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Farm Machinery Manufacturer Business Plan

Kouros Brothers Ltd.

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Financial Plan

The following sections shows in detail that Kouros Brothers Ltd. will be profitable and will easily repay its new loan within six years.

7.1 Important Assumptions

The key underlying assumptions of our financial plan shown in the following general assumption table are:

  1. We assume access to the funding necessary to re-shape the company, and to provide adequate initial capitalization for a wider range of demonstration equipment.
  2. We assume realistic to minimum sales, against highest expenses.
  3. We assume that European funding for agriculture support and development will take place early in 2005 and that the Cyprus Government will release those funds, allowing the farmers and agriculture producers to buy a complete series for their equipment needs.

Other key business assumptions are:

  • As we join the EU marketplace, small farms will find it increasingly hard to stay in business, and only the well organized and standardized units will survive. (Based on trends in other recently-added EU member-nations.)
  • Steady economic growth in Agriculture and Livestock sector, as predicted by the Ministry of Economics once funding for equipment is released by Cyprus Government. 
General Assumptions
2005 2006 2007 2008 2009
Plan Month 1 2 3 4 5
Current Interest Rate 5.00% 5.00% 5.00% 5.00% 5.00%
Long-term Interest Rate 8.50% 8.50% 8.50% 8.50% 8.50%
Tax Rate 11.00% 11.00% 11.00% 11.00% 11.00%
Other 0 0 0 0 0

7.2 Break-even Analysis

Our Break-even Analysis is shown in the following table and chart.

We will monitor direct costs very closely, and maintain them at or below 65% by taking advantage of all promotions and discounts offered by authorized manufacturers as they have tentatively agreed to offer us "end column" pricing as a new dealer incentive. We anticipate surpassing our break-even point once local farmers begin to spend their new government grant money.

Break-even Analysis
Monthly Revenue Break-even £15,893
Assumptions:
Average Percent Variable Cost 62%
Estimated Monthly Fixed Cost £6,065

7.3 Projected Profit and Loss

The following table shows the projected Profit and Loss statement for the next five years. Our largest operating expenses are payroll-related, to cover necessary staff. We are adding a salesperson, and a welder/fitter and lathe man to work on repairs of existing equipment and to finish the in-house designed patented vegetable and cereal equipment.

Direct costs of goods reflects costs for purchasing inventory and having it delivered to our store. The third row shows additional direct costs for manufacturing our patented vegetable and cereal equipment.

Depreciation reflects the declining value of our long-term assets: 

  • £100,000 value of land and store, depreciated over 29 years (£3,400/year).
  • £50,000 of new demo equipment depreciated over a term of 9 years (£5,556/year).
  • In 2008 we will sell the depreciated demo equipment and buy £30,000 new assets, and depreciate that amount over 9 years (£3,333/year). 
Pro Forma Profit and Loss
2005 2006 2007 2008 2009
Sales £274,200 £301,620 £331,782 £364,960 £401,456
Direct Cost of Sales £169,567 £187,178 £203,403 £223,744 £246,118
Production Costs for Patented Planters £8,850 £9,735 £10,709 £11,779 £12,957
Total Cost of Sales £178,417 £196,913 £214,112 £235,523 £259,075
Gross Margin £95,783 £104,707 £117,670 £129,437 £142,381
Gross Margin % 34.93% 34.71% 35.47% 35.47% 35.47%
Expenses
Payroll £38,000 £36,000 £38,500 £41,000 £43,500
Marketing/Promotion £6,000 £6,000 £5,000 £5,000 £5,000
Depreciation £8,489 £8,952 £8,952 £6,733 £6,733
Insurance £480 £550 £600 £700 £800
Office consumables £200 £250 £300 £350 £400
Leasing £600 £650 £650 £650 £650
Trading expenses £400 £450 £500 £550 £600
Payroll Taxes £0 £0 £0 £0 £0
Electricity £1,400 £1,500 £1,700 £1,800 £2,000
Water £2,004 £0 £0 £0 £0
Fuels and Transport Expenses £3,100 £1,600 £1,700 £1,800 £1,900
Telex and Faxing £4,500 £2,400 £2,400 £2,400 £2,400
Banking rights £1,100 £1,000 £1,000 £1,100 £1,200
Travelling expenses £4,500 £5,000 £5,000 £5,000 £5,000
Tools Maintenance £2,004 £5,000 £5,000 £5,000 £5,000
Total Operating Expenses £72,777 £69,352 £71,302 £72,083 £75,183
Profit Before Interest and Taxes £23,006 £35,355 £46,368 £57,354 £67,198
EBITDA £31,495 £44,307 £55,320 £64,087 £73,931
Interest Expense £5,814 £4,830 £3,802 £2,775 £1,747
Taxes Incurred £1,891 £3,358 £4,682 £6,004 £7,200
Net Profit £15,301 £27,167 £37,884 £48,576 £58,251
Net Profit/Sales 5.58% 9.01% 11.42% 13.31% 14.51%

