NALB Creative Center

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Art Supply Store and Gallery Business Plan

Financial Plan

  • The growth of NALB will be moderate and the cash balance will always be positive.
  • Being a retail environment we will not be selling on credit. We will accept cash, checks, Visa and MasterCard. 
  • Marketing and advertising will remain at or below 5% of sales.
  • We will finance growth mainly through cash flow. We recognize that this means we will have to grow slowly.
  • It should be noted that the owners of NALB Creative Center do not intend to take any profits out of the business until the long-term debt has been satisfied. Whatever profits remain after the debt payments will be used to finance growth, mainly through the acquisition of additional inventory.

8.1 Start-up Funding

NALB's start-up funds are summarized in the following table:

  • $210,000 SBA loan
  • $20,000 short-term/credit card
  • $45,000 Owner investment

The additional capital is needed to fund salaries, inventory lags and other costs during the first months of the business year.

Start-up Funding
Start-up Expenses to Fund $27,950
Start-up Assets to Fund $216,000
Total Funding Required $243,950
Assets
Non-cash Assets from Start-up $196,000
Cash Requirements from Start-up $20,000
Additional Cash Raised $11,050
Cash Balance on Starting Date $31,050
Total Assets $227,050
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $210,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $210,000
Capital
Planned Investment
Owner $45,000
Investor $0
Additional Investment Requirement $0
Total Planned Investment $45,000
Loss at Start-up (Start-up Expenses) ($27,950)
Total Capital $17,050
Total Capital and Liabilities $227,050
Total Funding $255,000

8.2 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:

  • We do not sell anything on credit. We accept cash, checks, debit cards, Visa, MasterCard.
  • A slow-growth economy/customer base, without major recession.
  • Monthly sales are the largest indicator for this business. There are some seasonal variations, with the months October through January being the highest sales months.
  • We assume access to capital and financing sufficient to maintain our financial plan as shown in the tables.

8.3 Break-even Analysis

Our break-even analysis is summarized by the following chart and table.

Break-even Analysis
Monthly Revenue Break-even $21,000
Assumptions:
Average Percent Variable Cost 50%
Estimated Monthly Fixed Cost $10,500

8.4 Projected Profit and Loss

We predict that during the second year of operation, our high level of customer service and strong assortment will allow us to generate approximately 5% profit. This will be above the normal two to three year period required for a start-up retailer. Our sales projections are conservative. Should sales increase as we anticipate, the profit-to-sales ratio could be as high as 10% by the end of year three.

The following chart and table will indicate projected profit and loss.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $316,800 $349,525 $419,630
Direct Cost of Sales $158,400 $174,763 $209,815
Other Costs of Sales $0 $0 $0
Total Cost of Sales $158,400 $174,763 $209,815
Gross Margin $158,400 $174,763 $209,815
Gross Margin % 50.00% 50.00% 50.00%
Expenses
Payroll $66,000 $68,000 $71,400
Marketing/Promotion $2,400 $2,520 $2,646
Depreciation $0 $0 $0
Rent $42,000 $12,600 $7,056
Utilities $12,000 $6,720 $7,056
Insurance $3,600 $3,780 $3,969
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $126,000 $93,620 $92,127
Profit Before Interest and Taxes $32,400 $81,143 $117,688
EBITDA $32,400 $81,143 $117,688
Interest Expense $11,747 $10,238 $8,663
Taxes Incurred $6,196 $21,272 $32,708
Net Profit $14,457 $49,634 $76,318
Net Profit/Sales 4.56% 14.20% 18.19%

8.5 Projected Cash Flow

Our projected cash flow is outlined in the following chart and table.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $316,800 $349,525 $419,630
Subtotal Cash from Operations $316,800 $349,525 $419,630
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 $316,800 $349,525 $419,630
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $66,000 $68,000 $71,400
Bill Payments $217,354 $244,145 $296,130
Subtotal Spent on Operations $283,354 $312,145 $367,530
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 $26,250 $26,250 $26,250
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $309,604 $338,395 $393,780
Net Cash Flow $7,196 $11,130 $25,850
Cash Balance $38,246 $49,375 $75,225

8.6 Projected Balance Sheet

The table shows the annual balance sheet results, with a conservative projected increase in net worth. Detailed monthly projections are in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $38,246 $49,375 $75,225
Inventory $130,000 $143,429 $172,197
Other Current Assets $26,000 $26,000 $26,000
Total Current Assets $194,246 $218,804 $273,422
Long-term Assets
Long-term Assets $40,000 $40,000 $40,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $40,000 $40,000 $40,000
Total Assets $234,246 $258,804 $313,422
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $18,988 $20,163 $24,713
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $18,988 $20,163 $24,713
Long-term Liabilities $183,750 $157,500 $131,250
Total Liabilities $202,738 $177,663 $155,963
Paid-in Capital $45,000 $45,000 $45,000
Retained Earnings ($27,950) ($13,493) $36,141
Earnings $14,457 $49,634 $76,318
Total Capital $31,507 $81,141 $157,459
Total Liabilities and Capital $234,246 $258,804 $313,422
Net Worth $31,507 $81,141 $157,459

8.7 Business Ratios

Business ratios for the years of this plan are shown below. The industry profile is from 2003, and based on the Standard Industrial Classification (SIC) code 5092.9901 for the Arts and crafts equipment and supplies industry.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.33% 20.06% 2.44%
Percent of Total Assets
Inventory 55.50% 55.42% 54.94% 28.77%
Other Current Assets 11.10% 10.05% 8.30% 26.58%
Total Current Assets 82.92% 84.54% 87.24% 87.58%
Long-term Assets 17.08% 15.46% 12.76% 12.42%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 8.11% 7.79% 7.89% 41.17%
Long-term Liabilities 78.44% 60.86% 41.88% 9.71%
Total Liabilities 86.55% 68.65% 49.76% 50.88%
Net Worth 13.45% 31.35% 50.24% 49.12%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 50.00% 50.00% 50.00% 30.58%
Selling, General & Administrative Expenses 45.44% 35.80% 31.81% 16.83%
Advertising Expenses 0.00% 0.00% 0.00% 1.21%
Profit Before Interest and Taxes 10.23% 23.22% 28.05% 1.02%
Main Ratios
Current 10.23 10.85 11.06 1.84
Quick 3.38 3.74 4.10 1.00
Total Debt to Total Assets 86.55% 68.65% 49.76% 55.33%
Pre-tax Return on Net Worth 65.55% 87.39% 69.24% 2.27%
Pre-tax Return on Assets 8.82% 27.40% 34.79% 5.08%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 4.56% 14.20% 18.19% n.a
Return on Equity 45.89% 61.17% 48.47% n.a
Activity Ratios
Inventory Turnover 1.20 1.28 1.33 n.a
Accounts Payable Turnover 12.45 12.17 12.17 n.a
Payment Days 27 29 27 n.a
Total Asset Turnover 1.35 1.35 1.34 n.a
Debt Ratios
Debt to Net Worth 6.43 2.19 0.99 n.a
Current Liab. to Liab. 0.09 0.11 0.16 n.a
Liquidity Ratios
Net Working Capital $175,257 $198,641 $248,709 n.a
Interest Coverage 2.76 7.93 13.59 n.a
Additional Ratios
Assets to Sales 0.74 0.74 0.75 n.a
Current Debt/Total Assets 8% 8% 8% n.a
Acid Test 3.38 3.74 4.10 n.a
Sales/Net Worth 10.05 4.31 2.67 n.a
Dividend Payout 0.00 0.00 0.00 n.a