Question #7: Carefully analyze the aspects of the pro forma income statements (Exhibits 3 and 4). Also, when does the company reach positive cash flow? Comment.

CASE 7 GOURMET TO GO 489 EXHIBIT 3 Pro Forma Income Statement Year 1 300 300 250 250 250 130 195 100 100 100 100 100 Mo, 1 Mo. 2 Mo. 3 Mo 4 Mo, 5 Mo. 6 Mo. 7 Mo.8 Mo.9 Mo. 10 Mo. 11 Mo. 12 Sales 2,600 3.900 6,500 13,000 19,500 23,400 26,000 28.600 31,200 33,800 36,400 39,000 Less: Cost of goods sold 1.700 2,550 4,250 8,500 12,750 15,300 17.000 18,700 20,400 22,100 23,800 25,500 Gross profit 900 1.350 2.250 4,500 6.750 8.100 9,000 9,900 10,800 11,700 12,600 13.500 Less: Operating expenses Salaries and wages 7.400 7,400 7,400 7.400 7,400 7.400 7,400 7.400 9,800 9,800 9,800 9,800 9,800 9,800 Operating Supplies 300 300 300 300 300 300 300 300 300 300 Repairs and maintenance 250 250 250 250 250 250 250 250 250 Advertising and promotion 325 650 975 1,170 1.300 1.430 1.560 1,690 1.820 1,950 Bad debts 100 100 100 100 100 100 100 Rent 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1667 1667 1667 1,667 1,667 1,667 Utilities 1,000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Insurance 600 600 600 600 600 600 600 600 600 600 General office 150 150 150 150 150 150 150 150 Licenses 0 0 0 0 0 Interest 310 310 310 310 310 310 530 530 530 530 530 530 Depreciation? 1271 1,271 1,271 1,271 1,271 1,271 1,271 1,271 1,271 1.271 1,271 1,271 Total operating expenses 13,378 13.243 13,373 13,698 14,023 14,218 16,968 17,098 17.228 17.358 17.488 17,618 Profit (loss) before taxes (12,478) (11,893) (11.123) (9.198) (7,273) (6,118) (7.968) (7,198) (6.428) (5.658) (4.888) (4.118) Less: Taxes 0 0 0 0 0 0 0 0 0 0 0 O 0 0 Net profit loss) (12,478) (11,893) (11,123) (9.198) (7,273) (6,118) (7.968) (7,198) (6,428) (5,658) (4,888) (4,118) ) ) () ) Average unit sale for groceries is about 543,00, plus $10.00 per week for delivery (Exhibit 1), making the monthly utit sales per household (2 people) about $212.00 Cost of goods sold-50 percent of retail procery price, or $32.00 per household per week ($170.00/month household). (80 percent an average margin on groceries Salaries and wager-Ms. Jones's salary will be $5,000th Order clerks will be paid $1.300/month, and delivery clerks will be paid $1,100/month. One Sidermal order clerk and delivery clerk each will be added once sales teach 100 households, and again at 200 households. Salaries will escalate at 6 percent/year. *Advertising and promotion-The grocery industry standarder. percent sales. However, Gourmet to Go, being a new business, will require more than that levels percent of sales is used in this plan. (Special prostartup advertising is covered with other startup expenses.) Rent-2.000/? $10.00/11., 51.667/month: escalate at 6 percent/year. Interest-Loans on computer ($10.000) and delivery vehicles ($22.000 ca.) at 12.0 percent year. (Delivery vehicles will be added with delivery clerks.) (Debt service-based on Jyear amortization of louns with payments of at the end of each of three year 600 600 150 150 150 150 200 0 0 O 0 0 0 0 Depreciation All equipment will be depreciated per ACRS schedules vehicles and computers 3 years furniture and fixtures-10 years 490 PART 6 CASE 03 14,625 EXHIBIT 4 Pro Forma Income Statement Year 3 3 Year 2 21 02 04 Q3 Q4 01 Q2 273,000 292,500 312,000 Sales 253.500 136,500 156,000 194,698 234,000 Less Cost of 178,500 191.250 204,000 goods sold 165.750 89,250 102.000 127,302 153,000 Gross profit 87.750 101.250 108.000 94,500 81.000 47.250 67.395 54.000 Less: Operating expenses Salaries and wages? 