Expert answer:Case Study Financials Questions
Answer & Explanation:Pkolino.financials.doc Pkolino FinancialsIn a two-page paper, please address the following.What are the key revenue drivers?How do you influence the revenue drivers?What are the key cost drivers; do they make sense, specifically operating expenses and COGS?What areas do you think an investor might challenge?Day One.docx This case is an excellent example of the constant struggle of balancing the actual running of a company and the never ending battle to raise funding in the stage before becoming attractive to venture capital investors.In a two- to three-page paper, answer the following.Is this a good opportunity? Why, or why not?What is the gross margin on service sales; what should DayOne do to improve service sale margins?Using the cash flow statement, how much, in the ideal, should DayOne seek to raise?What does Andrew need to do if he is going to fulfill his vision of growing DayOne to 42 stores in 5 years?In your opinion, would you invest; have they proven their model?
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CONFIDENTIAL INFORMATION
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
Business Plan
May-2005
Prepared by:
J.B. Schneider &
Antonio Turco-Rivas N.
Contact Information:
Phone:
Email:
(781) 497-0913
jb@pkolino.com
atrn@pkolino.com
Address:
600 West Cummings Park
Suite 5350
Woburn, MA 01801
For more information please contact us at info@pkolino.com
-Page 1 The information contained in this document is highly confidential. Except if stated herein, none of
the material may be copied, reproduced, distributed, republished, downloaded, displayed, posted or
transmitted in any form or by any means, including, but not limited to, electronic, mechanical,
photocopying, recording, or otherwise, without the prior written authorization from P’kolino, LLC.
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
9
9.1
Financial Plan
Basis of Presentation
This plan contains five-year projected financial information for our company.
While management believes that the assumptions underlying the projections
are reasonable, there can be no assurance that these results can be
realized or that actual results will meet management expectations. It is
important to notice that our first month of operations is expected to be April
2005, causing the holiday season to be reflected in the financial statement
as the third quarter in our projections. Monthly financial statements for the
first two years are available on request.
9.2
Income Statement Assumptions – Revenues
The number of tables sold each month is the main driver of revenues for
P’kolino. This number is estimated based on the expected outcome of the
marketing efforts the company has planned for each year. At the beginning
the company will sell two different types of tables targeting the high-end
segment of the market. However, at the beginning of the third year the
company plans to introduce a third table that will target the mid segment.
For the Storage Unit, management assumes that 30% of those customers
that purchase tables are likely to buy the Storage Unit as well. The Storage
Unit is designed so that it holds up to 10 toy kits (three are offered as a
bundled package with the Storage Unit).
Every time a new table is sold, a new customer has been gained. P’kolino
projections assume that one out of every two customers will purchase one
Toy Kit every 12 months for a period of 3 to 4 years. Gift purchases of the
Toy Kits are also estimated as a percentage of the existing customer base.
One out of every two existing customers will trigger (influence) one Toy Kit
gift purchase every 12 months.
Accessories will enter the revenue stream at the 2 nd year of operations. It is
estimated that as the product line expands accessories will eventually
represent up to 25% of our sales.
The numbers of new customers are expected to increase at an average rate
of 35% for years 3,4 & 5 for products targeting the high-end segment and at
45% for those targeting the mid-segment of the market (as a benchmark
Pottery Barn Kids sales increased 35% in 2004).
For more information please contact us at info@pkolino.com
-Page 2 –
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
Exhibit 9-A
The Playroom Furniture Market
# Units
Year 1
Tables
Table A
Table B
Table C
Storage Unit
Toy Kits
Accessories
Year 2
Year 3
690
449
242
1,445
939
506
228
1,313
0
477
3,851
9,925
Year 4
2,551
1,268
683
600
824
4,814
15,606
Year 5
3,634
1,712
922
1,000
1,169
7,618
21,068
4,755
2,311
1,244
1,200
1,533
11,027
28,442
P’kolino will remain in the high-end segment of the market for its first 2
years of operations and has priced its products accordingly. All products are
priced as a function of both their manufacturing costs and their marketing
positioning strategies. At year 3 a $400 table with a 45% contribution margin
will be introduced to the mid-segment.
