Financial Plan
Projecting Revenues and ExpensesThe validity of any financial projections depend on detailed and reliable historical economic records combined realistic assumptions to base the economic forecast. Shorter term forecasts have a higher degree of reliability than forecasts that extend 10, 15, or 20 years in the future.
Determine the essential funding necessary to build out the project using a mixture of start-up capital, investor capital, and a construction loan converted to a long-term (20 to 30 year) fixed rate bank loan. Add a 20% cushion to cover unanticipated expenses. Do not rely on generating enough cash flow to generate a target profit to investors and pay back bank loans and also to assume payments for construction loans for various planned stages to achieve final build out of the project.
A preferred approach would be for the general partner to own the land and seek financing for the initial site preparation and develop, plus construction of the first stage of the project. Each additional stage could represent a separate financial group on leased land or land that has be subdivided into parcels that can be included as part of a total construction of phase of building out the complete complex.
While it is possible to talk in generalities, hard numbers must start with a specific plan designed for a site that may require improvements that pertain only to that site for soil compacting, drainage, and access easements. Remember that building codes and zoning restrictions vary from community to community and can represent unanticipated approval delays. to determine the amount of start-up capital, investor capital, and a construction loan converted to a long-term (20 to 30 year) fixed rate bank loan.
Important Assumptions
The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendix. From the beginning, we recognize that collection days are critical, but not a factor we can influence easily. At least we are planning on the problem, and dealing with it. Interest rates, tax rates, and personnel burden are based on conservative assumptions.
Some of the more important underlying assumptions are:
- The strength of the economy
- The short and long term forecast for sustained economic
growth upon competition of the initial phase of the construction and
any subsequent expansions to construct a second, third, or fourth stage
of building out the project.
- The projected rate of growth for sport and fitness memberships to break-even and generate a specific rate of return for investors.
| Pro
Forma Projected
Organizational Start-up Expenses |
|||
| |
Year 1 | Year 2 | Year 3 |
| Initial
Office Lease |
$0 |
$0 | $0 |
| Working
Capital |
$0 | $0 | $0 |
| Furniture, Fixtures & Equipment purchases |
$0 | $0 | $0 |
| Leasehold
Improvements |
$0 | $0 | $0 |
| Security
Deposits |
$0 | $0 | $0 |
| Office
Supplies |
$0 | $0 | $0 |
| Office
Equipment Leases |
$0 | $0 | $0 |
| Attorney
Fees |
$0 | $0 | $0 |
| Fees to
Develop Prospectus |
$0 | $0 | $0 |
| Commissions to Market Prospectus | $0 | $0 | $0 |
| Architect,
Design, and Engineering Fees |
$0 | $0 | $0 |
| Option
to Purchase Land for Project |
$0 | $0 | $0 |
| Rezoning
Expenses if Required |
$0 | $0 | $0 |
| Obtaining
Necessary Permits and Licenses |
$0 | $0 | $0 |
| Feasibility
Study |
$0 | $0 | $0 |
| Demographic
Study |
$0 | $0 | $0 |
| Marketing
Analysis |
$0 | $0 | $0 |
| Preparing and Filing State and Federal Taxes |
$0 | $0 | $0 |
| Miscellaneous
and Unforeseen expenses |
$0 | $0 | $0 |
| Total
Start-up Costs |
$0 | $0 | $0 |
Break-even Analysis
The following table and chart is a summary break-even analysis supported by spread sheets of individual facility amenities management and service expenses:
Projected Profit and Loss
Our projected profit and loss is shown on the following table. A conservative estimate of net profits/sales, with increases each year, should be used. Comparisons to the industry data should use conservative projections that have a very high expectation of being easily attained.
Detailed monthly projections should be
developed for each
department of the complex and the supporting data be in the appendix:
The following cash flow projections show our annual amounts only. For more detailed monthly projections please see the appendix.
Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month, and the other the monthly balance. The annual cash flow figures are included here and the more important detailed monthly numbers are included in the appendix and summarized in the Pro Forma Cash Flow Chart below.
Projected Balance Sheet
The balance sheet in the following table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly projections are included in the appendix.
Business Ratios
Free Business Statistics, Financial Ratios and Industry BizStats offers free business financial ratios for 250 industries, along with other well organized business and industry statistics.
Business Ratios Abstract:
Main Ratios -
-
Current. Measures company's ability to meet financial obligations. Expressed as the number of times current assets exceed current liabilities. A high ratio indicates that a company can pay its creditors. A number less than one indicates potential cash flow problems.
-
Quick. This ratio is very similar to the Acid Test and measures a company's ability to meet its current obligations using its most liquid assets. It shows Total Current Assets excluding Inventory divided by Total Current Liabilities.
-
Total Debt to Total Assets. Percentage of Total Assets financed with debt.
-
Pre-Tax Return on Net Worth. Indicates shareholders earnings before taxes for each dollar invested. This ratio is not applicable if the subject company's net worth for the period being analyzed has a negative value.
