South Kelleton Keys and Locksmith

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Locksmith Business Plan

Financial Plan

South Kelleton Keys and Locksmith will be able to launch based on the savings of its owner and a significant long-term loan, as described in the start-up funding description. After this point, the business will show healthy profits and cash balance to be able to grow with its own cash flow. Steady growth is expected, requiring additional staff, but still using the same basic assets (store, inventory, equipment, etc.) for the most part. As assistant locksmiths work primarily in the field at customer sites, a larger facility is not required to take them on. The owner will keep a healthy cash balance in the business for emergencies and will withdraw additional cash as dividends.

8.1 Start-up Funding

Padraic Lawkse will invest significant startup funding out of his savings and from a credit card line-of-credit to launch the business (current borrowing on the Start-up Funding table). A business loan is sought against the assets of the business to be repaid over the first three years of operation.  

Start-up Funding
Start-up Expenses to Fund $32,750
Start-up Assets to Fund $144,250
Total Funding Required $177,000
Assets
Non-cash Assets from Start-up $100,000
Cash Requirements from Start-up $44,250
Additional Cash Raised $0
Cash Balance on Starting Date $44,250
Total Assets $144,250
Liabilities and Capital
Liabilities
Current Borrowing $10,000
Long-term Liabilities $70,000
Accounts Payable (Outstanding Bills) $20,000
Other Current Liabilities (interest-free) $0
Total Liabilities $100,000
Capital
Planned Investment
Owner $77,000
Other $0
Additional Investment Requirement $0
Total Planned Investment $77,000
Loss at Start-up (Start-up Expenses) ($32,750)
Total Capital $44,250
Total Capital and Liabilities $144,250
Total Funding $177,000

8.2 Important Assumptions

This business plan assumes the availability of potential staff due to a favorable job market and the availability of storefronts to launch the business.

8.3 Break-even Analysis

With a monthly break-even shown in the table below the business is expected to reach break-even from a profit perspective in the seventh month of the first year.

Break-even Analysis
Monthly Revenue Break-even $25,681
Assumptions:
Average Percent Variable Cost 35%
Estimated Monthly Fixed Cost $16,713

8.4 Projected Profit and Loss

The primary operating expenses for the business will be marketing and promotion which will include advertising, producing direct mail pieces and brochures, ongoing website hosting and maintenance and attending events.

Depreciation of long-term assets includes equipment in the store and tools for services, including both the equipment and tools purchased at start-up and allowances for additional purchases (which are shown on the cash flow statement).

Rent is expected to rise and the business will seek a 5+ year lease on an appropriate storefront space of at least 1,000 square feet.

Insurance and bonding includes ongoing insurance payment for general liability for the store and work at client sites and the van, as well as renewals of the surety bond each year.

Payroll taxes includes payments for health insurance for full-time employees.

Store supplies includes all supplies (not inventory) which are expensed immediately for store cleaning, maintenance, and operation.

Van fuel, maintenance, and parking covers the cost of fuel, ongoing maintenance and upkeep of the van, and parking at customer sites when only pay parking is available.

Training and education includes subscriptions and course work for Padraic Lawkse and for the assistant locksmith to seek expertise in locksmith work.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $497,991 $647,388 $809,235
Direct Cost of Sales $173,918 $223,195 $278,994
Other Costs of Sales $0 $0 $0
Total Cost of Sales $173,918 $223,195 $278,994
Gross Margin $324,073 $424,193 $530,242
Gross Margin % 65.08% 65.52% 65.52%
Expenses
Payroll $99,000 $139,000 $195,000
Marketing/Promotion $36,000 $40,000 $50,000
Depreciation $18,000 $18,000 $18,000
Rent $24,000 $26,000 $28,000
Utilities $2,400 $2,500 $2,600
Insurance & Bonding $3,600 $3,800 $4,000
Payroll Taxes $0 $0 $0
Store Supplies $6,000 $10,000 $15,000
Van Fuel, Maintenance & Parking $5,550 $7,200 $7,800
Training and Education $6,000 $8,000 $15,000
Total Operating Expenses $200,550 $254,500 $335,400
Profit Before Interest and Taxes $123,523 $169,693 $194,842
EBITDA $141,523 $187,693 $212,842
Interest Expense $7,354 $5,010 $3,670
Taxes Incurred $34,851 $49,405 $57,352
Net Profit $81,318 $115,278 $133,820
Net Profit/Sales 16.33% 17.81% 16.54%

8.5 Projected Cash Flow

Cash flow will become consistently positive by month 6, removing the need for additional funding to get the store and business off the ground. The business will attempt to keep a healthy cash balance in reserve for the potential that equipment or other assets must be repaired or replaced. Steady investments in the assets of the business have been worked in to these projections to account for the gradual replacement of equipment.

The cash flow table shows a budget for the purchase of additional tools and equipment as they become worn out, broken, or lost, and for purchasing tools to install and maintain new types of security devices as they are released to the market so South Kelleton Keys and Locksmith can remain up to date.

The owner will take out dividends from the business when cash flow can support it, while keeping a cash reserve of around $50,000 at any given time in the second and third year in the business.