41.124 31.164 41,124 38,796 41.124 38.796 38.796 41,124 900 900 900 Operating supplies 900 900 900 900 900 Repairs and maintenance 750 750 750 750 750 750 750 750 Advertising and promotion 6,825 7.800 9.735 11,700 12.675 13,650 15,600 Bad debts 300 300 300 300 300 300 300 300 Rent 5,301 5,301 5,301 5,301 5.619 5.619 5,619 5,619 Utilities 3,000 3,000 3.000 3.000 3.000 3,000 3.000 3,000 Insurance 1.800 1.800 1.800 1.800 1.800 1,800 1.800 1.800 General office 450 450 450 450 450 450 450 Interest 1.280 1,940 1.720 1.720 1,410 1.190 970 970 Depreciation? 6,910 6,910 6.910 6.910 7,493 7,493 7.493 7.493 Total operating expenses 58,680 67.947 69.662 71.627 75,520 76,275 77,030 78.005 Profit (loss) before taxes (11.430) (13,947) (2.267) 9.373 12,230 18.225 24,220 29,995 Less: Taxes 0 Net profit (loss) (11.430) (13.947) (2.267) 9,373 12,230 18.225 24,220 29.995 Average unit sale for groceries is about $43.00, plus $10.00 per week for delivery (Exhibit 1% making the monthly unit sales per household (2 people) about $213.00 Cost of goods sold-80 percent of retail grocery price, or $32,00 per household per week (5138.00/month household) (80 percent an average margin on groceries Progress e Grocer, April 1984 p. 94.) Salaries and wages--Ms. Jones's salary will be $5,000/month. Order clerks will be paid $1.300/month, and delivery clerks will be paid $1.100/month. One additional order clerk and delivery clerk cach will be added once sales reach 100 households, and again at 200 households. Salaries will escalate at 6 percent year *Advertising and promotion-The grocery industry standard is 1 percent of sales. However, Gourmet to Go, being a new business, will require more than that level 5 percent of sales is used in this plan. (Special prestartup advertising is covered with other startup expenses.) Rent-2,000/2" @ 58.00/4.2 1,333 51/month escalate at 6 percent/year, Interest-Loans on computer ($10,000) and delivery vehicles ($12.000 ca.) at 12.5 percent year. (Delivery vehicles will be added with delivery clerk.) (Debt service-based on 3year amortization of loans with payments of at the end of each of 3 years.) Depreciation-All equipment will be depreciated per ACRS schedules vehicles and computers-3 years, furniture and fixtures - 10 years. 450 CASE 7 GOURMET TO GO 489 EXHIBIT 3 Pro Forma Income Statement Year 1 300 300 250 250 250 130 195 100 100 100 100 100 Mo, 1 Mo. 2 Mo. 3 Mo 4 Mo, 5 Mo. 6 Mo. 7 Mo.8 Mo.9 Mo. 10 Mo. 11 Mo. 12 Sales 2,600 3.900 6,500 13,000 19,500 23,400 26,000 28.600 31,200 33,800 36,400 39,000 Less: Cost of goods sold 1.700 2,550 4,250 8,500 12,750 15,300 17.000 18,700 20,400 22,100 23,800 25,500 Gross profit 900 1.350 2.250 4,500 6.750 8.100 9,000 9,900 10,800 11,700 12,600 13.500 Less: Operating expenses Salaries and wages 7.400 7,400 7,400 7.400 7,400 7.400 7,400 7.400 9,800 9,800 9,800 9,800 9,800 9,800 Operating Supplies 300 300 300 300 300 300 300 300 300 300 Repairs and maintenance 250 250 250 250 250 250 250 250 250 Advertising and promotion 325 650 975 1,170 1.300 1.430 1.560 1,690 1.820 1,950 Bad debts 100 100 100 100 100 100 100 Rent 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1667 1667 1667 1,667 1,667 1,667 Utilities 1,000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Insurance 600 600 600 600 600 600 600 600 600 600 General office 150 150 150 150 150 150 150 150 Licenses 0 0 0 0 0 Interest 310 310 310 310 310 310 530 530 530 530 530 530 Depreciation? 1271 1,271 1,271 1,271 1,271 1,271 1,271 1,271 1,271 1.271 1,271 1,271 Total operating expenses 13,378 13.243 13,373 13,698 14,023 14,218 16,968 17,098 17.228 17.358 17.488 17,618 Profit (loss) before taxes (12,478) (11,893) (11.123) (9.198) (7,273) (6,118) (7.968) (7,198) (6.428) (5.658) (4.888) (4.118) Less: Taxes 0 0 0 0 0 0 0 0 0 0 0 O 0 0 Net profit loss) (12,478) (11,893) (11,123) (9.198) (7,273) (6,118) (7.968) (7,198) (6,428) (5,658) (4,888) (4,118) ) ) () ) Average unit sale for groceries is about 543,00, plus $10.00 per week for delivery (Exhibit 1), making the monthly utit sales per household (2 people) about $212.00 Cost of goods sold-50 