DC Micro Grid Financial Plan, Essay Example for You

Published: 2022-04-25
DC Micro Grid Financial Plan, Essay Example for You
Type of paper:  Business plan
Categories:  Finance Business Financial management
Pages: 7
Wordcount: 1811 words
16 min read

This plan is set to evaluate the financial position of DC Micro Grid and lay out the projections of its future cash flows, assets and the monetary attachments to the already laid out objectives. This plan will show how the DC Microgrid will fund all its projects. The plan will have a pro forma invoice that is expected to give a projection in future incomes, expenses, increased assets and levels liability in the next three years. It will also include the expected growth rate in sales over the same period of time.

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In this financial plan, there are factors that will be assumed that will remain the same over the same period of time. It is also assumed that there will be no major economic turmoil instigated by macro-economic factors like political instability and natural factors that would affect the supply of electricity over a long period of time.

On the expenses of MC micro grid, the areas that the organizations will be spending on the next three years will remain relatively constant. However, the expenditure is expected to increase over the next three years as the connectivity will be covering a wider area. The sales growth rate is also expected to improve as new installations are expected, income from the consumption per unit power is also set to increase progressively because of the increase in number of those newly connected. There expected income from government due to new street connectivity will also add to the sales of DC Micro grid.

Expansion of DC microgrid is expected to increase the cost of capital. It is assumed in this financial plan that the even though there will be an increase in the cost of capital, it will be proportionate to the revenue generated by the asset brought in. It is also assumed that the increase in cost of capital will not translate to the consumers so as to lose them due to high prices. Furthermore, the tax rate will be assumed to be remaining constant throughout the in the next three years. A slight change in the prices should not be interfere with the operations of the business.

Pro forma Income Statement

This projection will be comparing the expected income from the supplies of DC Micro grid products to the expected expenses, the net effect of which to give a forecast of the profit and loss situation that the organization will be in the next three years.

Pro forma Income Statement

DC Micro Grid

For 2018 through to 2020

Revenue 201820192020

Gross Sales $ 4,800,000$5,503,000$6,606,000

Less Allowances $40,000$50,000$55,000

Net Sales $ 4,760,000$5,453,000$ 6,551,000


Beginning Inventory $ 2,600,000$ 3,200,000 $ 3,700,000

Purchased goods $ 1,300,000$ 1,400,000$ 1,600,000

Total goods

Available $ 3,900,000 $ 4,600,000 $ 5,300,000

Less ending Inventory $ 3,200,000 $ 3,700,000 $ 4,100,000

Total COGS $ 700,000 $ 900,000 $ 1,200,000

Gross Profit $ 4,060,000 $ 4,553,000 $ 5,351,000


Salary and Wages $130,000$ 170,000$ 200,000

Sales Salary $150,000$ 158,000$ 170,000

Office Supply Cost $30,000 $ 50,000 $ 64,000

Rent $10,000 $ 23,000 $ 40,000

Utility Expenses $25,000 $ 32,000 $ 43,000

Transport $370,000 $500,000 $ 610,000

Total Expenses $ 715,000 $ 933,000 $ 1,127,000

NET INCOME $ 3,345,000$ 3,620,000 $4224000

From the pro forma income statement, it can be seen that there is expected increase in the net profit situation if all factors remained constant. This projection is based on the fact that most people in Saudia Arabia are slowly moving away from the use of fossil fuels and are using electricity. The increasing demand will mean increased sales for the DC Micro grid company.

The Gross sales are expected to increase over the years as due to the expected increase in the client base. New installations in homes, companies, government agencies and nongovernmental organizations are some of the projected customers for connectivity. The prices for connections will also be increasing over the years favorable and this will boost the sales level. The expenses DC Micro Grid are also expected to be increasing over the time. The increase in expenses will be as a result of the expansion programs on the areas of connectivity. Over the years, the administrative costs will also be increasing and new employees too will be absorbed. The increase in expenses should however not affect the profit negatively but it should instead be as assets that should be used profitably to add into the income of the business.

Financing the Business

The capital base of the business based on the business plan is projected to be $ 2.5 million. This is a large amount of money that one may not raise on his own. We intend to seek contributions from friends and well-wishers in order to assist us in funding the businesses. The projected capital to be raised from friends, relatives and well-wishers is $ 1 million. We intend to approach banks and other financial organizations in order to obtain loans that can fill the gap of the remaining $ 1.5 million.

