University Cycle Works

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Retail Bicycle Shop Business Plan

Financial Plan

This financial plan was developed based upon previous years' data for the existing store, tracking trends in revenues and expenses. A five-month track of sales, accounts receivables and payables, and inventory from a year-end benchmark was made.

The seller, buyer, and the accountant worked together on the plan to balance optimism with reality.

An attorney was consulted on specifics of the sale contract.

The topics which follow present specific projections.

7.1 Important Assumptions

Payment days are averaged at 45. This is an average figure used for planning purposes. Bicycle manufacturers and some accessories suppliers offer dating programs where shops order product at the annual trade show in September for delivery in February or March so that new product will be available to customers at the beginning of the cycling season. Shops are invoiced for payment due, depending upon the program, somewhere between May and July.

The financial projections presented here are based on the assumption that suppliers will continue their current invoicing programs with University Cycle Works. We are thankful for the active support and advocacy of the various sales representatives who deal with us.

Other products are ordered on a monthly basis to replace items sold, such as tires, tubes, aptitude and cages, ball bearings, drive chains, etc. These are invoiced at net 30. Some special orders are C.O.D.

We also assume that:

  • Interest rates will fluctuate only slightly.
  • The level of discretionary income will remain steady or increase.
  • The current enrollment at the university will continue at or above its current level.
  • That the lack of auto parking in the university area will continue.
  • That gasoline prices will continue to encourage alternative transportation, e.g. bicycle commuting.
  • World trade treaties will continue to allow shipping of material and product across all borders, continents and oceans.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 7.00% 7.00% 7.00%
Tax Rate 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Key Financial Indicators

The following chart compares five key indicators as they change over time. The indicators include sales, gross margin, operating expenses, inventory turnover, and collection days. The chart uses indicator values that are set to compare changes with the base year showing up as 1.00 and all other years showing up as multiples from the base.

7.3 Break-even Analysis

The Average Percent Variable Cost and Estimated Monthly Fixed Cost figures in the break-even table and chart below are drawn from data in the Profit and Loss and Sales Forecast tables.  The table and chart give us a rough estimate on how much product and service we need to sell each month to cover all our expenses.

Break-even Analysis
Monthly Revenue Break-even $37,354
Assumptions:
Average Percent Variable Cost 35%
Estimated Monthly Fixed Cost $24,112

7.4 Projected Profit and Loss

In negotiating the smooth transition in ownership, the landlord agreed with Hub to continue the current lease unchanged. As surety, one month's rent was required as a deposit at the time of sale. This is shown in the Start-up table. Further, the landlord agreed that if, after 11 months operation the new company was solvent and current in lease payments, that the deposit could be applied to the twelfth month's rent.

The mid-summer months of July and August are slow months when a large part of the university population is gone on summer break. The mid-winter months are traditionally loss months. The weather is the most inclement and discretionary income is at its lowest after the holiday binges. However, we try to keep our entire staff on board to work on our own inventory, store refurbishing, and staff training.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $501,200 $576,380 $662,837
Direct Cost of Sales $177,680 $204,332 $234,982
Other $0 $0 $0
Total Cost of Sales $177,680 $204,332 $234,982
Gross Margin $323,520 $372,048 $427,855
Gross Margin % 64.55% 64.55% 64.55%
Expenses
Payroll $123,900 $135,450 $162,828
Sales and Marketing and Other Expenses $24,866 $27,420 $30,521
Depreciation $12,000 $13,500 $15,000
Leased Equipment $1,800 $1,800 $1,800
Utilities $3,600 $3,600 $3,780
Insurance $4,200 $4,500 $4,725
Rent $88,000 $88,000 $88,000
Payroll Taxes $30,975 $33,863 $40,707
Other $0 $0 $0
Total Operating Expenses $289,341 $308,132 $347,361
Profit Before Interest and Taxes $34,179 $63,916 $80,494
EBITDA $46,179 $77,416 $95,494
Interest Expense $8,433 $6,730 $5,040
Taxes Incurred $6,445 $14,296 $19,178
Net Profit $19,302 $42,889 $56,276
Net Profit/Sales 3.85% 7.44% 8.49%

