Michael's Video Service
Financial Plan
We are requesting a loan of $300,000. The funds will be used to purchase video equipment and to cover initial operating expenses.
Payback Strategy
Our repayment for this loan will come from cash in excess of profits, paid monthly. The increase in profits generated by business from television stations will provide funds to repay the loan in 10 years.
6.1 Important Assumptions
The table below highlights some assumptions that are key to the success of the company.
| 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 | 25.42% | 25.00% | 25.42% |
| Other | 0 | 0 | 0 |
6.2 Break-even Analysis
For our Break-even Analysis, we assume running costs of approximately $9,000 per month, which includes gas, phone, and an estimation of other running costs. Variable costs mostly include video tapes. The chart and table below show our break-even point.
| Break-even Analysis | |
| Monthly Revenue Break-even | $9,351 |
| Assumptions: | |
| Average Percent Variable Cost | 3% |
| Estimated Monthly Fixed Cost | $9,050 |
6.3 Projected Profit and Loss
The table below provides the projected income statements for Michael’s Video Service. The company is basing its revenue projections on anticipated sales of services, initially to the television networks and video companies, then to other markets such as high school events and weddings.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $149,000 | $175,000 | $191,000 |
| Direct Cost of Sales | $4,800 | $5,700 | $6,600 |
| Other | $0 | $0 | $0 |
| Total Cost of Sales | $4,800 | $5,700 | $6,600 |
| Gross Margin | $144,200 | $169,300 | $184,400 |
| Gross Margin % | 96.78% | 96.74% | 96.54% |
| Expenses | |||
| Payroll | $48,000 | $62,000 | $66,000 |
| Sales and Marketing and Other Expenses | $18,600 | $21,400 | $24,600 |
| Depreciation | $24,000 | $24,000 | $24,000 |
| Gas | $4,800 | $5,700 | $6,600 |
| Utilities & phone | $2,400 | $3,000 | $3,600 |
| Rent | $3,600 | $3,600 | $3,600 |
| Payroll Taxes | $7,200 | $9,300 | $9,900 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $108,600 | $129,000 | $138,300 |
| Profit Before Interest and Taxes | $35,600 | $40,300 | $46,100 |
| EBITDA | $59,600 | $64,300 | $70,100 |
| Interest Expense | $30,000 | $28,984 | $26,844 |
| Taxes Incurred | $1,065 | $2,829 | $4,894 |
| Net Profit | $4,535 | $8,487 | $14,362 |
| Net Profit/Sales | 3.04% | 4.85% | 7.52% |
6.4 Financial Risks and Contingencies
The company recognizes that it is subject to both market and industry risks. We believe our risks are as follows, and we are addressing each as indicated. We face all the risks associated with being a start-up company. We feel that we can overcome these with our experience in the industry and by quickly establishing desired relationships. The economy in south Ohio is based on the oil and gas industry, which is very unstable. Having seen the oil bust in the 1980’s and its effects on the economy, we have diversified our efforts and will be going after markets that will not be affected by fluctuations in the oil and gas industry.
