Marketing and Sales Forecasts
Assuming a successful Internet and conventional marketing and promotional deployment, UniqueUnicycles.comconservatively projects attracting at least 150,000 visits per month by the end of year one. Using a conversion rate of 2% we expect to generate 36,000 Internet orders during the first year, with an additional 54,000 orders processed on the telephone. In year five, we expect to have 648,000 Internet orders and 972,000 telephone orders. Revenues from the direct-from-manufacturer business are expected to grow from $1.3 million in year one to $8 million by year five.
Year 2
/ Year 3 / Year 4 / Year 5Website Sales Revenue
/ 1,764,000 / 5,292,000 / 10,584,000 / 21,168,000 / 31,752,000S&H Revenue website sales / 251,640 / 754,920 / 1,509,840 / 3,019,680 / 4,529,520
Gross Phone Sales per year / 2,646,000 / 7,938,000 / 15,876,000 / 31,752,000 / 47,628,000
S&H Revenue phone sales / 539,460 / 1,618,380 / 3,236,760 / 6,473,520 / 9,710,280
Gross Direct from Mfg Sales / 1,395,089 / 2,232,143 / 3,571,429 / 5,714,286 / 8,000,000
Advertising Revenue / 178,560 / 535,680 / 1,071,360 / 2,142,720 / 3,214,080
Online Tutorial Revenue / 0 / 405,000 / 810,000 / 1,620,000 / 2,430,000
Total Revenues / $ 6.7 mil / $ 18.8 mil / $ 36.7 mil / $ 70.4 mil / $ 107.2 mil
Operating Expenses
Operating expenses include advertising, office lease, computer equipment, office supplies, ISP hosting charges, bank transaction fees, telephone and utility services for the call center, and additional office space and telephone service as needed. Salaries will be paid to the management team, which currently includes the company president, chief operating officer, chief technology officer, vice-president of product development, and vice-president of creative development. A marketing manager and a multi-media manager will be added to the management team in 2000. Hourly wages will be paid to the call center staff.
Cost of Goods & Services
/Year 1
/Year 2
/Year 3
/Year 4
/Year 5
Total Call Center Expenses
/112,275
/336,960
/675,000
/1,365,120
/2,097,090
Total Web Center Expenses
/19,800
/86,400
/224,640
/548,352
/984,960
Total Direct-from-Grower Expenses
/52,800
/57,600
/93,600
/168,000
/252,000
Total Lead Operator Expenses
/0
/56,000
/120,000
/256,000
/442,000
Total Direct Costs
/184,875
/536,960
/1,113,240
/2,337,472
/3,776,050
Total Indirect Costs
/112,334
/256,965
/405,592
/737,033
/1,029,384
Total Cost of Goods & Services
/$297,209
/$793,925
/$1,518,832
/$3,074,505
/$4,805,434
Administrative Expenses
Based on the revenues projected in the sales and marketing forecast, we anticipate the following administrative expenses:
Administration Expenses
/ Year 1 / Year 2 / Year 3 / Year 4 / Year 5Sales and Marketing / 9,086,000 / 4,091,900 / 4,600,300 / 5,108,700 / 5,617,100
Research & Development / 85,000 / 86,750 / 88,500 / 101,750 / 103,500
General & Administration / 314,250 / 350,750 / 359,650 / 373,300 / 384,500
Total Admin Expenses / $9,485,250 / $4,529,400 / $5,048,450 / $5,583,750 / $6,105,100
Summary of Financials
UniqueUnicycles.com is poised to take advantage of the convergence of several highly beneficial market conditions. The growth of Internet sales, and specifically the widespread usage of the Internet for unicycle sales, indicates an excellent opportunity for UniqueUnicycles.com. We consider the following projections to be conservative.
Financial Assumptions
UniqueUnicycles.com assumes that Internet usage for shopping will continue to grow, and that online unicycle sales will continue to rise with the increase in Internet users. UniqueUnicycles.com assumes that it can provide a higher level of quality and design by utilizing only highly trained unicycle specialists, and that it can do so at competitive prices. It also assumes that the increasingly global nature of Internet commerce will be to its advantage because it will offer global delivery of its products, and market its products to an international standard.
Financial Forecasts
UniqueUnicycles.com will be profitable the second year, and continue to more than double its revenues for the first three years. At the same time, its profit margins are expected to increase from 18.3% the second year to 42.7% in year five.
