Inline Skating Products Business Plan

Pegasus Sports International

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Financial Plan

7.0 Financial Plan

Our goal is to borrow £50,000 for 10 years. Our present plan is to utilise the borrowed money for the first year's operating capital, with cash input on a monthly basis. Such cash input will aid our operating costs and salaries. We should reach our break-even point after our first year. Upon receiving our loan, we would like to incorporate, as this will protect our company, investors, lenders, products, and stockholders. We expect sales to reach £473,843 after the first year, £1,104,890 after our second year, and £1,699,830 after the third year.

If sales don't measure up to our expectations, this could add an additional six months and an influx of another £20,000, which could be carried by credit card, but we don't expect this to happen.

These are our strong points:

• We want to finance growth mainly through cash flow. We recognise that this means we will will have to grow at a slower pace than we would like, but this will enable us to build sales through investing in more advertising.
• Our most important asset is stock turnover. Our ability to schedule production from month to month will help to control stock costs.
• Collection is not a problem, since we will be credited payment to our bank account in two days by American Merchant Centre for all our credit card sales over the Internet.

7.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the General Assumptions table. The key underlying assumptions are:

• A slow-growth economy, without major recession.
• No unforeseen changes in technology to make our products immediately obsolete.
• Access to equity capital and financing sufficient to maintain our financial plan as presented in this table.

General Assumptions

General Assumptions
	FY 2000	FY 2001	FY 2002
Plan Month	1	2	3
Current Interest Rate	12.00%	12.00%	12.00%
Long-term Interest Rate	10.50%	10.50%	10.50%
Tax Rate	25.42%	25.00%	25.42%
Sales on Credit %	0.00%	0.00%	0.00%
Other	0	0	0

7.2 Key Financial Indicators

• The most important indicator is stock turnover. We have to make sure that turnover stays above 10, or we are clogged with stock.
• Collection is not a problem, since payment to our bank is two days after receiving our orders via credit card. However, by October 1999, we will initiate skate shop sales and experience an approximately 30-45 day average payment delay. This could cause a change in cash flow, but can be easily managed.

Benchmarks



7.3 Break-even Analysis

Aside from the standard financial break-even shown, the following is a simplified breakdown of our first year's overall numbers in broad terms:

First Year's Projected Sales:	£473,843
Less 25%Tax:	- £11,846
	£461,997
Less Production Costs:	-£129,520
	£332,477
Less Operating Costs:	- £71,450
Profit:	£261,027
Plus Loan:	£ 50,000
Cash at end of the first year:	£311,027
Production Costs for Year 2001:	-£281,065
Projected Profit 1st Year:	£29,962

For more detail, see the Projected Profit and Loss Table in the Appendix.

Break-even Analysis



Break-even Analysis

Break-even Analysis:
Monthly Units Break-even	70
Monthly Revenue Break-even	£8,756
Assumptions:
Average Per-Unit Revenue	£125.62
Average Per-Unit Variable Cost	£34.34
Estimated Monthly Fixed Cost	£6,363

7.4 Projected Profit and Loss

Our goal is to borrow £50,000 for the total of ten years. Our present plan is to utilise the borrowed money for the first year's operating expenses, with cash input on a monthly basis. Such cash input will aid in our advertising, operating costs, and salaries. This loan should help us maintain production and operating costs while developing our customer base and sales. Should sales lag, we plan to maintain solvency with credit card financing. We should reach our break-even point after our first year. We expect sales to hit £473,843 the first year, £1,104,870 our second year, £1,699,830 the third year. Our sales projection is very conservative, considering the sales potential.

Profit and Loss

Pro Forma Profit and Loss
	FY 2000	FY 2001	FY 2002
Sales	£473,843	£1,104,890	£1,699,830
Direct Costs of Goods	£129,520	£281,000	£431,000
Other Costs of Goods	£0	£0	£0
	------------	------------	------------
Cost of Goods Sold	£129,520	£281,000	£431,000
Gross Margin	£344,323	£823,890	£1,268,830
Gross Margin %	72.67%	74.57%	74.64%
Expenses:
Payroll	£35,000	£280,000	£400,000
Sales and Marketing and Other Expenses	£18,650	£36,300	£49,500
Depreciation	£0	£0	£0
Leased Equipment	£1,800	£5,000	£10,000
Utilities	£600	£1,500	£2,000
Insurance	£6,000	£12,000	£12,000
Rent	£10,800	£12,000	£15,000
Payroll Taxes (National Insurance)	£3,500	£28,000	£40,000
Other	£0	£0	£0
	------------	------------	------------
Total Operating Expenses	£76,350	£374,800	£528,500
Profit Before Interest and Taxes	£267,973	£449,090	£740,330
Interest Expense	£80	£1,811	£5,434
Taxes Incurred	£66,760	£111,820	£186,786
Net Profit	£201,133	£335,459	£548,110
Net Profit/Sales	42.45%	30.36%	32.24%

7.5 Projected Cash Flow

• We want to finance our first year's growth through a loan.
• The most important indicator is stock turnover. Our ability to schedule production from month to month will help control stock costs.
• Collection is not a problem since we will be credited payment to our bank account in two days by American Merchants Centre, our credit card company for Internet sales.
• Selling our products over the Internet will allow us full retail price and maximise our profit.

