Houses on the Lake

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Houseboat Rental Business Plan

Financial Plan

The business is expected to grow through additional relationships with houseboat owners. These relationships do not require investments of capital, just the work of Robert Hopkins. The business will grow from three boats offered in the first year to eight offered in the third year. This can be done without expanding the marina, as these will all be relatively small boats.

Start-up Funding

Robert Hopkins will provide the bulk of the equity investment from the proceeds of the sale of his bed and breakfast business. Credit cards will provide a small amount of current borrowing. Additionally, a three-year loan will be taken out for the remaining required financing.

Start-up Funding
Start-up Expenses to Fund $45,000
Start-up Assets to Fund $105,000
Total Funding Required $150,000
Assets
Non-cash Assets from Start-up $36,000
Cash Requirements from Start-up $69,000
Additional Cash Raised $0
Cash Balance on Starting Date $69,000
Total Assets $105,000
Liabilities and Capital
Liabilities
Current Borrowing $10,000
Long-term Liabilities $60,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $70,000
Capital
Planned Investment
Robert Hopkins $80,000
Investors $0
Additional Investment Requirement $0
Total Planned Investment $80,000
Loss at Start-up (Start-up Expenses) ($45,000)
Total Capital $35,000
Total Capital and Liabilities $105,000
Total Funding $150,000

Important Assumptions

For the purpose of simplifying projections, Houses On The Lake projects that an average rental length will be a four-day period and that the houseboats will be filled with an average of three individuals per boat.

Break-even Analysis

An average of 11 four-week rentals is projected to produce the monthly break even revenue per month. At first this will be difficult with three boats in the off season, although it will be possible once the first summer arrives.

Break-even Analysis
Monthly Units Break-even 22
Monthly Revenue Break-even $18,574
Assumptions:
Average Per-Unit Revenue $858.03
Average Per-Unit Variable Cost $285.61
Estimated Monthly Fixed Cost $12,392

Projected Profit and Loss

Gross margins will improve in the summers and in future years as cost of sales are a lower rate during summer when rates and prices are higher.

Print marketing includes additional brochure printing and press kits for travel agents as needed. Marketing will increase as efforts intensify to market an increased number of boats and to market to owners.

Depreciation is for the depreciable assets of the marina (~$25,000) over a five year period.

Website marketing includes $1000 per month for ongoing search engine marketing, $750 per month for search engine optimization, and $250 per month for website hosting and maintenance.

Rent is set at $2,000 per month and utilities (electricity, phone, Internet for the office/store space) at $150 per month in the first year. Rent will increase based on increased space for moorage of boats at the marina.

Payroll burden includes payroll taxes and insurance/benefits for employees.

Office and boat maintenance covers light maintenance of the office/store and boats and general supplies.

Most costs are expected to rise at least with inflation.

Based on these projections, the business will have a loss in the first year and move to profit in the second, with significant profit in the third for Hopkins as the number of boats under management increases.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $235,100 $366,756 $703,549
Direct Cost of Sales $78,256 $122,079 $190,444
Other Costs of Sales $0 $0 $0
Total Cost of Sales $78,256 $122,079 $190,444
Gross Margin $156,844 $244,677 $513,105
Gross Margin % 66.71% 66.71% 72.93%
Expenses
Payroll $60,000 $81,000 $103,350
Marketing/Promotion $6,500 $8,000 $10,000
Depreciation $5,000 $6,667 $8,333
Website Marketing $24,000 $24,960 $25,958
Rent $24,000 $30,000 $37,500
Utilities $1,800 $1,872 $1,947
Insurance $10,000 $15,000 $20,000
Payroll Burden $15,000 $20,250 $25,838
Office/Boat Maintenance/Supplies $2,400 $2,496 $2,596
Total Operating Expenses $148,700 $190,245 $235,522
Profit Before Interest and Taxes $8,144 $54,432 $277,583
EBITDA $13,144 $61,099 $285,917
Interest Expense $5,729 $3,000 $1,000
Taxes Incurred $724 $15,430 $82,975
Net Profit $1,690 $36,002 $193,608
Net Profit/Sales 0.72% 9.82% 27.52%

