business growth model 2 for import to keynote
DESCRIPTION
The Business Growth Model - for business owners who want to achieve financial independence through business ownership.TRANSCRIPT
The Business Growth Model
A Comprehensive Business Plan Designed to Attain Financial
Independence Through Business Ownership
A. Model Goals and Objectives Achieved
1. Financial Independence
2. Retirement and Estate Resources
3. Education
4. Business Growth
5. Business Succession – Leaving More Behind
Than What You Arrived With.
B. The Business Growth Model Defined
20% profit before taxes
5 years to satisfy loan obligation
500K in Revenues
Easy to run – can insert people to operate business.
Equity in first unit funds purchase of 2nd unit
Equity in second unit funds purchase of 3rd unit.
C. Financial Statement Analytics
1. Profitability
2. Solvency
3. Sustainability
4. Return on Investment
5. PALLR Sequence of Ratio analysis
D. Ratio Analysis
Measure Ratio Measure Standard
Profitability
Operating Margin(Sales - Operating expenses)
40%Sales
Net Margin(Operating margin - Discretionary
expenses) 20%
Sales
Activity
Receivables Turnover
Revenues4-5 times
Avg. accounts receivable
Asset TurnoverSales
5-7 timesAverage Capital Assets
Leverage Debt Ratio
Total Debt
30%Total Assets
Liquidity Current Ratio
Current Assets
2:1Current Liabilities
Rate of ReturnReturn on Equity
Net Income20%
Shareholders' Equity
Return on AssetsNet Income
20%Average Total Assets
A Ltd.Income Statement
For the year ended xxxx
Fees 568,887
Advertising 3,075Bank charges and interest 515Janitorial 5,496Credit card discounts 1,820Supplies 47,340Insurance 3,226Laboratory fees 24,615Legal and Accounting 6,481Licences, taxes and dues 5,805Utilities 2,151Parking 181Postage, stationary, and office 7,478Repairs and maintenance 2,847Telephone 1,032Wages and employee benefits 107,914Amortization 6,348
Total expenses 226,324
Operating income 342,563
Management salaries 58,500Income tax 37,201
Total management salaries and income tax 95,701
Net income for the year 246,862
B Ltd.Income Statement
For the year ended xxxx
2011 2010
Sales 247,639 344,169
Cost of SalesEmployee benefits 3,518 4,968 Purchases and supplies 89,581 127,981 Subcontracts 17,764 33,938
Total Cost of Sales 110,863 166,887
Gross Profit 136,776 177,282
ExpensesAdvertising 6,930 4,899 Automobile 9,281 8,721 Bad Debts 750- 750 Bank charges and interest 335 893 Consulting 3,386 - Accounting 1,600 2,095 Legal 1,426 - Licences, taxes and dues 166 116 Postage, stationary and office 1,230 3,475 Rent 5,134 4,284 Telephone 4,966 4,596 Travel 3,242 2,559 Amortization 1,659 2,340
Total expenses 38,605 34,728
Operating income 98,171 142,554
Management salaries 115,000 115,000 Income tax - 4,342
Total Management salaries and income tax 115,000 119,342
Net (loss) income for the year 16,829- 23,212
The Business Growth ModelProgression Yr 1-5 - Business A
Assumptions: Parameters-10% growth per year Business #1 purchase price = $500,000-20% down payment on purchase price -Money down (20%) =$100,000-funding source =Owner's equity-Pay off loan in 5 years -Amount financed = $400,000- Business purchase price = $1 per $1 of sales
Business Loan RequirementsPrincipal = $400,000 -5% growth (yrs 1-15)Interest rate = 5% -Keep all expenses within the percentage parametersReduction period - 5 years -Solid brand
Question marks-Interest rates
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Revenues 500,000$ 525,000$ 551,250$ 578,813$ 607,753$
Cost of sales (36%) 180,000 189,000 198,450 208,373 218,791
Gross profit 320,000 336,000 352,800 370,440 388,962
M & A expenses (36% - 38.5%) 192,500 202,125 212,231 222,843 233,985
Management salaries 40,000 40,000 40,000 40,000 40,000
Operating income 87,500 93,875 100,569 107,597 114,977
