The paper uses a fictitious company to present pro forma financial statements which may be used at the start up of a business. The cash flow for the first year, and three years income statements and balance sheets are provided. The ay that the firm could raise capital and the potential capital structure are also discussed.
Finance
Financial Projections for Touch My Knuckles
Touch My Knuckles, a firm selling mixed martial arts appeal, including shirts, fleeces, hats and sweatshirts will provide a great potential for investment. The aim of this paper is to look at the financial statements for the first three years of operating, including start-up costs, cash flow, income statement and balance sheet. Following the financial analysis consideration will be given to the way in which the may be raised an issue of capital structure.
Financial Statements
The following financial statements indicate potential of the business. The financing being requested in $248,560, this can been calculated with reference to the start up costs, less the available capital, with an allowance of the operating loss that will be made in the first month.
The start up costs are relativity modest due to the use of outsource suppliers who will send the goods directly to the wholesale purchasers. The total start up costs are $275,000.
Table 1; Start up costs
Premise (lease)
25,000
Office equipment and furniture
22,000
Computer equipment
18,000
Opening inventory
150,000
Legal costs
25,000
Pre-start up operating costs
20,000
Launch marketing
15,000
Total
275,000
The cash flow for the first year is shown in table 2 below. This shows that the first month will operate at a deficit, but after this there will be an operating profit each month with a cash surplus. The firm will break even in month 12.
Table 2; Fist Year Cash Flow
Start up period
Jan
Feb
Mar
Apr
May
Jun
Jul
Start up costs
275,000
Sales
10,000
30,000
35,000
46,000
49,000
57,000
63,000
Cost of goods sold
2,000
6,000
7,000
9,200
9,800
11,400
12,600
Payroll
3,000
9,000
10,500
13,800
14,700
17,100
18,900
Payroll taxes etc.
1,080
1,260
1,656
1,764
2,052
2,268
Sales and marketing
3,000
3,000
2,000
2,000
1,800
1,800
1,800
Rent
Insurance
2,000
Utilities
Total outflow
11,560
19,880
21,560
27,856
28,864
33,152
36,768
Net inflow/outflow
-1,560
10,120
13,440
18,144
20,136
23,848
26,232
Accumulative total
-275,000
-276,560
-266,440
-253,000
-234,856
-214,720
-190,872
-164,640
Aug
Sept
Oct
Nov
Dec
Total
Start up costs
Sales
67,000
70,000
78,000
82,000
90,000
677,000
Cost of goods sold
13,400
14,000
15,600
16,400
18,000
135,400
Payroll
20,100
21,000
23,400
24,600
27,000
203,100
Payroll taxes etc.
2,412
2,520
2,808
2,952
3,240
24,372
Sales and marketing
2,000
2,000
2,000
2,000
2,000
25,400
Rent
9,600
Insurance
2,000
Utilities
1,600
Total outflow
38,712
40,320
45,008
46,752
51,040
401,472
Net inflow/outflow
28,288
29,680
32,992
35,248
38,960
275,528
Accumulative total
-136,352
-106,672
-73,680
-38,432
The first year breakdown is presented in the first three years which show the way in which the firm will grown based on current sales projections, It is expected that sales will increase by 25% per annum in the first few years, and as sales increase the direct costs will decrease slightly with the firms ability to gain from the economies of scale. The payroll is projected at 30% of sales, including all commissions, on top of this there are the payroll taxes and other fees, which are assumed to be 12% of the payroll costs. It is assumed that inflation is 5% for costs such as rent, insurance (which is paid on an annual premium quarterly) and utilities. The following statement assumes that the required funding, which is rounded to $250,000 is raised through debt at 10%
Table 3; three-year profit and loss (income statement) projection
20X4
20X5
20X6
Sales (net of any sales taxes)
$677,000
$846,250
$1,057,813
Cost of goods sold
$135,400
$160,788
$195,695
Gross Margin
$541,600
$685,463
$862,117
Gross Margin %
80.00%
81.00%
81.50%
Expenses
Payroll
$203,100
$213,255
$223,918
Sales and Marketing and Other Expenses
$25,400
$30,000
$35,000
Communications
$33,850
$42,313
$52,891
Client Relations
$20,310
$25,388
$29,619
Premises/offices
$9,600
$10,080
$10,584
Payroll Taxes & overheads
$24,372
$25,591
$26,870
Insurance
$2,000
$2,100
$2,205
Utilities
$1,600
$1,680
$1,764
Total Operating Expenses
$320,232
$350,406
$382,850
Profit Before Interest and Taxes
$221,368
$335,057
$479,267
EBITDA
$221,368
$335,057
$479,267
Interest
$25,000
$25,000
$25,000
Depreciation
$13,000
$13,000
$13,000
Taxes Incurred (assumed at 25%)
$45,842
$74,264
$110,317
Net Profit
$175,526
$260,793
$368,950
Net Profit/Sales
25.93%
30.82%
34.88%
The profit margin increases as the firms' sales increase and the economies of scope and scale are realized. It is assumed that the 10% on the debt is paid and not capital repayments are made in the first three years.
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