Sporting Goods Retail Store Business Plan

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Financial Plan

The Sportsuchtig financial picture is quite promising. Since Sportsuchtig is a currently operating business, there will be sales and cash coming into the business on day 1 when the operation is taken over by the Johnson's. An initial working capital investment of $50,000 dollars will be necessary to assure that expenses are covered in the first 2 months, but after that it is assumed that cash from operations will be sufficient to fund and reach the milestones in this plan.

The owners have a personal equity line sufficient to finance any monthly cash-flow shortage; however, a business line of credit will be established as soon as possible. We anticipate very few accounts receivables initially, with 95% of sales cash and carry (cash, checks, credit cards). Marketing and advertising will remain at or below 5% of sales. We will continue to reinvest residual profits into company expansion, and personnel.

8.1 Start-up Funding

An approximately $700,000 loan will be obtained from a conventional or SBA lender. At least $340,000 capital will be provided by the purchasers/owners - the Johnsons. It is possible that some financing may be provided by an active investor or partner in exchange for some level of ownership in the business. If an agreement with an investor or partner cannot be reached, then the owners will contribute all of the funding outside of the loan funding.

Start-up Funding
Start-up Expenses to Fund $40,300
Start-up Assets to Fund $1,000,000
Total Funding Required $1,040,300
Assets
Non-cash Assets from Start-up $950,000
Cash Requirements from Start-up $50,000
Additional Cash Raised $0
Cash Balance on Starting Date $50,000
Total Assets $1,000,000
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $740,300
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $740,300
Capital
Planned Investment
Owner - John Johnson $250,000
Owner - Jane Johnson $50,000
Additional Investment Requirement $0
Total Planned Investment $300,000
Loss at Start-up (Start-up Expenses) ($40,300)
Total Capital $259,700
Total Capital and Liabilities $1,000,000
Total Funding $1,040,300

8.2 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:

  • We assume access to financing sufficient to maintain our financial plan as shown in the tables.
  • We assume inventory can be turned in 6-8 months.
  • Accounts receivable are small except for periodic sales to teams.  Everything else is cash/credit and carry.  We accept cash and checks, Visa, MasterCard, Discover and American Express. All sales paid via credit cards will be deposited in our business checking account within 48 hours.
  • We anticipate that we will be able to complete required financing, lease documents, and due diligence to allow for a November or December 2004 closing and business take over. 
  • We assume a slow-growth economy, without major recession.

8.3 Break-even Analysis

For our break-even analysis, we assume running costs which include payroll, rent, utilities, interest expense on the funding loan, and an estimation of other running costs. These estimations are based on real financial history data provided by the sellers of the business. Our sales forecast indicates that monthly sales are expected to be much greater than the break-even point.

Break-even Analysis
Monthly Revenue Break-even $149,547
Assumptions:
Average Percent Variable Cost 75%
Estimated Monthly Fixed Cost $37,383

8.4 Projected Profit and Loss

The projected Profit and Loss for five years is detailed in the table and charts following. Monthly projected Profit and Loss for year 1 is available in the Appendix. Some assumptions and inclusions to be noted are:

  • First year expense and revenue projections are based on the previous 2 years of actual financial data provided by the business seller. Since this is an existing business being purchased, we have lots of real historical financial information to analyze for trends.
  • Insurance includes: Business property and inventory, liability and interruption, and key person life insurance. 
  • We have made assumptions, based on past results, that certain expenses will rise in direct proportion to sales. For example, Bank Card Debit & Service Fees will rise in direct proportion to sales because more sales results in more credit cards being used for purchase transactions. Also, Freight In will rise in proportion because more inventory will need to be shipped in as sales rise. Other expenses that have been projected proportionally to sales increases include Insurance (for inventory), Office Supplies, and Telephone.
  • Freight In historically has been .5% of gross sales.
  • Bank Card and Debit Service Fees incurred because of credit card sales are calculated at 2.0%.
  • Rent increases significantly in years 2-5 because of the retail store and warehouse relocation.
  • Marketing/Promotion expenditures will be increased significantly from the past in years 1 and 2 and then be increased as the business grows and expands.
  • Payroll expenses will increase as the business grows and we need to hire additional staff.

