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Photography Studio Business Plan

Phoebe's Photo Studio

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Financial Plan

Phoebe's Photo Studio will become profitable in its fifth month of operation, by May 2006.  It will grow vigorously each year after that to its optimum level during 2008.  This optimum level will produce sales sufficient for a generous net profit, even with the owner's and employee's salaries.

The business will be funded with an investment by the owner and loan secured by real estate.

8.1 Start-up Funding

The start-up requirements for Phoebe's Photo Studio including start-up expenses, current assets, cash on hand, and long-term assets were presented earlier in this plan. Start-up funding is presented in the table below.

The owner, Phoebe Peters will provide a seed investment.  A loan for the balance will be secured by real estate.

Start-up Funding
Start-up Expenses to Fund $28,730
Start-up Assets to Fund $81,270
Total Funding Required $110,000
Assets
Non-cash Assets from Start-up $70,500
Cash Requirements from Start-up $10,770
Additional Cash Raised $0
Cash Balance on Starting Date $10,770
Total Assets $81,270
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $100,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $100,000
Capital
Planned Investment
Owner $10,000
Investor $0
Additional Investment Requirement $0
Total Planned Investment $10,000
Loss at Start-up (Start-up Expenses) ($28,730)
Total Capital ($18,730)
Total Capital and Liabilities $81,270
Total Funding $110,000

8.2 Important Assumptions

We assume a stable economy with reasonable growth and a steady rise in interest rates. We also assume that our competitors won't adopt our strategy within the first two years.  After that, our approach is likely to make a change in what our competitors charge for digital files, because they'll see it's effective in bringing in repeat business as well as new business. 

8.3 Break-even Analysis

The average monthly expenses are shown in the table below. With low average direct unit costs, we will need to make the monthly sales displayed to break even. We expect to pass the break-even point in May.

Break-even Analysis
Monthly Units Break-even 26
Monthly Revenue Break-even $7,812
Assumptions:
Average Per-Unit Revenue $298.87
Average Per-Unit Variable Cost $48.03
Estimated Monthly Fixed Cost $6,557

8.4 Key Financial Indicators

The benchmarks chart, below, shows a quick comparison of Sales, Gross Margin %, and Operating Expenses over the next three years. Although Operating Expenses will rise slightly in future years, they are not rising proportionally with sales growth. The higher operating cost ratio in the first reflects the higher costs of advertising to establish visibility at the start of the business.

8.5 Projected Profit and Loss

This business is projected to become profitable in May 2006, after the start-up advertising is completed and customers begin to discover the service. For the year 2006, the business will be profitable. It will grow at a vigorous rate over the next two years. 

Our utility costs include monthly charges for high-speed Internet access via a corporate account, which will essential to delivering our finished images to most of our customers.

The optimum level of profitability for this one-photographer shop is reached in 2008. Our profit margins are much higher than the industry average because of our innovative product-delivery options - digital images require no film, no paper, and no chemicals, just storage units (CDs and DVDs) and delivery (computer and Internet access).

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $131,800 $188,600 $267,200
Direct Cost of Sales $21,180 $27,360 $35,720
Other Costs of Sales $0 $0 $0
Total Cost of Sales $21,180 $27,360 $35,720
Gross Margin $110,620 $161,240 $231,480
Gross Margin % 83.93% 85.49% 86.63%
Expenses
Payroll $42,000 $44,000 $50,000
Marketing/Promotion $7,100 $4,800 $4,800
Depreciation $15,960 $15,960 $15,960
Rent $9,600 $10,000 $10,400
Utilities $1,200 $1,200 $1,200
Maintenance of Cameras and Equipment $600 $800 $1,000
Offsite file backups and support $720 $1,000 $1,000
Software upgrades $0 $500 $800
Insurance $300 $300 $300
Payroll Taxes $0 $0 $0
Other $1,200 $1,200 $1,200
Total Operating Expenses $78,680 $79,760 $86,660
Profit Before Interest and Taxes $31,940 $81,480 $144,820
EBITDA $47,900 $97,440 $160,780
Interest Expense $9,376 $8,223 $6,923
Taxes Incurred $6,769 $21,977 $41,369
Net Profit $15,795 $51,280 $96,528
Net Profit/Sales 11.98% 27.19% 36.13%

8.6 Projected Cash Flow

Cash reserves reach the minimum point in March 2006.  From that point, cash flow is positive, reaching a robust level by the end of 2008.

