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Pie in the Sky Wi-Fi

Financial Plan

Pie in the Sky Wi-Fi’s establishment requires an investment of $50,000 during start-up, which will be provided by the founders. In order to keep up our growth, and, in particular, to build the base stations necessary for generating sales in the first year, we will need a first-round outside investment of at least $100,000 by March. In July, unless we have raised additional outside investment, we will seek a long-term loan for another $100,000.

Based on solid market research, and known costs, we will be able to grow the business rapidly over the first three years, if we obtain this initial funding. The business will reach the break-even point early in the second year, and begin to generate reasonable profits for a venture of this kind.

After the first year, our Balance Sheet is quite positive. Our ratios will be good for the industry in which we are operating – data communications services.

We do not plan to pay any interim dividends to founders or outside investors, by investment will be bought out at the liquidity event described below in the Exit Strategy, when we sell to a market consolidator. Our financial and sales plans are geared toward positioning us well for this event.

8.1 Exit Strategy

The ultimate goal for Pie in the Sky Wi-Fi is to sell to a market consolidator by 2008. These market consolidators may consist of larger companies such as telecom, cable or other utilities looking to aggregate their services further or well funded development stage companies formed for the sole purpose of creating a large wireless network both public and private. Air-Q, a development stage company, is a prime example of the type of aggregator currently in the marketplace that builds itself on the acquisition of companies such as Pie in the Sky Wi-Fi.

2004 marks the beginning of a new market with the widespread application of wireless applications across the world. While many large companies are still installing fiber networks to tie major metropolitan areas together across their own proprietary network the “last mile” problem still exists. It is far too costly to roll out fiber to each individual home and business, which clearly give wireless access an advantage long-term. With the upcoming adoption of the 802.16 standard speeds available through wireless installations that Pie in the Sky Wi-Fi will have in the Pie in the Sky Enterprise installations will be comparable to fiber at a fraction of the installation time and cost.

As the major companies begin to look at filling in the gaps in their fiber networks, they will use wireless networks and companies with experience installing and maintaining these to do so. Pie in the Sky Wi-Fi will position itself from the outset not only to be an industry leader in the Wi-Fi marketplace, but to make it known that the network and installations and going concern is available for purchase when the market consolidators begin to look at expanding market share. By 2008, we project that Pie in the Sky Wi-Fi will have over 2,000 installed wireless applications under management with the rights and ability to increase the bandwidth and range of the hardware at any given time.

The installed wireless network, coupled with the expertise Pie in the Sky Wi-Fi can offer a larger company, will give an aggregator a competitive advantage in the marketplace with a single purchase as well as the ability to launch new wireless networks quickly and easily. Industry analyses suggest that the wireless market will undergo a large market consolidation in the year 2008, with larger companies purchasing smaller companies such as Pie in the Sky Wi-Fi in order to quickly expand their wireless capabilities with installed access points. With both cable and telephone companies competing for this same user base, we anticipate multiple potential bidders.

The larger telecom companies have already identified wireless as a solution to the cost challenges in a competitive market.

8.2 Start-up Funding

The owners of the company will contribute $50,000 to begin operations in January. Although we will need additional funding within the first year (see Cash Flow for details), this amount should be enough to see us through the initial months, as we set up the office and begin to hire staff.


Start-up Funding
Start-up Expenses to Fund $16,500
Start-up Assets to Fund $33,500
Total Funding Required $50,000
Non-cash Assets from Start-up $0
Cash Requirements from Start-up $33,500
Additional Cash Raised $0
Cash Balance on Starting Date $33,500
Total Assets $33,500
Liabilities and Capital
Current Borrowing $0
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $0
Planned Investment
Owner $50,000
Investor $0
Additional Investment Requirement $0
Total Planned Investment $50,000
Loss at Start-up (Start-up Expenses) ($16,500)
Total Capital $33,500
Total Capital and Liabilities $33,500
Total Funding $50,000

8.3 Important Assumptions

Sales: All base stations will be installed by Pie in the Sky Wi-Fi, at no additional charge to the customer. The cost for this installation is figured into the Cost of Goods sold.

Approximate costs used for planning purposes in this document are as follows:

  • Per 100,000 square foot, outdoor installation (Travel Hub Application) = $4,100 w/o base station
  • Per 100,000 square foot, outdoor installation (Travel Hub Application) = $2,900 w/ base station
  • Per 100,000 square foot, indoor installation (Enterprise Application) = $5,500 w/o base station
  • Per 100,000 square foot, indoor installation (Enterprise Application) = $4,300 w/o base station

Approximate pricing for each application is as follows. The price to the client remains the same with or without the base station in place:

  • Per 100,000 square foot, outdoor installation (Travel Hub Application) = $6,000 w/ base station
  • Per 100,000 square foot, indoor installation (Enterprise Application) = $4,200 w/o base station

Accounts Receivable: The majority of the sales will be cash sales with approximately 25% being sales on credit. We estimate, on average, AR collection in 45 days.