6.5 Projected Cash Flow
The following chart and table present the cash flow assumptions for the company.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $37,250 | $43,750 | $47,750 |
| Cash from Receivables | $90,375 | $127,520 | $140,955 |
| Subtotal Cash from Operations | $127,625 | $171,270 | $188,705 |
| 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 | $127,625 | $171,270 | $188,705 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $48,000 | $62,000 | $66,000 |
| Bill Payments | $64,802 | $80,965 | $86,360 |
| Subtotal Spent on Operations | $112,802 | $142,965 | $152,360 |
| 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 | $20,330 | $22,458 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $112,802 | $163,295 | $174,818 |
| Net Cash Flow | $14,823 | $7,975 | $13,887 |
| Cash Balance | $74,823 | $82,798 | $96,685 |
6.6 Projected Balance Sheet
Projected balance sheets are provided below.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $74,823 | $82,798 | $96,685 |
| Accounts Receivable | $21,375 | $25,105 | $27,400 |
| Inventory | $1,200 | $1,425 | $1,650 |
| Other Current Assets | $0 | $0 | $0 |
| Total Current Assets | $97,398 | $109,328 | $125,736 |
| Long-term Assets | |||
| Long-term Assets | $240,000 | $240,000 | $240,000 |
| Accumulated Depreciation | $24,000 | $48,000 | $72,000 |
| Total Long-term Assets | $216,000 | $192,000 | $168,000 |
| Total Assets | $313,398 | $301,328 | $293,736 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $6,863 | $6,636 | $7,139 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $6,863 | $6,636 | $7,139 |
| Long-term Liabilities | $300,000 | $279,670 | $257,212 |
| Total Liabilities | $306,863 | $286,306 | $264,351 |
| Paid-in Capital | $17,000 | $17,000 | $17,000 |
| Retained Earnings | ($15,000) | ($10,465) | ($1,978) |
| Earnings | $4,535 | $8,487 | $14,362 |
| Total Capital | $6,535 | $15,022 | $29,384 |
| Total Liabilities and Capital | $313,398 | $301,328 | $293,736 |
| Net Worth | $6,535 | $15,022 | $29,384 |
6.7 Business Ratios
The following table presents important business ratios from the motion picture production industry, as determined by the Standard Industry Classification (SIC) Index code 7812, Motion Picture and Video Production.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 17.45% | 9.14% | 0.00% |
| Percent of Total Assets | ||||
| Accounts Receivable | 6.82% | 8.33% | 9.33% | 0.00% |
| Inventory | 0.38% | 0.47% | 0.56% | 0.00% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 100.00% |
| Total Current Assets | 31.08% | 36.28% | 42.81% | 100.00% |
| Long-term Assets | 68.92% | 63.72% | 57.19% | 0.00% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 2.19% | 2.20% | 2.43% | 0.00% |
| Long-term Liabilities | 95.72% | 92.81% | 87.57% | 0.00% |
| Total Liabilities | 97.91% | 95.01% | 90.00% | 0.00% |
| Net Worth | 2.09% | 4.99% | 10.00% | 100.00% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 96.78% | 96.74% | 96.54% | 0.00% |
| Selling, General & Administrative Expenses | 93.96% | 91.89% | 88.98% | 0.00% |
| Advertising Expenses | 4.03% | 4.00% | 4.19% | 0.00% |
| Profit Before Interest and Taxes | 23.89% | 23.03% | 24.14% | 0.00% |
| Main Ratios | ||||
| Current | 14.19 | 16.48 | 17.61 | 0.00 |
| Quick | 14.02 | 16.26 | 17.38 | 0.00 |
| Total Debt to Total Assets | 97.91% | 95.01% | 90.00% | 0.00% |
| Pre-tax Return on Net Worth | 85.69% | 75.33% | 65.53% | 0.00% |
| Pre-tax Return on Assets | 1.79% | 3.76% | 6.56% | 0.00% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 3.04% | 4.85% | 7.52% | n.a |
| Return on Equity | 69.40% | 56.50% | 48.88% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 5.23 | 5.23 | 5.23 | n.a |
| Collection Days | 57 | 65 | 67 | n.a |
| Inventory Turnover | 4.50 | 4.34 | 4.29 | n.a |
| Accounts Payable Turnover | 10.44 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 31 | 29 | n.a |
| Total Asset Turnover | 0.48 | 0.58 | 0.65 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 46.96 | 19.06 | 9.00 | n.a |
| Current Liab. to Liab. | 0.02 | 0.02 | 0.03 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $90,535 | $102,692 | $118,596 | n.a |
| Interest Coverage | 1.19 | 1.39 | 1.72 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 2.10 | 1.72 | 1.54 | n.a |
| Current Debt/Total Assets | 2% | 2% | 2% | n.a |
| Acid Test | 10.90 | 12.48 | 13.54 | n.a |
| Sales/Net Worth | 22.80 | 11.65 | 6.50 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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