Financial Assumptions

The Financial Assumptions section of your business plan presents

the reasoning behind your financial projections. In this section you
should include information to support your financial projections,
such as industry standards and information sources.
The Financial Assumptions section of your plan may contain some
or all of the two sections listed here. Within each section, you will
find links to example text grouped by industry.
Financial Assumptions
Introduction
Manufacturing Industries
1.

Appleton Moldings

The financial projections for Appleton Moldings are based upon previous financial statements for
the business:
Below are Appleton Moldings' projected annual sales:
[Insert Sales Forecast, Summary Report]
Below are Appleton Moldings' projected annual expenses:
[Insert Expense Forecast, Summary Report]
In addition to above projected sales and expenses, Appleton Moldings' financials include the
following assumptions:
Loans for the purchase of Equipment:
National Bank - $125,000 @ 8.75% over 36 months
Van Dorn Financing - $75,000 @ 10.0% over 72 months

Manufacturing Industries
1.

Appleton Moldings

The following information explains the financial projections for Appleton Moldings:
Beginning Balance Sheet
[Insert Beginning Balance Sheet, Summary Report]
PPE:
Existing building = $1,200,000

Existing molding equipment = $375,000

Existing office furniture & access. = $30,000
Existing computers & other hardware = $25,000
2 Van Dorn presses = $75,000
1 Van Dorn extrusion line = $25,000
3 Engel presses = $270,000
Total PPE = $2,000,000
Liabilities:
Existing equipment loan = $175,000 @ 9.75%, 57 monthly payments remaining
New equipment loan (Van Dorn) = $75,000 @ 10%, 72 monthly payments
Additional bank financing = $125,000 @ 8.75%, 36 monthly payments
Total Liabilities = $375,000
Equity:
Additional $175,000 invested by Appleton Moldings
Balance Sheets (Year 1, 2, and 3)
Line of credit activity = $23,023 paid back in month 8 of Year 1
Profit & Loss
[Insert Profit & Loss, Summary Report]
Sales: Projected monthly sales are based on existing monthly sales. After the expansion,
Appleton Moldings expects monthly sales to increase to $285,000 in month 7.
Cost of Sales:
Material: 25% of unit sales
Labor/benefits/taxes: 30% of unit sales plus 25% for benefits and taxes
Other:
Mold Setup Fees:
Selling price is $5,000, cost is $2,500

Shipping Revenue:
90% of the revenue to ship actual product
Operating Expenses:
Marketing: See Promotional Plan in the Marketing Plan section.
Travel: Tradeshows and client meetings.
Bad debt: All Appleton Molding sales are on credit. Historically, the company has encountered a 1
percent uncollectible rate.
Estimated taxes: 25% of net income before taxes.
Cash Plan
[Insert Cash Plan, Summary Report]
All figures are derived from the assumptions above.

2.

Comfort Manufacturing

BEGINNING BALANCE SHEET

[Insert Beginning Balance Sheet, Summary Report]
Cash: $574,100 - The amount of cash remaining after:
Inflows:
$750,000 - Colorado State Bank
$500,000 - Private equity investor
$200,000 - Principals
$1,450,000 - Total cash inflow
Outflows for new PPE:
$720,000 - Building
$240,000 - Additional molding equipment
$68,000 - Packing system
$47,000 - Conveyor system

$16,500 - Phone system

$14,000 - Miscellaneous office equipment
$9,000 - Office furniture
$8,400 - Computer network
$1,122,900 - Total cash purchases
($247,000) Less vendor financing
$875,900 - Total Cash Required at Start-up
Inventory: $18,000 - Comfort Manufacturing projects having 30 days' worth of unfinished
inventory on-hand at all times. This amount is based on month 1 sales.
Property, plant and equipment (net): $1,258,400
New PPE purchases:
$720,000 - Building
$240,000 - Additional molding equipment
$68,000 - Packing system
$47,000 - Conveyor system
$16,500 - Phone system
$14,000 - Miscellaneous office equipment
$9,000 - Office furniture
$8,400 - Computer network
Existing PPE:
$105,000 - Molding equipment
$25,000 - Misc. molds
$5,500 - Computers
Accounts Payable (Inventory): $18,000 - Comfort Manufacturing will purchase its raw materials
on net 30 payment terms
Liabilities (Current maturities & LT Debt): $1,535,900
$38,900 @ 9.90% and 61 monthly payments remaining - Existing equipment loan

$200,000 @ 9.90% and 72 monthly payments remaining - Acme Molding Equip.

