Looking for a mobile app development business plan? You're in the right place.
An app studio sells people's time, so a lender or investor will ask where that time goes. What share of the team's hours gets billed? What happens to payroll when a fixed-bid project overruns or a client's launch slips a quarter? How much cash does the studio need before the work pays for the team? A template with blank tables won't show you what a believable answer looks like.
This article walks through a complete sample plan for a custom app studio in Denver, Colorado, from the executive summary and SWOT analysis to the five-year financials, so you can see how the pieces connect before you write your own.
Here's what you'll take away:
- The executive summary: see how to describe a studio, its three ways of billing and its funding on one page
- The revenue model: learn how fixed-bid builds, hourly teams and maintenance retainers each behave in cash terms, and why the mix shifts over time
- The utilization table: check how billable hours, rate card and headcount produce the revenue line, so a reader can test your forecast against your capacity
- The hiring schedule: find out how to tie each engineer, designer and tester to signed work instead of hope
- The first-year cash flow: see which months milestone timing pushes the studio into a loss, and how large a reserve covers them
- The downside case: have an answer ready for "what if a fifth of the work never arrives?", including the hiring and pay decisions that follow
If you're planning an app studio, read this before you open your own spreadsheet. The studio is fictional, so keep what fits and change the rest.
In this plan
Looking for a mobile app development business plan template? The Toolkit builds yours with your own numbers.
Northpoint Spring at a Glance
Northpoint Spring, Inc. builds custom iOS and Android apps for mid-size companies and funded startups from a leased office in Denver, Colorado. It opens on 1 January 2027. Founder Naomi Brandt owns 60% of the company and two private investors own 40%.
Work comes in three forms. Fixed-bid builds take a client from a paid discovery sprint to a store release. Time-and-materials teams give a client a set of engineers and designers billed by the hour. Maintenance retainers keep a launched app current with each iOS and Android release. The studio sells nothing it does not staff itself, and the plan is built on one test: whether the hours on the payroll are billed.
Opening takes $1,200,000: $200,000 of Naomi's savings, $700,000 from the investors and a $300,000 bank line of credit. Equipment and build-out take $72,000, and legal, licenses and launch marketing take $50,000. The other $1,078,000 is held as cash reserve.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Revenue | $1,135,000 | $2,360,000 | $3,310,000 |
| Net income after start-up costs | ($289,599) | $3,345 | $245,902 |
| Closing cash | $717,363 | $551,879 | $619,374 |
The studio opens with three people, Naomi and two senior engineers, and ends Year 1 with eight. It reaches 13 at the end of Year 2 and 20 in Year 5. Operating profit is positive in July and from September to December of Year 1, and the first profitable year is Year 2, by a narrow $3,345. By Year 5 revenue is $4,720,000 and net income is $400,641, an 8.5% net margin.
The downside case takes 20% off every revenue line, delays most hires, drops the last four, trims marketing and Naomi's pay, keeps the first office and stops distributions. It loses money in Years 1 to 3, breaks even in Year 4, earns a profit in Year 5 and holds year-end cash above zero throughout.
Two things set the studio apart from the firms a buyer would also call. Every build ships with the client owning the source code and the store developer accounts, and every fixed-bid price is set by the two senior engineers' estimate before Naomi quotes it.
The Studio and How It Bills
Legal name: Northpoint Spring, Inc., a Colorado corporation. Owners: Naomi Brandt, 60%; two private investors, 40% together. Premises: a leased office of about 1,700 square feet in Denver. Start date: 1 January 2027. Stage: pre-launch. Two engagements are signed, a $140,000 fixed-bid build and an hourly team billed at about $17,500 a month; the lease is in draft.
Purpose
Build mobile apps that a client's own customers or staff use every day, then keep them working.
Three ways to buy
| Offer | How it bills | Share of revenue, Year 1 | Share of revenue, Year 5 |
|---|---|---|---|
| Fixed-bid app build | A paid two-week discovery sprint, then milestone payments: kickoff, design sign-off, beta, store release | 43% | 38% |
| Time-and-materials team | Hourly by role, invoiced monthly, with a month's notice to scale up or down | 46% | 41% |
| Maintenance retainer | A monthly fee for operating-system updates, crash monitoring, store compliance and a block of change hours | 11% | 21% |
Who owns what
The client owns the source code and the Apple and Google developer accounts once the final milestone is paid. The studio keeps its own libraries and tools. Every contract states this in plain terms.
Work the studio turns down
For the first two years the studio declines apps that store clinical records, consumer games and anything that moves money for the client's customers. These areas carry regulatory and security duties that a team of this size would have to hire for before it could say yes.
December 2028 targets
- Revenue of $2,360,000 in 2028, the second year, up from $1,135,000.
- Thirteen people on payroll and no single client above 25% of billings.
- A retainer base that covers rent, insurance and software: $400,000 of retainer revenue in 2028.
- Year-end cash above $500,000 after the line of credit starts to amortize.
Denver Demand for Custom Apps
Why companies buy outside
A company with 100 to 1,000 employees often wants a mobile app and has no mobile team. Hiring one takes months, and a full-time engineer's cost is a fixed charge long after the first release. The Bureau of Labor Statistics reports a national median of about $136,000 for software developers and projects employment growth of around 10% over the decade to 2035. Both figures point the same way: the skills are expensive and in demand, which is the opening for a studio that rents them out by the project.
The pool of buyers
The SBA Office of Advocacy's 2025 profile lists 730,887 small businesses in Colorado. Most are too small to commission a custom app. The studio looks for the companies with an operations or product leader, a budget of $90,000 or more for a first build, and a customer or workforce that would use a phone app daily. Funded startups add a second pool: teams past their first round that need a mobile product shipped before the next one.
What a buyer could do instead
| Alternative | Why a buyer picks it | Where it can fall short | How Northpoint Spring differs by design |
|---|---|---|---|
| Hire an in-house mobile team | Full control and deep product knowledge | Months to recruit, a permanent cost between releases | Capacity added and released by the month |
| Freelance marketplaces | Low hourly rate, fast start | One person per skill; design, build and test may not line up | A single team with design, engineering and QA under one contract |
| Offshore and nearshore studios | Lower rates and large teams | Time-zone gaps and handoffs can slow review cycles | Same time zone, in-person workshops in Denver |
| Large consultancies | Scale and procurement comfort | Minimum project sizes and layers of management | Work sized for a $90,000 to $250,000 build |
| Other Denver app studios | Local presence and portfolios | Some specialize in one platform or one industry | Native iOS and Android plus cross-platform work, priced fixed or hourly |
| No-code app builders | Cheap, quick prototypes | Hard limits on performance, device features and integrations | Custom code once the prototype hits those limits |
The table describes offers. It is not a ranking, and no provider's prices are quoted because each changes them often.
SWOT
| Strengths | Weaknesses |
|---|---|
| Founder who has shipped and run mobile products for twelve years | One seller: Naomi carries the pipeline until month 14 |
| Two signed engagements before opening | Young brand with a short portfolio |
| Client-owned code and accounts remove a common buyer worry | Year 1 loses money and draws on the reserve |
| Opportunities | Threats |
|---|---|
| Retainers grow as each launched app joins the maintenance base | Cheaper offshore bids and no-code tools pressing rates |
| Referrals from agencies, lawyers and investors who meet clients with app ideas | A major client pausing a project and leaving engineers unbilled |
| A paid discovery sprint filters out buyers without a budget | Platform rule changes from Apple or Google that reopen finished work |
Who Hires an App Studio
The operations or product leader at a mid-size company
A head of digital, a VP of operations or a product director, usually with a budget approved for the year and a deadline tied to a launch, a season or a contract renewal. Examples are a regional logistics firm, a retail chain, a property-management company or a field-service company. The buyer has judged an off-the-shelf product too limited and does not want to build a team to find out.
The funded startup founder
A founder past a first raise with a web product, a roadmap and investors who expect a mobile release. The buyer often lacks a technical co-founder with mobile skills. Payments tend to follow the funding calendar, so milestones are scheduled around it.
The owner of an app built elsewhere
A company whose original developer has gone, whose app breaks with each iOS update, and which needs someone to take it over. These buyers enter through a retainer and often commission a rebuild later.
What triggers a purchase
A competitor's app launch, a customer demand, a contract that requires mobile access, or a failing app. The usual deadline is a date outside the buyer's control.
What the buyer checks
References from past clients, who will be on the team day to day, how change requests are priced, who owns the code at the end, and what happens when the OS vendor ships a new version. Procurement teams at larger buyers add security questionnaires and insurance certificates, which the studio keeps current.
How buyers pay
Mid-size companies pay on net-30 terms and frequently run past them; the plan uses a 45-day average. Startups pay on milestones, often tied to a funding date.
From Brief to Signed Statement of Work
The path
A first call of 30 minutes screens for budget, timing and decision-maker. A discovery workshop follows for qualified buyers, and then either a paid two-week discovery sprint or, for a well-defined scope, a direct proposal. The two senior engineers estimate every bid; Naomi then prices it, with a 20% contingency. The statement of work sets scope, milestones, acceptance tests, change-order rates, ownership terms and a 30-day fix period.
The Year 1 pipeline
About 48 qualified conversations produce 24 written proposals or sprint quotes and 9 new clients, a 38% win rate on proposals. Two more clients signed before opening through Naomi's professional network.
| Source | New clients |
|---|---|
| Naomi's network, signed before opening | 2 |
| Referral partners (agencies, lawyers, investors) | 4 |
| Content, search and directories | 2 |
| Outbound outreach | 2 |
| Meetups and conferences | 1 |
Those 11 clients are 5 fixed-bid builds, 4 hourly teams and 2 maintenance-only clients. Naomi's network supplies one build and one team. Six paid discovery sprints produce 3 more builds, and one build is signed directly from a referral with a defined scope. Four of the 6 retainer clients at year end are apps the studio built; the other two are apps built elsewhere. The three sprint buyers who do not convert pay the $14,000 fee, which is counted in the fixed-bid line, and are not counted as clients.
Clients after Year 1
Builds average about $150,000, so fixed-bid revenue implies roughly 6 builds started in Year 2, 8 in Year 3, 10 in Year 4 and 12 in Year 5. About one finished build in three ends up on a retainer, because others move maintenance to an in-house team.
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Fixed-bid builds started | 5 | 6 | 8 | 10 | 12 |
| Retainer clients at year end | 6 | 8 | 12 | 14 | 16 |
Pricing and terms
Builds range from about $90,000 to $250,000 and bill 30% at kickoff with the remainder on design sign-off, beta and store release. Hourly teams are billed on the rate card, which rises 3.5% a year. Late invoices carry a monthly fee. A discovery sprint is a fixed $14,000 and is not credited against the build, which keeps buyers without a budget from taking the sprint as a free proposal.
Concentration and backlog
The largest client in Year 1 is an hourly team engagement worth about 18% of billings. The studio caps any single client at 25%. Each hire is tied to signed work by the hiring rule under the operating plan.
Getting Found by Buyers
What the budget pays for
Year 1 marketing is $90,000: $30,000 of launch costs funded from start-up capital and $60,000 of running spend. That is 7.9% of Year 1 revenue. The share falls to 3.3% in Year 3 and 3.1% in Year 5 as referrals and past clients bring more of the work. The nine clients won through marketing and referrals cost about $10,000 each, against about $103,000 of Year 1 revenue per client across all 11.
| Channel | Year 1 spend | What it is expected to do |
|---|---|---|
| Portfolio site and two case-study films (launch) | $20,000 | Show two finished apps with the client's permission and the results they produced |
| Directory and review-platform profiles (launch) | $4,000 | Appear when buyers compare studios |
| Founders' workshop series (launch) | $6,000 | Three evenings on scoping an app, which put Naomi in front of 40 or so buyers |
| Referral partnerships | $8,000 | Lunches and a referral fee schedule for agencies, lawyers and investors; about 4 clients |
| Outbound outreach and sales tools | $9,000 | Targeted lists of mid-size companies in Colorado; about 2 clients |
| Content, search and directories | $22,000 | An app-cost guide, an engineering blog and paid search on specific queries; about 2 clients |
| Meetups and conference sponsorship | $11,000 | Local technology and startup events; about 1 client |
| Prototype work for bids | $10,000 | Clickable design samples that raise the win rate on the larger bids |
Milestones
- January 2027: portfolio live, one build and one hourly team signed.
- May 2027: first app released and the first retainer begins.
- December 2027: six retainer clients and $26,000 a month of retainer billing.
- December 2028: 13 people and $400,000 of retainer revenue for the year.
Running the Studio: Utilization and Delivery
The office
The studio leases about 1,700 square feet in Denver on a five-year term, at roughly $37.50 per square foot per year all in, which is $64,000 in Year 1. Staff work in the office three days a week. In Year 4 the studio moves to about 2,900 square feet, with a $40,000 fit-out, deposit and moving budget.
How a build moves
Work runs in two-week sprints. Design sign-off comes before engineering starts. Builds go to testers through Apple's and Google's beta channels, then through store review, with a buffer written into every timeline for review delays. QA runs against a lab of 24 phones and tablets. The client sees a working build every sprint.
Utilization and bench risk
Revenue follows billable hours, so the plan tracks them. Each person has about 164 working hours a month after holidays and paid leave. The table shows the hours the team bills each year and the utilization needed to cover costs.
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Billable hours | 6,517 | 13,365 | 18,042 | 21,941 | 24,306 |
| Average utilization of billing staff | 68% | 76% | 77% | 77% | 77% |
| Revenue per billable hour | $174 | $177 | $183 | $189 | $194 |
| Delivery staff at year end | 7 | 11 | 14 | 17 | 18 |
| Utilization needed to cover operating costs | 81% | 74% | 70% | 70% | 68% |
A mobile engineer at $118,000 costs $149,860 a year with the 27% load, about $12,500 a month. At 76% utilization the same engineer bills roughly $23,000 a month after write-offs. An engineer who bills nothing for a quarter costs the studio about $37,500 in payroll, and the plan has no cushion for several at once. Year 1 shows the exposure: the studio needs 81% utilization to break even and reaches 68%. A 77% average in later years is a demanding target, and the last row shows how far it can fall before profit disappears.
The hiring rule
An engineer is hired when signed or contracted work covers about three months of that person's billable output at 70% utilization, around $63,000. A designer or tester follows the same test at the relevant rate. Recruiting costs $40,000 in Year 1: two agency placements at roughly 15% of first-year pay, with referral bonuses and job boards for the other hires. Hires follow the order in the team table and slip if signed work slips; the downside case shows which ones.
Controlling fixed-bid risk
Each build is priced for a delivery margin of about 40% against loaded labor cost. A 20% overrun in hours cuts that to about 28%. The 20% contingency, the two-engineer estimate, the change-order clause and a weekly hours-against-budget report on every build exist to catch an overrun while it is small. The plan books a 97% collection of list rates to allow for the overruns that get through.
Tools, security and data
Source control and issue tracking, design tools, beta distribution and crash reporting are paid per seat; software costs $42,000 in Year 1 and $155,000 in Year 5. Client data stays in client-owned cloud accounts. Some client apps will handle personal data covered by the Colorado Privacy Act, and each client confirms its duties with its own counsel. The studio builds the consent and deletion features to the client's specification.
Insurance
Technology errors-and-omissions cover, cyber liability, general liability and workers' compensation cost $24,000 in Year 1 and $70,000 in Year 5. Life and disability cover on Naomi as the key person is bought separately.
Vendors on call
A freelance pool of motion designers and security testers covers peaks. Two cloud vendors and a device-cloud testing service supply infrastructure, and all can be replaced within a quarter.
Who Runs It
Naomi Brandt, founder and managing principal
Naomi has twelve years in mobile development. The last six were as head of mobile at a Denver software company, where she led a team of nine engineers and designers and shipped apps for consumers and field staff. She holds a computer science degree. Her $200,000 investment is most of her savings. At Northpoint Spring she is the lead seller and the final estimator, and bills about 36 hours a month in Year 1.
Where the team is thin
Naomi has run delivery and has not run a sales pipeline or a payroll as an owner. The business development lead hired in month 14 takes the pipeline over. Accounting and payroll go to a bookkeeping firm from month 1. Every bid above $100,000 is reviewed by both senior engineers.
If Naomi is out
Naomi sells and prices most work, so a long absence would stall new contracts. Life and disability cover applies. The senior iOS engineer runs delivery during any gap, and the business development lead takes the sales conversations from month 14.
Outside advisers
A Denver technology lawyer reviews the statement of work and the first hires' agreements. One investor has run a larger agency and meets Naomi monthly on utilization and pricing. The Colorado Small Business Development Center network supports pricing and hiring questions.
Ownership and the bank
Naomi holds 60% of Northpoint Spring, Inc. The two investors hold 40% for $700,000. The bank's line of credit rests on Naomi's personal guarantee and a lien on receivables, with a covenant requiring quarterly accounts.
Forecast and Funding
The forecast covers five years: Year 1 month by month, Years 2 to 5 annually. The rate card, billable hours and hire dates come before the statements, because most other lines follow from them.
Funding the studio
| Use of funds | Amount |
|---|---|
| Laptops, a 24-device test lab and two displays per desk | $42,000 |
| Office build-out: desks, meeting room, device bench | $30,000 |
| Legal: entity, contract templates, IP assignment, lease review | $16,000 |
| Business licenses and Apple and Google developer accounts | $4,000 |
| Launch: portfolio site, case-study production, directory listings | $30,000 |
| Cash reserve for slow-pay milestones and bench months | $1,078,000 |
| Total uses | $1,200,000 |
| Source of funds | Amount |
|---|---|
| Naomi Brandt's savings | $200,000 |
| Two private investors (common shares, 40% of the company) | $700,000 |
| Bank line of credit, drawn in full at opening | $300,000 |
| Total sources | $1,200,000 |
Opening takes $1,200,000: $200,000 from Naomi, $700,000 from two private investors who receive 40% of the shares, and a $300,000 bank line of credit. The model draws the line in full on day one at 9.5% (an example rate, not a quote), interest only for 18 months and repaid over the remaining 42. The bank would ask for Naomi's personal guarantee and a lien on receivables. Equipment and build-out take $72,000, and legal, licenses and launch marketing take $50,000. The other $1,078,000 stays in the bank. In the base case operations use $539,100 of it across Years 1 and 2, about half. The downside case sets the size: with the cuts described at the end of this section, its year-end cash still falls to $94,741 in Year 4.
Rates, hours and costs behind the forecast
- The Year 1 rate card is $190 an hour for mobile engineers, $200 for backend engineers, $165 for designers, $125 for QA engineers, $150 for project managers and $225 for Naomi. List rates rise 3.5% a year, and the studio collects 97% of list after fixed-bid overruns and negotiated discounts. Dividing revenue by billable hours gives $174 in Year 1, $177 in Year 2, $183 in Year 3, $189 in Year 4 and $194 in Year 5.
- Billable capacity is built from 164 working hours a month per person, after holidays and paid leave. Utilization climbs from 55% in January to 76% in December, averages 68% for Year 1, and holds at 76% in Year 2 and 77% in Years 3 to 5. Designers bill about 85% of an engineer's hours and QA engineers about 90%. Project managers bill roughly 40% of their time. Naomi bills 36 hours a month in Year 1, then less as sales and review take over. Total billable hours are 6,517 in Year 1, 13,365 in Year 2, 18,042 in Year 3, 21,941 in Year 4 and 24,306 in Year 5.
- Fixed-bid builds are priced from a bottom-up estimate plus a 20% contingency, cover design, build, QA and a 30-day fix period, and bill on milestones. Anything outside the signed scope is billed as a change order at the rate card. A paid two-week discovery sprint ($14,000 in the model) comes before most builds. Six sprints in Year 1 account for $84,000 of the fixed-bid line.
- Maintenance retainers cover operating-system updates each autumn, crash monitoring, store compliance and a block of change hours. The Year 1 line ends December at $26,000 a month across 6 clients, about $4,300 each. By Year 5 the line is roughly 15 clients averaging about $5,500 a month.
- Direct costs are 8% of fixed-bid revenue, 4% of time-and-materials revenue and 12% of retainer revenue. They cover freelance specialists for peaks (motion design, security testing), device-cloud testing time, hosting for builds in progress and live apps, and crash-reporting and push-notification services. The blend is 6.6% of total revenue in every year.
- Receivables average 45 days: net-30 terms, with milestones that clients often pay late. Payables average 20 days. The bad-debt allowance starts at $6,000, about 0.5% of Year 1 revenue, and reaches $33,000, 0.7% of Year 5 revenue.
- Each salary carries a 27% load for employer payroll taxes, health cover, the Colorado paid-leave premium, workers' compensation and a retirement match. The wages in the team table are launch-year rates; raises of 3% a year start in Year 2 and appear on their own line. Mobile engineers start at $118,000 to $120,000 and senior engineers at $138,000 to $140,000. The Bureau of Labor Statistics median for all software developers nationally was $135,980 in May 2025, so seniors sit just above it and mid-level engineers below it. Local pay varies, and the national figure covers all experience levels.
- Rent is set at roughly $37.50 per square foot per year, all in, on about 1,700 square feet, which gives $64,000 in Year 1. The studio moves to about 2,900 square feet in Year 4, with a $40,000 fit-out, deposit and moving cost. Staff are in the office three days a week.
- Tax is calculated on corporate rates of 21% federal and 4.4% Colorado, after the early losses are carried forward. The rates may change. A studio like this might elect pass-through status instead, which would move the tax to the owners' returns.
- No distributions are paid until Year 4: $200,000 in Year 4 and $300,000 in Year 5, shared between Naomi and the two investors in proportion to their shares, and only when cash allows. The line of credit runs its term and is cleared in Year 5.
Revenue by engagement type
| Revenue stream | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Fixed-bid app builds | $491,000 | $910,000 | $1,250,000 | $1,570,000 | $1,770,000 |
| Time-and-materials teams | $520,000 | $1,050,000 | $1,420,000 | $1,720,000 | $1,950,000 |
| Maintenance retainers | $124,000 | $400,000 | $640,000 | $850,000 | $1,000,000 |
| Total revenue | $1,135,000 | $2,360,000 | $3,310,000 | $4,140,000 | $4,720,000 |
| Growth on prior year | – | 108% | 40% | 25% | 14% |
Time-and-materials teams are 46% of Year 1 revenue and fixed-bid builds 43%. Retainers are 11% of Year 1 and grow fastest, from $124,000 to $1,000,000 by Year 5, when they are 21% of revenue. The fixed-bid line is the uneven one: its monthly billings range from $12,000 in February to $84,000 in November. Year 2 growth of 108% is large because it counts a full year of the Year 1 hires: the last three months of 2027 bill $399,000, an annual run-rate near $1,600,000, so Year 2 needs about 48% growth on the exit rate.
The first twelve months
| Month | Fixed-bid app builds | Time-and-materials teams | Maintenance retainers | Total revenue | EBITDA |
|---|---|---|---|---|---|
| Jan 2027 | $34,000 | $20,000 | $0 | $54,000 | ($54,262) |
| Feb 2027 | $12,000 | $26,000 | $0 | $38,000 | ($69,206) |
| Mar 2027 | $44,000 | $32,000 | $0 | $76,000 | ($33,715) |
| Apr 2027 | $22,000 | $38,000 | $0 | $60,000 | ($48,659) |
| May 2027 | $58,000 | $40,000 | $5,000 | $103,000 | ($8,499) |
| Jun 2027 | $15,000 | $42,000 | $8,000 | $65,000 | ($43,989) |
| Jul 2027 | $70,000 | $46,000 | $11,000 | $127,000 | $13,916 |
| Aug 2027 | $28,000 | $50,000 | $14,000 | $92,000 | ($18,772) |
| Sep 2027 | $52,000 | $52,000 | $17,000 | $121,000 | $8,313 |
| Oct 2027 | $38,000 | $56,000 | $20,000 | $114,000 | $1,775 |
| Nov 2027 | $84,000 | $58,000 | $23,000 | $165,000 | $49,407 |
| Dec 2027 | $34,000 | $60,000 | $26,000 | $120,000 | $7,379 |
Fixed-bid milestones make the year choppy. July bills $70,000 of builds and August only $28,000. EBITDA (operating profit before interest, depreciation and tax) is positive in July and from September to December, and negative in the other seven months, with February the worst at ($69,206). The lowest month-end cash is in Nov, at about $601,000 once 45 days of that month's billings are held back as receivables. The year-end balance sheet averages receivables over the year, so it reads higher than this monthly low point.
Team plan
| Role | Annual wage | Starts | Year 1 end | Year 2 end | Year 3 end | Year 4 end | Year 5 end |
|---|---|---|---|---|---|---|---|
| Founder and managing principal | $150,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Senior iOS engineer | $140,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Senior Android and cross-platform engineer | $138,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Product designer (UX and UI) | $102,000 | Month 2 | 1 | 1 | 1 | 1 | 1 |
| QA engineer | $82,000 | Month 3 | 1 | 1 | 1 | 1 | 1 |
| Project manager | $108,000 | Month 4 | 1 | 1 | 1 | 1 | 1 |
| Mobile engineer | $118,000 | Month 7 | 1 | 1 | 1 | 1 | 1 |
| Mobile engineer | $118,000 | Month 10 | 1 | 1 | 1 | 1 | 1 |
| Business development lead | $105,000 | Month 14 | – | 1 | 1 | 1 | 1 |
| Mobile engineer | $118,000 | Month 14 | – | 1 | 1 | 1 | 1 |
| Product designer (UX and UI) | $98,000 | Month 16 | – | 1 | 1 | 1 | 1 |
| Mobile engineer | $118,000 | Month 18 | – | 1 | 1 | 1 | 1 |
| QA engineer | $80,000 | Month 20 | – | 1 | 1 | 1 | 1 |
| Backend and API engineer | $132,000 | Month 26 | – | – | 1 | 1 | 1 |
| Mobile engineer | $120,000 | Month 28 | – | – | 1 | 1 | 1 |
| Project manager | $108,000 | Month 34 | – | – | 1 | 1 | 1 |
| Mobile engineer | $120,000 | Month 38 | – | – | – | 1 | 1 |
| Product designer (UX and UI) | $98,000 | Month 40 | – | – | – | 1 | 1 |
| QA engineer | $80,000 | Month 44 | – | – | – | 1 | 1 |
| Second senior iOS engineer | $140,000 | Month 52 | – | – | – | – | 1 |
| Total payroll incl. on-costs | $964,353 | $1,696,826 | $2,175,510 | $2,605,828 | $2,842,260 |
Naomi and two senior engineers start in month 1. A designer joins in month 2, a QA engineer in month 3 and a project manager in month 4. Two mobile engineers follow in months 7 and 10, each only once signed work covers about three months of that engineer's cost at 70% utilization. Year 2 adds a business development lead and an engineer in month 14, a designer in month 16, an engineer in month 18 and a QA engineer in month 20. Year 3 brings a backend engineer in month 26, an engineer in month 28 and a second project manager in month 34. The remaining hires are an engineer in month 38, a designer in month 40, a QA engineer in month 44 and a second senior iOS engineer in month 52. Naomi's $150,000 is inside the payroll line, so profit in the tables is what remains after she is paid.
Profit and loss
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $1,135,000 | $2,360,000 | $3,310,000 | $4,140,000 | $4,720,000 |
| Direct costs (freelance specialists, hosting and device cloud) | ($74,960) | ($155,864) | ($218,606) | ($273,422) | ($311,728) |
| Gross profit | $1,060,040 | $2,204,136 | $3,091,394 | $3,866,578 | $4,408,272 |
| Payroll incl. on-costs | ($964,353) | ($1,696,826) | ($2,175,510) | ($2,605,828) | ($2,842,260) |
| Rent | ($64,000) | ($66,000) | ($68,000) | ($112,000) | ($116,000) |
| Utilities | ($6,000) | ($6,500) | ($7,000) | ($10,000) | ($10,500) |
| Marketing | ($60,000) | ($90,000) | ($110,000) | ($130,000) | ($145,000) |
| Insurance | ($24,000) | ($40,000) | ($52,000) | ($62,000) | ($70,000) |
| Professional fees | ($16,000) | ($24,000) | ($38,000) | ($44,000) | ($50,000) |
| Software subscriptions | ($42,000) | ($82,000) | ($112,000) | ($138,000) | ($155,000) |
| Recruiting: placement fees, referral bonuses and job boards | ($40,000) | ($40,000) | ($36,000) | ($30,000) | ($20,000) |
| Training, conferences and certifications | ($8,000) | ($14,000) | ($18,000) | ($22,000) | ($24,000) |
| Travel and client workshops | ($10,000) | ($16,000) | ($20,000) | ($24,000) | ($26,000) |
| New-hire laptops and test-device replacement | ($16,000) | ($16,000) | ($14,000) | ($24,000) | ($20,000) |
| Office move: fit-out, deposit and moving | $0 | $0 | $0 | ($40,000) | $0 |
| Bad debt allowance | ($6,000) | ($16,000) | ($23,000) | ($29,000) | ($33,000) |
| Annual pay raises (3% a year) | $0 | ($50,905) | ($132,489) | ($241,631) | ($356,729) |
| EBITDA | ($196,313) | $45,905 | $285,395 | $354,118 | $539,783 |
| Depreciation | ($14,786) | ($14,786) | ($14,786) | ($14,786) | ($4,286) |
| Interest | ($28,500) | ($27,774) | ($21,580) | ($13,689) | ($5,015) |
| Income tax | $0 | $0 | ($3,127) | ($79,704) | ($129,841) |
| Net income before start-up costs | ($239,599) | $3,345 | $245,902 | $245,939 | $400,641 |
| Start-up costs expensed at opening (legal, licensing, launch marketing) | ($50,000) | $0 | $0 | $0 | $0 |
| Net income after start-up costs | ($289,599) | $3,345 | $245,902 | $245,939 | $400,641 |
Year 1 loses $239,599 before start-up costs and $289,599 after them. Payroll with pay raises takes 85% of Year 1 revenue and falls to 68% by Year 5; that fall is most of the margin story. Year 2 earns $3,345, essentially break-even. Year 3 is the first clearly profitable year at $245,902, a 7.4% net margin. Margin eases to 5.9% in Year 4 even though EBITDA margin holds at 8.6%: carried-forward losses run out and income tax rises from $3,127 to $79,704, and the office move adds $44,000 of rent and a $40,000 fit-out. Year 5 reaches 8.5%.
Cash movements
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Cash from operations | ($410,637) | ($128,463) | $147,003 | $161,399 | $335,519 |
| Laptops, test devices and office build-out | ($72,000) | $0 | $0 | $0 | $0 |
| Funding received | $1,200,000 | $0 | $0 | $0 | $0 |
| Loan principal repaid | $0 | ($37,020) | ($79,508) | ($87,399) | ($96,073) |
| Owner distributions | $0 | $0 | $0 | ($200,000) | ($300,000) |
| Net change in cash | $717,363 | ($165,483) | $67,495 | ($126,000) | ($60,554) |
| Closing cash | $717,363 | $551,879 | $619,374 | $493,374 | $432,820 |
Year-end cash is never below $432,820, reached in Year 5 after $300,000 of distributions. Operations use $410,637 in Year 1, including $139,932 of receivables from the 45-day collection cycle, and $128,463 in Year 2 as receivables grow by $151,027. From Year 3 operations produce cash. The $200,000 paid out in Year 4 leaves $96,073 of the line still drawn, so the bank would need to consent to the payment.
Balance sheet
| At year end | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Cash | $717,363 | $551,879 | $619,374 | $493,374 | $432,820 |
| Accounts receivable | $139,932 | $290,959 | $408,082 | $510,411 | $581,918 |
| Laptops, test devices and office build-out (net) | $57,214 | $42,429 | $27,643 | $12,857 | $8,571 |
| Total assets | $914,508 | $885,267 | $1,055,099 | $1,016,643 | $1,023,310 |
| Accounts payable (freelancers, hosting and tools) | $4,107 | $8,540 | $11,978 | $14,982 | $17,081 |
| Bank loan | $300,000 | $262,980 | $183,472 | $96,073 | $0 |
| Paid-in capital | $900,000 | $900,000 | $900,000 | $900,000 | $900,000 |
| Retained earnings | ($289,599) | ($286,254) | ($40,351) | $5,587 | $106,229 |
| Total liabilities and equity | $914,508 | $885,267 | $1,055,099 | $1,016,643 | $1,023,310 |
Margins and break-even
| Measure | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| EBITDA margin | -17.3% | 1.9% | 8.6% | 8.6% | 11.4% |
| Net margin (before start-up costs) | -21.1% | 0.1% | 7.4% | 5.9% | 8.5% |
| Payroll incl. pay raises as share of revenue | 85% | 74% | 70% | 69% | 68% |
| Revenue per full-time equivalent at year end | $141,875 | $181,538 | $206,875 | $217,895 | $236,000 |
| Average monthly revenue | $94,583 | $196,667 | $275,833 | $345,000 | $393,333 |
| Monthly revenue needed to cover operating costs | $112,100 | $192,571 | $250,369 | $313,403 | $345,171 |
| Debt service cover (EBITDA / interest + principal) | -6.9x | 0.7x | 2.8x | 3.5x | 5.3x |
The last two rows of the ratios table set average monthly revenue against the revenue needed to cover costs. Year 1 falls short at $94,583 against $112,100. Year 2 clears it, $196,667 against $192,571, with little to spare. Year 3 has about a tenth of slack, equal to utilization of roughly 70% against the 77% plan; by Year 5 the break-even utilization is roughly 68%. Debt service cover is 0.7x in Year 2, when interest and the first principal repayments fall due, and passes 2.8x in Year 3. A lender testing Year 2 would see that gap, and the covenant terms would need to allow for it.
When billable work runs 20% short
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $908,000 | $1,888,000 | $2,648,000 | $3,312,000 | $3,776,000 |
| Net income before start-up costs | ($314,089) | ($36,644) | ($91,703) | $304 | $340,616 |
| Net income after start-up costs | ($364,089) | ($36,644) | ($91,703) | $304 | $340,616 |
| Closing cash | $670,038 | $493,884 | $246,510 | $94,741 | $288,043 |
Revenue runs 20% below the base case on every line in all five years. Naomi's response has six parts. Hires planned from month 13 onward start six months later, and the two Year 1 engineers (months 7 and 10) start four months later. The four hires planned for months 38 to 52 are not made. Marketing falls 20%, Naomi's salary falls 20%, the studio stays in its first office and distributions stop. The studio loses money in Years 1 to 3, breaks even in Year 4 ($304) and earns $340,616 in Year 5, and net income is below the base case in every year. Debt service cover would sit below 1.0x in the early years, so Naomi would ask the bank to extend the interest-only period or waive the covenant before the first test date. Year-end cash never drops below $94,741, in Year 4. Equity at the end of Year 1 is $535,911.
Sources
- Bureau of Labor Statistics, Software developers, quality assurance analysts, and testers, Occupational Outlook Handbook: national median pay for software developers and projected growth. Figures are as last read and the BLS revises them each year.
- SBA Office of Advocacy, Colorado 2025 state profile: 730,887 small businesses in Colorado.
- Colorado corporate income tax rate of 4.4%: Tax Foundation, Colorado. The rate may change.
- Colorado Attorney General, Colorado Privacy Act: the state's consumer privacy law, which applies to some businesses. Each client confirms its own duties with counsel.
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