Tobacco/Magazines (Financial)
Projected Financial Success and Needs
Financial
We believe that the initial funding of $205,100 will be sufficient to carry Standard Tobacco & News through to initial profitability. These financial needs will be met through a blend of bank loans, equipment leases and personal cash investment. The loans and leases will be secured by the value of the capital equipment purchased, the value of the inventory. In addition, Dwayne Peters will continue in his present position at GE thus providing a personal guarantee of payment.
We anticipate that we will be able to sustain a minimum gross margin of 39%. We will seek to increase this level through management of our inventory sourcing. We anticipate that, after our initial year of operation, we will be able to sustain a net return on sales of 16% to 17%.
Assumptions Underlying Our Financial Projections Are:
- Partners contribute $60,000 cash during startup phase.
- Partners defer taking any draws until monthly income levels exceed $2,500.
- Loan term is five years with interest fixed at 12% per annum.
- Lease term is five years with an assumed cost of financing of 18% per annum.
- Depreciation is calculated on all equipment assuming a five year recovery period with the regular MACRS method and the half year convention.
- Receivables are not a ajor factor as all sales are cash sales. Credit card sales are assumed to be 10% of total sales and will be collected through immediate electronic credits. An allowance of 3% for the cost of credit sales.
- Payables are net cash for all tobacco products and candy. Magazines are net 7 days and net 30 days depending upon the supplier.
- The composite inventory turn is 4.8 time per year. The individual turns for each product are as stated in the business plan. Inventory calculations and cashflow requirements are based upon the individual turns figures, not the composite.
- Minimum cash on hand will be maintained at $20,000 although our projections do not show that we will reach this level. Arrangements have been made with a family member for a $15,000 line to provide for short term cash needs to maintain this balance.
Detailed budgets underlying the financial projections are available for further review and discussion.
