Aftermarket Internet Applications (Financial Plan)
Strategy & Implementation Summary
Financial Plan
We are predicting that the business will grow at a relatively rapid rate. Fortunately, financing that growth will not be much of an issue due to a low number of fixed costs. Our major expense by far is salary at over 50 percent of the total expenditure per year. As long as collection goes well, these salaries will be covered with profits to spare. Part of our strategic plan is to offset the major e-commerce projects with smaller web design projects to keep our cash flow in good standing. Keep in mind that we are assuming start-up capital of $94,162. This will be the only long-term loan required for AutoAftermarket.com, at least for the first 3 years.
Important Assumptions
AutoAftermarket.com recognizes that collection days are critical. We will make it a corporate goal to keep collections within 30 days. We are assuming that we will do a fairly good job at collecting. Interest rates, tax rates, and personnel compensation are based on conservative assumptions.
| General Assumptions | 2001 | 2002 | 2003 |
| Short-term Interest Rate % | 12.00% | 12.00% | 12.00% |
| Long-term Interest Rate % | 12.00% | 12.00% | 12.00% |
| Payment Days Estimator | 30 | 30 | 30 |
| Collection Days Estimator | 30 | 30 | 30 |
| Tax Rate % | 28.00% | 28.00% | 28.00% |
| Expenses in Cash % | 10.00% | 10.00% | 10.00% |
| Sales on Credit % | 50.00% | 50.00% | 50.00% |
| Personnel Burden % | 0.00% | 0.00% | 0.00% |
Break-Even Analysis
| Break-even Analysis: | |
| Monthly Units Break-even | 19,519 |
| Monthly Sales Break-even | $19,519 |
| Assumptions: | |
| Average Per-Unit Revenue | $1.00 |
| Average Per-Unit Variable Cost | $0.02 |
| Estimated Monthly Fixed Cost | $19,129 |
Projected Profit & Loss
| 2001 | 2002 | 2003 | |
| Sales | $317,378.48 | $573,240.00 | $875,621.00 |
| Direct Cost of Sales | $0.00 | $0.00 | $0.00 |
| Production Payroll | $0.00 | $0.00 | $0.00 |
| Other | $0.00 | $0.00 | $0.00 |
| Total Cost of Sales | $0.00 | $0.00 | $0.00 |
| Gross Margin | $317,378.48 | $573,240.00 | $875,621.00 |
| Gross Margin % | $1.00 | $1.00 | $1.00 |
| Operating expenses: | |||
| Server Lease | $16,572.00 | $16,572.00 | $16,572.00 |
| Database Licenses | $1,500.00 | $26,500.00 | $26,500.00 |
| Advertising/Promotion | $7,500.00 | $8,250.00 | $9,075.00 |
| Travel | $11,520.00 | $15,322.00 | $20,378.00 |
| Payroll Expense | $174,999.96 | $228,750.00 | $345,187.50 |
| Depreciation | $4,254.00 | $4,694.40 | $5,134.40 |
| Payroll Tax Expense | $13,179.00 | $17,477.00 | $24,548.00 |
| Utilities | $0.00 | $0.00 | $0.00 |
| Insurance | $7,440.00 | $10,492.00 | $15,527.00 |
| Rent | $13,152.00 | $13,152.00 | $13,152.00 |
| Vehicle Expense | $4,500.00 | $4,500.00 | $4,500.00 |
| Office Expense | $696.00 | $870.00 | $1,044.00 |
| Phone Expense | $1,800.00 | $1,980.00 | $2,178.00 |
| Organization Dues | $150.00 | $150.00 | $150.00 |
| Total Operating Expenses | $257,262.96 | $348,709.40 | $483,945.90 |
| Profit before Interest and Taxes | $60,115.52 | $224,530.60 | $391,675.10 |
| Interest Expense Long-term | $10,367.42 | $8,617.33 | $6,580.72 |
| Taxes Incurred | $13,929.47 | $60,455.71 | $107,826.43 |
| Net Profit | $35,818.63 | $155,457.55 | $277,267.95 |
| Net Profit/Sales | 11.29% | 27.12% | 31.67% |
Projected Cash Flow
| 2001 | 2002 | 2003 | |
| Net Profit | $35,818.63 | $155,457.55 | $277,267.95 |
| Plus: | |||
| Depreciation | $4,254.00 | $4,694.40 | $5,134.40 |
| Change in Accounts Payable | $9,238.24 | $7,407.52 | $5,751.50 |
| Current Borrowing (repayment) | $0.00 | $0.00 | $0.00 |
| Increase (decrease) Other Liabilities | $0.00 | $0.00 | $0.00 |
| Long-term Borrowing (repayment) | ($14,612.42) | ($15,476.92) | ($18,466.60) |
| Capital Input | $0.00 | $0.00 | $0.00 |
| Subtotal | $34,698.46 | $152,082.55 | $269,687.25 |
| Less: | $2,001.00 | $2,002.00 | $2,003.00 |
| Change in Accounts Receivable | $16,920.25 | $13,640.63 | $16,120.70 |
| Change in Inventory | $0.00 | $0.00 | $0.00 |
| Change in Other Short-term Assets | $0.00 | $0.00 | $0.00 |
| Capital Expenditure | $0.00 | $3,399.00 | $3,399.00 |
