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Business Plan Financial Forecasts


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Sales Forecast
Our ratio of sales to inquiries ofn the adventure travel vacations sold to date, while operating within the outdoor clothing shop, has been one in three. For the purposes of our sales forecast, we are assuming that only one in five inquiries will actually result in an adventure vacation being booked.  This is a very conservative estimate.
 
We expect there to be a steady buildup of clients coming from the clothing shop to talk to us about vacations (see Table 3 below).  However, the number of new inquiries generated by our promotional activity will also build up during the year, gradually overtaking inquiries from the clothinges shop.  This is a trend we expect to continue.  Based on the projection below, we are forecasting to sell 660 adventure travel vacations next year at an average price of $3549.  Once insurance and other service sales are added in, we expect to generate a gross profitn income of $268,783 over the first 12 months.

Table 3. Sales Forecast Projection

 

 

Q1

 

Q2

 

Q3

 

Q4

 

Year Total

 

Inquiries

generated through promotion

 

200

 

425

 

425

 

750

 

1800

 

Shop inquiries

 

300

 

300

 

450

 

450

 

1500

 

Total inquiries

 

500

 

725

 

875

 

1200

 

3300

 

Vacations sold

 

100

 

145

 

175

 

240

 

660

 

Average vacations cost

        

$3340

 

$3340

 

$3758

 

$3758

 

$3549

 

Commission received

 

$33,400

 

$48,430

 

$72,331

 

$98,757

 

$252,918

 

Commission on insurance & other services received

 

$1670

 

$3340

 

$5010

 

$5845

 

$15,865

 

Total commission & fees earned

 

$35,070

 

$51,770

 

$77,341

 

$104,602

 

$268,783


In Year Two we are forecasting a gross profitcommissions of $624,318, and in Year Three we plan to reach $986,846.
 
Cash Flow Projections
The Cash Flow projections for Year One (see Appendix 2) show that after the owner has put in $41,750, the business will need additional short-term financing of about $83,500.  For the last two months of the year, we are forecasting a positive cumulative cash flow and a year-end cash surplus of $19,935.
 
In our Cash Flow projection, we have assumed the whole $83,500 additional financing has come from a bank loan.  We have allowed for interest on the full amount for the whole period.  In practice we would hope to finance part of this at least by a line of credit equal to the money actually required.  In this way we believe we have made a prudent, conservative provision.
 
Income Statement
We expect to make a small after- tax profit of $34,901 in the first year of $34,901 (see Appendix 2 and Table 4 below).  This is before the owner’s drawings.  Any owner’s drawings will be contingent on performance being better than that expected in the Plan.

Table 4. Profits in Years One to Three will be

 

 

 

Year One

 

Year Two

 

Year Three

 

Sales

2,364,839

5,202,645

7,591,132

  Less cost of sales

2,096,056

4,578,327

6,604,286

Gross profit

   268,783

624,318

986,846

  Less expenses

   224,740

243,4043

345,690

Net income before taxes

     44,043

380,9145

641,156

Provision for taxes

       9142

76,184

145,751

Net income after taxes

     $34,901

$304,7301

$495,405

Balance Sheet
The Balance Sheet at the end of Year One (see Appendix 2) shows a healthy surplus of current assets over current liabilities.  We have shown a conservative funding position, which does not include any of the additional capital that we hope to secure.
 
Performance Ratios
We plan to move our gross profit up from 11 percent in Year One, to 13 percent in Year Three. These figures look quite low, but it should be remembered that our gross profitincome is really the sales commission we earn, not the full price of an adventure vacation.  Our net income before taxes is a more accurate measure of performance. This we expect to move from 2 percent at the outset, up to 8 percent by Year Three.  Commission generated and profit per employee will be among the highest in the industry.
 

Table 5. Commission Generated and Profit per Employee

 

 

 

Year One

 

Year Two

 

Year Three

 

Gross profit %

11

12

13

Net income before taxes %

2

7

8

Commission generated per employee

$76,795

$138,737

$164,473

Profit per employee

$12,584

$69,257

$106,858


 
Break-Even
To break even we will need to sell between 2 and 3 vacations per day. This compares with our present sales of 1.3 vacations per day, based on our part-time effort out of the clothing shop. We feel confident that the break-even point can be attained within a reasonable period of time.
 
Funds Required and Timing
We plan to make two major investments: one in Web site and database development and one in shop premises development.
make are the:
         Web site and data base development - this will cost $41,325750.  The data base system is one of our key differentiators.  It will allow us to offer superior service and ensure a high level of repeat business and referrals.

The Web site is vital if we are to reach this wide and disparate global market.  The group of potential clients we have chosen as our target market—, affluent, professional 25-  to 35- year olds—, are prime users of the Internet.  Even those people in our locality will expect to be able to research our offers on the Internet before coming to the shop. (See Appendix 1, Internet Growth and the Sale of Travel Services )


         Shop premises development - this will cost us $29,225.  We have to look professional and to have an efficient work environment.  If our staff do not have the right tools, we can hardly expect them to deliver superior performance.  If clients see “amateur” premises, they will not be inspired to spend thousands of dollars and entrust their adventure vacation plans to us.
 
Both these investments need to be made at the outset to ensure that the business creates the right impression from the start.  We get only one chance to make a first impression.
 
We have decided to lease our telephone and computer systems, sinceas this is a rapidly changing area and we need to have access to the very latest technology.  Financing packages from equipment suppliers are currently very attractive.
 
Funding Options
The owner plans to invest $41,750 of her own money (the proceeds of the sale of her share of the clothing shop business).  The cash  flow projections show that the business will require $83,500 of working capital during the early months of the first year’s operations.  We think we should provide an additional $10,020 for unforeseen eventualities.  We are considering In the event that additional funds prove necessary, we have identified two options for raising further fundsthis $93,520:
 
Option 1: The sale of equity, perhaps to the original shop partners, could raise between $41,750 and $167,000.  This would provide some capital to allow for growth.  Any shortfall could be funded either by a line of credit or a bank loan.
 
Option 2: Approach our bank with a view to raising a medium- term loan of $41,750 and a line of credit of $58,450. Heather Mitchell could, with family help, provide any lender with security for part, if not all, of this facility.

 

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