University Patents, Inc.
Financial Plan
The following is the Financial Plan for University Patents.
7.1 Important Assumptions
- University Patents will operate with regional offices out of the founders’ homes, without a formal brick and mortar location, into Year 4.
- The founders will be the only employees and work on a part-time basis during Years 1-3.
- The average license value to University Patents will be $12,750 (15% of the predicted $85,000 average revenue to the university).
- There will be a 10% loss of revenue from year to year due to un-renewed licenses.
| General Assumptions | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Plan Month | 1 | 2 | 3 | 4 | 5 |
| Current Interest Rate | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% |
| Long-term Interest Rate | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% |
| Tax Rate | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% |
| Other | 0 | 0 | 0 | 0 | 0 |
7.2 Break-even Analysis
The break-even point for University Patents is shown below.
| Break-even Analysis | |
| Monthly Revenue Break-even | $9,232 |
| Assumptions: | |
| Average Percent Variable Cost | 32% |
| Estimated Monthly Fixed Cost | $6,263 |
7.3 Projected Profit and Loss
The following is the Projected Profit and Loss for University Patents.
| Pro Forma Profit and Loss | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Sales | $51,000 | $102,000 | $204,000 | $369,750 | $510,000 |
| Direct Cost of Sales | $16,400 | $32,800 | $49,200 | $73,800 | $98,400 |
| Other | $0 | $0 | $0 | $0 | $0 |
| Total Cost of Sales | $16,400 | $32,800 | $49,200 | $73,800 | $98,400 |
| Gross Margin | $34,600 | $69,200 | $154,800 | $295,950 | $411,600 |
| Gross Margin % | 67.84% | 67.84% | 75.88% | 80.04% | 80.71% |
| Expenses | |||||
| Payroll | $60,000 | $63,000 | $66,150 | $210,000 | $255,500 |
| Sales and Marketing and Other Expenses | $1,500 | $1,500 | $1,500 | $1,500 | $1,500 |
| Depreciation | $0 | $0 | $0 | $0 | $0 |
| Computer Equipment | $0 | $0 | $0 | $0 | $600 |
| Utilities | $1,000 | $1,050 | $1,103 | $1,158 | $1,216 |
| Insurance | $1,000 | $1,050 | $1,103 | $1,158 | $1,216 |
| Payroll Taxes | $9,000 | $9,450 | $9,923 | $31,500 | $38,325 |
| ISP Access | $2,160 | $2,268 | $2,381 | $2,500 | $2,625 |
| Information Services | $500 | $525 | $551 | $579 | $608 |
| Total Operating Expenses | $75,160 | $78,843 | $82,711 | $248,395 | $301,590 |
| Profit Before Interest and Taxes | ($40,560) | ($9,643) | $72,089 | $47,555 | $110,010 |
| EBITDA | ($40,560) | ($9,643) | $72,089 | $47,555 | $110,010 |
| Interest Expense | $0 | $0 | $0 | $0 | $0 |
| Taxes Incurred | $0 | $0 | $21,627 | $14,267 | $33,003 |
| Net Profit | ($40,560) | ($9,643) | $50,462 | $33,289 | $77,007 |
| Net Profit/Sales | -79.53% | -9.45% | 24.74% | 9.00% | 15.10% |
7.4 Projected Cash Flow
The following is the Projected Cash Flow for University Patents.
| Pro Forma Cash Flow | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Cash Received | |||||
| Cash from Operations | |||||
| Cash Sales | $12,750 | $25,500 | $51,000 | $92,438 | $127,500 |
| Cash from Receivables | $19,444 | $57,694 | $115,388 | $216,192 | $330,783 |
| Subtotal Cash from Operations | $32,194 | $83,194 | $166,388 | $308,630 | $458,283 |
| Additional Cash Received | |||||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 | $0 | $0 |
| New Current Borrowing | $0 | $0 | $0 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $0 | $0 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| New Investment Received | $30,000 | $30,000 | $0 | $0 | $0 |
| Subtotal Cash Received | $62,194 | $113,194 | $166,388 | $308,630 | $458,283 |
| Expenditures | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Expenditures from Operations | |||||
| Cash Spending | $60,000 | $63,000 | $66,150 | $210,000 | $255,500 |
| Bill Payments | $27,360 | $48,845 | $84,203 | $123,250 | $173,299 |
| Subtotal Spent on Operations | $87,360 | $111,845 | $150,353 | $333,250 | $428,799 |
| Additional Cash Spent | |||||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $0 | $0 | $0 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $0 | $0 | $0 | $0 | $0 |
| Purchase Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 | $0 | $0 |
| Subtotal Cash Spent | $87,360 | $111,845 | $150,353 | $333,250 | $428,799 |
| Net Cash Flow | ($25,166) | $1,349 | $16,034 | ($24,620) | $29,484 |
| Cash Balance | $31,084 | $32,433 | $48,467 | $23,847 | $53,331 |
7.5 Projected Balance Sheet
The following is the Projected Balance Sheet for University Patents.