Exhibit 9-B
Prices and Manufacturing Cost
Product
Selling
Price
Table A
Table B
Table C
Storage Unit
Toy kit version 1
Toy kit version 2
Accessories
$650
$1,200
$300
$450
$30
$55
$60
Manufacturing
Cost
$260
$260
$130
$140
$10
$26
$28
Contribution
in US$
$390
$940
$170
$310
$20
$29
$32
Contribution
as % of Price
60%
78%
57%
69%
67%
53%
53%
P’kolino will sell its products both online (direct) and through specialty
retailers. Retailers are expected to markup our products by 50% (according
to our primary research). Thus, our wholesale price will need to account for
this markup. Management estimates that even though 80% (30% after year
2) of the units sold will be sold through retailers, only 23% of the revenue
will come from this distribution channel. The percentage sold through
retailers will drop over time as P’kolino gains brand recognition and further
develops its direct distribution channel.
Exhibit 9-C
% of Revenues by Distribution Channel
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Year 1
Year 2
Year 3
Year 4
Year 5
Retail
23%
26%
17%
14%
10%
Direct
77%
74%
83%
90%
For
more information
please86%
contact us at
info@pkolino.com
-Page 3 –
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
As stated earlier in this document the Toy kits and accessories are the main
vehicles for generating recurrent revenue from existing customers.
Exhibit 9-D
Revenue Mix (% of revenue by type of product)
Revenue Mix
Year 1
Tables
Storage
Kits
Accessories
Year 2
79%
13%
8%
0%
Year 3
57%
9%
9%
25%
Year 4
54%
11%
6%
28%
Year 5
55%
11%
7%
27%
54%
11%
8%
27%
Revenues for P’kolino will increase significantly during the winter holiday
season. As is the case in the toy industry, playroom products are seasonal
and more than 50% of total revenues will be generated during this period.
Summer will be the second best season because children are out of school
and spending more time at home.
Exhibit 9-E
Seasonal Sales – Number of tables sold per month Year 1 & 2
700
600
500
Units
400
300
200
100
Feb-07
Dec-06
Oct-06
Aug-06
Jun-06
Apr-06
Feb-06
Dec-05
Oct-05
Aug-05
Jun-05
Apr-05
0
For more information please contact us at info@pkolino.com
-Page 4 –
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
Exhibit 9-F
Revenue Forecast
Revenue per year
Year 1
Tables
Table A
Table B
Table C
Storage Unit
Toy Kits
Accessories
Total Revenues
Revenue Growth
Year 2
Year 3
Year 4
Year 5
$481,501
$220,101
$261,400
$0
$79,871
$1,008,361
$460,937
$547,424
$0
$167,267
$1,589,988
$711,113
$698,876
$180,000
$334,359
$2,274,038
$976,358
$997,680
$300,000
$474,521
$3,134,920
$1,354,885
$1,420,035
$360,000
$656,146
$50,772
$158,621
$189,781
$310,663
$462,848
$0
$612,145
$449,603
$1,783,851
191%
$807,891
$2,922,020
64%
$1,109,235
$4,168,457
43%
$1,539,278
$5,793,191
39%
Exhibit 9-G
Revenue Monthly Forecast
Monthly Revenues
Month 1
Month 2
Month 3
Total 1st Quarter
Month 4
Month 5
Month 6
Total 2nd Quarter
Month 7
Month 8
Month 9
Total 3rd Quarter
Month 10
Month 11
Month 12
Total 4th Quarter
Total for year
Average Revenue
by Month
by Quarter
Year 1
$0
$0
$0
$0
$0
$25,314
$50,627
$75,941
$50,627
$102,680
$255,986
$409,293
$36,602
$39,453
$50,856
$126,911
$612,145
Year 2
$39,182
$67,346
$101,212
$207,741
$124,420
$29,350
$30,775
$184,545
$127,270
$366,132
$729,413
$1,222,815
$57,750
$39,327
$71,674
$168,751
$1,783,851
Year 3
$64,182
$110,316
$165,789
$340,287
$203,804
$48,076
$50,411
$302,292
$208,474
$599,739
$1,194,808
$2,003,020
$94,596
$64,420
$117,405
$276,421
$2,922,020
Year 4
$91,560
$157,373
$236,510
$485,443
$290,740
$68,584
$71,915
$431,240
$297,402
$855,567
$1,704,473
$2,857,442
$134,948
$91,899
$167,485
$394,333
$4,168,457
Year 5
$127,247
$218,712
$328,694
$674,653
$404,062
$95,316
$99,945
$599,323
$413,320
$1,189,040
$2,368,823
$3,971,183
$187,547
$127,719
$232,766
$548,032
$5,793,191
$51,012
$153,036
$148,654
$445,963
$243,502
$730,505
$347,371
$1,042,114
$482,766
$1,448,298
Note: the Third quarter represents the holiday season.
