Financial Plan
Bluespa will become profitable in our third year of operation. Initial growth will be financed by a combination of equity investment and debt financing. Our ratios are well within prudent limits and our growth plans are challenging, but realistic. The tables in this section explain the detail behind our financing plan and our growth plans.
7.1 Important Assumptions
Our assumptions are detailed in the proceeding tables. We have planned for relatively slow but stable general economic growth and an interest rate on borrowing of 9.5%. Because our business is a combination of retail and wholesale our collection days may look somewhat optimistic. That is caused by our assumption that approximately 70% of our retail sales will be done on credit cards and debit cards. There is a three-day payment lag on these sales. We assumed that wholesale customers would pay on an average of 50 days and that in year one 60% of our business would be on terms. As we develop our customer base (at wholesale) this number is ramped up to 80% by year five. (Our terms will be C.O.D. on all opening orders.) Our payments to vendors are assumed at 45 days.
| General Assumptions |
| Plan Month | 1 | 2 | 3 | 4 | 5 |
| Current Interest Rate | 9.50% | 9.50% | 9.50% | 9.50% | 9.50% |
| Long-term Interest Rate | 9.00% | 9.00% | 9.00% | 9.00% | 9.00% |
| Tax Rate | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Other | 0 | 0 | 0 | 0 | 0 |
7.2 Key Financial Indicators
This topic compares five key indicators in regards to how much they change over time. The indicators include sales, gross margin, operating expenses, inventory turnover, and collection days. We chose these five indicators because they all have real impact on the health of a business. We focus not on gross amounts as much as changes. The chart actually shows changes on a year-to-year basis, rather than gross amounts. For example, growing sales from $1 million to $2 million shows up exactly the same in the chart as growing sales from $20,000 to $40,000. That would also show up the same as increasing gross margin from 20% to 40%, or increasing collection days from 30 to 60, or increasing inventory turnover from four to eight. The chart uses indicator values that are set to compare changes with the base year showing up as 1.00 and all other years showing up as multiples from the base.
The indicator value is a good way to compare different concepts on the same chart. Sales and operating expenses are measured in gross amounts, gross margin is in percentage terms, collection days are in days (how many days do you wait to get the money), and inventory turnover is in turns per year (cost of goods sold divided by average inventory).
7.3 Break-even Analysis
Our break-even analysis is based upon 2001 planned expenses. We have included all operating expenses in fixed expenses. As the business grows this number will be updated. We consider it an important factor in our business and expense planning.
| Break-even Analysis |
| Monthly Revenue Break-even | $56,505 |
| Average Percent Variable Cost | 31% |
| Estimated Monthly Fixed Cost | $38,872 |
7.4 Projected Profit and Loss
Bluespa is expected to reach profitability in year three. Certain expenses in the early years may appear outside the accepted ranges (i.e. marketing) as a % of sales. This is a result of our strategy to bring the brand to prominence in five years and should be considered as a start-up cost. Likewise, our initial salary numbers and staffing reflect our growth plan rather than a stable or mature business. Our margin numbers may appear high. This is the result of a combined retail and wholesale strategy. Our retail stores and catalogue will calculate margin from first cost rather than wholesale. Our wholesale effort will not receive sales credit for internal sales (this reflects a more accurate picture of retail profitability and of wholesale growth). Our margins are projected lower in years two and three to account for promotions to wholesalers intended to assist in reaching our wholesale sales targets. In years four and five, margins move up again as the number of retail stores increases and the catalogue comes online. As the retail business overtakes the wholesale business we believe maintained margins can exceed median. Wholesale commissions are calculated at a straight percent of sales. We have assumed a continuation of outside sales management in these tables.
