Massage Tools

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Massage Products Business Plan

Financial Plan

The financial picture is quite encouraging. We have been slow to take on debt, but our credit line with the bank is supported by assets.

8.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:

  • We assume a slow-growth economy, without major recession.
  • We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables.
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

8.2 Break-even Analysis

The break-even analysis shows that Massage Tools has a good balance of fixed costs and sufficient sales strength to remain healthy. Our break-even point is just over $6,000 per month for the first year.

Break-even Analysis
Monthly Revenue Break-even $6,090
Assumptions:
Average Percent Variable Cost 45%
Estimated Monthly Fixed Cost $3,359

8.3 Projected Profit and Loss

We do expect a significant increase in profitability next year, and in the future, because we will have established ourselves in the market. Our higher sales volume will lower our cost of goods and increase our gross margin. This increase in gross margin is important to profitability.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $182,940 $199,352 $217,254
Direct Cost of Sales $82,059 $89,512 $97,650
Other Costs of Goods $11 $0 $0
Total Cost of Sales $82,070 $89,512 $97,650
Gross Margin $100,870 $109,840 $119,604
Gross Margin % 55.14% 55.10% 55.05%
Expenses
Payroll $5,700 $9,000 $10,000
Sales and Marketing and Other Expenses $7,800 $9,500 $12,500
Depreciation $0 $0 $0
Rent $10,200 $7,200 $8,500
Utilities $2,400 $2,800 $3,200
Insurance $4,200 $4,750 $5,000
Payroll Taxes $855 $1,350 $1,500
Commission $9,147 $9,968 $10,863
Total Operating Expenses $40,302 $44,568 $51,563
Profit Before Interest and Taxes $60,568 $65,272 $68,041
EBITDA $60,568 $65,272 $68,041
Interest Expense ($163) ($450) ($750)
Taxes Incurred $18,219 $19,717 $20,637
Net Profit $42,511 $46,005 $48,154
Net Profit/Sales 23.24% 23.08% 22.16%

8.4 Projected Cash Flow

We expect to manage cash flow over the next three years with new investment this year. The additional financing resources are required to finance the working capital of a growing business. However, the investment is small due to the low overhead.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $182,940 $199,352 $217,254
Subtotal Cash from Operations $182,940 $199,352 $217,254
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 $182,940 $199,352 $217,254
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $5,700 $9,000 $10,000
Bill Payments $124,321 $147,772 $159,059
Subtotal Spent on Operations $130,021 $156,772 $169,059
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $3,000 $3,000 $3,000
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $133,021 $159,772 $172,059
Net Cash Flow $49,919 $39,580 $45,195
Cash Balance $62,619 $102,198 $147,394

8.5 Projected Balance Sheet

Although we will not begin making a profit until April of this year, we are pleased that we will begin to recoup our investment in only four months. The critical piece of this success is the large margin on each product sold as well as the low operational expenses.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $62,619 $102,198 $147,394
Inventory $11,891 $12,971 $14,150
Other Current Assets $5,000 $5,000 $5,000
Total Current Assets $79,510 $120,169 $166,544
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $79,510 $120,169 $166,544
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $14,298 $11,953 $13,174
Current Borrowing ($3,000) ($6,000) ($9,000)
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $11,298 $5,953 $4,174
Long-term Liabilities $0 $0 $0
Total Liabilities $11,298 $5,953 $4,174
Paid-in Capital $45,000 $45,000 $45,000
Retained Earnings ($19,300) $23,211 $69,217
Earnings $42,511 $46,005 $48,154
Total Capital $68,211 $114,217 $162,370
Total Liabilities and Capital $79,510 $120,169 $166,544
Net Worth $68,211 $114,217 $162,370

8.6 Business Ratios

Standard business ratios for Health and Personal Care Stores (SIC 5047) are included in the following table. The ratios show a plan for balanced, healthy growth. Our return on sales and return on assets remain as strong as ever, actually increasing in percentage terms by the same year.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 8.97% 8.98% 6.98%
Percent of Total Assets
Inventory 14.96% 10.79% 8.50% 39.84%
Other Current Assets 6.29% 4.16% 3.00% 22.68%
Total Current Assets 100.00% 100.00% 100.00% 91.25%
Long-term Assets 0.00% 0.00% 0.00% 8.75%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 14.21% 4.95% 2.51% 37.11%
Long-term Liabilities 0.00% 0.00% 0.00% 10.41%
Total Liabilities 14.21% 4.95% 2.51% 47.52%
Net Worth 85.79% 95.05% 97.49% 52.48%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 55.14% 55.10% 55.05% 30.78%
Selling, General & Administrative Expenses 31.96% 32.18% 33.13% 15.53%
Advertising Expenses 0.00% 0.00% 0.00% 1.18%
Profit Before Interest and Taxes 33.11% 32.74% 31.32% 2.01%
Main Ratios
Current 7.04 20.19 39.90 2.24
Quick 5.98 18.01 36.51 0.99
Total Debt to Total Assets 14.21% 4.95% 2.51% 52.38%
Pre-tax Return on Net Worth 89.03% 57.54% 42.37% 6.06%
Pre-tax Return on Assets 76.38% 54.69% 41.31% 12.72%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 23.24% 23.08% 22.16% n.a
Return on Equity 62.32% 40.28% 29.66% n.a
Activity Ratios
Inventory Turnover 9.88 7.20 7.20 n.a
Accounts Payable Turnover 9.69 12.17 12.17 n.a
Payment Days 27 33 29 n.a
Total Asset Turnover 2.30 1.66 1.30 n.a
Debt Ratios
Debt to Net Worth 0.17 0.05 0.03 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $68,211 $114,217 $162,370 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.43 0.60 0.77 n.a
Current Debt/Total Assets 14% 5% 3% n.a
Acid Test 5.98 18.01 36.51 n.a
Sales/Net Worth 2.68 1.75 1.34 n.a
Dividend Payout 0.00 0.00 0.00 n.a