Projections of Profit and Loss Analysis for the Mildura Fruit Company

We intend to gather relevant information from the previous owners of Mildura Fruit Company including their business plan. We will also use the available financial information such as tax forms and financial statements to enable our projection before buying the company. Financial planning is key for any business’ success (Brinckmann et al., 2010, p. 43).

Funding Requirements and Usage

The group is pursuing to raise $600,000 to finance the purchase of Mildura Fruit Company in Australia. We intend to use the capital to acquire the equipment and facilities. However, we will invest another $605,000 in the company which will cater for operational costs such as salaries for employees, marketing and promotion, licensing, settling current borrowing and other recurrent expenditure. The table is a breakdown of the intended usage of the funds.

Table 1. Funding Requirements.

Acquisition of the business

Facilities (business premise, land, transportation trucks, etc.)

$250,000

Equipment (automatic grader, production machines, cooling and preservation system, etc.)

$350,000

Sub-total

$600,000

Expenditure:

Salaries

$80,000

Promotion and marketing

$60,000

Licensing

$15,000

Packaging

$50,000

Insurance

$200,000

Settlement of current borrowing

$150,000

Miscellaneous

$50,000

Sub-total

$605,000

Important Assumptions

The financial projections are by the annual volume of sales for Mildura Fruit Company as described during the projection of sales. The group also intend to analyse expected assets, capital, liabilities, expenses, and revenues which will be critical for leveraging equations for borrowing in case it is required to finance the business (Nissim and Penman, 2003, p. 531). The forecast is a representation of the group’s judgment of expected working conditions and course of action from hypothetical expectations. It is also assumed that the company’s revenue primarily generates from the sale and supply of fruit manufactured through the firm’s production process.  We also assume that the significant expenses for the company are utilities, salaries and insurance costs, but other expenditures are by the group’s estimations and the industry averages.

Table 2. General assumptions.

YEAR 1

YEAR 2

YEAR 3

YEAR 4

YEAR 5

Plan month

1

2

3

4

5

Current interest rate

7%

7%

7%

7%

7%

Long-term interest rate

7%

7%

7%

7%

7%

Tax rate

21%

21%

21%

21%

21%

Others

0

0

0

0

0

Break-Even Analysis

The group expects the break-even as shown in the figure below.

Figure 1. Break-even analysis

The group intends to break-even after the first two years acquiring the business and keeping it up and running. Initially, we are likely to incur expenditure on settling current borrowings inherited from the firm, but the strategies put in place will ensure the production costs reduce during the sales increase. Since we intend to broaden the customer coverage and improve on quality and standards of packaging the business foresees better sales going forward.

Projected Profit and Loss Analysis

The group expects instability at the beginning of the business but foresees improved profitability over the next years. The instability may be orchestrated by the business still trying to establish a stronger background for expansion.

Figure 2. Monthly projected profit analysis

Table 3. Predicted Profit and Loss Analysis

Pro forma profit and loss

Year One

Year Two

Year Three

Year Four

Year Five

Sales

$100,000

$175,000

$260,000

$300,000

$350,000

Direct cost of sales

$125,000

$125,000

$125,000

$155,000

$105,000

Others

$480,000

$200,000

$130,000

$100,000

$150,000

Total cost of sales

$605,000

$325,000

$255,000

$255,000

$255,000

Gross margin

-$505,000

-$150,000

$5,000

$45,000

$95,000

Percentage gross margin

-505%

-85.71%

1.92%

15%

27.14%

Expenses

Marketing

$60,000

$60,000

$60,000

$60,000

$60,000

Salaries

$80,000

$80,000

$80,000

$80,000

$80,000

Packaging

$50,000

$50,000

$50,000

$60,000

$60,000

Borrowings

$150,000

$0

$0

$0

$0

Insurance

$200,000

$0

$0

$0

$0

Licensing

$15,000

$15,000

$15,000

$15,000

$15,000

Others

$50,000

$120,000

$50,000

$40,000

$40,000

Total operation costs

$605,000

$325,000

$255,000

$255,000

$255,000

Profit before interest and taxes

-$505,000

-$150,000

$5,000

$45,000

$95,000

Interest

$0

$0

$350

$3,150

$6650

Taxes incurred

$0

$0

$1,050

$9,450

$19,950

Net profit

$0

$0

$3,600

$32,400

$68,400

Percentage net profit

0

0

2%

10.8%

19.5%

Projected Cash Flow

The table below illustrates cash flow projections for Mildura Fruit Company after it is purchased and it starts running under our management.

Table 4. Projected Cash Flow

Pro forma cash flow

Year 1

Year 2

Year 3

Year 4

Year 5

Cash sales

$60,000

$100,000

$210,000

$250,000

$310,000

Cash from receivables

$40,000

$75,000

$50,000

$50,000

$40,000

Sub-total operation cash

$100,000

$175,000

$260,000

$300,000

$350,000

Tax from sales, VAT etc.

$0

$0

$0

$0

$0

Borrowing

$0

$0

$0

$0

$0

Long-term liabilities

$0

$0

$0

$0

$0

Sale of current assets

$0

$0

$0

$0

$0

Sale of long-term assets

$0

$0

$0

$0

$0

Sub-total cash received

$100,000

$175,000

$260,000

$300,000

$350,000

Projected Balance Sheet

The group foresees a solid balance of cash and the firm’s net worth over the first five years of operation.

Table 5. Projected Balance Sheet

Pro forma balance sheet

Year 1

Year 2

Year 3

Year 4

Year 5

Inventory

$600,000

$1,055,000

$955,000

$900,000

$900,000

Cash sales

$605,000

$100,000

$175,000

$260,000

$300,000

Account receivables

$0

$0

$0

$0

$0

Total current assets

$1,205,000

$1,155,000

$1,130,000

$1,160,000

$1,200,000

Long-term assets

$600,000

$600,000

$600,000

$600,000

$600,000

Total assets

$1,805,000

$1,755,000

$1,730,000

$1,1760,000

$1,800,000

Liabilities

Salaries

$80,000

$80,000

$80,000

$80,000

$80,000

Borrowing

$150,000

$0

$0

$0

$0

Insurance

$200,000

$0

$0

$0

$0

Marketing

$60,000

$60,000

$60,000

$60,000

$60,000

Licensing

$15,000

$15,000

$15,000

$15,000

$15,000

Packaging

$50,000

$50,000

$50,000

$60,000

$60,000

Others

$50,000

$120,000

$50,000

$40,000

$40,000

Long-term liabilities

$0

$0

$0

$0

$0

Total liabilities

$605,000

$325,000

$255,000

$255,000

$255,000

Earnings

$0

$280,000

$350,000

$350,000

$350,000

Total Capital

$600,000

$600,000

$600,000

$600,000

$600,000

Total liabilities and capital

$1,205,000

$1,205,000

$1,205,000

$1,205,000

$1,205,000

Net worth

$600,000

$880,000

$950,000

$950,000

$950,000

References

Brinckmann, J., Grichnik, D. and Kapsa, D., 2010. Should entrepreneurs plan or just storm the         castle? A meta-analysis on contextual factors impacting the business planning–        performance relationship in small firms. Journal of business Venturing, 25(1), pp.24-40.

Nissim, D. and Penman, S.H., 2003. Financial statement analysis of leverage and how it informs            about profitability and price-to-book ratios. Review of Accounting Studies, 8(4), pp.531- 560.