U&Me Dance

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Dance Studio Business Plan

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Financial Plan

  • We plan to use our own start-up cash to finance the business.  The Majestic is a turn key building for this type of business, requiring very limited contract work for us to bring in.  A kitchen space and office window are to be negotiated with the building owner.  Our start-up requirements are business assets, teaching supplies, and advertising.
  • We want to finance growth mainly through cash flow.

8.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendix. From the beginning, we recognize that collection of payments for dance lesson packages is critical, however, not a factor we can influence easily.  Interest rates, tax rates, and personnel burden are based on conservative assumptions.

Three of the more important underlying assumptions are:

  1. We assume that people in Whatcom County and more importantly, Bellingham, will be interested in learning to dance and will give us a try.
  2. We assume that the area will continue to grow, as in the past, and at the projected rate of 5% per year.
  3. We assume that the Majestic will continue to be rented for events as in the past.
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

8.2 Break-even Analysis

We will need an average of thirty new students each month taking the introductory classes. Of these thirty students, we are anticipating that 25% will stay to take additional classes (i.e. Social Foundation, Bronze, etc.). We realize that we may have a slow start, until the word gets out about our business, and therefore, will take a few months to "ramp up" to thirty new students.

Break-even Analysis
Monthly Revenue Break-even $22,393
Assumptions:
Average Percent Variable Cost 10%
Estimated Monthly Fixed Cost $20,150

8.3 Projected Profit and Loss

Our projected profit and loss is shown on the following table, with sales increasing at a rate of 15% year over year.  If we are able to meet our sales forecast, we will begin making a profit almost immediately. Traditionally in the dance business the slower months are in the mid-summer. However, the facility rental is higher in the Summer and should, therefore, supplement the slower teaching months.

The detailed monthly projections are included in the appendix.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $301,990 $347,289 $399,382
Direct Cost of Sales $30,244 $34,780 $39,997
Other Production Expenses $0 $0 $0
Total Cost of Sales $30,244 $34,780 $39,997
Gross Margin $271,746 $312,509 $359,385
Gross Margin % 89.99% 89.99% 89.99%
Expenses
Payroll $98,150 $112,000 $124,000
Sales and Marketing and Other Expenses $45,100 $45,800 $52,500
Depreciation $3,540 $3,540 $3,540
Utilities $9,000 $10,000 $11,000
Telephone $2,400 $2,400 $2,400
Insurance $1,800 $1,800 $1,800
Rent $72,000 $72,000 $74,712
Payroll Taxes $9,815 $11,200 $12,400
Other $0 $0 $0
Total Operating Expenses $241,805 $258,740 $282,352
Profit Before Interest and Taxes $29,941 $53,769 $77,033
EBITDA $33,481 $57,309 $80,573
Interest Expense ($550) ($1,700) ($2,900)
Taxes Incurred $9,147 $16,641 $23,980
Net Profit $21,344 $38,828 $55,953
Net Profit/Sales 7.07% 11.18% 14.01%

8.4 Projected Cash Flow

Cash flow projections are critical to our success. The annual cash flow figures are included here and the more important detailed monthly numbers are included in the appendix.  The business will generate more than enough cash flow to cover all of its expenses. The monthly cash flow is shown in the following chart, with one bar representing the cash flow per month, and the other the monthly cash balance.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $301,990 $347,289 $399,382
Subtotal Cash from Operations $301,990 $347,289 $399,382
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 $301,990 $347,289 $399,382
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $98,150 $112,000 $124,000
Bill Payments $163,661 $192,360 $214,001
Subtotal Spent on Operations $261,811 $304,360 $338,001
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 $11,000 $12,000 $12,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $272,811 $316,360 $350,001
Net Cash Flow $29,179 $30,929 $49,381
Cash Balance $39,929 $70,858 $120,239

8.5 Projected Balance Sheet

The balance sheet in the following table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $39,929 $70,858 $120,239
Other Current Assets $12,000 $12,000 $12,000
Total Current Assets $51,929 $82,858 $132,239
Long-term Assets
Long-term Assets $17,700 $17,700 $17,700
Accumulated Depreciation $3,540 $7,080 $10,620
Total Long-term Assets $14,160 $10,620 $7,080
Total Assets $66,089 $93,478 $139,319
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $15,296 $15,856 $17,744
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $15,296 $15,856 $17,744
Long-term Liabilities ($11,000) ($23,000) ($35,000)
Total Liabilities $4,296 ($7,144) ($17,256)
Paid-in Capital $50,000 $50,000 $50,000
Retained Earnings ($9,550) $11,794 $50,622
Earnings $21,344 $38,828 $55,953
Total Capital $61,794 $100,622 $156,575
Total Liabilities and Capital $66,089 $93,478 $139,319
Net Worth $61,794 $100,622 $156,575

8.6 Business Ratios

The following table outlines some of the more important ratios from the Fine Art Schools industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7911.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 15.00% 15.00% 16.60%
Percent of Total Assets
Other Current Assets 18.16% 12.84% 8.61% 33.90%
Total Current Assets 78.57% 88.64% 94.92% 43.80%
Long-term Assets 21.43% 11.36% 5.08% 56.20%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 23.14% 16.96% 12.74% 36.40%
Long-term Liabilities -16.64% -24.60% -25.12% 22.60%
Total Liabilities 6.50% -7.64% -12.39% 59.00%
Net Worth 93.50% 107.64% 112.39% 41.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 89.99% 89.99% 89.99% 0.00%
Selling, General & Administrative Expenses 82.92% 78.80% 75.98% 70.60%
Advertising Expenses 7.95% 6.91% 7.51% 3.60%
Profit Before Interest and Taxes 9.91% 15.48% 19.29% 3.90%
Main Ratios
Current 3.40 5.23 7.45 1.40
Quick 3.40 5.23 7.45 1.01
Total Debt to Total Assets 6.50% -7.64% -12.39% 59.00%
Pre-tax Return on Net Worth 49.34% 55.13% 51.05% 3.70%
Pre-tax Return on Assets 46.14% 59.34% 57.37% 8.90%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 7.07% 11.18% 14.01% n.a
Return on Equity 34.54% 38.59% 35.74% n.a
Activity Ratios
Accounts Payable Turnover 11.70 12.17 12.17 n.a
Payment Days 27 29 28 n.a
Total Asset Turnover 4.57 3.72 2.87 n.a
Debt Ratios
Debt to Net Worth 0.07 -0.07 -0.11 n.a
Current Liab. to Liab. 3.56 0.00 0.00 n.a
Liquidity Ratios
Net Working Capital $36,634 $67,002 $114,495 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.22 0.27 0.35 n.a
Current Debt/Total Assets 23% 17% 13% n.a
Acid Test 3.40 5.23 7.45 n.a
Sales/Net Worth 4.89 3.45 2.55 n.a
Dividend Payout 0.00 0.00 0.00 n.a