Irish Pub Bar Business Plan

McKnight's Pub

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Financial Plan

Growth will be supported by a long-term loan of $390,000 for the proposed brewery expansion and owner investment. This will keep initial growth slow and manageable, and will allow the management to have complete control over the pub.

7.1 Important Assumptions

McKnight's Financial Plan relies on several important assumptions - most of which are shown in the following table.

The key assumptions are:

  • Sufficient access to capital.
  • Steady economy without a major recession.
  • No unforeseen drastic consumer changes.
General Assumptions
2003 2004 2005
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 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Key Financial Indicators

  • Keeping average collection days at 30 days or below is very important as this could become a major cause of cash flow problems for the first year.
  • Gross margins must remain above 45%.

7.3 Break-even Analysis

The Break-even Analysis chart and table show that if the costs stay at the current, or relatively stable, level McKnight's will be able to make an increased profit by the second year. The break-even point is approximately $70,000 per month.

Break-even Analysis
Monthly Revenue Break-even $69,706
Assumptions:
Average Percent Variable Cost 45%
Estimated Monthly Fixed Cost $38,338

7.4 Projected Profit and Loss

The following table shows McKnight's expectations for Profit and Loss. The company will begin to make a better profit in its second year of operation.

Pro Forma Profit and Loss
2003 2004 2005
Sales $1,017,000 $1,307,000 $1,410,000
Direct Cost of Sales $457,650 $562,010 $578,100
Other $33,000 $38,000 $43,000
Total Cost of Sales $490,650 $600,010 $621,100
Gross Margin $526,350 $706,990 $788,900
Gross Margin % 51.76% 54.09% 55.95%
Expenses
Payroll $202,800 $317,000 $353,000
Sales and Marketing and Other Expenses $70,925 $82,900 $102,000
Depreciation $36,000 $40,000 $45,000
Utilities $18,000 $18,000 $20,000
Insurance $18,000 $21,000 $23,000
Rent $72,000 $77,000 $80,000
Other $18,000 $6,300 $10,000
Payroll Taxes $24,336 $38,040 $42,360
Other $0 $0 $0
Total Operating Expenses $460,061 $600,240 $675,360
Profit Before Interest and Taxes $66,289 $106,750 $113,540
EBITDA $102,289 $146,750 $158,540
Interest Expense $39,000 $37,500 $32,250
Taxes Incurred $6,643 $17,313 $20,661
Net Profit $20,646 $51,938 $60,629
Net Profit/Sales 2.03% 3.97% 4.30%

7.5 Projected Cash Flow

The following chart and table show the Projected Cash Flow for McKnight's Pub.

Pro Forma Cash Flow
2003 2004 2005
Cash Received
Cash from Operations
Cash Sales $661,050 $849,550 $916,500
Cash from Receivables $340,853 $449,153 $490,553
Subtotal Cash from Operations $1,001,903 $1,298,703 $1,407,053
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 $50,000 $0 $0
Subtotal Cash Received $1,051,903 $1,298,703 $1,407,053
Expenditures 2003 2004 2005
Expenditures from Operations
Cash Spending $202,800 $317,000 $353,000
Bill Payments $790,606 $896,677 $949,161
Subtotal Spent on Operations $993,406 $1,213,677 $1,302,161
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 $0 $30,000 $75,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $10,000
Dividends $0 $0 $25,000
Subtotal Cash Spent $993,406 $1,243,677 $1,412,161
Net Cash Flow $58,497 $55,026 ($5,108)
Cash Balance $148,497 $203,523 $198,415

7.6 Projected Balance Sheet

The following table is the Projected Balance Sheet.

Pro Forma Balance Sheet
2003 2004 2005
Assets
Current Assets
Cash $148,497 $203,523 $198,415
Accounts Receivable $29,097 $37,394 $40,341
Inventory $42,570 $52,277 $53,774
Other Current Assets $4,000 $4,000 $4,000
Total Current Assets $224,164 $297,194 $296,530
Long-term Assets
Long-term Assets $80,000 $80,000 $90,000
Accumulated Depreciation $36,000 $76,000 $121,000
Total Long-term Assets $44,000 $4,000 ($31,000)
Total Assets $268,164 $301,194 $265,530
Liabilities and Capital 2003 2004 2005
Current Liabilities
Accounts Payable $63,518 $74,611 $78,318
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $63,518 $74,611 $78,318
Long-term Liabilities $390,000 $360,000 $285,000
Total Liabilities $453,518 $434,611 $363,318
Paid-in Capital $125,000 $125,000 $125,000
Retained Earnings ($331,000) ($310,354) ($283,417)
Earnings $20,646 $51,938 $60,629
Total Capital ($185,354) ($133,417) ($97,788)
Total Liabilities and Capital $268,164 $301,194 $265,530
Net Worth ($185,354) ($133,417) ($97,788)

7.7 Business Ratios

Standard business ratios are provided in the following table. The ratios show strong, yet safe growth. Industry Profile ratios are based on Standard Industrial Classification (SIC) Index code 3873.

