Columbia Cleaners

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Dry Cleaning Home Delivery Business Plan

Financial Plan

The following topics, the cash flow statement, profit and loss account, and balance sheet have been built using forecasted information which is as accurate and realistic as possible. Sales increase gradually over the 12 months showing the positive trend of sales. Columbia Cleaners is steadily gaining market share. Gross profit and net profit rise proportionately to sales revenue. The financial statements show that the business runs quite well and achieves expected results.

7.1 Start-up Funding

Startup expenses will be funded through a combination of owner's equity capital and a commercial loan, as summarized in the table below.

The owner will invest $40,000 in the business. Additional capital for the business in the amount of $20,000 will be borrowed from a bank.

The lending plan has to be completed and submitted to the bank 6 months before starting the business. The loan will be needed two months in advance. Annual interest of 10% has to be paid on the long-term loans secured with fixed assets.

Start-up Funding
Start-up Expenses to Fund $23,000
Start-up Assets to Fund $27,000
Total Funding Required $50,000
Assets
Non-cash Assets from Start-up $17,000
Cash Requirements from Start-up $10,000
Additional Cash Raised $10,000
Cash Balance on Starting Date $20,000
Total Assets $37,000
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $20,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $20,000
Capital
Planned Investment
J.C. Copperbeech $40,000
Other investors $0
Additional Investment Requirement $0
Total Planned Investment $40,000
Loss at Start-up (Start-up Expenses) ($23,000)
Total Capital $17,000
Total Capital and Liabilities $37,000
Total Funding $60,000

7.2 Break-even Analysis

The monthly break-even point of the business is calculated below. As revenue becomes higher than break-even point, the business starts to harvest the profit. As forecasted, the total demand on dry cleaning and laundry service continues to rise in the following years; therefore, if the service satisfies its customers, increases new customers and retains customer loyalty, the profit will continue to go up.

Break-even Analysis
Monthly Revenue Break-even $19,205
Assumptions:
Average Percent Variable Cost 11%
Estimated Monthly Fixed Cost $17,097

7.3 Projected Cash Flow

Cash flow increases gradually over the year creating the positive net worth. The first several months of operation will be of critical importance to the survival of the business, and we will be paying special attention to our cash flows. We plan to purchase one more van in April 2005 to accommodate for the growing business volumes. Initially, we do not plan to sell on credit, with all of our transactions being cash- or credit card based. We anticipate generating a sufficient customer base that will allow us to maintain healthy cash balances starting from the middle of the first year of operations, as summarized in the table below.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $324,700 $422,110 $548,744
Subtotal Cash from Operations $324,700 $422,110 $548,744
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 $324,700 $422,110 $548,744
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $115,860 $121,653 $127,736
Bill Payments $133,714 $191,828 $245,003
Subtotal Spent on Operations $249,574 $313,481 $372,739
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 $334 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $10,000 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $259,908 $313,481 $372,739
Net Cash Flow $64,792 $108,629 $176,005
Cash Balance $84,792 $193,421 $369,426

7.4 Projected Profit and Loss

The table below outlines our projected profit and loss statements for the first three years of operation. In general, the business might meet some difficulties in the beginning months but after that the business grows as expected and produces a small profit at the end of the year. It is not necessary for the business to gain high profit in the first year. Nevertheless, we are expecting to make a small profit the first year. Our second and third year net profits are expected to grow quite a bit, as shown below.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $324,700 $422,110 $548,744
Direct Cost of Sales $35,652 $46,348 $60,252
Other Costs of Sales $0 $0 $0
Total Cost of Sales $35,652 $46,348 $60,252
Gross Margin $289,048 $375,762 $488,492
Gross Margin % 89.02% 89.02% 89.02%
Expenses
Payroll $115,860 $121,653 $127,736
Marketing/Promotion $2,250 $2,700 $3,000
Depreciation $4,500 $4,000 $5,000
Rent $14,400 $15,000 $16,000
Utilities $11,100 $12,000 $13,000
Telecommunications $4,800 $5,000 $5,500
Insurance $10,200 $11,000 $12,000
Payroll Taxes $0 $0 $0
Maintenance $1,200 $1,500 $2,000
Gas $5,250 $6,500 $7,500
Equipment lease $20,000 $20,000 $20,000
Office cleaning $3,600 $4,000 $5,000
Other $12,000 $20,000 $30,000
Total Operating Expenses $205,160 $223,353 $246,736
Profit Before Interest and Taxes $83,888 $152,409 $241,756
EBITDA $88,388 $156,409 $246,756
Interest Expense $1,967 $1,967 $1,967
Taxes Incurred $24,576 $45,133 $71,937
Net Profit $57,345 $105,310 $167,853
Net Profit/Sales 17.66% 24.95% 30.59%