For more information please contact us at info@pkolino.com
-Page 5 –
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
9.3 Income Statement Assumptions – Cost of Sales
Our business model assumes that manufacturing of all P’kolino products will
be outsourced to Brazil and then eventually to an Asian manufacturer. The
average cost of sales will be 47% of revenues. Cost of sales is estimated
based on manufactured units.
Exhibit 9-H
Cost of Sales
Manufacturing Costs
Year 1
Year 2
Year 3
Year 4
Year 5
Table A
$116,610
$244,205
$329,677
$445,064
$600,836
Table B
$62,790
$131,495
$177,518
$239,650
$323,527
Table C
$0
$0
$84,000
$140,000
$168,000
Storage Unit
$31,878
$66,759
$115,325
$163,668
$214,652
Kits
$25,818
$85,988
$95,251
$157,954
$237,232
$0
$277,900
$436,968
$589,907
$796,374
Accessories
Other
Total COGS
$29,193
$54,504
$200,357
$219,636
$245,602
$266,289
$860,851
$1,439,096
$1,955,879
$2,586,223
9.4 Income Statement Assumptions – Expenses
Expenses for P’kolino are centered on three main areas: 1) Sales and
Marketing, 2) General Administration Expenses and 3) Research and
Development.
For the first year, sales and marketing expenses are close to 20% of sales.
Developing our website, generating initial marketing materials and a direct
mail campaign are the main uses of these funds. Again after year 3,
marketing efforts intensify as P’kolino makes an effort to enter the midsegment of the market with a new product.
Over time, General and Administration expenses converge towards the
industry average. However, P’kolino’s business model calls for a lean
organization that concentrates on sales, product development and
marketing. Management will make every effort to outsource all areas of the
business not directly related to the core competency of the company. By
year 5, the company will have 10 employees. The company will open an
office at a business incubator during its first and second year of operations.
P’kolino will relocate to a new facility by the end of year 2.
Product development (or R&D) is central to the P’kolino business model. It
will require 10% of revenues during the first and second year and 9% on
average thereafter (the R&D for the first year has been partially funded and
executed prior to starting operations). During years 1&2 the company will
For more information please contact us at info@pkolino.com
-Page 6 –
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
develop a table for the mid-segment of the market as well as new Toy kits
and accessories.
Other expenses such as legal expenses, insurance, etc. are estimated
based on industry averages.
Exhibit 9-I
Projected Financial Statements
Revenues
Cost of Sales
Gross Profit
Year 1
$612,145
$266,289
$345,856
%
100%
48%
52%
Year 3
$2,922,020
$1,439,096
$1,482,924
%
100%
49%
51%
Year 4
$4,168,457
$1,955,879
$2,212,578
Expenses
Sales & Marketing
Salaries & Benefits
Advertising
Direct Mail Campaign
Free Kit
Web Expenses Marketing
Other Marketing Expenses
$121,379
40,250
15,000
20,000
15,008
25,000
6,121
20%
7%
2%
3%
2%
4%
1%
$354,768
80,500
50,000
150,000
31,429
25,000
17,839
20%
5%
3%
8%
2%
1%
1%
$559,581
242,932
60,000
150,000
42,429
35,000
29,220
19%
8%
2%
5%
1%
1%
1%
General and Administration
Salaries & Benefits
Depreciation
Rent & Utilities
Corporate Office
$103,333
90,000
1,333
5,000
7,000
17%
15%
0%
1%
1%
$201,583
178,250
3,333
10,000
10,000
11%
10%
0%
1%
1%
$369,867
319,534
10,333
20,000
20,000
Product Development (R&D)
Salaries & Benefits
Testing
Product Development
$61,000
10%
0%
0%
10%
$227,324
142,324
5,000
80,000
13%
8%
0%
4%
Other Expenses
Legal
Relocation
Other
Insurance
Interest
$91,304
15,000
$112,096
20,000
10,000
1,000
15,304
60,000
15%
2%
0%
0%
3%
10%
6%
1%
1%
0%
2%
2%
Total Expenses
$377,016
62%
$895,771
Profit Before Taxes
($31,160)
-5%
$27,229
2%
$144,908
5%
0%
5,446
0%
28,982
-5%
$21,783
1%
$115,926
