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Plan Outline
Accounting and Bookkeeping Business Plan
The Sorcerer's Accountant
Financial Plan
The financial plan of the business requires growth financed by positive cash flows from operations. Additional outside investment or owner investment is not necessary. The new business line is not capital-intensive, but will increase fixed costs of the business which must be covered almost immediately by additional revenues from bookkeeping sales. This is feasible because it is expected that at least five current clients will use the service without hesitation as they are ready to start using a bookkeeper or outsource their current bookkeeping.
Important Assumptions
The business will grow the number of part-time bookkeepers with the business over these next three years. In the first year, two bookkeepers will work at less than 20 hours per week each for several months before reaching capacity, and a third bookkeeper will join us mid-year. A fourth part-time bookkeeper will be added in year two, and four more will be added in year three.
Break-even Analysis
Our monthly revenue break-even is based on the fixed costs of running the current business along with the old lines of business. This is a significant increase from the 2009 break-even point. The increased marketing activity, capacity, payroll, benefits, and computer expenses for the new bookkeeper, insurance for the new line of business, and cost of sales to hire bookkeepers drives this break-even point higher.
| Break-even Analysis | |
| Monthly Units Break-even | 141 |
| Monthly Revenue Break-even | £16,926 |
| Assumptions: | |
| Average Per-Unit Revenue | £120.36 |
| Average Per-Unit Variable Cost | £16.58 |
| Estimated Monthly Fixed Cost | £14,595 |
Projected Profit and Loss
The Sorcerer's Accountant actually expects its gross margin to fall as it takes on bookkeepers to fulfill the new bookkeeping service. This will move from the firm's gross margin from being in line with a non-employer firm to a contractor firm that provides labor to businesses. The growth in revenues will offset this drop in gross margin and produce steady growth in net profit. Marketing will include the activities listed for 2010 in the milestones table as well as additional runs of print ads in local publications beyond the first few months. This expense will drop somewhat in future years as marketing returns to the business's focus on referrals and word-of-mouth from clients.
Rent and utilities will not grow significantly, as only Greenwood and the bookkeeping manager will work out of the office space. Insurance will grow to cover the added liability of additional employees working in client spaces. Payroll taxes are set at 15% of payroll and the bookkeeping labor items. Employee benefits are 10% of payroll and are provided only for the management. January will be a month of additional setup training to bring the new bookkeepers and manager online and install additional software and computers. Software and computer expenses to provide accounting software for the laptops of student bookkeepers and to continue to upgrade the systems of the business will grow. In the first year, this includes a computer and software set-up for the bookkeeping manager.
| Pro Forma Profit and Loss | |||
| 2010 | 2011 | 2012 | |
| Sales | £218,100 | £295,950 | £420,350 |
| Direct Cost of Sales | £30,039 | £65,640 | £124,763 |
| Other Cost of Sales | £0 | £0 | £0 |
| Total Cost of Sales | £30,039 | £65,640 | £124,763 |
| Gross Margin | £188,061 | £230,310 | £295,588 |
| Gross Margin % | 86.23% | 77.82% | 70.32% |
| Expenses | |||
| Payroll | £93,600 | £103,580 | £131,400 |
| Marketing/Promotion | £38,500 | £20,000 | £20,000 |
| Depreciation | £0 | £0 | £0 |
| Rent | £18,000 | £18,720 | £19,469 |
| Utilities | £2,400 | £2,496 | £2,596 |
| Insurance | £5,000 | £7,000 | £8,000 |
| Payroll Taxes | £14,040 | £15,537 | £19,710 |
| Software and Computer Expenses | £3,600 | £4,000 | £6,000 |
| Total Operating Expenses | £175,140 | £171,333 | £207,175 |
| Profit Before Interest and Taxes | £12,921 | £58,977 | £88,413 |
| EBITDA | £12,921 | £58,977 | £88,413 |
| Interest Expense | £0 | £0 | £0 |
| Taxes Incurred | £3,876 | £17,693 | £26,524 |
| Net Profit | £9,045 | £41,284 | £61,889 |
| Net Profit/Sales | 4.15% | 13.95% | 14.72% |
Projected Cash Flow
The expansion of the business can be undertaken with the current cash reserves, even accounting for a cash loss over £10000 in February, 2010 as the marketing and set-up expenses for the new business line must be paid. The business will return to positive cash-flow in the second quarter. The fact that the part-time bookkeepers will only be deployed on paying jobs lowers the risk of this new business line to the cost of the bookkeeping manager and marketing. Significant cash reserves can be built up in future years for an acquisition or additional service expansion or the owner can take dividends as shown.
| Pro Forma Cash Flow | |||
| 2010 | 2011 | 2012 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | £109,050 | £147,975 | £210,175 |
| Cash from Receivables | £105,612 | £144,145 | £204,055 |
| Subtotal Cash from Operations | £214,662 | £292,120 | £414,230 |
| 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 | £0 | £0 | £0 |
| Subtotal Cash Received | £214,662 | £292,120 | £414,230 |
| Expenditures | 2010 | 2011 | 2012 |
| Expenditures from Operations | |||
| Cash Spending | £93,600 | £103,580 | £131,400 |
| Bill Payments | £111,643 | £149,376 | £220,816 |
| Subtotal Spent on Operations | £205,243 | £252,956 | £352,216 |
| 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 | £20,000 | £60,000 |
| Subtotal Cash Spent | £205,243 | £272,956 | £412,216 |
| Net Cash Flow | £9,418 | £19,164 | £2,013 |
| Cash Balance | £29,418 | £48,582 | £50,596 |
Projected Balance Sheet
The net worth of the business will improve if the new business line succeeds as expected. Additional external financing will not be needed and the debt of the business will remain low.