7.4 Projected Cash Flow

Cash flow reflects the seasonal purchasing of our customers. Our Cash Balance will increase as customers return to us for repeat sales, after their initial great experiences with us, based on the reasonable assumption of Funding support by Government, which is expected to be 256 millions for 2005-6.  This agriculture development plan for 2004-2006 is supported by European Union for all its new members and this funding support will allow the Farmers and Agriculture crop producers to buy the neccessary equipments and to boost their sales and product quality.

The Cash Flow table shows the projected new long-term loan amount (£50,000), received in January, and the repayment of existing and new loans.

The table also shows how we will use this £50,000, to purchase a new, wider range of demonstration equipment, as long-term assets in January. This equipment is necessary to convince skeptical local farmers about the effectiveness of the new machines - we must have at least one model of each machine, which we can bring to their fields and demonstrate to them. Since this equipment is being used, we are depreciating it over nine years (see "Depreciation" in the Profit and Loss statement, above). We will sell this first round of demo equipment at the beginning of 2008, for its depreciated value, and buy another £30,000 of new demo equipment of the latest models, funded by cash flows from the business. This replacement equipment will also be depreciated over nine years.

Pro Forma Cash Flow
2005 2006 2007 2008 2009
Cash Received
Cash from Operations
Cash Sales £205,650 £226,215 £248,837 £273,720 £301,092
Cash from Receivables £64,079 £74,958 £82,454 £90,699 £99,769
Subtotal Cash from Operations £269,729 £301,173 £331,290 £364,419 £400,861
Additional Cash Received
Sales Tax, VAT, HST/GST Received £0 £0 £0 £0 £0
New Current Borrowing £0 £0 £0 £0 £0
New Other Liabilities (interest-free) £0 £0 £0 £0 £0
New Long-term Liabilities £35,000 £0 £0 £0 £0
Sales of Other Current Assets £0 £0 £0 £0 £0
Sales of Long-term Assets £0 £0 £0 £27,003 £0
New Investment Received £0 £0 £0 £0 £0
Subtotal Cash Received £304,729 £301,173 £331,290 £391,422 £400,861
Expenditures 2005 2006 2007 2008 2009
Expenditures from Operations
Cash Spending £38,000 £36,000 £38,500 £41,000 £43,500
Bill Payments £201,427 £224,307 £246,170 £268,193 £292,490
Subtotal Spent on Operations £239,427 £260,307 £284,670 £309,193 £335,990
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out £0 £0 £0 £0 £0
Principal Repayment of Current Borrowing £7,800 £7,800 £7,800 £7,800 £7,800
Other Liabilities Principal Repayment £3,372 £3,375 £3,375 £3,379 £0
Long-term Liabilities Principal Repayment £7,351 £7,500 £7,500 £7,500 £7,500
Purchase Other Current Assets £500 £500 £500 £500 £500
Purchase Long-term Assets £50,000 £0 £0 £30,000 £0
Dividends £0 £0 £0 £0 £0
Subtotal Cash Spent £308,450 £279,482 £303,845 £358,372 £351,790
Net Cash Flow (£3,721) £21,691 £27,446 £33,051 £49,071
Cash Balance £19,149 £40,840 £68,286 £101,336 £150,407

7.5 Projected Balance Sheet

Estimated balance sheets for the years 2005-2009 are provided below. The demonstration equipment we plan to buy shows up under long-term assets, bought in January of 2005, depreciated, sold in 2008, and replaced with £30,000 of new demo equipment. We project an increasing net worth.

