Looking for an ASP software developer business plan? You're in the right place.
A software firm that builds applications and then hosts them has to answer a banker's questions about two different businesses at once. How much cash do you need before the first milestone payment? How many of your builds turn into monthly hosting revenue? What happens to payroll if clients sign more slowly than you hoped? A blank template won't show what a sensible answer looks like.
In this article we'll walk through a complete sample plan for a custom software developer in Columbus, Ohio, section by section. We'll cover the executive summary, the SWOT analysis and, in particular, all of the financials.
Here's what you'll take away:
- The executive summary: see how to put a build-and-host business on one page, so a reader knows the ask and the plan within a minute
- The start-up budget: find out how large a cash reserve a developer-heavy firm needs before milestone payments catch up with payroll
- The revenue mix: learn how to show build projects, hosting plans and change requests as separate lines, so a reader can see how much income repeats
- The hiring table: see how to time each developer, designer and support hire to signed work, and why the profit line stays thin in the middle years
- The marketing plan: see what a new firm might spend to win its first six clients and which channels carry them
- The five-year profit, cash flow and balance sheet: understand how pay, pricing and hosting growth show up in the numbers
- The downside case: have an answer ready for the "what if revenue is 20% short?" question, along with the steps the owner takes in response
If you're setting up a software company, read this before you write your own. The firm is fictional, so take what fits your business and change the rest.
In this plan
Want a asp software developer business plan you can edit for your own business? Get the asp software developer business plan template and build it in the Toolkit.
Harbor Glen at a Glance
Harbor Glen is an application service provider (ASP): a custom software developer that builds a business application for a client, then hosts and maintains it on a monthly plan. It opens in Columbus, Ohio on January 1, 2027 and serves mid-sized Ohio companies. Marcus Hale, a software engineer with eleven years at Columbus employers, owns 100% of the company.
Opening takes $260,000: $185,000 of Marcus's savings and a $75,000 five-year term loan from a bank. Most of it, $219,700, is held back as a cash reserve for the months when developers are paid before milestones arrive. Equipment and build-out take $20,000, and legal work, licenses and the launch campaign take $20,300.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Revenue | $477,900 | $950,900 | $1,381,500 |
| Net income after start-up costs | ($101,269) | $63,456 | $45,961 |
| Closing cash | $80,539 | $78,548 | $62,482 |
Year 1 has seven build projects, all live by December, and six hosted applications. Build work is 88% of Year 1 revenue. By Year 5 hosting plans and change requests supply 40% of a $2,425,000 total, and net income is 8.8% of revenue without trimming any salary.
The profit line is thin for most of the plan: Year 3 earns $45,961 and Year 4 $80,389. Payroll takes between 65% and 81% of revenue every year, so the margin depends on hiring no faster than signed work allows.
A second run of the model takes 20% off every revenue line. With hires pushed back, two later roles dropped, a smaller marketing budget, a 20% cut to Marcus's pay and no move to a bigger office, the firm still earns a profit from Year 2 and year-end cash stays above zero.
How Harbor Glen Is Set Up
Legal name: Harbor Glen, Inc., an Ohio corporation taxed as a C corporation. Owner: Marcus Hale, 100%. Premises: 1,200 square feet of leased office near downtown Columbus. Start date: January 1, 2027. Stage: pre-launch. Two build agreements are signed; the lease and the website are drafts.
The offer in one sentence
Harbor Glen builds an application for a fixed price, then runs it for a flat monthly fee, so the client deals with one team from first sketch to the 2 a.m. outage.
Three lines of revenue
| Line | How it is priced | Year 1 share of revenue |
|---|---|---|
| Application builds | Fixed price per project, billed 40/30/30 on milestones | 88% |
| Hosting and maintenance plans | $600 to $2,200 a month by tier; $1,100 blended | 8% |
| Change requests and enhancements | Hourly, about $170 realized | 4% |
Where the company aims to be by the end of 2028
- 15 live hosted applications, up from 6 at the end of 2027.
- Revenue of $950,900 and a profit after tax.
