Nightclub, Dance Classes Business Plan

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Financial Plan

The purpose of this business plan is to estimate start-up and ongoing costs; identify revenue streams; and forecast net cash flow and profits. The venture will be funded solely through paid-in capital provided by the owner.

We estimate our monthly revenue break-even at $66,395, with a per-unit variable cost of 60% and fixed monthly costs of $26,558. Total net profit for our first year is estimated at a negative ($161,031) due to start-up expenses. Our second year forecast shows a positive net profit of $122,498, increasing in our third year to $129,891. Start-up expenses of $40,260 and initial working capital of $150,000 has been provided by owner Wes Anthony.

Our net cash flow for the first year is projected at $22,084, increasing to $103,664 in our second year and $82,157 in our third year. We project ending our first year with a cash balance of $23,084, increasing to $126,748 in our second year and $208,905 in our third year. We anticipate our accounting net worth at the end of our first year to be a negative ($10,031), increasing to $62,468 in our second year and $142,359 in our third year.

The owner is aware of the highly risky nature of launching an entertainment-based restaurant establishment. If the venture fails, the owner's paid-in capital and expenses may not be recovered. If the venture is undercapitalized and requires more working capital, the owner will consider bringing on investment partners. The owner will also review the return-on-investment for personally providing more paid-in capital. In the event that net profitability cannot be attained, the owner will take sequential steps to exit the venture, as outlined in the Exit Strategy section of the Financial Plan.

The owner's initial investment of $40,260 in start-up capital, along with paid-in capital of $150,000, results in a total investment of $190,260.

7.1 Important Assumptions

The company does not anticipate securing a conventional loan for funding purposes. Our tax rate is initially set at 0% pending further analysis.

Our payroll expense begins in August 2004 as we prepare for our grand opening. Payroll taxes and employee benefits are forecast at 7% of payroll and identified in the Profit and Loss table of this financial plan.

New accounts payable begin in July 2004 with the leasing of space and initial build-out expenses. We anticipate accounts payable for inventory to begin in July 2004.

Our collections days are estimated at 2 days based on credit card (15% of sales) and cash (85% of sales) merchant account processing. We estimate our payment days to be 30 days to our accounts payable. Our inventory turnover is estimated at 7 days.

All purchased equipment, as well as the build-out costs, will be expensed, which will reduce the asset base of the company.

7.2 Break-even Analysis

We estimate our monthly revenue break-even at $66,395, with a per-unit variable cost of 60% and fixed monthly costs of $26,558. Our targeted break-even month is October 2005.

Break-even Analysis
Monthly Revenue Break-even $64,958
Assumptions:
Average Percent Variable Cost 60%
Estimated Monthly Fixed Cost $25,983

7.3 Projected Profit and Loss

We anticipate a gross margin of 40% beginning with sales revenue generated in Sept 2004. Gross margin for our first year is projected at approximately $157,600, increasing in our second year to approximately $488,800 and $523,000 in our third year.

Total net profit for our first year is estimated at approximately negative ($161,000) due to start-up expenses. Our second year forecast shows a positive net profit of approximately $122,400, increasing in our third year to $129,800.

Our sales and marketing expense will begin in July 2004 as we start marketing efforts for our grand opening in September 2004. We anticipate a budget of 1% of our gross sales to support our marketing efforts.

Payroll begins in August 2004, along with payroll taxes and employee benefits estimated at 7%. We plan to spend the month of August training all employees prior to our grand opening.

Start-up Costs

We have allocated $20,000 toward lease improvements and our build-out of the leased space prior to our grand opening. This amount includes construction costs for renovating the existing space to accommodate a stage area, along with making minor space adjustments within the venue.

Equipment and Furnishings are allocated at $30,000 for our first year. Equipment includes Lighting, Sound, and Audio Video expenditures for the build-out of the venue.