| Dividends | $0.00 | $0.00 | $0.00 |
| Subtotal | $16,920.25 | $17,039.63 | $19,519.70 |
| Net Cash Flow | $17,778.21 | $135,042.93 | $250,167.56 |
| Cash Balance | $17,778.21 | $152,821.14 | $402,988.69 |
Projected Balance Sheet
| Assets | |||
| Short-term Assets | 2001 | 2002 | 2003 |
| Cash | $17,778.21 | $152,821.14 | $402,988.69 |
| Accounts Receivable | $16,920.25 | $30,560.88 | $46,681.57 |
| Inventory | $0.00 | $0.00 | $0.00 |
| Other Short-term Assets | $0.00 | $0.00 | $0.00 |
| Total Short-term Assets | $34,698.46 | $183,382.01 | $449,670.26 |
| Long-term Assets | |||
| Capital Assets | $21,272.00 | $24,671.00 | $28,070.00 |
| Accumulated Depreciation | $4,254.00 | $8,948.40 | $14,082.80 |
| Total Long-term Assets | $17,018.00 | $15,722.60 | $13,987.20 |
| Total Assets | $51,716.46 | $199,104.61 | $463,657.46 |
| Liabilities and Capital | |||
| Accounts Payable | $9,238.24 | $16,645.77 | $22,397.27 |
| Short-term Notes | $0.00 | $0.00 | $0.00 |
| Other Short-term Liabilities | $0.00 | $0.00 | $0.00 |
| Subtotal Short-term Liabilities | $9,238.24 | $16,645.77 | $22,397.27 |
| Long-term Liabilities | $79,549.58 | $64,072.66 | $45,606.06 |
| Total Liabilities | $88,787.82 | $80,718.43 | $68,003.33 |
| Paid in Capital | $25,000.00 | $25,000.00 | $25,000.00 |
| Retained Earnings | ($97,890.00) | ($62,071.37) | $93,386.19 |
| Earnings | $35,818.63 | $155,457.55 | $277,267.95 |
| Total Capital | ($37,071.37) | $118,386.19 | $395,654.14 |
| Total Liabilities and Capital | $51,716.46 | $199,104.61 | $463,657.46 |
| Net Worth | ($37,071.37) | $118,386.19 | $395,654.14 |
Business Ratios
Ratio Analysis
| Profitability Ratios: | 2001 | 2002 | 2003 | RMA |
| Gross Margin | 100.00% | 100.00% | 100.00% | 0 |
| Net Profit Margin | 11.29% | 27.12% | 31.67% | 0 |
| Return on Assets | 69.26% | 78.08% | 59.80% | 0 |
| Return on Equity | 0.00% | 131.31% | 70.08% | 0 |
| Activity Ratios | ||||
| AR Turnover | 9.38 | 9.38 | 9.38 | 0 |
| Collection Days | 19 | 30 | 32 | 0 |
| Inventory Turnover | 0 | 0 | 0 | 0 |
| Accts Payable Turnover | 9.97 | 9.97 | 9.97 | 0 |
| Total Asset Turnover | 6.14 | 2.88 | 1.89 | 0 |
| Debt Ratios | ||||
| Debt to Net Worth | 19.4 | 0.68 | 0.17 | 0 |
| Short-term Liability to Liability | 0.1 | 0.21 | 0.33 | 0 |
| Liquidity Ratios | ||||
| Current Ratio | 3.76 | 11.02 | 20.08 | 0 |
| Quick Ratio | 3.76 | 11.02 | 20.08 | 0 |
| Net Working Capital | $25,460 | $166,736 | $427,273 | 0 |
| Interest Coverage | 5.8 | 26.06 | 59.52 | 0 |
| Additional Ratios | ||||
| Assets to Sales | 0.16 | 0.35 | 0.53 | 0 |
| Debt/Assets | 172% | 41% | 15% | 0 |
| Current Debt/Total Assets | 18% | 8% | 5% | 0 |
| Acid Test | 1.92 | 9.18 | 17.99 | 0 |
| Asset Turnover | 6.14 | 2.88 | 1.89 | 0 |
| Sales/Net Worth | $0 | 4.84 | 2.21 | 0 |
| Dividend Payout | $0 | $0 | $0 | 0 |
Analysis:
"How profitable are we?"
Return on Assets—The only reason that the return on assets ratio decreases over the three-year period is because the firm's cash position is so strong. Rest assured, 59.8 percent in year 3 is representative of an extremely profitable company.
"How much are we really earning on the money we take in?"
Net Profit Margin—Net profit shows a steady increase from 11.29 percent to 31.67 percent in year 3, exceeding AutoAftermarket's goal. By year 3, the firm is earning 32 cents on each dollar it takes in. This is representative of a high growth company.
"Do we have enough money to pay our employees?"
Current ratio—AutoAftermarket.com's high ratio is an indication of the firm's ability to service current obligations through its strong cash business.
"Do we have enough equity or are we living mostly on borrowed money?"
Debt to Net Worth—AutoAftermarket.com displays its long-term success by decreasing this ratio from a high of 19.4 to 0.17 in year 3. This proves that AutoAftermarket.com is not living on borrowed money; rather, its success is based on its equity.
"How efficiently are we using our capital?"
Total Asset Turnover—This ratio shows that AutoAftermarket.com did business with its capital 6.14 times in year 1 and 1.89 times by year 3.