$47,000 @ 8.65% and 48 monthly payments remaining - Conveyor Systems, Inc.
$750,000 @ 9.00% and 72 monthly payments remaining - Colorado State Bank
$500,000 @ 12.00% and 72 monthly payments remaining - Private equity investor
Equity:
Contributed cash: $200,000 - Investment by principals
Assets transferred in: $135,500
$105,000 - Molding equipment
$25,000 - Misc. molds
$5,500 - Computers
Less debt transferred in: $38,900 (existing equipment loan - see above)
PROFIT & LOSS
[Insert Profit & Loss, Summary Report]
Sales (Year 1): Comfort Manufacturing will only offer the Comfort Grip in Year 1. Wholesale units
of the Comfort Grip will outsell direct sales 8-to-1. Monthly unit sales at wholesale will begin
slowly and increase to 32,000/units per month through the remainder of the projection. Initial
monthly sales will be as follows:
Feb '04 - 6,400
Mar '04 - 12,800
Apr '04 - 19,200
May '04 - 25,600
Jun '04 - 32,000
Sales (Year 2): Comfort Manufacturing will add the Comfort Grip, Jr. in Year 2. Wholesale units of
the Comfort Grip, Jr. will outsell direct sales 8-to-1. Monthly unit sales at wholesale will start of
slowly and ramp up 16,000/units per month through the remainder of the projection. Initial
monthly sales will be as follows:
Feb '05 - 3,200
Mar '05 - 6,400
Apr '05 - 9,600

May '05 - 12,800

Jun '05 - 16,000
Sales (Year 3): Comfort Manufacturing will add the Comfort Grip Cooking Utensils in Year 3.
Wholesale units of the Comfort Grip Cooking Utensils will outsell direct sales 10-to-1. Monthly unit
sales at wholesale will start of slowly and ramp up 20,000/units per month through the remainder
of the projection. Initial monthly sales will be as follows:
Feb '06 - 4,000
Mar '06 - 10,000
Apr '06 - 12,000
May '06 - 16,000
Jun '06 - 20,000
Cost of sales:
Comfort Grip units - $4.50 for materials and $2.50 labor (plus 30% for benefits/taxes).
Comfort Grip, Jr. units - Same as Comfort Grip units.
Utensils - $6.50 for materials and $3.75 labor (plus 30% for benefits/taxes).
Year 1 Total Production Labor = 22 production workers @ $40,909 (plus 30% for benefits/taxes).
Year 2 Total Production Labor = 34 production workers @ $45,000 (plus 30% for benefits/taxes).
Year 3 Total Production Labor = 67 production workers @ $50,000 (plus 30% for benefits/taxes).
Management & Administrative Payroll (add 30% for benefits/taxes):
President/CEO - $115,000
Vice President of Manufacturing - $100,000
Vice President of Sales & Marketing - $80,000 + bonus
Front-office personnel (2) @ $30,000
Salespersons Salaries (add 30% for benefits/taxes):
Year 1 - Salespersons (2)@ $50,000
Year 2 - Same as Year 1, but one additional sales person at $50,000 and the other two at
$55,000.

Year 3 - Same as Year 2, but one additional sales person @ $50,000, one at $55,000, and two at
$60,000.
Performance Bonuses (add 30% for benefits/taxes):
Paid in March of the following calendar year equal to 1% of prior years' sales.
Advertising:
$6,500/month for direct mail, catalogs, and banner ads.
Travel:
Year 1 - 2 trips @ $3,000 to visit prospective and existing customers.
Year 2 - 3 trips @ $3,000 to visit prospective and existing customers.
Year 3 - 4 trips @ $3,000 to visit prospective and existing customers.
Tradeshows:
Quarterly tradeshows at $7,500/show.
Engineering Consulting:
$1,500/month for assistance with plant layout and general consulting services.
Entertainment:
Year 1 - $3,000/month for existing customers and prospects.
Year 2 - $4,000/month for existing customers and prospects.
Year 3 - $5,000/month for existing customers and prospects.
Telephone (paid in the month following the expense):
Year 1 - $1,000/month
Year 2 - $2,000/month
Year 3 - $3,000/month
Utilities - Heat, lights, water, gas, etc. (paid in the month following the expense):
Year 1 - $3,000/month
Year 2 - $6,000/month
Year 3 - $9,000/month

