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.
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:
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.
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.
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.
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.
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.