| Pro Forma Profit and Loss |
| Direct Cost of Sales | $146,760 | $1,324,375 | $3,548,375 | $6,754,775 | $13,600,986 |
| Production Payroll | $28,830 | $82,000 | $109,000 | $137,000 | $146,000 |
| Ecommerce & Catalog Production & Fulfillment | $0 | $125,000 | $500,000 | $900,000 | $1,600,000 |
| Total Cost of Sales | $175,590 | $1,531,375 | $4,157,375 | $7,791,775 | $15,346,986 |
| Gross Margin | $294,711 | $2,206,125 | $5,876,125 | $11,427,325 | $23,456,957 |
| Gross Margin % | 62.66% | 59.03% | 58.57% | 59.46% | 60.45% |
| Sales and Marketing Payroll | $56,134 | $150,604 | $347,208 | $656,416 | $967,624 |
| Advertising/Promotion Retail | $9,832 | $19,500 | $41,340 | $88,764 | $192,158 |
| Advertising/Promotion Brand | $80,000 | $250,000 | $500,000 | $1,000,000 | $2,000,000 |
| Travel & Enterntainment | $16,192 | $74,750 | $200,670 | $384,382 | $776,079 |
| Selling Supplies | $4,703 | $37,375 | $100,335 | $192,191 | $388,039 |
| Wholesale Commissions | $26,940 | $360,000 | $960,000 | $1,800,000 | $3,600,000 |
| Total Sales and Marketing Expenses | $193,801 | $892,229 | $2,149,553 | $4,121,753 | $7,923,900 |
| Sales and Marketing % | 41.21% | 23.87% | 21.42% | 21.45% | 20.42% |
| General and Administrative Payroll | $172,747 | $640,000 | $905,000 | $1,020,500 | $1,122,550 |
| Depreciation | $14,166 | $37,170 | $73,740 | $146,880 | $220,015 |
| Leased Equipment | $16,200 | $21,600 | $36,000 | $50,400 | $79,200 |
| Utilities | $1,820 | $13,081 | $35,117 | $67,267 | $135,814 |
| Insurance | $2,351 | $7,475 | $20,067 | $38,438 | $77,608 |
| Bad Debt | $1,327 | $37,375 | $100,335 | $192,191 | $388,039 |
| Legal Fees | $1,412 | $7,475 | $20,067 | $28,829 | $58,206 |
| Licenses & Permits | $471 | $3,738 | $10,034 | $9,610 | $19,402 |
| Office Supplies | $2,351 | $18,688 | $50,168 | $96,096 | $194,020 |
| Telephone | $1,819 | $13,081 | $35,117 | $67,267 | $135,814 |
| Taxes/non-income tax | $7,054 | $56,063 | $150,503 | $288,287 | $582,059 |
| Payroll Taxes | $38,657 | $142,141 | $224,281 | $294,197 | $359,747 |
| Other General and Administrative Expenses | $12,290 | $24,375 | $51,675 | $110,955 | $2,400,197 |
| Total General and Administrative Expenses | $272,665 | $1,022,262 | $1,712,104 | $2,410,917 | $5,772,671 |
| General and Administrative % | 57.98% | 27.35% | 17.06% | 12.54% | 14.88% |
| Creative Payroll | $0 | $75,000 | $134,000 | $147,400 | $162,140 |
| Consultants | $0 | $0 | $0 | $0 | $0 |
| Contract/Consultants | $0 | $74,750 | $200,670 | $384,382 | $388,039 |
| Total Creative Expenses | $0 | $149,750 | $334,670 | $531,782 | $550,179 |
| Creative % | 0.00% | 4.01% | 3.34% | 2.77% | 1.42% |
| Profit Before Interest and Taxes | ($171,755) | $141,884 | $1,679,798 | $4,362,873 | $9,210,206 |
| EBITDA | ($157,589) | $179,054 | $1,753,538 | $4,509,753 | $9,430,221 |
| Interest Expense | $10,490 | $2,375 | $0 | $0 | $0 |
| Taxes Incurred | $0 | $0 | $0 | $0 | $0 |
| Net Profit/Sales | -38.75% | 3.73% | 16.74% | 22.70% | 23.74% |
7.5 Projected Cash Flow
Our cash flow projections are shown on the following table. Cash flow after capital expenditures and investment varies between positive and negative, depending upon our rate of expansion and increasing accounts receivable.