1,000
60,000
Taxes
Net Income
($31,160)
%
Year 2
100% $1,783,851
44% $860,851
56% $923,000
44,596
37,500
Year 5
$5,793,191
$2,586,223
$3,206,968
%
100%
45%
55%
$861,467
322,503
150,000
250,000
57,279
40,000
41,685
21% $1,180,662
8%
335,403
4%
300,000
6%
350,000
1%
77,327
1%
60,000
1%
57,932
20%
6%
5%
6%
1%
1%
1%
13%
11%
0%
1%
1%
$424,276
367,276
17,000
20,000
20,000
10%
9%
0%
0%
0%
$531,254
449,587
21,667
35,000
25,000
9%
8%
0%
1%
0%
$288,017
148,017
10,000
130,000
10%
5%
0%
4%
$318,938
153,938
15,000
150,000
8%
4%
0%
4%
$450,095
160,095
20,000
270,000
8%
3%
0%
5%
$120,551
25,000
4%
1%
0%
0%
3%
1%
$129,211
25,000
3%
1%
0%
0%
2%
0%
$169,830
25,000
3%
0%
0%
0%
3%
0%
73,051
22,500
50% $1,338,016
104,211
46% $1,733,892
%
100%
47%
53%
144,830
42% $2,331,841
40%
$478,686
11%
$875,127
15%
1%
95,737
2%
175,025
3%
4%
$382,949
9%
$700,102
12%
For more information please contact us at info@pkolino.com
-Page 7 –
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
9.5 Balance Sheet Assumptions
P’kolino outsources manufacturing of their products allowing it to minimize
investment on fixed assets. Inventory is assumed at 45 days (meaning 8
inventory turns per year, equal to the industry average according to
Hoover’s online database). Management believes it will be able to maintain
this level due to its emphasis on direct distribution.
Accounts receivable will average 30 days due to expected receivables from
sales to retailers. Direct sales will have limited receivables, occurring mostly
by credit card.
Table designs will be considered intangible assets and supported by
constant product development efforts.
Accounts payable will be 25 days during the first few years because
vendors will require most of our purchases to be paid in advance. Over
time, accounts payable will lengthen as we develop a credit history.
Exhibit 9-J
Projected Balance Sheet Statements
Year 1
ASSETS
Cash
Accounts Receivable
Inventory
Total current assets
Net fixed assets
Fixed Assets
Fixed Assets Acum. Deprec.
Other assets
Net Intangibles
Patents + Intangibles
Total assets
LIABILITIES
Accounts and trade notes payable
Income Taxes payable
Other
Total current liabilities
Convertible LT debt
Total liabilities
Paid-in capital
Retained earnings
Total liabilities and net worth
Year 2
Year 3
Year 4
Year 5
$
$
$
$
$
$
$
$
$
$
$
289,628
50,856
70,582
411,066
6,595
8,000
1,405
6,103
50,700
50,700
474,463
$
$
$
$
$
$
$
$
$
$
$
133,388
71,674
91,338
296,400
18,476
24,000
5,524
8,601
50,700
50,700
374,177
$
$
$
$
$
$
$
$
$
$
$
106,278
92,140
138,210
336,629
37,357
54,000
16,643
11,057
50,700
50,700
435,743
$
$
$
$
$
$
$
$
$
$
$
338,241
131,444
197,167
666,852
44,571
79,000
34,429
15,773
50,700
50,700
777,897
$
$
$
$
$
$
$
$
$
$
$
1,036,185
182,677
274,016
1,492,879
47,119
104,000
56,881
21,921
50,700
50,700
1,612,619
$
$
$
$
$
$
$
$
$
$
42,719
12,205
54,924
400,000
454,924
50,700
(31,161)
474,463
$
$
$
$
$
$
$
$
$
$
60,206
5,446
17,202
82,854
250,000
332,854
50,700
(9,377)
374,177
$
$
$
$
$
$
$
$
$
$
77,398
28,982
22,114
128,493
150,000
278,493
50,700
106,550
435,743
$
$
$
$
$
$
$
$
$
$
110,413
95,737
31,547
237,697
237,697
50,700
489,499
777,897
$
$
$
$
$
$
$
$
$
$
153,449
175,026
43,843
372,317
372,317
50,700
1,189,602
1,612,619
For more information please contact us at info@pkolino.com
-Page 8 –
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
9.6 Funding Assumptions
The company will fund its operations through equity and convertible longterm debt. Founders have issued $50.7K worth of equity. Proceeds will be
used to pay for the product development of the initial product line. Additional
funding will come in the form of long-term convertible debt (convertible into
equity at the lender’s discretion) for up to $400K over the next five years, at
a 15% annual interest rate. Friends and family will be the primary investors
initially.
