VII. FINANCIALS

Recycle-A-Bicycle has successfully grown and expanded through a self-financing approach. This approach was required due to the fact that Recycle-A-Bicycle did not obtain 501©3 status until July 2002. Without formal nonprofit credentials, the organization had limited access to grants or donations that would have provided the capital needed to grow more rapidly. Therefore, Recycle-A-Bicycle functioned much like a start-up small business, utilizing dedicated staff and growing only when net profits or donated funds were available to reinvest in the business.

After five years of operations in the East Village, Recycle-A-Bicycle recognized the strong opportunity to grow its operations and training program through the creation of the DUMBO store. The diversification, additional space, and new market opportunity will assist in the growth of Recycle-A-Bicycle. But the addition of the new DUMBO store has put demands on Recycle-A-Bicycle’s cash flow, as the store has not yet built up a sustainable level of sales. This has created a need for additional financing for working capital. As consumers become more aware of the store, the sales volume from retailing is expected to sustain operations.

Recycle-A-Bicycle has reached a critical juncture in its lifecycle in which further expansion is required in order to meet demand and scale its youth development efforts. Affordable financing is required to support the Five-Year Strategic Plan. Financing will be pursued through philanthropic grants, debt financing and other socially supportive funders. This section reviews the near-term capital needs of the organization.

Recycle-A-Bicycle has developed a five-year financial outlook to accompany this business plan. Please refer to Appendix E and Appendix F for details. Projections are based on historical performance and are realistic but conservative estimates. Recycle-A-Bicycle believes it has the capacity to outperform the projections, given stability in staffing and few negative external factors. Significant assumptions to the plan are in shown in Appendix G.

FINANCIAL ESTIMATES AND ASSUMPTIONS

Recycle-A-Bicycle is at a critical juncture in its organizational development. Investment in building the organization’s equity and developing professional staff are expected to produce positive returns within the five-year period.

INVESTMENTS

Recycle-A-Bicycle plans to make three key investments over the next five years to expand its programs and create the opportunity for the level of revenue growth projected.

• Acquire a Production and Training Facility

In January 2004, Recycle-A-Bicycle plans to acquire a production and training facility that will benefit the organization by relocating the environmental and youth training element from the retail shops to their own facility. This will enable the stores to focus on retailing through increased space in which to showcase finished bicycles and accessories. In addition, it will free up workstations, increasing capacity for repair services. The facility will also improve the shops’ appearances as there will be less donated bicycles and “work-in-progress” creating clutter.

Expected cost: Facility purchase cost of $330,000 for a 3,000 square foot facility assuming 10% down payment via a capital grant and 10-year mortgage payments of approximately $3,300 per month. In addition, $5,000 is budgeted for leasehold improvements. The addition of the facility will also require investment in a Production Assistant to staff the new facility. Expenses related to the Production Assistant include approximately $20,000 in salary and benefits.

• Acquire a van

The acquisition of a van will improve the efficiency by which materials are collected and transferred to appropriate project sites. A higher number of bicycles will be collected and consequently, productivity will increase as there will be a greater number of “easy” tune-ups and greater selection for customers. Expected cost: Annual operating expenses of $6,000. No cost for acquisition because, as noted earlier, a customer has offered to donate a van to Recycle-A-Bicycle in Spring 2003.

• Hire a development officer

Recycle-A-Bicycle will hire an individual that is networked in the youth training and social services sectors. This person will be able to contribute immediately and their efforts will cover the cost of the position within 9 months. Expected cost: $50,000 annual salary plus approximately $5,000 benefits

REVENUE

The bicycle industry is seasonal in nature. The most lucrative season runs from April through August. The less lucrative season runs from December through March due to cold weather. Unlike other retailers, Recycle-A-Bicycle does not benefit from holiday consumption patterns as most customers prefer to give new rather than used items as gifts.

The East Village store will outperform the newer DUMBO shop over the next few years because it has enjoyed a six-year presence in the neighborhood. Over the next five years as Brooklynites become more aware of the DUMBO shop, sales will increase to 80 – 90% of the East Village store sales.

Recycle-A-Bicycle expects to grow revenue 100% in 2003 due to several factors:

• Full-year results of new DUMBO store (opened October, 2002);
• Subway fare hike will prompt people to evaluate their commutes with some spillover effect on Recycle-A-Bicycle sales; and
• Addition of new development officer mid-year (although greatest benefit will likely be realized in 2004).

Recycle-A-Bicycle’s sales revenue increases, although large in percentage terms, represents a conservative expectation. Despite doubling the retail capacity through the DUMBO store, bike sales are expected to increase by only 84% (from 339 in 2002 to 626 in 2003).

	2002A	2003E
East Village shop	294	348
DUMBO shop	45	278

Beyond 2003, Recycle-A-Bicycle expects revenue growth to accrue from its investment in marketing, as well as the full impact of the development officer. Recycle-A-Bicycle expects 71% top-line growth in 2004 through 40% increase in bike sales and 148% increase in grant funding including down-payment capital grant for new facility. In 2005 – 2007, revenue growth will slow to 12%, 10% and 5% respectively. After 2007, revenue growth is expected to level out at 3 – 5% annually.

CURRENT FUNDING SOURCES AND COMMITMENTS

Recycle-A-Bicycle raised $50,000 in grant funding in 2002. Major support was provided by Bike New York. Grant funding in 2003 has been secured or is expected from Bike New York, The Citizens Committee for NYC, Travelers Foundation, Monterey Foundation and Silverman Foundation.