- Six full-time staff with Marcus, a product designer among them.
- The bank loan repaid on schedule, with no distributions until the cash balance is well above the payroll.
Tax and workers' compensation in Ohio
Ohio charges a commercial activity tax on gross receipts above a statutory exclusion instead of a corporate income tax, and Harbor Glen stays below that line throughout the plan. The city of Columbus also taxes business net profits. The model charges 21% federal income tax plus a 2.5% local planning rate; both rates, and the sales-tax treatment of hosting and custom software, are items for an Ohio tax advisor to confirm. Workers' compensation in Ohio is bought from the state Bureau of Workers' Compensation, and its premium is part of the insurance line.
The Columbus Software Market
Where the work comes from
Harbor Glen's target accounts are Columbus-area insurers, health practices, logistics operators and retailers. They sit below the size where an internal engineering team is practical: 40 to 400 employees, a process that runs on spreadsheets and a decade-old vendor product, and an owner or operations director who wants it replaced.
What the labor market says
The Bureau of Labor Statistics reports a national median annual wage of $135,980 for its software developers, quality assurance analysts and testers group in May 2025, and projects employment in the group to grow 10% from 2025 to 2035. The same demand pulls on Harbor Glen's hiring. Its salaries, from $92,000 for a developer to $125,000 for Marcus, sit below that national median. Columbus pay may run lower than the national figure, but offers may still have to run higher than the plan's, and the margin would narrow.
Competing options for a client
| Option | What it offers | Why a client picks it | Where Harbor Glen differs |
|---|---|---|---|
| Large regional development agencies | Larger teams, formal process | Brand, references, depth | Smaller engagements, the owner stays on the project |
| National IT consultancies | Enterprise delivery, offshore capacity | One vendor for many systems | Projects under $100,000, a Columbus team |
| Freelance and offshore developers | Low hourly rates | Price | One firm that stays responsible after launch |
| Off-the-shelf software and low-code tools | Immediate start, monthly fees | Speed and low entry cost | A fit to the client's own process, with the code and data owned by the client |
| In-house hire | Full-time control | Long-run cost for large needs | The cost of a hire without the recruiting or the single point of failure |
None of these rows is a ranking. Prices and terms change often, so none are quoted.
SWOT
| Strengths | Weaknesses |
|---|---|
| Founder has shipped line-of-business software for Ohio employers | Two senior people carry the first year; one illness stalls delivery |
| Hosting plans turn each build into monthly revenue | No brand or public portfolio at launch |
| Two signed builds before opening | Pay below the national median may slow hiring |
| Opportunities | Threats |
|---|---|
| Replacement of aging internal tools and spreadsheets | AI coding tools pressing build prices down |
| Referrals from accountants, IT consultants and insurance brokers | Larger agencies discounting small projects |
| Clients ordering a second phase after go-live | A developer leaving mid-project |
Who Commissions the Software
The operations-minded owner
Typical buyers are a regional distributor, a specialty insurer, a physical-therapy group or a property manager. The buyer is an owner, a COO or an operations director aged 38 to 60. They know the workflow cold and cannot write a line of code, and they have been burned once by a freelancer who disappeared.
What triggers a purchase
A vendor product reaching end of life, a spreadsheet that one person understands, a new regulation or customer requirement that the current system cannot meet, or a merger that leaves two systems doing one job.
What they check before signing
Who owns the code, where the data sits, what happens if Harbor Glen closes, and who answers the phone when the application is down. The proposal answers each in writing: the client owns the code, the source is escrowed with a third party on request, and hosting terms state response times by tier. Health and insurance clients also send security questionnaires. Harbor Glen budgets an outside security assessment from Year 3 and does not claim a formal audit report before then.
Why a hosting plan follows the build
The people who built an application know it best, and the client would otherwise have to find another firm to patch it. A plan is offered with every build and is optional, so about four builds in five end up hosted rather than all of them.
From Proposal to Signed Build
The path from first call to deposit
Each prospect gets a 45-minute discovery call, a written scope and fixed-price proposal within five working days, and a walk-through of the milestones. Time from first call to signed agreement is six to ten weeks. Marcus runs every discovery call himself through Year 1.
