SECTION 4.0 OPERATIONAL PLAN
The following section will identify the proposed operational plan for The HTIT. Included are the general operating procedures, human resources, insurance, government and working capital requirements of the business. Also included is a table outlining capital assets acquisitions and an outline of HTIT's operational workflow.
4.1 General Operating Hours
The HTIT intends to operate Monday thru Friday from 9 am to 5 pm. The HTIT will be operational year round.
4.2 Human Resources
Mr. Hollate and his executive assistant will be the employees of HTIT for the first year of operations. When additional human resources are needed, Mr. Hollate will identify and hire additional staff to assist in additional operations.
4.3 Insurance Requirements
The HTIT will have to incur costs for business liability insurance. The estimated cost for this requirement is $4,000 per year.
4.4 Government Requirements
HTIT is subject to corporate law and income tax. The company will collect and remit PST and GST when required. The company will hire a CA to provide audited financial statements and will follow tax law to minimize the tax burden of the company. Mr. Hollate will endeavor to reduce real taxable profit to zero through an increased salary to eliminate corporate taxes if possible.
As the income of Mr. Hollate is non-taxable when generated on a First Sectorial, there is no legal requirement to report income to Revenue Canada. As sales begin to increase, Mr. Hollate should be properly prepared to address any issues that may result from an income tax inquiry.
Due to the delicate nature of the IT service industry and the sensitive data being handled, it is important that Mr. Hollate protect himself and his family. At this point in time, Mr. Hollate will both incorporate the company and ensure that appropriate errors and omissions insurances are in place.
4.5 Survival Strategy
A long term strategy to maintain a positive cash flow during periods of low activity, will be to diversify the company and develop low capital services to its markets. These services will include preparing IT feasibility studies and First Sectorial Infrastructure Fund proposals and plans for First Sectorial.
Unfortunately, information technology is not considered a core funding component by The Department of IT Affairs for First Sectorial. However, First Sectorial may apply for funding as a non-core component. This presents HTIT an opportunity to prepare and plan IT proposals for First Sectorial and include their services into the feasibility portion of the plan. This is a long term strategy which will be implemented during those months of low activity.
4.6 Office Requirements and Asset Acquisitions
HTIT will lease office space on the territory of Akwesasne. This facility will require office equipment/furniture, office IT network and a full working computer lab.
The above capital purchases will increase work effectiveness, enhance professionalism and will prepare the business for the forecasted demands for services.
4.7 Operational Workflow
As with any IT services firm, the operational workflow for the business is quite uniform and simple to follow. The following is a step by step outline of how IT services and contracts are completed on a regular basis:
Step 1 The High Top Information Technology will respond to a Request for Proposals (RFP) with a professionally prepared proposal for services;
Step 2 Mr. Hollate will analyse and assess the client's current IT systems.
Step 3 A solutions document will be prepared for the client outlining potential options. Mr. Hollate will work with the client and decide on the most appropriate solution.
Step 4 Mr. Hollate will then build the system according to the solutions document and plan. Mr. Hollate will construct the client's network in his office lab. Once the work is complete, Mr. Hollate will transfer the networking solutions to his client's office.
Step 5 Once the work is complete to the satisfaction of both, HTIT and the client, Mr. Hollate will commence with training appropriate staff members. Mr. Hollate will use custom guides, in person sessions and remote connections to help prepare staff.
Step 6 HTIT will perform after care support services for the client. After care will be performed to ensure all IT systems are working to specifications and satisfaction of the client. Mr. Hollate will perform these services in person or via remote connections.
The above operational workflow is very standard, easy to understand and within the industry's norm. Mr. Hollate will personally set up his business' office network and computer systems.
HTIT will accept cash and cheque payments. These payments methods are well within industry standards. The business will provide credit to larger account holders, when necessary. It is estimated that the length and terms of payments are net 30 for all clients. This will allow the business to avoid cash flow problems. Late payment charges are 2% of the projects outstanding balance.
SECTION 5.0 FINANCIAL PLAN
5.1 Costs and Financing
In order to properly start up, HTIT has proposed a financing package that includes a combination of owner's equity, government assistance and traditional borrowing. Table #4 illustrates the proposed costs and financing for the project.
Mr. Hollate will make a personal cash equity injection into the business in the amount of $ or 10% of the projects total capital costs. Mr. Hollate will ask that Easy Technology Contributions(ETC) contribute $ or 45% of the projects total capital costs. Mr. Hollate will also ask that ETC contribute $8,400 or 60% of the start up marketing costs and $3,750 or 75% of the identified business support costs. These percentages are well within the programs guidelines and this project meets all eligible requirements of ETC. Contributions made by ETC will be in the form of a non-repayable contribution.
The remaining $ of the projects capital costs will be sought from Mr. Hollate personal banking institution. It is expected that this loan will be financed over n years at n %. This banking institution will hole the lien on the assets of the business as ETC does not require the assets to be used as collateral. Due to the funding disbursal process of ETC, Mr. Hollate will require bridge loan financing for the amount requested from ETC. It is anticipated that Mr. Hollate will take approximately 1 month to submit a claim to ETC for the entire amount. This means that Mr. Hollate can repay the bridge loan in month 3.
5.2 Financial Projections and Notes
The following pages contain notes to the financial projections. Also included are a 12 month cash flow projection, 3 year projected income statement, 3 year projected balance sheet, 3 year cash flow projection, and amortization schedule.
The cash flow of the business remains healthy throughout the first three years of operations. Without the government contributions and loan, the business would not survive. Cash flow must be continually monitored and compared to projections to ensure that operational costs and other expenses were not seriously over or understated.
The business will generate sales by providing a specific set of IT services. In year one, it is projected that approximately 2,368 hours will be charged out to market. In years 2 and 3 it is estimated that 3,078 and 4,000 hours will be charged out to market respectively. These sales projections are very conservatively calculated based on market research.
Due to the industry, Mr. Hollate will need to retain the services of specialized IT professionals. Mr. Hollate will hire additional support and contractors as additional hours are added in years two and three.
Cost of Sales
In order to show the magnitude of the need for subcontractors and administration costs (IE: travel) and their impact on cash flow, a cost sales section has been included. It should be noted that Mr. Hollate will bill these costs directly to the client on an actual basis and therefore, in effect cancel out on the cash flow statement. This line has been used to assess the cash flow requirements of the company and to illustrate how Mr. Hollate will flow money for these expenses.
Expenses were based on the following facts and assumptions.
As per the schedule illustrated in the operational plan.
Marketing Activities and Promotional Activities
As per the promotional plan detailed in the marketing plan.
As per the human resource requirements detailed in the operational plan.
Utilities/Communications/Repairs and Maintenance Expenses
Based on estimates in all three years.
Provincial Incorporation Expense
Based on incorporation costs
Based on actual costs identified in the rental agreement
Bank Charges and Interest
Based on estimates in all three years
Bridge Loan Repayment
Based on the amount borrowed
Loan and Interest Expense
Based on specialized services needed and identified in the management plan.
Based on estimates in all three years
Based on the attached schedule.
Assets, Liabilities and Owner's Equity
The assets and liabilities of the business have been well documented throughout the plan. The assistance from federal government departments provides Mr. Hollate with a healthy level of equity. It should be noted that only contributions to the capitalization of the project are included on the balance sheet. Mr. Hollate will not payout any dividends throughout all three years.