percent of retail procery price, or $32.00 per household per week ($170.00/month household). (80 percent an average margin on groceries Salaries and wager-Ms. Jones's salary will be $5,000th Order clerks will be paid $1.300/month, and delivery clerks will be paid $1,100/month. One Sidermal order clerk and delivery clerk each will be added once sales teach 100 households, and again at 200 households. Salaries will escalate at 6 percent/year. *Advertising and promotion-The grocery industry standarder. percent sales. However, Gourmet to Go, being a new business, will require more than that levels percent of sales is used in this plan. (Special prostartup advertising is covered with other startup expenses.) Rent-2.000/? $10.00/11., 51.667/month: escalate at 6 percent/year. Interest-Loans on computer ($10.000) and delivery vehicles ($22.000 ca.) at 12.0 percent year. (Delivery vehicles will be added with delivery clerks.) (Debt service-based on Jyear amortization of louns with payments of at the end of each of three year 600 600 150 150 150 150 200 0 0 O 0 0 0 0 Depreciation All equipment will be depreciated per ACRS schedules vehicles and computers 3 years furniture and fixtures-10 years 490 PART 6 CASE 03 14,625 EXHIBIT 4 Pro Forma Income Statement Year 3 3 Year 2 21 02 04 Q3 Q4 01 Q2 273,000 292,500 312,000 Sales 253.500 136,500 156,000 194,698 234,000 Less Cost of 178,500 191.250 204,000 goods sold 165.750 89,250 102.000 127,302 153,000 Gross profit 87.750 101.250 108.000 94,500 81.000 47.250 67.395 54.000 Less: Operating expenses Salaries and wages? 41.124 31.164 41,124 38,796 41.124 38.796 38.796 41,124 900 900 900 Operating supplies 900 900 900 900 900 Repairs and maintenance 750 750 750 750 750 750 750 750 Advertising and promotion 6,825 7.800 9.735 11,700 12.675 13,650 15,600 Bad debts 300 300 300 300 300 300 300 300 Rent 5,301 5,301 5,301 5,301 5.619 5.619 5,619 5,619 Utilities 3,000 3,000 3.000 3.000 3.000 3,000 3.000 3,000 Insurance 1.800 1.800 1.800 1.800 1.800 1,800 1.800 1.800 General office 450 450 450 450 450 450 450 Interest 1.280 1,940 1.720 1.720 1,410 1.190 970 970 Depreciation? 6,910 6,910 6.910 6.910 7,493 7,493 7.493 7.493 Total operating expenses 58,680 67.947 69.662 71.627 75,520 76,275 77,030 78.005 Profit (loss) before taxes (11.430) (13,947) (2.267) 9.373 12,230 18.225 24,220 29,995 Less: Taxes 0 Net profit (loss) (11.430) (13.947) (2.267) 9,373 12,230 18.225 24,220 29.995 Average unit sale for groceries is about $43.00, plus $10.00 per week for delivery (Exhibit 1% making the monthly unit sales per household (2 people) about $213.00 Cost of goods sold-80 percent of retail grocery price, or $32,00 per household per week (5138.00/month household) (80 percent an average margin on groceries Progress e Grocer, April 1984 p. 94.) Salaries and wages--Ms. Jones's salary will be $5,000/month. Order clerks will be paid $1.300/month, and delivery clerks will be paid $1.100/month. One additional order clerk and delivery clerk cach will be added once sales reach 100 households, and again at 200 households. Salaries will escalate at 6 percent year *Advertising and promotion-The grocery industry standard is 1 percent of sales. However, Gourmet to Go, being a new business, will require more than that level 5 percent of sales is used in this plan. (Special prestartup advertising is covered with other startup expenses.) Rent-2,000/2" @ 58.00/4.2 1,333 51/month escalate at 6 percent/year, Interest-Loans on computer ($10,000) and delivery vehicles ($12.000 ca.) at 12.5 percent year. (Delivery vehicles will be added with delivery clerk.) (Debt service-based on 3year amortization of loans with payments of at the end of each of 3 years.) Depreciation-All equipment will be depreciated per ACRS schedules vehicles and computers-3 years, furniture and fixtures - 10 years. 450