Southern New England Landscaping - Development Perspectives - Example

Business Plan Business Plan – Southern New England Landscaping Key Assumptions: The project income ments for a three-years period are prepared using percentage of sales method. The growth rate used for forecasting next year’s sales is based on the following assumptions. 1. The inflation rate assumed is the average of the last five years inflation rate observed in the US. For the year 2014, inflation rate is averaged for Jan-Nov period.   2010 2011 2012 2013 2014 Average Inflation Rate 1.60% 3.20% 2.10% 1.50% 1.30% 1.94% Source: (US Historical Inflation Rates, 2014) 2. The business aims to achieve 3% growth in its number of clients every year. 3. The business aims to achieve an average 4% per year growth in its revenues from its existing portfolio of clients including residential, small business, and customized services. 4. Based on the above assumptions, the company forecasts a growth rate of 8% in 2015. 5. In the same way, the business expects to achieve growth of 10% and 12% in 2016 and 2017. 6. No additional debt is required. The interest payments included in the projection are related to the previous borrowing of the company. Moreover, if the company fails to generate the target revenues, profits, and cash flow from operations then the company will have to borrow from external sources. It would result in high interest charge. Also, the company will have pay back the principal amount of the loan and it would reduce its net cash flow. 7. The company does not face any major risks in the forecasted period. Moreover, as the company’s business is not based on innovation therefore there are no major threats for it in the next 10, 20 and 50 years as than change in the environment, business ownership, and increased competition for which the company needs to prepare its strategy and deal with accordingly. Projected Income Statement   2014 Percentage of Sales 2015f 2016f 2017f Sales/Revenues 777,864 100.00% 840,093 924,102 1,034,995 Other Income - 0.00% - - - Total Revenues 777,864 100.00% 840,093 924,102 1,034,995 Cost of goods to be sold 106,030 13.63% 114,512 125,964 141,079 Gross Profit/(Loss) 671,834 86.37% 725,581 798,139 893,915       Variable Expenses (Selling) 302,800 38.93% 327,024 359,726 402,894 Fixed Expenses (Administrative) 178,270 22.92% 192,532 211,785 237,199 Operating Profit/(Loss) 190,764 24.52% 206,025 226,628 253,823 Interest Income 1,250 0.16% 1,350 1,485 1,663 Interest Expense -5,535 -0.71% -5,978 -6,576 -7,365 Profit Before Taxes 186,479 23.97% 201,397 221,537 248,121 Federal and State Income Tax 65,220 8.38% 70,438 77,481 86,779 Net Profit 121,259 15.59% 130,960 144,056 161,342 Trend Analysis Ratio Analysis   2014 2015f 2016f 2017f Gross Profit Margin 86.37% 86.37% 86.37% 86.37% Operating Profit Margin 24.52% 24.52% 24.52% 24.52% Times Interest Earned 44.52 44.52 44.52 44.52 Net Profit Margin 15.59% 15.59% 15.59% 15.59% The projected income statements prepared using percentage of sales indicate that the company will remain profitable in the next three years. Based on the assumptions provided in the previous section, it could be stated that the company’s financial position is expected to remain strong in the projected period. It is based on another assumption that the economic conditions in the US are likely to follow their current trends and no major