Igneous Rock Gym sales are projected to grow at a conservative rate of 8% per year. The current gym's size can sustain this rate for at least 10 years.
After start-up, Igneous Rock Gym may look to create more opportunities for growth by opening a climbing gear retail shop or small coffee shop within its premises. Funding for this and other possible expansions will be done through loans to the owners.
7.1 Start-up Funding
Cole Granite and Micah Quartz plan on personally funding the entire start-up cost. Their initial investments of $70,000 each will come from taking out second mortgages on their houses and supplementing this amount from personal saving accounts.
Start-up Funding
Start-up Expenses to Fund
$25,000
Start-up Assets to Fund
$115,000
Total Funding Required
$140,000
Assets
Non-cash Assets from Start-up
$92,000
Cash Requirements from Start-up
$23,000
Additional Cash Raised
$0
Cash Balance on Starting Date
$23,000
Total Assets
$115,000
Liabilities and Capital
Liabilities
Current Borrowing
$0
Long-term Liabilities
$0
Other Current Liabilities (interest-free)
$0
Total Liabilities
$0
Capital
Planned Investment
Micah Quartz
$70,000
Cole Granite
$70,000
Additional Investment Requirement
$0
Total Planned Investment
$140,000
Loss at Start-up (Start-up Expenses)
($25,000)
Total Capital
$115,000
Total Capital and Liabilities
$115,000
Total Funding
$140,000
7.2 Break-even Analysis
Our monthly Break-even point is shown below. With extremely low variable costs, the primary monthly expense comes from fixed costs.
Break-even Analysis
Monthly Units Break-even
197
Monthly Revenue Break-even
$15,095
Assumptions:
Average Per-Unit Revenue
$76.63
Average Per-Unit Variable Cost
$3.84
Estimated Monthly Fixed Cost
$14,338
7.3 Projected Profit and Loss
In the first year of business, Igneous Rock Gym will see an initial strong growth in sales followed by a slow, steady growth. The sales spike in January is due to the increased focus on fitness that traditionally happens during this month. Summers tend to be slower months for memberships; however, summer camps and an increase in birthday parties will make up for this loss in revenue.
Climbing gyms are expensive to start, but the cost of sales is very low. Due to the following reasons general operating expenses for a climbing gym are also low:
Less than prime real estate is needed for site
Staffing needs per customer are very low and volunteers are readily available
High word-of-mouth marketing leads to less paid marketing
Equipment and climbing walls have long lifespans
All of these factors combine to make it realistic that Igneous Rock Gym will be profitable in its first year of business.
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
$254,032
$273,296
$294,939
Direct Cost of Sales
$12,744
$13,709
$14,801
Other Costs of Sales
$3,600
$4,200
$4,800
Total Cost of Sales
$16,344
$17,909
$19,601
Gross Margin
$237,688
$255,387
$275,338
Gross Margin %
93.57%
93.45%
93.35%
Expenses
Payroll
$79,050
$86,620
$89,610
Marketing/Promotion
$3,150
$4,000
$5,000
Depreciation
$3,600
$3,600
$3,600
Rent
$52,800
$52,800
$52,800
Utilities
$4,800
$5,200
$6,000
Insurance
$13,200
$15,500
$16,500
Payroll Taxes
$11,858
$13,000
$13,500
Other
$3,600
$4,200
$4,800
Total Operating Expenses
$172,058
$184,920
$191,810
Profit Before Interest and Taxes
$65,631
$70,467
$83,528
EBITDA
$69,231
$74,067
$87,128
Interest Expense
$0
$0
$0
Taxes Incurred
$19,689
$21,140
$25,058
Net Profit
$45,942
$49,327
$58,470
Net Profit/Sales
18.08%
18.05%
19.82%
7.4 Projected Cash Flow
As seen in the following chart, Igneous Rock Gym will enjoy a strong positive cash flow following its first month of operation. This is due to the fact that there is no need to purchase goods. It is also important to note that Igneous Rock Gym will have no need to give its members terms, and therefore, all payments will be made by cash, check, credit card, or EFT.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Cash Received
Cash from Operations
Cash Sales
$254,032
$273,296
$294,939
Subtotal Cash from Operations
$254,032
$273,296
$294,939
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
$254,032
$273,296
$294,939
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations
Cash Spending
$204,490
$220,369
$232,869
Subtotal Spent on Operations
$204,490
$220,369
$232,869
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
$204,490
$220,369
$232,869
Net Cash Flow
$49,542
$52,927
$62,070
Cash Balance
$72,542
$125,469
$187,538
7.5 Projected Balance Sheet
The balance sheet shows the healthy growth of Igneous Rock Gym's net worth, and its strong financial position.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Assets
Current Assets
Cash
$72,542
$125,469
$187,538
Other Current Assets
$2,000
$2,000
$2,000
Total Current Assets
$74,542
$127,469
$189,538
Long-term Assets
Long-term Assets
$90,000
$90,000
$90,000
Accumulated Depreciation
$3,600
$7,200
$10,800
Total Long-term Assets
$86,400
$82,800
$79,200
Total Assets
$160,942
$210,269
$268,738
Liabilities and Capital
Year 1
Year 2
Year 3
Current Liabilities
Current Borrowing
$0
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$0
$0
$0
Long-term Liabilities
$0
$0
$0
Total Liabilities
$0
$0
$0
Paid-in Capital
$140,000
$140,000
$140,000
Retained Earnings
($25,000)
$20,942
$70,269
Earnings
$45,942
$49,327
$58,470
Total Capital
$160,942
$210,269
$268,738
Total Liabilities and Capital
$160,942
$210,269
$268,738
Net Worth
$160,942
$210,269
$268,738
7.6 Business Ratios
The following table outlines some of the more important ratios from the Athletic Clubs and Gymnasiums, Membership industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7991.
Business planning has never been easier. With 500 complete sample plans, easy financials, and access anywhere, LivePlan turns your great idea into a great plan for success.