Pro Forma Balance Sheet
2005 2006 2007 2008 2009
Assets
Current Assets
Cash £19,149 £40,840 £68,286 £101,336 £150,407
Accounts Receivable £4,471 £4,918 £5,410 £5,951 £6,546
Inventory £11,582 £12,785 £13,893 £15,283 £16,811
Other Current Assets £14,480 £14,980 £15,480 £15,980 £16,480
Total Current Assets £49,682 £73,523 £103,069 £138,550 £190,244
Long-term Assets
Long-term Assets £150,000 £150,000 £150,000 £152,997 £152,997
Accumulated Depreciation £11,997 £20,949 £29,901 £36,634 £43,367
Total Long-term Assets £138,003 £129,051 £120,099 £116,363 £109,630
Total Assets £187,685 £202,574 £223,168 £254,912 £299,874
Liabilities and Capital 2005 2006 2007 2008 2009
Current Liabilities
Accounts Payable £12,565 £18,962 £20,347 £22,195 £24,206
Current Borrowing £42,865 £35,065 £27,265 £19,465 £11,665
Other Current Liabilities £10,129 £6,754 £3,379 £0 £0
Subtotal Current Liabilities £65,559 £60,781 £50,991 £41,660 £35,871
Long-term Liabilities £37,649 £30,149 £22,649 £15,149 £7,649
Total Liabilities £103,208 £90,930 £73,640 £56,809 £43,520
Paid-in Capital £10,000 £10,000 £10,000 £10,000 £10,000
Retained Earnings £59,176 £74,477 £101,644 £139,528 £188,103
Earnings £15,301 £27,167 £37,884 £48,576 £58,251
Total Capital £84,477 £111,644 £149,528 £198,103 £256,354
Total Liabilities and Capital £187,685 £202,574 £223,168 £254,912 £299,874
Net Worth £84,477 £111,644 £149,528 £198,103 £256,354

7.6 Business Ratios

The table below presents common business ratios as a reference. Our business is part of the planting, haying, harvesting and processing machinery Industry (SIC Code 3523.01). Industry Profile Ratios are shown in the final column for comparison. 

