Archive for the 'Business Development' Category

Business Plan the Series - Week 9

Posted by Elgin Carelock on June 4th, 2008

Please excuse my absence over the past weeks, I have had too many things bothering me and lost focus of our last two weeks. We are working in the Financing section of the business plan and are going to cover projected Profit and Loss Statements (P&L), projected Cash Flow Statement, and projected Balance Sheet. These documents form the cornerstone of your business plan and further underscore your understanding of what it takes to run a successful business. As I mentioned previously, if this is a start up business, you need to use industry norms as the basis for your sales and projected growth.  

Projected Profit and Loss Statement

A profit and loss statement shows the disbursement of all expesnses incurred in the operating your business during the prior year against net sales. Since we are discussing your first year, you are going to use projected figures, which will be compared to in years two and three. The bottom line of the atatement shows a net profit or net loss for the year.

Pro Forma Profit and Loss
FY 2002 FY 2003 FY 2004
Sales $501,200 $576,380 $662,837
Direct Costs of Goods $177,680 $204,332 $234,982
Other $0 $0 $0
———— ———— ————
Cost of Goods Sold $177,680 $204,332 $234,982
Gross Margin $323,520 $372,048 $427,855
Gross Margin % 64.55% 64.55% 64.55%
Expenses
Payroll $123,900 $135,450 $162,828
Sales and Marketing and Other Expenses $24,866 $27,420 $30,521
Depreciation $12,000 $13,500 $15,000
Leased Equipment $1,800 $1,800 $1,800
Utilities $3,600 $3,600 $3,780
Insurance $4,200 $4,500 $4,725
Rent $88,000 $88,000 $88,000
Payroll Taxes $30,975 $33,863 $40,707
Other $0 $0 $0
———— ———— ————
Total Operating Expenses $289,341 $308,132 $347,361
Profit Before Interest and Taxes $34,179 $63,916 $80,494
EBITDA $46,179 $77,416 $95,494
Interest Expense $8,433 $6,730 $5,040
Taxes Incurred $6,445 $14,296 $19,178
Net Profit $19,302 $42,889 $56,276
Net Profit/Sales 3.85% 7.44% 8.49%

Monthly Statement

Because the P&L statement is a operations document, you should produce it monthly; that way unfavorable financial trends will be identified early before they get out of control. It is also a good practice to transfer your monthly data into a spreadsheet. This will give you the ability to use a graph for a quick diagnosis before reading the detailed statements. Most accounting software such as Quickbooks Pro will give you that functionality.

Year to Date Statement

In addition to the monthly statements, you should submit a year to date analysis that shows the trends in both sales and expenses. The YTD statement is simply a compilation of your monthly statements to that point.

Projected Cash Flow Statement

The Cash Flow statement provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter. It is calculated by adding noncash charges (such as depreciation) to net income after taxes. Cash flow can be attributed to a specific project, or to a business as a whole. Cash flow can be used as an indication of a company’s financial strength.

Pro Forma Cash Flow
FY 2002 FY 2003 FY 2004
Cash Received
Cash from Operations
Cash Sales $501,200 $576,380 $662,837
Subtotal Cash from Operations $501,200 $576,380 $662,837
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 $8,000 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $509,200 $576,380 $662,837
Expenditures FY 2002 FY 2003 FY 2004
Expenditures from Operations
Cash Spending $123,900 $135,450 $162,828
Bill Payments $335,368 $377,512 $426,127
Subtotal Spent on Operations $459,268 $512,962 $588,955
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $1,800 $200 $0
Other Liabilities Principal Repayment $10,000 $0 $0
Long-term Liabilities Principal Repayment $22,000 $24,000 $24,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $1,200 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $494,268 $537,162 $612,955
Net Cash Flow $14,932 $39,218 $49,882
Cash Balance $109,932 $149,150 $199,033

 Projected Balance Sheet

 A Balance Sheet is a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

The balance sheet must follow the following formula:

        Assets = Liabilities + Shareholders’ Equity

Balance Sheet

Pro Forma Balance Sheet
FY 2002 FY 2003 FY 2004
Assets
Current Assets
Cash $109,932 $149,150 $199,033
Inventory $16,748 $19,260 $22,149
Other Current Assets $0 $0 $0
Total Current Assets $126,680 $168,410 $221,181
Long-term Assets
Long-term Assets $62,700 $62,700 $62,700
Accumulated Depreciation $12,000 $25,500 $40,500
Total Long-term Assets $50,700 $37,200 $22,200
Total Assets $177,380 $205,610 $243,381
Liabilities and Capital FY 2002 FY 2003 FY 2004
Current Liabilities
Accounts Payable $19,303 $47,719 $53,214
Current Borrowing $200 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $19,503 $47,719 $53,214
Long-term Liabilities $108,000 $84,000 $60,000
Total Liabilities $127,503 $131,719 $113,214
Paid-in Capital $25,000 $25,000 $25,000
Retained Earnings ($13,300) $6,002 $48,891
Earnings $19,302 $42,889 $56,276
Total Capital $31,002 $73,891 $130,167
Total Liabilities and Capital $158,505 $205,610 $243,381
Net Worth $49,876 $73,891 $130,167

The balance sheet is one of the most important pieces of financial information issued by a company. It is a snapshot of what a company owns and owes at that point in time. The income statement, on the other hand, shows how much revenue and profit a company has generated over a certain period. Neither statement is better than the other - rather, the financial statements are built to be used together to present a complete picture of a company’s finances.

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