As a start-up company in an emerging and changing industry, we have intentionally designed a conservative plan, looking to ensure the achievement of our corporate goals along with a solid ROI to our investor/partner(s). We will of course revise our financial plan throughout the first year based on actual figures in sales, manufacturing costs, technological advances, personnel, office space, marketing costs, and so on.
Securing the patents (applied for) for our advanced devices and systems in a new and emerging industry will add immediate value to RQM.
Our plan's success is also predicated on the following assumptions:
We are currently in search of an investor/partner(s) who will bring more to RQM Technologies than just financing. The ideal Investor/Partner(s) we are seeking should bring expertise in the areas of legal, financial, and international regulatory issues, as a portion of our target market(s) will be international in scope in the near future. The Investor/Partner(s) will receive an equity position in the company and sit on the Board of Directors.
The success of this plan is predicated on securing start-up funding from an investor/partner in exchange for a minority equity stake in RQM. We are only looking for investor/partners that will also bring additional added value to RQM, such as expertise in finance, international business, C-Level contacts, industry networks, and more. Additional second round funding may eventually be needed to go into a larger scale production run, if RQM cannot self-fund our own growth. However, we believe that we will be in a position to fund ourselves, limiting the risks while increasing the ROI on our investor/partner(s).
Of particular interest to investors is the Dividends row in the Cash Flow table. We project increasing dividends, which will be distributed first to outside investors; the founders will defer dividends until the third year.
For our break-even analysis, we assume per month running costs which include our full payroll, rent, utilities, and an estimation of other running costs. Payroll alone, at our present run rate, is only about $18,000 per month. Margins are harder to estimate. Our overall average price point of $120 per unit is based on a cost of $60 (+ or - 2%), or a minimum gross profit margin of approximately 50%. We hope to attain a margin that high in the future as our cost per unit decreases, as manufactured volume increases, while focusing on a 20%-30% net profit.
The chart shows what we need to sell per month according to these assumptions in order to break even. This is about 80% of our planned average 2004 - 2005 monthly sales goals, even with four months of no revenue before sales begin; therefore we believe we can realistically achieve these goals and maintain these levels.
The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:
The Profit and Loss table, below, shows our projected sales, cost of sales, and operating expenses for the first three years. of particular note are the high Sales and Marketing expenses; our research indicates these approximate spending levels will be necessary for launching such a new and unique product successfully. We are currently taking bids from four prominent advertising agencies to manage this aspect of our product launches.
All costs associated with manufacturing and distributing the physical products can be found under cost of sales in the Sales Forecast table, above.
We anticipate that sales will begin to generate a stable profit for RQM in February of 2005, about halfway through our first year.
The Cash Flow table below shows that while initial cash flow will be out of the business, sufficient start-up funding, combined with projected sales revenues, should allow us to maintain a high positive cash balance throughout our first year, as we launch our products.
Of particular interest to investors is the Dividends row, below. We project increasing dividends, which will be distributed first to outside investors; the founders will defer dividends until the third year.
The Balance Sheet shows an increasingly stable cash position and net worth over the first three years, as our products become more established in the market. We do not plan to borrow money to fund growth, so our liabilities in all years represent simple Accounts Payable stemming from ongoing operating expenses.
Our main business ratios can be found in the following table, along with standard ratios for our industry, Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing (e.g. GPS), NAICS code 334220. We do intend to improve gross margin, collection days, and inventory turnover.
Our high gross margin reflects the nature of our particular kind of electronic equipment; a much higher percentage of our products' value lies in the innovative design and (patents applied for) customizable interface, than in skilled assembly (the typical distinguishing feature in this industry). Our ratios will, therefore, differ from others in this industry.