Ratio Analysis
2003 2004 2005 Industry Profile
Sales Growth 9.35% 28.52% 7.88% 1.90%
Percent of Total Assets
Accounts Receivable 10.85% 12.42% 15.19% 4.60%
Inventory 15.87% 17.36% 20.25% 3.10%
Other Current Assets 1.49% 1.33% 1.51% 44.60%
Total Current Assets 83.59% 98.67% 111.67% 52.30%
Long-term Assets 16.41% 1.33% -11.67% 47.70%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 23.69% 24.77% 29.49% 28.20%
Long-term Liabilities 145.43% 119.52% 107.33% 23.10%
Total Liabilities 169.12% 144.30% 136.83% 51.30%
Net Worth -69.12% -44.30% -36.83% 48.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 51.76% 54.09% 55.95% 42.30%
Selling, General & Administrative Expenses 49.74% 50.12% 51.63% 23.40%
Advertising Expenses 3.54% 2.75% 2.84% 2.40%
Profit Before Interest and Taxes 6.52% 8.17% 8.05% 2.80%
Main Ratios
Current 3.53 3.98 3.79 1.14
Quick 2.86 3.28 3.10 0.74
Total Debt to Total Assets 169.12% 144.30% 136.83% 51.30%
Pre-tax Return on Net Worth -14.72% -51.90% -83.13% 5.20%
Pre-tax Return on Assets 10.18% 22.99% 30.61% 10.60%
Additional Ratios 2003 2004 2005
Net Profit Margin 2.03% 3.97% 4.30% n.a
Return on Equity 0.00% 0.00% 0.00% n.a
Activity Ratios
Accounts Receivable Turnover 12.23 12.23 12.23 n.a
Collection Days 29 27 29 n.a
Inventory Turnover 10.91 11.85 10.90 n.a
Accounts Payable Turnover 12.42 12.17 12.17 n.a
Payment Days 29 28 29 n.a
Total Asset Turnover 3.79 4.34 5.31 n.a
Debt Ratios
Debt to Net Worth 0.00 0.00 0.00 n.a
Current Liab. to Liab. 0.14 0.17 0.22 n.a
Liquidity Ratios
Net Working Capital $160,646 $222,583 $218,212 n.a
Interest Coverage 1.70 2.85 3.52 n.a
Additional Ratios
Assets to Sales 0.26 0.23 0.19 n.a
Current Debt/Total Assets 24% 25% 29% n.a
Acid Test 2.40 2.78 2.58 n.a
Sales/Net Worth 0.00 0.00 0.00 n.a
Dividend Payout 0.00 0.00 0.41 n.a
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General Assumptions
2003 2004 2005
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 25.42% 25.00% 25.42%
Other 0 0 0
Break-even Analysis
Monthly Revenue Break-even $69,706
Assumptions:
Average Percent Variable Cost 45%
Estimated Monthly Fixed Cost $38,338
Pro Forma Profit and Loss
2003 2004 2005
Sales $1,017,000 $1,307,000 $1,410,000
Direct Cost of Sales $457,650 $562,010 $578,100
Other $33,000 $38,000 $43,000
Total Cost of Sales $490,650 $600,010 $621,100
Gross Margin $526,350 $706,990 $788,900
Gross Margin % 51.76% 54.09% 55.95%
Expenses
Payroll $202,800 $317,000 $353,000
Sales and Marketing and Other Expenses $70,925 $82,900 $102,000
Depreciation $36,000 $40,000 $45,000
Utilities $18,000 $18,000 $20,000
Insurance $18,000 $21,000 $23,000
Rent $72,000 $77,000 $80,000
Other $18,000 $6,300 $10,000
Payroll Taxes $24,336 $38,040 $42,360
Other $0 $0 $0
Total Operating Expenses $460,061 $600,240 $675,360
Profit Before Interest and Taxes $66,289 $106,750 $113,540
EBITDA $102,289 $146,750 $158,540
Interest Expense $39,000 $37,500 $32,250
Taxes Incurred $6,643 $17,313 $20,661
Net Profit $20,646 $51,938 $60,629
Net Profit/Sales 2.03% 3.97% 4.30%
Pro Forma Cash Flow
2003 2004 2005
Cash Received
Cash from Operations
Cash Sales $661,050 $849,550 $916,500
Cash from Receivables $340,853 $449,153 $490,553
Subtotal Cash from Operations $1,001,903 $1,298,703 $1,407,053
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 $50,000 $0 $0
