FinancialProjections
BriefSummary of the Product
TravelPro Company will venture into the business of manufacturing suitcasescalled Intelligent Suitcase. The suitcases offer a unique solution toproblems faced by travellers when connecting flights. These suitcasesare a good example of how one can use technology to solve old-ageproblems. The intelligent suitcase is fitted with a Bluetooth devicethat is used in tracking the suitcase using proximity heat map. Thefitted GPS systems also aid in providing the location of the missingsuitcases when traveling for long distances.
Wewill create a strategic alliance with Kings Collection since they arethe leading high-end suitcase suppliers. This way, we will be in aposition of gaining a large market share within a short period. Wewill also place our products at slightly lower prices than those ofour prospective competitors. This strategy shall help us to swiftlypenetrate into the market.
ProjectedStatement of Cash Flow
Thetable below demonstrates the three years cash flows to be expected.The capital expenses entail software & technology investment andpurchase of computer equipment.
Twentypercent of the fixed costs are represented by the computer equipment.During the first year, this translates to $80,000.
Softwareandtechnologyinvestment represents fifty percent of the fixed costs. During thefirst year, this represents $1.3 million.
Projected Cash Flow Statement |
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Year 1 |
2 |
3 |
|||||
Cash Received |
|||||||
Operations Cash Flow |
|||||||
Cash Sales |
– |
4,759,000.00 |
14,859,600.00 |
||||
Cash from Receivables |
– |
14,274,000.00 |
44,578,800.00 |
||||
Subtotal Cash flows from Operating activities |
– |
19,033,000.00 |
59,438,400.00 |
||||
Additional Cash Received |
|||||||
New Investment |
4,111,000.00 |
– |
– |
||||
Subtotal Cash flow Received |
4,111,000.00 |
19,032,000.00 |
59,438,400.00 |
||||
Expenditures |
|||||||
Operations expenditure |
|||||||
Cash payments |
201,000.00 |
1,960,000.00 |
4,105,000.00 |
||||
Bill Payments |
2,149,150.00 |
11,445,858.00 |
26,737,688.00 |
||||
Subtotal Spent on Operations |
2,350,150.00 |
13,405,858.00 |
30,842,688.00 |
||||
Additional Cash Spent |
|||||||
Purchase Long-term Assets |
1,380,000.00 |
323,544.00 |
653,822.00 |
||||
Subtotal Cash Spent |
3,729,150.00 |
13,729,402.00 |
31,496,510.00 |
||||
Net Cash Flow |
380,850.00 |
5,302,598.00 |
27,941,890.00 |
||||
Cash Balance |
427,850.00 |
5,730,448.00 |
33,672,338.00 |
BreakevenAnalysis
Fromthe table below, the projected monthly breakeven point is estimatedat $222,000.
Monthly breakeven |
222,000 |
Assumptions: |
|
Average variable costs (%) |
0% |
Projected fixed monthly costs |
222,000 |
Assumptions
Thistable shows the assumptions which are crucial for the success of thiscompany.
Year 1 |
2 |
3 |
|
Prevailing Interest Percentage |
11.00 |
11.00 |
11.00 |
Long term Interest Percentage |
11.00 |
11.00 |
11.00 |
Tax Percentage |
24.40 |
24.01 |
24.40 |
Start-UpExpenses
FixedCorporate Costs
Thisrepresents the percentage of cash allocated to fixed corporate coststhat are associated with office charges (Warren,et al. 2015).In the first year of operation, $50,000 was allocated to training andhiring expenses, $150,000 for the lease of equipment and office setupwhile $200,000 was allocated to the hiring of the sales force.
FixedTechnology Costs
Thisrepresents the percentage of cash allocated to fixed internet relatedand computer charges and developments. In the first year ofoperation, $800,000 was allocated to software development, $200,000for integration of systems and $300,000 for website design.
Advertising
Thisrepresents the percentage of cash allocated to advertising in themedia. In the first year, $250,000 was assigned to marketingcampaigns. In the subsequent years, more cash has been allocated tothis docket.
Salesand Marketing
Thisrepresents the cash allocated to selling and marketing activities(Asefso,2013)which include all the commissions paid to the sales staff, $200,000will be allocated towards this.
Researchand Development
Thisrepresents the cash allocated towards R&D activities. $200,000will be spent on fine tuning and testing of computer programs andsystems.
Generaland Administrative
Thisrepresents the cash allocated towards running the business. $200,000will be spent on accounting fees, legal fees, and the company’sinitial set-up.
Depreciation
Thisrepresents the depreciation of all capital investments. Straight linedepreciation will be used over the next 20 years.
ProjectedIncome Statement
Belowis the projected income statement for this company. The fixed costsfor advertising, technology and corporate affairs are shown in thesales and marketing section of the income statement.
