Profit and Loss Account

• We expect to see increased profits from our market shift efforts by the end of Year 2. Over the next three years we expect lower profits as we make inroads into this tough market. We estimate that we will be able to reduce marginal costs and increase overall profitability byYear3orYear 4as we grow and take advantages of economies of scale.
• Overall business growth during the past seven years has averaged approximately 9.5% and is expected to continue for at least the next four years.

Pro Forma Profit and Loss
	2004	2005	2006
Sales	$743,736	$880,434	$996,495
Direct Cost of Sales	$535,525	$648,586	$734,085
Other Costs of Sales	$0	$0	$0
Total Cost of Sales	$535,525	$648,586	$734,085
Gross Margin	$208,211	$231,848	$262,410
Gross Margin %	28.00%	26.33%	26.33%
Expenses
Payroll	$180,000	$180,000	$212,400
Sales and Marketing and Other Expenses	$2,400	$2,400	$2,400
Depreciation	$0	$1,000	$1,000
Rent	$0	$0	$0
Utilities	$1,320	$1,320	$1,600
Insurance	$3,600	$3,800	$4,200
Payroll Taxes	$27,000	$27,000	$27,000
Other	$2,200	$2,500	$3,000
Total Operating Expenses	$216,520	$218,020	$251,600
Profit Before Interest and Taxes	($8,309)	$13,828	$10,810
EBITDA	($8,309)	$14,828	$11,810
Interest Expense	$3,498	$2,964	$2,564
Taxes Incurred	$0	$3,259	$2,474
Net Profit	($11,807)	$7,605	$5,773
Net Profit/Sales	-1.59%	0.86%	0.58%

Projected Cash Flow

We do not expect to have any serious cash flow problems in the future. We plan on having allshort-term debts paid off in 2007 and long-term debts by 2012. The declining cash account during the period covered by this plan, andis to be expected as we build our new customer base. Once we reach a sufficient volume of sales, we will take advantages of economies of scale to decrease costs and improve profit margin.

Table: Cash Flow

Pro Forma Cash Flow
	2004	2005	2006
Cash Received
Cash from Operations
Cash Sales	$483,428	$572,282	$647,722
Cash from Receivables	$248,641	$301,751	$343,339
Subtotal Cash from Operations	$732,069	$874,033	$991,061
Additional Cash Received
Sales Tax, VAT, HST/GST Received	$0	$0	$0
New Current Borrowing	$0	$0	$0
New Other Liabilities (interest-free)	$0	$0	$0
New Long-term Liabilities	$0	$0	$0
Sales of Other Current Assets	$0	$0	$0
Sales of Long-term Assets	$0	$0	$0
New Investment Received	$0	$0	$0
Subtotal Cash Received	$732,069	$874,033	$991,061
Expenditures	2004	2005	2006
Expenditures from Operations
Cash Spending	$180,000	$180,000	$212,400
Bill Payments	$567,657	$694,038	$777,110
Subtotal Spent on Operations	$747,657	$874,038	$989,510
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	$0	$0	$0
Principal Repayment of Current Borrowing	$5,000	$2,000	$2,000
Other Liabilities Principal Repayment	$0	$0	$0
Long-term Liabilities Principal Repayment	$2,400	$2,000	$2,000
Purchase Other Current Assets	$0	$0	$0
Purchase Long-term Assets	$0	$0	$0
Dividends	$0	$0	$0
Subtotal Cash Spent	$755,057	$878,038	$993,510
Net Cash Flow	($22,988)	($4,005)	($2,449)
Cash Balance	$17,440	$13,435	$10,986

Using Microsoft Excel, develop a profit and loss budget for the next period using the previous financial data and ensure your:

1. budget is according to compliance requirements,
2. organisational requirements and
3. statutory requirements.