Hands On! Children's Art Museum

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Art School Museum Business Plan

Financial Plan

The basis for our financial planning has been looking forward with conservative estimates for revenue and expenses. We are committed to consistent growth of our cash balances through prudent management of our expenses. Our focus will be on remaining profitable year to year, while also building adequate cash reserves.

Important Assumptions

Personnel burden is relatively low at 15% based on the assumption that the only benefits included will be minimal vacation time based on the number of hours worked. Personnel burden also includes taxes.

We anticipate carrying one month's worth of inventory in the Curiosity Shop. The majority of items in the shop are sold on a consignment basis, and therefore do not affect inventory turnover.

The estimate of 8% funding on credit refers to the delay between the commitment of funding and the actual receipt of funds. We anticipate the great majority of our revenues will be paid by cash or check.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 6.50% 6.50% 6.50%
Long-term Interest Rate 7.00% 7.00% 7.00%
Tax Rate 0.00% 0.00% 0.00%
Other 0 0 0

Break-even Analysis

The table and chart below show the level of funding, from all sources combined, we need on a monthly average, to cover our operating expenses.

Break-even Analysis
Monthly Revenue Break-even $24,111
Assumptions:
Average Percent Variable Cost 7%
Estimated Monthly Fixed Cost $22,493

Projected Surplus or Deficit

Our projected annual surplus or deficit is shown on the following table. The detailed monthly projections are included in the appendix.

Surplus and Deficit
Year 1 Year 2 Year 3
Funding $287,643 $318,966 $351,605
Direct Cost $19,303 $22,570 $24,451
Other $0 $0 $0
Total Direct Cost $19,303 $22,570 $24,451
Gross Surplus $268,340 $296,396 $327,153
Gross Surplus % 93.29% 92.92% 93.05%
Expenses
Payroll $170,400 $182,100 $191,929
Sales and Marketing and Other Expenses $54,325 $56,000 $56,700
Depreciation $2,004 $2,004 $2,004
Leased Equipment $600 $600 $600
Utilities $14,400 $15,000 $15,000
Insurance $2,625 $3,500 $3,500
Payroll Taxes $25,560 $27,315 $28,789
Other $0 $0 $0
Total Operating Expenses $269,914 $286,519 $298,523
Surplus Before Interest and Taxes ($1,574) $9,877 $28,631
EBITDA $430 $11,881 $30,635
Interest Expense $0 $0 $0
Taxes Incurred $0 $0 $0
Net Surplus ($1,574) $9,877 $28,631
Net Surplus/Funding -0.55% 3.10% 8.14%

Projected Cash Flow

Management of cash flow is critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month, and the other bar the monthly balance. The annual cash flow figures are included here and the more important detailed monthly numbers are included in the appendix. Should our monthly cash flows fail to meet expectations, directors salaries will not be paid. If further action is required, we will utilize revolving credit facilities.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Funding $264,632 $293,449 $323,476
Cash from Receivables $19,666 $25,153 $27,749
Subtotal Cash from Operations $284,297 $318,602 $351,225
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $284,297 $318,602 $351,225
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $170,400 $182,100 $191,929
Bill Payments $106,718 $126,009 $128,808
Subtotal Spent on Operations $277,118 $308,109 $320,737
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $277,118 $308,109 $320,737
Net Cash Flow $7,179 $10,493 $30,488
Cash Balance $32,179 $42,672 $73,160

Projected Balance Sheet

The following balance sheet shows our projected financial position during the next three years. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $32,179 $42,672 $73,160
Accounts Receivable $3,346 $3,710 $4,090
Inventory $1,686 $2,793 $2,803
Other Current Assets $0 $0 $0
Total Current Assets $37,211 $49,175 $80,053
Long-term Assets
Long-term Assets $8,500 $8,500 $8,500
Accumulated Depreciation $2,004 $4,008 $6,012
Total Long-term Assets $6,496 $4,492 $2,488
Total Assets $43,707 $53,667 $82,541
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $10,281 $10,364 $10,607
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $10,281 $10,364 $10,607
Long-term Liabilities $0 $0 $0
Total Liabilities $10,281 $10,364 $10,607
Paid-in Capital $70,000 $70,000 $70,000
Accumulated Surplus/Deficit ($35,000) ($36,574) ($26,697)
Surplus/Deficit ($1,574) $9,877 $28,631
Total Capital $33,426 $43,303 $71,934
Total Liabilities and Capital $43,707 $53,667 $82,541
Net Worth $33,426 $43,303 $71,934

Standard Ratios

Our projected business ratios for the three years of this plan are shown below, along with ratios for an industry profile, based on the Standard Industry Classification (SIC) Index, 8412, for Museums and Art Galleries. 

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Funding Growth n.a. 10.89% 10.23% 9.50%
Percent of Total Assets
Accounts Receivable 7.65% 6.91% 4.95% 18.90%
Inventory 3.86% 5.20% 3.40% 1.00%
Other Current Assets 0.00% 0.00% 0.00% 36.40%
Total Current Assets 85.14% 91.63% 96.99% 56.30%
Long-term Assets 14.86% 8.37% 3.01% 43.70%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 23.52% 19.31% 12.85% 32.50%
Long-term Liabilities 0.00% 0.00% 0.00% 28.50%
Total Liabilities 23.52% 19.31% 12.85% 61.00%
Net Worth 76.48% 80.69% 87.15% 39.00%
Percent of Funding
Funding 100.00% 100.00% 100.00% 100.00%
Gross Surplus 93.29% 92.92% 93.05% 0.00%
Selling, General & Administrative Expenses 93.84% 89.83% 84.90% 82.00%
Advertising Expenses 2.66% 2.82% 2.70% 0.90%
Surplus Before Interest and Taxes -0.55% 3.10% 8.14% 1.70%
Main Ratios
Current 3.62 4.74 7.55 1.71
Quick 3.46 4.48 7.28 1.52
Total Debt to Total Assets 23.52% 19.31% 12.85% 61.00%
Pre-tax Return on Net Worth -4.71% 22.81% 39.80% 1.10%
Pre-tax Return on Assets -3.60% 18.40% 34.69% 2.90%
Additional Ratios Year 1 Year 2 Year 3
Net Surplus Margin -0.55% 3.10% 8.14% n.a
Return on Equity -4.71% 22.81% 39.80% n.a
Activity Ratios
Accounts Receivable Turnover 6.88 6.88 6.88 n.a
Collection Days 57 50 51 n.a
Inventory Turnover 9.45 10.08 8.74 n.a
Accounts Payable Turnover 11.38 12.17 12.17 n.a
Payment Days 27 30 30 n.a
Total Asset Turnover 6.58 5.94 4.26 n.a
Debt Ratios
Debt to Net Worth 0.31 0.24 0.15 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $26,930 $38,811 $69,446 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Funding 0.15 0.17 0.23 n.a
Current Debt/Total Assets 24% 19% 13% n.a
Acid Test 3.13 4.12 6.90 n.a
Funding/Net Worth 8.61 7.37 4.89 n.a
Dividend Payout 0.00 0.00 0.00 n.a