The premier element to our financial plan is initiating, maintaining, and improving the factors that create, stabilize and increase our cash flow. Because of the commission structure of our contractor payments, our variable costs will exceed fixed costs for all years of this plan, which should help stabilize the cash flow - we only pay commission when we make a sale. We will surpass the break-even point by month four, and end the first year with a net profit margin of almost 11%. By quickly repaying our loan while increasing sales, and managing costs, we will increase the net worth of the business substantially in the first year, and continue increasing it for the foreseeable future.
The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. We assume cash payments for all services, except for the 1% of sales projected as insurance reimbursements, with collection days at 90. The collection days are for insurance billings only. Interest rates, tax rates, and personnel burden are based on conservative assumptions.
Two of the more important underlying assumptions are:
The break-even analysis table shows what we need to make in sales to meet costs. Our variable costs include both the direct costs shown in the Sales Forecast table, for linens, oils, and retail product inventory, but also includes the commissions paid to contracted massage therapists and aestheticians. We should surpass the break-even point by month four of operations.
Because we are paying our service-provider on commission, our variable costs will exceed our fixed costs. This keeps our overhead low, and means we paying ONLY for hours when they actually provide services. Keeping such a large pool of reliable massage therapists and aestheticians as we are recruiting will keep us from losing business with no-shows, especially since we will schedule our contractors, as much as possible, for full days or half-days, rather than individual appointments.
Fixed expenses are the customary: rent, electric, advertising, insurance. There are four main areas of income: massage, aesthetician retail and out call. Massage and aesthetician services are $65 per service minimum, with 55% of that going to the service provider. The basis for the sales projections is a conservative estimate of 7 services per day the first month in business and 53 services per day by the end of the first year. At 53 services per day we would still only be operating 75% to capacity with 7 treatment rooms operating 7 days a week, 8-10 hours per day.
On retail products, the gross margin is consistently 50% across the board. The retail lines go in conjunction with the spa services as an extension of the spa experience. The more customers, the more retail sales that will be driven. These high-end cosmetics and spa products are hard to find items that generate repeat purchases.
Based on our conservative sales forecasts, the following Cash Flow table shows Pamperzhou Day Spa with a consistently positive Cash Flow. After two months, the spa will show a consistent increase in the cash balance. Because the business is a sole proprietorship, the owner's draw is obviously the area of cash flow where adjustments can be made if Cash Flow becomes tight.
The only Accounts Receivable carried is any Insurance Billings that are not paid during the month. Although some insurance companies pay promptly, within 10 working days, others take more than 6 weeks to pay. We have set our collection days for this small percentage of non-cash sales at 90 days, to be conservative.
The Balance Sheet shows a steady increase in earnings and net worth over the next five years.