Like New Carpet Cleaners

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Carpet and Upholstery Cleaning Services

Financial Plan

Like New Carpet Cleaning will add at least one new local base each year, consisting of parking for the company van and storage for cleaning equipment and supplies. This future growth will be financed by cash generated from existing locations and debt to finance vehicle and cleaning equipment purchases.

Start-up Funding

Start-up funding will be provided by a combination of owner investment and investor funding, with a small amount of debt. The owners will contribute $20,000 of initial funding to develop a prototype of the website. Investors will contribute $57,500 for a 30% share of the company.

Start-up Funding
Start-up Expenses to Fund $37,500
Start-up Assets to Fund $60,000
Total Funding Required $97,500
Assets
Non-cash Assets from Start-up $30,000
Cash Requirements from Start-up $30,000
Additional Cash Raised $0
Cash Balance on Starting Date $30,000
Total Assets $60,000
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $15,000
Accounts Payable (Outstanding Bills) $5,000
Other Current Liabilities (interest-free) $0
Total Liabilities $20,000
Capital
Planned Investment
Owners $20,000
Investor $57,500
Additional Investment Requirement $0
Total Planned Investment $77,500
Loss at Start-up (Start-up Expenses) ($37,500)
Total Capital $40,000
Total Capital and Liabilities $60,000
Total Funding $97,500

Break-even Analysis

The business will benefit from a low monthly break-even point due to the assignment of most costs directly to the cleaning service (gasoline, cleaning crew labor, and cleaning products) and the low payroll that is achieved by leveraging Like New's website, which will reduce administrative costs.

Break-even Analysis
Monthly Units Break-even 705
Monthly Revenue Break-even $36,506
Assumptions:
Average Per-Unit Revenue $51.81
Average Per-Unit Variable Cost $18.34
Estimated Monthly Fixed Cost $23,586

Projected Profit and Loss

The business will experience modest profits for its first three years of operation. This is due to the fact that the operations of the organization will be built to scale up over a larger geographic region. In the fourth and fifth years of operation, this will begin to pay off with healthy profits.This will prove the viability of the business model for a franchise or statewide expansion.

Direct labor is estimated at 35% of sales revenue (the actual cleaning representing about a 280% markup of the labor). Direct labor is included in the cost of sales.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $590,130 $737,663 $922,078 $1,152,598 $1,440,747
Direct Cost of Sales $208,858 $261,072 $326,341 $407,926 $509,907
Other Costs of Sales $0 $0 $0 $0 $0
Total Cost of Sales $208,858 $261,072 $326,341 $407,926 $509,907
Gross Margin $381,272 $476,590 $595,738 $744,672 $930,840
Gross Margin % 64.61% 64.61% 64.61% 64.61% 64.61%
Expenses
Payroll $138,000 $160,000 $210,000 $237,000 $255,000
Marketing/Promotion $60,000 $70,000 $80,000 $90,000 $100,000
Depreciation $6,000 $10,000 $12,000 $18,000 $30,000
Rent $10,200 $30,000 $40,000 $50,000 $60,000
Utilities $1,200 $2,000 $2,500 $3,000 $3,500
Insurance $3,600 $4,000 $5,000 $6,500 $8,000
Payroll Taxes $52,029 $63,161 $80,451 $35,550 $38,250
Website Maintenance/Hosting $6,000 $7,000 $8,000 $9,000 $10,000
Other $6,000 $7,000 $8,000 $9,000 $10,000
Total Operating Expenses $283,029 $353,161 $445,951 $458,050 $514,750
Profit Before Interest and Taxes $98,243 $123,429 $149,787 $286,622 $416,090
EBITDA $104,243 $133,429 $161,787 $304,622 $446,090
Interest Expense $688 $0 $0 $0 $0
Taxes Incurred $29,267 $37,029 $44,936 $85,987 $124,827
Net Profit $68,289 $86,400 $104,851 $200,635 $291,263
Net Profit/Sales 11.57% 11.71% 11.37% 17.41% 20.22%

Projected Cash Flow

In the first year, cash flow will be supported by start-up funding and full payment by customers in advance Company vans will be purchased with auto loans. When the business expands to new offices across the county, additional vans and cleaning equipment must be purchased. These will be financed through debt, including a company credit line.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $590,130 $737,663 $922,078 $1,152,598 $1,440,747
Subtotal Cash from Operations $590,130 $737,663 $922,078 $1,152,598 $1,440,747
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0
Subtotal Cash Received $590,130 $737,663 $922,078 $1,152,598 $1,440,747
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $138,000 $160,000 $210,000 $237,000 $255,000
Bill Payments $308,546 $516,001 $585,861 $688,600 $850,715
Subtotal Spent on Operations $446,546 $676,001 $795,861 $925,600 $1,105,715
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $15,000 $0 $0 $0 $0
Purchase Other Current Assets $0 $0 $0 $0 $0
Purchase Long-term Assets $18,000 $30,000 $30,000 $30,000 $30,000
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $479,546 $706,001 $825,861 $955,600 $1,135,715
Net Cash Flow $110,584 $31,662 $96,218 $196,997 $305,032
Cash Balance $140,584 $172,245 $268,463 $465,460 $770,492