Rent is based on securing a 6,600 square foot facility with a monthly rent of approximately $8,000. To secure the lease we anticipate paying first month's rent and security deposit in July 2004. We plan to negotiate favorable tenant improvement allowances with the owner, including a percentage of the monthly rent discounted as a build-out credit. For this reason, the P&L reflects a monthly rent of $6,000 for the first year.

We anticipate outsourcing most of our general and administrative functions, such as payroll and other day-to-day concerns. This allocation is included in the Profit & Loss as a General And Administrative cost, set initially at $750 per month.

We have allocated an additional $500 per month above operating expenses for 'Other' unanticipated costs. This allocation begins in our first month of operations and is regarded as an ongoing monthly expense.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $394,157 $1,222,164 $1,307,715
Direct Cost of Sales $236,494 $733,298 $784,629
Other Costs of Goods $0 $0 $0
Total Cost of Sales $236,494 $733,298 $784,629
Gross Margin $157,663 $488,866 $523,086
Gross Margin % 40.00% 40.00% 40.00%
Expenses
Payroll $124,000 $170,000 $192,000
Sales & Marketing and Other Expenses $25,514 $46,967 $50,255
Depreciation $0 $0 $0
Building Build-Out ($20,000) $20,000 $2,000 $2,000
Lights, Audio, Bumper $30,000 $2,000 $2,000
Permits & Licenses (Beer & Wine) $5,000 $500 $500
Rent $69,000 $96,000 $96,000
Utilities $9,000 $12,000 $12,000
Legal and Accounting $6,000 $6,000 $6,000
Consulting $500 $1,000 $1,000
Insurance $6,000 $6,000 $6,000
Payroll Taxes & Employee Benefits $1,786 $3,288 $3,518
General and Adminstrative Expenses $9,000 $9,000 $9,000
Other $6,000 $3,000 $3,000
Total Operating Expenses $311,800 $357,755 $383,273
Profit Before Interest and Taxes ($154,137) $131,111 $139,813
EBITDA ($154,137) $131,111 $139,813
Interest Expense $0 $0 $0
Taxes Incurred $0 $0 $0
Net Profit ($154,137) $131,111 $139,813
Net Profit/Sales -39.11% 10.73% 10.69%

7.4 Projected Cash Flow

Initial capital of $40,260 has been provided by the owner. Additional working capital requirements of $150,000 until we achieve break-even are also provided by the owner.

Break-even is expected in October of 2005. In the event that break-even is not achieved in that month, the owner will review the risk and return for providing additional equity. Additionally, the owner may consider bringing on investment partners to generate working capital.

The owner anticipates paying out $50,000 dollar dividends starting at the end of the second year of operation, when the company reaches its full sales potential.

Our net cash flow for the first year is projected at $22,084, increasing to approximately $103,600 in our second year and $82,000 in our third year. We project ending our first year with a cash balance of $23,000, increasing to almost $117,000 in our second year and approximately $198,600 in our third year.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $394,157 $1,222,164 $1,307,715
Subtotal Cash from Operations $394,157 $1,222,164 $1,307,715
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 $150,000 $0 $0
Subtotal Cash Received $544,157 $1,222,164 $1,307,715
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $124,000 $170,000 $192,000
Bill Payments $391,847 $899,739 $974,181
Subtotal Spent on Operations $515,847 $1,069,739 $1,166,181
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 $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $50,000 $50,000
Subtotal Cash Spent $515,847 $1,119,739 $1,216,181
Net Cash Flow $28,310 $102,425 $91,535
Cash Balance $29,310 $131,735 $223,270

7.5 Projected Balance Sheet

With a starting cash balance of $1,000, we anticipate that our total assets for our first year will be approximately $30,500, increasing to $149,900 in our second year and $223,500 in our third year. We anticipate our liabilities to total $40,600 in our first year, increasing to approximately $77,700 in our second year and $81,100 in our third year.

