Barton Interiors

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Interior Design Business Plan

Financial Plan

The initial funding of $25,000 will be invested by the owner.  The goal is to fund the growth of the business from its earnings.  The financial plan contains these essential factors:

  1. A growth rate in sales of 47% for the year 2002 and 15% for 2003.
  2. An average sales per month that increases each year, averaging $3,870 in the first year, $5,720 the second, and $6,600 in the third year.
  3. Continue to fund the growth of the business from the revenues it generates.

Financial difficulties and risks

  • Slow sales resulting in less-than-projected cash flow.
  • Unexpected and excessive cost increases compared to the planned expenses.
  • Overly aggressive and debilitating actions by competing designers.
  • A parallel entry by a new competitor further diminishing revenue generation potential.

Worst case risks might include

  • Determining the business cannot support itself on an ongoing basis.
  • Dealing with the financial, business, and personal devastation of the venture's failure.  Survivable but painful.

Break-even Analysis

The break-even analysis below is expressed as a per-client unit. This is based on average hourly billing, product sales, and costs per transaction.

Break-even Analysis
Monthly Revenue Break-even $4,067
Assumptions:
Average Percent Variable Cost 32%
Estimated Monthly Fixed Cost $2,763

Important Assumptions

The following captured critical assumptions will determine the potential for future success.

  • A healthy economy that supports a moderate level of growth in the market.
  • The ability to support a gross margin percentage in excess of 65%.
  • Keeping operating costs low, particularly in the areas of product purchases ongoing monthly expenses.
  • Receiving an initial payment for each project of 50% of estimated time and product purchases and collecting the balance of these revenues within 45 days of completing each project.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 9.50% 9.50% 9.50%
Long-term Interest Rate 8.50% 8.50% 8.50%
Tax Rate 28.17% 28.00% 28.17%
Other 0 0 0

Key Financial Indicators

The key financial indicators focus on cash flow.  There is virtually no inventory but late payments for completed jobs will be a concern.  Timely billing and collection will be critical.  All expenses are tracked on a monthly basis, recorded in the accounting software, and will be compared to our business plan budget.

Start-up Summary

The following details the initial start-up expenses for Barton Interiors.  Most equipment costs are office related.  Sample and display costs include books, samples and resources necessary to promote furniture, fabric and other home accessory products.

Start-up
Requirements
Start-up Expenses
Legal $500
Stationery etc. $850
Brochures $420
Consultants $450
Insurance $150
Samples and Reference Books $3,250
Research and development $800
Expensed equipment $4,250
Other $550
Total Start-up Expenses $11,220
Start-up Assets
Cash Required $9,780
Other Current Assets $1,000
Long-term Assets $3,000
Total Assets $13,780
Total Requirements $25,000
Start-up Funding
Start-up Expenses to Fund $11,220
Start-up Assets to Fund $13,780
Total Funding Required $25,000
Assets
Non-cash Assets from Start-up $4,000
Cash Requirements from Start-up $9,780
Additional Cash Raised $0
Cash Balance on Starting Date $9,780
Total Assets $13,780
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $0
Capital
Planned Investment
Jill Barton $25,000
Investor 2 $0
Other $0
Additional Investment Requirement $0
Total Planned Investment $25,000
Loss at Start-up (Start-up Expenses) ($11,220)
Total Capital $13,780
Total Capital and Liabilities $13,780
Total Funding $25,000

Projected Profit and Loss

The following represents the projected profit and loss for Barton Interiors based on sales and expense projections for 2002 through 2004.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $46,460 $68,640 $99,200
Direct Cost of Sales $14,889 $22,776 $33,280
Other $0 $0 $0
Total Cost of Sales $14,889 $22,776 $33,280
Gross Margin $31,571 $45,864 $65,920
Gross Margin % 67.95% 66.82% 66.45%
Expenses
Payroll $19,800 $28,800 $36,000
Sales and Marketing and Other Expenses $11,560 $13,430 $15,100
Depreciation $300 $750 $800
Leased Equipment $0 $0 $0
Utilities $540 $660 $800
Insurance $960 $1,200 $1,600
Rent $0 $0 $0
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $33,160 $44,840 $54,300
Profit Before Interest and Taxes ($1,589) $1,024 $11,620
EBITDA ($1,289) $1,774 $12,420
Interest Expense $0 $76 $238
Taxes Incurred $0 $265 $3,206
Net Profit ($1,589) $683 $8,176
Net Profit/Sales -3.42% 0.99% 8.24%

Projected Cash Flow

The cash flow projections are outlined below.  These cash flow projects are based on our basic assumptions and expense and revenue projections. 