Legal:
$1,500/month for patent and trademark work and contract writing and review.
Insurance:
$5,000/quarter for product liability and general liability.
Research & Development:
$5,000/month for two part-time engineers.
Bad Debt:
90% of all sales are on credit 1% of credit sales will be uncollectible.
BALANCE SHEET
[Insert Balance Sheet, Summary Report]
Accounts Receivable (net):
Credit sales are shown net of 1% bad debt expense.
Inventory:
Amount of inventory required to support 30 days' sales.
PPE (net):
Depreciation on fixed assets listed in the Beginning Balance Sheet assumptions.
Accounts Payable:
Inventory purchased net 30.
Line of credit:
Comfort Manufacturing has established a $100,000 line of credit at 8.75%. This credit is used in
Jun '05 to the tune of $42,004. This is to cover Comfort Manufacturing's first five months of
negative cash flow. The credit is paid in full in Sep '04.
Liabilities (Current maturities & LT Debt):
Balances are repayment of loans listed in the Beginning Balance Sheet assumptions.
[Insert Cash Plan, Summary Report]
Other costs of sales: Production labor as described in the Profit & Loss.
Other expenses: Operating expenses as listed in the Profit & Loss.

Issuance of Debt: Feb '05 and Feb '06 in the amount of $30,000 for custom molds.
Distributions: $25,000/month to the owners.
Line of Credit Activity: Refer to Balance Sheet assumptions.
3.

Infrared Measuring Technologies

BEGINNING BALANCE SHEET

[Insert Beginning Balance Sheet, Summary Report]
Cash - The amount of cash remaining after the anticipated $200,000 infusion, $100,000 by the
founders and $100,000 from the new equity partner. Of this amount, $55,000 will be used to
purchase a packaging system ($15,000), soldering equipment ($7,500), an automated production
line ($7,500), and perform some building improvements ($25,000).
Inventory - Since IMT plans on having 60 days worth of inventory on-hand at all times, this is the
amount of inventory IMT will have on-hand at the beginning of its operation to meet its first two
month's sales.
Property, plant and equipment (net) - This includes the planned purchase of $55,000 of
equipment and building improvements, plus the $10,000 of office equipment and furniture
contributed by the founders. The contribution consists of computers worth $5,000, a telephone
system worth $2,500, and some office furniture worth $2,500.
Contributed cash - This is anticipated joint investment by the founders and the new equity partner.
Assets transferred in - This is value of the office equipment and furniture contributed by the
founders.
PROFIT & LOSS
[Insert Profit & Loss, Summary Report]
Sales - Assumptions are based on anticipated unit sales. Year 1 forecasts 1,000 SmartScanner
units sold to upscale department stores at $750 per unit and 200 maintenance agreements at
$125 each. Year 2 forecasts 2,000 units sold to upscale department stores at $750 per unit and
400 new maintenance agreements at $125 each. Year 3 forecasts 1,800 units sold to upscale
department stores at $750 per unit, 2,700 units of the new ValueScanner sold to other
department/apparel stores at $500 each, plus 360 new maintenance agreements at $125 each.
All sales are assumed to be on credit, with net 30 payment terms, and no bad debt. A certain
portion of IMT's annual maintenance agreement customers are expected to renew, but this
residual income is not included in this forecast.
Cost of sales - Calculated as $100 per unit for the SmartScanner ($75 for materials and $25 for
other expenses such as shipping, shop supplies, etc.) Manufacturing labor is accounted for as a
fixed operating expense. Costs for the ValueScanner total $75 per unit ($60 for materials and $15
for other expenses such as shipping, shop supplies, etc.) There is no cost of sales for the
maintenance agreements.
Advertising - Monthly advertising expenses for Years 1, 2, and 3 are $3,000, $5,000, and $7,500,
respectively. These funds will be used for trade magazines and direct mail campaigns.

