Reference no: EM133392670

Question

A building will be leased for one year for $6,000 per month with a security deposit of one month due on signing. Start up cost for legal incorporation as well as various deposits for utilities is $2,000. Ignore amortization. You forecast sales to grow from $15,000 in month two, by $15,000 a month until they reach $90,000 per month and hold. New employees will be hired as sales increase. They will initially hire three employees in month one at a total cost of $7,000 per month (including taxes, etc.) You will hire a total of four additional workers at $2,000 per month each and increase them to $4,000 each when sales total $60,000. The bookkeeper will be paid $1,000 per month and starts to work in month one. You anticipate G and A expenses of $5,000 per month fixed plus 20% sales. Collections will average 15 days. (Do not consider inventories.) Cost of materials is 15% of the amount billed, cash on delivery. You will purchase $15,000 of equipment. Disregard depreciation.

How much money will the company need to start? When will the P and L break-even occur? When will cash Break-even occur?

Should you start this business?