Adorable Pet Photography

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Pet Photography Business Plan

Financial Plan

Photography businesses usually require an enormous initial investment in equipment and facilities. The owner of Adorable Pet Photography has been an avid photographer for many years and possesses professional-level photographic equipment to get the business off to a good start with minimal debt. In addition, the will be a home-based business, with no rent or lease commitment. The charts and tables that follow demonstrate that these up-front investments allow Adorable Pet Photography to function with limited debt and overhead. This gives the business a quicker break-even point and increased profit margins from the start. As Adorable Pet Photography grows, a debt-free philosophy will be maintained.

7.1 Important Assumptions

Tax rates are included for informational purposes. We carry a small loan burden that will affect this rate minimally.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 8.00% 8.00% 8.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Key Financial Indicators

The following chart benchmarks four key indicators, including sales, gross margin, operating expenses, and inventory turnover. These were chosen due to their significant impact on the health of the business. These are not focused on gross amounts, but on year-to-year changes. The chart uses indicator values that are set to compare changes with the base year showing up as 1.00, and all successive years showing up as multiples from the base.

7.3 Projected Profit and Loss

Adorable Pet Photography expects a 15 percent annual growth rate for the first three years due to the owner's already established reputation and contacts. Overhead is expected to be stable, with the exception of the receptionist/photographer's assistant becoming a full-time position in fiscal year 2003. This allows a predicted 20 percent increase in profits before interest and taxes in the second year of business; this figure remains stable even with the increase in personnel expense the third year. It should be noted that the owner's salary will be taken out of this figure.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $88,250 $99,340 $116,175
Direct Cost of Sales $27,105 $31,777 $36,087
Other $0 $0 $0
Total Cost of Sales $27,105 $31,777 $36,087
Gross Margin $61,145 $67,563 $80,088
Gross Margin % 69.29% 68.01% 68.94%
Expenses
Payroll $11,000 $12,000 $24,000
Sales and Marketing and Other Expenses $9,900 $7,500 $7,600
Depreciation $0 $0 $0
Leased Equipment $0 $0 $0
Utilities $600 $630 $650
Insurance $1,800 $1,800 $1,800
Rent $0 $0 $0
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $23,300 $21,930 $34,050
Profit Before Interest and Taxes $37,845 $45,633 $46,038
EBITDA $37,845 $45,633 $46,038
Interest Expense $696 $512 $320
Taxes Incurred $11,145 $13,536 $13,715
Net Profit $26,004 $31,584 $32,002
Net Profit/Sales 29.47% 31.79% 27.55%

7.4 Break-even Analysis

The break-even point will appear more rapidly for Adorable Pet Photography than for other types of home-based businesses since start-up costs are limited and there is little to no staff to pay in the beginning. January is expected to be the slowest month of the year, since this is the post-holiday slump.

Break-even Analysis
Monthly Units Break-even 118
Monthly Revenue Break-even $2,802
Assumptions:
Average Per-Unit Revenue $23.76
Average Per-Unit Variable Cost $7.30
Estimated Monthly Fixed Cost $1,942

7.5 Projected Cash Flow

Our cash situation is optimum. Although Adorable Pet Photography begins with little extra cash, our increased growth allows the business to gain financial ground quickly. The cash flow is negative for only two months of the first year, during the expected off-season months; the business will be prepared for this with cash reserves, and will maintain positive cash balances.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $88,250 $99,340 $116,175
Subtotal Cash from Operations $88,250 $99,340 $116,175
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 $1,200 $0 $0
Subtotal Cash Received $89,450 $99,340 $116,175
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $11,000 $12,000 $24,000
Bill Payments $48,798 $54,280 $60,108
Subtotal Spent on Operations $59,798 $66,280 $84,108
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $2,400 $2,400 $2,400
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 $62,198 $68,680 $86,508
Net Cash Flow $27,252 $30,660 $29,667
Cash Balance $40,752 $71,412 $101,079

7.6 Projected Balance Sheet

Adorable Pet Photography is set up for business. According to the numbers, there is steady accumulation of cash and assets. No major capital investments are expected throughout the early years, so the liabilities remain limited. Net worth steadily grows.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $40,752 $71,412 $101,079
Inventory $1,864 $2,186 $2,482
Other Current Assets $10,000 $10,000 $10,000
Total Current Assets $52,616 $83,598 $113,561
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $52,616 $83,598 $113,561
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $2,812 $4,609 $4,970
Current Borrowing $7,600 $5,200 $2,800
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $10,412 $9,809 $7,770
Long-term Liabilities $0 $0 $0
Total Liabilities $10,412 $9,809 $7,770
Paid-in Capital $23,550 $23,550 $23,550
Retained Earnings ($7,350) $18,654 $50,239
Earnings $26,004 $31,584 $32,002
Total Capital $42,204 $73,789 $105,791
Total Liabilities and Capital $52,616 $83,598 $113,561
Net Worth $42,204 $73,789 $105,791

7.7 Business Ratios

The following table includes Industry Profile statistics for the photographic studios/portraits industry, as determined by the Standard Industry Classifications (SIC) Index code 7221. These statistics show a comparison of industry standards and the key ratios for this plan.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 12.57% 16.95% 10.40%
Percent of Total Assets
Inventory 3.54% 2.61% 2.19% 5.30%
Other Current Assets 19.01% 11.96% 8.81% 40.60%
Total Current Assets 100.00% 100.00% 100.00% 56.60%
Long-term Assets 0.00% 0.00% 0.00% 43.40%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 19.79% 11.73% 6.84% 27.60%
Long-term Liabilities 0.00% 0.00% 0.00% 25.80%
Total Liabilities 19.79% 11.73% 6.84% 53.40%
Net Worth 80.21% 88.27% 93.16% 46.60%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 69.29% 68.01% 68.94% 0.00%
Selling, General & Administrative Expenses 39.42% 35.46% 40.72% 77.70%
Advertising Expenses 8.50% 5.03% 4.30% 2.00%
Profit Before Interest and Taxes 42.88% 45.94% 39.63% 4.80%
Main Ratios
Current 5.05 8.52 14.62 1.83
Quick 4.87 8.30 14.30 1.26
Total Debt to Total Assets 19.79% 11.73% 6.84% 53.40%
Pre-tax Return on Net Worth 88.02% 61.15% 43.22% 7.60%
Pre-tax Return on Assets 70.60% 53.97% 40.26% 16.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 29.47% 31.79% 27.55% n.a
Return on Equity 61.62% 42.80% 30.25% n.a
Activity Ratios
Inventory Turnover 8.97 15.69 15.46 n.a
Accounts Payable Turnover 18.35 12.17 12.17 n.a
Payment Days 27 24 29 n.a
Total Asset Turnover 1.68 1.19 1.02 n.a
Debt Ratios
Debt to Net Worth 0.25 0.13 0.07 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $42,204 $73,789 $105,791 n.a
Interest Coverage 54.38 89.13 143.87 n.a
Additional Ratios
Assets to Sales 0.60 0.84 0.98 n.a
Current Debt/Total Assets 20% 12% 7% n.a
Acid Test 4.87 8.30 14.30 n.a
Sales/Net Worth 2.09 1.35 1.10 n.a
Dividend Payout 0.00 0.00 0.00 n.a