Cash



Cash Flow

Pro Forma Cash Flow
	FY 2000	FY 2001	FY 2002
Cash Received
Cash from Operations:
Cash Sales	£473,843	£1,104,890	£1,699,830
Cash from Receivables	£0	£0	£0
Subtotal Cash from Operations	£473,843	£1,104,890	£1,699,830
Additional Cash Received
VAT, VAT, HST/GST Received	£0	£0	£0
New Current Borrowing	£0	£0	£0
New Other Liabilities (interest-free)	£0	£0	£0
New Fixed liabilities	£0	£34,500	£34,500
Sales of Other Current Assets	£0	£0	£0
Sales of Fixed assets	£0	£0	£0
New Investment Received	£0	£0	£0
Subtotal Cash Received	£473,843	£1,139,390	£1,734,330
Expenditures	FY 2000	FY 2001	FY 2002
Expenditures from Operations:
Cash Spending	£26,087	£49,178	£73,871
Payment of Accounts Payable	£227,845	£712,164	£1,066,796
Subtotal Spent on Operations	£253,932	£761,342	£1,140,667
Additional Cash Spent
VAT, VAT, HST/GST Paid Out	£0	£0	£0
Principal Repayment of Current Borrowing	£4,500	£0	£0
Other Liabilities Principal Repayment	£0	£0	£0
Fixed liabilities Principal Repayment	£0	£0	£0
Purchase Other Current Assets	£2,000	£0	£0
Purchase Fixed assets	£0	£0	£0
Dividends	£0	£0	£0
Subtotal Cash Spent	£260,432	£761,342	£1,140,667
Net Cash Flow	£213,411	£378,048	£593,663
Cash Balance	£223,406	£601,455	£1,195,117

7.6 Projected Balance Sheet

As shown on the balance sheet in the following table, we expect a healthy growth in the net worth to more than £1,664,260 by the end of the third year.

Balance Sheet

Pro Forma Balance Sheet
Assets
Current Assets	FY 2000	FY 2001	FY 2002
Cash	£223,406	£601,455	£1,195,117
Accounts Receivable	£0	£0	£0
Stock	£25,950	£56,300	£86,353
Other Current Assets	£2,000	£2,000	£2,000
Total Current Assets	£251,356	£659,754	£1,283,470
Fixed assets
Fixed assets	£0	£0	£0
Accumulated Depreciation	£0	£0	£0
Total Fixed assets	£0	£0	£0
Total Assets	£251,356	£659,754	£1,283,470
Liabilities and Capital
Current Liabilities	FY 2000	FY 2001	FY 2002
Accounts Payable	£43,427	£81,866	£122,972
Current Borrowing	£0	£0	£0
Other Current Liabilities	£0	£0	£0
Subtotal Current Liabilities	£43,427	£81,866	£122,972
Fixed liabilities	£0	£34,500	£69,000
Total Liabilities	£43,427	£116,366	£191,972
Paid-in Capital	£16,000	£16,000	£16,000
Retained Earnings	(£9,204)	£191,929	£527,388
Earnings	£201,133	£335,459	£548,110
Total Capital	£207,929	£543,388	£1,091,499
Total Liabilities and Capital	£251,356	£659,754	£1,283,470
Net Worth	£207,929	£543,388	£1,091,499

7.7 Business Ratios

Standard business ratios are included in the table, based on SIC code 3949. The ratio shows a plan for balanced and healthy growth.

Ratios

Ratio Analysis
	FY 2000	FY 2001	FY 2002	Industry Profile
Sales Growth	0.00%	133.18%	53.85%	-2.30%
Percent of Total Assets
Accounts Receivable	0.00%	0.00%	0.00%	22.80%
Stock	10.32%	8.53%	6.73%	26.00%
Other Current Assets	0.80%	0.30%	0.16%	26.30%
Total Current Assets	100.00%	100.00%	100.00%	75.10%
Fixed assets	0.00%	0.00%	0.00%	24.90%
Total Assets	100.00%	100.00%	100.00%	100.00%
Current Liabilities	17.28%	12.41%	9.58%	35.50%
Fixed liabilities	0.00%	5.23%	5.38%	14.20%
Total Liabilities	17.28%	17.64%	14.96%	49.70%
Net Worth	82.72%	82.36%	85.04%	50.30%
Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	72.67%	74.57%	74.64%	37.50%
Selling, General & Administrative Expenses	30.26%	44.21%	42.22%	23.50%
Advertising Expenses	2.53%	2.26%	2.06%	1.60%
Profit Before Interest and Taxes	56.55%	40.65%	43.55%	2.70%
Main Ratios
Current	5.79	8.06	10.44	2.27
Quick	5.19	7.37	9.73	1.18
Total Debt to Total Assets	17.28%	17.64%	14.96%	49.70%
Pre-tax Return on Net Worth	128.84%	82.31%	67.33%	5.40%
Pre-tax Return on Assets	106.58%	67.79%	57.26%	10.70%
Additional Ratios	FY 2000	FY 2001	FY 2002
Net Profit Margin	42.45%	30.36%	32.24%	n.a
Return on Equity	96.73%	61.73%	50.22%	n.a
Activity Ratios
Accounts Receivable Turnover	0.00	0.00	0.00	n.a
Collection Days	0	0	0	n.a
Stock Turnover	12.00	6.83	6.04	n.a
Accounts Payable Turnover	6.24	9.17	9.01	n.a
Payment Days	24	30	34	n.a
Total Asset Turnover	1.89	1.67	1.32	n.a
Debt Ratios
Debt to Net Worth	0.21	0.21	0.18	n.a
Current Liab. to Liab.	1.00	0.70	0.64	n.a
Liquidity Ratios
Net Working Capital	£207,929	£577,888	£1,160,499	n.a
Interest Coverage	3349.66	247.94	136.25	n.a
Additional Ratios
Assets to Sales	0.53	0.60	0.76	n.a
Current Debt/Total Assets	17%	12%	10%	n.a
Acid Test	5.19	7.37	9.73	n.a
Sales/Net Worth	2.28	2.03	1.56	n.a
Dividend Payout	0.00	0.00	0.00	n.a