EXPENSES

The major expense for Recycle-A-Bicycle is labor. Recycle-A-Bicycle will create a succession plan that increases the professional staffing in order to strengthen the organization. Recycle-A-Bicycle will also invest in training, so that staff may be prepared to fill in any gaps that might occur. Mechanics will undergo sales and advanced mechanics training as this is a proven method for creating higher productivity.

The organization will take advantage of its strategic partnership with Henry Street Settlement to secure an Administrative Assistant through Henry Street’s job-training program, at no cost to Recycle-A-Bicycle.

The following chart examines the effect of the new strategies on net income over the five-year projections. Though net income will be negative in 2003, the organization will return to positive net income in 2004 and beyond.

RISKS AND STRATEGIES FOR MITIGATION

Recycle-A-Bicycle has identified several risks associated with implementing its strategic initiatives as well as strategies to mitigate these risks. These are briefly described below.

1. Funding is not obtained on schedule
   Strategy for mitigation: The Executive Director has solid fundraising experience and is confident in the goals listed. The addition of the new Development Director will enhance these strengths. Operations will be managed to the funding commitments that are available, and when possible, reserves will be created to help smooth cash availability.
   
   
2. Store revenues lag behind plan: demand is low
   Strategy for mitigation: We would reduce operating costs by reducing labor by curtailing store hours during exceptionally slow periods (e.g. during a heavy snowstorm). We will simultaneously continue aggressive marketing efforts to pull in demand. Recycle-A-Bicycle operations are flexible and have been subject to past revenue variations, management is comfortable managing to these issues.
   
   
3. Insufficient Raw materials to meet sales demand
   Strategy for mitigation: Recycle-A-Bicycle seldom has to actively solicit raw materials donations, and supply does not look to be constrained in the near future. If for some reason there is a shortage of bicycles we would initiate outreach efforts to increase supply. Used bicycles could be purchased at police auctions as a reasonably inexpensive substitute to donated bicycles. Though margin would suffer, Recycle-A-Bicycle would still be able to meet demand for bicycles and offer its higher margin accessory and repair lines.
   
   
4. Insufficient labor to meet production demand
   Strategy for mitigation: Given current labor market conditions in New York City, we do not anticipate any issues. Our wage rate is very competitive with the market and we always have a surplus of labor. However, if a labor supply shortage exists, we would tap into our volunteer network which has worked well in the past to meet seasonal demands for production.
   
   
5. Loss of a major partner
   Strategy for mitigation: The Executive Director has many relationships with potential partners and is nurturing these as prospects for when the production/training facility is operating.
   
   
6. Loss of senior management before training and succession plan is implemented
   Strategy for mitigation: The Board of Directors and others have committed their energy should an unplanned change in Senior Management occur. Recycle-A-Bicycle has several professional services partners such as their accountant and business management consultant who can help provide transitional support services.

CAPITAL NEEDS, TIMELINE AND BENCHMARKS

The projections indicate that grant funding of approximately $520,000 is needed over the next 3 years to cover costs associated with expansion of the business and training program. This funding amount includes a capital grant of $38,000 that will be used as a down-payment on the production and training facility. In three years (2005), Recycle-A-Bicycle will generate approximately $50,000 in net operating profit.

Capital needs are greatest in 2003 and 2004 when new staff is hired and infrastructure related to the new production facility is added since these additional expenses are not be matched immediately with increased revenues. However, these investments will quickly produce positive returns for the organization as net income grows steadily from 2004 to 2007.

In 2004, financing of approximately $300,000 is needed to purchase the training and production facility. This financing has been modeled as a 10-year mortgage at 6% annual interest. In addition, the following debt service chart includes a $100,000 loan beginning in 2003 to finance the beginning of the Five-Year Strategic Plan (assuming grant funds are not available).

Summary of Revenues, net income and net margins:

Recycle-A-Bicycle seeks grant funding to finance the growth objectives laid out in its Five-Year Strategic Plan. These grants will be pursued through institutional funders with an interest in environmental stewardship and/or youth development.

2003 Recycle-A-Bicycle seeks $171,000 in funding in 2003. Thus far, the organization has raised $38,000 of this funding need. Proposals for additional funding of up to $50,000 have been submitted and other funding requests will be made during the year. Approximately $71,000 in grant funding will serve as working capital to support current operations as well as implement new marketing efforts.

The additional $100,000 will support hiring the Development Officer, support costs associated with sourcing and obtaining the new production and training center and provide for other infrastructure improvements. As this funding is vital for the growth of the organization and its ability to meet the objectives of the Five-Year Strategic Plan. Recycle-A-Bicycle has projected the $100,000 as debt financing and is able to support the debt service required through its steady cash flows and strong financial management. Funding from a grant source will allow the organization to avoid over $8,500 in interest expense over the next five years.

2004 Recycle-A-Bicycle expects to raise $176,000 in grant funding during 2004. These funds will be used in part for working capital and in part to support more of the Five-Year Strategic Plan. This includes hiring a Production Assistant to staff the production and training center, hiring a van driver to facilitate the pick-up of supply and transfer of bikes between facilities and funding to pursue e-business strategies. In addition, part of these funds ($38,000) will be used for a down payment on the production and training center. Recycle-A-Bicycle will raise the additional $106,000 through fundraising efforts spearheaded by the new Development Officer.

2005 Recycle-A-Bicycle expects to raise $172,000 in grant funding in order to offset additional costs related to expansion including research into new retail opportunities. In 2005, Recycle-A-Bicycle will also launch the Tours by Teens program.