The following assumptions were made when creating the projected financial statements:
A loan of US$3,500.00 will be made to buy the property, plant and equipment required to start operations. At the same time, it will be used to cover all the startup expenses such as the legal and accounting expenses. The interest rate of this loan is 8% and the period is 3 years (See Amortization Table in Appendix 10.3)
During the first year of operations, the goods will be manufactured in the house of the owners. Therefore, rent and security are not considered until year 2, when the business will be moved to a rented space. Kitchen, packaging, warehouse and offices premises will be located in the same building.
A wage increase of 5% is considered every year. In year 1, we only considered one person in the kitchen and a part time salary for one of the owners. From year 2, we considered two people in the kitchen, 1 security guard and 1 administrative wage for one of the owners.
The cost of goods sold is determined to be 50% of sales price. However we consider that through economies of scale we will be able to reduce it to a lower percentage. For the purpose of this Business Plan, we worked with a fixed 50% per year.
Each of the flavors have a different manufacturing cost and we project that the demand for some flavors will be higher than the demand for others. However, for the purpose of the proformas we estimated an average manufacturing cost.
Due to the low shelf life of our products, purchasing inventory was calculated by multiplying cost of goods sold by 1.1. The additional 10% was considered as waste.
Kitchen utensils (knives, measuring cups and spoons, etc.) will be replaced every two years and are expressed as an expense in the income statement.
In year 1, the market share was set at 2%, 1% the first six months when the distribution will be limited to upscale stores, and 3% the last six months as the distribution channels will include the two main hypermarket chains. In year 2, the market share was set at 4%, in year 3, 6%, in year 4, 8% and in year 5, 10%. (See Market Share Table and Sales Forecast in Appendix 10.2). These percentages are based on our target market which is composed by the top 15% households in Managua with the higher income.
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Proformas are in USD using the official exchange rate for April 1st, 2016 US$1 = C$28.2729.
Property, plant and equipment was depreciated using the straight line depreciation method with a useful life of two years.
Tax regulation for companies registered as small business require a fixed monthly tax payment of US$50.00. However, because of our sales forecast we used a 30% tax retention that is the one required by law.
In Nicaragua, there are no minimum requirements for social capital when establishing a new company.
7.1. Start-Up Budget
The following is the summary of the start-up budget. A detail can be found in Appendix 1.
Table 4. Initial Investment Summary Initial Investment Summary
Legal and Accounting expenses $1,430.00
Cash $500.00
Inventory $162.09
Kitchen equipment $2,000.00
Kitchen Utensils $233.00
Cleaning Utensils $37.00
Total initial investment $4,362.09
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7.2. Projected Initial Balance Sheet
Table 5. Alfresco LLC Initial Balance Sheet
Alfresco LLC
Initial Balance Sheet
As of November 22, 2016
Assets Liabilities and Equity
Current Assets $ 2,162.09 Liabilities
Cash $2,000.00 Account Payable $ 3,500.00
Inventory $ 162.09
Equity
Non-Current Assets $ 2,000.00 Shareholders' Equity $ 662.09
Property, Plant, and
Equipment $2,000.00
TOTAL ASSETS $ 4,162.09
TOTAL LIABILITIES
AND EQUITY $ 4,162.09
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7.3. Income Statement
Table 6. Yearly Estimated Income Statement Projections
Alfresco, LLC
Yearly Estimated Income Statement from 2016 to 2021
2016 2017 2018 2019 2020 2021
Sales $ - $ 42,681.60 $ 85,363.20 $ 128,044.80 $ 170,726.40 $ 213,408.00 Cost of Goods Sold $ - $ 21,340.80 $ 42,681.60 $ 64,022.40 $ 85,363.20 $ 106,704.00 Gross profit $ - $ 21,340.80 $ 42,681.60 $ 64,022.40 $ 85,363.20 $ 106,704.00 Wages expense $ 200.00 $ 8,400.00 $ 19,620.00 $ 20,601.00 $ 21,631.05 $ 22,712.60 Utilities expense $ 179.17 $ 2,150.00 $ 2,472.50 $ 2,596.13 $ 2,725.93 $ 2,862.23 Rent expense $ - $ - $ 5,400.00 $ 5,400.00 $ 5,400.00 $ 5,400.00 Advertising $ 200.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 Other Marketing