The Year 1 pipeline
Four of the six new clients come from about 16 proposals at a 25% close rate; the other two signed before opening. One client orders a second project in the year, which makes seven builds.
| Source | New clients, Year 1 |
|---|---|
| Signed before opening (Marcus's network) | 2 |
| Referrals from accountants, IT consultants and brokers | 2 |
| Local search and technical articles | 1 |
| A design agency that subcontracts the build | 1 |
How prices are set
Builds are fixed price, quoted from an hour estimate at a $185 list rate with a contingency, and the realized rate lands near $170 after overruns. A first build averages $60,000. A client who comes back for a larger second phase lifts the average to about $66,000 by Year 5.
Repeat work
The plan counts 8% of hosted applications retired or moved each year. New clients per year rise from 6 to 14, and repeat builds from 1 to 8.
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Build projects | 7 | 13 | 16 | 19 | 22 |
| Hosted applications at year end | 6 | 15 | 27 | 40 | 55 |
Marketing Spend and What It Buys
Year 1 marketing is $42,000: $12,000 of launch work paid from start-up capital and $30,000 of running spend. That is 8.8% of Year 1 revenue and falls to 3.6% in Year 2, 2.8% in Year 3 and 1.7% in Year 5 as referrals take over. Divided by the six new clients, each costs about $7,000 to win, close to 12% of a $60,000 first build. From Year 2 the figure falls to about $3,800, $3,500, $3,100 and $3,000 a client. Marcus's selling time is in payroll and not counted.
| Channel | Year 1 spend | What it is expected to do |
|---|---|---|
| Website, case-study pages, brand (launch) | $12,000 | A site with two sample projects, a pricing guide for builds and a booking link |
| Search ads, local search and technical articles | $14,000 | Queries such as "custom software Columbus" and one article a month on replacing spreadsheets; about 1 client |
| Referral partner program | $5,000 | Coffee meetings and a referral fee for accountants and IT consultants; about 2 clients |
| Columbus meetups and events | $7,000 | Sponsorship of a developer meetup and two operator events; about 1 client through a design agency |
| Client reviews and short demo videos | $4,000 | Proof for the next proposal |
Marketing from Year 2 is $34,000, $38,000, $40,000 and $42,000.
Delivery and Hosting Operations
The office
A 1,200 square foot office near downtown Columbus at an all-in $24 per square foot a year costs $28,800 in Year 1. It seats ten. The firm moves to about 1,600 square feet in Year 4.
How a build runs
Discovery and wireframes take two to three weeks, then two-week development sprints with a demo to the client at the end of each. A project manager joins in month 27; until then Marcus runs delivery. Every release goes through automated tests, and the second pair of eyes on each change is a developer from the same team.
How hosting works
Applications run on a major public cloud under Harbor Glen's accounts, with automated backups, uptime monitoring, security patches and a monthly allowance of support hours. The support and operations engineer, hired in month 13, owns this work. The model allows four hours a month per live application.
Capacity
Productive time is 1,800 hours per person per year, billed at 80% for developers and support engineers and 45% for Marcus, who also sells. Year 1 needs about 2,700 delivery hours against roughly 3,200 available from Marcus, the senior developer and the first developer. Year 3 needs about 7,000 against 8,600, and Year 5 about 11,300 against 13,000. Hires follow signed work, and the downside case shows which ones slip.
Insurance and protection
Insurance covers technology errors and omissions, cyber liability, general liability and the state workers' compensation premium, along with key-person life and disability cover on Marcus, and costs $9,500 in Year 1. Client contracts set out ownership of code, limits on liability, data handling and the hosting service levels, and a lawyer reviews the master agreement before the first signature.
Tools
Source control, continuous integration, an issue tracker, monitoring and design tools cost $16,000 in Year 1 and $40,000 by Year 5.
