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Dave Logistics Consulting Company (DLCC)

David Roberts

Argosy University

Dr. Noone

Capital and Start-Up Requirements

DLCC is a startup company that intends to employ approximately 16 people each per airport. The company intends to purchase six working stations with business assets of estimated value of $150,000, $140,000,$160,000,$170,000,$150,000 and $2100,000 in business assets. The cumulative figure required in the purchase of the six working zones amounts to $980,000. The cumulative housing estimates of the working stations are $1,300,000. The business assets present are the website and stationery estimated at $100,000. The company has options to increase to other regions in the future. The cumulative asking price for all business assets and the buildings is $2,380,000. As business partners, we have the letter of intent and a Startup agreement $1,800,000. Upon acceptance of the business transaction, there will be an outstanding debt of $580,000 that will be spread across the six working stations due to negotiations of premise owners. Different pricing models will be applied in revenue collection. For instance, technological consulting services will be based on the type of plane, the size of the plane and the carrying capacity of the plane. The average price of the consultation will be $3000

As a partnership business, the profits from the firm will be shared at a ratio of 1:1. As a startup business, there shall be duties distributed along the leadership structure. The company intends to have directors within all the stations. The directors will report the happenings to the owners of the company. Each working station will have a certain number of employees with the total number of employees in the company estimated to be 92. The leadership chart of the structure consists of:

• The technical director and executive director are tasked with overseeing the operations of the junior staff in all the stations

• The investor shall be entitled to 30 percent profits during the business success.

• The partners who happen to the chairpersons shall be entitled to 50% of the profits.

• The partners are entitled to a cash equity of $600,000 each as starting capital.

Bank loans, administration fees, legal fees, licenses as well as additional fees will be required to start the business. Some of the fees will focus on the advertisement of the firm as well as operational cost. The charges shall be utilized during the first 2-3 months for the stability of the company. The cash at hand shall remain constant and will be spent in exhaustion of the operational costs.

Sources of Funding

Our sources of funding will be from the cash equities, investors if any and bank loans. Estimated cash equities from the partnership are $1,200,000. The remaining cash shall be collected from macro lending institutions. Bank of Central Florida and the First Bank of Florida have been earmarked as the lending institutions that shall cover for the business. The asset worth of the company shall determine the terms of agreement for the loan. Estimations indicate that the loan should take a maximum of 10 years. The bank is to offer $600,000 with a capped interest rate of 4 percent. The service fee for the loan is to range between 1.5% and 2.8% depending on the terms of the agreement of the bank loan. Ideally, the total average rates for the loan should range between 5.6% and 6.8% (Bankrate, 2016). Working with terms of the best lending institution remains the aim of the company.

Payback period

It is the time required in the recovery of investment costs. The payback period determines the feasibility of the project. The time value of money is not factored during the payback period. Consideration can be provided on the net present value as well as the internal rate of return.

Cash Flow projections

Cash flow projections are vital as they give a snapshot of the cash transactions regarding inflow and outflow. During the first month, a cash flow analysis reflects $80,000 line of credit shall be used to cover the costs of operations in the company. The accounts receivable collected will be used to cover any other expenses. Funds from the line of credit shall be repaid as accounts receivable. It is a measure to improve the business transaction and avoidance of running the company on funds from the line of credit.

A planned repayment of 10% shall be made to the owners of the six-leased premises hired after the 6th month of establishment. Leasehold agreement requires that the payment plan of $580,000 be made within 18 months. The revenue collected and the cash projections indicate that the cash flow will be sufficient to give an investment of 17% on the total 1,200,000 initial investment. Short-term forecasts aim to address the minor issues and ensure the stability of the company. The long-term cash flow projection for the company shall be used to check on the progress and cover the costs within the company.

The cash flow predictions of DLCC are based on the time of the year. The high values in the cash flow is based on the seasons and the activities that are being conducted.

End of First Year Balance Sheet

The first year of business transactions shows the accounts receivable, stationeries, inventories as well as the cash at hand. The liabilities include the bank loan, overdrafts as well as the account payable. The investment equity is a representation of the investment capital that was provided by the business partners.

Income statement for the year 2019

The revenue is a representation of the amount collected during the financial year. DLCC collected $530,000 during the first year. Direct sales expenses of the fiscal year was $105,000. Obtaining the net profit was done through deduction of the revenue and direct sales expenses. The net profit was subject to total deduction from the expenses. Cumulatively, the total expenses from the services offered amounted to $476,100. As a startup business, there were a lot of transactions done that gave a net loss in the projected year of operation. The net loss was -$51,100.

Projected Gross Revenue, Gross Profit, and Net Income for the first year

The Gross revenue projected in the first year was $530,000. It represents the total cash that is collected in the whole year. The gross profit obtained during the projected year was $425000. However, this fee was subject to deductions from the direct sale expenses. The net income was obtained after deductions of the gross profit from the total expenses to give a net loss of -$51,100.

Break Even Analysis

It is determined by evaluating the business regarding sales, revenues, total costs, and operating income. The total revenues should equal totals costs to ensure that the operating income gives zero. It helps in knowing situations in which a business may realize profits or losses.

Break even Analysis

The anticipated selling price per unit for the company services is $3,000. The variable cost is estimated at $ 1200 while the fixed costs will stand at $ 90,000.The contribution margin for the company is $ 1800 (3000-1200). That implies that the breakeven volume will be 50 units (90,000/1800). Then to obtain the targeted income of $180,000, the company will need to sell 150 units (180000/1800 + 50)

Ratio Analysis

Financial Strength (Market,2018)(U. S. Aviation industry).

Liquidity was based on some factors. For instance, the current ratio was obtained through the division of current assets vs .the current liabilities. The computational analysis gave a figure of 1.36. On the other hand, the quick ratio was obtained where the current assets were exclusive of inventories divided by the current liabilities. Computational analysis gave 1.40 the quick ratio. Obtaining the industry analysis of both the current and quick ratio was evaluated by computation of operational industries.

Profitability was obtained through evaluation of the gross profit against revenue. The value obtained in this scenario was 0.8. Furthermore, the debt to equity gave a figure of 0.98 (Burke, 2016). The values were obtained by computing the debts vs. the equities in the business.

Risk Assessment

Operational Risk

The risks in running a business may require much currency and a lot of investment to run the business. As a result, the operations may be paralyzed, as the business needs a lot of financing for operations. It hampers the progress due to the capital startup. To avoid the operational risks, a proper leadership structure will be initiated to cater for any issues that may affect the operations (Reason, 2016). Proper management plans can be utilized.

Environmental Risk

Changes in the environment hamper the flight industry. The total travels reduce, as the weather is unfavorable for travel. It requires a proper plan to mitigate the environmental risks. One of the measures that will be applied is through training the employees on safety. The employees should be conversant with their safety. Safety on fire measures can also be implemented to the staff. (Stolzer, 2017). Raising awareness is an appropriate response to the problem.

References

Bankrate. (n.d.). Calculator. Retrieved November 1, 2016 from: http://www.bankrate.com/calculators.aspx?ic_id=home_smart-spending_calculators_globalnav

Burke, A. (2016). The Definition of Liquidity in Finance. Small Business Chronicle. Retrieved November 1, 2016 from: http://smallbusiness.chron.com/definition-liquidity-finance-36477.html

Market, C. (2018). Airline Industry financial strength, leverage, interest, debt coverage and quick ratios. [online] Csimarket.com. Available at: https://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=1102

Reason, J. (2016). Managing the risks of organizational accidents. Routledge.

Stolzer, A. J. (2017). Safety management systems in aviation. Routledge.