Inspirational Grounds is basing projected sales on the market research, industry analysis and proximity of other coffee houses in the area. We are looking to obtain a modest .1% of the market share.
The cost of goods sold is based on the price list of Espresso Services, Inc., and is consistent with costs in the coffee and espresso industry. The cost of the bakery items and candies is 50% of the selling price.
Inspirational Grounds will use its POS System to keep cash flow and sales goals on track, and to indicate which marketing efforts are worth the investment. We expect sales to easily exceed the break-even point from the first month onward. The following sections outline our projected Profit and loss, Cash Flow, and Balance Sheet.
We do not sell anything on credit. The personnel burden is very low because part-time workers receive no benefits. The long-term interest rate is extraordinarily low because of the MCDA business program which loans money to start-up ventures at a 2% annual interest rate.
Inspirational Grounds will obtain employees through MCDA's community reinvestment programs, which further establishes our commitment to the community, and raises community awareness of our presence and purpose. We will also look to local seminaries to involve their students in a internship capacity.
For our break-even analysis, we assume fixed costs of approximately $11,650 per month, which includes our full payroll, rent, and utilities, and an estimation of other running costs.
The chart shows that we need to sell about $15,000 per month to break-even, according to these assumptions. Our conservative projections will exceed the break-even point even in the first month of business.
Projected profit and loss are depicted in the table below. Payroll expenses reflect the annual salaries of operations manager and 5 part-time baristas. Rental Expense is based on leasing 2,000 square feet at $12.50 per square foot.
We project sales and marketing expenses at $12,000 for the first year. Inspirational Grounds will depend on curiosity, established community involvement and media human interest stories to spread the word, in addition to the tradition sales and marketing tactics.
We will be a medium risk concern with steady cash flows. Sales are in cash, giving Inspirational Grounds an excellent cash structure. Solid product offerings and intelligent marketing will secure a cash balance of close to $48,000 by December 2005.
The following table shows our projected assets and liabilities over the next three years. We anticipate a steadily increasing net worth, as we pay off our loan and sales show modest increases. The Balance Sheet also reflects new current asset purchases in years 2 and 3.
The following table outlines some of the more important ratios from the Coffee Shop industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 5812.
Our business will be a little different from the standard coffee shop, in that we will also sell books and music. One of the major differences between us and the rest of the industry is our asset structure - most of our assets are short-term, rather than long-term, in part because of our extra inventory, but also because we will lease, rather than own, our space.