Pamperzhou Day Spa

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Day Spa Business Plan

Financial Plan

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.

7.1 Important Assumptions

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:

  1. We assume a strong economy, without major recession.
  2. We assume, of course, that there are no changes to the Medical/insurance Industry, such as the nationalization of health care.
General Assumptions
Year 1 Year 2 Year 3 Year 4 Year 5
Plan Month 1 2 3 4 5
Current Interest Rate 7.00% 7.00% 7.00% 7.00% 7.00%
Long-term Interest Rate 5.65% 5.65% 5.65% 5.65% 5.65%
Tax Rate 28.17% 28.00% 28.17% 28.00% 28.17%
Other 0 0 0 0 0

7.2 Break-even Analysis

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.

Break-even Analysis
Monthly Revenue Break-even $31,022
Assumptions:
Average Percent Variable Cost 39%
Estimated Monthly Fixed Cost $18,893

7.3 Projected Profit and Loss

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.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $823,685 $857,000 $900,000 $946,000 $982,000
Direct Cost of Sales $65,644 $59,925 $73,175 $86,400 $99,575
Massage Therapists' commission $290,307 $302,500 $308,000 $316,250 $319,000
Aestheticians' commission $70,964 $72,000 $74,000 $74,400 $76,000
Out-call Services commission $15,340 $17,550 $19,500 $22,750 $24,050
Total Cost of Sales $442,254 $451,975 $474,675 $499,800 $518,625
Gross Margin $381,431 $405,025 $425,325 $446,200 $463,375
Gross Margin % 46.31% 47.26% 47.26% 47.17% 47.19%
Expenses
Payroll $137,510 $145,000 $155,000 $160,000 $167,000
Marketing/Promotion $7,500 $5,000 $5,000 $8,000 $5,000
Depreciation $0 $50 $50 $50 $50
Rent $66,000 $66,000 $66,000 $66,000 $66,000
Utilities $3,000 $3,100 $3,200 $3,300 $3,400
Advertising $3,000 $3,000 $3,000 $3,000 $3,000
Insurance $1,500 $700 $700 $700 $700
Payroll Taxes $0 $0 $0 $0 $0
Phone $1,500 $1,600 $1,700 $1,800 $1,900
Software Support $0 $495 $495 $495 $495
Other $6,700 $6,700 $6,700 $6,700 $6,700
Total Operating Expenses $226,710 $231,645 $241,845 $250,045 $254,245
Profit Before Interest and Taxes $154,721 $173,380 $183,480 $196,155 $209,130
EBITDA $154,721 $173,430 $183,530 $196,205 $209,180
Interest Expense $2,132 $1,568 $980 $392 $49
Taxes Incurred $42,612 $48,107 $51,404 $54,814 $58,891
Net Profit $109,978 $123,705 $131,096 $140,949 $150,190
Net Profit/Sales 13.35% 14.43% 14.57% 14.90% 15.29%

7.4 Projected Cash Flow

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.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $799,494 $831,290 $875,250 $917,620 $954,995
Cash from Receivables $14,068 $25,075 $25,152 $26,861 $27,580
Subtotal Cash from Operations $813,562 $856,365 $900,402 $944,481 $982,575
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 $813,562 $856,365 $900,402 $944,481 $982,575
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $137,510 $145,000 $155,000 $160,000 $167,000
Bill Payments $500,843 $620,697 $613,965 $643,298 $663,703
Subtotal Spent on Operations $638,353 $765,697 $768,965 $803,298 $830,703
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $8,400 $8,400 $8,400 $8,400 $1,400
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0
Purchase Other Current Assets $0 $0 $0 $0 $0
Purchase Long-term Assets $0 $2,000 $2,000 $0 $0
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $646,753 $776,097 $779,365 $811,698 $832,103
Net Cash Flow $166,808 $80,268 $121,037 $132,783 $150,472
Cash Balance $213,263 $293,531 $414,568 $547,351 $697,823

7.5 Projected Balance Sheet

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. 

