Horse Training Business Plan

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Financial Plan

Ereidi Farm is intending to grow its cash profits by expanding to a larger turn-key facility.  Although more expensive to purchase, a turn-key facility of world class quality allows the immediate generation of cash flow at the higher end of the market.  The facility we are purchasing does not require the additional expenditure of capital resources to be fully functional, it is ready for business.

Our farm sells a service and does not maintain an inventory.

We operate on a "Cash Only" basis and choose our clients accordingly.  It is very rare that we except payments of any type although we may do so when selling one of our home-grown foals to a well-known and trusted client.  Our cash only approach allows us to maintain sufficient cash on hand and not waste valuable time and resources collecting amounts due.

At this time, the owner's husband supplies additional capital as needed from his current job.  He will continue in his current employ.

8.1 Important Assumptions

Important assumptions concerning the thoroughbred market and Ereidi Farm's targeted market include:

The thoroughbred market industry in Pennsylvania will continue to grow.  The added slot machine legislation will cause a dramatic growth spurt in racing programs within the state, quickly causing an increase in the demand for services within the state.

Statistics will continue to indicate the decline of racing programs in traditionally strong racing states.  Owners of bloodstock within these distressed states will actively seek out new locations in which to relocate their horses and operate a profitable, quality stable.

New owners will invest in the industry, they will be reached by large industry umbrella operations such as the NTRA and TOBA.  (National Thoroughbred Racing Association and Thoroughbred Owners and Breeders Association) respectively.

Our targeted markets will continue to post personal income growth despite fluctuating economic conditions.  They will continue to invest in non-traditional "exotic" investments such as thoroughbred racehorses.

General Assumptions
FY 2004 FY 2005 FY 2006
Plan Month 1 2 3
Current Interest Rate 5.88% 6.00% 5.88%
Long-term Interest Rate 7.00% 7.00% 7.00%
Tax Rate 23.58% 23.00% 23.58%
Other 0 0 0

8.2 Break-even Analysis

Break-even assumptions are as follows: 

  1. Per unit cost is based off of one horse with total start up-units equal to 33 horses.
  2. Variable costs include: salaries, advertising, maintenance and office expenses.
  3. Fixed costs include: mortgage/loan, taxes, insurance, utilities and cost to keep 33 horses.

Break-even calculations are shown in the following table and chart.

Break-even Analysis
Monthly Revenue Break-even $4,652
Assumptions:
Average Percent Variable Cost 13%
Estimated Monthly Fixed Cost $4,036

8.3 Projected Profit and Loss

Our planned expansion realizes a profit after total expenses are deducted from gross profit.  As growth occurs, expenses increase accordingly, however our net profit also continues to grow.  This reflects the typical cost of doing business in the horse industry as a whole.

Pro Forma Profit and Loss
FY 2004 FY 2005 FY 2006
Sales $264,250 $292,617 $327,381
Direct Cost of Sales $35,000 $41,485 $50,247
Other Costs of Sales $0 $0 $0
Total Cost of Sales $35,000 $41,485 $50,247
Gross Margin $229,250 $251,132 $277,135
Gross Margin % 86.75% 85.82% 84.65%
Expenses
Payroll $40,030 $76,872 $97,800
Sales and Marketing and Other Expenses $0 $0 $0
Depreciation $2,400 $2,400 $2,400
Rent $0 $0 $0
Payroll Taxes $6,005 $11,531 $14,670
Other $0 $0 $0
Total Operating Expenses $48,435 $90,803 $114,870
Profit Before Interest and Taxes $180,816 $160,329 $162,265
EBITDA $183,216 $162,729 $164,665
Interest Expense $14,274 $14,290 $14,274
Taxes Incurred $38,402 $33,589 $34,901
Net Profit $128,140 $112,450 $113,090
Net Profit/Sales 48.49% 38.43% 34.54%

8.4 Projected Cash Flow

Ereidi Farm is a "Cash Only" type of business.  Although we do accept payments for the horses we raise and sell, the rest of our business is cash based in order to increase cash flow and limit the farm's liabilities.   

Pro Forma Cash Flow
FY 2004 FY 2005 FY 2006
Cash Received
Cash from Operations
Cash Sales $224,613 $248,725 $278,274
Cash from Receivables $41,176 $42,669 $47,608
Subtotal Cash from Operations $265,788 $291,393 $325,882
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 $265,788 $291,393 $325,882
Expenditures FY 2004 FY 2005 FY 2006
Expenditures from Operations
Cash Spending $40,030 $76,872 $97,800
Bill Payments $81,830 $104,452 $113,007
Subtotal Spent on Operations $121,860 $181,324 $210,807
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 $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $121,860 $181,324 $210,807
Net Cash Flow $143,928 $110,069 $115,075
Cash Balance $147,210 $257,280 $372,354

8.5 Projected Balance Sheet

The balance sheet in the following table shows sufficient growth of net worth, and a sufficiently healthy financial position.  The monthly estimates are included in the appendix.