Accounts Payable: The average AP goal is no more than 30 days, with certain payments occurring sooner to take advantage of discounts where applicable.

Tax Rate: Tax rate is estimated at 30%.

Personnel Burden: Personnel Burden is estimated at 15%. This includes taxes, benefits, vacation pay, etc.

8.4 Break-even Analysis

The following table and chart show a break-even analysis for the first year of business. We will pass this point in September, but by that point in the year, we will have hired the full complement of staff, and so the yearly average calculated in this table will not be enough to actually break-even at the end of the year, with such high operating expenses. We anticipate breaking even early in the second year. 

Wireless datacomm business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $69,714
Average Percent Variable Cost 52%
Estimated Monthly Fixed Cost $33,309

8.5 Projected Profit and Loss

The following table and chart show our projected Profit and Loss for the next three years.

Sales, which includes the sale of both the Enterprise and ISP plans are based on the projected growth of the marketplace, the company’s sales capacity and financial resources. Pie in the Sky Wi-Fi’s ability to install the number of networks listed depends on obtaining sufficient funding.

Expenses, which are comprised primarily of marketing, sales commissions, training and certification for installers, research and development, labor and general company overhead reflect an aggressive posture to penetrate the market quickly in order to take advantage of a short window of opportunity.

2004 will be the first reported fiscal year for Pie in the Sky Wi-Fi. For the first year and a half of start-up operations, we expect a loss, in order to build the organization infrastructure. Due to the infancy of the market and the current rush to supply the demand driven by wireless users, it is critical that Pie in the Sky Wi-Fi dedicate the appropriate amount of resources and time to take advantage of any first mover advantages to be gained by this new market.

In 2004, the four founders and officers of the corporation will take a minimal salary in order to maximize the resources dedicated to building the market and customer base during the first year of operations. Our deadline for completing the first sales is April with moderate growth projections through the end of the year. For the majority of officers, this reflects a reduction in personal income of close to 40%.

The first two quarters of the 2004 fiscal year will be dedicated to setting up the corporation, so that the officers can easily transfer into their new positions from their current roles at ABC, Inc. It is important for the individual officers, the current company they are employed at and Pie in the Sky Wi-Fi that this transition happen quickly yet not too soon as to avoid any adverse affects on all parties involved. Total sales for 2004 are expected to be $586,750. Total Operating Expenses are shown in the table, and profit is projected to be a loss.

5-Year Projected Income Statement

The long-term income estimate for Pie in the Sky Wi-Fi is conservative, based on the projected growth rate of the wireless industry. By 2008, the total market for these services is expected to exceed $2 billion. The annual recurring revenue for access services based on unlicensed broadband wireless (UBW) technologies, currently at $250 million, will approach $2 billion by 2008.

We expect by 2008 to have revenues of $38.7 million with a very strong profits. Pie in the Sky Wi-Fi’s market share, based on industry projections, would be less than 2%. For planning purposes this estimate is intended to be conservative, as the market will not only be changing quickly over the next few years, but it is expected that the market will remain fairly fragmented during this same period. This fragmentation may limit total overall market share for Pie in the Sky Wi-Fi. However, it is the fragmentation that also creates the initial opportunity for Pie in the Sky Wi-Fi to enter markets with relative ease and will be of benefit when looking to execute the exit plan outlined above.

Wireless datacomm business plan, financial plan chart image

Wireless datacomm business plan, financial plan chart image

Wireless datacomm business plan, financial plan chart image

Wireless datacomm business plan, financial plan chart image

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $586,750 $2,724,000 $7,408,500
Direct Cost of Sales $306,400 $1,291,200 $3,396,800
Other Costs of Sales $0 $0 $0
Total Cost of Sales $306,400 $1,291,200 $3,396,800
Gross Margin $280,350 $1,432,800 $4,011,700
Gross Margin % 47.78% 52.60% 54.15%
Payroll $245,000 $450,000 $510,000
Marketing/Promotion $0 $0 $148,170
Depreciation $0 $0 $0
Sales Commissions $88,013 $408,600 $1,111,275
Payroll Taxes $0 $0 $0
Office Rent $10,500 $18,000 $36,000
Telephone $2,700 $4,200 $8,400
Internet & Utilities $5,600 $9,600 $14,400
Computer Supplies and Maintenance $15,000 $18,000 $36,000
Travel $22,500 $30,000 $60,000
Insurance $1,400 $2,400 $4,800
Misc. $9,000 $9,000 $9,000
Total Operating Expenses $399,713 $949,800 $1,938,045
Profit Before Interest and Taxes ($119,363) $483,000 $2,073,655
EBITDA ($119,363) $483,000 $2,073,655
Interest Expense $4,792 $8,572 $7,143
Taxes Incurred $0 $0 $0
Net Profit ($124,154) $474,428 $2,066,512
Net Profit/Sales -21.16% 17.42% 27.89%

8.6 Projected Cash Flow

Cash flow is expected to be favorable,if we can obtain sufficient funding, as noted in the table, below. It will be necessary to obtain outside funding for the venture two times during the first year. We will need first-round capital of $100,000 as soon as possible in order to begin operations according to the business plan; we have set the deadline for this funding at March. The second round of funding will be needed if all the sales target and expense goals are met accordingly. This is expected to be in the month of September and will need to be a minimum of an additional $100,000. This will allow the cash balance to stay positive, despite a negative net cash flow for the first 13 months of operation.