Marcus Hale and the Team
Marcus Hale, founder and lead engineer
Marcus has eleven years of engineering at two Columbus companies, the last four as a lead developer on a claims-processing platform that served several hundred internal users. He holds a computer science degree from an Ohio university. The $185,000 he invests is a decade of savings, and he leaves a salaried role to own the outcome.
The gaps
Marcus has never run sales full-time, never managed payroll for a team and has not handled a client who disputes a milestone. The plan covers each: weekly referral meetings, a payroll provider from the first pay run, and a contract template that defines acceptance criteria for every milestone.
If Marcus is out
The senior developer, hired at the start, can run a build and answer a client for a week or two. Source and credentials sit in a shared vault, and the company buys key-person life and disability cover on Marcus.
Outside advice
An accountant with technology clients reviews the books quarterly, and a Columbus attorney reviews the master agreement and hosting terms. Marcus uses the local Small Business Development Center for pricing questions.
Ownership and the bank
Harbor Glen, Inc. is 100% Marcus's. The $75,000 loan rests on his personal guarantee, a lien on the equipment, and a covenant to deliver quarterly accounts. After investing $185,000 he keeps his remaining savings outside the business.
Money Plan: Builds, Hosting and Payroll
The forecast starts from two counts: how many applications Harbor Glen builds each year, and how many of them stay on its hosting plans afterward. Prices, hours and payroll are set against those counts. Year 1 is shown month by month and Years 2 to 5 as annual totals.
Funding the first twelve months
| Use of funds | Amount |
|---|---|
| Laptops, monitors, test devices, network gear | $14,000 |
| Office furniture and build-out | $6,000 |
| Ohio business registration and local licenses | $800 |
| Legal: entity, master services agreement, hosting terms, IP assignment | $7,500 |
| Launch: website, case-study pages, local campaign | $12,000 |
| Cash reserve for the first year of build work | $219,700 |
| Total uses | $260,000 |
| Source of funds | Amount |
|---|---|
| Marcus Hale's savings | $185,000 |
| Bank loan from a small-business credit line | $75,000 |
| Total sources | $260,000 |
Opening takes $260,000. Marcus Hale puts in $185,000 of savings, 71% of the total, and the bank lends the other $75,000 as a five-year term loan at 10%, interest only for the first six months. The bank will want his personal guarantee and a lien on the equipment, and the 10% rate is a planning figure rather than a quoted offer. The $219,700 reserve is the largest use of funds. A build firm bills in milestones while its developers are paid every two weeks, so the reserve covers the eight months before monthly earnings turn positive and the receivables that build behind them. Year 1 closes with $80,539 in cash, and the lowest month-end balance, about $50,000 in October, still covers roughly four weeks of Year 2 payroll.
Pricing, hours and hosting inputs
- Build projects bill in three milestones: 40% at signing, 30% at the mid-point and 30% at go-live, on net-30 terms. Year 1 has seven builds averaging $60,000, all live by December. Build counts then run 13, 16, 19 and 22 a year at averages of $58,000, $61,000, $63,000 and $66,000. Year 2 dips from the first year's $60,000 because smaller second-phase work joins the mix, and the climb after that comes from repeat clients commissioning larger phases.
- Six of the seven Year 1 builds become hosted applications; the seventh is an integration that stays on the client's own systems. Hosted builds in later years are 10 of 13, 13 of 16, 15 of 19 and 18 of 22. About 8% of hosted applications are retired or moved each year, so live applications at year end run 6, 15, 27, 40 and 55.
- Hosting and maintenance plans have three tiers, from about $600 a month for a small internal tool to about $2,200 for an application with round-the-clock monitoring and a response-time commitment. The blend is $1,100 a month in Year 1 and rises 3% a year. That is $13,200 a year, about 22% of the average first build price. A plan covers servers, backups, security patches, dependency updates, monitoring and a monthly allowance of support hours.
- Change requests and small enhancements on live applications are billed by the hour. They average about $5,000 a year per live application, close to 30 hours, and the model raises that figure 3% a year.