As sales increase, we will supplement our prop and furniture inventory with the purchase of new items as current assets.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $131,800 $188,600 $267,200
Subtotal Cash from Operations $131,800 $188,600 $267,200
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 $131,800 $188,600 $267,200
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $42,000 $44,000 $50,000
Bill Payments $52,845 $76,202 $102,464
Subtotal Spent on Operations $94,845 $120,202 $152,464
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 $11,520 $12,500 $13,500
Purchase Other Current Assets $0 $0 $2,000
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $106,365 $132,702 $167,964
Net Cash Flow $25,435 $55,898 $99,236
Cash Balance $36,205 $92,103 $191,339

8.7 Projected Balance Sheet

Net worth becomes positive in the second year. It then steadily builds through the end of this plan, in 2008. There is an excellent return on equity by the third year.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $36,205 $92,103 $191,339
Other Current Assets $10,000 $10,000 $12,000
Total Current Assets $46,205 $102,103 $203,339
Long-term Assets
Long-term Assets $60,500 $60,500 $60,500
Accumulated Depreciation $15,960 $31,920 $47,880
Total Long-term Assets $44,540 $28,580 $12,620
Total Assets $90,745 $130,683 $215,959
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $5,200 $6,358 $8,606
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $5,200 $6,358 $8,606
Long-term Liabilities $88,480 $75,980 $62,480
Total Liabilities $93,680 $82,338 $71,086
Paid-in Capital $10,000 $10,000 $10,000
Retained Earnings ($28,730) ($12,935) $38,345
Earnings $15,795 $51,280 $96,528
Total Capital ($2,935) $48,345 $144,873
Total Liabilities and Capital $90,745 $130,683 $215,959
Net Worth ($2,935) $48,345 $144,873

8.8 Business Ratios

Phoebe's Photo Studios is part of the photographic portrait studio industry (SIC Code 7221). Industry standard growth is currently 7.3% annually. Phoebe's Photo Studio is projected to grow weed-like annually by seizing its target market early and building on it.

