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Spanish Resources

Financial Plan

The company plans to raise $300,000 in paid-in capital.

As the following tables indicate, this will provide a substantial working capital reserve. This reserve can be used either to finance unexpected short falls in sales or to exploit new market opportunities as the plan unfolds.

Each of the tables contains additional explanatory materials related to the details of our plan.

7.1 Important Assumptions

In addition to general assumption in the table below, the company has made additional assumption about the state of the ecomony, the tourism industry, and the Internet.

The company assumes the economy remains strong, and in particular that the tourism industry continues to experience moderate growth.

The company assumes that the Internet will continue to expand into mainstream of everyday life and particularly that the Internet is increasingly important to the tourism industry.

The company assumes that significant and increasing demand exists for the company’s services.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 12.00% 12.00% 12.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Break-even Analysis

Note that break-even is expected in the second year of operations.

Tourism website services business plan, financial plan chart image

Break-even Analysis
Monthly Units Break-even 18
Monthly Revenue Break-even $67,711
Assumptions:
Average Per-Unit Revenue $3,738.06
Average Per-Unit Variable Cost $1,629.35
Estimated Monthly Fixed Cost $38,197

7.3 Projected Profit and Loss

There are several features of the company’s Profit and Loss statement that merit explanation.

First, note the 90% increase in sales between year one and year two and the 25% increase between year two and year three.

The dramatic difference is explained by examining fourth quarter sales numbers in year one. If the fourth quarter numbers in year one were extended for an entire year, the sales growth between that year and year two would be approximately 25%.

Second, the dramatic growth in overall marketing budget (60% from year one to year two) is explained by the company’s strategy of using advertising generated sales leads as the most important source of new clients.

Third, it is worth noting that the increase in profit from year two to year three is much greater then the corresponding increase in sales. This is due to the need to both hire and train personnel ahead of increased sales expected in year three and the need to spend heavily in marketing in year two to achieve those sales.

Fourth, the lack of an advertising and promotion budget for the first quarter in year one is due to the company’s strategy of using reference account in company’s advertisements. The first reference accounts will be established in the first quarter of year one with advertising based on those accounts starting in the second quarter.

Tourism website services business plan, financial plan chart image

Tourism website services business plan, financial plan chart image

Tourism website services business plan, financial plan chart image

Tourism website services business plan, financial plan chart image

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $751,350 $1,441,500 $1,807,550
Direct Cost of Sales $327,500 $615,000 $771,000
Other $0 $0 $0
Total Cost of Sales $327,500 $615,000 $771,000
Gross Margin $423,850 $826,500 $1,036,550
Gross Margin % 56.41% 57.34% 57.35%
Expenses
Payroll $150,750 $286,500 $292,700
Sales and Marketing and Other Expenses $250,200 $406,000 $470,000
Depreciation $0 $0 $0
Leased Equipment $0 $0 $0
Utilities $15,000 $0 $0
Insurance $1,800 $0 $0
Rent $18,000 $0 $0
Payroll Taxes $22,613 $42,975 $43,905
Other $0 $0 $0
Total Operating Expenses $458,363 $735,475 $806,605
Profit Before Interest and Taxes ($34,513) $91,025 $229,945
EBITDA ($34,513) $91,025 $229,945
Interest Expense $12,000 $12,000 $12,000
Taxes Incurred $0 $19,756 $55,394
Net Profit ($46,513) $59,269 $162,551
Net Profit/Sales -6.19% 4.11% 8.99%

7.4 Projected Cash Flow

Note that the company uses a significantly portion of its working capital to manage cash requirements.

Also note that accounts receivable vs. accounts payable is well within manageable limits relative to the company’s monthly cash flow.

Tourism website services business plan, financial plan chart image

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $300,540 $576,600 $723,020
Cash from Receivables $337,412 $760,739 $1,029,284
Subtotal Cash from Operations $637,952 $1,337,339 $1,752,304
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 $637,952 $1,337,339 $1,752,304
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $150,750 $286,500 $292,700
Bill Payments $625,144 $1,077,639 $1,331,212
Subtotal Spent on Operations $775,894 $1,364,139 $1,623,912
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 $775,894 $1,364,139 $1,623,912
Net Cash Flow ($137,942) ($26,801) $128,392
Cash Balance $229,558 $202,757 $331,149

7.5 Projected Balance Sheet

Due to the $300,000 of paid-in capital and the company’s turn to profitability in the second year, the company’s balance sheet is robust.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $229,558 $202,757 $331,149
Accounts Receivable $113,398 $217,559 $272,806
Other Current Assets $0 $0 $0
Total Current Assets $342,956 $420,316 $603,955
Long-term Assets
Long-term Assets $20,000 $20,000 $20,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $20,000 $20,000 $20,000
Total Assets $362,956 $440,316 $623,955
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $71,968 $90,060 $111,148
Current Borrowing $100,000 $100,000 $100,000
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $171,968 $190,060 $211,148
Long-term Liabilities $0 $0 $0
Total Liabilities $171,968 $190,060 $211,148
Paid-in Capital $300,000 $300,000 $300,000
Retained Earnings ($62,500) ($109,013) ($49,744)
Earnings ($46,513) $59,269 $162,551
Total Capital $190,988 $250,256 $412,807
Total Liabilities and Capital $362,956 $440,316 $623,955
Net Worth $190,988 $250,256 $412,807

7.6 Business Ratios

The following table outlines some of the more important ratios from the Administrative Management and General Management industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 8742.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 91.85% 25.39% 6.98%
Percent of Total Assets
Accounts Receivable 31.24% 49.41% 43.72% 26.80%
Other Current Assets 0.00% 0.00% 0.00% 43.95%
Total Current Assets 94.49% 95.46% 96.79% 75.76%
Long-term Assets 5.51% 4.54% 3.21% 24.24%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 47.38% 43.16% 33.84% 31.78%
Long-term Liabilities 0.00% 0.00% 0.00% 17.26%
Total Liabilities 47.38% 43.16% 33.84% 49.04%
Net Worth 52.62% 56.84% 66.16% 50.96%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 56.41% 57.34% 57.35% 100.00%
Selling, General & Administrative Expenses 62.60% 53.22% 48.30% 85.31%
Advertising Expenses 10.94% 13.87% 13.28% 1.02%
Profit Before Interest and Taxes -4.59% 6.31% 12.72% 1.90%
Main Ratios
Current 1.99 2.21 2.86 1.88
Quick 1.99 2.21 2.86 1.48
Total Debt to Total Assets 47.38% 43.16% 33.84% 55.78%
Pre-tax Return on Net Worth -24.35% 31.58% 52.80% 3.41%
Pre-tax Return on Assets -12.81% 17.95% 34.93% 7.72%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -6.19% 4.11% 8.99% n.a
Return on Equity -24.35% 23.68% 39.38% n.a
Activity Ratios
Accounts Receivable Turnover 3.98 3.98 3.98 n.a
Collection Days 56 70 83 n.a
Accounts Payable Turnover 8.99 12.17 12.17 n.a
Payment Days 29 27 27 n.a
Total Asset Turnover 2.07 3.27 2.90 n.a
Debt Ratios
Debt to Net Worth 0.90 0.76 0.51 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $170,988 $230,256 $392,807 n.a
Interest Coverage -2.88 7.59 19.16 n.a
Additional Ratios
Assets to Sales 0.48 0.31 0.35 n.a
Current Debt/Total Assets 47% 43% 34% n.a
Acid Test 1.33 1.07 1.57 n.a
Sales/Net Worth 3.93 5.76 4.38 n.a
Dividend Payout 0.00 0.00 0.00 n.a