We expect to be profitable in the first year, with net profits increasing steadily as the reputation of our business, its employees, and services become apparent to the local market and we reap the expected revenue gains from relocating the retail store, enhancing the Website, and expanding into additional products.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $2,408,535 $2,890,242 $3,468,290 $4,161,948 $4,994,339
Direct Cost of Sales $1,806,461 $2,109,877 $2,427,803 $2,788,505 $3,246,320
Other Costs of Sales $0 $0 $0 $0 $0
Total Cost of Sales $1,806,461 $2,109,877 $2,427,803 $2,788,505 $3,246,320
Gross Margin $602,074 $780,365 $1,040,487 $1,373,443 $1,748,019
Gross Margin % 25.00% 27.00% 30.00% 33.00% 35.00%
Expenses
Payroll $194,136 $271,090 $416,164 $477,502 $583,532
Marketing/Promotion $25,000 $35,000 $50,000 $75,000 $90,000
Depreciation $3,000 $3,000 $3,000 $3,000 $3,000
Rent $36,000 $90,000 $90,000 $90,000 $90,000
Utilities $11,960 $15,900 $16,000 $16,100 $16,200
Insurance $25,200 $27,720 $30,492 $33,541 $36,895
Bad Checks $600 $720 $864 $1,037 $1,244
Bank Card Debit & Service Fees $48,896 $58,672 $70,406 $84,488 $101,385
Repairs and Maintenance $3,960 $4,000 $4,000 $4,000 $4,000
Taxes and Licenses $8,000 $8,000 $8,000 $8,000 $8,000
Freight In $13,065 $15,896 $19,075 $22,890 $27,470
Interest Expense $37,152 $34,106 $30,440 $24,954 $21,645
Janitorial Supplies $396 $400 $400 $400 $400
Legal/Professional Fees $4,030 $3,500 $3,500 $3,500 $3,500
Travel & Entertainment $2,000 $3,000 $3,500 $4,000 $4,500
Membership Dues & Sub $900 $1,000 $1,000 $1,500 $1,500
Office Supplies $6,000 $8,000 $10,000 $13,000 $16,000
Personal Property Tax $250 $300 $350 $400 $500
Security $1,050 $1,000 $1,000 $1,000 $1,000
Internet Services $2,400 $2,400 $2,400 $2,400 $2,400
WEB Page Services $4,000 $6,000 $6,000 $6,000 $6,000
Postage $600 $1,000 $1,200 $1,400 $1,700
Telephone $20,000 $22,000 $24,200 $26,620 $29,282
Total Operating Expenses $448,595 $612,704 $791,991 $900,732 $1,050,153
Profit Before Interest and Taxes $155,879 $170,537 $251,886 $476,841 $702,866
EBITDA $158,879 $173,537 $254,886 $479,841 $705,866
Interest Expense $71,129 $65,776 $59,900 $53,643 $46,835
Taxes Incurred $25,425 $31,428 $57,596 $126,960 $196,809
Other Income
Interest Income $1,920 $2,300 $2,700 $3,300 $4,000
Miscellaneous Income $480 $576 $690 $830 $1,000
Purchase Discounts Taken $0 $0 $0 $0 $0
Total Other Income $2,400 $2,876 $3,390 $4,130 $5,000
Other Expense
Other Expense Account Name $0 $0 $0 $0 $0
Other Expense Account Name $0 $0 $0 $0 $0
Total Other Expense $0 $0 $0 $0 $0
Net Other Income $2,400 $2,876 $3,390 $4,130 $5,000
Net Profit $59,325 $73,333 $134,390 $296,239 $459,221
Net Profit/Sales 2.46% 2.54% 3.87% 7.12% 9.19%

8.5 Projected Cash Flow

Cash flow will have to be carefully monitored, as in any business, but Sportsuchtig has the advantage of operating a primarily cash and carry business. After the initial investment and start-up costs are covered, the business will become relatively self-sustaining. The principle payments to service the $700,000 funding loan are reflected in the Cash Flow table.

The key to managing cash flow is to understand the current monthly sales data and to successfully manage the timing of inventory purchases. Sales for Sportsuchtig typically spike in the spring months of February, March, April, May and June. Inventory for this spring season is purchased in bulk from the four major suppliers in the fall months and can cost between $500,000 to $800,000, depending upon the extent of the orders. The suppliers provide significant price breaks on the bulk orders and do not require payment until April 1. Some of the payables associated with this inventory are paid over the 5-6 months before April 1, but the majority is kept in the cash account until full payment on April 1. Additional orders besides the fall bulk orders are also placed as needed throughout the rest of the year. Terms on these inventory orders are typically Net 30 and they are paid in in 30 days. Inventory levels are usually maintained at high levels, due to the need to have product in stock and available when customers need it and it is turned every 6-8 months. We will focus on reducing inventory levels in order to improve cash flow.

The significant cash flow negative in April is expected and is a result of paying the inventory accounts payable that have accrued over the 5-6 months between purchase and the April 1 payment.

Any amounts above $50,000 will be invested into semi-liquid stock portfolios to decrease the opportunity cost of cash held. The interest will show up as Interest Income in the Profit and Loss table and will be updated quarterly.

