Financial Plan
The financial plan contains these essential factors:
- A growth rate of 20% in sales for the year 2005, to total in excess of $379,000 in total revenues.
- Average in sales per business day (305 days per year) in excess of $900.00.
Difficulties and Risks
- Slow sales resulting in less-than projected cash flow.
- Overly aggressive and debilitating actions by competitors.
- A parallel entry by a new competitor.
- Sluggish economic conditions.
7.1 Important Assumptions
The following critical assumptions will determine the potential for future success.
- A healthy economy that supports moderate growth in our market.
- Low operating expenses, particularly in the area of buying plants that could be grown on-site.
| General Assumptions | |||
| Year 1 | Year 2 | Year 3 | |
| Plan Month | 1 | 2 | 3 |
| Current Interest Rate | 9.00% | 9.00% | 9.00% |
| Long-term Interest Rate | 7.00% | 7.00% | 7.00% |
| Tax Rate | 25.42% | 25.00% | 25.42% |
| Other | 0 | 0 | 0 |
7.2 Break-even Analysis
The
following chart and table summarize our break-even analysis. Our fixed
costs will be approximately $14,800 per month at the onset and we expect
to reach the break-even point in the third year of operation.
| Break-even Analysis | |
| Monthly Revenue Break-even | $29,767 |
| Assumptions: | |
| Average Percent Variable Cost | 50% |
| Estimated Monthly Fixed Cost | $14,883 |
7.3 Projected Profit and Loss
The
following represents the projected profit and loss for Rose Petal
Nursery based, on sales and expenses, for 2004 and beyond. We are
anticipating a steady increase in sales through July. Business is
expected to slow during the autumn and winter.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $316,000 | $379,200 | $455,040 |
| Direct Cost of Sales | $158,000 | $189,600 | $227,520 |
| Other Costs of Goods | $0 | $0 | $0 |
| Total Cost of Sales | $158,000 | $189,600 | $227,520 |
| Gross Margin | $158,000 | $189,600 | $227,520 |
| Gross Margin % | 50.00% | 50.00% | 50.00% |
| Expenses | |||
| Payroll | $136,000 | $157,000 | $169,000 |
| Sales and Marketing and Other Expenses | $6,000 | $5,000 | $5,000 |
| Depreciation | $0 | $0 | $0 |
| Rent | $12,000 | $0 | $0 |
| Utilities | $3,600 | $4,000 | $4,000 |
| Insurance | $600 | $700 | $800 |
| Payroll Taxes | $20,400 | $23,550 | $25,350 |
| Total Operating Expenses | $178,600 | $190,250 | $204,150 |
| Profit Before Interest and Taxes | ($20,600) | ($650) | $23,370 |
| EBITDA | ($20,600) | ($650) | $23,370 |
| Interest Expense | $0 | $0 | $0 |
| Taxes Incurred | $0 | $0 | $5,940 |
| Net Profit | ($20,600) | ($650) | $17,430 |
| Net Profit/Sales | -6.52% | -0.17% | 3.83% |
The
cash flow projections are outlined below. These projections are based
on our basic assumptions with revenue generation factors carrying the
most significant weight regarding the outcome. We are anticipating that
we will have a steadily increasing cash flow as the business continues
to grow.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $79,000 | $94,800 | $113,760 |
| Cash from Receivables | $217,825 | $280,565 | $336,678 |
| Subtotal Cash from Operations | $296,825 | $375,365 | $450,438 |
| 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 | $5,000 | $0 | $0 |
| Subtotal Cash Received | $301,825 | $375,365 | $450,438 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $136,000 | $157,000 | $169,000 |
| Bill Payments | $171,632 | $215,464 | $266,541 |
| Subtotal Spent on Operations | $307,632 | $372,464 | $435,541 |
| 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 | $0 | $0 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $307,632 | $372,464 | $435,541 |
| Net Cash Flow | ($5,807) | $2,901 | $14,897 |
| Cash Balance | $14,193 | $17,094 | $31,991 |
7.5 Projected Balance Sheet