| Pro Forma Balance Sheet | |||
| 2010 | 2011 | 2012 | |
| Assets | |||
| Current Assets | |||
| Cash | £29,418 | £48,582 | £50,596 |
| Accounts Receivable | £10,730 | £14,560 | £20,680 |
| Other Current Assets | £5,000 | £5,000 | £5,000 |
| Total Current Assets | £45,148 | £68,142 | £76,276 |
| Long-term Assets | |||
| Long-term Assets | £0 | £0 | £0 |
| Accumulated Depreciation | £0 | £0 | £0 |
| Total Long-term Assets | £0 | £0 | £0 |
| Total Assets | £45,148 | £68,142 | £76,276 |
| Liabilities and Capital | 2010 | 2011 | 2012 |
| Current Liabilities | |||
| Accounts Payable | £10,708 | £12,418 | £18,663 |
| Current Borrowing | £0 | £0 | £0 |
| Other Current Liabilities | £0 | £0 | £0 |
| Subtotal Current Liabilities | £10,708 | £12,418 | £18,663 |
| Long-term Liabilities | £0 | £0 | £0 |
| Total Liabilities | £10,708 | £12,418 | £18,663 |
| Paid-in Capital | £10,000 | £10,000 | £10,000 |
| Retained Earnings | £15,396 | £4,441 | (£14,276) |
| Earnings | £9,045 | £41,284 | £61,889 |
| Total Capital | £34,441 | £55,724 | £57,613 |
| Total Liabilities and Capital | £45,148 | £68,142 | £76,276 |
| Net Worth | £34,441 | £55,724 | £57,613 |
Business Ratios
The Sorcerer's Accountant is compared here to the "Office Administrative Services" industry of under £500,000 in revenues. Comparison to the other closest industry, "Tax Preparation Services," is less useful because of the differences created by the new revenue line.
Sorcerer's Accountant does not hold substantial current or long-term assets, besides some office equipment and a rental security deposit. The assets of the business are primarily the human and knowledge assets of Max Greenwood, and the resources presented on the Sorcerer's Accountant website which are not recognized here. This explains the differences in asset ratios.
Gross margins will be higher than industry averages, as employees will be contracted directly to clients only for the bookkeeping services and not for the accounting services of the business. However, S G & A will be higher than the industry averages because of the need for an extra level of management to oversee the employees.
| Ratio Analysis | ||||
| 2010 | 2011 | 2012 | Industry Profile | |
| Sales Growth | 24.63% | 35.69% | 42.03% | 3.34% |
| Percent of Total Assets | ||||
| Accounts Receivable | 23.77% | 21.37% | 27.11% | 14.34% |
| Other Current Assets | 11.07% | 7.34% | 6.56% | 53.58% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 70.11% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 29.89% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 23.72% | 18.22% | 24.47% | 37.94% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 54.53% |
| Total Liabilities | 23.72% | 18.22% | 24.47% | 92.47% |
| Net Worth | 76.28% | 81.78% | 75.53% | 7.53% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 86.23% | 77.82% | 70.32% | 59.56% |
| Selling, General & Administrative Expenses | 82.08% | 63.87% | 55.60% | 28.35% |
| Advertising Expenses | 17.65% | 6.76% | 4.76% | 1.21% |
| Profit Before Interest and Taxes | 5.92% | 19.93% | 21.03% | 8.19% |
| Main Ratios | ||||
| Current | 4.22 | 5.49 | 4.09 | 1.24 |
| Quick | 4.22 | 5.49 | 4.09 | 1.18 |
| Total Debt to Total Assets | 23.72% | 18.22% | 24.47% | 92.47% |
| Pre-tax Return on Net Worth | 37.52% | 105.84% | 153.46% | 696.33% |
| Pre-tax Return on Assets | 28.62% | 86.55% | 115.91% | 52.41% |
| Additional Ratios | 2010 | 2011 | 2012 | |
| Net Profit Margin | 4.15% | 13.95% | 14.72% | n.a |
| Return on Equity | 26.26% | 74.09% | 107.42% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 10.16 | 10.16 | 10.16 | n.a |
| Collection Days | 29 | 31 | 31 | n.a |
| Accounts Payable Turnover | 10.78 | 12.17 | 12.17 | n.a |
| Payment Days | 29 | 28 | 25 | n.a |
| Total Asset Turnover | 4.83 | 4.34 | 5.51 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.31 | 0.22 | 0.32 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | £34,441 | £55,724 | £57,613 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.21 | 0.23 | 0.18 | n.a |
| Current Debt/Total Assets | 24% | 18% | 24% | n.a |
| Acid Test | 3.21 | 4.31 | 2.98 | n.a |
| Sales/Net Worth | 6.33 | 5.31 | 7.30 | n.a |
| Dividend Payout | 0.00 | 0.48 | 0.97 | n.a |