| Pro Forma Cash Flow |
| Cash from Operations | | | | | |
| Cash Sales | $247,196 | $747,500 | $2,006,700 | $4,228,202 | $8,924,907 |
| Cash from Receivables | $75,398 | $1,158,168 | $4,692,171 | $10,380,295 | $20,022,298 |
| Subtotal Cash from Operations | $322,594 | $1,905,668 | $6,698,871 | $14,608,497 | $28,947,205 |
| Additional Cash Received | | | | | |
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 | $0 | $0 |
| New Current Borrowing | $100,000 | $0 | $0 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $0 | $0 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| New Investment Received | $1,500,000 | $1,200,000 | $1,500,000 | $1,500,000 | $0 |
| Subtotal Cash Received | $1,922,594 | $3,105,668 | $8,198,871 | $16,108,497 | $28,947,205 |
| Expenditures from Operations | | | | | |
| Cash Spending | $257,711 | $947,604 | $1,495,208 | $1,961,316 | $2,398,314 |
| Bill Payments | $283,496 | $2,571,646 | $6,645,289 | $12,562,468 | $26,443,599 |
| Subtotal Spent on Operations | $541,207 | $3,519,250 | $8,140,497 | $14,523,784 | $28,841,913 |
| Additional Cash Spent | | | | | |
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $150,000 | $50,000 | $0 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $0 | $0 | $0 | $0 | $0 |
| Purchase Other Current Assets | $50,000 | $0 | $0 | $0 | $0 |
| Purchase Long-term Assets | $192,873 | $242,846 | $465,692 | $806,384 | $851,384 |
| Dividends | $0 | $0 | $0 | $0 | $0 |
| Subtotal Cash Spent | $934,080 | $3,812,096 | $8,606,189 | $15,330,168 | $29,693,297 |
| Cash Balance | $1,128,514 | $422,086 | $14,769 | $793,098 | $47,005 |
7.6 Projected Balance Sheet
The following table is our balance sheet projection through 2005.
| Pro Forma Balance Sheet |
| Current Assets | | | | | |
| Cash | $1,128,514 | $422,086 | $14,769 | $793,098 | $47,005 |
| Accounts Receivable | $147,707 | $1,979,539 | $5,314,168 | $9,924,770 | $19,781,508 |
| Inventory | $43,140 | $127,473 | $341,537 | $654,211 | $1,320,871 |
| Other Current Assets | $50,000 | $50,000 | $50,000 | $50,000 | $50,000 |
| Total Current Assets | $1,369,361 | $2,579,098 | $5,720,473 | $11,422,079 | $21,199,384 |
| Long-term Assets | | | | | |
| Long-term Assets | $257,873 | $500,719 | $966,411 | $1,772,795 | $2,624,179 |
| Accumulated Depreciation | $14,166 | $51,336 | $125,076 | $271,956 | $491,971 |
| Total Long-term Assets | $243,707 | $449,383 | $841,335 | $1,500,839 | $2,132,208 |
| Total Assets | $1,613,068 | $3,028,481 | $6,561,808 | $12,922,918 | $23,331,592 |
| Current Liabilities | | | | | |
| Accounts Payable | $95,813 | $221,716 | $575,245 | $1,073,483 | $2,271,951 |
| Current Borrowing | $50,000 | $0 | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 | $0 | $0 |
| Subtotal Current Liabilities | $145,813 | $221,716 | $575,245 | $1,073,483 | $2,271,951 |
| Long-term Liabilities | $0 | $0 | $0 | $0 | $0 |
| Total Liabilities | $145,813 | $221,716 | $575,245 | $1,073,483 | $2,271,951 |
| Paid-in Capital | $1,820,000 | $3,020,000 | $4,520,000 | $6,020,000 | $6,020,000 |
| Retained Earnings | ($170,500) | ($352,744) | ($213,235) | $1,466,563 | $5,829,435 |
| Earnings | ($182,244) | $139,509 | $1,679,798 | $4,362,873 | $9,210,206 |
| Total Capital | $1,467,256 | $2,806,765 | $5,986,563 | $11,849,435 | $21,059,642 |
| Total Liabilities and Capital | $1,613,068 | $3,028,481 | $6,561,808 | $12,922,918 | $23,331,592 |
| Net Worth | $1,467,256 | $2,806,765 | $5,986,563 | $11,849,435 | $21,059,642 |
7.7 Business Ratios
The following table outlines our ratios in several key areas. These are compared with the Industry profile average ratios as determined by for the Toilet Preparation Manufacturing industry, NAICS code 325620. One of our key objectives is to generate an acceptable return on shareholder equity and assets.