Profit and Loss Statement |
|||
Year 1 |
2 |
3 |
|
Sales |
– |
19,032,000.00 |
59,438,400.00 |
Direct sales cost |
– |
– |
– |
Other |
– |
– |
– |
Total Cost of Sales |
– |
– |
– |
Gross Margin |
– |
19,033,000.00 |
59,438,400.00 |
Gross Margin (%) |
– |
100% |
100% |
Total Expenses |
|||
Employees’ Salaries |
210,000.00 |
1,950,000.00 |
4,105,000.00 |
Sales, Marketing and Other Expenditures |
2,160,000.00 |
9,356,520.00 |
16,379,882.00 |
Depreciation |
69,000.00 |
85,177.00 |
117,868.00 |
Research & Development |
200,000.00 |
951,600.00 |
1,783,152.00 |
Payroll Taxes |
30,000.00 |
294,000.00 |
615,750.00 |
Other |
– |
– |
– |
Total Operating Expenses |
2,669,000.00 |
12,646,297.00 |
23,001,652.00 |
EBIT |
(2,670,000) |
6,386,703.00 |
36,436,748.00 |
EBITDA |
(2,600,000) |
6,470,880.00 |
36,554,616.00 |
Interest Expense |
– |
– |
– |
Taxes Incurred |
– |
1,597,426.00 |
9,261,007.00 |
Net Profit |
(2,669,000) |
4,789,277.00 |
27,175,741.00 |
Net Profit/Sales (%) |
– |
25.20 |
45.70 |
Travel Pro Business ModelThebusiness model of Travel Pro Company is cost-driven considering thatthe suitcases have been priced based on their initial cost ofmanufacturing. The price charged on each suitcase is slightly belowthat of the competing products and this will aid in marketpenetration. The cost of manufacturing a single suitcase is $60 and aprofit margin of 25% is placed on each piece. This thus implies thatone piece goes for $75.Pro forma Balance Sheet
Thecompany’s statement of financial position depicts a solid net worthand sales growth.
Year 1 |
2 |
3 |
|
Assets |
|||
Current Assets |
|||
Cash |
427,850.00 |
5,730,448.00 |
33,672,338.00 |
Total Current Assets |
427,850.00 |
5,730,448.00 |
33,672,338.00 |
Long Term Assets |
|||
Assets |
1,379,000.00 |
1,703,544.00 |
2,357,366.00 |
Accumulated Depreciation |
69,000.00 |
154,177.00 |
272,045.00 |
Total Long-term Assets |
1,311,000.00 |
1,549,367.00 |
2,085,321.00 |
Total Assets |
1,738,850.00 |
7,279,815.00 |
35,757,659.00 |
Liabilities and Capital |
|||
Current Liabilities |
|||
Accounts Payable |
250,850.00 |
1,002,538.00 |
2,304,640.00 |
Subtotal Current Liabilities |
250,849.00 |
1,001,538.00 |
2,305,640.00 |
Total Liabilities |
250,849.00 |
1,001,538.00 |
2,305,640.00 |
Paid Capital |
4,160,000.00 |
4,160,000.00 |
4,160,000.00 |
Retained Earnings |
(3,000.00) |
(2,672,000.00) |
2,117,277.00 |
Earnings |
(2,669,000.00) |
4,789,277.00 |
27,175,741.00 |
Total Capital |
1,488,000.00 |
6,277,277.00 |
33,453,018.00 |
Total Liabilities and Capital |
1,738,850.00 |
7,279,815.00 |
35,757,659.00 |
Net Worth |
1,488,000.00 |
6,277,277.00 |
33,453,018.00 |
FundingSources
Thefinancial statements of the business start-up integrate two venturecapital investment rounds of 2.6 million dollars in total and anextra $1.4 million for cash flow reasons. The financial projectionsare excluded from the money raised through the suggested initialpublic offer. The financial year ends on every 31st of December. Thebusiness will be funded partly through the IPO and the capital raisedby the investor. If sufficient cash is not raised through the twooptions, then debt capital will be considered as another option.Raising capital through debt will not be a difficult task consideringthat the financial projections of this company are very impressive.
ReviewOf the Revenue Model and Proof That It Will Generate Profits
TravelPro Company will venture into the business of manufacturing suitcasescalled Intelligent Suitcase. The suitcases are fitted with Bluetoothdevices that aid in tracking lost luggage. Travellers haveincreasingly expressed their concerns over lost luggage whenconnecting flights but with this idea this shall be a thing of thepast. Travel Pro will make a strategic alliance with Kings Collectionso that it can enable it to penetrate into the market quickly asmentioned earlier. According to the pro forma income statement, theproduct will start making profits as from year 2 onwards hence it isprudent to exploit this opportunity. No profits will be made in year1 since the business is a start-up and there will be no sales. Theanticipated profits for year 2 and 3 are $4,789,277.00 and27,175,741.00 respectively.
References
Asefso,A. (2013). LeanSales and Marketing.AAGlobal Sourcing Ltd
FinancialManagement,44(2).(2015). doi:10.1111/fima.2015.44.issue-2
Warren,C. S., Reeve M J & Duchac, J. (2015). CorporateFinancial Accounting.Cengage Learning.