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The Financial Plan
The financial plan provides a full view of the business potential, the profitability, cash requirements, and financial risks. The financial plan should contain the following:
- The financial highlights
- Proforma reports
- Operational budget
- The main assumptions
Financial highlights
The financial highlights should include the following information in tables and graphs:
- Projected sales and revenues
- Projected net profit
- Projected cash flow
- Break even analysis
- Payback period
- Sensitivity analysis
- Financial requirements
- Main assumptions
Example: The Financial Highlights
Willow Corporation's projected revenues for the period 20xx -20xx are about 48 million dollars, which yield over 9.8 million dollars operating profit (20 % return on sales). After the first 5 years, sales of 12.5 million dollars and operating profit of 2.7 million dollars are expected.
Willow Corporation plans to be profitable within one year, with an expected payback period of 2 years (based on 0.6 million dollars investment).
The expected N.P.V. (Net Present Value - discounted by 15%) is about 4.5 million dollars, and the expected I.R.R. (Internal Rate of Return) over the period is above 54%.
Financial Highlights
Period |
Revenues
($000's) |
Operating Profit
($000's) |
Operating Profit
(%) |
EBITDA
($000's) |
Loan Balance
($000's) |
20xx |
5,495 |
549 |
10 |
617 |
749 |
20xx |
9,120 |
1,996 |
22 |
2,150 |
633 |
20xx |
10,140 |
2,202 |
22 |
2,425 |
505 |
20xx |
11,020 |
2,354 |
21 |
2,636 |
363 |
20xx |
12,520 |
2,768 |
22 |
3,106 |
207 |
Total |
48,295 |
9,869 |
20 |
10,933 |
207 |
Break Even Analysis
QTY (%) |
Revenues ($000's) |
Fixed Expenses ($000's) |
Variable Expenses ($000's) |
Operating Profit ($000's) |
10% |
4,830 |
6,908 |
3,152 |
(5,231) |
20% |
9,659 |
6,908 |
6,303 |
(3,553) |
30% |
14,489 |
6,908 |
9,455 |
(1,875) |
40% |
19,318 |
6,908 |
12,607 |
(197) |
41% |
<--------------- Break Even Point --------------- |
50% |
24,148 |
6,908 |
15,759 |
1,481 |
60% |
28,977 |
6,908 |
18,910 |
3,158 |
70% |
33,807 |
6,908 |
22,062 |
4,836 |
80% |
38,636 |
6,908 |
25,214 |
6,514 |
90% |
43,466 |
6,908 |
28,365 |
8,192 |
100% |
48,295 |
6,908 |
31,517 |
9,869 |
110% |
53,125 |
6,908 |
34,669 |
11,547 |
Sensitivity (What If) Analysis
% Change |
Sales
(K$) |
Gross Profit
(K$) |
Gross Profit
(%) |
Operating Profit
(K$) |
Operating Profit
(%) |
-20 % |
4,396 |
1,408 |
32 |
-373 |
-8 |
-10 % |
4,945 |
1,952 |
39 |
87 |
2 |
0 % |
5,495 |
2,496 |
45 |
549 |
10 |
10 % |
6,044 |
3,040 |
50 |
1,011 |
16 |
20 % |
6,594 |
3,584 |
54 |
1,472 |
22 |
Proforma Profit & Loss Report
|
20xx |
20xx |
20xx |
20xx |
20xx |
Revenues |
5,495 |
9,120 |
10,140 |
11,020 |
12,520 |
Direct Costs |
2,876 |
4,368 |
4,920 |
5,418 |
6,208 |
Production O/H |
55 |
91 |
101 |
110 |
125 |
Depreciation |
67 |
153 |
223 |
282 |
338 |
Gross Profit |
2,497 |
4,507 |
4,896 |
5,210 |
5,849 |
R&D |
497 |
497 |
497 |
497 |
497 |
Marketing |
848 |
1,210 |
1,312 |
1,400 |
1,550 |
G&A |
603 |
804 |
885 |
959 |
1,034 |
Total Operating Expenses |
1,947 |
2,511 |
2,694 |
2,856 |
3,081 |
Operating Profit |
549 |
1,996 |
2,202 |
2,354 |
2,768 |
Interest Expenses |
21 |
80 |
68 |
55 |
40 |
Interest Income |
24 |
44 |
78 |
115 |
159 |
Other Income |
0 |
