City Dojo

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Karate Business Plan

Financial Plan

The dojo financial plan is simple. We want to become a profitable business for the owner and any investors. We are moving from a part-time to full-time business and expect our financials to reflect that change. Our growth is predicated on introducing a newly remodeled dojo and a marketing and promotional strategy for the first time. Our goal of 200 members by year-end 2004 is very obtainable and if this goal is met we will have a very profitable business. Our long-term goal is to have enough cash on-hand and a solid credit history to pursue our ultimate goal of expansion.

7.1 Important Assumptions

It was necessary to make certain broad-based assumptions in planning for the future. The financial assumptions are listed below in the table. In addition, we have made several other important assumptions:

  • The economy will grow at a steady pace, without a major recession.
  • There will be no major change in the Martial Arts industry other then those discussed in trends.
  • The State will not have impact legislation on the unregulated Martial Arts industry.
General Assumptions
2002 2003 2004
Plan Month 1 2 3
Current Interest Rate 12.00% 12.00% 12.00%
Long-term Interest Rate 9.00% 9.00% 9.00%
Tax Rate 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Key Financial Indicators

The following financial chart shows past and projected three years for the dojo. In the past there was no real marketing effort or business plan. With the introduction of this new business plan we have high expectations for growth. In 2002, we expect to increase membership from 60 to 95, resulting in an increase in sales of 30%. In 2003, we expect full impact of our 2002 plans to take affect and anticipate membership to increase from 95 to 165, resulting in an increase in sales of 77%. In 2004 we expect to meet our goal of 200 members and realize an increase in sales of 31%.

At some point in the future we will make adjustments to our business plan to explore alternatives (as addressed in future services) and will begin to work on reducing overall expenses.

7.3 Projected Profit and Loss

Monthly profit for the first year varies considerably as we aggressively seek improvements and begin marketing our business. However, as year two of the plan approaches, our moves in year one should begin to take hold. Bottom-line profits shown in the chart are deceiving as a significant increase in salary to the owner is reflected (as the dojo changes from a part-time to full-time business). We expect our efforts to control attrition to start affecting our cost of sales, which in-turn will improve our gross margin.

Legal fees in 2002 reflect our change in legal ownership, from a sole proprietorship to a limited liability company. Payroll increases in 2003 and 2004 reflect our change from a part-time business to full-time.

Pro Forma Profit and Loss
2002 2003 2004
Sales $84,935 $150,444 $198,452
Direct Cost of Sales $18,327 $23,010 $23,193
Other $0 $1,000 $1,000
Total Cost of Sales $18,327 $24,010 $24,193
Gross Margin $66,608 $126,434 $174,259
Gross Margin % 78.42% 84.04% 87.81%
Expenses
Payroll $12,000 $52,000 $72,000
Sales and Marketing and Other Expenses $19,404 $22,100 $25,500
Depreciation $0 $0 $0
Leased Equipment $4,800 $5,000 $5,000
Utilities $4,844 $5,000 $5,500
Telephone $3,605 $4,000 $4,500
Insurance $4,260 $4,800 $4,800
Rent $9,000 $9,000 $9,000
Payroll Taxes $1,800 $7,800 $10,800
Other $0 $0 $0
Total Operating Expenses $59,713 $109,700 $137,100
Profit Before Interest and Taxes $6,895 $16,734 $37,159
EBITDA $6,895 $16,734 $37,159
Interest Expense $3,683 $4,199 $3,560
Taxes Incurred $768 $3,134 $8,540
Net Profit $2,444 $9,401 $25,059
Net Profit/Sales 2.88% 6.25% 12.63%

7.4 Break-even Analysis

The following table and chart show our break-even point for the next year.

Break-even Analysis
Monthly Revenue Break-even $6,345
Assumptions:
Average Percent Variable Cost 22%
Estimated Monthly Fixed Cost $4,976

7.5 Projected Cash Flow

Like profit, our first year monthly cash flow varies considerably. Current cash flow is expected to meet our needs, however we are anticipating a significant increase in cash flow due to a long-term loan ($20,000) in August 2002 to address our immediate remodeling and marketing efforts. This money (planned loan, capital investment) will immediately be put to use and place the dojo into a better cash position in-case something unexpected occurs. In the following years, excess cash will be used to finance our more aggressive future services plans.

