8 Financial Plan
The financial plan is based on the goal that a 30% growth in sales will be achieved in 5 years, that is, in 2019. Such growth is sought because it is foreseen that many companies will start copying ExtrAcademia’s business model. Since it is relatively simple to imitate, a high growth in 4 years will ensure that ExtrAcademia will be the sole leader of the market if other competitors arise.
8.1 Start‐up Funding
The owner of the company will invest cash for the startup. Investors will be sought but also a long term loan from a financial institution will be required to initiate the business. The start‐up funding is detailed below.
Start‐up Funding
Start‐up Expenses to Fund $ 52,450.00 Start‐up Assets to Fund $ 15,000.00 Total Funding Required $ 67,450.00
Assets
Non‐cash Assets from Start‐up $ 57,450.00
Cash Requirements from Start‐up $ 3,000.00 Additional Cash Raised $ 2,000.00 Cash Balance on Starting Date $ 5,000.00 Total Assets $ 67,450.00
Liabilities and Capital
Liabilities
Current Borrowing $ ‐ Long‐term Liabilities $ 30,000.00 Accounts Payable (Outstanding Bills) $ ‐
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Other Current Liabilities (interest‐
free) $ ‐ Total Liabilities $ 30,000.00
Capital
Planned Investment
Owner $ 10,000.00
Investor $ 20,000.00
Additional Investment Requirement $ 10,000.00 Total Planned Investment $ 40,000.00
Loss at Start‐up (Start‐up Expenses) $ (2,550.00) Total Capital $ 37,450.00
Total Capital and Liabilities $ 67,450.00
Total Funding $ 70,000.00 Table 10 – Startup Funding
8.2 Important Assumptions
It is assumed that no economic recessions will happen in the near future in the Salvadoran economy. Other than that, other important assumptions are:
Tax rate will remain at 25%
Current interest rate will stay at 10%
Long‐term interest rate won’t deviate from 10%
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8.3 Break‐even Analysis
The break‐even analysis is summarized below.
Break‐even Analysis
Monthly units break‐even 77 Monthly Revenue Break‐even $19,577.38
Assumptions:
Average per unit‐revenue $ 253.00 Average per unit‐variable cost $ 169.00 Estimated Monthly Fixed Cost $ 6,500.00
Table 11 – Break‐even Analysis
According to the analysis, ExtrAcademia will have to sell at least 77 services per month. This translates to a monthly revenue of roughly US$19,580. This is inside the estimation, as in the first year alone, it is expected to have an average of 88 clients requesting the IAAS, which is the main service. Moreover, it is assumed that half of those will also require the centralized online database membership, and the other half will want to join the online blog & forum. Furthermore, the overall number of customers per year is expected to grow by 2% yearly.
The expected monthly sales are of US$25,263 in the first year alone, which is higher than the break‐even value shown in the table above.
8.4 Projected Profit and Loss
It is expected that ExtrAcademia will make small profit as a percentage of sales in the first year, but it is expected to grow to around 38% during the following 5 years.
The net earnings will increase from a negative US$20,870 in year 1 to approximately US$48,070 in year 5.
