Looking for a computer engineering business plan? You're in the right place.
A design consultancy sells engineers' hours, and a lender knows it. How much of each engineer's year can you bill? What does the lab cost before the first invoice? How long can the firm pay salaries while projects are still being scoped? A blank template won't show you what a believable answer looks like.
In this article we'll walk through a complete sample plan for an embedded-systems and electronics design firm in Columbus, Ohio, section by section, ending on the financials. We'll cover the executive summary, the SWOT analysis and every table in the five-year model.
Here's what you'll take away:
- The executive summary: see how to fit a fixed-fee, retainer and fixtures business on one page, so a reader knows the ask within a minute
- The SWOT analysis: learn how to name a thin bench and a key-person risk honestly without losing the reader
- The lab and funding budget: find out what instruments cost, how equity and an equipment loan split, and how big a reserve a design firm needs
- The utilization math: see how hours sold against hours paid turn into a margin, and why hires are timed to the work
- The five-year profit, cash flow and balance sheet: understand how each hire and each rate change shows up in the numbers
- The downside case: have an answer ready for "what if a fifth of the projects never sign?", with the steps the founder takes
Setting up a design consultancy means putting a price on hours you have not sold yet. Cedar Glen is fictional; use its method and swap in your own rates, hires and lab.
In this plan
If you need a computer engineering business plan template for your own plan, start it in the Toolkit.
Summary of the Practice
Cedar Glen is an embedded-systems and electronics design consultancy that opens in Columbus, Ohio on January 1, 2027. It designs circuit boards and the firmware that runs on them for regional manufacturers and for makers of small lab and test equipment. Founder Rachel Okafor owns the company with two minority investors.
The firm earns in three ways. Fixed-fee prototype projects take a product from specification to a working, documented prototype. Hourly retainers keep a customer's engineers on call for revisions and production support. Test fixtures and small lab-equipment builds fill the gaps between design jobs. Cedar Glen does not write business software or repair computers.
Opening takes $590,000: $255,000 of Rachel's savings, $255,000 from two regional angel investors for a 30% stake, and an $80,000 equipment loan. The instruments and build-out take $136,000. Legal work, licenses and launch marketing take $29,000. The remaining $425,000 is a cash reserve, set so that year-end cash stays positive in the downside case.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Revenue | $555,000 | $1,100,000 | $1,451,000 |
| Net income after start-up costs | ($149,103) | $56,285 | $68,421 |
| Closing cash | $247,942 | $243,823 | $248,459 |
Year 1 is a loss because four people are on payroll before the work they need has been billed. Operating profit turns positive from September, the first full profit arrives in Year 2, and net margin reaches 8.3% in Year 5 without any cut to engineer wages.
A second run of the model takes 20% off every revenue line. With later hiring, one hire dropped, a smaller marketing budget, a pay cut for Rachel, no larger lab and no distributions, cash stays positive in all five years. The practice does lose money in Years 3 and 4 in that case, and the plan says so.
Who Cedar Glen Is
Legal name: Cedar Glen Engineering, LLC, an Ohio limited liability company. Owners: Rachel Okafor, 70%; two angel investors, 30% together. Premises: about 3,400 square feet of light-industrial space on the northeast side of Columbus, with an office bay and a lab bay. Start date: January 1, 2027. Stage: pre-launch. Two prototype projects are signed and the lease is in draft.
The three kinds of engagement
| Engagement | How it is priced | Year 1 share of revenue |
|---|---|---|
| Fixed-fee prototype projects | Per project, about $34,000 on average, billed on milestones | 49% |
| Hourly engineering retainers | $185 an hour, blended | 42% |
| Test fixtures and lab-equipment builds | Quoted per build, parts at cost plus margin | 9% |
What the firm sets out to do
- Reach eight people on payroll by month 46.
- Pass $1,000,000 of revenue in Year 2 and a profit after tax.
- Hold utilization near 65% of paid engineering hours from Year 4.
- Repay the equipment loan on schedule and pay the first distribution in Year 3.
Certification and licensing
Cedar Glen designs products to be tested against radio-frequency and safety rules, but it does not certify them. Formal FCC authorization and safety listings such as UL are carried out by accredited outside laboratories, and what a product needs depends on what it does and where it is sold. The firm budgets for pre-compliance lab time during development and tells each customer to settle the certification route with a test laboratory before launch. Rachel does not hold a professional engineer license and the practice does not offer work that requires one; counsel confirms Ohio's rules on engineering practice before opening.
Where the Work Comes From
What electronics engineers earn
The Bureau of Labor Statistics reports a median pay of $125,040 for electrical and electronics engineers in May 2025 and projects 8% employment growth from 2025 to 2035, with about 297,900 jobs in 2025. The plan's view is that a full-time electronics engineer at that pay is a large commitment for a small manufacturer whose design work comes in bursts. That gap is the practice's market.
The buyer's alternatives
| Alternative | What it offers | Why a customer picks it | How Cedar Glen differs by design |
|---|---|---|---|
| An in-house engineer | Always on site, knows the product | Control and continuity | No full-time salary for work that arrives in bursts |
| Large contract design firms | Broad teams, formal processes | Capacity for big programs | Smaller projects, with the senior engineer on the work |
| Freelance engineers | Low hourly rate, flexible | Price | A team, a lab and a second pair of eyes on every design |
| Offshore design houses | Lower cost per hour | Budget | Same time zone, a lab the customer can visit |
| Module and dev-kit vendors | Off-the-shelf boards | Speed to a first demo | Custom boards sized to the product |
Each row describes an offer and where Cedar Glen sits against it. It is not a ranking, and no competitor is named because their pricing varies by engagement.
SWOT
| Strengths | Weaknesses |
|---|---|
| Founder with 14 years across instruments and contract design | One principal: when Rachel is out, review slows |
| A full lab from the first day | No brand yet; every customer starts from zero |
| Three revenue lines that fill each other's gaps | Year 1 loses money and draws on the reserve |
| Opportunities | Threats |
|---|---|
| Plants and labs that need one-off electronics without a hire | Engineers leaving to start rivals or join customers |
| Production-support work that follows each prototype | A large customer pausing a program mid-project |
| Referrals from contract manufacturers and distributors | Component shortages that stall a build |
Who Buys Engineering Hours
The regional manufacturer
A Midwest maker of industrial equipment, packaging machinery or medical accessories with a product that needs new electronics but no electronics team. The buyer is usually a product or plant engineering manager. They know what the product must do and do not have a spare engineer.
The small lab and test-equipment company
A company that sells instruments or test stands in small numbers and needs a new board, an embedded controller or a revised fixture. Its own engineers are busy with the next product.
How they cope now
Rachel's experience is that the work often goes to a senior mechanical engineer, a freelancer found through a contact or a large design firm that treats a $30,000 job as a small one. A prototype that works on the bench but cannot be built twice is a failure she has seen often.
What triggers a call
A product launch date, a component going end-of-life, a failed certification test or an engineer leaving.
What they ask of the firm
A fixed price for a defined prototype. Schematics, layout files and firmware handed over complete. An engineer who answers the phone in production.
Winning Projects
From first call to signed statement of work
Each prospect gets a 45-minute scoping call, a one-page statement of work with a fixed fee and milestones within five working days, and a short design review before work begins. Rachel runs every scoping call herself through Year 1.
The Year 1 pipeline
About 15 new customers from about 60 qualified conversations at a 25% close rate.
| Lead source | New customers | Share |
|---|---|---|
| Referrals from contract manufacturers and component distributors | 5 | 33% |
| Rachel's professional network | 4 | 27% |
| Trade events and regional manufacturing meetings | 3 | 20% |
| Targeted outreach to plant engineering managers | 2 | 13% |
| Website and published design notes | 1 | 7% |
How fees are set
Prototype projects are quoted from an estimate of engineering hours at the retainer rate plus parts, with a contingency for one extra board revision. Year 1 holds about 8 prototype projects, 6 retainer customers by December and 5 fixture orders of $7,000 to $14,000. Rates rise 3% a year from Year 2.
Keeping customers
In Year 1 four of the six retainer customers are people Rachel already knows, who buy engineering hours in place of a full-time hire. From Year 2, customers who receive a finished prototype are also offered a retainer for revisions and production support. The plan sets a limit of 25% of annual revenue from any one customer, and a customer approaching it is quoted a longer lead time instead of more capacity.
Two projects before opening
Two prototype projects are signed before opening. They came through Rachel's network, and she has reviewed her former employer's non-competition and invention-assignment terms with a lawyer. Each statement of work states that the customer owns the finished design on payment while Cedar Glen keeps its general tools and methods.
Reaching Plant Managers and Lab Leads
What the marketing budget pays for
Year 1 marketing is $44,000. Launch work, charged to start-up capital, takes $14,000; the other $30,000 is operating spend. That is 7.9% of Year 1 revenue, or 5.4% counting operating spend only, falling to 2.9% in Year 3 and 2.5% in Year 5 as referrals take over. Spread across about 15 new customers, each costs roughly $2,900 to win, against an average prototype fee of $34,000.
| Channel | Year 1 spend | What it is expected to do |
|---|---|---|
| Website and capability sheet (launch) | $9,000 | Project write-ups, a lab tour page and a request-for-quote form |
| Introductions and plant visits (launch) | $5,000 | Meetings with the first 20 referral contacts |
| Trade events and regional manufacturing meetings | $8,000 | About 3 customers |
| Referral program for contract manufacturers and distributors | $5,000 | About 5 customers |
| Published design notes | $5,000 | One technical note a month on problems buyers search for |
| Outreach to plant engineering managers | $6,000 | About 2 customers |
| Memberships (engineering society section, manufacturing association) | $3,000 | Access to the referral contacts behind the 5 referral wins |
| Lunch-and-learns at customer sites | $3,000 | About 1 customer, plus introductions inside the host's building |
Milestones
- January 2027: website live, two prototype projects started.
- June 2027: 3 retainer customers and 4 prototype projects in progress.
- September 2027: operating profit positive.
- December 2027: 6 retainer customers and $31,000 of monthly retainer billing.
The Lab and the Workflow
The space
About 3,400 square feet of light-industrial space at $14 a square foot a year, or $48,000 in Year 1, split between an office bay for design work and a lab bay for assembly, rework and testing. In Year 4 the firm moves to about 4,500 square feet. The move adds a one-off $22,000.
The bench
Oscilloscopes, logic analyzers, a spectrum analyzer, power supplies and electronic loads cost $78,000. A rework and assembly station, a reflow oven, a 3D printer, ESD-safe benches and a thermal chamber cost $36,000. Calibration and replacement run from $3,000 in Year 1 to $20,000 in Year 4.
How a project moves
A statement of work is followed by a schematic review, a first board spin, firmware bring-up on that board, a bench test report and a hand-off package with design files and a bill of materials. The technician builds the boards in the lab. Pre-compliance testing is bought from an outside laboratory while the design is still changing. Formal certification is the customer's decision and cost.
Tools and files
Electronic design software, a simulation package, version control for firmware and a product-lifecycle tool for bills of materials. Software spend starts at $24,000 in Year 1 and reaches $62,000 in Year 5.
Who does the work
Headcount runs from four at the end of Year 1 to six by the end of Year 2, seven in Year 3 and eight in Year 4. Each hire follows demand, and the downside case shows which ones slip or are dropped. Utilization of paid engineering hours is 49% in Year 1 and about 65% from Year 4.
Insurance and contracts
Professional liability, general liability, product liability and cyber coverage cost $14,000 in Year 1, a planning figure that Rachel confirms with a broker. Every customer signs a master services agreement that limits liability to the fees paid. Whether a limit holds depends on the contract and the state, so counsel reviews the template before the first signature.
Suppliers
Component distributors, board fabricators and an accredited test laboratory. None is hard to replace, but lead times on parts can stretch a schedule.
The Engineers
Rachel Okafor, founder and principal engineer
Rachel has 14 years in electronics design: nine at a Columbus-area instrument maker, where she led a team of five on embedded products, and five at a contract design firm. She holds a degree in electrical engineering. Her $255,000 is most of her savings.
Where the team is thin
Three gaps stand out. Rachel has not run a sales pipeline from scratch, has not run payroll and has little experience with formal product certification. The plan answers each: a weekly referral schedule, a payroll provider and an outside test laboratory on call.
If Rachel is out
The senior embedded engineer hired in month 2 can lead a design review. A second experienced engineer joins in month 5. Project files sit in a shared repository so work can move to another engineer within a day.
Outside help
A retired engineering manager reviews pricing and utilization each quarter. The two angel investors do not manage the firm but sit on a quarterly review.
Ownership and the bank
Cedar Glen Engineering, LLC is 70% Rachel's and 30% the investors'. The $80,000 equipment loan covers about 70% of the instruments' cost. It rests on the instruments, which a lender would value below cost, and on her personal guarantee, with quarterly accounts as a covenant.
The Numbers Behind the Practice
A single five-year model sits behind every table in this section. Year 1 runs month by month and Years 2 to 5 run annually. The planning figures come first, each with its reason, so a reader can trace any number back to where it started.
Lab, instruments and the cash behind them
| Use of funds | Amount |
|---|---|
| Bench instruments: oscilloscopes, logic analyzers, spectrum analyzer, power supplies and loads | $78,000 |
| Rework and assembly station, reflow oven, 3D printer, ESD-safe benches, thermal chamber | $36,000 |
| Lab wiring, shelving and office build-out | $22,000 |
| Design-tool licenses set-up and business licenses | $6,000 |
| Legal: entity, master services and IP-assignment templates, lease review | $9,000 |
| Launch: website, capability sheet, plant and lab introductions | $14,000 |
| Cash reserve for the slow first-year ramp and parts purchases | $425,000 |
| Total uses | $590,000 |
| Source of funds | Amount |
|---|---|
| Rachel Okafor's savings | $255,000 |
| Two regional angel investors (minority equity) | $255,000 |
| Equipment loan (about 70% of the instrument cost) | $80,000 |
| Total sources | $590,000 |
Rachel Okafor puts in $255,000 of savings and two regional angel investors add $255,000 for a 30% minority stake, which values the company at $850,000 once the money is in. An $80,000 equipment loan covers about 70% of the instrument purchase: nine percent over five years, interest only for the first three months. It is secured on the instruments, which a lender would value below cost, so Rachel also guarantees it personally. The rate is an example, not a lending quote. Equity is 86% of the $590,000 total. The $425,000 reserve is set by one rule: year-end cash must stay above zero in the 20% downside case further down. It is not a target for the base case, which holds roughly $240,000 of cash through Year 3 and pays distributions out of it from Year 3. A design practice pays engineers every month and bills on milestones, so a slow quarter shows up in the bank before it shows up anywhere else.
Rates, hours and other planning figures
- Fixed-fee prototype projects average about $34,000: a specification, one or two board spins, firmware bring-up and a hand-off package. Year 1 holds about 8 of them, billed on milestones, which brings in $271,000. Two are signed before opening and come from Rachel's professional network.
- Hourly retainers bill at a blended $185 an hour, with the rate rising 3% a year from Year 2. Year 1 holds about 1,250 retainer hours, climbing from 38 a month in February to 168 in December across six customers, which brings in $232,000. Four of the six are known to Rachel and buy engineering hours directly, as a stand-in for a full-time engineer. Only from Year 2 do retainers follow finished prototypes.
- Test fixtures and small lab-equipment builds are one-off orders. Year 1 has five of them at $7,000 to $14,000, and the parts inside them carry a 38% direct cost, against 14% on prototype projects and 2% on retainers. Together the direct costs run at about 11% of revenue in every year.
- Utilization drives the plan. Dividing each year's labor revenue (revenue less parts) by the realized hourly rate gives hours sold: about 2,700 in Year 1 against roughly 5,400 paid hours, or 49%. Utilization then runs about 59%, 62%, 66% and 65% in Years 2 to 5, against paid engineering hours that include a technician but exclude the coordinator. Hires are timed so that no year needs more than about 70% of paid hours.
- Customers pay on net-30 to net-45 terms and often slip, so receivables average 40 days. Component distributors and board fabricators are paid in about 25 days. Parts on hand and builds in progress average 15% of annual direct costs.
- Each salary carries a 27% load for payroll taxes, health coverage, workers' compensation and a retirement match. Wages in the staffing table are launch-year rates and pay raises of 3% a year are charged on their own line from Year 2. The Bureau of Labor Statistics reported a May 2025 median of $125,040 for electrical and electronics engineers nationally, and the plan's engineer wages of $112,000 to $128,000 sit around that figure. Local Columbus pay is not in the national figure and could differ.
- Rent covers about 3,400 square feet of light-industrial space with a lab bay at $14 a square foot a year, or $48,000 in Year 1. The practice moves to about 4,500 square feet in Year 4, with a one-off $22,000 for build-out, moving and overlapping rent.
- Insurance of $14,000 in Year 1 stands for professional liability, general liability, product liability and cyber coverage. The figure is a planning estimate that Rachel confirms with a broker, because product-design work can draw higher premiums than ordinary consulting.
- Pre-compliance testing is bought from an outside accredited laboratory, not done in house. The plan budgets $4,000 in Year 1 and $16,000 by Year 5 for lab time used while a design is still in development. Formal FCC or UL certification is the customer's cost and depends on the product, so the firm confirms the route with a test laboratory before it quotes a customer.
- Tax is charged at the 21% federal corporate rate, with the Year 1 loss carried forward. The plan shows no Ohio corporate income tax. Ohio taxes gross receipts through the commercial activity tax, which may apply above a revenue threshold. Columbus and other Ohio cities also levy a municipal net-profit tax that the model leaves out. Rules and rates change, so Rachel confirms both with a tax advisor. A closely held firm could elect S corporation treatment, which moves the tax to the owners' returns.
- Distributions of $25,000, $50,000 and $80,000 are paid in Years 3 to 5, and only while year-end cash stays above $200,000. The equipment loan runs its full term of five years.
Revenue by kind of engagement
| Revenue stream | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Fixed-fee prototype projects | $271,000 | $535,000 | $703,000 | $841,000 | $959,000 |
| Hourly engineering retainers | $232,000 | $449,000 | $599,000 | $720,000 | $828,000 |
| Test fixtures and lab-equipment builds | $52,000 | $116,000 | $149,000 | $183,000 | $207,000 |
| Total revenue | $555,000 | $1,100,000 | $1,451,000 | $1,744,000 | $1,994,000 |
| Growth on prior year | – | 98% | 32% | 20% | 14% |
Prototype projects supply 49% of Year 1 revenue and 48% of Year 5. Retainers are the steadier line, since a customer who has had a board designed tends to keep the same engineers on call for revisions and production support. The fixtures line is the smallest at about a tenth of revenue each year, but it carries the heaviest parts cost and keeps the technician busy between design jobs.
Month by month in 2027
| Month | Fixed-fee prototype projects | Hourly engineering retainers | Test fixtures and lab-equipment builds | Total revenue | EBITDA |
|---|---|---|---|---|---|
| Jan 2027 | $0 | $0 | $0 | $0 | ($48,870) |
| Feb 2027 | $9,000 | $7,000 | $0 | $16,000 | ($34,668) |
| Mar 2027 | $14,000 | $10,000 | $7,000 | $31,000 | ($21,352) |
| Apr 2027 | $18,000 | $13,000 | $0 | $31,000 | ($21,352) |
| May 2027 | $21,000 | $17,000 | $9,000 | $47,000 | ($7,150) |
| Jun 2027 | $24,000 | $20,000 | $0 | $44,000 | ($9,813) |
| Jul 2027 | $27,000 | $23,000 | $12,000 | $62,000 | $6,165 |
| Aug 2027 | $29,000 | $25,000 | $0 | $54,000 | ($936) |
| Sep 2027 | $31,000 | $27,000 | $10,000 | $68,000 | $11,492 |
| Oct 2027 | $33,000 | $29,000 | $0 | $62,000 | $6,165 |
| Nov 2027 | $33,000 | $30,000 | $14,000 | $77,000 | $19,481 |
| Dec 2027 | $32,000 | $31,000 | $0 | $63,000 | $7,053 |
January produces no revenue, because the first milestone invoices on the two pre-signed projects fall in February. Revenue climbs as prototype work comes in and the retainer hours build. EBITDA, meaning profit before interest, depreciation and tax, is negative until July, turns positive in July, slips just below zero in August and stays positive from September to December. The lowest month-end cash balance falls in Sep, at about $196,000, once receivables on the 40-day collection lag are counted.
Engineering headcount
| Role | Annual wage | Starts | Year 1 end | Year 2 end | Year 3 end | Year 4 end | Year 5 end |
|---|---|---|---|---|---|---|---|
| Founder and principal engineer | $135,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Senior embedded engineer | $122,000 | Month 2 | 1 | 1 | 1 | 1 | 1 |
| Hardware design engineer | $112,000 | Month 5 | 1 | 1 | 1 | 1 | 1 |
| Test and lab technician | $66,000 | Month 9 | 1 | 1 | 1 | 1 | 1 |
| Firmware engineer | $115,000 | Month 17 | – | 1 | 1 | 1 | 1 |
| Project and contracts coordinator | $62,000 | Month 22 | – | 1 | 1 | 1 | 1 |
| Power and RF design engineer | $128,000 | Month 28 | – | – | 1 | 1 | 1 |
| Second senior engineer | $126,000 | Month 46 | – | – | – | 1 | 1 |
| Total payroll incl. on-costs | $436,245 | $669,502 | $899,160 | $979,805 | $1,099,820 |
January starts with Rachel alone. The senior embedded engineer joins in month 2, when the first two prototype projects begin, and a hardware design engineer arrives in month 5. A test and lab technician starts in month 9 to take fixture builds and bench work off the engineers. The firmware engineer follows in month 17, the project and contracts coordinator in month 22, a power and RF design engineer in month 28 and a second senior engineer in month 46. Eight people are on payroll by the end of Year 4. Rachel's own $135,000 sits inside the costs, so every profit line is what remains after she has been paid.
Profit and loss
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $555,000 | $1,100,000 | $1,451,000 | $1,744,000 | $1,994,000 |
| Direct costs (circuit boards, components, assembly and fixture parts) | ($62,340) | ($123,557) | ($162,983) | ($195,894) | ($223,975) |
| Gross profit | $492,660 | $976,443 | $1,288,017 | $1,548,106 | $1,770,025 |
| Payroll incl. on-costs | ($436,245) | ($669,502) | ($899,160) | ($979,805) | ($1,099,820) |
| Rent | ($48,000) | ($49,500) | ($51,000) | ($66,000) | ($68,000) |
| Utilities | ($7,200) | ($7,500) | ($7,800) | ($9,600) | ($9,900) |
| Marketing | ($30,000) | ($36,000) | ($42,000) | ($46,000) | ($50,000) |
| Insurance | ($14,000) | ($18,000) | ($24,000) | ($28,000) | ($31,000) |
| Professional fees | ($6,000) | ($7,000) | ($8,000) | ($9,000) | ($9,500) |
| Software subscriptions | ($24,000) | ($36,000) | ($48,000) | ($56,000) | ($62,000) |
| Training, standards documents and professional dues | ($4,000) | ($6,500) | ($9,000) | ($11,000) | ($12,000) |
| Travel to customer plants, phones and supplies | ($8,000) | ($12,000) | ($15,000) | ($18,000) | ($20,000) |
| Instrument calibration and replacement | ($3,000) | ($8,000) | ($10,000) | ($14,000) | ($10,000) |
| Workstations and equipment for new hires | $0 | ($12,000) | ($8,000) | ($12,000) | ($6,000) |
| Outside pre-compliance lab time | ($4,000) | ($9,000) | ($12,000) | ($14,000) | ($16,000) |
| Lab move: build-out, moving and overlapping rent (Year 4) | $0 | $0 | $0 | ($22,000) | $0 |
| Bad debt allowance | ($2,000) | ($4,000) | ($6,000) | ($7,500) | ($8,500) |
| Annual pay raises (3% a year) | $0 | ($20,085) | ($54,759) | ($90,854) | ($138,037) |
| EBITDA | ($93,785) | $81,357 | $93,298 | $164,347 | $229,268 |
| Depreciation | ($19,429) | ($19,429) | ($19,429) | ($19,429) | ($19,429) |
| Interest | ($6,889) | ($5,643) | ($4,225) | ($2,674) | ($978) |
| Income tax | $0 | $0 | ($1,224) | ($29,871) | ($43,861) |
| Net income before start-up costs | ($120,103) | $56,285 | $68,421 | $112,373 | $165,001 |
| Start-up costs expensed at opening (legal, licensing, launch marketing) | ($29,000) | $0 | $0 | $0 | $0 |
| Net income after start-up costs | ($149,103) | $56,285 | $68,421 | $112,373 | $165,001 |
Year 1 loses $93,785 at EBITDA and $149,103 after interest and the start-up costs. Year 2 is the first profitable year, with $56,285 of net income and no income tax because the Year 1 loss carries forward. Year 3 slips to a 4.7% net margin when the power and RF engineer is hired in month 28 and pay raises build up. Margins widen again to 6.4% in Year 4 and 8.3% in Year 5, with payroll at 62% of revenue, and net income reaches $165,001. Wages are not cut to reach that margin; revenue per engineer rises as utilization settles near 65%.
