Evergreen Life Memorial Center

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Funeral Home Business Plan

Financial Plan

This financial plan is based on acquiring a loan for $225,000 secured by the owner's home. The owner will provide $20,000 of start-up investment personally as well as $80,000 down payment for purchasing a church or similar building.

The Center will achieve profitability in just over two years and reach annual net profit of approximately $196,000 in the Center's fourth year of operation, with subsequent increases annually due to inflation. These figures are conservative because they anticipate a slow market penetration as the Center builds its reputation and reaches full market share in year four.

8.1 Start-up Funding

Our start-up expenses of $19,700 and asset purchases of $197,000 are to be financed partially by the direct owner investment of $20,000 and financing in the amount of $225,000. The details are included in the following table and chart.

Start-up Funding
Start-up Expenses to Fund $19,700
Start-up Assets to Fund $197,000
Total Funding Required $216,700
Assets
Non-cash Assets from Start-up $117,000
Cash Requirements from Start-up $90,000
Additional Cash Raised $28,300
Cash Balance on Starting Date $118,300
Total Assets $235,300
Liabilities and Capital
Liabilities
Current Borrowing $225,000
Long-term Liabilities $0
Other Current Liabilities (interest-free) $0
Total Liabilities $225,000
Capital
Planned Investment
Owner $20,000
Investor $0
Additional Investment Requirement $0
Total Planned Investment $20,000
Loss at Start-up (Start-up Expenses) ($19,700)
Total Capital $300
Total Capital and Liabilities $225,300
Total Funding $245,000

8.2 Important Assumptions

The financial plan assumes interest rates at eight percent raising to 10 percent by 2010. The key underlying assumptions are:

  1. A continuing slow-growth economy, without major recession.
  2. The Baby Boom Generation will continue the trend of demanding more personalized funerals.
  3. The competition will begin offering more personalized services as they see our success, but by then we will have positioned ourselves as the personalized services market leader.

8.3 Break-even Analysis

For our break-even analysis, we assume first-year fixed expenses of $13,606 per month, which includes our full payroll, mortgage payments, utilities and an estimation of other running costs. Payroll alone, during the first year, is only $5,000 per month.

Industry standard margins of 65 percent are assumed.

The initial break-even point is realized in March of 2006 with sales of only four funerals a month.

Break-even Analysis
Monthly Revenue Break-even $20,932
Assumptions:
Average Percent Variable Cost 35%
Estimated Monthly Fixed Cost $13,606

8.4 Projected Profit and Loss

While profitability is realized in March 2006, the second fiscal year shows a slight profit margin because of the need to hire staff and train them ahead of the growth curve. When first hiring staff, it is anticipated that for the first few months, the time it takes to train each employee may exceed the amount of time it would take for the owner to just "do it himself."  However, having staff in place and ready to make good on the promises of service we make in all our marketing efforts is critical to our growth strategy.

Month-by-month assumptions for profit and loss are included in the appendix.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $183,090 $302,736 $544,925 $908,208 $1,017,193
Direct Cost of Sales $64,082 $106,514 $190,724 $317,873 $356,018
Other Costs of Sales $0 $0 $0 $0 $0
Total Cost of Sales $64,082 $106,514 $190,724 $317,873 $356,018
Gross Margin $119,009 $196,222 $354,201 $590,335 $661,175
Gross Margin % 65.00% 64.82% 65.00% 65.00% 65.00%
Expenses
Payroll $60,000 $75,000 $162,172 $181,144 $186,574
Marketing/Promotion $24,000 $24,000 $24,000 $24,000 $24,000
Depreciation $12,672 $12,672 $12,672 $12,672 $12,672
Mortgage Payments $38,400 $38,400 $38,400 $38,400 $38,400
Utilities $3,600 $3,600 $3,600 $3,600 $3,600
Insurance $1,200 $1,200 $1,200 $1,200 $1,200
Payroll Taxes $9,000 $11,250 $24,326 $27,172 $27,986
Auto Expenses $12,000 $12,000 $12,000 $12,000 $12,000
Supplies $2,400 $2,600 $3,000 $3,000 $3,000
Total Operating Expenses $163,272 $180,722 $281,370 $303,187 $309,432
Profit Before Interest and Taxes ($44,264) $15,500 $72,831 $287,148 $351,743
EBITDA ($31,592) $28,172 $85,503 $299,820 $364,415
Interest Expense $16,180 $12,960 $10,800 $7,020 $3,600
Taxes Incurred $0 $762 $18,609 $84,038 $104,443
Net Profit ($60,443) $1,778 $43,422 $196,090 $243,700
Net Profit/Sales -33.01% 0.59% 7.97% 21.59% 23.96%

8.5 Projected Cash Flow

A cash reserve is built into the plan to allow for unforeseen contingencies. Our minimum credit line available projected during this five-year period is over $45,000. 

