Southeast Racing

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Auto Parts Store Business Plan

Financial Plan

  • Salaries and rent are the two major expenses, while depreciation is another significant cost that will increase as the company develops.
  • We want to 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 Southeast Racing Parts 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.

7.1 Important Assumptions

Key assumptions for Southeast Racing Parts are:

  • We do not sell anything on credit.
  • We assume the continued popularity of auto racing in America.
  • Monthly sales are the largest indicator for this business. There are some seasonal variations, with the months January through June being the highest sales months.
  • We assume access to capital and financing sufficient to maintain our financial plan as shown in the tables.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Key Financial Indicators

The key indicators in our plan illustrate increasing sales, control of costs, and increasing profit margins.

7.3 Break-even Analysis

For our break-even analysis, we assume per month running costs which includes payroll, rent, utilities, and an estimation of other running costs.

Based on our anticipated margin, what we need to sell per month to break even is shown in the chart and table below.

Our sales forecast indicates that monthly sales are expected to be much greater than the break-even point mentioned in the table.

Break-even Analysis
Monthly Revenue Break-even $17,581
Assumptions:
Average Percent Variable Cost 67%
Estimated Monthly Fixed Cost $5,838

7.4 Projected Profit and Loss

The detailed monthly pro-forma income statement is included in the appendix. The annual estimates are included on the following page. We expect a modest by acceptable profit at the end of the first year of business. It should almost double by the third year as the reputation of our business, employees, and services become apparent to the local racers. Second year revenues anticipate the addition of one part-time employee, along with one full-time employee in the third year.

The credit card surcharge expense was based upon 50% of sales being paid for with plastic, and assuming a 2% service fee. The inbound freight charges were based upon 2% of cost of goods for year one, 1.75% for year two, and 1.5% for year three. Depreciation was figured upon $29,000 in expensed equipment at the rate of seven years.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $367,019 $472,085 $608,670
Direct Cost of Sales $245,154 $314,147 $402,472
Other Costs of Sales $0 $0 $0
Total Cost of Sales $245,154 $314,147 $402,472
Gross Margin $121,865 $157,938 $206,198
Gross Margin % 33.20% 33.46% 33.88%
Expenses
Payroll $26,400 $39,680 $66,016
Marketing/Promotion $1,800 $2,340 $3,042
Depreciation $4,140 $4,140 $4,140
Vehicle Expense $1,700 $1,850 $2,000
Credit Card Surcharge $3,498 $4,547 $5,911
Inbound Freight Charges $4,964 $5,497 $6,036
Office Supplies $600 $780 $1,014
Security/alarm $360 $360 $360
Telephone $2,650 $3,445 $4,478
Accounting Costs $1,500 $1,500 $1,500
Rent $19,200 $19,200 $19,200
Utilities $2,400 $2,400 $2,400
Insurance $840 $840 $840
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $70,052 $86,579 $116,937
Profit Before Interest and Taxes $51,813 $71,359 $89,261
EBITDA $55,953 $75,499 $93,401
Interest Expense $0 $0 $0
Taxes Incurred $15,544 $21,408 $26,778
Net Profit $36,269 $49,951 $62,483
Net Profit/Sales 9.88% 10.58% 10.27%

7.5 Projected Cash Flow

Cash flow projections are critical to our success. The following table shows cash flow for the first three years, and the chart illustrates monthly cash flow in the first year. Monthly cash flow projections are included in the appendix.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $367,019 $472,085 $608,670
Subtotal Cash from Operations $367,019 $472,085 $608,670
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 $367,019 $472,085 $608,670
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $26,400 $39,680 $66,016
Bill Payments $253,470 $382,218 $478,195
Subtotal Spent on Operations $279,870 $421,898 $544,211
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 $279,870 $421,898 $544,211
Net Cash Flow $87,149 $50,187 $64,459
Cash Balance $88,149 $138,336 $202,795

7.6 Projected Balance Sheet

The table shows the annual balance sheet results, with a healthy 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 $88,149 $138,336 $202,795
Inventory $28,816 $36,925 $47,307
Other Current Assets $0 $0 $0
Total Current Assets $116,965 $175,261 $250,102
Long-term Assets
Long-term Assets $29,000 $29,000 $29,000
Accumulated Depreciation $4,140 $8,280 $12,420
Total Long-term Assets $24,860 $20,720 $16,580
Total Assets $141,825 $195,981 $266,682
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $27,555 $31,761 $39,979
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $27,555 $31,761 $39,979
Long-term Liabilities $0 $0 $0
Total Liabilities $27,555 $31,761 $39,979
Paid-in Capital $80,625 $80,625 $80,625
Retained Earnings ($2,625) $33,644 $83,595
Earnings $36,269 $49,951 $62,483
Total Capital $114,269 $164,220 $226,703
Total Liabilities and Capital $141,825 $195,981 $266,682
Net Worth $114,269 $164,220 $226,703

7.7 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5531, Auto and Home Supply Stores, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 28.63% 28.93% 4.90%
Percent of Total Assets
Inventory 20.32% 18.84% 17.74% 47.50%
Other Current Assets 0.00% 0.00% 0.00% 28.90%
Total Current Assets 82.47% 89.43% 93.78% 76.40%
Long-term Assets 17.53% 10.57% 6.22% 23.60%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 19.43% 16.21% 14.99% 39.20%
Long-term Liabilities 0.00% 0.00% 0.00% 15.50%
Total Liabilities 19.43% 16.21% 14.99% 54.70%
Net Worth 80.57% 83.79% 85.01% 45.30%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 33.20% 33.46% 33.88% 32.00%
Selling, General & Administrative Expenses 23.32% 22.87% 23.61% 19.60%
Advertising Expenses 1.13% 0.88% 0.68% 1.40%
Profit Before Interest and Taxes 14.12% 15.12% 14.66% 1.50%
Main Ratios
Current 4.24 5.52 6.26 2.03
Quick 3.20 4.36 5.07 0.59
Total Debt to Total Assets 19.43% 16.21% 14.99% 54.70%
Pre-tax Return on Net Worth 45.34% 43.45% 39.37% 3.50%
Pre-tax Return on Assets 36.53% 36.41% 33.47% 7.60%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 9.88% 10.58% 10.27% n.a
Return on Equity 31.74% 30.42% 27.56% n.a
Activity Ratios
Inventory Turnover 9.67 9.56 9.56 n.a
Accounts Payable Turnover 10.13 12.17 12.17 n.a
Payment Days 27 28 27 n.a
Total Asset Turnover 2.59 2.41 2.28 n.a
Debt Ratios
Debt to Net Worth 0.24 0.19 0.18 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $89,409 $143,500 $210,123 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.39 0.42 0.44 n.a
Current Debt/Total Assets 19% 16% 15% n.a
Acid Test 3.20 4.36 5.07 n.a
Sales/Net Worth 3.21 2.87 2.68 n.a
Dividend Payout 0.00 0.00 0.00 n.a