Revenue, Expense, and Income Projections
Income Summary
/ Year 1 / Year 2 / Year 3 / Year 4 / Year 5Net Revenues / 2,200,432 / 6,518,016 / 12,812,817 / 25,268,491 / 37,759,880
Cost of Goods Sold / 297,209 / 793,925 / 1,518,832 / 3,074,505 / 4,805,434
Gross Profit / 1,903,223 / 5,724,091 / 11,293,986 / 22,193,987 / 32,954,446
Total Operating Expenses / 9,485,250 / 4,529,400 / 5,048,450 / 5,583,750 / 6,105,100
Earnings from Operations / (7,582,027) / 1,194,691 / 6,245,536 / 16,610,237 / 26,849,346
Net Earnings after Taxes / $ (7,582,027) / $ 1,194,691 / $ 6,245,536 / $ 10,022,862 / $ 16,109,608
Cash Flow Projections
The cash flow projections shown here are determined using the income and expense statements summarized above, and assuming no investment.
Operating Cash Flow / Begin / Year 1 / Year 2 / Year 3 / Year 4 / Year 5Net Cash from Operations / (7,685,483) / 988,456 / 5,946,721 / 9,420,181 / 15,513,964
Cash for Plant & Equipment / (22,890) / (10,220) / (21,300) / (34,010) / (40,130)
Increase (Decrease) in Cash / (7,708,373) / 978,236 / 5,925,421 / 9,386,171 / 15,473,834
Cash at Beginning of Year / 0 / (7,708,373) / (6,730,137) / (804,716) / 8,581,455
Cash at End of Year / $ 0 / $(7,708,373) / $(6,730,137) / $ (804,716) / $8,581,455 / $24,055,290
Capital Requirements
This cash flow projection demonstrates that UniqueUnicycles.com will be unable to implement its plans to develop its website and initiate a national advertising campaign without an infusion of new capital. The ending operating cash deficits of $7.7 million at the end of year one indicate that UniqueUnicycles.com must seek $9.5 million in start-up capital if it is to realize its plans. With an infusion of $9.5 million in two stages ($500,000 immediately, and $9 million after 3 months of operations), UniqueUnicycles.com’s cash position remains positive for the five-year planning horizon.
Valuation of Business
Investment Requirements
UniqueUnicycles.com is seeking an experienced financial partner to provide $9.5 million in investment capital to fund the development of its e-commerce site. This investment will occur in two stages: $500,000 initially to fund the startup, and an additional $9 million to fund its ramp-up. In addition to capital resources, the ideal partner will be able and willing to assist UniqueUnicycles.com in developing business relationships with Internet advertisers and other useful business contacts. The ideal financial partner will also be experienced in working with high-potential rapid-growth Internet and consumer-oriented companies, and will recognize the unique problems and opportunities they confront.
exit strategy
Assuming successful operations and favorable financial market considerations, UniqueUnicycles.com plans to tender an initial public offering of its stock after two to four years of operations as it meets its financial projections and begins to show a significant profit. The purpose of the offering will be to secure capital for future growth, and to provide a harvest opportunity for early investors. Alternatively, UniqueUnicycles.com may consider seeking a merger with or sale to a strategic partner in the same time frame.
Valuation of Business
The value of UniqueUnicycles.com was determined using the venture capital method. An annual discount rate of 50 percent was used, reflecting the inherent uncertainty and risk surrounding any new business venture.
Venture Capital Method. The venture capital method assumes that a company will tender an initial public offering of stock at some known date in the future. The earnings of the company on that date are multiplied by an appropriate price/earnings multiple to determine the future market value of the company. The future value is then discounted back to the present using an appropriate discount rate, determining the current valuation of the company. UniqueUnicycles.com intends to initiate a public offering of its stock after 2 to 4 years of operations – we assume here that this will occur at the end of year three. Projected profits in the third year are forecast to be $6.2 million. Using a conservative price/earning ratio of 15, the market capitalization of UniqueUnicycles.com at the time of its IPO is projected to be $93.7 million. Discounting this future value back to the present using the 50 percent discount rate yields a current valuation for UniqueUnicycles.com of $32 million.
Offer
For an initial investment of $9.5 million from an appropriate financial partner, we are offering a 25 percent ownership stake in UniqueUnicycles.com in the form of preferred stock. We anticipate that the value of this investment will grow to $23.4 million at the time of UniqueUnicycles.com’s IPO in three years, representing an internal rate of return of approximately 40 percent annually.