We expect revenues and sales to increase dramatically between the second and fourth years of operation. After that high growth period, we expect growth to be steady and stable for the foreseeable future. This industry is very susceptible to consumers' judgements about the store based on inventory, brands offered, pricing and staffing. It is crucial that we generate sufficient cash reserves during the growth years to be able to jump on future opportunities, allowing us to increase our market share.
The financial plan depends on certain assumptions, most of which are shown in the following table. The key assumptions are:
If we take advantage of the current market conditions in Albuquerque, we can achieve great gains in market share during our start-up year and beyond. Our assumptions for sales are conservative compared to industry averages in similarly sized markets.
For break-even analysis purposes, we are assuming per month running costs as shown below. Payroll on its own is a substantial portion of these costs. The break-even assumptions are based on the personal experience of the co-owner, David Moore, based on his actual experiences as manager of King Music Centers, Inc., and Marc's Guitar Center for an average month's need. We believe we can achieve higher than industry average margins by selectively choosing products that allow these margins to be possible, and by value-added marketing of these products and related services.
Our cash flow projections show only a slight negative cash flow that our cash "in bank" will easily allow us to cover, without the need for accessing additional lines of credit financing. We will maintain a positive cash balance throughout the foreseeable future.
The projections in the balance sheet are quite solid. We do not anticipate any trouble meeting our debt obligations as long as we follow through with the plans and strategies set forth in this business plan.
The following table shows industry relevant ratios as determined by the standard industry classification index (SIC) under category 5736 - Musical Instrument Stores.