Click here to buy now or call 0845 351 9924
Plan Outline
Garden Products Recycling Business Plan
Hair Recycling Technologies
Financial Plan
Inception Loan: An original loan of £60,000 will be procured for the opening of HRT. At an annualized borrowing rate of 8%, interest payments of £400 will be made monthly.
Production: HRT will employ the following production schedule:
- 2001: 125,000 units (10,416/month).
- 2002: 250,000 units (20,833/month).
- 2003: 375,000 units (31,250/month).
Sales Forecasts: HRT has estimated the following unit sales forecasts:
- 2001: 106,800 units.
- 2002: 252,000 units.
- 2003: 375,000 units.
For simplicity, Price per Unit = £1.50, Cost per Unit = £.55
Salaries: HRT will hire and employ one administrative office manager in 2001, two in 2002, and three in 2003. The first year salary will be £19,800, increasing for inflation at 3% per year, per employee. Therefore, total salaries will be £40,788 in 2002, and £63,018 in 2003.
Rent: HRT will sign a three-year lease at business inception. Terms of this lease will include rent of £600 per month, and will include electricity.
Utilities: Per the schedule found earlier in the business plan, HRT will pay non-electric (included in rent) utilities of £200 per month over the term of the lease.
Equipment: Per the schedule found in the business plan regarding equipment, HRT will invest £5,500 up front for its machinery, to be depreciated straight-line over a useful life of five years. Therefore, yearly depreciation will be £1,100 per year (£92 per month). Also, HRT will equip its firm with office equipment (per schedule in business plan) at a one-time expense of £3,600.
Insurance: HRT will enter into a liability insurance policy at the cost of £2,400 per year.
Advertising: HRT will originally plan to invest 15% of gross sales into advertising expenses. This number may vary over time, but for preliminary financial planning, will be allocated as follows:
- 2001: £24,000.
- 2002: £56,700.
- 2003: £84,375.
Miscellaneous: HRT will reserve a miscellaneous expense account at the rate of 3% of gross sales, amortized evenly over each month, for unforeseen costs.
Taxes: As a Sub-chapter S Corporation, Hair Recycling Technologies pays no corporate tax. Rather, individual income taxes are paid by each owner based on his percentage of stake in the company. For this reason, Hair Recycling Technologies taxes will be £0, and are noted as such for reporting purposes.
10.1 Break-even Analysis
The chart and table below contain the Break-even Analysis for HRT.
| Break-even Analysis | |
| Monthly Revenue Break-even | £19,812 |
| Assumptions: | |
| Average Percent Variable Cost | 43% |
| Estimated Monthly Fixed Cost | £11,310 |
10.2 Projected Profit and Loss
The most important assumption in the Projected Profit and Loss statement is the gross margin, which is supposed to increase to 25%. Month-by-month assumptions for profit and loss are included in the appendix.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | £160,200 | £378,000 | £562,500 |
| Direct Cost of Sales | £68,748 | £137,500 | £206,250 |
| Other Production Expenses | £0 | £0 | £0 |
| Total Cost of Sales | £68,748 | £137,500 | £206,250 |
| Gross Margin | £91,452 | £240,500 | £356,250 |
| Gross Margin % | 57.09% | 63.62% | 63.33% |
| Expenses | |||
| Payroll | £79,800 | £136,788 | £183,018 |
| Advertising/Promotion | £28,806 | £56,700 | £84,375 |
| Depreciation | £1,104 | £1,104 | £1,104 |
| Leased Equipment | £0 | £0 | £0 |
| Utilities | £2,400 | £2,400 | £2,400 |
| Insurance | £2,400 | £2,400 | £2,400 |
| Rent | £7,200 | £7,200 | £7,200 |
| Payroll Burden | £11,970 | £20,518 | £27,453 |
| Miscellaneous | £2,040 | £10,000 | £15,000 |
| Total Operating Expenses | £135,720 | £237,110 | £322,950 |
| Profit Before Interest and Taxes | (£44,268) | £3,390 | £33,300 |
| EBITDA | (£43,164) | £4,494 | £34,404 |
| Interest Expense | £4,540 | £4,080 | £3,600 |
| Taxes Incurred | £0 | £0 | £743 |
| Net Profit | (£48,808) | (£690) | £28,958 |
| Net Profit/Sales | -30.47% | -0.18% | 5.15% |
10.3 Projected Cash Flow
The chart and table below project increasing cash flow throughout the first three years of plan implementation.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | £80,100 | £189,000 | £281,250 |
| Cash from Receivables | £59,017 | £160,336 | £256,969 |
| Subtotal Cash from Operations | £139,117 | £349,336 | £538,219 |
| 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 | £26,000 | £0 |
| Subtotal Cash Received | £139,117 | £375,336 | £538,219 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | £79,800 | £136,788 | £183,018 |
| Bill Payments | £121,701 | £237,977 | £348,990 |
| Subtotal Spent on Operations | £201,501 | £374,765 | £532,008 |
| 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 | £6,000 | £6,000 | £6,000 |
| Purchase Other Current Assets | £0 | £0 | £0 |
| Purchase Long-term Assets | £0 | £0 | £0 |
| Dividends | £0 | £0 | £0 |
| Subtotal Cash Spent | £207,501 | £380,765 | £538,008 |
