Cents and Senseibility Value-Priced Martial Arts School

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Martial Arts School Business Plan

Financial Plan

The initial investment in the Cents and Senseibility Martial Arts School will be provided by Rolly BonTemps and his parents.  The owner will also seek a 3-year bank loan to provide the remainder of the required initial funding. 

Our financial plan is built on the assumption that Cents and Senseibility will be able to recruit the required amount of students on a rolling basis.  The owner strongly believes that his previous successful experience as one of the industry's most distinguished marketing specialists will allow him to become successful with the enrollment for his own Taekwondo school. 

The break-even point of + or - 70 students should be achieved in just three months.  The goal of 300 students in 12-18 months is very obtainable.  When this goal is met, Cents and Senseibility Martial Arts School will be a very profitable business.  The long-term goal is to have enough cash on-hand and a solid credit history to pursue the ultimate goal of owning our own building.  This facility will include the Cents and Senseibility Martial Arts School and a fitness center for young and older adults to participate in several fitness programs, as well as a universal gym. 

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, several other important assumptions have been made:

  • The economy will grow at a steady pace, without a major recession.  Our network of local communities is among the fastest growing areas in the country.  The Cents and Senseibility Martial Arts School is expected to grow with the growth of the local communities.
  • There will be no major change in the martial arts industry, other then those discussed in the trends section earlier in this document.
  • The State will not enact "impact" legislation on the unregulated martial arts industry.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 7.00% 7.00% 7.00%
Long-term Interest Rate 9.00% 9.00% 9.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Break-even Analysis

For the break-even analysis, the assumed running costs will include full payroll, rent, and utilities, and an estimation of other running costs.  Based on our assumed variable cost, we show below our estimated break-even sales volume per month.  We expect to reach that sales volume by our fourth month of operations.

Break-even Analysis
Monthly Revenue Break-even $10,605
Assumptions:
Average Percent Variable Cost 12%
Estimated Monthly Fixed Cost $9,367

7.3 Projected Profit and Loss

Cents and Senseibility's monthly profit for the first year varies considerably, as we aggressively seek improvements and begin marketing the business.  However, after the first six months, profitability should take hold, which will allow a modest increase to the owner's salary.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $259,085 $429,646 $505,602
Direct Cost of Sales $30,255 $39,742 $52,328
Other costs $0 $0 $0
Total Cost of Sales $30,255 $39,742 $52,328
Gross Margin $228,830 $389,905 $453,273
Gross Margin % 88.32% 90.75% 89.65%
Expenses
Payroll $52,000 $71,000 $100,000
Sales and Marketing and Other Expenses $15,000 $25,000 $40,000
Depreciation $1,000 $1,000 $1,000
Rent $30,000 $30,000 $30,000
Utilities $4,200 $4,500 $4,600
Janitorial services $3,000 $3,500 $4,000
Insurance $1,200 $1,200 $1,200
Payroll Taxes $0 $0 $0
Miscellaneous $6,000 $10,000 $15,000
Total Operating Expenses $112,400 $146,200 $195,800
Profit Before Interest and Taxes $116,430 $243,705 $257,473
EBITDA $117,430 $244,705 $258,473
Interest Expense $4,523 $2,861 $982
Taxes Incurred $33,572 $72,253 $76,947
Net Profit $78,335 $168,590 $179,544
Net Profit/Sales 30.24% 39.24% 35.51%

7.4 Projected Cash Flow

Like profit, the first year's monthly cash flows will vary.  Since we will mostly deal with private customers, we expect that most of our sales will be done in cash or by credit card, which will positively affect our planned cash flow, especially during the most crucial first year of operations.  A 3-year commercial loan sought by the owner will be required to cover working capital requirement. 

Our projected cash flow, as summarized in the table below, is expected to meet the needs.  In the following years, excess cash will be used to finance more aggressive service plans.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $207,268 $343,717 $404,481
Cash from Receivables $37,428 $76,457 $96,902
Subtotal Cash from Operations $244,697 $420,174 $501,383
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 $244,697 $420,174 $501,383
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $52,000 $71,000 $100,000
Bill Payments $115,234 $193,364 $226,001
Subtotal Spent on Operations $167,234 $264,364 $326,001
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 $18,236 $19,947 $21,817
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $185,470 $284,311 $347,818
Net Cash Flow $59,227 $135,863 $153,565
Cash Balance $103,227 $239,090 $392,655

7.5 Projected Balance Sheet

The balance sheet is quite solid.  Cents and Senseibility Martial Arts School does not project any real trouble meeting its debt obligations—as long as it can achieve the specific objectives. We are very confident we will meet all objectives in the Business Plan, if not exceed them. 

