97 year 2 7478240 5315054 202500 6600 5524154 1954086

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Unformatted text preview: cial Plan The most important element in the financial plan is the critical need for improving several of the key factors that impact cash flow: 1. We must at any cost stop the slide in inventory turnover and develop better inventory management to bring the turnover back up to 8 turns by the third year. This should also be a function of the shift in focus towards service revenues to add to the hardware revenues. 2. We must also bring the gross margin back up to 25%. This too is related to improving the mix between hardware and service revenues, because the service revenues offer much better margins. 3. We plan to borrow another $150,000 long-term this year. The amount seems in line with the balance sheet capabilities. 7.1 Important Assumptions The financial plan depends on important assumptions, most of which are shown in next table. The key underlying assumptions are: 1. We assume a slow-growth economy, without major recession. 2. We assume of course that there are no unforeseen changes in technology to make products immediately obsolete. In our General Assumptions table, the most ambitious and also the most questionable assumption is our projected improvement in inventory turnover. This is critical to healthy cash flow, but will also be difficult. Page 18 SAMPLE PLAN: AMT, INC. SP2.21 General Assumptions Year 1 8.00% 8.50% 45 45 7.00 20.00% 14.00% 70.00% 16.00% Short-term Interest Rate % Long-term Interest Rate % Payment Days Estimator Collection Days Estimator Inventory Turnover Estimator Tax Rate % Expenses in Cash % Sales on Credit % Personnel Burden % Year 2 8.00% 8.50% 45 45 7.00 20.00% 14.00% 70.00% 16.00% Year 3 8.00% 8.50% 45 45 7.00 20.00% 14.00% 70.00% 16.00% 7.2 Key Financial Indicators The Benchmark Comparison chart highlights our ambitious plans to correct declining gross margin and inventory turnover. The chart illustrates why we think the ambitious sales increases we plan are reasonable. We have had similar increases in the recent past. BENCHMARK COMPARISON Page 19 HURDLE: THE BOOK SP2.22 ON BUSINESS PLANNING 7.3 Break-even Analysis For our break-even analysis, we assume running costs of approximately $96,000 per month, which includes our full payroll, rent, and utilities, and an estimation of other running costs. Payroll alone, at our present run rate, is only about $55,000. Margins are harder to assume. Our overall average of $343/248 is based on past sales. We hope to attain...
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