background and case introduction

Solutions

Plan B Must Break even in 2016 to remain in operations. In 2017 positive net income shall confirm the positive trend resulting from enhanced sales to fewer bust stronger and solvent customers, in combination with cost contention, and reduction of financial debt burden. The goal of the solutions set forth is also to ease Plan B’s liquidity situation and gradually evolve towards ever less debt dependent venture.

Income statement

Reaching Critical Mass commercially

Breakeven point and contention of expenditures.

First, one has identified how much sales are necessary, under 2015 premises of variable costs, to cover not only variable expenditures but also semi variable operating expenditures.

Under 2015 premises/hypothesis, considered as reflective of the normal state of affairs of Plan B, variable costs consist mostly of cost of goods sold (COGS). As per the income statement provided for 2015, COGS appear to read 68,4% of sales. The contribution margin ratio therefore amounts to 31,6%. In consideration of operating expenses not to exceed 3 200 000 thresholds, Plan B level of sales to breakeven amount to 10,14 million.

Claim of early payment discount.

For sake of estimate, the assumption was made that the discount applicable for early payment currently requested by Plan B’s major suppliers (mostly agencies) should be enforced; and that the corresponding price cut amounts to 5 %. Such combined increase in sales and reduction of variable costs by means of claiming early payment discounts due would allow increase contribution margin to 33%.

In combination with improved contribution margin, contention of operating expenses below the 3.2 M threshold would enable positive net income.

High profitability should allow for stronger bargaining power with financial creditors. The assumption is made that the resulting reduction in cost of borrowing contributes a positive 2% interest rebate (in comparison to 8% calculated on 2015 ending figures).

2% reduction of Plan B cost of debt would materialize as an additional saving of 24 500. In turn, Plan B net income would increase to 210 000.

( IS 2016 Estimate 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Total Sales Total Cost Of Gross profit Total Net Goods Sold Operating Income/Loss Expenses )Balance Sheet

The positive net income estimated for 2016 would interrupt the erosion of Plan B’ equity, reversing the curve of retained earnings evolution. As a consequence of higher retained earnings and equity, debt may be cancelled for balancing of overall financing with total assets.

The increase in sales was considered to derive from selling more to fewer more solvent customers. The assumption would also translate in better payment morale from such customers. For sake of simulation, the assumption retained was that of a cut in payment delay of 30 days from 90 days of sales outstanding (DSO). The 30 days’ reduction applied on 2016 estimated breakeven sales represent a non-negligible cut of 170 000 within accounts receivable. The extra monies received are to the benefit of Plan B as per the lesser need for debt funding in the same amount. The combined effects of the previous assumptions would gear Plan B towards positive equity again.

$2,500,000

Assets 2016 E

Liabilities and equity 2016 E

$2,500,000

$2,000,000 $2,000,000

$1,500,000 $1,500,000

$1,000,000 $1,000,000

$500,000 $500,000

$- $-

$(500,000) $(500,000)

Reducing financial expenditure by re-negotiating client payment. 60 days instead of 90 Half the cost of borrowing from 8% to 4%

Gain benefit from early bird discounts on the 40% upfront payment by pushing supplier discount date Company should allocate timing of debt with assets by accelerating cash from customers

Accomplish this by working with fewer clients; the clients should be top market solvent customers

· Qatar Airways

· Nestle

· Jotun

· Goody – 80/20 client

Cash Flow

As can be seen form the cash flows of the years 2014 and 2015 along with an assumed estimate of the year 2016, Plan B’s cash flows are gearing towards a positive movement. Most significantly, the negative cash flows from operating cash has reduced greatly and stirring towards positive cash flows based from our 2016 estimate. This turn for the positive is especially important as Plan B will rely less on debt and more from equity. Thus, avoiding a vicious cycle of earning money and having to pay it back to the creditors.

( Cash flows in 2014 and 2015 and 2016 E 1,500,000 1,000,000 500,000 0 -500,000 -1,000,000 -1,500,000 Operating cash Investing cash Financing cash )