Batten-Hatchez Security

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Security Guard Business Plan

Financial Plan

Batten-Hatchez Security expects to produce excess cash after a lean first year of operation which can finance its expansion to an office space along with a 5 year home equity loan to support significant growth of its employee base in its second and third years to 25 FTE security guards (which can be estimated as 10 full-time guards and 30 part-time guards). Future growth will be financed by the business and will include launching operations in other cities in Ourstate and launching a line of security products.

Start-up Funding

The founders will each provide matching start-up funding. The balance of start-up funding will be provided by angel investors who will be given up to 40% of shares in the business.

Start-up Funding
Start-up Expenses to Fund $36,700
Start-up Assets to Fund $41,000
Total Funding Required $77,700
Assets
Non-cash Assets from Start-up $1,000
Cash Requirements from Start-up $40,000
Additional Cash Raised $0
Cash Balance on Starting Date $40,000
Total Assets $41,000
Liabilities and Capital
Liabilities
Current Borrowing $5,000
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $5,000
Capital
Planned Investment
Louis Giordano $15,000
Jared Case $15,000
Angel Investor $42,700
Additional Investment Requirement $0
Total Planned Investment $72,700
Loss at Start-up (Start-up Expenses) ($36,700)
Total Capital $36,000
Total Capital and Liabilities $41,000
Total Funding $77,700

Important Assumptions

The long-term interest rate is 6% for a home equity loan taken out in year 2 to cover the cash needs for a move to an office space.

In addition to the assumptions shown in this table, the business makes the following assumptions:

  • That the security guard industry will experience an overall upswing in the next three years
  • That the sales record of Chindit Batten at his previous firm can be replicated at Batten-Hatchez
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 15.00% 15.00% 15.00%
Long-term Interest Rate 6.00% 6.00% 6.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

Break-even Analysis

The monthly break-even is low due to the cost savings by operating the office out of Chindit Batten's home in the first year of operations. This allows for the business to become profitable quickly.

Break-even Analysis
Monthly Revenue Break-even $24,475
Assumptions:
Average Percent Variable Cost 4%
Estimated Monthly Fixed Cost $23,407

Projected Profit and Loss

Security guard labor is estimated at 55% of sales in the first year, dropping slightly to 53% by the third year as prices increase and cheaper labor becomes available due to the range of employees.

Marketing includes ongoing Web hosting and maintenance fees, continued revisions and reprinting of the brochure and stationery, additional direct mail campaigns, ongoing advertising in trade publications, and online advertising for the website.

Rent, utilities, and depreciation will be expenses beginning in the second year when an office space is required. Training requires the use of larger meeting rooms for groups of guards which will have to be rented separately in the first year of operations. Training cost will be reduced once an office is rented, as the business will choose a space with a conference room or table to hold employee training at the office. Training will be an ongoing expense both due to turnover and due to continued training and check-ins with employees. The surety bond must be renewed each year for the business.

Licenses and permits will include licenses for new guards to carry firearms and to operate, and continued renewals of licensing and permits for the business each year.

Net profit will swing to a net loss in the second year due to the opening of an office space. Net profit will occur in year 3 again as the business scales up to cover these additional costs.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $932,999 $1,387,599 $2,003,690
Direct Cost of Sales $40,701 $61,051 $88,524
Security Guard Labor $513,149 $763,180 $1,102,029
Total Cost of Sales $553,850 $824,230 $1,190,553
Gross Margin $379,149 $563,369 $813,137
Gross Margin % 40.64% 40.60% 40.58%
Expenses
Payroll $72,000 $231,000 $260,000
Marketing/Promotion $33,000 $30,000 $35,000
Depreciation $703 $11,133 $12,800
Rent $0 $24,000 $25,200
Utilities $0 $1,200 $1,260
Insurance $4,800 $15,000 $18,000
Surety Bond $1,200 $1,200 $1,200
Payroll Taxes $87,772 $149,127 $204,304
Employee Benefits $58,515 $99,418 $136,203
Training $6,000 $2,000 $3,000
Licenses and Permits $16,900 $20,000 $25,000
Total Operating Expenses $280,890 $584,078 $721,967
Profit Before Interest and Taxes $98,259 ($20,709) $91,169
EBITDA $98,962 ($9,576) $103,969
Interest Expense $555 $4,245 $7,200
Taxes Incurred $29,311 $0 $25,191
Net Profit $68,393 ($24,954) $58,779
Net Profit/Sales 7.33% -1.80% 2.93%

Projected Cash Flow

Excess cash from the first year of operation and a $150,000 five year home equity loan from the business' owners will be used to finance the expansion to a rented office space in the second year, which will require the purchase of furniture, additional computer and phone equipment, and some improvements to the space. This loan will be taken out by one or both of the owners at 6% interest halfway through year 2 when cash is needed.