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $32,522 $48,048 $69,440
Cash from Receivables $9,578 $18,511 $26,892
Subtotal Cash from Operations $42,100 $66,559 $96,332
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $1,600 $1,800
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $210 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $42,310 $68,159 $98,132
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $19,800 $28,800 $36,000
Bill Payments $24,693 $38,506 $52,924
Subtotal Spent on Operations $44,493 $67,306 $88,924
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 $44,493 $67,306 $88,924
Net Cash Flow ($2,183) $852 $9,209
Cash Balance $7,597 $8,449 $17,658

Projected Balance Sheet

Barton Interiors' balance sheet is outlined below. 

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $7,597 $8,449 $17,658
Accounts Receivable $4,360 $6,441 $9,308
Other Current Assets $790 $790 $790
Total Current Assets $12,747 $15,680 $27,757
Long-term Assets
Long-term Assets $3,000 $3,000 $3,000
Accumulated Depreciation $300 $1,050 $1,850
Total Long-term Assets $2,700 $1,950 $1,150
Total Assets $15,447 $17,630 $28,907
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $3,256 $3,157 $4,457
Current Borrowing $0 $1,600 $3,400
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $3,256 $4,757 $7,857
Long-term Liabilities $0 $0 $0
Total Liabilities $3,256 $4,757 $7,857
Paid-in Capital $25,000 $25,000 $25,000
Retained Earnings ($11,220) ($12,809) ($12,126)
Earnings ($1,589) $683 $8,176
Total Capital $12,191 $12,874 $21,050
Total Liabilities and Capital $15,447 $17,630 $28,907
Net Worth $12,191 $12,874 $21,050

Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7389, Business Services--Interior Design Services, are shown for comparison. If we fail in any of these areas, we will need to re-evaluate our business model:

  • Gross margins at, or above, 65%.
  • Month-to-month and annual increases to meet the expected growth requirements.
  • Self-fund growth not dependant on the credit line to meet cash requirements.
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 47.74% 44.52% 12.40%
Percent of Total Assets
Accounts Receivable 28.22% 36.53% 32.20% 26.10%
Other Current Assets 5.11% 4.48% 2.73% 44.70%
Total Current Assets 82.52% 88.94% 96.02% 74.50%
Long-term Assets 17.48% 11.06% 3.98% 25.50%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 21.08% 26.98% 27.18% 44.30%
Long-term Liabilities 0.00% 0.00% 0.00% 16.00%
Total Liabilities 21.08% 26.98% 27.18% 60.30%
Net Worth 78.92% 73.02% 72.82% 39.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 67.95% 66.82% 66.45% 0.00%
Selling, General & Administrative Expenses 73.96% 65.72% 38.61% 80.80%
Advertising Expenses 16.36% 12.24% 11.36% 1.30%
Profit Before Interest and Taxes -3.42% 1.49% 11.71% 2.20%
Main Ratios
Current 3.92 3.30 3.53 1.75
Quick 3.92 3.30 3.53 1.38
Total Debt to Total Assets 21.08% 26.98% 27.18% 60.30%
Pre-tax Return on Net Worth -13.03% 7.36% 54.07% 3.80%
Pre-tax Return on Assets -10.29% 5.38% 39.38% 9.70%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -3.42% 0.99% 8.24% n.a
Return on Equity -13.03% 5.30% 38.84% n.a
Activity Ratios
Accounts Receivable Turnover 3.20 3.20 3.20 n.a
Collection Days 55 96 97 n.a
Accounts Payable Turnover 8.58 12.17 12.17 n.a
Payment Days 27 30 26 n.a
Total Asset Turnover 3.01 3.89 3.43 n.a
Debt Ratios
Debt to Net Worth 0.27 0.37 0.37 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $9,491 $10,924 $19,900 n.a
Interest Coverage 0.00 13.47 48.93 n.a
Additional Ratios
Assets to Sales 0.33 0.26 0.29 n.a
Current Debt/Total Assets 21% 27% 27% n.a
Acid Test 2.58 1.94 2.35 n.a
Sales/Net Worth 3.81 5.33 4.71 n.a
Dividend Payout 0.00 0.00 0.00 n.a