Chef Vending will meet its future needs for capital through the free cash flow generated from its operations. This will require us to be disciplined, tempered, and prudent in our operations and our growth.
7.1 Important Assumptions
The financial plan depends on important financial assumptions outlined in the following table. Key underlying assumptions are as follows:
Industry growth trends will continue as they have for the past five years.
Inflation will be at 3% for the next two years.
We will access the capital we need to meet our cash needs for the first six months.
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
11.50%
11.50%
11.50%
Tax Rate
25.42%
25.00%
25.42%
Other
0
0
0
7.2 Projected Profit and Loss
Chef Vending is projected to make over $500,000 profit on $2.8 million of sales. The following table indicates how we will achieve this performance.
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
$2,851,450
$3,524,392
$4,356,149
Direct Cost of Sales
$1,607,240
$1,986,549
$2,455,374
Other
$0
$0
$0
Total Cost of Sales
$1,607,240
$1,986,549
$2,455,374
Gross Margin
$1,244,210
$1,537,844
$1,900,775
Gross Margin %
43.63%
43.63%
43.63%
Expenses
Payroll
$153,060
$250,944
$323,298
Sales and Marketing and Other Expenses
$51,600
$59,174
$68,279
Depreciation
$25,905
$30,984
$3,111
Repairs & Maintanence
$6,000
$6,180
$6,365
Commissions
$99,801
$119,761
$143,713
Loan Repayments
$29,136
$29,136
$29,136
Raw Materials
$7,736
$9,670
$12,088
Freight
$64,290
$77,148
$92,577
Office Supplies
$2,400
$2,472
$2,546
Postage
$1,020
$1,051
$1,082
Telephone
$9,000
$9,270
$9,548
Utilities
$3,000
$3,090
$3,183
Insurance
$3,600
$3,708
$3,819
Rent
$15,972
$25,000
$35,000
Payroll Taxes
$15,306
$25,094
$32,330
Other
$0
$0
$0
Total Operating Expenses
$487,825
$652,681
$766,075
Profit Before Interest and Taxes
$756,385
$885,162
$1,134,699
EBITDA
$782,290
$916,146
$1,137,810
Interest Expense
$15,057
$15,790
$14,966
Taxes Incurred
$185,909
$217,343
$284,599
Net Profit
$555,419
$652,029
$835,135
Net Profit/Sales
19.48%
18.50%
19.17%
7.3 Key Financial Indicators
Free cash flow to finance our growth.
Gross margins will be an important gauge on our profitability.
The exchange rates between the U.S. dollar and the Euro, which is tied to the Spanish Peseta.
7.4 Break-even Analysis
The following table indicates our break-even unit volume measure. An important element will be the product mix that went into the unit sales. We believe that we have outlined a conservative sales forecast that we should be able to achieve by year-end. The start-up months will be the most difficult as we attempt to break into the market, but after a three to four month successful product testing period, we should see tremendous sales, easily reaching our year-end targets.
Break-even Analysis
Monthly Units Break-even
27
Monthly Revenue Break-even
$93,166
Assumptions:
Average Per-Unit Revenue
$3,481.62
Average Per-Unit Variable Cost
$1,962.44
Estimated Monthly Fixed Cost
$40,652
7.5 Projected Cash Flow
We expect to manage cash flow from an initial Small Business Administration (SBA) loan of $125,000, and then through our free cash flow generated from operations.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Cash Received
Cash from Operations
Cash Sales
$1,425,725
$1,762,196
$2,178,074
Cash from Receivables
$1,046,281
$1,672,647
$2,067,392
Subtotal Cash from Operations
$2,472,006
$3,434,843
$4,245,467
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
$24,280
$4,856
$0
Sales of Other Current Assets
$0
$0
$0
Sales of Long-term Assets
$0
$0
$0
New Investment Received
$125,000
$0
$0
Subtotal Cash Received
$2,621,286
$3,439,699
$4,245,467
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations
Cash Spending
$153,060
$250,944
$323,298
Bill Payments
$2,048,212
$2,707,861
$3,214,920
Subtotal Spent on Operations
$2,201,272
$2,958,805
$3,538,217
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
$9,600
$9,600
$9,600
Purchase Other Current Assets
$0
$0
$0
Purchase Long-term Assets
$60,000
$0
$0
Dividends
$0
$0
$0
Subtotal Cash Spent
$2,270,872
$2,968,405
$3,547,817
Net Cash Flow
$350,414
$471,294
$697,649
Cash Balance
$375,414
$846,708
$1,544,358
7.6 Projected Balance Sheet
Our Balance Sheet projections are presented in the table below.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Assets
Current Assets
Cash
$375,414
$846,708
$1,544,358
Accounts Receivable
$379,444
$468,992
$579,675
Inventory
$243,705
$301,219
$372,307
Other Current Assets
$0
$0
$0
Total Current Assets
$998,563
$1,616,920
$2,496,339
Long-term Assets
Long-term Assets
$60,000
$60,000
$60,000
Accumulated Depreciation
$25,905
$56,889
$60,000
Total Long-term Assets
$34,095
$3,111
($0)
Total Assets
$1,032,658
$1,620,031
$2,496,339
Liabilities and Capital
Year 1
Year 2
Year 3
Current Liabilities
Accounts Payable
$277,551
$217,640
$268,413
Current Borrowing
$0
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$277,551
$217,640
$268,413
Long-term Liabilities
$139,680
$134,936
$125,336
Total Liabilities
$417,231
$352,576
$393,749
Paid-in Capital
$154,500
$154,500
$154,500
Retained Earnings
($94,492)
$460,927
$1,112,956
Earnings
$555,419
$652,029
$835,135
Total Capital
$615,427
$1,267,456
$2,102,590
Total Liabilities and Capital
$1,032,658
$1,620,031
$2,496,339
Net Worth
$615,427
$1,267,456
$2,102,590
7.7 Business Ratios
The computed standard Business Ratios are presented in the table below. Industry Profile ratios are based on Standard Industry Classification (SIC) code, 5962.
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