Tennis Master Pro Shops, Inc.

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Retail Tennis Shop Business Plan

Financial Plan

The growth of Tennis Master will be financed by its successful initial capitalization, followed by franchise fees and royalties.

Initially, a Private Placement of $1 million will be sold, $500,000 is required to start-up.

An additional $500,000 is infused from a continuation of the same placement. The $100,000 infusion in March will permit the corporate headquarters and warehouse to open on schedule.

If franchises are marketed successfully and on schedule that revenue will fuel growth to positive cash flow and profitability in year one.

7.1 Important Assumptions

The following assumptions are used in this plan.

  • There is no projected borrowing.
  • Retail sales and franchise fees are treated as cash when collected. There are no payment terms on these items.
  • Royalties are also treated as cash even though they lag 30 days to collect from the time period incurred. They appear as collected.
Other assumptions appear in the table below:
    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 10.00% 10.00% 10.00%
    Tax Rate 33.00% 33.00% 33.00%
    Other 0 0 0

    7.2 Key Financial Indicators

    The key indicators in our plan illustrate increasing sales, control of costs, and increasing margins as market maturity is attained.

    7.3 Break-even Analysis

    The following assumptions are used for the purpose of this break-even analysis. If Tennis Master opens the Anytown flagship corporate retail store and also the new corporate headquarters and incurs the overheads and salaries associated with those two events, then the analysis shows how much monthly revenue in either franchise sales (from corporate) or retail training (from the store) would be required to sustain business until either more investment or more revenues could be developed. Training and franchise sales are figured at 90% gross margins for this purpose. Monthly overhead or "burn rate" approaching $200,000 at that point in time.

    The break-even sales required to stay in business is shown below, in either franchise fees or combined franchise fees and retail training revenue. Or, one master franchise sale, or three retail store franchise sales.

    Break-even Analysis
    Monthly Units Break-even 145,173
    Monthly Revenue Break-even $242,075
    Assumptions:
    Average Per-Unit Revenue $1.67
    Average Per-Unit Variable Cost $0.41
    Estimated Monthly Fixed Cost $182,407

    7.4 Projected Profit and Loss

    The following projected profit and loss table and chart derives from sales projections over operating expenses. Any variance in sales would have an immediate impact on these figures. Two important explanations are required:

    1. Leased equipment consists of swing analysis systems and simulators needed for company stores. (The lease payments are projected at rates consistent with high-cost franchise lease rates. Term of leases is five years with a 10% residual buy-out or renewal option).
    2. Depreciation is for leasehold improvements for company owned stores ($50,000 depreciated) and corporate headquarters and warehouse ($100,000 depreciated). All depreciation is straight-line five years.

    Tennis Master projects bottom-line profits are quite healthy in 1997, and grow steadily through 1999. While it is unusual for a business to show such a substantial profit in its first year of operations, these figures are attainable in a franchise company primarily from the impact of franchise fees alone.

    Pro Forma Profit and Loss
    Year 1 Year 2 Year 3
    Sales $6,869,662 $14,310,995 $23,048,131
    Direct Cost of Sales $1,693,295 $2,854,177 $4,246,572
    Production Payroll $47,500 $63,000 $68,000
    Other Costs of Sales $0 $0 $0
    Total Cost of Sales $1,740,795 $2,917,177 $4,314,572
    Gross Margin $5,128,867 $11,393,819 $18,733,559
    Gross Margin % 74.66% 79.62% 81.28%
    Operating Expenses
    Sales and Marketing Expenses
    Sales and Marketing Payroll $96,500 $114,000 $88,000
    Advertising/Promotion $686,969 $715,550 $1,152,407
    Travel/Entertainment $36,000 $66,000 $80,000
    Marketing Materials $50,000 $60,000 $60,000
    Other Sales and Marketing Expenses $0 $0 $0
    Total Sales and Marketing Expenses $869,469 $955,550 $1,380,407
    Sales and Marketing % 12.66% 6.68% 5.99%
    General and Administrative Expenses
    General and Administrative Payroll $245,000 $363,000 $395,500
    Marketing/Promotion $0 $0 $0
    Depreciation $41,650 $99,960 $119,952
    Leased Equipment $87,360 $105,200 $126,240
    Utilities $47,000 $62,000 $68,000
    Telephone/Fax $33,200 $38,000 $40,000
    Insurance $38,800 $44,000 $48,000
    Rent $178,000 $468,000 $540,000
    Payroll Taxes $0 $0 $0
    Other General and Administrative Expenses $0 $0 $0
    Total General and Administrative Expenses $671,010 $1,180,160 $1,337,692
    General and Administrative % 9.77% 8.25% 5.80%
    Other Expenses:
    Other Payroll $518,400 $1,296,000 $1,620,000
    Consultants $75,000 $0 $0
    Legal $55,000 $60,000 $60,000
    Total Other Expenses $648,400 $1,356,000 $1,680,000
    Other % 9.44% 9.48% 7.29%
    Total Operating Expenses $2,188,879 $3,491,710 $4,398,099
    Profit Before Interest and Taxes $2,939,988 $7,902,109 $14,335,460
    EBITDA $2,981,638 $8,002,069 $14,455,412
    Interest Expense $0 $0 $0
    Taxes Incurred $970,196 $2,607,696 $4,730,702
    Net Profit $1,969,792 $5,294,413 $9,604,758
    Net Profit/Sales 28.67% 37.00% 41.67%

    7.5 Projected Cash Flow

    The critical time for cash flow for Tennis Master is the first half of 1997. During this time period substantial cash-out is needed to establish both the flagship Anytown store and the new corporate headquarters and warehouse. These cash expenditures are all hard cash out to be recouped by depreciation. Flow-in of investment funds are also critical. The only way to survive through this period is to curtail expansion if that becomes necessary. Additional capital (not planned for) would need to be raised later in 1997 if franchise sales fall far behind expectations.