Ratio Analysis
2005 2006 2007 2008 2009 Industry Profile
Sales Growth 45.90% 10.00% 10.00% 10.00% 10.00% -0.95%
Percent of Total Assets
Accounts Receivable 2.38% 2.43% 2.42% 2.33% 2.18% 32.82%
Inventory 6.17% 6.31% 6.23% 6.00% 5.61% 34.00%
Other Current Assets 7.72% 7.39% 6.94% 6.27% 5.50% 14.34%
Total Current Assets 26.47% 36.29% 46.18% 54.35% 63.44% 81.16%
Long-term Assets 73.53% 63.71% 53.82% 45.65% 36.56% 18.84%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 34.93% 30.00% 22.85% 16.34% 11.96% 26.15%
Long-term Liabilities 20.06% 14.88% 10.15% 5.94% 2.55% 23.74%
Total Liabilities 54.99% 44.89% 33.00% 22.29% 14.51% 49.89%
Net Worth 45.01% 55.11% 67.00% 77.71% 85.49% 50.11%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 34.93% 34.71% 35.47% 35.47% 35.47% 27.32%
Selling, General & Administrative Expenses 29.35% 25.71% 24.05% 22.16% 20.96% 14.62%
Advertising Expenses 3.10% 2.97% 2.70% 1.84% 1.68% 1.07%
Profit Before Interest and Taxes 8.39% 11.72% 13.98% 15.72% 16.74% 3.82%
Main Ratios
Current 0.76 1.21 2.02 3.33 5.30 2.85
Quick 0.58 1.00 1.75 2.96 4.83 1.44
Total Debt to Total Assets 54.99% 44.89% 33.00% 22.29% 14.51% 51.13%
Pre-tax Return on Net Worth 20.35% 27.34% 28.47% 27.55% 25.53% 5.77%
Pre-tax Return on Assets 9.16% 15.07% 19.07% 21.41% 21.83% 11.81%
Additional Ratios 2005 2006 2007 2008 2009
Net Profit Margin 5.58% 9.01% 11.42% 13.31% 14.51% n.a
Return on Equity 18.11% 24.33% 25.34% 24.52% 22.72% n.a
Activity Ratios
Accounts Receivable Turnover 15.33 15.33 15.33 15.33 15.33 n.a
Collection Days 29 23 23 23 23 n.a
Inventory Turnover 12.00 15.36 15.25 15.34 15.34 n.a
Accounts Payable Turnover 17.03 12.17 12.17 12.17 12.17 n.a
Payment Days 27 25 29 29 29 n.a
Total Asset Turnover 1.46 1.49 1.49 1.43 1.34 n.a
Debt Ratios
Debt to Net Worth 1.22 0.81 0.49 0.29 0.17 n.a
Current Liab. to Liab. 0.64 0.67 0.69 0.73 0.82 n.a
Liquidity Ratios
Net Working Capital (£15,877) £12,742 £52,078 £96,890 £154,374 n.a
Interest Coverage 3.96 7.32 12.20 20.67 38.46 n.a
Additional Ratios
Assets to Sales 0.68 0.67 0.67 0.70 0.75 n.a
Current Debt/Total Assets 35% 30% 23% 16% 12% n.a
Acid Test 0.51 0.92 1.64 2.82 4.65 n.a
Sales/Net Worth 3.25 2.70 2.22 1.84 1.57 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a
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General Assumptions
2005 2006 2007 2008 2009
Plan Month 1 2 3 4 5
Current Interest Rate 5.00% 5.00% 5.00% 5.00% 5.00%
Long-term Interest Rate 8.50% 8.50% 8.50% 8.50% 8.50%
Tax Rate 11.00% 11.00% 11.00% 11.00% 11.00%
Other 0 0 0 0 0
Break-even Analysis
Monthly Revenue Break-even £15,893
Assumptions:
Average Percent Variable Cost 62%
Estimated Monthly Fixed Cost £6,065
Pro Forma Profit and Loss
2005 2006 2007 2008 2009
Sales £274,200 £301,620 £331,782 £364,960 £401,456
Direct Cost of Sales £169,567 £187,178 £203,403 £223,744 £246,118
Production Costs for Patented Planters £8,850 £9,735 £10,709 £11,779 £12,957
Total Cost of Sales £178,417 £196,913 £214,112 £235,523 £259,075
Gross Margin £95,783 £104,707 £117,670 £129,437 £142,381
Gross Margin % 34.93% 34.71% 35.47% 35.47% 35.47%
Expenses