- Delivery hours are tested against payroll. The list rate is $185 an hour and the realized rate is $170 in Year 1 after fixed-price overruns, rising 3% a year to about $191 in Year 5. Productive time is 1,800 working hours a year, billed at 80% for developers and the support engineers and 45% for Marcus, who also sells. Hosting support takes four hours a month per live application. Year 1 needs about 2,700 hours against roughly 3,200 available. Year 3 needs about 7,000 against 8,600, and Year 5 about 11,300 against 13,000, so utilization sits between 82% and 86%.
- Direct costs are modeled at a flat 12% of revenue. By stream, builds carry about 8% for contract QA, stock design assets and third-party licenses, hosting about 26% for cloud infrastructure, monitoring, backup storage and security scanning, and change requests about 3%. Those rates blend to roughly 12% in Year 1 and 13% by Year 5 as hosting grows, so one flat rate is close in both. Delivery labor sits in payroll; counting the developers and support engineers as a cost of sales brings gross margin to roughly 25% in Year 1 and 36% in Year 5 on the plan figures.
- Payroll is the main cost. Each salary carries a 27% load for employer payroll taxes, health coverage and a 401(k) match; the part-time administrator's load is 15%. Ohio workers' compensation is bought from the state Bureau of Workers' Compensation rather than a private insurer, and its premium sits in the insurance line. The salaries shown are launch-year rates; 3% raises start in Year 2 and sit on their own line. Payroll takes 81% of revenue in Year 1 and 68% in Year 5, and the Year 5 margin is reached without trimming any salary. The senior developer's $118,000 and the developers' $92,000 to $98,000 are below the national Bureau of Labor Statistics median of $135,980 for the combined software developer, quality assurance and tester group in May 2025. Columbus offers may have to run higher than the plan's figures. Recruiting agency fees of $15,000 to $22,000 a year cover the hires from Year 2.
- Receivables average 45 days, since milestones are invoiced on net-30 terms and some clients pay late; hosting is billed monthly in advance. Payables average 20 days, mostly cloud and contractor invoices. Bad debt runs at about 0.5% of revenue.
- Rent is 1,200 square feet near downtown Columbus at an all-in $24 per square foot a year, $28,800 in Year 1, then about 1,600 square feet from Year 4. Insurance covers technology errors and omissions, cyber liability, general liability and the state workers' compensation premium, at $9,500 in Year 1. Key-person life and disability cover on Marcus is included. Software subscriptions for source control, continuous integration, monitoring and design tools run $16,000 in Year 1. Professional fees rise to $14,000 in Year 3 to pay for an outside security assessment, since health and insurance clients ask for one.
- Marketing is $42,000 in Year 1: $12,000 of launch work paid from start-up capital and $30,000 of running spend. Six new clients in Year 1, two of them signed before opening, put the cost of winning each at $7,000. From Year 2 about nine, eleven, thirteen and fourteen new clients a year bring that figure down to $3,000. Marcus's own selling time and, from Year 4, the partnerships lead's salary sit in payroll and are not counted in those figures.
- The model charges 21% federal income tax and a 2.5% local rate for the Columbus municipal net-profits tax, on the basis that Harbor Glen, Inc. is taxed as a C corporation. Ohio charges a commercial activity tax on gross receipts above a statutory exclusion instead of a corporate income tax, and the firm stays under that line. The local rate, the exclusion, the limits on carrying losses forward and the sales-tax treatment of hosting and custom software all need confirming with an Ohio tax advisor. The Year 1 loss is carried forward, so Year 2 shows only a small tax charge.
- No distributions are paid in any year. The bank loan runs its full term and cash stays in the firm to carry the larger payroll.
Revenue by line of work
| Revenue stream | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Application build projects | $420,000 | $754,000 | $976,000 | $1,197,000 | $1,452,000 |
| Hosting and maintenance plans | $37,400 | $142,800 | $294,100 | $483,200 | $705,700 |
| Enhancements and change requests | $20,500 | $54,100 | $111,400 | $183,000 | $267,300 |
| Total revenue | $477,900 | $950,900 | $1,381,500 | $1,863,200 | $2,425,000 |
| Growth on prior year | – | 99% | 45% | 35% | 30% |
Build projects are 88% of Year 1 revenue and 60% of Year 5. Hosting grows from 8% to 29% and change requests from 4% to 11%, so the recurring and repeat lines together carry 40% of Year 5 revenue. That shift raises the margin more than the build work does, because engineering time on a hosting plan is shared across many applications. It also depends on each build ending in a hosted application, which about four in five do. Year 2 revenue is 96% above Year 1 because Year 1 holds only seven builds and six live applications.
