Fescue & Sons Yard Care

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Lawn and Garden Services Business Plan

Financial Plan

The following sections will outline important financial information.

7.1 Start-up Funding

The owners are contributing a truck worth $3,500 as a long-term asset to the business, plus $1,500 cash toward purchasing the short-term assets needed (mowers, trimmers, safety equipment, etc.). In addition, we are seeking a loan of $11,000 to fund the rest of the start-up requirements. This loan will be backed by the Fescues' equity in their home.

Start-up Funding
Start-up Expenses to Fund $3,800
Start-up Assets to Fund $12,200
Total Funding Required $16,000
Assets
Non-cash Assets from Start-up $6,000
Cash Requirements from Start-up $6,200
Additional Cash Raised $0
Cash Balance on Starting Date $6,200
Total Assets $12,200
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $11,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $11,000
Capital
Planned Investment
Owners $5,000
Other $0
Additional Investment Requirement $0
Total Planned Investment $5,000
Loss at Start-up (Start-up Expenses) ($3,800)
Total Capital $1,200
Total Capital and Liabilities $12,200
Total Funding $16,000

7.2 Important Assumptions

The following table highlights some important financial assumptions of Fescue & Sons.

General Assumptions
Year 1 Year 2 Year 3
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 30.00% 30.00% 30.00%
Other 0 0 0

7.3 Projected Balance Sheet

The following table indicates the projected balance sheet. As we retain earnings and repay the long-term loan, our net worth will increase from $1,200 at start-up to over $21,000 by year three.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $13,048 $19,632 $37,538
Other Current Assets $2,500 $2,500 $2,500
Total Current Assets $15,548 $22,132 $40,038
Long-term Assets
Long-term Assets $3,500 $10,500 $10,500
Accumulated Depreciation $1,152 $3,704 $6,256
Total Long-term Assets $2,348 $6,796 $4,244
Total Assets $17,896 $28,928 $44,282
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $1,925 $1,244 $1,455
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $1,925 $1,244 $1,455
Long-term Liabilities $9,896 $8,796 $7,696
Total Liabilities $11,821 $10,040 $9,151
Paid-in Capital $5,000 $5,000 $5,000
Retained Earnings ($3,800) $1,076 $13,888
Earnings $4,876 $12,812 $16,242
Total Capital $6,076 $18,888 $35,130
Total Liabilities and Capital $17,896 $28,928 $44,282
Net Worth $6,076 $18,888 $35,130

7.4 Break-even Analysis

The Break-even Analysis indicates $3,830 is needed in monthly revenue to break even.

Break-even Analysis
Monthly Revenue Break-even $3,374
Assumptions:
Average Percent Variable Cost 8%
Estimated Monthly Fixed Cost $3,098

7.5 Projected Profit and Loss

The following table and charts show our projected profit and loss. After paying reasonable salaries, we will make a modest profit in the first year, with increasing profits in future years. Our gross margins will remain around 91 or 92%. Our largest expenses as a service business are payroll and payroll taxes.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $49,204 $75,500 $89,000
Direct Cost of Sales $4,022 $6,110 $7,220
Other $0 $0 $0
Total Cost of Sales $4,022 $6,110 $7,220
Gross Margin $45,182 $69,390 $81,780
Gross Margin % 91.83% 91.91% 91.89%
Expenses
Payroll $33,500 $45,000 $52,500
Marketing/Promotion $125 $200 $300
Depreciation $1,152 $2,552 $2,552
Insurance $1,200 $1,200 $1,200
Licenses + bonded fees $1,200 $1,200 $1,200
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $37,177 $50,152 $57,752
Profit Before Interest and Taxes $8,005 $19,238 $24,028
EBITDA $9,157 $21,790 $26,580
Interest Expense $1,040 $935 $825
Taxes Incurred $2,090 $5,491 $6,961
Net Profit $4,876 $12,812 $16,242
Net Profit/Sales 9.91% 16.97% 18.25%

7.6 Projected Cash Flow

The following chart and table show our projected cash flow. We will repay the loan over ten years (interest payments can be found in the Profit and Loss, above). The table also shows planned purchases of additional equipment as long-term assets in the second fiscal year.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $49,204 $75,500 $89,000
Subtotal Cash from Operations $49,204 $75,500 $89,000
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 $0 $0 $0
Subtotal Cash Received $49,204 $75,500 $89,000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $33,500 $45,000 $52,500
Bill Payments $7,752 $15,816 $17,494
Subtotal Spent on Operations $41,252 $60,816 $69,994
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 $1,104 $1,100 $1,100
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $7,000 $0
Dividends $0 $0 $0
Subtotal Cash Spent $42,356 $68,916 $71,094
Net Cash Flow $6,848 $6,584 $17,906
Cash Balance $13,048 $19,632 $37,538

7.7 Business Ratios

The following table outlines some of the more important ratios from the Lawn and Garden Services industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 0782.

The major difference between our ratios and the industry standard is in gross margin. The Lawn and Garden Service industry is labor intensive, and most businesses include manual labor expenses in their direct cost of sales. As a small, family-owned business without a large staff of workers, I am treating these as operating expenses, instead. If personnel costs are included, our gross margin in the first year falls around 23%, and by year three it is up around 32%, roughly the industry average.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 53.44% 17.88% 9.12%
Percent of Total Assets
Other Current Assets 13.97% 8.64% 5.65% 32.14%
Total Current Assets 86.88% 76.51% 90.42% 51.33%
Long-term Assets 13.12% 23.49% 9.58% 48.67%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 10.75% 4.30% 3.29% 25.79%
Long-term Liabilities 55.30% 30.41% 17.38% 24.81%
Total Liabilities 66.05% 34.71% 20.67% 50.60%
Net Worth 33.95% 65.29% 79.33% 49.40%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 91.83% 91.91% 91.89% 32.95%
Selling, General & Administrative Expenses 81.92% 74.94% 73.64% 18.41%
Advertising Expenses 0.00% 0.00% 0.00% 0.34%
Profit Before Interest and Taxes 16.27% 25.48% 27.00% 2.04%
Main Ratios
Current 8.08 17.79 27.51 1.38
Quick 8.08 17.79 27.51 0.88
Total Debt to Total Assets 66.05% 34.71% 20.67% 62.84%
Pre-tax Return on Net Worth 114.64% 96.91% 66.05% 4.79%
Pre-tax Return on Assets 38.92% 63.27% 52.40% 12.89%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 9.91% 16.97% 18.25% n.a
Return on Equity 80.25% 67.83% 46.23% n.a
Activity Ratios
Accounts Payable Turnover 5.03 12.17 12.17 n.a
Payment Days 27 38 28 n.a
Total Asset Turnover 2.75 2.61 2.01 n.a
Debt Ratios
Debt to Net Worth 1.95 0.53 0.26 n.a
Current Liab. to Liab. 0.16 0.12 0.16 n.a
Liquidity Ratios
Net Working Capital $13,624 $20,888 $38,582 n.a
Interest Coverage 7.70 20.58 29.14 n.a
Additional Ratios
Assets to Sales 0.36 0.38 0.50 n.a
Current Debt/Total Assets 11% 4% 3% n.a
Acid Test 8.08 17.79 27.51 n.a
Sales/Net Worth 8.10 4.00 2.53 n.a
Dividend Payout 0.00 0.00 0.00 n.a