7.5 Projected Cash Flow

The Cash Flow chart and table reflect the seasonality of bicycle sales and the varying payment programs. At times, the business is inventory heavy, stocking up for the beginning of school rush, or specific sales. At other times, there is substantial negative cash flow as long-term accounts payable, net 90, net 60 payments coincide with regular net 30 invoices.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $501,200 $576,380 $662,837
Subtotal Cash from Operations $501,200 $576,380 $662,837
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 $8,000 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $509,200 $576,380 $662,837
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $123,900 $135,450 $162,828
Bill Payments $335,368 $377,512 $426,127
Subtotal Spent on Operations $459,268 $512,962 $588,955
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $1,800 $200 $0
Other Liabilities Principal Repayment $10,000 $0 $0
Long-term Liabilities Principal Repayment $22,000 $24,000 $24,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $1,200 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $494,268 $537,162 $612,955
Net Cash Flow $14,932 $39,218 $49,882
Cash Balance $109,932 $149,150 $199,033

7.6 Projected Balance Sheet

Our goal is to repay the loans from our family within the first year, and we project paying Han Delbar his entire purchase price within five years. Other balance sheet information is shown in the table below.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $109,932 $149,150 $199,033
Inventory $16,748 $19,260 $22,149
Other Current Assets $0 $0 $0
Total Current Assets $126,680 $168,410 $221,181
Long-term Assets
Long-term Assets $62,700 $62,700 $62,700
Accumulated Depreciation $12,000 $25,500 $40,500
Total Long-term Assets $50,700 $37,200 $22,200
Total Assets $177,380 $205,610 $243,381
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $38,178 $47,719 $53,214
Current Borrowing $200 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $38,378 $47,719 $53,214
Long-term Liabilities $108,000 $84,000 $60,000
Total Liabilities $146,378 $131,719 $113,214
Paid-in Capital $25,000 $25,000 $25,000
Retained Earnings ($13,300) $6,002 $48,891
Earnings $19,302 $42,889 $56,276
Total Capital $31,002 $73,891 $130,167
Total Liabilities and Capital $177,380 $205,610 $243,381
Net Worth $31,002 $73,891 $130,167

7.7 Business Ratios

Business ratio analysis for our first three years appears in the table below. For comparison, industry standard ratios for Standard Industrial Classification (SIC) code 5941, Sporting Goods and Bicycle Shops, are presented as well.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 15.00% 15.00% 4.20%
Percent of Total Assets
Inventory 9.44% 9.37% 9.10% 40.20%
Other Current Assets 0.00% 0.00% 0.00% 24.30%
Total Current Assets 71.42% 81.91% 90.88% 81.10%
Long-term Assets 28.58% 18.09% 9.12% 18.90%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 21.64% 23.21% 21.86% 44.70%
Long-term Liabilities 60.89% 40.85% 24.65% 13.00%
Total Liabilities 82.52% 64.06% 46.52% 57.70%
Net Worth 17.48% 35.94% 53.48% 42.30%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 64.55% 64.55% 64.55% 31.80%
Selling, General & Administrative Expenses 60.70% 57.11% 56.01% 19.00%
Advertising Expenses 0.75% 0.69% 0.68% 1.90%
Profit Before Interest and Taxes 6.82% 11.09% 12.14% 1.40%
Main Ratios
Current 3.30 3.53 4.16 1.97
Quick 2.86 3.13 3.74 0.75
Total Debt to Total Assets 82.52% 64.06% 46.52% 57.70%
Pre-tax Return on Net Worth 83.05% 77.39% 57.97% 3.40%
Pre-tax Return on Assets 14.51% 27.81% 31.00% 8.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 3.85% 7.44% 8.49% n.a
Return on Equity 62.26% 58.04% 43.23% n.a
Activity Ratios
Inventory Turnover 10.91 11.35 11.35 n.a
Accounts Payable Turnover 9.06 8.11 8.11 n.a
Payment Days 44 41 43 n.a
Total Asset Turnover 2.83 2.80 2.72 n.a
Debt Ratios
Debt to Net Worth 4.72 1.78 0.87 n.a
Current Liab. to Liab. 0.26 0.36 0.47 n.a
Liquidity Ratios
Net Working Capital $88,302 $120,691 $167,967 n.a
Interest Coverage 4.05 9.50 15.97 n.a
Additional Ratios
Assets to Sales 0.35 0.36 0.37 n.a
Current Debt/Total Assets 22% 23% 22% n.a
Acid Test 2.86 3.13 3.74 n.a
Sales/Net Worth 16.17 7.80 5.09 n.a
Dividend Payout 0.00 0.00 0.00 n.a