DC Micro grid intends to rely more on debt as a source of capital than equity. This is because the enormous capital that is required may not be feasibly possible to achieve through equity. Besides, debt is less expensive to capital since the interest on debt is tax deductible. Furthermore, it easier to main the cost of debt lower than cost of capital.

DC Micro grid has identifies key areas that will it will endeavor to inject finances as these are key to meeting the costs and getting returns. DC Micro grid will need to purchase fixed assets to start with the operation. There will be additional purchases over time to improve on the technology even as new connectivity comes in. Manufacturing and production will also need to be invested on. The electricity cost is also an area that will have some money injected on. The firm cannot start operation without licensing. The licensing and other legal fees required for operation will also be catered for in with this capital.

Market Size

To attain and maintain the projected sales for the next three years, DC micro grid needs to have a well laid out strategy in order to have a sizeable market. Some of the target markets that has been laid out include

The Government - In the initial outline of the business plan, it was indicated that the government will be seeking to engage in an annual investment of close to $5 billion in the production and another $4 billion in the sector of distribution. On top of this, Saudi Arabia has plans of privatizing every aspect of generating electricity in the country by the year 2020. DC micro grid recognizes that this is a large potential government and will endeavor to seek government tenders to meet up to 30% , 40% and 45% of the supplies it will make in the next three years consecutively. This will translate to $ 1.4 million, $ 2.18 million and $ 3 million revenue in the next three years consecutively. The merit of having the government as a consumer is because of the reliability when it comes to the receipt of payments.

Corporations and NGOs - Corporations are in business and when looking at the profit and loss situation, they look at reliable electricity supply at relatively lower costs. They are a target market especially because they don't want financial costs related to the interruption of power supply, a challenge which DC micro grid solves. The NGOs especially those that have been advocating for clean energy has the opportunity to install micro grids because they are a clean source of energy which is received at a relatively low cost. DC micro grid intends to make this target customer to account for 40% of the expected sales.

Households - Households use relatively low electricity per unit but the advantage is the fact that they are very many. The cumulative effect therefore makes it a good market. The plan of DC micro grid is to have this market but decrease the rate of dependence on the revenue expectation over the years but not up to below 25%.

While considering the market size and the allocation to the expected market, the cost of distribution of electricity has also been considered. The government and corporations need large power supply and therefore there will be high costs of installation. The plan is to invest proportional to the expected revenues from the customers


DC Micro grids recognizes that the success of this plan lies on the correct analysis of the strengths, weaknesses, opportunities and the threats in the market place that may face it.


These are unique advantages that DC Micro Grid has in the market that will give it an edge over the rest of other electricity providers. DC micro grid is intending to install unique features that will incorporate the use of natural source of energy to produce energy. The solar energy will be tapped into the grid system. The system will also be able to tap wind energy and convert it to electricity. This will be promoting the use of clean and renewable form of energy that has of late received endorsements for adoption from different organizations and governments. Geothermal energy will also be a supplement in the system. Where possible, DC micro grid will also set up biogas digesters to generate and supply electricity. A combination of all these to supplement the hydroelectric power gives DC micro grid the unique opportunity to supply large watts of electricity to meet the high demands of the customers.

The technology of integrating natural forms of energy into one system is difficult to copy and install. This also means that for a long time DC Micro Grid will be protecting itself form competitors by the use of this technology.


The weakness that faces DC Micro Grid is its inability to single handedly meet the cost of starting and operating the business. The starting capital and the operating expenses are well approximately over $ 2.5 million. This is a huge sum of money that is not easy to solicit alone by the entrepreneurs.

In response to this weakness, DC Micro grid intends to use debt capital from different financial institutions. Proper use of this borrowed capital and reducing the unnecessary expenses will help in mitigating this weakness.

The other challenge that DC Micro grid will have to contend with is the fact that the micro grid is not similar to the utility grid. This can provide an avenue for selling of extra power within the system. Moreover, the variation of power supply and the changing characteristics of DGs may also affect the effectiveness of DC Micro grid.


There are a number of external factors that could contribute to the success of DC Micro Grid. The government policy on the energy is favorable to enable the organization to achieve its objectives. It is the goal of the government to reduce the use of fuel as a source of energy internally and encourage more of use of electricity. The government has also planned to invest more in increasing the supply of electricity.

The increasing need for using clean and renewable energy among the manufacturing firms is also another opportunity that the company is able to explore. Renewable energy are cheaper sources of energy that most companies would need in order to reduce their costs of production.


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