Athletic Shoe Store Franchise Business Plan

The Athlete's Foot

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Financial Plan

Sales growth will be aggressive the first 18 months as we sharpen our merchandise assortment, size scales, and stock levels to better meet our customer's requirements. We anticipate a sales increase of 33% during our second year of operation.

Marketing will continue to average 3% of total sales.

We will invest residual profits into reducing debt and the lost income from large cash holdings.

Company expansion, while not a necessity, will be an option if sales projections are met and/or exceeded.

7.1 Important Assumptions

  1. The Athlete's Foot will grant a restriction against competitive stores within four miles of this location, other than the existing store in Coral Square Mall.
  2. The Athlete's Foot will continue it's program of promoting better running shoes on a national level.
  3. The space selected for this store will require minimal demolition and no changes to the restrooms, electrical, plumbing, or storefront to open The Athlete's Foot.
  4. Bed, Bath & Beyond, Fresh Market and Blockbuster, which have all confirmed that these are strong locations, will remain in the center for at least the first three years of our operation.
  5. We will be able to become an active sponsor of community sports within the City of Coral Springs.
  6. We anticipate that we will be able to complete required financing, lease documents, franchise documents and space buildout to allow for a July 2000 opening. If not, we would most likely open in October, to be prepared for the holiday season.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 9.00% 9.00% 9.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 15.00% 25.00% 15.00%
Other 0 0 0

7.2 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.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $450,000 $600,000 $700,000
Direct Cost of Sales $247,500 $330,000 $385,000
Other $9,000 $12,000 $14,000
Total Cost of Sales $256,500 $342,000 $399,000
Gross Margin $193,500 $258,000 $301,000
Gross Margin % 43.00% 43.00% 43.00%
Expenses
Payroll $59,168 $67,500 $75,425
Sales and Marketing and Other Expenses $44,627 $53,700 $59,750
Depreciation $0 $0 $0
Royalties (5%) $22,500 $30,000 $35,000
Insurance $5,850 $7,800 $9,100
Rent $27,200 $27,200 $27,200
Payroll Taxes $5,917 $6,750 $7,543
Other $0 $0 $0
Total Operating Expenses $165,262 $192,950 $214,018
Profit Before Interest and Taxes $28,238 $65,050 $86,983
EBITDA $28,238 $65,050 $86,983
Interest Expense $15,281 $12,593 $9,788
Taxes Incurred $4,683 $13,114 $11,579
Net Profit $8,274 $39,343 $65,616
Net Profit/Sales 1.84% 6.56% 9.37%

7.3 Break-even Analysis

A Break-even Analysis table has been completed on the basis of average costs/prices. With fixed costs, per average sale and average variable costs, we need monthly sales, as shown below, to break even.

Break-even Analysis
Monthly Revenue Break-even $30,604
Assumptions:
Average Percent Variable Cost 55%
Estimated Monthly Fixed Cost $13,772

7.4 Projected Cash Flow

We are positioning ourselves as a minimal risk concern, with steady cash flows. While we have not accounted for it in the projections, we anticipate receiving two or three months free base rent after store opening. That will help us reduce costs and increase marketing during the start-up period. We have allowed for a more aggressive cash balance initially, to allow us to react quickly to unforseen merchandise needs, missed classifications, "hot item" reorders and hopefully, higher than anticipated sales. This is particularly important for our first back to school and holiday sales periods. If we capture previous "mall customers" as anticipated, our sales could increase as much as 25% during the first two quarters of operations.

