Business Development Business Plan

Palms and Bonds

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Financial Plan

We want to finance growth mainly through cash flow and equity. We recognize that this means we will have to grow more slowly than we might like.

The most important factor in our case is collection days. We can't push our clients hard on collection days, because they are in larger companies and will normally have marketing authority, not financial authority. Therefore we need to develop a permanent system of receivables financing, using one of the established financial companies in that business. In turn we intend to ensure that our investors are compatible with our growth plan, management style and vision. Compatibility in this regard means:

1. A fundamental respect for giving our customers value, and for maintaining a healthy and congenial workplace.
2. Respect for realistic forecasts, and conservative cash flow and financial management.
3. Cash flow as first priority, growth second, profits third.
4. Willingness to follow the company and contribute valuable input to strategy and implementation decisions.

Of these only the last two are flexible.

7.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendix. From the beginning, we recognize that collection days are critical, but not a factor we can influence easily. At least we are planning on the problem, and dealing with it. Interest rates, tax rates, and personnel burden are based on conservative assumptions.

Some of the more important underlying assumptions are:

• We assume a strong economy, without major recession.
• We assume, of course, that there are no unforeseen changes in economic policy to make our clients' products immediately obsolete.

The table below summarizes key financial assumptions, including 30-day average collection days, sales entirely on invoice basis including the 30% deposit policy, expenses mainly on net 30 basis, 30 days on average for payment of invoices, and present-day interest rates.

7.2 Key Financial Indicators

The following benchmark chart indicates our key financial indicators for the first three years. We foresee major growth in sales and operating expenses, and a bump in our collection days as we spread the business during expansion.

Collection days are very important. We do not want to let our average collection days get above 30 under any circumstances. This could cause a serious problem with cash flow, because our working capital situation is chronically tight. However, we recognize that we cannot control this factor easily, because of the relationship with our clients.

7.3 Break-even Analysis

The following table summarizes our break-even analysis. With fixed costs at a bare minimum, we don't really expect to reach break-even until several months into the business operation. The break-even assumes variable costs of 20 percent of revenue. This assumption is probably too high, and therefore conservative, because, at least in the beginning, most of our cost of fulfillment is actually the compensation of the consultants.

Note: All displayed currency values represent Botswanan Pula (P).

7.4 Expense Forecast

Initial marketing expenses were relatively high as we sought to become known on the market. This was brought about by the development of sales literature, advertising expenses, function expenses including lunches and dinners with interested stakeholders. As our market share increases and capital is generated, further marketing programs and the expansion of those in existence at the time will be undertaken, to ensure market development. The expenses generated by our marketing strategies will be high in the initial stages of design and implementation. However with time these programs will start generating revenue for the business, which we shall in turn reinvest. The fruits of the above are soon to be gained.

7.5 Projected Profit and Loss

Our projected profit and loss is shown on the following table, with sales increasing from more than P366,000 the first year to P612,000 the second, and P734,400 in the third year. Profits may not seem that impressive, but are relatively good for a start-up firm in our business. Hence we do expect to more than break-even in the first year of operation.

As with the break-even, we are projecting very conservatively regarding cost of sales and gross margin. Our cost of sales should be much lower, and gross margin higher, than in this projection. Initially, we will depend on our internal consultants for most of fulfillment, which is why costs should be lower than shown, although occasionally we shall engage the services of outside consultants as discussed in our personnel plan. We prefer to project conservatively so that we make sure we have enough cash.

Note: All displayed currency values represent Botswanan Pula (P).

7.6 Projected Cash Flow

Cash flow projections are critical to our success. The first year monthly cash flow chart appears below and the monthly figures are shown in the appendix. The annual cash flow figures are included here.

Note: All displayed currency values represent Botswanan Pula (P).

7.7 Projected Balance Sheet

The balance sheet shows healthy growth of net worth, and strong financial position.

Note: All displayed currency values represent Botswanan Pula (P).

7.8 Business Ratios

The following table provides important business ratios for the consulting industry, as determined by the Standard Industry Classification (SIC) Index code 8742, Management Consulting Services.