Exhibit 9-K
Use of Funds (average)
Equipt+
Supplies
4%
Operations
21%
R&D
21%
Sales and
Marketing
19%
Working
Capital
21%
Inventory
14%
For more information please contact us at info@pkolino.com
-Page 9 –
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
9.7 Cash Flow Assumptions
Investments will maintain positive cash flow the first 2 years. After this
period, P’kolino estimates that it will generate enough cash from operations
to repay the long-term debt and finance future growth.
Exhibit 9-M
Projected Cash Flow Statements
Net Income
Accounts receivable (increase)
Inventory (increase)
Depreciation
Other Liabilities
Accounts Payable
Tax payable
Operating Cash Flow
$
$
$
$
$
$
$
$
Year 1
(31,161)
(50,856)
(70,582)
1,405
12,205
42,719
(96,270)
$
$
$
$
$
$
$
$
Year 2
21,784
(20,818)
(20,755)
4,119
4,996
17,487
5,446
12,259
$
$
$
$
$
$
$
$
Year 3
115,927
(20,467)
(46,873)
11,119
4,912
17,192
23,536
105,346
$
$
$
$
$
$
$
$
Year 4
382,950
(39,304)
(58,956)
17,786
9,433
33,015
66,756
411,680
$
$
$
$
$
$
$
$
Year 5
700,102
(51,233)
(76,849)
22,452
12,296
43,036
79,288
729,092
Purchase of PPE
Other Assets
Change Intangibles
$
$
$
(8,000)
(6,103)
(50,700)
$
$
$
(16,000)
(2,498)
–
$
$
$
(30,000)
(2,456)
–
$
$
$
(25,000)
(4,716)
–
$
$
$
(25,000)
(6,148)
–
Cash from Investing
Convertible LT debt
Issued Stock
Cash from Finance
$
$
$
$
(64,803)
400,000
50,700
450,700
$
$
$
$
(18,498)
(150,000)
(150,000)
$
$
$
$
(32,456)
(100,000)
(100,000)
$
$
$
$
(29,716)
(150,000)
(150,000)
$
$
$
$
(31,148)
–
Change in cash
$
289,628
$
(156,240)
$
(27,110)
$
231,963
$
697,944
Cash Flow:
$
289,628
$
133,388
$
106,278
$
338,241
$
1,036,185
9.8 Breakeven Analysis
Exhibit 9-N
Break-even vs. Revenues
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
Year 1
Year 2
Break-even
Year 3
Year 4
Year 5
Revenues
For more information please contact us at info@pkolino.com
-Page 10 –
CONFIDENTIAL INFORMATION
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
Business Plan
May-2005
Prepared by:
J.B. Schneider &
Antonio Turco-Rivas N.
Contact Information:
Phone:
Email:
(781) 497-0913
jb@pkolino.com
atrn@pkolino.com
Address:
600 West Cummings Park
Suite 5350
Woburn, MA 01801
For more information please contact us at info@pkolino.com
-Page 1 The information contained in this document is highly confidential. Except if stated herein, none of
the material may be copied, reproduced, distributed, republished, downloaded, displayed, posted or
transmitted in any form or by any means, including, but not limited to, electronic, mechanical,
photocopying, recording, or otherwise, without the prior written authorization from P’kolino, LLC.
Confidential Information
Business Plan – Dated May-2005
Woburn, Massachusetts – USA
9
9.1
Financial Plan
Basis of Presentation
This plan contains five-year projected financial information for our company.
While management believes that the assumptions underlying the projections
are reasonable, there can be no assurance that these results can be
realized or that actual results will meet management expectations. It is
important to notice that our first month of operations is expected to be April
2005, causing the holiday season to be reflected in the financial statement
as the third quarter in our projections. Monthly financial statements for the
first two years are available on request.
9.2
Income Statement Assumptions – Revenues
The number of tables sold each month is the main driver of revenues for
P’kolino. This number is estimated based on the expected outcome of the
marketing efforts the company has planned for each year. At the beginning
the company will sell two different types of tables targeting the high-end
segment of the market. How …
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