Cash flow is expected to become positive in the fifth month of operation due to the low fixed costs and launching without a full-time call center/office. Continued investments in communications equipment will be needed throughout the first year as additional guards join the business. In the second year, assets must be purchased for the office, including computers and equipment, furniture, and a phone system. Communications equipment purchases will continue to grow in the second year.  

It is estimated that 70% of sales will be made on credit for payment within one month and 30% will be paid at or before the time of service.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $279,900 $416,280 $601,107
Cash from Receivables $509,793 $901,494 $1,307,953
Subtotal Cash from Operations $789,692 $1,317,774 $1,909,060
Additional Cash Received
Sales Tax, VAT, HST/GST Received $65,310 $97,132 $140,258
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $150,000 $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 $855,002 $1,564,906 $2,049,318
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $72,000 $231,000 $260,000
Bill Payments $673,180 $1,192,945 $1,630,876
Subtotal Spent on Operations $745,180 $1,423,945 $1,890,876
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $65,310 $97,132 $140,258
Principal Repayment of Current Borrowing $2,400 $2,600 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $15,000 $30,000
Purchase Other Current Assets $0 $10,000 $5,000
Purchase Long-term Assets $2,400 $30,000 $5,000
Dividends $0 $0 $0
Subtotal Cash Spent $815,290 $1,578,677 $2,071,135
Net Cash Flow $39,712 ($13,771) ($21,817)
Cash Balance $79,712 $65,941 $44,124

Projected Balance Sheet

The balance sheet demonstrates growth in net worth from retained earnings and cash held in the company for a future expansion effort.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $79,712 $65,941 $44,124
Accounts Receivable $143,307 $213,132 $307,762
Other Current Assets $0 $10,000 $15,000
Total Current Assets $223,019 $289,073 $366,887
Long-term Assets
Long-term Assets $3,400 $33,400 $38,400
Accumulated Depreciation $703 $11,836 $24,636
Total Long-term Assets $2,697 $21,564 $13,764
Total Assets $225,716 $310,637 $380,651
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $118,723 $96,199 $137,434
Current Borrowing $2,600 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $121,323 $96,199 $137,434
Long-term Liabilities $0 $135,000 $105,000
Total Liabilities $121,323 $231,199 $242,434
Paid-in Capital $72,700 $72,700 $72,700
Retained Earnings ($36,700) $31,693 $6,738
Earnings $68,393 ($24,954) $58,779
Total Capital $104,393 $79,438 $138,217
Total Liabilities and Capital $225,716 $310,637 $380,651
Net Worth $104,393 $79,438 $138,217

Business Ratios

The ratio table compares the business over its three years of projections to the average for Security Guard and Patrol Services, SIC code 7381, NAIC code 561612, of $1 - $5 million in annual revenues.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 48.72% 44.40% 2.05%
Percent of Total Assets
Accounts Receivable 63.49% 68.61% 80.85% 30.54%
Other Current Assets 0.00% 3.22% 3.94% 48.01%
Total Current Assets 98.80% 93.06% 96.38% 81.73%
Long-term Assets 1.20% 6.94% 3.62% 18.27%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 53.75% 30.97% 36.10% 48.40%
Long-term Liabilities 0.00% 43.46% 27.58% 30.72%
Total Liabilities 53.75% 74.43% 63.69% 79.13%
Net Worth 46.25% 25.57% 36.31% 20.87%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 40.64% 40.60% 40.58% 40.82%
Selling, General & Administrative Expenses 33.31% 42.40% 37.65% 18.68%
Advertising Expenses 0.08% 0.80% 0.64% 0.49%
Profit Before Interest and Taxes 10.53% -1.49% 4.55% 5.54%
Main Ratios
Current 1.84 3.00 2.67 1.27
Quick 1.84 3.00 2.67 1.21
Total Debt to Total Assets 53.75% 74.43% 63.69% 79.13%
Pre-tax Return on Net Worth 93.59% -31.41% 60.75% 108.30%
Pre-tax Return on Assets 43.29% -8.03% 22.06% 22.61%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 7.33% -1.80% 2.93% n.a
Return on Equity 65.51% -31.41% 42.53% n.a
Activity Ratios
Accounts Receivable Turnover 4.56 4.56 4.56 n.a
Collection Days 42 67 68 n.a
Accounts Payable Turnover 6.67 12.17 12.17 n.a
Payment Days 27 34 25 n.a
Total Asset Turnover 4.13 4.47 5.26 n.a
Debt Ratios
Debt to Net Worth 1.16 2.91 1.75 n.a
Current Liab. to Liab. 1.00 0.42 0.57 n.a
Liquidity Ratios
Net Working Capital $101,695 $192,874 $229,453 n.a
Interest Coverage 177.04 -4.88 12.66 n.a
Additional Ratios
Assets to Sales 0.24 0.22 0.19 n.a
Current Debt/Total Assets 54% 31% 36% n.a
Acid Test 0.66 0.79 0.43 n.a
Sales/Net Worth 8.94 17.47 14.50 n.a
Dividend Payout 0.00 0.00 0.00 n.a