In this business, it is expected that the revenue is 30% more in the winter due to more machine-drying and less hang-drying. Conversely, it's also expected that revenue is 30% less in the summer due to hang-drying in the sunlight. Furthermore, with the potential in this particular laundromat and the management confidence, it's expected that growth should be at least 15% annually. It should be noted again that monthly profit shown has already taken into account the minimum monthly loan payback amount. It's planned that all remaining profit will be paid towards loan as additional payback.
Plan of Payback for a 10-year term loan:
|Total amount of loan||$150,000|
|Monthly payback including interest||$2,109|
|Additional payback amount from monthly net profit||$2,838|
|Monthly net profit ($13,100 - $5402 -$2617.25)||$5,081|
|Total monthly payback||$4,946|
For $3,508/month loan payment, the 10-year term loan (11.5% interest rate) will be shortened to less than 36 months (three years). If the interest rate is lower, then the loan will be paid off sooner. Also, if the business does better than usual,then the loan term will be further shortened. The motive here is to pay off the loan as soon as possible to reduce cost of interest paid on the loan. Based on the cash flow and profitability projections in this plan, this accelerated payment scheme could be started at the beginning of FY2002.
The monthly payment against principal is reflected in the Cash Flow table (Long-term Liabilities Principal Repayment).
The monthly interest payment is reflected in the Profit and Loss table (Interest Expense).
Factors that minimize risk of default on a loan:
This financial indicator shows the potential changes such as growth. This is based on the annual sales, and operating expenses as measured in gross amounts (gross margin is in percentage terms).
The break-even analysis shows that Universal Laundromat has a good balance of fixed costs and sufficient sales strength to remain healthy. Our break-even point is only 745 customers a month. This was derived by using an average revenue of $8 per customer, and fixed costs of approximately $4,900. This also includes the cost of products for retail sales and all other costs such as payroll, maintenance, garbage, utilities, and insurance.
The following table and chart illustrate the sales forecast. The first year is an accurate description of the current sales condition based on the last two years of growth. The company's cost of sales or variable cost consists of the company's utility expenses, which are dependant on the number of customers. This is normally a fixed cost for most companies.
The profit projected in the table is after all expenses and monthly loan payback have been taken into account. All net profit will then be paid as an additional sum to greatly shorten the term of the loan.
The following is a chart and table showing the cash flow and cash balance every month. The cash flow is the net income after all expenses have been paid. The cash balance shows the accumulation of cash in the business over the periods. The main point of this chart and table is to show the excess cash flow that could be used as additional payback on the loan. Therefore, after such additional payback takes place, all bars should be stabilized and cash flow should be down to zero because none of the profit is withdrawn.
The balance sheet numbers are shown below and in the appendix.
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7215, Coin-Operated Laundries and Cleaning, are shown for comparison.
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