Pro Forma Cash Flow
2002 2003 2004
Cash Received
Cash from Operations
Cash Sales $84,935 $150,444 $198,452
Subtotal Cash from Operations $84,935 $150,444 $198,452
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 $20,000 $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 $104,935 $150,444 $198,452
Expenditures 2002 2003 2004
Expenditures from Operations
Cash Spending $12,000 $52,000 $72,000
Bill Payments $69,112 $87,603 $100,378
Subtotal Spent on Operations $81,112 $139,603 $172,378
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $3,252 $3,252 $3,252
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $460 $2,760 $2,760
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $15,000 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $99,824 $145,615 $178,390
Net Cash Flow $5,111 $4,829 $20,062
Cash Balance $6,611 $11,439 $31,502

7.6 Projected Balance Sheet

The balance sheet in the following table reflect considerable first year activity as we implement the business plan. Long-term liabilities double in the first year as we borrow for improvements and plan implementation, however this liability is workable and in subsequent years remain under control.  Net worth increases in 2003 and 2004 based on anticipated increases in sales.

Pro Forma Balance Sheet
2002 2003 2004
Assets
Current Assets
Cash $6,611 $11,439 $31,502
Other Current Assets $0 $0 $0
Total Current Assets $6,611 $11,439 $31,502
Long-term Assets
Long-term Assets $55,000 $55,000 $55,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $55,000 $55,000 $55,000
Total Assets $61,611 $66,439 $86,502
Liabilities and Capital 2002 2003 2004
Current Liabilities
Accounts Payable $5,879 $7,319 $8,334
Current Borrowing $11,748 $8,496 $5,244
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $17,627 $15,815 $13,578
Long-term Liabilities $34,540 $31,780 $29,020
Total Liabilities $52,167 $47,595 $42,598
Paid-in Capital $0 $0 $0
Retained Earnings $7,000 $9,444 $18,845
Earnings $2,444 $9,401 $25,059
Total Capital $9,444 $18,845 $43,904
Total Liabilities and Capital $61,611 $66,439 $86,502
Net Worth $9,444 $18,845 $43,904

7.7 Business Ratios

As indicated in our "Service Business Analysis" the Martial Arts industry is not properly reflected in the SIC Code provided (7999). However, with this said, we have made some preliminary business ratio comparisons using the SIC (2000 figures). The results are very favorable.

Ratio Analysis
2002 2003 2004 Industry Profile
Sales Growth 30.47% 77.13% 31.91% 5.73%
Percent of Total Assets
Other Current Assets 0.00% 0.00% 0.00% 33.26%
Total Current Assets 10.73% 17.22% 36.42% 43.21%
Long-term Assets 89.27% 82.78% 63.58% 56.79%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 28.61% 23.80% 15.70% 21.91%
Long-term Liabilities 56.06% 47.83% 33.55% 28.81%
Total Liabilities 84.67% 71.64% 49.25% 50.72%
Net Worth 15.33% 28.36% 50.75% 49.28%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 78.42% 84.04% 87.81% 100.00%
Selling, General & Administrative Expenses 75.58% 77.77% 75.10% 76.43%
Advertising Expenses 6.24% 4.92% 4.28% 2.77%
Profit Before Interest and Taxes 8.12% 11.12% 18.72% 1.89%
Main Ratios
Current 0.38 0.72 2.32 1.18
Quick 0.38 0.72 2.32 0.80
Total Debt to Total Assets 84.67% 71.64% 49.25% 61.12%
Pre-tax Return on Net Worth 34.01% 66.52% 76.53% 1.76%
Pre-tax Return on Assets 5.21% 18.87% 38.84% 4.52%
Additional Ratios 2002 2003 2004
Net Profit Margin 2.88% 6.25% 12.63% n.a
Return on Equity 25.88% 49.89% 57.08% n.a
Activity Ratios
Accounts Payable Turnover 11.99 12.17 12.17 n.a
Payment Days 29 27 28 n.a
Total Asset Turnover 1.38 2.26 2.29 n.a
Debt Ratios
Debt to Net Worth 5.52 2.53 0.97 n.a
Current Liab. to Liab. 0.34 0.33 0.32 n.a
Liquidity Ratios
Net Working Capital ($11,016) ($4,375) $17,924 n.a
Interest Coverage 1.87 3.99 10.44 n.a
Additional Ratios
Assets to Sales 0.73 0.44 0.44 n.a
Current Debt/Total Assets 29% 24% 16% n.a
Acid Test 0.38 0.72 2.32 n.a
Sales/Net Worth 8.99 7.98 4.52 n.a
Dividend Payout 0.00 0.00 0.00 n.a