Projected Cash Flow

The business will continue to invest in some equipment for the marina in years 2 and 3 ($5000 per year). The business loan will be repaid over three years with 10% interest. Dividends can be paid to the owner starting in the third year and will be withdrawn with the goal of keeping approximately $40,000 in cash in the business to see it through off season months and to fund needs for renovation or repair to the marina or boats as needed. The credit card borrowing will be paid off over the first year.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $235,100 $366,756 $703,549
Subtotal Cash from Operations $235,100 $366,756 $703,549
Additional Cash Received
Sales Tax, VAT, HST/GST Received $23,510 $36,676 $70,355
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 $258,610 $403,432 $773,904
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $60,000 $81,000 $103,350
Bill Payments $152,477 $239,040 $385,504
Subtotal Spent on Operations $212,477 $320,040 $488,854
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $23,510 $36,676 $70,355
Principal Repayment of Current Borrowing $10,000 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $20,000 $20,000 $20,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $5,000 $5,000
Dividends $0 $0 $50,000
Subtotal Cash Spent $265,987 $381,715 $634,209
Net Cash Flow ($7,377) $21,716 $139,695
Cash Balance $61,623 $83,339 $223,035

Projected Balance Sheet

The business will not be asset-intensive, as shown, as the houseboats themselves will be used through contract and revenue sharing with their owners. The office furnishings and the ski boats are the main assets of the business, and could be sold if the business folded. The liabilities of the business will decrease as the debts are paid off, improving the net worth of the business.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $61,623 $83,339 $223,035
Other Current Assets $6,000 $6,000 $6,000
Total Current Assets $67,623 $89,339 $229,035
Long-term Assets
Long-term Assets $30,000 $35,000 $40,000
Accumulated Depreciation $5,000 $11,667 $20,000
Total Long-term Assets $25,000 $23,333 $20,000
Total Assets $92,623 $112,673 $249,035
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $15,932 $19,980 $32,733
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $15,932 $19,980 $32,733
Long-term Liabilities $40,000 $20,000 $0
Total Liabilities $55,932 $39,980 $32,733
Paid-in Capital $80,000 $80,000 $80,000
Retained Earnings ($45,000) ($43,310) ($57,307)
Earnings $1,690 $36,002 $193,608
Total Capital $36,690 $72,693 $216,301
Total Liabilities and Capital $92,623 $112,673 $249,035
Net Worth $36,690 $72,693 $216,301

Business Ratios

The ratios for Houses On The Lake are compared here to those for the Recreational Goods Rental - Houseboat Rental industry; NAICS code 532292/SIC code 7999, for businesses with less than $500,000 in sales. The gross margins for the business will not be as high as industry averages due to the revenue sharing that the Houses On The Lake business model requires with the boat owners. This also leads to a much reduced level of assets in the business.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 56.00% 91.83% 2.79%
Percent of Total Assets
Other Current Assets 6.48% 5.33% 2.41% 22.84%
Total Current Assets 73.01% 79.29% 91.97% 25.52%
Long-term Assets 26.99% 20.71% 8.03% 74.48%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 17.20% 17.73% 13.14% 8.80%
Long-term Liabilities 43.19% 17.75% 0.00% 84.68%
Total Liabilities 60.39% 35.48% 13.14% 93.49%
Net Worth 39.61% 64.52% 86.86% 6.51%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 66.71% 66.71% 72.93% 84.56%
Selling, General & Administrative Expenses 65.99% 56.90% 45.41% 23.13%
Advertising Expenses 2.76% 2.18% 1.42% 2.22%
Profit Before Interest and Taxes 3.46% 14.84% 39.45% 9.37%
Main Ratios
Current 4.24 4.47 7.00 1.45
Quick 4.24 4.47 7.00 1.37
Total Debt to Total Assets 60.39% 35.48% 13.14% 93.49%
Pre-tax Return on Net Worth 6.58% 70.75% 127.87% 73.67%
Pre-tax Return on Assets 2.61% 45.65% 111.06% 4.80%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 0.72% 9.82% 27.52% n.a
Return on Equity 4.61% 49.53% 89.51% n.a
Activity Ratios
Accounts Payable Turnover 10.57 12.17 12.17 n.a
Payment Days 27 27 24 n.a
Total Asset Turnover 2.54 3.26 2.83 n.a
Debt Ratios
Debt to Net Worth 1.52 0.55 0.15 n.a
Current Liab. to Liab. 0.28 0.50 1.00 n.a
Liquidity Ratios
Net Working Capital $51,690 $69,359 $196,301 n.a
Interest Coverage 1.42 18.14 277.58 n.a
Additional Ratios
Assets to Sales 0.39 0.31 0.35 n.a
Current Debt/Total Assets 17% 18% 13% n.a
Acid Test 4.24 4.47 7.00 n.a
Sales/Net Worth 6.41 5.05 3.25 n.a
Dividend Payout 0.00 0.00 0.26 n.a