Income tax (13.5%) 11,813 12,673 13,577 14,526 15,522
Net income after taxes 75,688$ 81,202$ 86,992$ 93,072$ 99,455$
The Business Growth Model
Progression Yr 1-5 - Business A
Beginning cash -$ 11,593-$ 17,671-$ 17,960-$ 12,168-$
Add: Yearly cash inflow 75,688 81,202 86,992 93,072 99,455
75,688 69,609 69,321 75,112 87,287
Loan principal reduction 70,323 76,401 81,383 84,976 86,917
Interest on loan (fixed) 16,957 10,879 5,898 2,304 362
Operational ending cash 11,593- 17,671- 17,960- 12,168- 8
Capital replacements / improvements *** 20,000 20,000 20,000 20,000 20,000
Ending cash -$31,593 -$37,671 -$37,960 -$32,168 -$19,992
*** Updates to interior, capitalimprovements and/or replacements
The Business Growth ModelProgression Yr 6-10 - Business A + B
Loan #1 Loan #2$100,000 equity draw out on business A - 5% $400,000 for business B - 5%(5 year fixed) (5 year fixed)
Purchase price of business B$500,000
Yr 6 Yr 7 Yr 8 Yr 9 Yr 10
BUSINESS B
Revenues 500,000$ 525,000$ 551,250$ 578,813$ 607,753$
Cost of sales (36%) 180,000 189,000 198,450 208,373 218,791
M & A expenses (36% - 38.5%) 192,500 202,125 212,231 222,843 233,985
Management salaries 40,000 40,000 40,000 40,000 40,000
Operating income 87,500 93,875 100,569 107,597 114,977
Income tax (13.5%) 11,813 12,673 13,577 14,526 15,522
Net income after taxes 75,688$ 81,202$ 86,992$ 93,072$ 99,455$
BUSINESS A
Revenues 638,141$ 670,048$ 703,550$ 738,728$ 775,664$
Cost of sales (36%) 229,731 241,217 253,278 265,942 279,239
M & A expenses (36% - 38.5%) 245,684 257,968 270,867 284,410 298,631
Management salaries 40,000 40,000 40,000 40,000 40,000
Operating income 122,726 130,862 139,405 148,376 157,794
Income tax (13.5%) 16,568 17,666 18,820 20,031 21,302
Net income after taxes 106,158$ 113,196$ 120,586$ 128,345$ 136,492$
The Business Growth Model
Progression Yr 6-10 - Business A + B
CUMULATIVERevenues 1,138,141$ 1,195,048$ 1,254,800$ 1,317,540$ 1,383,417$
Cost of sales (36%) 409,731 430,217 451,728 474,314 498,030
M & A expenses (36% - 38.5%) 438,184 460,093 483,098 507,253 532,616
Management salaries 80,000 80,000 80,000 80,000 80,000
Operating income 210,226 224,737 239,974 255,973 272,771
Income tax 28,380 30,340 32,396 34,556 36,824
Net income after taxes 181,845$ 194,398$ 207,578$ 221,416$ 235,947$
Beginning Cash -$19,992 $53,813 $140,171 $239,708 $353,084
Add: Yearly cash inflow 181,845 194,398 207,578 221,416 235,947
161,853 248,211 347,749 461,124 589,031
Loan principal reduction - loan #1 16,499 17,983 19,213 20,121 26,184
Loan principal reduction - loan #2 70,323 76,401 81,383 84,976 86,917
Interest on loan #1 4,261 2,777 1,547 639 119 Interest on loan #2 16,957 10,879 5,898 2,304 362
Ending operational cash 53,813 140,171 239,708 353,084 475,449
Capital improvements - business A 20000 20000 20000 20000 20000Capital improvements - business B 20000 20000 20000 20000 20000
Asst. manager hire in year 6 - business A 50,000 50,000 50,000 50,000 50,000
Ending cash -$36,187 $50,171 $149,708 $263,084 $385,449
The Business Growth ModelProgression Yr 11-15 - Business A + B + C
Loan #1 Loan #2$100,000 equity draw out on business A - 5% $400,000 for business C - 5%(5 year fixed) (5 year fixed)
Purchase price of business C$500,000
Yr 6 Yr 7 Yr 8 Yr 9 Yr 10
BUSINESS CRevenues 500,000$ 525,000$ 551,250$ 578,813$ 607,753$
Cost of sales (36%) 180,000 189,000 198,450 208,373 218,791
M & A expenses (36% - 38.5%) 192,500 202,125 212,231 222,843 233,985
Management salaries 40,000 40,000 40,000 40,000 40,000
Operating income 87,500 93,875 100,569 107,597 114,977
Income tax (13.5%) 11,813 12,673 13,577 14,526 15,522
Net income after taxes 75,688$ 81,202$ 86,992$ 93,072$ 99,455$
BUSINESS BRevenues 638,141$ 670,048$ 703,550$ 738,728$ 775,664$