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2015 2016 2017 2018 2019
Sales $ 303,160.00 $309,223.20 $380,707.66 $388,321.82 $396,088.25 Direct Cost of Sales $ 242,400.00 $207,145.00 $215,252.25 $217,364.86 $226,483.11
Other Costs of Sales $40,000 $15,000 $20,000 $20,000 $20,000
Total Cost of Sales $ 282,400.00 $222,145.00 $235,252.25 $237,364.86 $246,483.11
Gross Margin $ 20,760.00 $ 87,078.20 $145,455.41 $150,956.95 $149,605.15
Gross Margin % 6.85% 28.16% 38.21% 38.87% 37.77%
Expenses
Depreciation $ 3,000.00 $ 3,060.00 $ 3,121.20 $ 3,183.62 $ 3,247.30 Payroll taxes $ 7,620.00 $ 8,107.25 $ 8,512.61 $ 9,118.24 $ 9,574.16 Rent $ 18,000.00 $ 18,000.00 $ 30,000.00 $ 30,000.00 $ 30,000.00 Utilities $ 10,000.00 $ 20,000.00 $ 20,000.00 $ 25,000.00 $ 25,000.00 Insurance $ 5,000.00 $ 5,250.00 $ 5,512.50 $ 5,788.13 $ 6,077.53
Total Operating
Expenses $ 43,620.00 $ 54,417.25 $ 67,146.31 $ 73,089.99 $ 73,898.98
Profit Before Interest
and Taxes $ (22,860.00) $ 32,660.95 $ 78,309.10 $ 77,866.96 $ 75,706.16 EBITDA $ (19,860.00) $ 35,720.95 $ 81,430.30 $ 81,050.59 $ 78,953.46 Interest Expense $ (1,986.00) $ 3,572.10 $ 8,143.03 $ 8,105.06 $ 7,895.35 Taxes Incurred $ ‐ $ 8,930.24 $ 20,357.58 $ 20,262.65 $ 19,738.37
Net Profit $ (20,874.00) $ 20,158.62 $ 49,808.50 $ 49,499.26 $ 48,072.45
Net Profit/Sales ‐6.89% 6.52% 13.08% 12.75% 12.14%
Table 12 – Projected Profit & Loss
8.5 Projected Cash Flow
The company will expect larger amounts of cash flows during the first years of operation, while it is preparing the launching of its complimentary services, namely, the visa assistance, training and authorized examination center and travel arrangements. Therefore, the cash available is expected to be less during the last 3 years in analysis, but it is still enough to ensure the healthy operation of the business.
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2015 2016 2017 2018 2019
Cash Received Cash from Operations
Cash Sales $303,160.00 $309,223.20 $380,707.66 $388,321.82 $ 396,088.25 Subtotal Cash from
Operations $303,160.00 $309,223.20 $380,707.66 $388,321.82 $396,088.25
Additional Cash Received Sales Tax, VAT, HST/GST
Received $39,410.80 $40,199.02 $49,492.00 $50,481.84 $51,491.47
New Current Borrowing $0.00 $0.00 $0.00 $0.00 $0.00
New Other Liabilities
(interest‐free) $0.00 $0.00 $0.00 $0.00 $0.00
New Long‐term Liabilities $0.00 $0.00 $30,000.00 $30,000.00 $30,000.00
Sales of Other Current
Assets $0.00 $0.00 $0.00 $0.00 $0.00
Sales of Long‐term Assets $0.00 $0.00 $0.00 $0.00 $0.00
New Investment Received $0.00 $0.00 $0.00 $0.00 $0.00
Subtotal Cash Received $342,570.80 $349,422.22 $460,199.66 $468,803.65 $477,579.73
Expenditures 2015 2016 2017 2018 2019
Expenditures from Operations
Cash Spending $58,000.00 $33,000.00 $50,000.00 $50,000.00 $50,000.00
Bill Payments $30,000.00 $45,000.00 $55,000.00 $55,000.00 $55,000.00
Subtotal Spent on
Operations $88,000.00 $78,000.00 $105,000.00 $105,000.00 $105,000.00
Additional Cash Spent Sales Tax, VAT, HST/GST
Paid Out $11,440.00 $10,140.00 $13,650.00 $13,650.00 $13,650.00
Principal Repayment of
Current Borrowing $0.00 $0.00 $0.00 $0.00 $0.00
Other Liabilities Principal
Repayment $0.00 $0.00 $0.00 $0.00 $0.00
Long‐term Liabilities
Principal Repayment $0.00 $0.00 $10,000.00 $20,000.00 $35,000.00
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Assets $0.00 $0.00 $0.00 $0.00 $0.00
Purchase Long‐term
Assets $20,000.00 $40,000.00 $60,000.00 $30,000.00 $40,000.00
Dividends $0.00 $0.00 $20,000.00 $20,000.00 $40,000.00
Subtotal Cash Spent $119,440.00 $128,140.00 $208,650.00 $188,650.00 $233,650.00
Net Cash Flow $223,130.80 $221,282.22 $251,549.66 $280,153.65 $243,929.73 Cash Balance $228,130.80 $449,413.02 $700,962.68 $981,116.33 $1225,046.06
Table 13 – Projected Cash Flow
8.6 Projected Balance Sheet
The net worth of ExtrAcademia will grow from US$90,200 in year 1 to $613,300 in year 5.