Expenses $ 150.00 $ 1,800.00 $ 1,800.00 $ 1,800.00 $ 1,800.00 $ 1,800.00 Start-up Expenses $ 1,430.00 $ - $ - $ - $ - $ - Kitchen Utensils $ 233.00 $ - $ 233.00 $ - $ 233.00 $ - Depreciation $ 108.33 $ 1,000.00 $ 891.67 $ - $ - $ - Other Operational
Expenses $ 200.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 Interest Expense $ 23.33 $ 233.99 $ 144.17 $ 46.90 $ - $ - Income before
income tax $ (2,723.83) $ 2,956.81 $ 7,320.27 $ 28,778.38 $ 48,773.22 $ 69,129.17 Income tax (30%) $ - $ 887.04 $ 2,196.08 $ 8,633.51 $ 14,631.97 $ 20,738.75 Net income $ (2,723.83) $ 2,069.77 $ 5,124.19 $ 20,144.87 $ 34,141.25 $ 48,390.42
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7.4. Cash Flow
Table 7. Yearly Estimated Statement of Cash Flow
Alfresco, LLC
Yearly Estimated Statement of Cash Flow from 2016 to 2021
2016 2017 2018 2019 2020 2021
Cash Flow from operating activities
Cash collected from customers $ - $ 42,681.60 $ 85,363.20 $ 128,044.80 $ 170,726.40 $ 213,408.00 Cash paid for
Purchasing inventory $ (162.09) $ (23,474.88) $ (46,949.76) $ (70,424.64) $ (93,899.52) $ (117,374.40) Operating and admin expenses $ (2,615.50) $ (17,383.99) $ (34,469.67) $ (35,244.02) $ (36,589.98) $ (37,574.83)
Tax $ - $ (887.04) $ (2,196.08) $ (8,633.51) $ (14,631.97) $ (20,738.75)
Net cash from operating activities $ (2,777.59) $ 935.69 $ 1,747.69 $ 13,742.63 $ 25,604.93 $ 37,720.02
Cash flows from investing activities Cash paid for property, plant and
equip $ (2,000.00) $ - $ - $ - $ - $ - Net cash from investing activities $ (2,000.00) $ - $ - $ - $ - $ -
Cash flows from financing activities Increase (decrease) in short term
loans $ 3,413.66 $ (1,082.14) $ (1,171.96) $ (1,159.55) $ - $ -
Interests Paid $ (233.99) $ (144.17) $ (46.90) $ - $ -
Net cash from financing activities $ 3,413.66 $ (1,316.13) $ (1,316.13) $ (1,206.45) $ - $ -
Cash and Equivalents, Beginning of
Period $ 2,000.00 $ 636.07 $ 255.63 $ 687.19 $ 13,223.37 $ 38,828.30
Cash and Equivalents, End of Period $ 636.07 $ 255.63 $ 687.19 $ 13,223.37 $ 38,828.30 $ 76,548.32
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7.5. Profitability Analysis
7.5.1. Net Present Value and Internal Rate of Return
Table 8. Alfresco LLC Profitability Analysis: Net Present Value and Internal Rate of Return
Alfresco, LLC
Profitability Analysis
2016 2017 2018 2019 2020 2021
Period 0 1 2 3 4 5
Cash and Equivalents, End of
Period $ (4,362.09) $ 255.63 $ 687.19 $ 13,223.37 $ 38,828.30 $ 76,548.32 Present Value $ (4,362.09) $ 250.62 $ 660.51 $ 12,460.68 $ 35,871.35 $ 69,332.17
Discount Rate 2%
Net Present Value $ 102,153.25
Internal Rate of Return 119%
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7.5.2. Break Even Analysis
A break even analysis was conducted in order to determine the number of units at which the revenue received equals the cost that the company incurs in order to generate that revenue. The following formula was used in order to obtain such number
𝑈𝑛𝑖𝑡 𝑏𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑣𝑜𝑙𝑢𝑚𝑒 = 𝑇𝑜𝑡𝑎𝑙 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
𝑈𝑛𝑖𝑡 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − 𝑈𝑛𝑖𝑡 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡𝑠
For the reason that the fixed cost varies each year as a result of increases in wages and utilities, a unit break even volume was calculated for each one of the years forecasted.
The dollar break-even was obtained by multiplying the unit break-even by the unit price.
Table 9. Alfresco LLC Break Even Analysis
Alfresco, LLC
Break-even Analysis
Total Fixed Cost $ 14,750.00 $ 31,692.50 $ 32,797.13 $ 33,956.98 $ 35,174.83 Unit Selling Price $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ 4.00 Unit Variable Cost $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00 Unit Break Even 7,375 15,846 16,399 16,978 17,587 Dollar Break Even $ 29,500.00 $ 63,385.00 $ 65,594.25 $ 67,913.96 $ 70,349.66
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