Flyleaf Books
Financial Plan
The following is our financial projects over the next three years. Please note that we expect to be operating at a loss for the first couple of months before advertising begins to take effect and draw in customers.
7.1 Important Assumptions
The company is basing it assumptions on a stable growth market using average interest rates over the past ten years.
| General Assumptions | |||
| Year 1 | Year 2 | Year 3 | |
| 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 |
7.2 Break-even Analysis
The following table and chart show our Break-even Analysis. We are deliberately setting these average costs a little low in order to be conservative and give us an idea of the maximum amount of inventory we need to move per month.
| Break-even Analysis | |
| Monthly Revenue Break-even | $90,541 |
| Assumptions: | |
| Average Percent Variable Cost | 77% |
| Estimated Monthly Fixed Cost | $20,824 |
7.3 Projected Profit and Loss
The following table explains our itemized costs and determines gross and net margin. Please note that these predictions are weighted toward having higher costs in comparison to revenues in case unexpected hidden costs arise.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $1,304,071 | $1,357,569 | $1,428,767 |
| Direct Cost of Sales | $1,004,135 | $1,031,752 | $1,071,575 |
| Other Costs of Goods | $0 | $0 | $0 |
| Total Cost of Sales | $1,004,135 | $1,031,752 | $1,071,575 |
| Gross Margin | $299,936 | $325,817 | $357,192 |
| Gross Margin % | 23.00% | 24.00% | 25.00% |
| Expenses | |||
| Payroll | $111,000 | $125,600 | $130,600 |
| Sales and Marketing and Other Expenses | $36,000 | $15,000 | $15,000 |
| Depreciation | $0 | $0 | $0 |
| Leased equipment | $0 | $0 | $0 |
| Rent | $60,000 | $65,000 | $68,000 |
| Utilities | $3,600 | $4,000 | $4,000 |
| Insurance | $7,200 | $7,200 | $7,500 |
| Payroll Taxes | $17,093 | $18,840 | $19,590 |
| Other | $15,000 | $10,000 | $10,000 |
| Total Operating Expenses | $249,893 | $245,640 | $254,690 |
| Profit Before Interest and Taxes | $50,044 | $80,177 | $102,502 |
| EBITDA | $50,044 | $80,177 | $102,502 |
| Interest Expense | $13,750 | $13,900 | $12,050 |
| Taxes Incurred | $10,888 | $19,883 | $27,136 |
| Net Profit | $25,406 | $46,394 | $63,316 |
| Net Profit/Sales | 1.95% | 3.42% | 4.43% |
7.4 Projected Cash Flow
Our company will be receiving periodic influxes of cash in order to cover operating expenses during the first two years as it strives toward sustainable profitability. Almost all of this funding has been arranged through lend institutions and private investors already. We do not anticipate any cash flow problems during the next three years.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $1,304,071 | $1,357,569 | $1,428,767 |
| Subtotal Cash from Operations | $1,304,071 | $1,357,569 | $1,428,767 |
| Additional Cash Received | |||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
| New Current Borrowing | $5,000 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 |
| New Long-term Liabilities | $50,000 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 |
| New Investment Received | $54,000 | $0 | $0 |
| Subtotal Cash Received | $1,413,071 | $1,357,569 | $1,428,767 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $111,000 | $125,600 | $130,600 |
| Bill Payments | $1,156,323 | $1,217,129 | $1,235,539 |
| Subtotal Spent on Operations | $1,267,323 | $1,342,729 | $1,366,139 |
| Additional Cash Spent | |||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $0 | $7,000 | $15,000 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $0 | $5,000 | $10,000 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $1,267,323 | $1,354,729 | $1,391,139 |