Projected Balance Sheet

The net worth of the business will show healthy growth, even while liabilities will increase due to the growth of the business and the need to purchase additional assets. Liabilities will initially decrease in the second year as accounts payable from the first large expansion are paid off. After that point, growth will be more even. A cash balance will be built up with the plan of financing expansion of the business.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $140,584 $172,245 $268,463 $465,460 $770,492
Other Current Assets $0 $0 $0 $0 $0
Total Current Assets $140,584 $172,245 $268,463 $465,460 $770,492
Long-term Assets
Long-term Assets $48,000 $78,000 $108,000 $138,000 $168,000
Accumulated Depreciation $6,000 $16,000 $28,000 $46,000 $76,000
Total Long-term Assets $42,000 $62,000 $80,000 $92,000 $92,000
Total Assets $182,584 $234,245 $348,463 $557,460 $862,492
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $74,295 $39,556 $48,923 $57,285 $71,053
Current Borrowing $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $74,295 $39,556 $48,923 $57,285 $71,053
Long-term Liabilities $0 $0 $0 $0 $0
Total Liabilities $74,295 $39,556 $48,923 $57,285 $71,053
Paid-in Capital $77,500 $77,500 $77,500 $77,500 $77,500
Retained Earnings ($37,500) $30,789 $117,190 $222,040 $422,676
Earnings $68,289 $86,400 $104,851 $200,635 $291,263
Total Capital $108,289 $194,690 $299,540 $500,176 $791,439
Total Liabilities and Capital $182,584 $234,245 $348,463 $557,460 $862,492
Net Worth $108,289 $194,690 $299,540 $500,176 $791,439

Business Ratios

The business will have higher SGA expenses as a ratio of sales compared to the carpet and upholstery cleaning industry as it requires a more professional, senior-level staff during its first years of operation. These years are key to establishing the systems and procedures which can be scaled for expansion. SGA as a percentage of sales will drop to lower than the industry average after this expansion due to the reduction in staff and office overhead allowed by its Web-based sales model. Savings from this will be put into advertising to support the rapid growth of the business.

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth n.a. 25.00% 25.00% 25.00% 25.00% -0.71%
Percent of Total Assets
Other Current Assets 0.00% 0.00% 0.00% 0.00% 0.00% 53.59%
Total Current Assets 77.00% 73.53% 77.04% 83.50% 89.33% 70.11%
Long-term Assets 23.00% 26.47% 22.96% 16.50% 10.67% 29.89%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 40.69% 16.89% 14.04% 10.28% 8.24% 37.94%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 54.53%
Total Liabilities 40.69% 16.89% 14.04% 10.28% 8.24% 92.47%
Net Worth 59.31% 83.11% 85.96% 89.72% 91.76% 7.53%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 64.61% 64.61% 64.61% 64.61% 64.61% 59.56%
Selling, General & Administrative Expenses 53.04% 52.90% 53.24% 47.20% 44.39% 28.35%
Advertising Expenses 10.17% 9.49% 8.68% 7.81% 6.94% 1.21%
Profit Before Interest and Taxes 16.65% 16.73% 16.24% 24.87% 28.88% 8.19%
Main Ratios
Current 1.89 4.35 5.49 8.13 10.84 1.24
Quick 1.89 4.35 5.49 8.13 10.84 1.18
Total Debt to Total Assets 40.69% 16.89% 14.04% 10.28% 8.24% 92.47%
Pre-tax Return on Net Worth 90.09% 63.40% 50.01% 57.30% 52.57% 696.24%
Pre-tax Return on Assets 53.43% 52.69% 42.98% 51.42% 48.24% 52.41%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin 11.57% 11.71% 11.37% 17.41% 20.22% n.a
Return on Equity 63.06% 44.38% 35.00% 40.11% 36.80% n.a
Activity Ratios
Accounts Payable Turnover 5.09 12.17 12.17 12.17 12.17 n.a
Payment Days 28 43 27 28 27 n.a
Total Asset Turnover 3.23 3.15 2.65 2.07 1.67 n.a
Debt Ratios
Debt to Net Worth 0.69 0.20 0.16 0.11 0.09 n.a
Current Liab. to Liab. 1.00 1.00 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $66,289 $132,690 $219,540 $408,176 $699,439 n.a
Interest Coverage 142.90 0.00 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.31 0.32 0.38 0.48 0.60 n.a
Current Debt/Total Assets 41% 17% 14% 10% 8% n.a
Acid Test 1.89 4.35 5.49 8.13 10.84 n.a
Sales/Net Worth 5.45 3.79 3.08 2.30 1.82 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a

Long-term Plan

The business's financial strategy is to grow rapidly to the point where its investment in its website and infrastructure can be shown to provide much greater revenue than that of the competition's more traditional approach of working with salaried salespeople. At this point, the business will present a viable model for a second round of equity financing to move towards a regional and then statewide franchise. At this point there will be the potential for initial investors to cash out of the business.