Payroll £38,000 £36,000 £38,500 £41,000 £43,500
Marketing/Promotion £6,000 £6,000 £5,000 £5,000 £5,000
Depreciation £8,489 £8,952 £8,952 £6,733 £6,733
Insurance £480 £550 £600 £700 £800
Office consumables £200 £250 £300 £350 £400
Leasing £600 £650 £650 £650 £650
Trading expenses £400 £450 £500 £550 £600
Payroll Taxes £0 £0 £0 £0 £0
Electricity £1,400 £1,500 £1,700 £1,800 £2,000
Water £2,004 £0 £0 £0 £0
Fuels and Transport Expenses £3,100 £1,600 £1,700 £1,800 £1,900
Telex and Faxing £4,500 £2,400 £2,400 £2,400 £2,400
Banking rights £1,100 £1,000 £1,000 £1,100 £1,200
Travelling expenses £4,500 £5,000 £5,000 £5,000 £5,000
Tools Maintenance £2,004 £5,000 £5,000 £5,000 £5,000
Total Operating Expenses £72,777 £69,352 £71,302 £72,083 £75,183
Profit Before Interest and Taxes £23,006 £35,355 £46,368 £57,354 £67,198
EBITDA £31,495 £44,307 £55,320 £64,087 £73,931
Interest Expense £5,814 £4,830 £3,802 £2,775 £1,747
Taxes Incurred £1,891 £3,358 £4,682 £6,004 £7,200
Net Profit £15,301 £27,167 £37,884 £48,576 £58,251
Net Profit/Sales 5.58% 9.01% 11.42% 13.31% 14.51%
Pro Forma Cash Flow
2005 2006 2007 2008 2009
Cash Received
Cash from Operations
Cash Sales £205,650 £226,215 £248,837 £273,720 £301,092
Cash from Receivables £64,079 £74,958 £82,454 £90,699 £99,769
Subtotal Cash from Operations £269,729 £301,173 £331,290 £364,419 £400,861
Additional Cash Received
Sales Tax, VAT, HST/GST Received £0 £0 £0 £0 £0
New Current Borrowing £0 £0 £0 £0 £0
New Other Liabilities (interest-free) £0 £0 £0 £0 £0
New Long-term Liabilities £35,000 £0 £0 £0 £0
Sales of Other Current Assets £0 £0 £0 £0 £0
Sales of Long-term Assets £0 £0 £0 £27,003 £0
New Investment Received £0 £0 £0 £0 £0
Subtotal Cash Received £304,729 £301,173 £331,290 £391,422 £400,861
Expenditures 2005 2006 2007 2008 2009
Expenditures from Operations
Cash Spending £38,000 £36,000 £38,500 £41,000 £43,500
Bill Payments £201,427 £224,307 £246,170 £268,193 £292,490
Subtotal Spent on Operations £239,427 £260,307 £284,670 £309,193 £335,990
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out £0 £0 £0 £0 £0
Principal Repayment of Current Borrowing £7,800 £7,800 £7,800 £7,800 £7,800
Other Liabilities Principal Repayment £3,372 £3,375 £3,375 £3,379 £0
Long-term Liabilities Principal Repayment £7,351 £7,500 £7,500 £7,500 £7,500
Purchase Other Current Assets £500 £500 £500 £500 £500
Purchase Long-term Assets £50,000 £0 £0 £30,000 £0
Dividends £0 £0 £0 £0 £0
Subtotal Cash Spent £308,450 £279,482 £303,845 £358,372 £351,790
Net Cash Flow (£3,721) £21,691 £27,446 £33,051 £49,071
Cash Balance £19,149 £40,840 £68,286 £101,336 £150,407
Pro Forma Balance Sheet
2005 2006 2007 2008 2009
Assets
Current Assets
Cash £19,149 £40,840 £68,286 £101,336 £150,407
Accounts Receivable £4,471 £4,918 £5,410 £5,951 £6,546
Inventory £11,582 £12,785 £13,893 £15,283 £16,811
Other Current Assets £14,480 £14,980 £15,480 £15,980 £16,480
Total Current Assets £49,682 £73,523 £103,069 £138,550 £190,244
Long-term Assets
Long-term Assets £150,000 £150,000 £150,000 £152,997 £152,997
Accumulated Depreciation £11,997 £20,949 £29,901 £36,634 £43,367
Total Long-term Assets £138,003 £129,051 £120,099 £116,363 £109,630
