Question

Take a look at this financial plan for an EcoFriendly cleaning product. Do these financial assumptions make sense? If not, what financial assumptions would you make?

Financial Plan. According to Gallup News website 39% of people are buying green products in east coast of America. We are assuming that 39% in Boston are interested buying green products. The total population in Boston is 673,184, which means that 262,541 are buying green products. We want to reach 1% of the customers within 6 months. We are assuming that we can sell 1000 units in the first month and we will sell 15,249 units by year one as a short term objective. The total start cost is $56,500 and the total funds are $81,000 ending with $24,500 cash. We get $60,000 loan from one member's father and we contribute $7,000 each. Total fixed cost in the first year is $9,550 each month, and $17,470 each month in the second year. We are assuming that we will sell 1000 units in the first month because there are some cleaning companies in Boston that use green products only, and they will try our products. The total revenue in the first month is $4255 with $1000 product cost. By the end of the first month we end up with a negative net income of ($-6,759). We start making profit when the sales unit increases in month six. By the end of the year we are assuming that we will sell 15,249 units with $171,963 revenue, and total cost of good sold of $40,199. Our net income will be $11,596 in first year. Second year, we increase marketing budget and hire more employees to reach $331,614 total revenue. By the end of year 2 our net income will be $39,063 and $72,322 on year 3. We maintain a positive cash flow to service during the first six months where our net income is negative. After six month our cash flow increases because we assuming that we will have a positive net income by six month. There are money companies in the market selling the same products we have and that means that the demand for green products is increasing. Our business makes sense because there are customers buying cleaning products and we are adding the value to customers by providing green cleaning products at a competitive price.

Answer 1

I can think of some more parameters that I would have considered:

1. Who are the existing players in this industry? How much market is captured by these players? Are they able to produce at capacity (by this, I mean I will check the design capacity and the actual production of these machines).

2. In one year, you aim to sell 15,249 units, that is, you aim to capture 6% of the market share. Have you confirmed how feasible this is? If this is not achieved, you will still be incurring the fixed costs. Has this been considered?

3. What are the payment conditions of the loan that you will take? How do you plan to pay that back?

4. What market research has been done in the sales assumption? That is, have customers actually agreed to buy your products that the rate that you are quoting?

5. You quote that there are many companies selling the product that you are supplying. Does this mean that the competition is price sensitive? How is your product priced as compared to the competitor's products? What is your unique selling point when compared to other green cleaning products suppliers?

6. Are there any legal barriers to entry in this industry?

7. Additionally, i agree that you will provide value by providing green cleaning products to customers who are already buying cleaning products. But what are the price difference between your products and these products? If your product is expensive, will these customers be willing to shell additional money to get green products?

If you have considered these, then i think all your assumptions make sense