Month by month in 2027
| Month | Application build projects | Hosting and maintenance plans | Enhancements and change requests | Total revenue | EBITDA |
|---|---|---|---|---|---|
| Jan 2027 | $15,000 | $0 | $0 | $15,000 | ($27,617) |
| Feb 2027 | $20,000 | $0 | $0 | $20,000 | ($23,217) |
| Mar 2027 | $28,000 | $1,100 | $0 | $29,100 | ($15,209) |
| Apr 2027 | $33,000 | $1,100 | $0 | $34,100 | ($10,809) |
| May 2027 | $37,000 | $2,200 | $1,000 | $40,200 | ($5,441) |
| Jun 2027 | $39,000 | $2,200 | $1,500 | $42,700 | ($3,241) |
| Jul 2027 | $39,000 | $3,300 | $2,000 | $44,300 | ($1,833) |
| Aug 2027 | $39,000 | $4,400 | $2,500 | $45,900 | ($425) |
| Sep 2027 | $41,000 | $4,400 | $3,000 | $48,400 | $1,775 |
| Oct 2027 | $43,000 | $5,500 | $3,500 | $52,000 | $4,943 |
| Nov 2027 | $44,000 | $6,600 | $3,500 | $54,100 | $6,791 |
| Dec 2027 | $42,000 | $6,600 | $3,500 | $52,100 | $5,031 |
January and February bring only the first two builds. Hosting revenue starts in March when the first application goes live. EBITDA is negative from January to August, narrowing each month, and turns positive in September as four applications are billing. Month-end cash bottoms out in Oct at about $50,000, after the 45-day collection lag.
Hiring order and pay
| Role | Annual wage | Starts | Year 1 end | Year 2 end | Year 3 end | Year 4 end | Year 5 end |
|---|---|---|---|---|---|---|---|
| Founder and lead engineer | $125,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Senior developer | $118,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Developer | $92,000 | Month 5 | 1 | 1 | 1 | 1 | 1 |
| Support and operations engineer | $84,000 | Month 13 | – | 1 | 1 | 1 | 1 |
| Developer (second) | $94,000 | Month 19 | – | 1 | 1 | 1 | 1 |
| Product designer | $82,000 | Month 24 | – | 1 | 1 | 1 | 1 |
| Project manager | $88,000 | Month 27 | – | – | 1 | 1 | 1 |
| Office and billing administrator (part time, 24 hours a week) | $32,000 | Month 34 | – | – | 0.5 | 0.5 | 0.5 |
| Second senior developer | $118,000 | Month 32 | – | – | 1 | 1 | 1 |
| Client partnerships lead | $96,000 | Month 38 | – | – | – | 1 | 1 |
| Developer (third) | $96,000 | Month 44 | – | – | – | 1 | 1 |
| Support and operations engineer (second) | $86,000 | Month 50 | – | – | – | – | 1 |
| Developer (fourth) | $98,000 | Month 55 | – | – | – | – | 1 |
| Total payroll incl. on-costs | $386,503 | $600,498 | $920,425 | $1,216,630 | $1,460,258 |
Marcus and the senior developer start together in month 1, and the first developer follows in month 5 once the first applications are live. A support and operations engineer joins in month 13 to take over hosting calls, a second developer in month 19 and the product designer in month 24. Year 3 brings the project manager in month 27, a second senior developer in month 32 and a part-time administrator in month 34. The client partnerships lead arrives in month 38, followed by a third developer in month 44, a second support engineer in month 50 and a fourth developer in month 55. Marcus's $125,000 is in the cost lines, so every profit figure is after he has been paid.