| Pro Forma Balance Sheet | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Assets | |||||
| Current Assets | |||||
| Cash | $31,084 | $32,433 | $48,467 | $23,847 | $53,331 |
| Accounts Receivable | $18,806 | $37,613 | $75,225 | $136,345 | $188,063 |
| Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Total Current Assets | $49,890 | $70,045 | $123,692 | $160,192 | $241,393 |
| Long-term Assets | |||||
| Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| Accumulated Depreciation | $0 | $0 | $0 | $0 | $0 |
| Total Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| Total Assets | $49,890 | $70,045 | $123,692 | $160,192 | $241,393 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Current Liabilities | |||||
| Accounts Payable | $4,200 | $3,998 | $7,183 | $10,394 | $14,588 |
| Current Borrowing | $0 | $0 | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 | $0 | $0 |
| Subtotal Current Liabilities | $4,200 | $3,998 | $7,183 | $10,394 | $14,588 |
| Long-term Liabilities | $0 | $0 | $0 | $0 | $0 |
| Total Liabilities | $4,200 | $3,998 | $7,183 | $10,394 | $14,588 |
| Paid-in Capital | $100,000 | $130,000 | $130,000 | $130,000 | $130,000 |
| Retained Earnings | ($13,750) | ($54,310) | ($63,953) | ($13,491) | $19,798 |
| Earnings | ($40,560) | ($9,643) | $50,462 | $33,289 | $77,007 |
| Total Capital | $45,690 | $66,047 | $116,509 | $149,798 | $226,805 |
| Total Liabilities and Capital | $49,890 | $70,045 | $123,692 | $160,192 | $241,393 |
| Net Worth | $45,690 | $66,047 | $116,509 | $149,798 | $226,805 |
7.6 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 8748, [Business Consulting, nec], are shown for comparison.
| Ratio Analysis | ||||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Industry Profile | |
| Sales Growth | 0.00% | 100.00% | 100.00% | 81.25% | 37.93% | 8.18% |
| Percent of Total Assets | ||||||
| Accounts Receivable | 37.70% | 53.70% | 60.82% | 85.11% | 77.91% | 29.59% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 41.37% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 75.36% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 24.64% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 8.42% | 5.71% | 5.81% | 6.49% | 6.04% | 31.49% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 16.85% |
| Total Liabilities | 8.42% | 5.71% | 5.81% | 6.49% | 6.04% | 48.34% |
| Net Worth | 91.58% | 94.29% | 94.19% | 93.51% | 93.96% | 51.66% |
| Percent of Sales | ||||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 67.84% | 67.84% | 75.88% | 80.04% | 80.71% | 100.00% |
| Selling, General & Administrative Expenses | 147.37% | 77.30% | 51.15% | 71.04% | 65.61% | 82.59% |
| Advertising Expenses | #VALUE! | #VALUE! | #VALUE! | #VALUE! | #VALUE! | 1.16% |
| Profit Before Interest and Taxes | -79.53% | -9.45% | 35.34% | 12.86% | 21.57% | 1.47% |
| Main Ratios | ||||||
| Current | 11.88 | 17.52 | 17.22 | 15.41 | 16.55 | 1.93 |
| Quick | 11.88 | 17.52 | 17.22 | 15.41 | 16.55 | 1.50 |
| Total Debt to Total Assets | 8.42% | 5.71% | 5.81% | 6.49% | 6.04% | 3.09% |
| Pre-tax Return on Net Worth | -88.77% | -14.60% | 61.87% | 31.75% | 48.50% | 59.56% |
| Pre-tax Return on Assets | -81.30% | -13.77% | 58.28% | 29.69% | 45.57% | 7.63% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Net Profit Margin | -79.53% | -9.45% | 24.74% | 9.00% | 15.10% | n.a |
| Return on Equity | -88.77% | -14.60% | 43.31% | 22.22% | 33.95% | n.a |
| Activity Ratios | ||||||
| Accounts Receivable Turnover | 2.03 | 2.03 | 2.03 | 2.03 | 2.03 | n.a |
| Collection Days | 52 | 135 | 135 | 139 | 155 | n.a |
| Accounts Payable Turnover | 7.51 | 12.17 | 12.17 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 31 | 23 | 25 | 26 | n.a |
| Total Asset Turnover | 1.02 | 1.46 | 1.65 | 2.31 | 2.11 | n.a |
| Debt Ratios | ||||||
| Debt to Net Worth | 0.09 | 0.06 | 0.06 | 0.07 | 0.06 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||||
| Net Working Capital | $45,690 | $66,047 | $116,509 | $149,798 | $226,805 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | ||||||
| Assets to Sales | 0.98 | 0.69 | 0.61 | 0.43 | 0.47 | n.a |
| Current Debt/Total Assets | 8% | 6% | 6% | 6% | 6% | n.a |
| Acid Test | 7.40 | 8.11 | 6.75 | 2.29 | 3.66 | n.a |
| Sales/Net Worth | 1.12 | 1.54 | 1.75 | 2.47 | 2.25 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | n.a |
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