| Net Cash Flow | $145,748 | $2,840 | $37,628 |
| Cash Balance | $179,568 | $182,408 | $220,036 |
7.5 Projected Balance Sheet
The following table is the Projected Balance Sheet for Flyleaf Books.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $179,568 | $182,408 | $220,036 |
| Inventory | $122,562 | $125,933 | $130,793 |
| Other Current Assets | $8,000 | $8,000 | $8,000 |
| Total Current Assets | $310,130 | $316,341 | $358,830 |
| Long-term Assets | |||
| Long-term Assets | $8,000 | $8,000 | $8,000 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $8,000 | $8,000 | $8,000 |
| Total Assets | $318,130 | $324,341 | $366,830 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $125,904 | $97,722 | $101,894 |
| Current Borrowing | $20,000 | $13,000 | ($2,000) |
| Other Current Liabilities | $10,000 | $10,000 | $10,000 |
| Subtotal Current Liabilities | $155,904 | $120,722 | $109,894 |
| Long-term Liabilities | $125,000 | $120,000 | $110,000 |
| Total Liabilities | $280,904 | $240,722 | $219,894 |
| Paid-in Capital | $124,000 | $124,000 | $124,000 |
| Retained Earnings | ($112,180) | ($86,774) | ($40,381) |
| Earnings | $25,406 | $46,394 | $63,316 |
| Total Capital | $37,226 | $83,619 | $146,935 |
| Total Liabilities and Capital | $318,130 | $324,341 | $366,830 |
| Net Worth | $37,226 | $83,619 | $146,935 |
7.6 Business Ratios
We are using the industry standard Business Ratios for independent used bookstore chains as a comparison to our own.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 4.10% | 5.24% | 2.27% |
| Percent of Total Assets | ||||
| Inventory | 38.53% | 38.83% | 35.66% | 22.18% |
| Other Current Assets | 2.51% | 2.47% | 2.18% | 26.81% |
| Total Current Assets | 97.49% | 97.53% | 97.82% | 56.12% |
| Long-term Assets | 2.51% | 2.47% | 2.18% | 43.88% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 49.01% | 37.22% | 29.96% | 26.39% |
| Long-term Liabilities | 39.29% | 37.00% | 29.99% | 24.87% |
| Total Liabilities | 88.30% | 74.22% | 59.94% | 51.26% |
| Net Worth | 11.70% | 25.78% | 40.06% | 48.74% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 23.00% | 24.00% | 25.00% | 23.55% |
| Selling, General & Administrative Expenses | 21.05% | 20.58% | 20.57% | 16.21% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 0.85% |
| Profit Before Interest and Taxes | 3.84% | 5.91% | 7.17% | 1.02% |
| Main Ratios | ||||
| Current | 1.99 | 2.62 | 3.27 | 1.68 |
| Quick | 1.20 | 1.58 | 2.08 | 0.71 |
| Total Debt to Total Assets | 88.30% | 74.22% | 59.94% | 4.63% |
| Pre-tax Return on Net Worth | 97.50% | 79.26% | 61.56% | 57.28% |
| Pre-tax Return on Assets | 11.41% | 20.43% | 24.66% | 10.83% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 1.95% | 3.42% | 4.43% | n.a |
| Return on Equity | 68.25% | 55.48% | 43.09% | n.a |
| Activity Ratios | ||||
| Inventory Turnover | 10.91 | 8.30 | 8.35 | n.a |
| Accounts Payable Turnover | 10.12 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 34 | 29 | n.a |
| Total Asset Turnover | 4.10 | 4.19 | 3.89 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 7.55 | 2.88 | 1.50 | n.a |
| Current Liab. to Liab. | 0.56 | 0.50 | 0.50 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $154,226 | $195,619 | $248,935 | n.a |
| Interest Coverage | 3.64 | 5.77 | 8.51 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.24 | 0.24 | 0.26 | n.a |
| Current Debt/Total Assets | 49% | 37% | 30% | n.a |
| Acid Test | 1.20 | 1.58 | 2.08 | n.a |
| Sales/Net Worth | 35.03 | 16.24 | 9.72 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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