The company's estimated cash flow analysis is outlined in the following table.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $183,090 $302,736 $544,925 $908,208 $1,017,193
Subtotal Cash from Operations $183,090 $302,736 $544,925 $908,208 $1,017,193
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 $183,090 $302,736 $544,925 $908,208 $1,017,193
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $230,862 $288,286 $488,831 $699,446 $760,821
Subtotal Spent on Operations $230,862 $288,286 $488,831 $699,446 $760,821
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $42,000 $42,000 $42,000 $42,000 $42,000
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 $0 $0 $0 $0
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $272,862 $330,286 $530,831 $741,446 $802,821
Net Cash Flow ($89,772) ($27,550) $14,094 $166,762 $214,372
Cash Balance $28,529 $979 $15,073 $181,834 $396,207

8.6 Projected Balance Sheet

The table below presents the balance sheet for the Evergreen Life Memorial Center. This table reflects dramatic growth in net worth, reaching nearly $425,000 in FY 2010. Our Projected Balance Sheet shows we will not have any difficulty meeting our debt obligations so long as our revenue projections are met.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $28,529 $979 $15,073 $181,834 $396,207
Other Current Assets $27,000 $27,000 $27,000 $27,000 $27,000
Total Current Assets $55,529 $27,979 $42,073 $208,834 $423,207
Long-term Assets
Long-term Assets $80,000 $80,000 $80,000 $80,000 $80,000
Accumulated Depreciation $12,672 $25,344 $38,016 $50,688 $63,360
Total Long-term Assets $67,328 $54,656 $41,984 $29,312 $16,640
Total Assets $122,857 $82,635 $84,057 $238,146 $439,847
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Current Borrowing $183,000 $141,000 $99,000 $57,000 $15,000
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $183,000 $141,000 $99,000 $57,000 $15,000
Long-term Liabilities $0 $0 $0 $0 $0
Total Liabilities $183,000 $141,000 $99,000 $57,000 $15,000
Paid-in Capital $20,000 $20,000 $20,000 $20,000 $20,000
Retained Earnings ($19,700) ($80,143) ($78,365) ($34,943) $161,146
Earnings ($60,443) $1,778 $43,422 $196,090 $243,700
Total Capital ($60,143) ($58,365) ($14,943) $181,146 $424,847
Total Liabilities and Capital $122,857 $82,635 $84,057 $238,146 $439,847
Net Worth ($60,144) ($58,365) ($14,943) $181,146 $424,847

8.7 Business Ratios

This is a more profitably run business than average in its industry because of our value-added services, slightly higher prices and lean operation.

Sales expenses are constant throughout the five-year period. While they are a high percentage in the early years against lower sales, they are low after maturity because nonprofit activities will provide more than adequate publicity that will reduce advertising expenses.

The ratios for long-term liabilities do not reflect the loan for real estate purchase, which is not included as part of this plan.

The company's projected business ratios are provided in the table below. The final column, Industry Profile, shows significant ratios for the funeral service industry for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth 0.00% 65.35% 80.00% 66.67% 12.00% 6.63%
Percent of Total Assets
Other Current Assets 21.98% 32.67% 32.12% 11.34% 6.14% 40.70%
Total Current Assets 45.20% 33.86% 50.05% 87.69% 96.22% 60.97%
Long-term Assets 54.80% 66.14% 49.95% 12.31% 3.78% 39.03%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 148.95% 170.63% 117.78% 23.93% 3.41% 22.29%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 21.95%
Total Liabilities 148.95% 170.63% 117.78% 23.93% 3.41% 44.24%
Net Worth -48.95% -70.63% -17.78% 76.07% 96.59% 55.76%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 65.00% 64.82% 65.00% 65.00% 65.00% 100.00%
Selling, General & Administrative Expenses 98.01% 64.23% 57.03% 43.41% 41.04% 74.74%
Advertising Expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.91%
Profit Before Interest and Taxes -24.18% 5.12% 13.37% 31.62% 34.58% 2.66%
Main Ratios
Current 0.30 0.20 0.42 3.66 28.21 1.85
Quick 0.30 0.20 0.42 3.66 28.21 1.43
Total Debt to Total Assets 148.95% 170.63% 117.78% 23.93% 3.41% 56.96%
Pre-tax Return on Net Worth 100.50% -4.35% -415.11% 154.64% 81.95% 3.83%
Pre-tax Return on Assets -49.20% 3.07% 73.80% 117.63% 79.15% 8.90%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin -33.01% 0.59% 7.97% 21.59% 23.96% n.a
Return on Equity 0.00% 0.00% 0.00% 108.25% 57.36% n.a
Activity Ratios
Accounts Payable Turnover 8.98 12.17 12.17 12.17 12.17 n.a
Total Asset Turnover 1.49 3.66 6.48 3.81 2.31 n.a
Debt Ratios
Debt to Net Worth 0.00 0.00 0.00 0.31 0.04 n.a
Current Liab. to Liab. 1.00 1.00 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital ($127,472) ($113,021) ($56,927) $151,834 $408,207 n.a
Interest Coverage -2.74 1.20 6.74 40.90 97.71 n.a
Additional Ratios
Assets to Sales 0.67 0.27 0.15 0.26 0.43 n.a
Current Debt/Total Assets 149% 171% 118% 24% 3% n.a
Acid Test 0.30 0.20 0.42 3.66 28.21 n.a
Sales/Net Worth 0.00 0.00 0.00 5.01 2.39 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a

8.8 Long-term Plan

The long-term plan is for the Evergreen Life Memorial Center to achieve market share and hold it. This will be an expanding market over the next 35 years as the Baby Boom generation nearly doubles mortality rates from 11 percent per decade to over 18 percent by 2040. Keeping up with this growth, plus population increases in the Lane County area, will provide plenty of business for the Center for generations to come.