| Net Cash Flow | (£68,384) | (£5,429) | £211 |
| Cash Balance | £8,237 | £2,808 | £3,019 |
10.4 Projected Balance Sheet
The following table projects healthy growth in sales and net worth.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | £8,237 | £2,808 | £3,019 |
| Accounts Receivable | £21,083 | £49,747 | £74,029 |
| Inventory | £8,497 | £16,994 | £25,492 |
| Other Current Assets | £0 | £0 | £0 |
| Total Current Assets | £37,817 | £69,550 | £102,539 |
| Long-term Assets | |||
| Long-term Assets | £9,100 | £9,100 | £9,100 |
| Accumulated Depreciation | £1,104 | £2,208 | £3,312 |
| Total Long-term Assets | £7,996 | £6,892 | £5,788 |
| Total Assets | £45,813 | £76,442 | £108,327 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | £9,171 | £20,490 | £29,418 |
| Current Borrowing | £0 | £0 | £0 |
| Other Current Liabilities | £0 | £0 | £0 |
| Subtotal Current Liabilities | £9,171 | £20,490 | £29,418 |
| Long-term Liabilities | £54,000 | £48,000 | £42,000 |
| Total Liabilities | £63,171 | £68,490 | £71,418 |
| Paid-in Capital | £34,000 | £60,000 | £60,000 |
| Retained Earnings | (£2,550) | (£51,358) | (£52,048) |
| Earnings | (£48,808) | (£690) | £28,958 |
| Total Capital | (£17,358) | £7,952 | £36,910 |
| Total Liabilities and Capital | £45,813 | £76,442 | £108,327 |
| Net Worth | (£17,358) | £7,952 | £36,910 |
10.5 Business Ratios
The following table contains important business ratios from the Soil Preparation Services industry, as determined by the Standard Industry Classification (SIC) Index.
Several explanations must be made to balance the company's ratios against the industry averages. First of all is the relative newness of this type of industry, which means that the industry averages reflect companies that have very different products, consumers and overall circumstances. Therefore, there will be substantial differences in the general comparison between HRT and other firms. Furthermore, HRT is a start-up company that is seeking to introduce a new type of product to the market through limited distribution channels. The company is investing significant funds into advertising, and not expecting to see profits for the first two years. This is why the company has a consecutive if diminishing negative net worth during the period covered by this plan. As acquired assets gear up to full production and the marketing efforts generate more sales, this negative net worth will become more comparable to industry averages. Finally, as a start up, the company is seeking ways to maximize profit while reducing the need to invest in significant initial costs. Therefore the ratios of HRT's assets and liabilities to the industry standard, which reflect more mature, established companies does not match well either.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 135.96% | 48.81% | -2.20% |
| Percent of Total Assets | ||||
| Accounts Receivable | 46.02% | 65.08% | 68.34% | 20.80% |
| Inventory | 18.55% | 22.23% | 23.53% | 26.20% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 24.70% |
| Total Current Assets | 82.55% | 90.98% | 94.66% | 71.70% |
| Long-term Assets | 17.45% | 9.02% | 5.34% | 28.30% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 20.02% | 26.80% | 27.16% | 35.80% |
| Long-term Liabilities | 117.87% | 62.79% | 38.77% | 19.60% |
| Total Liabilities | 137.89% | 89.60% | 65.93% | 55.40% |
| Net Worth | -37.89% | 10.40% | 34.07% | 44.60% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 57.09% | 63.62% | 63.33% | 35.40% |
| Selling, General & Administrative Expenses | 86.44% | 64.35% | 58.60% | 20.30% |
| Advertising Expenses | 14.98% | 15.00% | 15.00% | 1.10% |
| Profit Before Interest and Taxes | -27.63% | 0.90% | 5.92% | 5.30% |
| Main Ratios | ||||
| Current | 4.12 | 3.39 | 3.49 | 1.86 |
| Quick | 3.20 | 2.56 | 2.62 | 0.90 |
| Total Debt to Total Assets | 137.89% | 89.60% | 65.93% | 55.40% |
| Pre-tax Return on Net Worth | 281.18% | -8.68% | 80.47% | 8.30% |
| Pre-tax Return on Assets | -106.54% | -0.90% | 27.42% | 18.60% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | -30.47% | -0.18% | 5.15% | n.a |
| Return on Equity | 0.00% | -8.68% | 78.46% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 3.80 | 3.80 | 3.80 | n.a |
| Collection Days | 57 | 68 | 80 | n.a |
| Inventory Turnover | 10.91 | 10.79 | 9.71 | n.a |
| Accounts Payable Turnover | 14.27 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 22 | 25 | n.a |
| Total Asset Turnover | 3.50 | 4.94 | 5.19 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.00 | 8.61 | 1.93 | n.a |
| Current Liab. to Liab. | 0.15 | 0.30 | 0.41 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | £28,646 | £49,060 | £73,122 | n.a |
| Interest Coverage | -9.75 | 0.83 | 9.25 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.29 | 0.20 | 0.19 | n.a |
| Current Debt/Total Assets | 20% | 27% | 27% | n.a |
| Acid Test | 0.90 | 0.14 | 0.10 | n.a |
| Sales/Net Worth | 0.00 | 47.54 | 15.24 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |