Tobacco Retail Business Plan

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.

Tobacco retail business plan, financial plan chart image

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