-
Pre-Tax Return on Assets. Indicates profit as a percentage of Total Assets before taxes. Measures a company's ability to manage and allocate resources.
Additional Ratios -
-
Net Profit Margin. This ratio is calculated by dividing Sales into the Net Profit, expressed as a percentage.
-
Return on Equity. This ratio is calculated by dividing Net Profit by Net Worth, expressed as a percentage.
| Business Ratios | ||||
| |
Year 1 | Year 2 | Year 3 | Industry Profile |
| Sales Growth | 0.00% | 0.00% | 0.00% | 0.00% |
| Percent of Total Assets | 0.00% | 0.00% | 0.00% | 0.00% |
| Accounts Receivable | 0.00% | 0.00% | 0.00% | 0.00% |
| Inventory | 0.00% | 0.00% | 0.00% | 3.60% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 31.10% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 39.00% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 61.00% |
| Total Assets | 100% | 100% | 100% | 100% |
| Current Liabilities | 0.00% | 0.00% | 0.00% | 34.80% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 27.60% |
| Total Liabilities | 0.00% | 0.00% | 0.00% | 62.40% |
| Net Worth | 0.00% | 0.00% | 0.00% | 37.60% |
| Percent of Sales | |
|
|
|
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 100.00% | 100.00% | 100.00% | 0.00% |
| Selling, General & Administrative Expenses | 0.00% | 0.00% | 0.00% | 73.20% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 2.40% |
| Profit Before Interest and Taxes | 0.00% | 0.00% | 0.00% | 2.70% |
| Main Ratios | Year 1 | Year 2 | Year 3 | Industry Profile |
| Current | 0.00% | 0.00% | 0.00% | 1.10% |
| Quick | 0.00% | 0.00% | 0.00% | 0.73% |
| Total Debt to Total Assets | 0.00% | 0.00% | 0.00% | 62.40% |
| Pre-tax Return on Net Worth | 0.00% | 0.00% | 0.00% | 3.00% |
| Pre-tax Return on Assets | 0.00% | 0.00% | 0.00% | 7.90% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | Industry Profile |
| Net Profit Margin | 0.00% | 0.00% | 0.00% | n.a |
| Return on Equity | 0.00% | 0.00% | 0.00% | n.a |
| Activity Ratios | 0.00% | 0.00% | 0.00% | n.a |
| Accounts Receivable Turnover | 0.00% | 0.00% | 0.00% | n.a |
| Collection Days | 0 | 0 | 0 | n.a |
| Inventory Turnover | 0.00 | 0.00 | 0.00 | n.a |
| Accounts Payable Turnover | 0.00 | 0.00 | 0.00 | n.a |
| Payment Days | 0 | 28 | 29 | n.a |
| Total Asset Turnover | 0 | 1.79 | 1.47 | n.a |
| Debt Ratios | 0 |
0 | 0 | n.a |
| Debt to Net Worth | 0.00 | 0.00 | 0.00 | n.a |
| Current Liabilities to projected Liabilities | 0.02 | 0.03 | 0.03 | n.a |
| Liquidity Ratios | 0.00 | 0.00 | 0.00 | n.a |
| Net Working Capital | 0.00 | 0.00 | 0.00 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | 0.00 | 0.00 | 0.00 | n.a |
| Assets to Sales | 0.00 | 0.00 | 0.00 | n.a |
| Current Debt/Total Assets | 0% | 0% | 0% | n.a |
| Acid Test | 0.00 | 0.00 | 0.00 | n.a |
| Sales/Net Worth | 0.00 | 0.00 | 0.00 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
Business Owner's Toolkit: Business Ratios
In order to assess how your business is doing, you'll need more than an individual year of numbers extracted from the financial statements. Each year has to be viewed in context of the whole picture.
The true meaning of figures from the financial statements emerges only when they are compared to other figures. Such comparisons are the essence of why business and financial ratios have been developed.
Various ratios can be established from key figures on the financial statements. These ratios are very simple to calculate — sometimes they are simply expressed in the format "x:y," and other times they are simply one number divided by another, with the answer expressed as a percentage. However, these simple ratios can be a powerful tool because they allow you to immediately grasp the relationship expressed.
When you routinely calculate and record a group of ratios at the end of every accounting period, you can assess the performance of your business over time, and compare your business to others in the same industry or to others of a similar size. By doing so, you won't be alone — banks routinely use business ratios to evaluate a business that's applying for a loan, and some creditors use them to determine whether to extend credit to you.
When you compare changes in your business's ratios from period to period, you can pinpoint improvements in performance or developing problem areas. By comparing your ratios to those in other businesses, you can see possibilities for improvement in key areas. A number of sources, including many trade or business associations and organizations, provide data for comparison purposes; they are also available from commercial services. Your accountant may be a good source of information on how your business compares to similar ones in your particular locale.
There are dozens and dozens of financial ratios that you can look at, but many will have little or no meaning for your business. In the following sections we'll concentrate on those that are most commonly considered to have the most value for making small business decisions. The ratios fall into four categories:
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