Total Assets £187,685 £202,574 £223,168 £254,912 £299,874
Liabilities and Capital 2005 2006 2007 2008 2009
Current Liabilities
Accounts Payable £12,565 £18,962 £20,347 £22,195 £24,206
Current Borrowing £42,865 £35,065 £27,265 £19,465 £11,665
Other Current Liabilities £10,129 £6,754 £3,379 £0 £0
Subtotal Current Liabilities £65,559 £60,781 £50,991 £41,660 £35,871
Long-term Liabilities £37,649 £30,149 £22,649 £15,149 £7,649
Total Liabilities £103,208 £90,930 £73,640 £56,809 £43,520
Paid-in Capital £10,000 £10,000 £10,000 £10,000 £10,000
Retained Earnings £59,176 £74,477 £101,644 £139,528 £188,103
Earnings £15,301 £27,167 £37,884 £48,576 £58,251
Total Capital £84,477 £111,644 £149,528 £198,103 £256,354
Total Liabilities and Capital £187,685 £202,574 £223,168 £254,912 £299,874
Net Worth £84,477 £111,644 £149,528 £198,103 £256,354
Ratio Analysis
2005 2006 2007 2008 2009 Industry Profile
Sales Growth 45.90% 10.00% 10.00% 10.00% 10.00% -0.95%
Percent of Total Assets
Accounts Receivable 2.38% 2.43% 2.42% 2.33% 2.18% 32.82%
Inventory 6.17% 6.31% 6.23% 6.00% 5.61% 34.00%
Other Current Assets 7.72% 7.39% 6.94% 6.27% 5.50% 14.34%
Total Current Assets 26.47% 36.29% 46.18% 54.35% 63.44% 81.16%
Long-term Assets 73.53% 63.71% 53.82% 45.65% 36.56% 18.84%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 34.93% 30.00% 22.85% 16.34% 11.96% 26.15%
Long-term Liabilities 20.06% 14.88% 10.15% 5.94% 2.55% 23.74%
Total Liabilities 54.99% 44.89% 33.00% 22.29% 14.51% 49.89%
Net Worth 45.01% 55.11% 67.00% 77.71% 85.49% 50.11%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 34.93% 34.71% 35.47% 35.47% 35.47% 27.32%
Selling, General & Administrative Expenses 29.35% 25.71% 24.05% 22.16% 20.96% 14.62%
Advertising Expenses 3.10% 2.97% 2.70% 1.84% 1.68% 1.07%
Profit Before Interest and Taxes 8.39% 11.72% 13.98% 15.72% 16.74% 3.82%
Main Ratios
Current 0.76 1.21 2.02 3.33 5.30 2.85
Quick 0.58 1.00 1.75 2.96 4.83 1.44
Total Debt to Total Assets 54.99% 44.89% 33.00% 22.29% 14.51% 51.13%
Pre-tax Return on Net Worth 20.35% 27.34% 28.47% 27.55% 25.53% 5.77%
Pre-tax Return on Assets 9.16% 15.07% 19.07% 21.41% 21.83% 11.81%
Additional Ratios 2005 2006 2007 2008 2009
Net Profit Margin 5.58% 9.01% 11.42% 13.31% 14.51% n.a
Return on Equity 18.11% 24.33% 25.34% 24.52% 22.72% n.a
Activity Ratios
Accounts Receivable Turnover 15.33 15.33 15.33 15.33 15.33 n.a
Collection Days 29 23 23 23 23 n.a
Inventory Turnover 12.00 15.36 15.25 15.34 15.34 n.a
Accounts Payable Turnover 17.03 12.17 12.17 12.17 12.17 n.a
Payment Days 27 25 29 29 29 n.a
Total Asset Turnover 1.46 1.49 1.49 1.43 1.34 n.a
Debt Ratios
Debt to Net Worth 1.22 0.81 0.49 0.29 0.17 n.a
Current Liab. to Liab. 0.64 0.67 0.69 0.73 0.82 n.a
Liquidity Ratios
Net Working Capital (£15,877) £12,742 £52,078 £96,890 £154,374 n.a
Interest Coverage 3.96 7.32 12.20 20.67 38.46 n.a
Additional Ratios
Assets to Sales 0.68 0.67 0.67 0.70 0.75 n.a
Current Debt/Total Assets 35% 30% 23% 16% 12% n.a
Acid Test 0.51 0.92 1.64 2.82 4.65 n.a
Sales/Net Worth 3.25 2.70 2.22 1.84 1.57 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a