Insurance - IMT has already established business and product liability insurance. The annual cost
of IMTs present coverage is $5,000.
Legal & accounting - Legal and accounting expenses assume fixed monthly retainers for IMTs
legal counsel and accountants. Initially, there is an anticipated $2,000 legal cost for documenting
the addition of an equity partner.
Manufacturing Personnel - IMT plans to immediately hire three full-time assembly workers at a
rate of $22 per hour. A payroll burden of 25 percent has been added to cover taxes and benefits.
Marketing Personnel - IMT plans to hire one full-time individual for the last six months of year one
at a base of $4,000 per month. Two additional marketing personnel will be added at the beginning
of year two. If the marketing team reaches IMTs annual sales forecast, performance bonuses of
$5,000 will be paid to each marketing person. In the case of year one, a bonus of $2,500 will be
paid due to the length of service being only six months. A payroll burden of 25 percent has been
added to cover taxes and benefits.
Rent - Monthly rent is calculated based upon an annual established lease agreement for IMTs
current 5,000 square foot facility. The negotiated rate per square foot is $10.
Repairs & maintenance - These fees are based upon IMTs current average monthly maintenance
expense, which includes a janitorial service.
Research & development - Research and development for IMTs ValueScanner will begin and be
completed in year two. This work will be contracted to IMTs current suppliers and their
development teams. Budgeted costs for this project are $180,000.
Salaries (Owners/Asst.) - Each of the two owners will receive a fixed salary of $75,000 a year.
The Administrative Assistant will receive $31,200 a year. A payroll burden of 25 percent has been
added to cover taxes and benefits.
Trade shows - These funds will be used for IMT personnel to attend several regional and national
tradeshows. This monthly amount does not include travel, which is listed separately.
Travel - These funds will enable IMT personnel to visit and train new customers as well as attend
trade shows.
Utilities - Utilities are based upon IMTs own historical average for building occupancy.
Website development - Production of IMTs website will be outsourced to a local web
development company. These funds will cover not only the development of the site, but also the
hosting during the forecast period. The project will take approximately 60 days and cost a total of
$10,000.
Depreciation - Depreciation is calculated on a straight-line method based upon the associated life
of IMTs assets. Computers and telephones are depreciated over 5 years, office furniture is
depreciated over 7 years, manufacturing equipment is depreciated over 5 years, and building
improvements are depreciated over 39 years.
Interest expense - IMT will incur an interest expense of $53 in month 7 of its operation for using
its line-of-credit loan. The amount is needed in month 6 and repaid completely in month 7. In
years two and three, IMT will incur interest expenses of $8,646 and $5,497 on the $100,000
operating loan secured at the beginning of year two.

Estimated taxes - The annual amount estimated to cover taxes is calculated at an average
percent of 25 percent of net income before taxes. This amount is computed on a monthly basis.
BALANCE SHEET
[Insert Balance Sheet, Summary Report]
Accounts receivable (net) - Since IMT will be extending its customers credit terms of Net 30, this
is the amount of uncollected cash IMT is owed at the end of each month.
Inventory - Since IMT plans on having 60 days worth of inventory on-hand at all times, this is the
amount of inventory IMT will have on-hand at the end of each month.
PPE (net) - This is the value of IMTs equipment net of depreciation.
Accounts payable - This is the amount IMT owes its suppliers for inventory.
Line of credit - IMTs line of credit will be needed in June of year one to cover the amount of
$6,402 which will be repaid the following month.
Notes payable - The sum of principal payments from the $100,000 operational loan due in less
than one year. The value shown is net of interest expense. The sum of the principals payments
from this loan are first categorized in the Current maturities section of the Balance Sheet until less
than a year is owned on the loan and it is moved to Notes payable.
Current maturities - The sum of principal payments from the $100,000 operational loan due in
less than one year. The value shown is net of interest expense.
CASH
[Insert Cash Plan, Summary Report]
Cash receipts - Sales to customers will be made on Net 30 credit terms. The forecast assumes
that cash will be received in the month following the sale. Due to the nature of IMTs target
market, no bad debt is anticipated.
Inventory purchases - IMT plans on having 60 days worth of inventory on-hand at all times. IMT
has negotiated supplier credit terms of Net 30. Inventory purchases are derived from the
SmartScanner and ValueScanner material costs of $75 and $60, respectively.
Other costs of sales - The SmartScanner and ValueScanner have other costs of sales of $25 and
$15, respectively. These costs will cover shipping, shop supplies, etc.
Issuance of debt - At the beginning of year two, IMT plans to secure an operational loan of
$100,000.
Principal payments - These are the principal amounts paid on the $100,000 operating loan.
Interest payments - Please refer to Interest expense in the Profit & Loss assumptions section.

