Balance | $40,971 | $49,371 | $54,839 |
8.4 Projected Profit and Loss
The following is our best estimates of future revenues and costs, based on current market trends, past performance, and perceived revenue of our new cafe and website ventures.




Pro Forma Profit and Loss | |||
FY 2004 | FY 2005 | FY 2006 | |
Sales | $650,052 | $689,555 | $721,395 |
Direct Cost of Sales | $451,461 | $462,140 | $483,479 |
Other Costs of Goods | $0 | $2,000 | $2,000 |
Total Cost of Sales | $451,461 | $464,140 | $485,479 |
Gross Margin | $198,591 | $225,415 | $235,916 |
Gross Margin % | 30.55% | 32.69% | 32.70% |
Expenses | |||
Payroll | $130,400 | $137,600 | $137,600 |
Sales and Marketing and Other Expenses | $6,000 | $12,000 | $14,000 |
Depreciation | $0 | $2,000 | $4,000 |
Rent | $9,600 | $9,900 | $10,400 |
Utilities | $1,320 | $1,320 | $1,600 |
Insurance | $3,600 | $3,800 | $4,200 |
Payroll Taxes | $19,560 | $20,640 | $20,640 |
Other | $6,000 | $11,000 | $14,000 |
Total Operating Expenses | $176,480 | $198,260 | $206,440 |
Profit Before Interest and Taxes | $22,111 | $27,155 | $29,476 |
EBITDA | $22,111 | $29,155 | $33,476 |
Interest Expense | $5,493 | $5,338 | $5,138 |
Taxes Incurred | $4,985 | $6,545 | $7,301 |
Net Profit | $11,633 | $15,272 | $17,037 |
Net Profit/Sales | 1.79% | 2.21% | 2.36% |
8.5 Projected Balance Sheet
The following is a presentation of assets and liabilities. As we are a limited debt company, we tend to have a higher net worth than other comparable companies.
Pro Forma Balance Sheet | |||
FY 2004 | FY 2005 | FY 2006 | |
Assets | |||
Current Assets | |||
Cash | $40,971 | $49,371 | $54,839 |
Inventory | $41,384 | $42,363 | $44,319 |
Other Current Assets | $41,558 | $43,558 | $48,558 |
Total Current Assets | $123,913 | $135,292 | $147,716 |
Long-term Assets | |||
Long-term Assets | $71,820 | $78,820 | $87,820 |
Accumulated Depreciation | $12,000 | $14,000 | $18,000 |
Total Long-term Assets | $59,820 | $64,820 | $69,820 |
Total Assets | $183,733 | $200,112 | $217,536 |
Liabilities and Capital | FY 2004 | FY 2005 | FY 2006 |
Current Liabilities | |||
Accounts Payable | $40,921 | $44,027 | $46,415 |
Current Borrowing | $24,820 | $23,820 | $22,820 |
Other Current Liabilities | $5,600 | $5,600 | $5,600 |
Subtotal Current Liabilities | $71,341 | $73,447 | $74,835 |
Long-term Liabilities | $29,561 | $28,561 | $27,561 |
Total Liabilities | $100,902 | $102,008 | $102,396 |
Paid-in Capital | $0 | $0 | $0 |
Retained Earnings | $71,199 | $82,832 | $98,104 |
Earnings | $11,633 | $15,272 | $17,037 |
Total Capital | $82,832 | $98,104 | $115,140 |
Total Liabilities and Capital | $183,733 | $200,112 | $217,536 |
Net Worth | $82,832 | $98,104 | $115,140 |
8.6 Business Ratios
The following is a presentation of industry standard ratios versus our own projections. For the most part, we follow the industry averages. We expect to see higher growths than average over the next two years due to our new ventures. Also our company has limited debt, meaning we have higher than average net worth.
Ratio Analysis | ||||
FY 2004 | FY 2005 | FY 2006 | Industry Profile | |
Sales Growth | -2.50% | 6.08% | 4.62% | 6.22% |
Percent of Total Assets | ||||
Inventory | 22.52% | 21.17% | 20.37% | 30.17% |
Other Current Assets | 22.62% | 21.77% | 22.32% | 25.04% |
Total Current Assets | 67.44% | 67.61% | 67.90% | 84.57% |
Long-term Assets | 32.56% | 32.39% | 32.10% | 15.43% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 38.83% | 36.70% | 34.40% | 38.68% |
Long-term Liabilities | 16.09% | 14.27% | 12.67% | 12.41% |
Total Liabilities | 54.92% | 50.98% | 47.07% | 51.09% |
Net Worth | 45.08% | 49.02% | 52.93% | 48.91% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 30.55% | 32.69% | 32.70% | 21.60% |
Selling, General & Administrative Expenses | 28.76% | 30.48% | 30.34% | 9.18% |
Advertising Expenses | 0.00% | 0.00% | 0.00% | 0.96% |
Profit Before Interest and Taxes | 3.40% | 3.94% | 4.09% | 1.57% |
Main Ratios | ||||
Current | 1.74 | 1.84 | 1.97 | 1.91 |
Quick | 1.16 | 1.27 | 1.38 | 1.04 |
Total Debt to Total Assets | 54.92% | 50.98% | 47.07% | 53.60% |
Pre-tax Return on Net Worth | 20.06% | 22.24% | 21.14% | 4.72% |
Pre-tax Return on Assets | 9.04% | 10.90% | 11.19% | 10.18% |
Additional Ratios | FY 2004 | FY 2005 | FY 2006 | |
Net Profit Margin | 1.79% | 2.21% | 2.36% | n.a |
Return on Equity | 14.04% | 15.57% | 14.80% | n.a |
Activity Ratios | ||||
Inventory Turnover | 10.91 | 11.04 | 11.16 | n.a |
Accounts Payable Turnover | 11.56 | 12.17 | 12.17 | n.a |
Payment Days | 30 | 29 | 29 | n.a |
Total Asset Turnover | 3.54 | 3.45 | 3.32 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 1.22 | 1.04 | 0.89 | n.a |
Current Liab. to Liab. | 0.71 | 0.72 | 0.73 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $52,573 | $61,845 | $72,881 | n.a |
Interest Coverage | 4.03 | 5.09 | 5.74 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.28 | 0.29 | 0.30 | n.a |
Current Debt/Total Assets | 39% | 37% | 34% | n.a |
Acid Test | 1.16 | 1.27 | 1.38 | n.a |
Sales/Net Worth | 7.85 | 7.03 | 6.27 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |