The business plan: revised financial forecasts

Frame and Wheel continues to work the numbers and posts below a revised set of financials, along with a cash flow statement and a balance sheet.

Year end 31 Dec	2011	2012	2013
Selling prices
Frameset price	2,000	2,000	2,000
Demo / Custom bike	5,000	5,000	5,000
Per unit costs
Framesets	700	700	600
Build kits	1,600	1,600	1,600
Wheels	1,300	1,300	1,300
IBS commission	20%	20%	20%
IBS interconnection ($)	100	100	100
Volume
Originated on line	5	9	10
Originated with IBS	3	8	16
Custom models	2	3	4
Total	10	20	30
Value
On line	10,000	18,000	20,000
IBS revenue	6,000	16,000	32,000
Built up custom	10,000	15,000	20,000
Total	26,000	49,000	72,000
Cost of goods
Frame set	7,000	14,000	18,000
Components	5,800	8,700	11,600
IBS commission	1,199	3,199	6,399
IBS interconnection ($)	500	900	1,000
Total	14,499	26,799	36,999
Gross income	11,501	22,201	35,001
Operating expenses
Rent	0	0	0
Staff	0	12,000	12,000
Insurance	1,750	2,000	3,000
Marketing	100	200	300
Accounting	100	400	600
Supplies	100	200	300
Legal fees	300	400	500
IT support	300	400	500
Total	2,650	15,600	17,200
Operating income	8,851	6,601	17,801
Interest expense	0	(2,000)	(1,800)
Income before tax	8,851	4,601	16,001
Tax	3,098	1,610	5,600
Net profit	5,753	2,991	10,401
Dividend	0	0	0
Gross margin (%)	44.2%	45.3%	48.6%
Operating margin (%)	34.0%	13.5%	24.7%
Net income margin (%)	22.1%	6.1%	14.4%
Dividend payout ratio (%)	0.00%	0.00%	0.00%
Cash Flow Statement
Operating cash flow
Operating income	8,851	6,601	17,801
Interest expense	0	(2,000)	(1,800)
Tax	(3,098)	(1,610)	(5,600)
Total	5,753	2,991	10,401
Investing cash flow
Capital expenditure	0	0	0
Financing cash flow
Borrowing	0	25,000	(5,000)
Dividends	0	0	0
Equity	0	0	0
Total	0	25,000	(5,000)
Net operating cash flow	5,753	27,991	5,401
Cash BOY	20,000	25,753	53,744
Cash in flow / (out flow)	5,753	27,991	5,401
Cash EOY	25,753	53,744	59,144
Balance sheet
Assets	25,753	53,744	59,144
Liabilities	0	25,000	20,000
Equity
Paid up capital	20,000	20,000	20,000
Net profit	5,753	8,744	19,144
Dividends	0	0	0
Total shareholder’s equity	25,753	28,744	39,144
Total shareholder’s equity and liabilities	25,753	53,744	59,144

Frame and Wheel assumes 10 framesets in 2011, 20 framesets in 2012 and 30 framesets in 2013. This might be conservative, but Frame and Wheel must stick to the principle of the "pull model" rather than falling victim to the the "push" model, where 50 or 100 framesets are ordered, and then pushed out into the market. Additionally, Frame and Wheel must operate at a level that ensures the venture is profitable, even if the profits are small. Frame and Wheel recognizes that some borrowing is needed, and has thus factored in a working capital loan of $25,000 in 2012. This will help finance the 2012 order. Frame and Wheel envisages taking orders for 2012 in June of 2011, after the previous ten frame sets have been promoted to the market. If the orders are kept small, then Frame and Wheel can finance them, and potential buyers will not have to be asked for a large down payment. Frame and Wheel expects that door to door, a frameset order will take six months.