Line of credit activity - IMT has already established a $10,000 line of credit with First Bank of
Michigan. It carries an interest rate of 10 percent. This will be needed in June of year one to cover
the amount of $6,402 which will be repaid the following month.
4.

Palmtop Innovations

BEGINNING BALANCE SHEET

[Insert Beginning Balance Sheet, Summary Report]
Cash - The remaining balance after the $175,000 equity investment and the purchase of $25,000
of computer and office furniture. The company has set its minimum cash balance at $5,000.
Property, Plant & Equipment (net) - The $18,000 of equipment the company already has in its
possession, plus the new computer and office furniture purchase of $25,000.
Accounts Payable (inventory) - The company requires 10 days of inventory on-hand at all times.
The amount of $2,500 is one-third of the first month's cost of goods (3 units at $10,000 with cost
of goods of $2,500 per unit).
Contributed Cash - The amount of the equity investment.
PROFIT & LOSS
[Insert Profit & Loss, Summary Report]
Sales - Each unit will sell for $10,000. The company expects to sell 58, 106, and 238 systems in
years one, two, and three, respectively. The company will charge on-going annual maintenance
charges amounting to 15 percent of the system selling price or $1,500. In year two, the company
will collect 58 maintenance fees. These are from the 58 year one system sales. In year three, the
company will collect 164 maintenance fees. These are from the 58 year one and the 106 year two
system sales.
Cost of Sales - The cost of goods for each PalmPal system is estimated to cost $2,500. This
includes $400 for each of the five PalmPilot units and $500 to cover software duplication, printing,
and packaging. There is no cost of goods for maintenance revenues.
Salaries & Wages - This assumes the current six-person team of CEO, VP Marketing, Program
Developer, HR and Administrative Manager, and two Sales Managers. For each position(s),
respective salaries will be $60,000, $55,000, $50,000, $35,000, and $40,000. This equates to an
annual expense of $280,000 plus 25 percent to cover payroll taxes and benefits.
Sales Manager Bonus - Each of the two Sales Managers will be eligible for $10,000 performance
bonus assuming the company reaches its annual sales goal. This equates to an annual expense
of $20,000 plus 25 percent to cover payroll taxes and benefits.
Marketing/Advertising - Marketing and advertising is projected to be a significant portion of the
company's expenses. The amounts budgeted for year one, two, and three are $102,000,
$204,000, and $306,000, respectively. These funds will be used for direct mail, telemarketing, and
personal visits to promising customers.
Estimated taxes - No corporate taxes are expected until the company's second year of operation.
Year two and three estimated taxes total $21,556 and $191,087, respectively.

BALANCE SHEET
[Insert Balance Sheet, Summary Report]
Accounts Receivable (net) - Of the company's sales, 80 percent of sales are anticipated to be
made on a net 30 basis. An allowance of 1 percent has been set to cover bad debt.
Inventory - A minimum of 10 days sales in inventory is assumed.
Accounts Payable - Net 30 terms are expected from suppliers.
CASH PLAN
[Insert Cash Plan, Summary Report]
Cash Receipts - Sales to customers will be on net 30 credit terms. Palmtop Innovations expects
that 80 percent of its sales will be on credit. The forecast assumes that cash will be received in
the month following the sale. A bad debt equal to 1 percent of credit sales is expected.
Inventory Purchases - Palmtop Innovations anticipates having 10 days' worth of inventory onhand at all times. Supplier terms of net 30 days have been established.
Other Expenses - This is the sum of all operating expenses.
[Insert Expense Budget, Summary Report]
Estimated Taxes - No corporate taxes are expected until Palmtop Innovation's second year of
operation. Year two and three estimated taxes total $21,556 and $191,037, respectively. To
remain conservative, the amount of taxes is expensed monthly.