Hair and Beauty Salon Business Plan

START YOUR OWN BUSINESS PLAN

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Financial Plan

Our goal is to be a profitable business beginning in the first month. The business will not have to wait long for clients to learn about it since the stylists will already have an existing client base.

To assure the start-up funds lender that the owners are financially stable, a personal financial statement is enclosed illustrating other sources of income that include interest and dividend income from investments ($2,840), salary income ($29,658), and commission income ($15,000).

6.1 Important Assumptions

The financials that are enclosed have a number of assumptions:

Revenues will grow at an annual rate of 15%, increasing 20% in November and December due to a historical jump in revenues at this time of year. We anticipate this increase to stay steady throughout the following year to account for the normal flow of new clients coming into the salon. Estimates for sales revenue and growth are intentionally low, while anticipated expenses are exaggerated to the high side to illustrate a worst case scenario.

We did not use cost of goods sold in our calculations of net service sales, but included all related recurring expenses, such as payroll and supplies, in the operating expenses area of the profit and loss table. The only direct costs in the sales forecast are for projected product sales.

Product sales are a minimal part of our market. We are not quite sure how much revenue will be derived from products, so we took a low-ball approach and estimated sales of $800 a month.  Also in the sales projections table are services such as nails and massages. We are not quite sure how much revenue these two services will generate. We are certain that in time these services will be a large part of our revenue, but to err on the conservative side, we estimate revenues from these services to be only $1,500 a month for the first year.

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

6.2 Projected Cash Flow

We expect to manage cash flow over the next three years simply by the growth of the cash flow of the business. The business will generate more than enough cash flow to cover all of its expenses.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $166,400 $211,022 $239,975
Subtotal Cash from Operations $166,400 $211,022 $239,975
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 $166,400 $211,022 $239,975
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $46,400 $52,520 $54,876
Bill Payments $99,540 $128,730 $147,285
Subtotal Spent on Operations $145,940 $181,250 $202,161
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 $12,000 $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 $157,940 $193,250 $214,161
Net Cash Flow $8,460 $17,772 $25,814
Cash Balance $8,960 $26,733 $52,547

6.3 Break-even Analysis

The break-even analysis shows that Trend Setters has a good balance of fixed costs and sufficient sales strength to remain healthy. This calculation is focused on service sales, and excludes costs related to product sales. Our conservative forecast shows the salon just passing the break-even point throughout most of the first year, but we expect actual sales to be higher.

Break-even Analysis
Monthly Revenue Break-even $12,995
Assumptions:
Average Percent Variable Cost 3%
Estimated Monthly Fixed Cost $12,657

6.4 Projected Profit and Loss

The following table shows our very conservative profit and loss projections for the next three years. The table includes the payments for all independently contracted stylists and technicians, as well for all regularly occurring supply expenses associated with service sales.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $166,400 $211,022 $239,975
Direct Cost of Sales $4,320 $4,300 $4,400
Other Costs of Sales $0 $0 $0
Total Cost of Sales $4,320 $4,300 $4,400
Gross Margin $162,080 $206,722 $235,575
Gross Margin % 97.40% 97.96% 98.17%
Expenses
Payroll $46,400 $52,520 $54,876
Marketing/Promotion $22,800 $24,000 $26,000
Depreciation $8,146 $8,146 $8,146
Rent $22,740 $22,740 $22,740
Utilities $4,200 $4,200 $4,200
Insurance $1,200 $1,200 $1,200
Payroll Taxes $0 $0 $0
Independently contracted stylists $40,400 $55,000 $69,000
Supplies $6,000 $6,000 $6,000
Other $0 $0 $0
Total Operating Expenses $151,886 $173,806 $192,162
Profit Before Interest and Taxes $10,194 $32,916 $43,413
EBITDA $18,340 $41,062 $51,559
Interest Expense $5,542 $4,392 $3,192
Taxes Incurred $1,396 $8,557 $12,066
Net Profit $3,257 $19,967 $28,155
Net Profit/Sales 1.96% 9.46% 11.73%

6.5 Projected Balance Sheet

As shown in the balance sheet, we expect a healthy growth in net worth.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $8,960 $26,733 $52,547
Other Current Assets $600 $600 $600
Total Current Assets $9,560 $27,333 $53,147
Long-term Assets
Long-term Assets $59,500 $59,500 $59,500
Accumulated Depreciation $8,146 $16,292 $24,438
Total Long-term Assets $51,354 $43,208 $35,062
Total Assets $60,914 $70,541 $88,209
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $9,057 $10,717 $12,230
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $9,057 $10,717 $12,230
Long-term Liabilities $49,917 $37,917 $25,917
Total Liabilities $58,974 $48,634 $38,147
Paid-in Capital $500 $500 $500
Retained Earnings ($1,817) $1,440 $21,407
Earnings $3,257 $19,967 $28,155
Total Capital $1,940 $21,907 $50,062
Total Liabilities and Capital $60,914 $70,541 $88,209
Net Worth $1,940 $21,907 $50,062

6.6 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) Index code 7231, Beauty Shops, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 26.82% 13.72% 7.35%
Percent of Total Assets
Other Current Assets 0.98% 0.85% 0.68% 50.11%
Total Current Assets 15.69% 38.75% 60.25% 64.74%
Long-term Assets 84.31% 61.25% 39.75% 35.26%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 14.87% 15.19% 13.86% 21.71%
Long-term Liabilities 81.95% 53.75% 29.38% 25.39%
Total Liabilities 96.82% 68.94% 43.25% 47.10%
Net Worth 3.18% 31.06% 56.75% 52.90%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 97.40% 97.96% 98.17% 100.00%
Selling, General & Administrative Expenses 95.45% 88.50% 86.43% 67.01%
Advertising Expenses 4.90% 3.86% 3.39% 2.18%
Profit Before Interest and Taxes 6.13% 15.60% 18.09% 4.59%
Main Ratios
Current 1.06 2.55 4.35 1.97
Quick 1.06 2.55 4.35 1.46
Total Debt to Total Assets 96.82% 68.94% 43.25% 53.38%
Pre-tax Return on Net Worth 239.86% 130.21% 80.34% 8.92%
Pre-tax Return on Assets 7.64% 40.44% 45.60% 19.14%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 1.96% 9.46% 11.73% n.a
Return on Equity 167.90% 91.15% 56.24% n.a
Activity Ratios
Accounts Payable Turnover 11.99 12.17 12.17 n.a
Payment Days 27 28 28 n.a
Total Asset Turnover 2.73 2.99 2.72 n.a
Debt Ratios
Debt to Net Worth 30.41 2.22 0.76 n.a
Current Liab. to Liab. 0.15 0.22 0.32 n.a
Liquidity Ratios
Net Working Capital $503 $16,616 $40,917 n.a
Interest Coverage 1.84 7.50 13.60 n.a
Additional Ratios
Assets to Sales 0.37 0.33 0.37 n.a
Current Debt/Total Assets 15% 15% 14% n.a
Acid Test 1.06 2.55 4.35 n.a
Sales/Net Worth 85.79 9.63 4.79 n.a
Dividend Payout 0.00 0.00 0.00 n.a