Cabin Fever

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Children's Recreation Center Business Plan

Financial Plan

The most important element in my financial plan is initiating, maintaining, and improving the factors that create, stabilize, and increase the cash flow. These items are:

  1. High visibility so as to create customer flow.
  2. A trained, enthusiastic and knowledgeable staff that answers to customer needs to keep them coming back again and again.
  3. Annual modernization and update of the facility equipment to create new experiences for children.

8.1 Important Assumptions

Commercial lending is currently set at 7% for long term (20 year) lending.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 7.00% 7.00% 7.00%
Long-term Interest Rate 7.00% 7.00% 7.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

8.2 Break-even Analysis

The Break Even chart assumes fixed monthly expenses of approximately $9,600. The expenses are the total of estimated monthly utilities, phone, payroll, legal, insurance, marketing and rent figures. Variable monthly costs are shown as a percentage of total sales. Average Monthly Sales for the first year are anticipated around $13,200 and the break even point would be at $10,069, leaving adequate room and cash flow for possible costs initially overlooked. These figures show a comfortable cushion for operating expenses.

Break-even Analysis
Monthly Revenue Break-even $9,329
Assumptions:
Average Percent Variable Cost 4%
Estimated Monthly Fixed Cost $8,938

8.3 Projected Profit and Loss

The company will show a profit in the first year of operation. The yearly analysis is indicated in the table below, and the monthly analysis can be found in the appendix. Our most significant operating expenses will be payroll, marketing, and rent. We project a modest net profit increasing gradually over the next three years as we streamline operations.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $158,392 $166,312 $174,627
Direct Cost of Sales $6,634 $6,966 $7,314
Other Costs of Goods $0 $0 $0
Total Cost of Sales $6,634 $6,966 $7,314
Gross Margin $151,758 $159,346 $167,313
Gross Margin % 95.81% 95.81% 95.81%
Expenses
Payroll $58,400 $64,400 $70,400
Marketing/Promotion $12,668 $13,089 $13,521
Depreciation $6,960 $7,000 $7,000
Rent $12,000 $12,000 $12,000
Utilities / Phone / Internet $7,680 $7,680 $7,680
Insurance $4,800 $4,800 $4,800
Payroll Taxes $0 $0 $0
CPA $3,000 $3,000 $3,000
Website hosting $250 $300 $325
Office Expenses $1,500 $1,500 $1,500
Total Operating Expenses $107,258 $113,769 $120,226
Profit Before Interest and Taxes $44,500 $45,577 $47,087
EBITDA $51,460 $52,577 $54,087
Interest Expense $7,105 $6,202 $5,259
Taxes Incurred $11,218 $11,812 $12,548
Net Profit $26,176 $27,562 $29,279
Net Profit/Sales 16.53% 16.57% 16.77%

8.4 Projected Cash Flow

Long Term Debt: My long term debt payments are based on a 10-year note, principle balance of $100,800 @ 7% interest. Principal repayments are shown below, while interest is listed in the profit and Loss. Although the yearly projections indicate a straight-line repayment, we may pay off more principal after year one, depending on cash flow.

Capital Improvements: Making changes to the play structure will need to occur as to keep the facility fresh and new for customers. These changes will take place on an annual basis after the first year with the liquidation of old play materials and the acquisition of new ones.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $158,392 $166,312 $174,627
Subtotal Cash from Operations $158,392 $166,312 $174,627
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 $6,000 $6,000
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $158,392 $172,312 $180,627
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $58,400 $64,400 $70,400
Bill Payments $63,026 $65,644 $67,898
Subtotal Spent on Operations $121,426 $130,044 $138,298
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $2,665 $2,670 $2,665
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $10,800 $10,800 $10,800
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $12,000 $12,000
Dividends $0 $0 $0
Subtotal Cash Spent $134,891 $155,514 $163,763
Net Cash Flow $23,501 $16,798 $16,864
Cash Balance $31,501 $48,299 $65,163

8.5 Projected Balance Sheet

My Projected Balance Sheet shows that I should not have any difficulty meeting my debt obligations. My Marketing Plan should be sufficient to meet the projections. Most significantly, Cabin Fever's net worth will increase to approximately $77,500 by year three.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $31,501 $48,299 $65,163
Other Current Assets $25,000 $19,000 $13,000
Total Current Assets $56,501 $67,299 $78,163
Long-term Assets
Long-term Assets $90,000 $102,000 $114,000
Accumulated Depreciation $6,960 $13,960 $20,960
Total Long-term Assets $83,040 $88,040 $93,040
Total Assets $139,541 $155,339 $171,203
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $3,830 $5,536 $5,585
Current Borrowing $5,335 $2,665 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $9,165 $8,201 $5,585
Long-term Liabilities $90,000 $79,200 $68,400
Total Liabilities $99,165 $87,401 $73,985
Paid-in Capital $32,000 $32,000 $32,000
Retained Earnings ($17,800) $8,376 $35,939
Earnings $26,176 $27,562 $29,279
Total Capital $40,376 $67,939 $97,218
Total Liabilities and Capital $139,541 $155,339 $171,203
Net Worth $40,376 $67,939 $97,218

8.6 Business Ratios

The following table outlines some of the more important ratios from the Recreation Center industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7999.

We project a higher ratio of long-term to short-term liabilities than is the industry standard. We also project higher expenses for operating expenses and advertising; part of this discrepancy is the result of being a start-up, with no existing reputation. Another is our committment to pay employees a fair wage with decent benefits, including sick time and vacation time. All asset to liability ratios indicate a high ability to pay our creditors.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 5.00% 5.00% 4.94%
Percent of Total Assets
Other Current Assets 17.92% 12.23% 7.59% 36.35%
Total Current Assets 40.49% 43.32% 45.66% 43.63%
Long-term Assets 59.51% 56.68% 54.34% 56.37%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 6.57% 5.28% 3.26% 21.68%
Long-term Liabilities 64.50% 50.99% 39.95% 31.17%
Total Liabilities 71.07% 56.26% 43.21% 52.85%
Net Worth 28.93% 43.74% 56.79% 47.15%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 95.81% 95.81% 95.81% 100.00%
Selling, General & Administrative Expenses 79.29% 79.24% 79.04% 76.74%
Advertising Expenses 4.42% 4.21% 4.01% 2.84%
Profit Before Interest and Taxes 28.09% 27.40% 26.96% 2.11%
Main Ratios
Current 6.16 8.21 14.00 1.05
Quick 6.16 8.21 14.00 0.69
Total Debt to Total Assets 71.07% 56.26% 43.21% 62.49%
Pre-tax Return on Net Worth 92.62% 57.96% 43.02% 2.98%
Pre-tax Return on Assets 26.80% 25.35% 24.43% 7.95%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 16.53% 16.57% 16.77% n.a
Return on Equity 64.83% 40.57% 30.12% n.a
Activity Ratios
Accounts Payable Turnover 17.45 12.17 12.17 n.a
Payment Days 27 25 30 n.a
Total Asset Turnover 1.14 1.07 1.02 n.a
Debt Ratios
Debt to Net Worth 2.46 1.29 0.76 n.a
Current Liab. to Liab. 0.09 0.09 0.08 n.a
Liquidity Ratios
Net Working Capital $47,336 $59,099 $72,578 n.a
Interest Coverage 6.26 7.35 8.95 n.a
Additional Ratios
Assets to Sales 0.88 0.93 0.98 n.a
Current Debt/Total Assets 7% 5% 3% n.a
Acid Test 6.16 8.21 14.00 n.a
Sales/Net Worth 3.92 2.45 1.80 n.a
Dividend Payout 0.00 0.00 0.00 n.a