Pro Forma Balance Sheet
2015 2016 2017 2018 2019
Assets Current Assets
Cash $228,130.80 $449,413.02 $700,962.68 $981,116.33 $1225,046.06
Other Current Assets $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ Total Current Assets $ 228,130.80 $ 449,413.02 $ 700,962.68 $ 981,116.33 $1225,046.06
Long‐term Assets
Long‐term Assets $ 57,450.00 $ 77,450.00 $ 117,450.00 $ 177,450.00 $ 207,450.00 Accumulated
Depreciation $ 2,872.50 $ 7,745.00 $ 17,617.50 $ 35,490.00 $ 51,862.50 Total Long‐term Assets $ 54,577.50 $ 69,705.00 $ 99,832.50 $ 141,960.00 $ 155,587.50 Total Assets $ 282,708.30 $ 519,118.02 $ 800,795.18 $ 1123,076.33 $1380,633.56
Liabilities and Capital 2015 2016 2017 2018 2019
Current Liabilities
Accounts Payable $ 45,500.00 $ 51,000.00 $ 59,000.00 $ 65,000.00 $ 77,000.00 Current Borrowing $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ Other Current Liabilities $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ Subtotal Current
Liabilities $ 45,500.00 $ 51,000.00 $ 59,000.00 $ 65,000.00 $ 77,000.00
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Long‐term Liabilities $ 147,008.32 $ 269,941.37 $ 440,437.35 $ 583,999.69 $ 690,316.78 Total Liabilities $ 192,508.32 $ 320,941.37 $ 499,437.35 $ 648,999.69 $ 767,316.78
Paid‐in Capital $ 10,000.00 $ 10,000.00 $ 15,000.00 $ 15,000.00 $ 15,000.00 Retained Earnings $ (2,550.00) $ 40,000.00 $ 90,000.00 $ 150,000.00 $ 200,000.00 Earnings $ 82,749.98 $ 148,176.65 $ 196,357.83 $ 309,076.64 $ 398,316.78 Total Capital $ 90,199.98 $ 198,176.65 $ 301,357.83 $ 474,076.64 $ 613,316.78 Total Liabilities and
Capital $ 282,708.30 $ 519,118.02 $ 800,795.18 $ 1123,076.33 $1380,633.56
Net Worth $ 90,199.98 $ 198,176.65 $ 301,357.83 $ 474,076.64 $ 613,316.78 Table 14 – Projected Balance Sheet
8.7 Business Ratios
As explained in previous sections, a conservative yearly growth rate of 2% in sales is forecasted for the first few years, except in the 3rd year, when the opening of the complementary services to be introduced. The return on sales, however, is expected to grow from a negative 7.5% in the first year to roughly 20% in the last few years of this analysis.
Aligned with the strategy of an expansion to neighboring after the 5th year, the company will have increasing liquidity (as shown by the current ratio and working capital) over its first five years to start paying off the long term debts and prepare the investment in personnel and facilities after the 5th year. The Return of Investment will be higher in the 3rd year but, as a result of the investment done in the 3rd year in order to prepare the complementary services of the company for future years, it will decrease slightly to roughly 6.5% in the 5th year.
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2015 2016 2017 2018 2019
Sales Growth N/A 2.00% 23.12% 2.00% 2.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 6.85% 28.16% 38.21% 38.87% 37.77%
Return on Sales ‐7.54% 10.56% 20.57% 20.05% 19.11%
Main Ratios
Current Ratio 5.01 8.81 11.88 15.09 15.91
Debt to Equity
Ratio 2.13 1.62 1.66 1.37 1.25
Working Capital $ 182,630.80 $ 398,413.02 $ 641,962.68 $ 916,116.33 $ 1148,046.06 Return on
Investment ‐9.00% 8.20% 11.80% 8.23% 6.51%
Table 15 – Projected Key Business Ratios
8.8 Long‐term Plan
The first 5 years included in this analysis will make sure ExtrAcademia positions itself as a strong leader in this service, assuming other companies will soon start copying its business model. After the services quality reputation is established and the word of mouth is passed and has become profitable, the company will prepare itself for a higher leap: expanding the same service model to other Central American countries such as Guatemala, Honduras and Nicaragua. These countries also have a high yearly brain drain rate due to similar socio‐economic conditions to those of El Salvador, so there is a huge expansion potential.