downward trend is expected or incorporated in the financial projections. Figure 1: Trend Analysis The figure provided above indicates an increasing trend in all key income indicator over the next three years. Overall, the business is expected to achieve its targets and it will continue to remain a profitable entity. Vertical Analysis 2015f Percentage of Sales 2016f Percentage of Sales 2017f Percentage of Sales Sales/Revenues 840,093 100.00% 924,102 100.00% 1,034,995 100.00% Other Income - 0.00% - 0.00% - 0.00% Total Revenues 840,093 100.00% 924,102 100.00% 1,034,995 100.00% Cost of goods to be sold 114,512 13.63% 125,964 13.63% 141,079 13.63% Gross Profit/(Loss) 725,581 86.37% 798,139 86.37% 893,915 86.37%   - 0.00% - 0.00% - 0.00% Variable Expenses (Selling) 327,024 38.93% 359,726 38.93% 402,894 38.93% Fixed Expenses (Administrative) 192,532 22.92% 211,785 22.92% 237,199 22.92% Operating Profit/(Loss) 206,025 24.52% 226,628 24.52% 253,823 24.52% Interest Income 1,350 0.16% 1,485 0.16% 1,663 0.16% Interest Expense -5,978 -0.71% -6,576 -0.71% -7,365 -0.71% Profit Before Taxes 201,397 23.97% 221,537 23.97% 248,121 23.97% Federal and State Income Tax 70,438 8.38% 77,481 8.38% 86,779 8.38% Net Profit 130,960 15.59% 144,056 15.59% 161,342 15.59% The vertical analysis indicates all elements of the project income statements as percentage of sales expected in these years. Horizontal Analysis   2014 2015f Change $ Change % 2016f Change $ Change % 2017f Change $ Change % Sales/Revenues 777,864 840,093 62,229 8.00% 924,102 84,009 10.00% 1,034,995 110,892 12.00% Other Income - - - #DIV/0! - - #DIV/0! - - #DIV/0! Total Revenues 777,864 840,093 62,229 8.00% 924,102 84,009 10.00% 1,034,995 110,892 12.00% Cost of goods to be sold 106,030 114,512 8,482 8.00% 125,964 11,451 10.00% 141,079 15,116 12.00% Gross Profit/(Loss) 671,834 725,581 53,747 8.00% 798,139 72,558 10.00% 893,915 95,777 12.00%           -     -     Variable Expenses (Selling) 302,800 327,024 24,224 8.00% 359,726 32,702 10.00% 402,894 43,167 12.00% Fixed Expenses (Administrative) 178,270 192,532 14,262 8.00% 211,785 19,253 10.00% 237,199 25,414 12.00% Operating Profit/(Loss) 190,764 206,025 15,261 8.00% 226,628 20,603 10.00% 253,823 27,195 12.00% Interest Income 1,250 1,350 100 8.00% 1,485 135 10.00% 1,663 178 12.00% Interest Expense -5,535 -5,978 -443 8.00% -6,576 -598 10.00% -7,365 -789 12.00% Profit Before Taxes 186,479 201,397 14,918 8.00% 221,537 20,140 10.00% 248,121 26,584 12.00% Federal and State Income Tax 65,220 70,438 5,218 8.00% 77,481 7,044 10.00% 86,779 9,298 12.00% Net Profit 121,259 130,960 9,701 8.00% 144,056 13,096 10.00% 161,342 17,287 12.00% Cash Flow Projections     2014 2015f 2016f 2017f   Beginning Cash Balance 0 131,178 245,850 371,990   Cash Receipts         A Sales/Revenues 777,864 840,093 924,102 1,034,995 1 Landscaping - Residential 216,000 233,280 256,608 287,401 2 Landscaping - Small Business 160,700 173,556 190,912 213,821 3 Landscaping - Customized 199,374 215,324 236,856 265,279 4 Snow Removal - Residential 18,250 19,710 21,681 24,283 5 Snow Removal - Small Business 167,100 180,468 198,515 222,337 6 5% Snow Removal Contracts 8,500 9,180 10,098 11,310 7 Small of Miscellaneous Accessories 7,940 8,575 9,433 10,565 B Receivables -       C Interest Income 1,250 1,350 1,485 1,663 D Sale of Long-Term Assets -         Total Cash Available 779,114 841,443 925,587 