Sales forecast
Pro forma Income Statement for Breeze Bicycle Retail for Year 1
| Forecasted units sales | $5,000 | ||
| Estimated price per unit | $1,000 | ||
| Forecasted revenue | $5,000,000 | ||
| Cost of sales | ($3,100,000) | ||
| Budgeted gross profit | $1,900,000 | ||
| Estimated SG&A | ($700,000) | ||
| Miscellaneous expenses | ($100,000) | ||
| Income before tax | $1,100,000 | ||
| Interest Expenses | ($150,000 | ||
| Taxable income | $950,000 | ||
| Corporate tax (30%) | ($285,000) | ||
| After-tax income | $665,000 |
The Pro-forma statement provides an estimate of sales and revenue likely to be generated by the business. The management can thus monitor any deviations from the budget to take corrective measures (Šindelář, 2019). The Pro-forma income statement for Breeze bicycle retail business projects a net profit of $665,000 for the first year. Projected sales and revenue for year one was based on extensive market research in the industry. The research focused on competitors’ sales, trends in domestic and global market growth and demand for bicycles, and the effects of marketing on bicycle demand. The cost of sales was based on competitor analysis and estimates from contracted manufacturing partners. Sales, general and administrative expenses estimate was derived from market-rate salaries and compensation to employees and other costs.
Cash Flow Problems
Cash flow problems are majorly caused by inventory and receivables and payable accounts (Lewellen & Lewellen, 2016). For Breeze bicycle retail, accounts receivable would be the leading cause of cash flow problems. As a new business entity, credit sales will be used to attract new customers and retain them in the company. The most relevant strategy will include providing cash discounts and restrictive credit terms to encourage customers to buy items on cash rather than credit. Furthermore, close monitoring of debts and making follow up is another strategy for ensuring the timely collection of receivables.
References
Lewellen, J., & Lewellen, K. (2016). Investment and cash flow: New evidence. Journal of Financial and Quantitative Analysis, 51(4), 1135-1164.
Šindelář, J. (2019). Sales forecasting in financial distribution: a comparison of quantitative forecasting methods. Journal of Financial Services Marketing, 24(3-4), 69-80.