Please note that specific variable and fixed expense categories have intentionally been left blank as these expenses are already figured into our "cost-per-horse" expense.

Pro Forma Balance Sheet
FY 2004 FY 2005 FY 2006
Assets
Current Assets
Cash $147,210 $257,280 $372,354
Accounts Receivable $11,399 $12,622 $14,122
Other Current Assets $87,684 $87,684 $87,684
Total Current Assets $246,293 $357,586 $474,161
Long-term Assets
Long-term Assets $490,000 $490,000 $490,000
Accumulated Depreciation $5,200 $7,600 $10,000
Total Long-term Assets $484,800 $482,400 $480,000
Total Assets $731,093 $839,986 $954,161
Liabilities and Capital FY 2004 FY 2005 FY 2006
Current Liabilities
Accounts Payable $11,850 $8,293 $9,377
Current Borrowing $13,000 $13,000 $13,000
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $24,850 $21,293 $22,377
Long-term Liabilities $193,000 $193,000 $193,000
Total Liabilities $217,850 $214,293 $215,377
Paid-in Capital $0 $0 $0
Retained Earnings $385,103 $513,243 $625,693
Earnings $128,140 $112,450 $113,090
Total Capital $513,243 $625,693 $738,783
Total Liabilities and Capital $731,093 $839,986 $954,161
Net Worth $513,243 $625,693 $738,783

8.6 Business Ratios

Business ratios for the years of this plan are shown below.  Industry profile ratios based on the Standard Industrial Classification (SIC) code 0752.0102, [Breeding services, horses: racing and non-racing], are shown for comparison.

Ratio Analysis
FY 2004 FY 2005 FY 2006 Industry Profile
Sales Growth 1265.84% 10.73% 11.88% 10.13%
Percent of Total Assets
Accounts Receivable 1.56% 1.50% 1.48% 11.58%
Other Current Assets 11.99% 10.44% 9.19% 31.09%
Total Current Assets 33.69% 42.57% 49.69% 51.94%
Long-term Assets 66.31% 57.43% 50.31% 48.06%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 3.40% 2.53% 2.35% 23.95%
Long-term Liabilities 26.40% 22.98% 20.23% 24.54%
Total Liabilities 29.80% 25.51% 22.57% 48.49%
Net Worth 70.20% 74.49% 77.43% 51.51%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 86.75% 85.82% 84.65% 38.83%
Selling, General & Administrative Expenses 37.53% 46.76% 49.28% 25.23%
Advertising Expenses 0.00% 0.00% 0.00% 0.43%
Profit Before Interest and Taxes 68.43% 54.79% 49.56% 1.11%
Main Ratios
Current 9.91 16.79 21.19 1.47
Quick 9.91 16.79 21.19 0.89
Total Debt to Total Assets 29.80% 25.51% 22.57% 1.73%
Pre-tax Return on Net Worth 32.45% 23.34% 20.03% 64.10%
Pre-tax Return on Assets 22.78% 17.39% 15.51% 4.81%
Additional Ratios FY 2004 FY 2005 FY 2006
Net Profit Margin 48.49% 38.43% 34.54% n.a
Return on Equity 24.97% 17.97% 15.31% n.a
Activity Ratios
Accounts Receivable Turnover 3.48 3.48 3.48 n.a
Collection Days 60 100 99 n.a
Accounts Payable Turnover 7.91 12.17 12.17 n.a
Payment Days 27 36 28 n.a
Total Asset Turnover 0.36 0.35 0.34 n.a
Debt Ratios
Debt to Net Worth 0.42 0.34 0.29 n.a
Current Liab. to Liab. 0.11 0.10 0.10 n.a
Liquidity Ratios
Net Working Capital $221,443 $336,293 $451,783 n.a
Interest Coverage 12.67 11.22 11.37 n.a
Additional Ratios
Assets to Sales 2.77 2.87 2.91 n.a
Current Debt/Total Assets 3% 3% 2% n.a
Acid Test 9.45 16.20 20.56 n.a
Sales/Net Worth 0.51 0.47 0.44 n.a
Dividend Payout 0.00 0.00 0.00 n.a