0 |
0 |
0 |
0 |
Other Expenses |
0 |
0 |
0 |
0 |
0 |
Income Before Taxes |
552 |
1,960 |
2,212 |
2,414 |
2,886 |
Income Tax Provision |
55 |
196 |
221 |
241 |
289 |
Net Profit |
497 |
1,764 |
1,991 |
2,173 |
2,598 |
Acc. Net Profit |
497 |
2,262 |
4,252 |
6,425 |
9,023 |
Gross Profit (%) |
45 |
49 |
48 |
47 |
47 |
Operating Profit (%) |
10 |
22 |
22 |
21 |
22 |
Net Profit before Tax (%) |
10 |
21 |
22 |
22 |
23 |
Net Profit after Tax (%) |
9 |
19 |
20 |
20 |
21 |
Proforma Cash flow report
|
20xx |
20xx |
20xx |
20xx |
20xx |
(+) Receivables Payments |
4,735 |
9,120 |
10,055 |
10,947 |
12,395 |
(-) Purchases Payments |
3,304 |
5,423 |
5,990 |
6,549 |
7,400 |
(-) Salaries Payments |
1,397 |
1,549 |
1,704 |
1,829 |
1,994 |
(-) Equipment Payments |
400 |
267 |
320 |
320 |
320 |
(-) Tax Payments |
0 |
55 |
196 |
221 |
241 |
Total Disbursements |
5,101 |
7,294 |
8,210 |
8,919 |
9,955 |
Net Operating Cash Flow |
(366) |
1,826 |
1,845 |
2,027 |
2,440 |
(-) Interest Expenses |
21 |
80 |
68 |
55 |
40 |
(+) Interest Income |
24 |
44 |
78 |
115 |
159 |
(+) Loans Received |
800 |
0 |
0 |
0 |
0 |
(-) Loan Payments |
51 |
116 |
128 |
142 |
156 |
(+) Owners Equity |
1,000 |
0 |
0 |
0 |
0 |
(-) Dividend Payments |
0 |
0 |
0 |
0 |
0 |
Cash Flow Requirements |
1,386 |
1,674 |
1,727 |
1,946 |
2,402 |
Acc. Cash Flow |
1,386 |
3,060 |
4,787 |
6,733 |
9,135 |
Opening Bank Balance |
0 |
1,386 |
3,060 |
4,787 |
6,733 |
Net Cash-This Period |
1,386 |
1,674 |
1,727 |
1,946 |
2,402 |
Closing Bank Balance |
1,386 |
3,060 |
4,787 |
6,733 |
9,135 |
Credit Line |
200 |
200 |
200 |
200 |
200 |
Deficit in Funds |
0 |
0 |
0 |
0 |
0 |
P.V. |
(379) |
1,381 |
1,213 |
1,159 |
1,213 |
N.P.V. (Acc.) |
(379) |
1,001 |
2,215 |
3,374 |
4,587 |
Proforma Balance Sheet report
|
20xx |
20xx |
20xx |
20xx |
20xx |
Cash |
1,386 |
3,060 |
4,787 |
6,733 |
9,135 |
Receivables |
760 |
760 |
845 |
918 |
1,043 |
Inventory |
728 |
728 |
820 |
903 |
1,035 |
Current Assets |
2,874 |
4,548 |
6,452 |
8,554 |
11,213 |
Fixed Assets |
400 |
720 |
1,040 |
1,360 |
1,680 |
Acc. Depreciation |
67 |
221 |
443 |
725 |
1,063 |
Total Assets |
3,207 |
5,047 |
7,049 |
9,189 |
11,830 |
Payables |
905 |
957 |
1,071 |
1,160 |
1,312 |
Tax Payable |
55 |
196 |
221 |
241 |
289 |
S.T. Borrowings |
0 |
0 |
0 |
0 |
0 |
Current Liabilities |
960 |
1,153 |
1,292 |
1,401 |
1,601 |
L.T. Borrowings |
749 |
633 |
505 |
363 |
207 |
Total Liabilities |
1,710 |
1,786 |
1,797 |
1,764 |
1,807 |
Owners Equity |
1,000 |
1,000 |
1,000 |
1,000 |
1,000 |
Retained Earnings |
497 |
2,262 |
4,252 |
6,425 |
9,023 |
Liabilities & Net Worth |
3,207 |
5,047 |
7,049 |
9,189 |
11,830 |
The Basic Assumptions
The financial projection is based on the following data and assumptions:
Discount rate |
15% |
Interest rate |
10% |
Interest rate - Credit |
5% |
Inventory cycle |
2 Months |
Production O/H |
10% of material & subcontractors |
Sales commissions |
5% of sales |
Marketing Expenses |
10% of sales & staff cost |
G & A |
5% of sales & staff cost |
Depreciation period (Straight line) in years:
Plant |
20 |
Production line |
10 |
Office equipment |
5 |
Computers |
5 |
Salary level (in $ thousands per year):
Direct labor |
30 |
Indirect production |
40 |
R&D |
50 |
Engineering |
50 |
Marketing |
60 |
G&A |
50 |
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