Earnings by year
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $477,900 | $950,900 | $1,381,500 | $1,863,200 | $2,425,000 |
| Direct costs (cloud hosting and monitoring, contract QA and design, third-party licenses) | ($57,348) | ($114,108) | ($165,780) | ($223,584) | ($291,000) |
| Gross profit | $420,552 | $836,792 | $1,215,720 | $1,639,616 | $2,134,000 |
| Payroll incl. on-costs | ($386,503) | ($600,498) | ($920,425) | ($1,216,630) | ($1,460,258) |
| Rent | ($28,800) | ($29,700) | ($30,600) | ($40,000) | ($41,200) |
| Utilities | ($3,000) | ($3,100) | ($3,200) | ($4,000) | ($4,100) |
| Marketing | ($30,000) | ($34,000) | ($38,000) | ($40,000) | ($42,000) |
| Insurance | ($9,500) | ($11,000) | ($12,500) | ($14,000) | ($15,500) |
| Professional fees | ($6,000) | ($8,000) | ($14,000) | ($14,000) | ($16,000) |
| Software subscriptions | ($16,000) | ($22,000) | ($28,000) | ($34,000) | ($40,000) |
| Training, certifications and conference fees | ($3,000) | ($5,000) | ($7,000) | ($8,500) | ($10,000) |
| Phones, supplies and payroll service | ($4,500) | ($6,500) | ($8,500) | ($10,000) | ($11,000) |
| Recruiting agency fees | $0 | ($15,000) | ($22,000) | ($18,000) | ($12,000) |
| Equipment replacement and new-hire kit | $0 | ($5,000) | ($5,000) | ($7,000) | ($8,000) |
| Bad debt allowance | ($2,500) | ($5,000) | ($7,000) | ($9,000) | ($11,000) |
| Annual pay raises (3% a year) | $0 | ($18,015) | ($56,054) | ($112,814) | ($183,275) |
| EBITDA | ($69,251) | $73,979 | $63,441 | $111,672 | $279,667 |
| Depreciation | ($4,357) | ($4,357) | ($4,357) | ($4,357) | ($857) |
| Interest | ($7,360) | ($6,166) | ($4,637) | ($2,948) | ($1,082) |
| Income tax | $0 | $0 | ($8,486) | ($23,978) | ($63,808) |
| Net income before start-up costs | ($80,969) | $63,456 | $45,961 | $80,389 | $213,919 |
| Start-up costs expensed at opening (legal, licensing, launch marketing) | ($20,300) | $0 | $0 | $0 | $0 |
| Net income after start-up costs | ($101,269) | $63,456 | $45,961 | $80,389 | $213,919 |
Year 1 loses $80,969 before start-up costs and $101,269 after them. Year 2 earns $63,456, a net margin of 6.7%. Year 3 earns $45,961, or 3.3%: payroll rises about $320,000 as the Year 2 hires reach a full year and the project manager, second senior developer and administrator start within eight months. Year 4 earns $80,389, or 4.3%, and Year 5 $213,919, a net margin of 8.8%. Net income is after interest and tax, and the Year 1 loss carried forward holds down Year 2's tax.
Cash in and out
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Cash from operations | ($152,688) | $12,608 | $62 | $28,525 | $149,208 |
| Laptops, test devices and office build-out | ($20,000) | $0 | $0 | $0 | $0 |
| Funding received | $260,000 | $0 | $0 | $0 | $0 |
| Loan principal repaid | ($6,772) | ($14,600) | ($16,128) | ($17,817) | ($19,683) |
| Owner distributions | $0 | $0 | $0 | $0 | $0 |
| Net change in cash | $80,539 | ($1,991) | ($16,066) | $10,708 | $129,525 |
| Closing cash | $80,539 | $78,548 | $62,482 | $73,190 | $202,715 |
Closing cash stays above zero at every year end and holds between $62,000 and $81,000 through Year 3, while each hire is paid for out of operations. Year 4 closes at $73,190 and Year 5 at $202,715. The loan balance reaches zero in Year 5. Month-end balances inside a year run lower than these year-end figures, and the Year 1 low is the $50,000 noted above.