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $213,263 $293,531 $414,568 $547,351 $697,823
Accounts Receivable $10,123 $10,759 $10,357 $11,876 $11,301
Inventory $12,441 $11,357 $13,868 $14,577 $15,132
Other Current Assets $32,095 $32,095 $32,095 $32,095 $32,095
Total Current Assets $267,923 $347,742 $470,888 $605,899 $756,351
Long-term Assets
Long-term Assets $0 $2,000 $4,000 $4,000 $4,000
Accumulated Depreciation $0 $50 $100 $150 $200
Total Long-term Assets $0 $1,950 $3,900 $3,850 $3,800
Total Assets $267,923 $349,692 $474,788 $609,749 $760,151
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $81,795 $48,260 $50,660 $53,072 $54,683
Current Borrowing $26,600 $18,200 $9,800 $1,400 $0
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $108,395 $66,460 $60,460 $54,472 $54,683
Long-term Liabilities $0 $0 $0 $0 $0
Total Liabilities $108,395 $66,460 $60,460 $54,472 $54,683
Paid-in Capital $130,000 $130,000 $130,000 $130,000 $130,000
Retained Earnings ($80,450) $29,528 $153,232 $284,328 $425,277
Earnings $109,978 $123,705 $131,096 $140,949 $150,190
Total Capital $159,528 $283,232 $414,328 $555,277 $705,467
Total Liabilities and Capital $267,923 $349,692 $474,788 $609,749 $760,151
Net Worth $159,528 $283,232 $414,328 $555,277 $705,467

7.6 Business Ratios

The following table shows the projected businesses ratios. We expect to maintain healthy ratios for profitability, risk, and return. The ratios for the initial year of growth are, of course, not as favorable as the second year.  Industry profile ratios based on the Standard Industrial Classification (SIC) code 7991.0103, Spas, are shown for comparison.
Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth 0.00% 4.04% 5.02% 5.11% 3.81% 3.43%
Percent of Total Assets
Accounts Receivable 3.78% 3.08% 2.18% 1.95% 1.49% 4.05%
Inventory 4.64% 3.25% 2.92% 2.39% 1.99% 4.35%
Other Current Assets 11.98% 9.18% 6.76% 5.26% 4.22% 30.50%
Total Current Assets 100.00% 99.44% 99.18% 99.37% 99.50% 38.90%
Long-term Assets 0.00% 0.56% 0.82% 0.63% 0.50% 61.10%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 40.46% 19.01% 12.73% 8.93% 7.19% 20.63%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 25.37%
Total Liabilities 40.46% 19.01% 12.73% 8.93% 7.19% 46.00%
Net Worth 59.54% 80.99% 87.27% 91.07% 92.81% 54.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 46.31% 47.26% 47.26% 47.17% 47.19% 100.00%
Selling, General & Administrative Expenses 90.28% 94.36% 90.99% 0.00% 0.00% 69.59%
Advertising Expenses 0.00% 0.01% 0.01% 0.01% 0.01% 2.76%
Profit Before Interest and Taxes 18.78% 20.23% 20.39% 20.74% 21.30% 4.07%
Main Ratios
Current 2.47 5.23 7.79 11.12 13.83 1.17
Quick 2.36 5.06 7.56 10.86 13.55 0.82
Total Debt to Total Assets 40.46% 19.01% 12.73% 8.93% 7.19% 58.83%
Pre-tax Return on Net Worth 95.65% 60.66% 44.05% 35.25% 29.64% 4.43%
Pre-tax Return on Assets 56.95% 49.13% 38.44% 32.11% 27.51% 10.76%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin 13.35% 14.43% 14.57% 14.90% 15.29% n.a
Return on Equity 68.94% 43.68% 31.64% 25.38% 21.29% n.a
Activity Ratios
Accounts Receivable Turnover 2.39 2.39 2.39 2.39 2.39 n.a
Collection Days 77 148 156 143 157 n.a
Inventory Turnover 10.15 5.04 5.80 6.07 6.70 n.a
Accounts Payable Turnover 7.12 12.17 12.17 12.17 12.17 n.a
Payment Days 27 40 29 29 30 n.a
Total Asset Turnover 3.07 2.45 1.90 1.55 1.29 n.a
Debt Ratios
Debt to Net Worth 0.68 0.23 0.15 0.10 0.08 n.a
Current Liab. to Liab. 1.00 1.00 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $159,528 $281,282 $410,428 $551,427 $701,667 n.a
Interest Coverage 72.59 110.57 187.22 500.40 4,267.96 n.a
Additional Ratios
Assets to Sales 0.33 0.41 0.53 0.64 0.77 n.a
Current Debt/Total Assets 40% 19% 13% 9% 7% n.a
Acid Test 2.26 4.90 7.39 10.64 13.35 n.a
Sales/Net Worth 5.16 3.03 2.17 1.70 1.39 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a