| Ratio Analysis |
| Sales Growth | 0.00% | 694.70% | 168.45% | 91.55% | 101.90% | 10.59% |
| Accounts Receivable | 9.16% | 65.36% | 80.99% | 76.80% | 84.78% | 27.07% |
| Inventory | 2.67% | 4.21% | 5.20% | 5.06% | 5.66% | 25.40% |
| Other Current Assets | 3.10% | 1.65% | 0.76% | 0.39% | 0.21% | 24.02% |
| Total Current Assets | 84.89% | 85.16% | 87.18% | 88.39% | 90.86% | 76.49% |
| Long-term Assets | 15.11% | 14.84% | 12.82% | 11.61% | 9.14% | 23.51% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 9.04% | 7.32% | 8.77% | 8.31% | 9.74% | 28.36% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 25.69% |
| Total Liabilities | 9.04% | 7.32% | 8.77% | 8.31% | 9.74% | 54.05% |
| Net Worth | 90.96% | 92.68% | 91.23% | 91.69% | 90.26% | 45.95% |
| Sales | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 62.66% | 59.03% | 58.57% | 59.46% | 60.45% | 35.83% |
| Selling, General & Administrative Expenses | 101.41% | 55.29% | 41.82% | 36.76% | 36.71% | 19.94% |
| Advertising Expenses | 2.09% | 0.52% | 0.41% | 0.46% | 0.50% | 4.44% |
| Profit Before Interest and Taxes | -36.52% | 3.80% | 16.74% | 22.70% | 23.74% | 3.15% |
| Current | 9.39 | 11.63 | 9.94 | 10.64 | 9.33 | 2.17 |
| Quick | 9.10 | 11.06 | 9.35 | 10.03 | 8.75 | 1.10 |
| Total Debt to Total Assets | 9.04% | 7.32% | 8.77% | 8.31% | 9.74% | 58.41% |
| Pre-tax Return on Net Worth | -12.42% | 4.97% | 28.06% | 36.82% | 43.73% | 8.60% |
| Pre-tax Return on Assets | -11.30% | 4.61% | 25.60% | 33.76% | 39.48% | 3.58% |
| Net Profit Margin | -38.75% | 3.73% | 16.74% | 22.70% | 23.74% | n.a |
| Return on Equity | -12.42% | 4.97% | 28.06% | 36.82% | 43.73% | n.a |
| Accounts Receivable Turnover | 1.51 | 1.51 | 1.51 | 1.51 | 1.51 | n.a |
| Collection Days | 50 | 130 | 166 | 186 | 181 | n.a |
| Inventory Turnover | 3.93 | 15.52 | 15.13 | 13.57 | 13.77 | n.a |
| Accounts Payable Turnover | 3.96 | 12.17 | 12.17 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 21 | 21 | 23 | 22 | n.a |
| Total Asset Turnover | 0.29 | 1.23 | 1.53 | 1.49 | 1.66 | n.a |
| Debt to Net Worth | 0.10 | 0.08 | 0.10 | 0.09 | 0.11 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | n.a |
| Net Working Capital | $1,223,549 | $2,357,382 | $5,145,228 | $10,348,596 | $18,927,434 | n.a |
| Interest Coverage | -16.37 | 59.74 | 0.00 | 0.00 | 0.00 | n.a |
| Assets to Sales | 3.43 | 0.81 | 0.65 | 0.67 | 0.60 | n.a |
| Current Debt/Total Assets | 9% | 7% | 9% | 8% | 10% | n.a |
| Acid Test | 8.08 | 2.13 | 0.11 | 0.79 | 0.04 | n.a |
| Sales/Net Worth | 0.32 | 1.33 | 1.68 | 1.62 | 1.84 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | n.a |
7.8 Long-term Plan
Bluespa will show the company growing to a multi-billion dollar a year distributor of high quality natural skin-care products and related fitness apparel for women. We will begin life as a wholesale company with a retail component and evolve to a retail company with a wholesale component within our first ten years. Our public offering in year five will provide the funding to launch a retail roll out that will take us to 500 stores in the following five years, expand our e-commerce program and grow our catalogue distribution. It will allow us to begin development of new product lines that complement Bluespa and further define our image. We will move to worldwide distribution. Once the brand has been established it will have significant cache with the Asian market and our European manufacturing ties will provide us a logical place in that market. Bluespa will become one of the most recognized brands in quality skin care and related products for the active female consumer.