Once we have established a required cash balance level, (approximately six months after opening), we will reduce the projected cash balance to decrease debt and decrease the opportunity of cash held.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $450,000 $600,000 $700,000
Subtotal Cash from Operations $450,000 $600,000 $700,000
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 $450,000 $600,000 $700,000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $59,168 $67,500 $75,425
Bill Payments $291,509 $489,471 $558,653
Subtotal Spent on Operations $350,677 $556,971 $634,078
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $4,500 $4,500 $4,500
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $24,000 $24,000 $24,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $379,177 $585,471 $662,578
Net Cash Flow $70,823 $14,529 $37,422
Cash Balance $98,823 $113,352 $150,774

7.5 Projected Balance Sheet

All of our tables will be updated monthly to reflect past performance and future assumptions. Future assumptions will not be based solely on past performance but rather on economic cycle activity, regional retail indicators, national athletic footwear trends, and future cash flow possibilities. We have been, and will continue to be, working with an experienced partner in a large and well respected regional CPA firm, who has both personal and professional experience in start-up retail operations.

We expect solid growth in net worth beyond the first fiscal year of operation.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $98,823 $113,352 $150,774
Inventory $22,052 $29,403 $34,303
Other Current Assets $1,000 $1,000 $1,000
Total Current Assets $121,875 $143,755 $186,077
Long-term Assets
Long-term Assets $70,000 $70,000 $70,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $70,000 $70,000 $70,000
Total Assets $191,875 $213,755 $256,077
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $30,101 $41,138 $46,345
Current Borrowing $15,500 $11,000 $6,500
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $45,601 $52,138 $52,845
Long-term Liabilities $126,000 $102,000 $78,000
Total Liabilities $171,601 $154,138 $130,845
Paid-in Capital $70,000 $70,000 $70,000
Retained Earnings ($58,000) ($49,726) ($10,383)
Earnings $8,274 $39,343 $65,616
Total Capital $20,274 $59,617 $125,233
Total Liabilities and Capital $191,875 $213,755 $256,077
Net Worth $20,274 $59,617 $125,233

7.6 Business Ratios

The following table contains important business ratios for the retail athletic shoe store industry, as determined by the Standard Industry Classification (SIC) Index code 5661.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 33.33% 16.67% 0.20%
Percent of Total Assets
Inventory 11.49% 13.76% 13.40% 46.40%
Other Current Assets 0.52% 0.47% 0.39% 25.30%
Total Current Assets 63.52% 67.25% 72.66% 80.30%
Long-term Assets 36.48% 32.75% 27.34% 19.70%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 23.77% 24.39% 20.64% 38.40%
Long-term Liabilities 65.67% 47.72% 30.46% 14.50%
Total Liabilities 89.43% 72.11% 51.10% 52.90%
Net Worth 10.57% 27.89% 48.90% 47.10%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 43.00% 43.00% 43.00% 45.70%
Selling, General & Administrative Expenses 41.14% 36.44% 33.58% 28.60%
Advertising Expenses 0.55% 0.55% 0.55% 2.60%
Profit Before Interest and Taxes 6.28% 10.84% 12.43% 0.70%
Main Ratios
Current 2.67 2.76 3.52 2.28
Quick 2.19 2.19 2.87 0.63
Total Debt to Total Assets 89.43% 72.11% 51.10% 52.90%
Pre-tax Return on Net Worth 63.91% 87.99% 61.64% 1.50%
Pre-tax Return on Assets 6.75% 24.54% 30.15% 3.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 1.84% 6.56% 9.37% n.a
Return on Equity 40.81% 65.99% 52.40% n.a
Activity Ratios
Inventory Turnover 9.37 12.83 12.09 n.a
Accounts Payable Turnover 10.62 12.17 12.17 n.a
Payment Days 27 26 28 n.a
Total Asset Turnover 2.35 2.81 2.73 n.a
Debt Ratios
Debt to Net Worth 8.46 2.59 1.04 n.a
Current Liab. to Liab. 0.27 0.34 0.40 n.a
Liquidity Ratios
Net Working Capital $76,274 $91,617 $133,233 n.a
Interest Coverage 1.85 5.17 8.89 n.a
Additional Ratios
Assets to Sales 0.43 0.36 0.37 n.a
Current Debt/Total Assets 24% 24% 21% n.a
Acid Test 2.19 2.19 2.87 n.a
Sales/Net Worth 22.20 10.06 5.59 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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