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Financial plan Essay

Financial plan

1.      Major Assumptions

A.    Revenue Projections

All services will be rendered on cash basis. The following table details the annual income the company expects to attain.

Year 1
Year 2
Year 3
Year 4
Year 5
Target # of sites
21,000.00
30,000.00
40,000.00
45,000.00
45,000.00
Rate per site
20.00
25.00
30.00
35.00
40.00
Total Revenues
420,000.00
750,000.00
1,200,000.00
1,575,000.00
1,800,000.00
% Increase
base year
64.29%
26.81%
37.14%
40.00%

B.     Initial Investment / Capitalization

The Board of Directors, composed of seven (7) members who will also serve as the company’s top executives, will contribute $50,000 each as initial investment.

C.    Operating Expenses

Employee salaries and outsourcing of other functions to third party are the company’s expected major expenses. Office rental is also considered as one of the major costs.

2.      Financial Statements

A.    Comparative Income Statement

The company’s projected statements of profits and loss for the next five (5) years are detailed below.

Year 1
Year 2
Year 3
Year 4
Year 5
Gross Revenues
420,000.00
690,000.00
875,000.00
1,200,000.00
1,680,000.00
Salaries
328,200.00
361,020.00
397,122.00
436,834.20
480,517.62
Payroll taxes
32,820.00
36,102.00
39,712.20
43,683.42
48,051.76
Office Rent
42,000.00
46,200.00
50,820.00
55,902.00
61,492.20
Depreciation
11,666.67
11,666.67
11,666.67
11,666.67
11,666.67
Licenses & Fees
12,000.00
12,000.00
12,000.00
12,000.00
12,000.00
Advertising
12,000.00
13,800.00
15,870.00
19,044.00
22,852.80
Miscellaneous
6,000.00
6,900.00
7,935.00
9,522.00
11,426.40
Utilities
12,000.00
13,200.00
14,520.00
15,972.00
17,569.20
Insurance
1,500.00
1,725.00
1,983.75
2,380.50
2,856.60
Outside Services
60,000.00
69,000.00
79,350.00
91,252.50
104,940.38
Total Expenses
518,186.67
571,613.67
630,979.62
698,257.29
773,373.62
Net Income / (Loss)
(98,186.67)
118,386.33
244,020.38
501,742.71
906,626.38

·         Employee Salaries and Related Costs. Aside from the monthly salaries, the company is required by law to provide for worker’s compensation insurance. This is estimated to be 10% of the monthly salary. A 10% increase in the basic salary is also projected. Below table details the work force requirements and distribution per employee.

Management Team
7.00
7,000.00
Project Managers
5.00
5,000.00
Web Analysts
5.00
3,300.00
Systems Analysts
5.00
3,300.00
IT Officers
10.00
2,750.00
Account Executives
3.00
4,000.00
Support Staff
7.00
2,000.00
Total Requirement
42.00
27,350.00

·         Outside Services. The company will pay $5,000.00 monthly for

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outsourcing some areas of their operations. At the end of the first year, charges are expected to increase by 15% annually.

·         Office Rental. Monthly rental expense for office area is estimated to be at $3,500.00 monthly. Lease for space is valid for one year with one (1) month advance and two (2) months deposit recorded as prepaid rent.

·         Depreciation. The company will be acquiring computer, software, other office equipment and infrastructure that are necessary for any office and business to function. All capital expenditures are amortized over a period of three (3) years.

·         Other Expenses.

o  Licenses and fees. These are mainly for compliance with government requirements regarding business permits and licenses. These would also cover any licensing costs for computer software that the company will utilize to facilitate its operations.

o  Advertising. The company expects to undergo promotional activities to attract prospective clients.

o  Utilities. These pertain to electricity, water and other fees expected to be incurred in the course of the business operations.

o  Insurance. The company will insure all assets as part of risk management efforts.

B.     Comparative Balance Sheet

The company’s projected balance sheet for the first five (5) years is presented below.

Year 1
Year 2
Year 3
Year 4
Year 5
ASSETS

Cash
96,480.00
226,533.00
462,220.05
975,629.43
1,893,922.47
Office Equipment
13,333.33
6,666.67
20,000.00
13,333.33
6,666.67
Prepaid Rent
7,000.00
7,000.00
7,000.00
7,000.00
7,000.00
Total Assets
116,813.33
240,199.67
489,220.05
995,962.76
1,907,589.14
LIABILITIES & EQUITY

Liabilities
0.00
0.00
0.00
0.00
0.00
Equity
210,000.00
210,000.00
210,000.00
210,000.00
210,000.00
Retained Earnings
0.00
(93,186.67)
30,199.67
279,220.05
785,962.76
Income / (Loss)
(93,186.67)
123,386.33
249,020.38
506,742.71
911,626.38
Total Liabilities & Equity
116,813.33
240,199.67
489,220.05
995,962.76
1,907,589.14
C.    Analysis of Financial Statements

The company’s projected financial statements show that the first year of the company’s operations is the more critical one, having to operate at a loss. Break-even is achieved only on its second year. This is, however, reasonable given that the company is still starting up but efforts must be taken in order to achieve the estimated revenues.

The graph below will better illustrate the improvement of company’s performance in the first five years of its operations.

It is also evident that the company is very liquid, having zero liabilities and cash-basis sales. This shows that the company has enough working capital to support its operations and does not need additional financing. This also means that risk level is at a minimum since the company is not exposed to the volatility of interest rates.

The above assumptions show that the venture is a very profitable one. Considering the industry’s trend and outlook, it may even be claimed that these are very conservative numbers. However, even with the expected steady increase of websites in the succeeding years, management must exert all efforts in maintaining its number of clients and must continually pay attention to industry developments to remain competitive.

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