7.5 Projected Balance Sheet

The table below shows the balance sheet annual figures for the first three years of operation. First year monthly figures are presented in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $84,792 $193,421 $369,426
Inventory $4,008 $5,210 $6,773
Other Current Assets $0 $0 $0
Total Current Assets $88,800 $198,631 $376,199
Long-term Assets
Long-term Assets $25,000 $25,000 $25,000
Accumulated Depreciation $4,500 $8,500 $13,500
Total Long-term Assets $20,500 $16,500 $11,500
Total Assets $109,300 $215,131 $387,699
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $15,289 $15,810 $20,525
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $15,289 $15,810 $20,525
Long-term Liabilities $19,666 $19,666 $19,666
Total Liabilities $34,955 $35,476 $40,191
Paid-in Capital $40,000 $40,000 $40,000
Retained Earnings ($23,000) $34,345 $139,655
Earnings $57,345 $105,310 $167,853
Total Capital $74,345 $179,655 $347,508
Total Liabilities and Capital $109,300 $215,131 $387,699
Net Worth $74,345 $179,655 $347,508

7.6 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios for Commercial Drycleaning and Laundry Collection and Distribution Establishments, based on the Standard Industrial Classification code 7216.9903, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 30.00% 30.00% 4.37%
Percent of Total Assets
Inventory 3.67% 2.42% 1.75% 4.37%
Other Current Assets 0.00% 0.00% 0.00% 38.35%
Total Current Assets 81.24% 92.33% 97.03% 55.47%
Long-term Assets 18.76% 7.67% 2.97% 44.53%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 13.99% 7.35% 5.29% 22.38%
Long-term Liabilities 17.99% 9.14% 5.07% 24.56%
Total Liabilities 31.98% 16.49% 10.37% 46.94%
Net Worth 68.02% 83.51% 89.63% 53.06%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 89.02% 89.02% 89.02% 100.00%
Selling, General & Administrative Expenses 71.36% 64.07% 58.43% 77.90%
Advertising Expenses 0.00% 0.00% 0.00% 2.06%
Profit Before Interest and Taxes 25.84% 36.11% 44.06% 2.41%
Main Ratios
Current 5.81 12.56 18.33 1.70
Quick 5.55 12.23 18.00 1.28
Total Debt to Total Assets 31.98% 16.49% 10.37% 61.40%
Pre-tax Return on Net Worth 110.19% 83.74% 69.00% 4.39%
Pre-tax Return on Assets 74.95% 69.93% 61.85% 11.38%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 17.66% 24.95% 30.59% n.a
Return on Equity 77.13% 58.62% 48.30% n.a
Activity Ratios
Inventory Turnover 11.85 10.06 10.06 n.a
Accounts Payable Turnover 9.75 12.17 12.17 n.a
Payment Days 27 30 27 n.a
Total Asset Turnover 2.97 1.96 1.42 n.a
Debt Ratios
Debt to Net Worth 0.47 0.20 0.12 n.a
Current Liab. to Liab. 0.44 0.45 0.51 n.a
Liquidity Ratios
Net Working Capital $73,511 $182,821 $355,674 n.a
Interest Coverage 42.66 77.50 122.93 n.a
Additional Ratios
Assets to Sales 0.34 0.51 0.71 n.a
Current Debt/Total Assets 14% 7% 5% n.a
Acid Test 5.55 12.23 18.00 n.a
Sales/Net Worth 4.37 2.35 1.58 n.a
Dividend Payout 0.00 0.00 0.00 n.a