Balance sheet
| At year end | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Cash | $80,539 | $78,548 | $62,482 | $73,190 | $202,715 |
| Accounts receivable | $58,919 | $117,234 | $170,322 | $229,710 | $298,973 |
| Laptops, test devices and office build-out (net) | $15,643 | $11,286 | $6,929 | $2,571 | $1,714 |
| Total assets | $155,101 | $207,068 | $239,732 | $305,471 | $503,402 |
| Accounts payable (cloud, contractor and software invoices) | $3,142 | $6,252 | $9,084 | $12,251 | $15,945 |
| Bank loan | $68,228 | $53,628 | $37,500 | $19,683 | $0 |
| Paid-in capital | $185,000 | $185,000 | $185,000 | $185,000 | $185,000 |
| Retained earnings | ($101,269) | ($37,813) | $8,148 | $88,537 | $302,456 |
| Total liabilities and equity | $155,101 | $207,068 | $239,732 | $305,471 | $503,402 |
Margins, break-even and cover
| Measure | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| EBITDA margin | -14.5% | 7.8% | 4.6% | 6.0% | 11.5% |
| Net margin (before start-up costs) | -16.9% | 6.7% | 3.3% | 4.3% | 8.8% |
| Payroll incl. pay raises as share of revenue | 81% | 65% | 71% | 71% | 68% |
| Revenue per full-time equivalent at year end | $159,300 | $158,483 | $162,529 | $177,448 | $194,000 |
| Average monthly revenue | $39,825 | $79,242 | $115,125 | $155,267 | $202,083 |
| Monthly revenue needed to cover operating costs | $46,383 | $72,236 | $109,117 | $144,692 | $175,600 |
| Debt service cover (EBITDA / interest + principal) | -4.9x | 3.6x | 3.1x | 5.4x | 13.5x |
Year 1 averages $39,825 of revenue a month against $46,383 needed to cover operating costs. Year 2 clears the line at $79,242 against $72,236. Year 3 clears it by a thinner margin, $115,125 against $109,117. Debt service cover is negative in Year 1, since the firm loses money while paying interest, then 3.6x in Year 2 and above 3x from there.
If every revenue line comes in 20% short
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $382,320 | $760,720 | $1,105,200 | $1,490,560 | $1,940,000 |
| Net income before start-up costs | ($127,329) | $60,960 | $33,908 | $50,068 | $75,452 |
| Net income after start-up costs | ($147,629) | $60,960 | $33,908 | $50,068 | $75,452 |
| Closing cash | $45,334 | $51,888 | $33,820 | $25,452 | $29,623 |
Every revenue line runs 20% under the base case in every year. Marcus responds in sequence: every hire from month 13 starts six months later, the second senior developer waits a further six months and starts in month 44, the fourth developer and the second support engineer are never hired, marketing is cut 20%, his own salary is cut 20%, the firm stays in its first office and no distributions are paid. The firm still loses money in Year 1, ending it with equity of $37,371. It earns a profit every year from Year 2, always below the base case: $60,960 against $63,456 in Year 2, $33,908 against $45,961 in Year 3, $50,068 against $80,389 in Year 4 and $75,452 against $213,919 in Year 5. Lowest year-end cash is $25,452, at the end of Year 4. The same shortfall with none of those steps would drain the reserve, and cash would be negative by the end of Year 2. Month-end balances inside a year run lower than the year-end figures.
Sources
- Bureau of Labor Statistics, Software developers, quality assurance analysts, and testers, Occupational Outlook Handbook: national median annual wage $135,980 in May 2025 and projected 10% growth, 2025 to 2035.
- Ohio Revised Code, section 5751.02, the commercial activity tax. Confirm the current exclusion amount with the Ohio Department of Taxation.
- The Columbus net-profits tax rate and the Ohio Bureau of Workers' Compensation premium are planning figures to confirm with the city's income tax division and the Bureau.
- Cloud, hosting and agency prices are not quoted: providers change them often, and the plan states its own figures.
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