    Given the above assumptions, the following table and chart show that there will be sufficient cash to execute the plan. With successful execution the company would have a hefty cash balance at the end of 1997 and a stable and enviable cash position at the end of 1999.

    Pro Forma Cash Flow
    Year 1 Year 2 Year 3
    Cash Received
    Cash from Operations
    Cash Sales $6,869,662 $14,310,995 $23,048,131
    Subtotal Cash from Operations $6,869,662 $14,310,995 $23,048,131
    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 $100,000 $0 $0
    Subtotal Cash Received $6,969,662 $14,310,995 $23,048,131
    Expenditures Year 1 Year 2 Year 3
    Expenditures from Operations
    Cash Spending $907,400 $1,836,000 $2,171,500
    Bill Payments $3,677,812 $7,072,012 $10,984,735
    Subtotal Spent on Operations $4,585,212 $8,908,012 $13,156,235
    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 $0 $0
    Subtotal Cash Spent $4,585,212 $8,908,012 $13,156,235
    Net Cash Flow $2,384,450 $5,402,983 $9,891,896
    Cash Balance $2,474,450 $7,877,433 $17,769,329

    7.6 Projected Balance Sheet

    The following table projects our balance sheet for the next three years:

    Pro Forma Balance Sheet
    Year 1 Year 2 Year 3
    Assets
    Current Assets
    Cash $2,474,450 $7,877,433 $17,769,329
    Inventory $206,448 $347,984 $517,746
    Other Current Assets $0 $0 $0
    Total Current Assets $2,680,898 $8,225,417 $18,287,074
    Long-term Assets
    Long-term Assets $0 $0 $0
    Accumulated Depreciation $41,650 $141,610 $261,562
    Total Long-term Assets ($41,650) ($141,610) ($261,562)
    Total Assets $2,639,248 $8,083,807 $18,025,512
    Liabilities and Capital Year 1 Year 2 Year 3
    Current Liabilities
    Accounts Payable $443,456 $593,602 $930,549
    Current Borrowing $0 $0 $0
    Other Current Liabilities $0 $0 $0
    Subtotal Current Liabilities $443,456 $593,602 $930,549
    Long-term Liabilities $0 $0 $0
    Total Liabilities $443,456 $593,602 $930,549
    Paid-in Capital $600,000 $600,000 $600,000
    Retained Earnings ($374,000) $1,595,792 $6,890,205
    Earnings $1,969,792 $5,294,413 $9,604,758
    Total Capital $2,195,792 $7,490,205 $17,094,963
    Total Liabilities and Capital $2,639,248 $8,083,807 $18,025,512
    Net Worth $2,195,792 $7,490,205 $17,094,963

    7.7 Business Ratios

    Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5941, Sporting Goods and Bicycle Shops, are shown for comparison.

    Ratio Analysis
    Year 1 Year 2 Year 3 Industry Profile
    Sales Growth 0.00% 108.32% 61.05% 6.95%
    Percent of Total Assets
    Inventory 7.82% 4.30% 2.87% 37.09%
    Other Current Assets 0.00% 0.00% 0.00% 24.95%
    Total Current Assets 101.58% 101.75% 101.45% 90.45%
    Long-term Assets -1.58% -1.75% -1.45% 9.55%
    Total Assets 100.00% 100.00% 100.00% 100.00%
    Current Liabilities 16.80% 7.34% 5.16% 41.65%
    Long-term Liabilities 0.00% 0.00% 0.00% 6.78%
    Total Liabilities 16.80% 7.34% 5.16% 48.43%
    Net Worth 83.20% 92.66% 94.84% 51.57%
    Percent of Sales
    Sales 100.00% 100.00% 100.00% 100.00%
    Gross Margin 74.66% 79.62% 81.28% 23.50%
    Selling, General & Administrative Expenses 45.99% 42.62% 39.61% 12.36%
    Advertising Expenses 10.00% 5.00% 5.00% 1.21%
    Profit Before Interest and Taxes 42.80% 55.22% 62.20% 1.91%
    Main Ratios
    Current 6.05 13.86 19.65 1.97
    Quick 5.58 13.27 19.10 0.97
    Total Debt to Total Assets 16.80% 7.34% 5.16% 54.68%
    Pre-tax Return on Net Worth 133.89% 105.50% 83.86% 4.99%
    Pre-tax Return on Assets 111.39% 97.75% 79.53% 11.02%
    Additional Ratios Year 1 Year 2 Year 3
    Net Profit Margin 28.67% 37.00% 41.67% n.a
    Return on Equity 89.71% 70.68% 56.18% n.a
    Activity Ratios
    Inventory Turnover 10.91 10.30 9.81 n.a
    Accounts Payable Turnover 9.29 12.17 12.17 n.a
    Payment Days 27 26 25 n.a
    Total Asset Turnover 2.60 1.77 1.28 n.a
    Debt Ratios
    Debt to Net Worth 0.20 0.08 0.05 n.a
    Current Liab. to Liab. 1.00 1.00 1.00 n.a
    Liquidity Ratios
    Net Working Capital $2,237,442 $7,631,815 $17,356,525 n.a
    Interest Coverage 0.00 0.00 0.00 n.a
    Additional Ratios
    Assets to Sales 0.38 0.56 0.78 n.a
    Current Debt/Total Assets 17% 7% 5% n.a
    Acid Test 5.58 13.27 19.10 n.a
    Sales/Net Worth 3.13 1.91 1.35 n.a
    Dividend Payout 0.00 0.00 0.00 n.a