Clean Office Pros will grow significantly, even over the first three years of operation, by taking advantage of the opportunity presented by its first target market, small offices, and leveraging its success there with medium and large offices. Growth of about $300,000 is expected in sales from the first year to second and over $400,000 from the second year to third.
Financing for this growth will come from the free cash flows generated by the healthy margins in this business once break-even volume has been achieved in the first year.
By the fifth year of operation, the business will be well positioned for a strategic sale to a commercial cleaning franchise (one of the competitors discussed earlier) interested in expanding its expertise with small businesses. At this point an exit will be possible for investors and the original owners.
Start-up funding will come in part from the financing of the initial purchases (delivery van, computer and cleaning equipment), and from credit card debt.
Beyond this debt financing, most start-up funding will be provided by the two founders and ;from additional angel investors. Once the additional investment has been contributed, the angel investors will own 49% of the business, Paul Vinci will own 26% and Reid Werbitt will own 25%.
Each cleaning service offered has a healthy margin and a break even will occur around 552 units sold per month. This represents 512,000 square feet of offices or around 600 small business clients (or 400 small business and 100 medium business clients). At this point, work will be both over night and on weekends, with an average of 16 clients cleaned per day by shift workers. Six crews will be needed to provide this amount of service.
Gross margins will remain relatively stable and grow slightly as better margin business (medium and large offices) is sought out and better prices are established with vendors for volume discounts. The first year will represent a net profit of $71,000 which will continue to grow.
Cash flow before dividends will be positive in the first year. Five months of negative cash flow are required for marketing activities to take hold before they show a greater effect on sales. Dividends can be paid out beginning in month nine to investors.
Accounts receivable will be collected in 30 days, but 45 days average has been given to be conservative.
Investment will be continually made in additional cleaning equipment and delivery vans to enable more cleaning crew to work. Furthermore, by the end of the first year, the office will expand to allow for additional storage and staff.
The net worth of the business will grow significantly over the first three years of operation as the business will be primarily financed by its own earnings and not need to take on a great deal of new debt. The debt that is taken on will be financing for the purchases of new cleaning equipment and delivery vans, primarily.
Additional capital is not required over the first three years of operation as the free cash flows from the business will support the business.
This table shows ratios for the three years of the plan compared to the janitorial services businesses of similar revenues. Clean Office Pros expects to improve on industry profitability, as shown in this table, even with slightly higher spending on S G A and advertising as a percentage of sales. Gross margins will be slightly better than the comparable industry gross margins.
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