JavaNet Internet Cafe

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Internet Cafe Business Plan

Financial Plan

The following sections lay out the details of our financial plan for the next three years.

7.1 Start-up Funding

This business plan is prepared to obtain financing in the amount of $24,000. The supplemental financing is required to begin work on site preparation and modifications, equipment purchases, and to cover expenses in the first year of operations.

Additional financing has already been secured as follows:

  1. $24,000 from the Oregon Economic Development Fund
  2. $19,000 of personal savings from owner Cale Bruckner
  3. $36,000 from three investors
  4. and $9,290 in the form of short-term loans
Start-up Funding
Start-up Expenses to Fund $62,290
Start-up Assets to Fund $26,000
Total Funding Required $88,290
Assets
Non-cash Assets from Start-up $2,000
Cash Requirements from Start-up $24,000
Additional Cash Raised $0
Cash Balance on Starting Date $24,000
Total Assets $26,000
Liabilities and Capital
Liabilities
Current Borrowing $9,290
Long-term Liabilities $24,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $33,290
Capital
Planned Investment
Cale Bruckner $19,000
Luke Walsh $12,000
Doug Wilson $12,000
John Underwood $12,000
Additional Investment Requirement $0
Total Planned Investment $55,000
Loss at Start-up (Start-up Expenses) ($62,290)
Total Capital ($7,290)
Total Capital and Liabilities $26,000
Total Funding $88,290

7.2 Important Assumptions

Basic assumptions are presented in the table below.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 8.00% 8.00% 8.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.3 Key Financial Indicators

Important benchmark data is presented in the chart below.

7.4 Break-even Analysis

Break-even data is presented in the chart and table below.

Break-even Analysis
Monthly Units Break-even 7,294
Monthly Revenue Break-even $18,462
Assumptions:
Average Per-Unit Revenue $2.53
Average Per-Unit Variable Cost $0.63
Estimated Monthly Fixed Cost $13,847

7.5 Projected Profit and Loss

Payroll Expense: The founder of JavaNet, Cale Bruckner, will receive a salary of $24,000 in year one, $26,400 in year two, and $29,040 in year three. JavaNet intends to hire six part-time employees by the end of year one at $5.75/hour and a full-time technician at $10.00/hour.

Rent Expense: JavaNet is leasing a 1700 square foot facility at $.85/sq. foot. The lease agreement JavaNet signed specifies that we pay $2,000/month for a total of 36 months. At the end of the third year, the lease is open for negotiations and JavaNet may or may not re-sign the lease depending on the demands of the lessor.

Utilities Expense: As stated in the contract, the lessor is responsible for the payment of utilities including gas, garbage disposal, and real estate taxes. The only utilities expense that JavaNet must pay is the phone bill generated by fifteen phone lines; thirteen will be dedicated to modems and two for business purposes. The basic monthly service charge for each line provided by US West is $17.29. The 13 lines used to connect the modems will make local calls to the network provided by Bellevue resulting in a monthly charge of $224.77. The two additional lines used for business communication will cost $34.58/month plus long distance fees. JavaNet assumes that it will not make more than $40.00/month in long distance calls. Therefore, the total cost associated with the two business lines is estimated at $74.58/month and the total phone expense at $299.35/month. In addition, there will be an additional utility expense of $800 for estimated EWEB bills.

Marketing Expense: JavaNet will allocate $33,750 for promotional expenses over the first year. These dollars will be used for advertising in local newspapers in order to build consumer awareness. For additional information, please refer to section 5.0 of the business plan.

Insurance Expense: JavaNet has allocated $1,440 for insurance for the first year. As revenue increases in the second and third year of business, JavaNet intends to invest more money for additional insurance coverage.

Depreciation: In depreciating our capital equipment, JavaNet used the Modified Accelerated Cost Recovery Method. We depreciated our computers over a five-year time period and our fixtures over seven years.

Taxes: JavaNet is an LLC and, as an entity, it is not taxed. However, there is a 15% payroll burden.

Detailed Profit and Loss data is presented in the table below.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $248,868 $303,544 $313,610
Direct Cost of Sales $62,217 $75,886 $78,403
Other Costs of Sales $0 $0 $0
Total Cost of Sales $62,217 $75,886 $78,403
Gross Margin $186,651 $227,658 $235,208
Gross Margin % 75.00% 75.00% 75.00%
Expenses
Payroll $93,291 $121,824 $129,254
Marketing/Promotion $33,750 $40,000 $43,000
Depreciation $0 $0 $0
Rent $24,000 $24,000 $24,000
Utilities $9,120 $9,120 $9,120
Insurance $6,000 $6,000 $6,000
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $166,161 $200,944 $211,374
Profit Before Interest and Taxes $20,490 $26,714 $23,834
EBITDA $20,490 $26,714 $23,834
Interest Expense $2,325 $1,470 $1,100
Taxes Incurred $5,450 $7,573 $6,820
Net Profit $12,716 $17,671 $15,913
Net Profit/Sales 5.11% 5.82% 5.07%

7.6 Projected Cash Flow

Cash flow data is presented in the chart and table below.