Cost of sales (36%) 229,731 241,217 253,278 265,942 279,239 M & A expenses (36% - 38.5%) 245,684 257,968 270,867 284,410 298,631
Management salaries 40,000 40,000 40,000 40,000 40,000
Operating income 122,726 130,862 139,405 148,376 157,794 Income tax (13.5%) 16,568 17,666 18,820 20,031 21,302
Net income after taxes 106,158$ 113,196$ 120,586$ 128,345$ 136,492$
BUSINESS ARevenues 814,447$ 855,170$ 897,928$ 942,824$ 989,966$
Cost of sales (36%) 293,201 307,861 323,254 339,417 356,388 M & A expenses (36% - 38.5%) 313,562 329,240 345,702 362,987 381,137 Management salaries 40,000 40,000 40,000 40,000 40,000
Operating income 167,684 178,068 188,972 200,420 212,441 Income tax (13.5%) 22,637 24,039 25,511 27,057 28,680
Net income after taxes 145,047$ 154,029$ 163,460$ 173,364$ 183,762$
The Business Growth Model
Progression Yr 11-15 - Business A + B + C
CUMULATIVERevenues 1,952,588$ 2,050,217$ 2,152,728$ 2,260,365$ 2,373,383$
Cost of sales (36%) 702,932 738,078 774,982 813,731 854,418M & A expenses (36% - 38.5%) 751,746 789,334 828,800 870,240 913,752Management salaries 120,000 120,000 120,000 120,000 120,000
Operating income 377,910 402,805 428,946 456,393 485,213 Income tax 51,018 54,379 57,908 61,613 65,504
Net income after taxes 326,892$ 348,427$ 371,038$ 394,780$ 419,709$
Beginning Cash $385,449 $604,301 $844,688 $1,107,685 $1,394,425
Add: Yearly cash inflow 326,892 348,427 371,038 394,780 419,709712,341 952,728 1,215,726 1,502,465 1,814,134
Loan principal reduction - loan #1 16,499 17,983 19,213 20,121 26,184 Loan principal reduction - loan #2 70,323 76,401 81,383 84,976 86,917
Interest on loan #1 4,261 2,777 1,547 639 119 Interest on loan #2 16,957 10,879 5,898 2,304 362
Ending operational cash 604,301 844,688 1,107,685 1,394,425 1,700,552
Capital improvements - business A 20,000 20,000 20,000 20,000 20,000Capital improvements - business B 20,000 20,000 20,000 20,000 20,000Capital improvements - business C 20,000 20,000 20,000 20,000 20,000
Asst. manager - business A 50,000 50,000 50,000 50,000 50,000Asst. manager in year 10 - business B 50,000 50,000 50,000 50,000 50,000Asst. manager in year 10 - business C 50,000 50,000 50,000 50,000 50,000
Ending cash $394,301 $634,688 $897,685 $1,184,425 $1,490,552
D. Growth Model AnalyticsWhat Do We Have At year 15?
1. $1.49 Million in the bank.2. Annual salary of $120,000.3. Asst. mgmt secured at each location.4. Assuming market value = revenues, $2,373 Million in asset value to
facilitate retirement objectives.5. All net income within the $500K Small Business Deduction Limit.
6. Ownership concentrating on: Management Marketing Strategy
7. Financial resources to extend business network.
Business Growth Model
-500,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15
Year
$
Revenues Net income after taxes Ending cash
D. Growth Model Analytics
• Optimal business parameters for the model.-20% net income before taxes-500K revenue levels-Recession-proof industry-Location-Demographic of customers (margin vs. volume)
• Operational requirements. -Staffing levels -Ability to replicate management efficiencies
• Personal longevity, sustainability, and success.-Strategy-Intent of Business-Job replacement
F. Final ThoughtsFuture seminars in the NAVIGATOR series to assist in finding and operating the right businesses:
•BUSINESS AUDIT PROOF – securing your business against theft and maximizing the effectiveness and efficient operation of your business
BUSINESS VALUATION – Determining The Proper Price To Pay For Value.
FINANCIAL STATEMENT ANALYSIS – The Key To Finding Your Profitable Businesses.
CORPORATE TAX PLANNING – How To Legally Keep As Much Money as You Own.
PERSONAL AND ESTATE TAX PLANNING – Making All The Work Pay Off; How To Fully Enjoy The Fruits of Your Labour