We anticipate our accounting net worth at the end of our first year to be approximately negative ($10,000), increasing to a positive $62,400 in our second year and $142,300 in our third year.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $29,310 $131,735 $223,270
Inventory $7,494 $23,235 $24,862
Other Current Assets $0 $0 $0
Total Current Assets $36,804 $154,971 $248,132
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $36,804 $154,971 $248,132
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $39,940 $76,997 $80,345
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $39,940 $76,997 $80,345
Long-term Liabilities $0 $0 $0
Total Liabilities $39,940 $76,997 $80,345
Paid-in Capital $190,260 $190,260 $190,260
Retained Earnings ($39,260) ($243,397) ($162,286)
Earnings ($154,137) $131,111 $139,813
Total Capital ($3,137) $77,974 $167,787
Total Liabilities and Capital $36,804 $154,971 $248,132
Net Worth ($3,137) $77,974 $167,787

7.6 Exit Strategy and Risk Assessment

The owner is aware of the highly risky nature of launching an entertainment-based restaurant establishment. If the venture fails, the owner's paid-in capital and expenses may not be recovered.

The venture's actual revenue will be tracked against projections on a month-to-month basis. If net profitability is not in-line with forecasts, management and operational adjustments will be made to address the issues.

If the venture is undercapitalized and requires more working capital, the owner will consider bringing on investment partners. The owner will also review the return-on-investment for personally providing more paid-in capital.

In the event that net profitability cannot be attained, the owner will take the following sequential steps to exit the venture:

1. The owner will attempt to sell the venture outright to a suitable buyer.

2. If a buyer cannot be found, the owner will liquidate all viable assets, including the establishment's liquor license.

3. Capital raised through asset liquidation will be used to reduce possible debt. All debt will be negotiated prior to settlement.

4. If debts cannot be eliminated, the owner will discuss corporate bankruptcy options with legal counsel.

7.7 Business Ratios

The table below summarizes key business ratios of E3 Playhouse and compares with the average for the Entertainment services industry. As the company establishes itself financially, most of our business ratios will come into line with the industry averages.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 210.07% 7.00% 4.94%
Percent of Total Assets
Inventory 20.36% 14.99% 10.02% 3.45%
Other Current Assets 0.00% 0.00% 0.00% 34.79%
Total Current Assets 100.00% 100.00% 100.00% 46.78%
Long-term Assets 0.00% 0.00% 0.00% 53.22%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 108.52% 49.68% 32.38% 25.68%
Long-term Liabilities 0.00% 0.00% 0.00% 26.09%
Total Liabilities 108.52% 49.68% 32.38% 51.77%
Net Worth -8.52% 50.32% 67.62% 48.23%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 40.00% 40.00% 40.00% 100.00%
Selling, General & Administrative Expenses 67.36% 64.67% 62.20% 75.20%
Advertising Expenses 8.79% 8.39% 8.01% 2.52%
Profit Before Interest and Taxes -39.11% 10.73% 10.69% 2.40%
Main Ratios
Current 0.92 2.01 3.09 1.20
Quick 0.73 1.71 2.78 0.84
Total Debt to Total Assets 108.52% 49.68% 32.38% 63.28%
Pre-tax Return on Net Worth 4913.71% 168.15% 83.33% 1.80%
Pre-tax Return on Assets -418.81% 84.60% 56.35% 4.89%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -39.11% 10.73% 10.69% n.a
Return on Equity 0.00% 168.15% 83.33% n.a
Activity Ratios
Inventory Turnover 48.00 47.73 32.63 n.a
Accounts Payable Turnover 10.81 12.17 12.17 n.a
Payment Days 27 23 29 n.a
Total Asset Turnover 10.71 7.89 5.27 n.a
Debt Ratios
Debt to Net Worth 0.00 0.99 0.48 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital ($3,137) $77,974 $167,787 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.09 0.13 0.19 n.a
Current Debt/Total Assets 109% 50% 32% n.a
Acid Test 0.73 1.71 2.78 n.a
Sales/Net Worth 0.00 15.67 7.79 n.a
Dividend Payout 0.00 0.38 0.36 n.a