Accounts Payable: JavaNet acquired a $24,000 loan from a bank at a 10% interest rate. The loan will be paid back at $800/month over the next three years. The $9,290 short term loan will be paid back at a rate of 8%.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $248,868 $303,544 $313,610
Subtotal Cash from Operations $248,868 $303,544 $313,610
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $2,000 $5,000 $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 $250,868 $308,544 $313,610
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $93,291 $121,824 $129,254
Bill Payments $133,870 $165,945 $168,467
Subtotal Spent on Operations $227,161 $287,769 $297,721
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $9,290 $2,000 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $9,600 $5,000 $4,800
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $246,051 $294,769 $302,521
Net Cash Flow $4,817 $13,775 $11,089
Cash Balance $28,817 $42,592 $53,681

7.7 Projected Balance Sheet

Our projected balance sheet is presented in the table below.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $28,817 $42,592 $53,681
Inventory $6,980 $8,514 $8,796
Other Current Assets $0 $0 $0
Total Current Assets $35,797 $51,106 $62,478
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $35,797 $51,106 $62,478
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $13,972 $13,610 $13,868
Current Borrowing $2,000 $5,000 $5,000
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $15,972 $18,610 $18,868
Long-term Liabilities $14,400 $9,400 $4,600
Total Liabilities $30,372 $28,010 $23,468
Paid-in Capital $55,000 $55,000 $55,000
Retained Earnings ($62,290) ($49,574) ($31,904)
Earnings $12,716 $17,671 $15,913
Total Capital $5,426 $23,096 $39,010
Total Liabilities and Capital $35,797 $51,106 $62,478
Net Worth $5,426 $23,096 $39,010

7.8 Business Ratios

The Standard Industrial Classification (SIC) Code for the Internet Service Provider industry is "Remote data base information retrieval" 7375.9903. We used the report for "Information retrieval services" 7375 to generate the industry profile. As we are also a food cafe we could have used the ratios based on SIC classification 5812, "Eating places".  The combined nature of JavaNet Cafe makes our ratios a blend of the two industries.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 21.97% 3.32% 0.90%
Percent of Total Assets
Inventory 19.50% 16.66% 14.08% 2.17%
Other Current Assets 0.00% 0.00% 0.00% 84.78%
Total Current Assets 100.00% 100.00% 100.00% 86.95%
Long-term Assets 0.00% 0.00% 0.00% 13.05%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 44.62% 36.41% 30.20% 28.33%
Long-term Liabilities 40.23% 18.39% 7.36% 16.21%
Total Liabilities 84.84% 54.81% 37.56% 44.54%
Net Worth 15.16% 45.19% 62.44% 55.46%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 75.00% 75.00% 75.00% 100.00%
Selling, General & Administrative Expenses 69.89% 69.18% 69.93% 79.00%
Advertising Expenses 0.00% 0.00% 0.00% 1.01%
Profit Before Interest and Taxes 8.23% 8.80% 7.60% 1.62%
Main Ratios
Current 2.24 2.75 3.31 0.00
Quick 1.80 2.29 2.85 0.00
Total Debt to Total Assets 84.84% 54.81% 37.56% 0.00%
Pre-tax Return on Net Worth 334.80% 109.30% 58.28% 0.00%
Pre-tax Return on Assets 50.74% 49.40% 36.39% 0.00%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 5.11% 5.82% 5.07% n.a
Return on Equity 234.36% 76.51% 40.79% n.a
Activity Ratios
Inventory Turnover 12.00 9.80 9.06 n.a
Accounts Payable Turnover 10.58 12.17 12.17 n.a
Payment Days 27 30 30 n.a
Total Asset Turnover 6.95 5.94 5.02 n.a
Debt Ratios
Debt to Net Worth 5.60 1.21 0.60 n.a
Current Liab. to Liab. 0.53 0.66 0.80 n.a
Liquidity Ratios
Net Working Capital $19,826 $32,496 $43,610 n.a
Interest Coverage 8.81 18.17 21.67 n.a
Additional Ratios
Assets to Sales 0.14 0.17 0.20 n.a
Current Debt/Total Assets 45% 36% 30% n.a
Acid Test 1.80 2.29 2.85 n.a
Sales/Net Worth 45.87 13.14 8.04 n.a
Dividend Payout 0.00 0.00 0.00 n.a