Where the cash goes
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Cash from operations | ($195,578) | $10,998 | $46,170 | $97,010 | $154,744 |
| Lab instruments, assembly equipment and lab build-out | ($136,000) | $0 | $0 | $0 | $0 |
| Funding received | $590,000 | $0 | $0 | $0 | $0 |
| Loan principal repaid | ($10,480) | ($15,117) | ($16,535) | ($18,086) | ($19,782) |
| Owner distributions | $0 | $0 | ($25,000) | ($50,000) | ($80,000) |
| Net change in cash | $247,942 | ($4,119) | $4,636 | $28,924 | $54,961 |
| Closing cash | $247,942 | $243,823 | $248,459 | $277,383 | $332,344 |
Closing cash stays above $243,000 in every year of the base case: $247,942 in Year 1, $248,459 in Year 3 and $332,344 in Year 5, after $155,000 of distributions over Years 3 to 5. Receivables and parts inventory absorb cash as revenue grows, which is why cash from operations is only $10,998 in Year 2 against $56,285 of net income.
Balance sheet
| At year end | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Cash | $247,942 | $243,823 | $248,459 | $277,383 | $332,344 |
| Accounts receivable | $60,822 | $120,548 | $159,014 | $191,123 | $218,521 |
| Parts on hand and builds in progress | $9,351 | $18,534 | $24,447 | $29,384 | $33,596 |
| Lab instruments, assembly equipment and lab build-out (net) | $116,571 | $97,143 | $77,714 | $58,286 | $38,857 |
| Total assets | $434,686 | $480,047 | $509,634 | $556,176 | $623,318 |
| Payables to component distributors and board fabricators | $4,270 | $8,463 | $11,163 | $13,417 | $15,341 |
| Bank loan | $69,520 | $54,403 | $37,868 | $19,782 | $0 |
| Paid-in capital | $510,000 | $510,000 | $510,000 | $510,000 | $510,000 |
| Retained earnings | ($149,103) | ($92,818) | ($49,397) | $12,976 | $97,977 |
| Total liabilities and equity | $434,686 | $480,047 | $509,634 | $556,176 | $623,318 |
Utilization-driven margins and break-even
| Measure | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| EBITDA margin | -16.9% | 7.4% | 6.4% | 9.4% | 11.5% |
| Net margin (before start-up costs) | -21.6% | 5.1% | 4.7% | 6.4% | 8.3% |
| Payroll incl. pay raises as share of revenue | 79% | 63% | 66% | 61% | 62% |
| Revenue per full-time equivalent at year end | $138,750 | $183,333 | $207,286 | $218,000 | $249,250 |
| Average monthly revenue | $46,250 | $91,667 | $120,917 | $145,333 | $166,167 |
| Monthly revenue needed to cover operating costs | $55,054 | $84,029 | $112,158 | $129,905 | $144,643 |
| Debt service cover (EBITDA / interest + principal) | -5.4x | 3.9x | 4.5x | 7.9x | 11.0x |
The last rows of the ratios table compare average monthly revenue with the revenue needed to cover operating costs. Year 1 averages $46,250 against $55,054 needed, which is the loss. From Year 2 the practice sits above the line: $91,667 against $84,029, then $120,917 against $112,158 in Year 3, $145,333 against $129,905 in Year 4 and $166,167 against $144,643 in Year 5. Debt service cover is negative in Year 1 and 3.9x in Year 2. Revenue per full-time equivalent rises from $138,750 to $249,250.
Revenue 20% lower on every line
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $444,000 | $880,000 | $1,160,800 | $1,395,200 | $1,595,200 |
| Net income before start-up costs | ($178,345) | ($994) | ($36,067) | ($41,523) | $97,449 |
| Net income after start-up costs | ($207,345) | ($994) | ($36,067) | ($41,523) | $97,449 |
| Closing cash | $202,881 | $154,426 | $87,910 | $19,896 | $93,243 |
Every revenue line is cut by 20% in every year. Rachel's response has five parts: every hire from month 13 starts six months later, the second senior engineer is never hired, marketing falls 20%, her salary falls 20% and distributions stop. The practice also stays in its first space, which removes the Year 4 move. Marketing is cut because spend aimed at a pipeline that is shrinking earns less, and the launch spend has already been made. Year-end cash stays positive in all five years and never falls below $19,896, but the practice loses money in Years 1, 3 and 4, and Year 2 is a loss of $994. It returns to profit only in Year 5. That is the honest limit of the response: it protects cash through a bad stretch and does not restore the margin. The table shows year-end balances only, so the lowest point inside Year 4 would sit below the year-end figure. Year 1 closing equity is $302,655. A lender would see little room in Year 4, and Rachel would raise it with the bank early.
Sources
- Bureau of Labor Statistics, Electrical and electronics engineers, Occupational Outlook Handbook: May 2025 median pay, 2025 to 2035 growth projection and 2025 job count.
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