1,036,658   Cash Payments         A Cost of goods to be sold         1 Fertilizer 19,000 20,520 22,572 25,281 2 Pesticide 11,000 11,880 13,068 14,636 3 Plants/Shrubs 23,000 24,840 27,324 30,603 4 Salt/Sand 8,030 8,672 9,540 10,684 5 Seed 45,000 48,600 53,460 59,875   Total Cost of Goods 106,030 114,512 125,964 141,079 B Variable Expenses (Selling)         1 Design Specialist Salary/Payroll Taxes 20,000 21,600 23,760 26,611 2 Machinery, Tools, Equipment 11,000 11,880 13,068 14,636 3 Marketing 5,400 5,832 6,415 7,185 4 Part-time Worker Salaries/Payroll Taxes 182,000 196,560 216,216 242,162 5 Sales Bonuses 2,000 2,160 2,376 2,661 6 Sales Commissions 10,800 11,664 12,830 14,370 7 Supervisor Salaries/Payroll Taxes 60,000 64,800 71,280 79,834 8 Travel Expenses 10,400 11,232 12,355 13,838 9 Miscellaneous Selling Expense 1,200 1,296 1,426 1,597   Total Variable Expenses 302,800 327,024 359,726 402,894 C Fixed Expenses (Administrative)         1 Administrative Fees (Legal/Accounting) 3,050 3,294 3,623 4,058 2 Insurance (Liability, Casualty, Fire, Theft) 11,600 12,528 13,781 15,434 3 License and Permits 4,200 4,536 4,990 5,588 4 Office Equipment 7,700 8,316 9,148 10,245 5 Office Salaries/Payroll Taxes 42,000 45,360 49,896 55,884 6 Owners Guaranteed Payment 65,000 70,200 77,220 86,486 7 Rent Expense + Security Deposit 39,900 43,092 47,401 53,089 8 Utilities 4,320 4,666 5,132 5,748 9 Miscellaneous Administrative Expense 500 540 594 665   Total Fixed Expenses 178,270 192,532 211,785 237,199 D Interest Expense 5,535 5,978 6,576 7,365 E Federal and State Income Tax 65,220 70,438 77,481 86,779 F Other Uses - - - - G Long-term Asset Payments 15,081 16,287 17,916 20,066 H Loan Payments - - - - I Capital Distributions - - - -   Total Cash Paid Out 672,936 726,771 799,448 895,382   Cash Balance/Deficiency 106,178 114,672 126,139 141,276   Loans to be Received - - - -   Capital Contribution 25,000 - - -   Ending Cash Balance 131,178 245,850 371,990 513,266 What-if Scenarios Three different scenarios are considered for making projections for the year 2015. These scenarios are labeled as pessimistic, neutral, and optimistic. The pessimistic scenario is based on the assumption of negative growth in the business sales i.e. -50%. The neutral scenario is based on the assumptions as discussed above. Finally, the optimistic scenario is based on the growth rate that is double the projected rate of 8% i.e. 16%. These scenarios indicate the net profit margin and key performance indicator of the business. What -if Scenario     Pessimistic Neutral Optimistic   2014 2015f 2015f 2015f     -50% 8% 16% Sales/Revenues 777,864 388,932 840,093 902,322 Other Income - - - - Total Revenues 777,864 388,932 840,093 902,322 Cost of goods to be sold 106,030 53,015 114,512 122,995 Gross Profit/(Loss) 671,834 335,917 725,581 779,327     - - - Variable Expenses (Selling) 302,800 151,400 327,024 351,248 Fixed Expenses (Administrative) 178,270 89,135 192,532 206,793 Operating Profit/(Loss) 190,764 95,382 206,025 221,286 Interest Income 1,250 625 1,350 1,450 Interest Expense -5,535 -2,768 -5,978 -6,421 Profit Before Taxes 186,479 93,240 201,397 216,316 Federal and State Income Tax 65,220 32,610 70,438 75,655 Net Profit 121,259 60,630 130,960 140,660 Reference US Historical Inflation Rates. (2014). Retrieved from http://www.usinflationcalculator.com/inflation/historical-inflation-rates/ Read More