The borrowing on credit cards will be paid off over the first year.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $373,493 $485,541 $606,927
Cash from Receivables $83,703 $149,609 $189,051
Subtotal Cash from Operations $457,196 $635,150 $795,977
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 $457,196 $635,150 $795,977
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $99,000 $139,000 $195,000
Bill Payments $279,896 $407,988 $465,862
Subtotal Spent on Operations $378,896 $546,988 $660,862
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $10,000 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $13,200 $13,400 $13,400
Purchase Other Current Assets $6,000 $8,000 $10,000
Purchase Long-term Assets $3,000 $15,000 $20,000
Dividends $0 $45,000 $65,000
Subtotal Cash Spent $411,096 $628,388 $769,262
Net Cash Flow $46,100 $6,762 $26,715
Cash Balance $90,350 $97,112 $123,828

8.6 Projected Balance Sheet

The business will pay off its current borrowing in its first year of operation and its long-term liabilities over the first three years. Aside from a contingency fund, the business will not retain a great deal of cash in the business, but will pay profits out as dividends for the most part. Net worth will grow steadily, but not radically, over the first three years of operation for this reason.  

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $90,350 $97,112 $123,828
Accounts Receivable $40,795 $53,033 $66,291
Inventory $83,869 $62,147 $75,666
Other Current Assets $26,000 $34,000 $44,000
Total Current Assets $241,014 $246,292 $309,785
Long-term Assets
Long-term Assets $43,000 $58,000 $78,000
Accumulated Depreciation $18,000 $36,000 $54,000
Total Long-term Assets $25,000 $22,000 $24,000
Total Assets $266,014 $268,292 $333,785
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $83,646 $29,046 $39,118
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $83,646 $29,046 $39,118
Long-term Liabilities $56,800 $43,400 $30,000
Total Liabilities $140,446 $72,446 $69,118
Paid-in Capital $77,000 $77,000 $77,000
Retained Earnings ($32,750) $3,568 $53,847
Earnings $81,318 $115,278 $133,820
Total Capital $125,568 $195,847 $264,667
Total Liabilities and Capital $266,014 $268,292 $333,785
Net Worth $125,568 $195,847 $264,667

8.7 Business Ratios

South Kelleton Keys and Locksmith's business ratios are compared here to SIC code 7699 for locksmith businesses with annual sales of $500,000 to $1 million. Due to its ownership of a store, SKelleton Keys' ratios will differ from the average locksmith of a similar volume of sales, as many locksmiths work only from a van. It will carry more inventory and will hold more accounts receivables due to its higher level of business sales. The gross margin is driven higher due to the revenue stream of referral commissions which is almost entirely gross profit.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 30.00% 25.00% -1.05%
Percent of Total Assets
Accounts Receivable 15.34% 19.77% 19.86% 12.28%
Inventory 31.53% 23.16% 22.67% 13.40%
Other Current Assets 9.77% 12.67% 13.18% 36.14%
Total Current Assets 90.60% 91.80% 92.81% 61.83%
Long-term Assets 9.40% 8.20% 7.19% 38.17%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 31.44% 10.83% 11.72% 30.66%
Long-term Liabilities 21.35% 16.18% 8.99% 58.05%
Total Liabilities 52.80% 27.00% 20.71% 88.70%
Net Worth 47.20% 73.00% 79.29% 11.30%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 65.08% 65.52% 65.52% 53.42%
Selling, General & Administrative Expenses 48.75% 47.72% 48.99% 22.29%
Advertising Expenses 7.23% 6.18% 6.18% 1.36%
Profit Before Interest and Taxes 24.80% 26.21% 24.08% 6.01%
Main Ratios
Current 2.88 8.48 7.92 1.53
Quick 1.88 6.34 5.98 1.09
Total Debt to Total Assets 52.80% 27.00% 20.71% 88.70%
Pre-tax Return on Net Worth 92.51% 84.09% 72.23% 245.85%
Pre-tax Return on Assets 43.67% 61.38% 57.27% 27.77%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 16.33% 17.81% 16.54% n.a
Return on Equity 64.76% 58.86% 50.56% n.a
Activity Ratios
Accounts Receivable Turnover 3.05 3.05 3.05 n.a
Collection Days 41 106 108 n.a
Inventory Turnover 4.61 3.06 4.05 n.a
Accounts Payable Turnover 4.11 12.17 12.17 n.a
Payment Days 29 58 26 n.a
Total Asset Turnover 1.87 2.41 2.42 n.a
Debt Ratios
Debt to Net Worth 1.12 0.37 0.26 n.a
Current Liab. to Liab. 0.60 0.40 0.57 n.a
Liquidity Ratios
Net Working Capital $157,368 $217,247 $270,667 n.a
Interest Coverage 16.80 33.87 53.09 n.a
Additional Ratios
Assets to Sales 0.53 0.41 0.41 n.a
Current Debt/Total Assets 31% 11% 12% n.a
Acid Test 1.39 4.51 4.29 n.a
Sales/Net Worth 3.97 3.31 3.06 n.a
Dividend Payout 0.00 0.39 0.49 n.a