Subtotal Cash Received $1,051,903 $1,298,703 $1,407,053
Expenditures 2003 2004 2005
Expenditures from Operations
Cash Spending $202,800 $317,000 $353,000
Bill Payments $790,606 $896,677 $949,161
Subtotal Spent on Operations $993,406 $1,213,677 $1,302,161
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 $0 $30,000 $75,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $10,000
Dividends $0 $0 $25,000
Subtotal Cash Spent $993,406 $1,243,677 $1,412,161
Net Cash Flow $58,497 $55,026 ($5,108)
Cash Balance $148,497 $203,523 $198,415
Pro Forma Balance Sheet
2003 2004 2005
Assets
Current Assets
Cash $148,497 $203,523 $198,415
Accounts Receivable $29,097 $37,394 $40,341
Inventory $42,570 $52,277 $53,774
Other Current Assets $4,000 $4,000 $4,000
Total Current Assets $224,164 $297,194 $296,530
Long-term Assets
Long-term Assets $80,000 $80,000 $90,000
Accumulated Depreciation $36,000 $76,000 $121,000
Total Long-term Assets $44,000 $4,000 ($31,000)
Total Assets $268,164 $301,194 $265,530
Liabilities and Capital 2003 2004 2005
Current Liabilities
Accounts Payable $63,518 $74,611 $78,318
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $63,518 $74,611 $78,318
Long-term Liabilities $390,000 $360,000 $285,000
Total Liabilities $453,518 $434,611 $363,318
Paid-in Capital $125,000 $125,000 $125,000
Retained Earnings ($331,000) ($310,354) ($283,417)
Earnings $20,646 $51,938 $60,629
Total Capital ($185,354) ($133,417) ($97,788)
Total Liabilities and Capital $268,164 $301,194 $265,530
Net Worth ($185,354) ($133,417) ($97,788)
Ratio Analysis
2003 2004 2005 Industry Profile
Sales Growth 9.35% 28.52% 7.88% 1.90%
Percent of Total Assets
Accounts Receivable 10.85% 12.42% 15.19% 4.60%
Inventory 15.87% 17.36% 20.25% 3.10%
Other Current Assets 1.49% 1.33% 1.51% 44.60%
Total Current Assets 83.59% 98.67% 111.67% 52.30%
Long-term Assets 16.41% 1.33% -11.67% 47.70%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 23.69% 24.77% 29.49% 28.20%
Long-term Liabilities 145.43% 119.52% 107.33% 23.10%
Total Liabilities 169.12% 144.30% 136.83% 51.30%
Net Worth -69.12% -44.30% -36.83% 48.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 51.76% 54.09% 55.95% 42.30%
Selling, General & Administrative Expenses 49.74% 50.12% 51.63% 23.40%
Advertising Expenses 3.54% 2.75% 2.84% 2.40%
Profit Before Interest and Taxes 6.52% 8.17% 8.05% 2.80%
Main Ratios
Current 3.53 3.98 3.79 1.14
Quick 2.86 3.28 3.10 0.74
Total Debt to Total Assets 169.12% 144.30% 136.83% 51.30%
Pre-tax Return on Net Worth -14.72% -51.90% -83.13% 5.20%
Pre-tax Return on Assets 10.18% 22.99% 30.61% 10.60%
Additional Ratios 2003 2004 2005
Net Profit Margin 2.03% 3.97% 4.30% n.a
Return on Equity 0.00% 0.00% 0.00% n.a
Activity Ratios
Accounts Receivable Turnover 12.23 12.23 12.23 n.a
Collection Days 29 27 29 n.a
Inventory Turnover 10.91 11.85 10.90 n.a
Accounts Payable Turnover 12.42 12.17 12.17 n.a
Payment Days 29 28 29 n.a
Total Asset Turnover 3.79 4.34 5.31 n.a
Debt Ratios
Debt to Net Worth 0.00 0.00 0.00 n.a
Current Liab. to Liab. 0.14 0.17 0.22 n.a
Liquidity Ratios
Net Working Capital $160,646 $222,583 $218,212 n.a
Interest Coverage 1.70 2.85 3.52 n.a
Additional Ratios
Assets to Sales 0.26 0.23 0.19 n.a
Current Debt/Total Assets 24% 25% 29% n.a
Acid Test 2.40 2.78 2.58 n.a
Sales/Net Worth 0.00 0.00 0.00 n.a
Dividend Payout 0.00 0.00 0.41 n.a