There are no dividends paid out during the operating period of the plan. Investors will be paid out upon the liquidity event described in the Exit Strategy described above.

Wireless datacomm business plan, financial plan chart image

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $440,063 $2,043,000 $5,556,375
Cash from Receivables $108,975 $543,631 $1,551,036
Subtotal Cash from Operations $549,038 $2,586,631 $7,107,411
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 $100,000 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $100,000 $0 $0
Subtotal Cash Received $749,038 $2,586,631 $7,107,411
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $245,000 $450,000 $510,000
Bill Payments $392,318 $1,725,248 $4,582,749
Subtotal Spent on Operations $637,318 $2,175,248 $5,092,749
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 $7,140 $14,285 $14,285
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $644,458 $2,189,533 $5,107,034
Net Cash Flow $104,580 $397,098 $2,000,377
Cash Balance $138,080 $535,178 $2,535,555

8.7 Projected Balance Sheet

After the first year, when we invest heavily in establishing Pie in the Sky Wi-Fi’s staff, contacts, infrastructure and reputation, our Balance Sheet will become increasingly solid.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Current Assets
Cash $138,080 $535,178 $2,535,555
Accounts Receivable $37,713 $175,081 $476,171
Other Current Assets $0 $0 $0
Total Current Assets $175,792 $710,259 $3,011,725
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $175,792 $710,259 $3,011,725
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $73,586 $147,910 $397,150
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $73,586 $147,910 $397,150
Long-term Liabilities $92,860 $78,575 $64,290
Total Liabilities $166,446 $226,485 $461,440
Paid-in Capital $150,000 $150,000 $150,000
Retained Earnings ($16,500) ($140,654) $333,774
Earnings ($124,154) $474,428 $2,066,512
Total Capital $9,346 $483,774 $2,550,286
Total Liabilities and Capital $175,792 $710,259 $3,011,725
Net Worth $9,346 $483,774 $2,550,286

8.8 Business Ratios

The following table outlines some of the more important ratios from the Data Communications Services industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 4899.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 364.25% 171.97% 1.63%
Percent of Total Assets
Accounts Receivable 21.45% 24.65% 15.81% 13.44%
Other Current Assets 0.00% 0.00% 0.00% 54.99%
Total Current Assets 100.00% 100.00% 100.00% 72.36%
Long-term Assets 0.00% 0.00% 0.00% 27.64%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 41.86% 20.82% 13.19% 18.73%
Long-term Liabilities 52.82% 11.06% 2.13% 21.60%
Total Liabilities 94.68% 31.89% 15.32% 40.33%
Net Worth 5.32% 68.11% 84.68% 59.67%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 47.78% 52.60% 54.15% 57.81%
Selling, General & Administrative Expenses 68.94% 35.18% 26.26% 34.36%
Advertising Expenses 0.00% 0.00% 0.00% 1.02%
Profit Before Interest and Taxes -20.34% 17.73% 27.99% 5.81%
Main Ratios
Current 2.39 4.80 7.58 2.18
Quick 2.39 4.80 7.58 1.76
Total Debt to Total Assets 94.68% 31.89% 15.32% 49.82%
Pre-tax Return on Net Worth -1328.46% 98.07% 81.03% 7.28%
Pre-tax Return on Assets -70.63% 66.80% 68.62% 14.51%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -21.16% 17.42% 27.89% n.a
Return on Equity -1328.46% 98.07% 81.03% n.a
Activity Ratios
Accounts Receivable Turnover 3.89 3.89 3.89 n.a
Collection Days 42 57 64 n.a
Accounts Payable Turnover 6.33 12.17 12.17 n.a
Payment Days 27 22 21 n.a
Total Asset Turnover 3.34 3.84 2.46 n.a
Debt Ratios
Debt to Net Worth 17.81 0.47 0.18 n.a
Current Liab. to Liab. 0.44 0.65 0.86 n.a
Liquidity Ratios
Net Working Capital $102,206 $562,349 $2,614,576 n.a
Interest Coverage -24.91 56.35 290.30 n.a
Additional Ratios
Assets to Sales 0.30 0.26 0.41 n.a
Current Debt/Total Assets 42% 21% 13% n.a
Acid Test 1.88 3.62 6.38 n.a
Sales/Net Worth 62.78 5.63 2.90 n.a
Dividend Payout 0.00 0.00 0.00 n.a