Rose Petal Nursery's balance sheet is outlined below.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $14,193 | $17,094 | $31,991 |
| Accounts Receivable | $19,175 | $23,010 | $27,612 |
| Inventory | $7,150 | $8,580 | $10,296 |
| Other Current Assets | $0 | $0 | $0 |
| Total Current Assets | $40,518 | $48,684 | $69,899 |
| Long-term Assets | |||
| Long-term Assets | $12,000 | $12,000 | $12,000 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $12,000 | $12,000 | $12,000 |
| Total Assets | $52,518 | $60,684 | $81,899 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $9,618 | $18,434 | $22,219 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $9,618 | $18,434 | $22,219 |
| Long-term Liabilities | $0 | $0 | $0 |
| Total Liabilities | $9,618 | $18,434 | $22,219 |
| Paid-in Capital | $105,000 | $105,000 | $105,000 |
| Retained Earnings | ($41,500) | ($62,100) | ($62,750) |
| Earnings | ($20,600) | ($650) | $17,430 |
| Total Capital | $42,900 | $42,250 | $59,680 |
| Total Liabilities and Capital | $52,518 | $60,684 | $81,899 |
| Net Worth | $42,900 | $42,250 | $59,680 |
7.6 Business Ratios
Business
ratios for the years of this plan are shown below. Industry profile
ratios based on the Standard Industrial Classification (SIC) Code
5193.02, Flowers and Nursery Stock are shown for comparison.
The following will enable us to keep on track. If we fail in any of these areas, we will need to re-evaluate our business model:
- Gross margins at or above 50%.
- Month-to-month annual comparisons indicate an increase of 15% or greater.
- Do not depend on a credit line to meet cash requirements.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 20.00% | 20.00% | 1.22% |
| Percent of Total Assets | ||||
| Accounts Receivable | 36.51% | 37.92% | 33.71% | 30.27% |
| Inventory | 13.61% | 14.14% | 12.57% | 25.69% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 27.60% |
| Total Current Assets | 77.15% | 80.23% | 85.35% | 83.56% |
| Long-term Assets | 22.85% | 19.77% | 14.65% | 16.44% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 18.31% | 30.38% | 27.13% | 44.32% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 11.33% |
| Total Liabilities | 18.31% | 30.38% | 27.13% | 55.65% |
| Net Worth | 81.69% | 69.62% | 72.87% | 44.35% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 50.00% | 50.00% | 50.00% | 17.78% |
| Selling, General & Administrative Expenses | 56.52% | 50.17% | 46.15% | 9.07% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 0.67% |
| Profit Before Interest and Taxes | -6.52% | -0.17% | 5.14% | 2.13% |
| Main Ratios | ||||
| Current | 4.21 | 2.64 | 3.15 | 1.66 |
| Quick | 3.47 | 2.18 | 2.68 | 0.99 |
| Total Debt to Total Assets | 18.31% | 30.38% | 27.13% | 6.03% |
| Pre-tax Return on Net Worth | -48.02% | -1.54% | 39.16% | 58.71% |
| Pre-tax Return on Assets | -39.22% | -1.07% | 28.54% | 14.61% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | -6.52% | -0.17% | 3.83% | n.a |
| Return on Equity | -48.02% | -1.54% | 29.21% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 12.36 | 12.36 | 12.36 | n.a |
| Collection Days | 59 | 27 | 27 | n.a |
| Inventory Turnover | 10.45 | 24.11 | 24.11 | n.a |
| Accounts Payable Turnover | 18.84 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 23 | 27 | n.a |
| Total Asset Turnover | 6.02 | 6.25 | 5.56 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.22 | 0.44 | 0.37 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $30,900 | $30,250 | $47,680 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.17 | 0.16 | 0.18 | n.a |
| Current Debt/Total Assets | 18% | 30% | 27% | n.a |
| Acid Test | 1.48 | 0.93 | 1.44 | n.a |
| Sales/Net Worth | 7.37 | 8.98 | 7.62 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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