Long-term assets are a smaller percentage of this business because expensive printing equipment isn't required. High resolution printing will be outsourced and is included under Cost of Goods Sold.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 43.10% 41.68% 7.32%
Percent of Total Assets
Other Current Assets 11.02% 7.65% 5.56% 51.55%
Total Current Assets 50.92% 78.13% 94.16% 71.67%
Long-term Assets 49.08% 21.87% 5.84% 28.33%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 5.73% 4.87% 3.99% 24.01%
Long-term Liabilities 97.50% 58.14% 28.93% 21.85%
Total Liabilities 103.23% 63.01% 32.92% 45.86%
Net Worth -3.23% 36.99% 67.08% 54.14%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 83.93% 85.49% 86.63% 100.00%
Selling, General & Administrative Expenses 71.95% 58.30% 50.51% 76.37%
Advertising Expenses 0.00% 0.00% 0.00% 1.11%
Profit Before Interest and Taxes 24.23% 43.20% 54.20% 5.49%
Main Ratios
Current 8.89 16.06 23.63 1.89
Quick 8.89 16.06 23.63 1.37
Total Debt to Total Assets 103.23% 63.01% 32.92% 53.64%
Pre-tax Return on Net Worth -768.74% 151.53% 95.19% 11.50%
Pre-tax Return on Assets 24.87% 56.06% 63.85% 24.81%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 11.98% 27.19% 36.13% n.a
Return on Equity 0.00% 106.07% 66.63% n.a
Activity Ratios
Accounts Payable Turnover 11.16 12.17 12.17 n.a
Payment Days 27 27 26 n.a
Total Asset Turnover 1.45 1.44 1.24 n.a
Debt Ratios
Debt to Net Worth 0.00 1.70 0.49 n.a
Current Liab. to Liab. 0.06 0.08 0.12 n.a
Liquidity Ratios
Net Working Capital $41,005 $95,745 $194,733 n.a
Interest Coverage 3.41 9.91 20.92 n.a
Additional Ratios
Assets to Sales 0.69 0.69 0.81 n.a
Current Debt/Total Assets 6% 5% 4% n.a
Acid Test 8.89 16.06 23.63 n.a
Sales/Net Worth 0.00 3.90 1.84 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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Start-up Funding
Start-up Expenses to Fund $28,730
Start-up Assets to Fund $81,270
Total Funding Required $110,000
Assets
Non-cash Assets from Start-up $70,500
Cash Requirements from Start-up $10,770
Additional Cash Raised $0
Cash Balance on Starting Date $10,770
Total Assets $81,270
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $100,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $100,000
Capital
Planned Investment
Owner $10,000
Investor $0
Additional Investment Requirement $0
Total Planned Investment $10,000
Loss at Start-up (Start-up Expenses) ($28,730)
Total Capital ($18,730)
Total Capital and Liabilities $81,270
Total Funding $110,000
Break-even Analysis
Monthly Units Break-even 26
Monthly Revenue Break-even $7,812
Assumptions:
Average Per-Unit Revenue $298.87
Average Per-Unit Variable Cost $48.03
Estimated Monthly Fixed Cost $6,557
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $131,800 $188,600 $267,200
Direct Cost of Sales $21,180 $27,360 $35,720
Other Costs of Sales $0 $0 $0
Total Cost of Sales $21,180 $27,360 $35,720
Gross Margin $110,620 $161,240 $231,480
Gross Margin % 83.93% 85.49% 86.63%
Expenses
Payroll $42,000 $44,000 $50,000
Marketing/Promotion $7,100 $4,800 $4,800
Depreciation $15,960 $15,960 $15,960
Rent $9,600 $10,000 $10,400
Utilities $1,200 $1,200 $1,200
Maintenance of Cameras and Equipment $600 $800 $1,000
Offsite file backups and support $720 $1,000 $1,000
Software upgrades $0 $500 $800
Insurance $300 $300 $300
Payroll Taxes $0 $0 $0
Other $1,200 $1,200 $1,200
Total Operating Expenses $78,680 $79,760 $86,660
Profit Before Interest and Taxes $31,940 $81,480 $144,820
EBITDA $47,900 $97,440 $160,780
Interest Expense $9,376 $8,223 $6,923
Taxes Incurred $6,769 $21,977 $41,369
Net Profit $15,795 $51,280 $96,528
Net Profit/Sales 11.98% 27.19% 36.13%
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $131,800 $188,600 $267,200
Subtotal Cash from Operations $131,800 $188,600 $267,200
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 $131,800 $188,600 $267,200
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $42,000 $44,000 $50,000
Bill Payments $52,845 $76,202 $102,464
Subtotal Spent on Operations $94,845 $120,202 $152,464
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 $11,520 $12,500 $13,500
Purchase Other Current Assets $0 $0 $2,000
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $106,365 $132,702 $167,964
Net Cash Flow $25,435 $55,898 $99,236
Cash Balance $36,205 $92,103 $191,339
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $36,205 $92,103 $191,339
Other Current Assets $10,000 $10,000 $12,000
Total Current Assets $46,205 $102,103 $203,339
Long-term Assets
Long-term Assets $60,500 $60,500 $60,500
Accumulated Depreciation $15,960 $31,920 $47,880
Total Long-term Assets $44,540 $28,580 $12,620
Total Assets $90,745 $130,683 $215,959
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $5,200 $6,358 $8,606
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $5,200 $6,358 $8,606
Long-term Liabilities $88,480 $75,980 $62,480
Total Liabilities $93,680 $82,338 $71,086
Paid-in Capital $10,000 $10,000 $10,000
Retained Earnings ($28,730) ($12,935) $38,345
Earnings $15,795 $51,280 $96,528
Total Capital ($2,935) $48,345 $144,873
Total Liabilities and Capital $90,745 $130,683 $215,959
Net Worth ($2,935) $48,345 $144,873
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 43.10% 41.68% 7.32%
Percent of Total Assets
Other Current Assets 11.02% 7.65% 5.56% 51.55%
Total Current Assets 50.92% 78.13% 94.16% 71.67%
Long-term Assets 49.08% 21.87% 5.84% 28.33%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 5.73% 4.87% 3.99% 24.01%
Long-term Liabilities 97.50% 58.14% 28.93% 21.85%
Total Liabilities 103.23% 63.01% 32.92% 45.86%
Net Worth -3.23% 36.99% 67.08% 54.14%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 83.93% 85.49% 86.63% 100.00%
Selling, General & Administrative Expenses 71.95% 58.30% 50.51% 76.37%
Advertising Expenses 0.00% 0.00% 0.00% 1.11%
Profit Before Interest and Taxes 24.23% 43.20% 54.20% 5.49%
Main Ratios
Current 8.89 16.06 23.63 1.89
Quick 8.89 16.06 23.63 1.37
Total Debt to Total Assets 103.23% 63.01% 32.92% 53.64%
Pre-tax Return on Net Worth -768.74% 151.53% 95.19% 11.50%
Pre-tax Return on Assets 24.87% 56.06% 63.85% 24.81%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 11.98% 27.19% 36.13% n.a
Return on Equity 0.00% 106.07% 66.63% n.a
Activity Ratios
Accounts Payable Turnover 11.16 12.17 12.17 n.a
Payment Days 27 27 26 n.a
Total Asset Turnover 1.45 1.44 1.24 n.a
Debt Ratios
Debt to Net Worth 0.00 1.70 0.49 n.a
Current Liab. to Liab. 0.06 0.08 0.12 n.a
Liquidity Ratios
Net Working Capital $41,005 $95,745 $194,733 n.a
Interest Coverage 3.41 9.91 20.92 n.a
Additional Ratios
Assets to Sales 0.69 0.69 0.81 n.a
Current Debt/Total Assets 6% 5% 4% n.a
Acid Test 8.89 16.06 23.63 n.a
Sales/Net Worth 0.00 3.90 1.84 n.a
Dividend Payout 0.00 0.00 0.00 n.a