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $103,227 $239,090 $392,655
Accounts Receivable $14,388 $23,861 $28,079
Inventory $9,575 $12,577 $16,561
Other Current Assets $0 $0 $0
Total Current Assets $127,190 $275,528 $437,295
Long-term Assets
Long-term Assets $10,000 $10,000 $10,000
Accumulated Depreciation $1,000 $2,000 $3,000
Total Long-term Assets $9,000 $8,000 $7,000
Total Assets $136,190 $283,528 $444,295
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $17,091 $15,786 $18,825
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $17,091 $15,786 $18,825
Long-term Liabilities $41,764 $21,817 $0
Total Liabilities $58,855 $37,603 $18,825
Paid-in Capital $35,000 $35,000 $35,000
Retained Earnings ($36,000) $42,335 $210,925
Earnings $78,335 $168,590 $179,544
Total Capital $77,335 $245,925 $425,469
Total Liabilities and Capital $136,190 $283,528 $444,295
Net Worth $77,335 $245,925 $425,469

7.6 Business Ratios

As indicated in the "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. 

We have much lower long-term assets than the industry standard because we are beginning our business with a rented space, rather than buying one. If Cents and Senseibility sees sufficient growth over the first three yeears, we may buy a suitable location for permanent space.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 65.83% 17.68% 2.76%
Percent of Total Assets
Accounts Receivable 10.57% 8.42% 6.32% 4.27%
Inventory 7.03% 4.44% 3.73% 4.31%
Other Current Assets 0.00% 0.00% 0.00% 31.38%
Total Current Assets 93.39% 97.18% 98.42% 39.96%
Long-term Assets 6.61% 2.82% 1.58% 60.04%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 12.55% 5.57% 4.24% 23.98%
Long-term Liabilities 30.67% 7.69% 0.00% 24.53%
Total Liabilities 43.22% 13.26% 4.24% 48.51%
Net Worth 56.78% 86.74% 95.76% 51.49%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 88.32% 90.75% 89.65% 100.00%
Selling, General & Administrative Expenses 30.44% 23.59% 23.82% 75.54%
Advertising Expenses 0.39% 0.23% 0.20% 3.11%
Profit Before Interest and Taxes 44.94% 56.72% 50.92% 1.52%
Main Ratios
Current 7.44 17.45 23.23 1.04
Quick 6.88 16.66 22.35 0.68
Total Debt to Total Assets 43.22% 13.26% 4.24% 64.79%
Pre-tax Return on Net Worth 144.70% 97.93% 60.28% 2.30%
Pre-tax Return on Assets 82.17% 84.95% 57.73% 6.54%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 30.24% 39.24% 35.51% n.a
Return on Equity 101.29% 68.55% 42.20% n.a
Activity Ratios
Accounts Receivable Turnover 3.60 3.60 3.60 n.a
Collection Days 56 81 94 n.a
Inventory Turnover 5.12 3.59 3.59 n.a
Accounts Payable Turnover 7.74 12.17 12.17 n.a
Payment Days 27 31 28 n.a
Total Asset Turnover 1.90 1.52 1.14 n.a
Debt Ratios
Debt to Net Worth 0.76 0.15 0.04 n.a
Current Liab. to Liab. 0.29 0.42 1.00 n.a
Liquidity Ratios
Net Working Capital $110,099 $259,742 $418,469 n.a
Interest Coverage 25.74 85.18 262.25 n.a
Additional Ratios
Assets to Sales 0.53 0.66 0.88 n.a
Current Debt/Total Assets 13% 6% 4% n.a
Acid Test 6.04 15.15 20.86 n.a
Sales/Net Worth 3.35 1.75 1.19 n.a
Dividend Payout 0.00 0.00 0.00 n.a