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Time Management – Financial Plan
Time Merchant’s financial planning is centered on rapid growth in order to penetrate the market early and quickly. Time Merchants plans to continually expand the variety of services offered through our home service referral business. Services offered in the Premium Home Delivery Service will expand with changing customer needs and desires.
Time Merchants is seeking investors who wish to provide cash in exchange for equity positions in the corporation. This cash will be used to enable rapid growth in the untapped home service market. The founders will invest $150,000 to start the business and is seeking additional investment to promote the TM concept and provide working capital. Based on sales and cost estimates, and an investment of $750,000 in exchange for 30% equity in th company, Time Merchant’s will deliver an annual compounded return of 78% on the initial investment over 5 years using a valuation factor (P/E) of 12. The Net Present Value (NPV), based upon a valuation of $45 million at the end of year five, discounted at 40%, is $8.3 million. (Financial assumptions can be found in appendix H.)
Time Merchants intends to be a long-term business and will achieve this by extending beyond our initial launch market. Since there are few firms that currently specialize in consolidating the home service industry, there i plenty of room for growth. It is the intention of Time Merchants to create a pattern of positive experiences for our customers and providers so as to promote continuous growth.
Our most desirable option for exit is a merger or buyout by a large corporation. Time Merchants believes with strong cash flows and a loyal customer base it will be attractive to potential corporate investors within five years. The possibility also exists for Time Merchants to issue an IPO in five years. This option would provide additional capital to fund the national rollout.
Capital Equipment Requirement
Time Merchants will operate with a minimal capital investment. The majority of the initial investment will go toward the purchase of an ACD system for the call center. It is important to start with a telecommunications system that can grow with the company. Time Merchants has obtained a quote of $74,000 for the purchase and installation of a new Aspect ACD system. The company will also purchase 9 used workstations, which will be used by the initial call center representatives. The company plans to purchase 9 computers and five printers during the first year of operations. Time Merchants will also need to purchase database software to track customer information and ordering habits.
The Beta Test will be underway during the first three months of year one. During the Beta Test TM will offer free trials to 20 premium service customers and 100 service providers. The number of premium customers is forecasted to grow from the 20 initial customers in month 3 to total of 200 by month 12. While this growth rate may seem aggressive it is considered realistic in relation to the advertising budget in year one. Revenue is broken down on th income statement by type. The ‘commissions on goods sold’ represents the commission TM earns from the sale of goods and services to the Premium Delivery Customers, The largest operating expense for TM is will be marketing. During the first year of service TM’s plans to spend a total of $800,000 on marketing and promotion for the concept. The ‘Other Expense” line is to be used for office expenses and travel that will occur during the year. A line item for “Contingency Expense” at 1% of revenue is also included to cover any unexpected costs.
Statement of Cash Flows
Due to the electronic payment system (i.e., credit cards, purchasing cards), TM does not estimate that there will ever be any significant amount of accounts receivable to report. The prepaid expense is for insurance. After receiving the initial investment of $900,000 prior to the start of business, TM does not anticipate any cash flow problems.
Current assets for year one will include cash and prepaid insurance. As stated before, accounts receivable and bad debt are not considered an issue for TM. Accounts payable has a $0 balance because TM will pay for the majority of goods and services via a purchasing card. Common stock is held at $1/share par value. The management team’s investment of $150,000 gives them a 66% equity position. The first round investors’ contribution of $750,000 is represented as 64,286 shares of common stock and $685,714 of Additional Paid in Capital.
Years 2 and 3:
During years 2 and 3 the number of customers is forecasted to increase by 3% each month. Time Merchants will begin its geographic expansion of the Referral Service in year 2, an expansion that will continue in each subsequent year. Time Merchants does forecast revenue in year 3 for the sale of consumer data and for advertising on the company web site. Management believes that by year 3 the company will have collected a sufficient amount of consumer data that may be of interest to other companies. Time Merchants also anticipates that the strong customer base will entice other companies to advertise on the web site. Marketing and promotions expense continues to remain high (51% in year 2 and 35% in year 3). Salaries increase by 5% each year along with professional fees and system development costs.
Cash Flow Statement
Depreciation expense increases in both years due to the purchase of additional workstations and compute equipment. The cash position remains strong in both years.
As in year 1, current assets for both years 2 and 3 include cash and prepaid insurance. The equity distribution remains unchanged during these two years.
Years 4 and 5:
Time Merchants anticipates a dramatic increase in sales during years 4 and 5 for several reasons. To begin with, the company will have expanded the referral service to four other geographic areas. This will provide a significant amount of revenue to TM at a relatively low cost. The Premium Delivery Service will also grow at a substantial rate during years 4 and 5. This will result from the increased availability of the service to new communities as well as the growing acceptance of the service. The revenues from the sale of consumer buying habits and advertising space are also expected to increase. Marketing and promotions expense continues to remain high. Salaries increase by 5% each year along with professional fees and system development costs.
Cash Flow Statement
The company is expected to have an extremely strong cash position during years 4 and 5. Increases in capital expenditures during year 4 are for computer upgrades and additional workstations.
The equity value of the company is expected to grow to nearly $9.6 million in year 5.
The following proforma financial statements show the results of operations for the first five years. Additional financial projections can be seen in Appendix H.
5-YEAR COMPREHENSIVE FINANCIAL STATEMENTS
|Income Statement||Year 1||% of Revenue||Year 2||% of Revenue||Year 3||% of Revenue||Year 4||% of Revenue||Year 5||% of Revenue|
|Commissions On Goods||94,250||13%||317,980||14%||527,112||12%||879,551||13%||1,504,331||13%|
|Premium Delivery Fees||55,000||8%||163,151||7%||279,043||7%||465,617||7%||796,364||7%|
|Truck Lease||24,000||3%||32,000||1%||52,000||1%||83,000||1 %||139,000||1%|
|Credit Card Fees||21,940||3%||70,229||3%||128,741||3%||209,956||3%||344,213||3%|
|Total Operating Expense||1,417,754||195%||2,208,632||94%||3,153,264||73%||4,330,182||62%||5,170,045||45%|
|Operating Profit Before Tax (EBIT)||(689,755)||-95%||132,346||6%||1,138,090||27%||2,668,368||38%||6,303,722||55%|
|Net Profit After Tax||(689,755)||132,346||905,818||1,601,021||3,782,233|
|Table of Contents||Appendices|
|1. Executive Summary
2. Company Overview
3. Market Analysis
4. Marketing Strategy
5. Operational Strategy
6. Critical Risks
7. Management Team
8. Financial Plan
Cost Benefit Analysis
Potential Service Providers
|© 1999 Time Merchants|