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Scrapbooking Store Business Plan

Financial Plan

The following financial plan includes our projected Break Even Analysis, Profit and Loss, Cash Flow and Balance Sheet.

7.1 Break-even Analysis

Our break-even analysis table shows that we will need $7,667 per month to meet our regular expenses and salary costs.

Break-even Analysis
Monthly Revenue Break-even $7,667
Assumptions:
Average Percent Variable Cost 25%
Estimated Monthly Fixed Cost $5,750

7.2 Projected Profit and Loss

As the following table describes, it will take several months before the store can realistically turn a profit. This is in part due to the time it takes to get the word out that the store is open for business and that what it offers for local scrappers is more than what our competition offers.

Although the winter time frame can be the best for class participation, these first monthly estimates were set conservatively, when, in fact, it is hoped that the initial advertising campaign will stimulate more sales and class sign-ups than what has been projected. 

Although payroll costs are high for a start-up, the owner feels it is essential to have two part-time employees to help cover the store during its open hours. If necessary, the owner is prepared to reduce her monthly salary to ease the cash flow throughout the first year of operation.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $87,150 $91,508 $95,865
Direct Cost of Sales $21,788 $22,877 $24,021
Other Costs of Goods $0 $0 $0
Total Cost of Sales $21,788 $22,877 $24,021
Gross Margin $65,363 $68,631 $71,844
Gross Margin % 75.00% 75.00% 74.94%
Expenses
Payroll $31,200 $31,200 $31,200
Sales and Marketing and Other Expenses $6,000 $6,500 $6,500
Depreciation $0 $0 $0
Rent $18,000 $18,000 $18,000
Utilities $6,000 $6,000 $6,000
Insurance $1,800 $1,800 $1,800
Payroll Taxes $6,000 $6,000 $6,000
Other $0 $0 $0
Total Operating Expenses $69,000 $69,500 $69,500
Profit Before Interest and Taxes ($3,638) ($869) $2,344
EBITDA ($3,638) ($869) $2,344
Interest Expense $644 $0 $0
Taxes Incurred $0 $0 $0
Net Profit ($4,282) ($869) $2,344
Net Profit/Sales -4.91% -0.95% 2.45%

7.3 Projected Cash Flow

Although the initial profit margins are small, the cash flow is sufficient to cover estimated monthly expenses and inventory purchases. As additional back-up, a personal loan equal to the initial cost of inventory will be secured so It's Scrappy! can adapt to changes in supply costs over the first year and be more able to make special-order purchases of new supplies and materials.

Estimated sales are expected to increase during the Fall and into the second winter of operation, while costs will be held as close to the same levels as possible.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $87,150 $91,508 $95,865
Subtotal Cash from Operations $87,150 $91,508 $95,865
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $7,000 $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 $94,150 $91,508 $95,865
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $31,200 $31,200 $31,200
Bill Payments $50,455 $61,657 $62,363
Subtotal Spent on Operations $81,655 $92,857 $93,563
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $1,029 $1,029 $1,029
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 $82,684 $93,886 $94,592
Net Cash Flow $11,466 ($2,379) $1,273
Cash Balance $12,966 $10,587 $11,860

7.4 Projected Balance Sheet

The balance sheet shows are estimated assets and liabilities.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $12,966 $10,587 $11,860
Inventory $2,613 $2,743 $2,880
Other Current Assets $0 $0 $0
Total Current Assets $15,579 $13,330 $14,740
Long-term Assets
Long-term Assets $2,500 $2,500 $2,500
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $2,500 $2,500 $2,500
Total Assets $18,079 $15,830 $17,240
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $5,389 $5,039 $5,134
Current Borrowing $5,971 $4,942 $3,913
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $11,360 $9,981 $9,047
Long-term Liabilities $0 $0 $0
Total Liabilities $11,360 $9,981 $9,047
Paid-in Capital $20,000 $20,000 $20,000
Retained Earnings ($9,000) ($13,282) ($14,151)
Earnings ($4,282) ($869) $2,344
Total Capital $6,718 $5,849 $8,193
Total Liabilities and Capital $18,079 $15,830 $17,240
Net Worth $6,718 $5,849 $8,193

7.5 Business Ratios

The following comparison Ratios are taken from the Standard Industry Code for "Hobby and Craft Supplies," Standard Industrial Classification (SIC) code 5945. As the following tables shows, are estimates are within the standard ratios for this industry.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 5.00% 4.76% -2.50%
Percent of Total Assets
Inventory 14.45% 17.33% 16.71% 36.25%
Other Current Assets 0.00% 0.00% 0.00% 25.68%
Total Current Assets 86.17% 84.21% 85.50% 77.69%
Long-term Assets 13.83% 15.79% 14.50% 22.31%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 62.84% 63.05% 52.48% 31.11%
Long-term Liabilities 0.00% 0.00% 0.00% 18.08%
Total Liabilities 62.84% 63.05% 52.48% 49.19%
Net Worth 37.16% 36.95% 47.52% 50.81%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 75.00% 75.00% 74.94% 32.08%
Selling, General & Administrative Expenses 54.65% 0.00% 0.00% 20.20%
Advertising Expenses 0.00% 0.00% 0.00% 1.61%
Profit Before Interest and Taxes -4.17% -0.95% 2.45% 0.60%
Main Ratios
Current 1.37 1.34 1.63 2.17
Quick 1.14 1.06 1.31 0.83
Total Debt to Total Assets 62.84% 63.05% 52.48% 58.38%
Pre-tax Return on Net Worth -63.73% -14.86% 28.61% 0.96%
Pre-tax Return on Assets -23.68% -5.49% 13.60% 2.30%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -4.91% -0.95% 2.45% n.a
Return on Equity -63.73% -14.86% 28.61% n.a
Activity Ratios
Inventory Turnover 7.45 8.54 8.54 n.a
Accounts Payable Turnover 10.36 12.17 12.17 n.a
Payment Days 27 31 30 n.a
Total Asset Turnover 4.82 5.78 5.56 n.a
Debt Ratios
Debt to Net Worth 1.69 1.71 1.10 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $4,218 $3,349 $5,693 n.a
Interest Coverage -5.65 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.21 0.17 0.18 n.a
Current Debt/Total Assets 63% 63% 52% n.a
Acid Test 1.14 1.06 1.31 n.a
Sales/Net Worth 12.97 15.65 11.70 n.a
Dividend Payout 0.00 0.00 0.00 n.a