Cash flow projections are critical to our success. The following table shows cash flow for the first five years, and the chart illustrates monthly cash flow in the first year. Monthly cash flow projections are included in the appendix.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $2,360,364 $2,832,437 $3,398,924 $4,078,709 $4,894,452
Subtotal Cash from Operations $2,406,437 $2,889,822 $3,467,787 $4,161,344 $4,993,614
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0
Subtotal Cash Received $2,408,837 $2,892,698 $3,471,177 $4,165,474 $4,998,614
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $194,136 $271,090 $416,164 $477,502 $583,532
Bill Payments $1,782,738 $2,440,385 $2,983,554 $3,493,660 $4,081,465
Subtotal Spent on Operations $1,976,874 $2,711,475 $3,399,718 $3,971,162 $4,664,997
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $54,012 $57,056 $60,468 $64,677 $71,465
Purchase Other Current Assets $0 $0 $0 $0 $0
Purchase Long-term Assets $0 $0 $0 $0 $0
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $2,030,886 $2,768,531 $3,460,186 $4,035,839 $4,736,462
Net Cash Flow $377,951 $124,168 $10,991 $129,635 $262,152
Cash Balance $427,951 $552,119 $563,109 $692,744 $954,896

8.6 Projected Balance Sheet

Sportsuchtig' projected balance sheet shows an increase in net worth by 2009, at which point it expects to be making significant after-tax profit on sales of $5 million. With the present financial projections, Sportsuchtig expects to build a company with strong profit potential, and a solid balance sheet that will be asset heavy and flush with cash at the end of five years. We plan on using the excess cash for continued growth.

The projected Balance Sheet for five years is detailed in the table following. Monthly projections for the first year Balance Sheet are available for review in the Appendix. 

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $427,951 $552,119 $563,109 $692,744 $954,896
Accounts Receivable $2,098 $2,517 $3,021 $3,625 $4,350
Inventory $547,750 $639,751 $736,152 $883,382 $1,060,059
Other Current Assets $25,000 $25,000 $25,000 $25,000 $25,000
Total Current Assets $1,002,799 $1,219,387 $1,327,281 $1,604,751 $2,044,304
Long-term Assets
Long-term Assets $25,000 $25,000 $25,000 $25,000 $25,000
Accumulated Depreciation $3,000 $6,000 $9,000 $12,000 $15,000
Total Long-term Assets $22,000 $19,000 $16,000 $13,000 $10,000
Total Assets $1,024,799 $1,238,387 $1,343,281 $1,617,751 $2,054,304
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $19,486 $216,797 $247,769 $290,677 $339,474
Current Borrowing $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $19,486 $216,797 $247,769 $290,677 $339,474
Long-term Liabilities $686,288 $629,232 $568,764 $504,087 $432,622
Total Liabilities $705,774 $846,029 $816,533 $794,764 $772,096
Paid-in Capital $300,000 $300,000 $300,000 $300,000 $300,000
Retained Earnings ($40,300) $19,025 $92,358 $226,748 $522,987
Earnings $59,325 $73,333 $134,390 $296,239 $459,221
Total Capital $319,025 $392,358 $526,748 $822,987 $1,282,208
Total Liabilities and Capital $1,024,799 $1,238,387 $1,343,281 $1,617,751 $2,054,304
Net Worth $319,025 $392,358 $526,748 $822,987 $1,282,208

8.7 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 Year 4 Year 5 Industry Profile
Sales Growth 0.00% 20.00% 20.00% 20.00% 20.00% 4.63%
Percent of Total Assets
Accounts Receivable 0.20% 0.20% 0.22% 0.22% 0.21% 15.78%
Inventory 53.45% 51.66% 54.80% 54.61% 51.60% 38.67%
Other Current Assets 2.44% 2.02% 1.86% 1.55% 1.22% 26.26%
Total Current Assets 97.85% 98.47% 98.81% 99.20% 99.51% 80.71%
Long-term Assets 2.15% 1.53% 1.19% 0.80% 0.49% 19.29%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 1.90% 17.51% 18.45% 17.97% 16.52% 37.39%
Long-term Liabilities 66.97% 50.81% 42.34% 31.16% 21.06% 14.93%
Total Liabilities 68.87% 68.32% 60.79% 49.13% 37.58% 52.32%
Net Worth 31.13% 31.68% 39.21% 50.87% 62.42% 47.68%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 25.00% 27.00% 30.00% 33.00% 35.00% 30.33%
Selling, General & Administrative Expenses 22.53% 24.46% 26.13% 25.88% 25.81% 19.32%
Advertising Expenses 0.00% 0.00% 0.00% 0.00% 0.00% 1.52%
Profit Before Interest and Taxes 6.47% 5.90% 7.26% 11.46% 14.07% 1.44%
Main Ratios
Current 51.46 5.62 5.36 5.52 6.02 1.89
Quick 23.35 2.67 2.39 2.48 2.90 0.77
Total Debt to Total Assets 68.87% 68.32% 60.79% 49.13% 37.58% 59.80%
Pre-tax Return on Net Worth 26.57% 26.70% 36.45% 51.42% 51.16% 3.15%
Pre-tax Return on Assets 8.27% 8.46% 14.29% 26.16% 31.93% 7.84%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin 2.46% 2.54% 3.87% 7.12% 9.19% n.a
Return on Equity 18.60% 18.69% 25.51% 36.00% 35.81% n.a
Activity Ratios
Accounts Receivable Turnover 22.96 22.96 22.96 22.96 22.96 n.a
Collection Days 29 15 15 15 15 n.a
Inventory Turnover 2.30 3.55 3.53 3.44 3.34 n.a
Accounts Payable Turnover 92.49 12.17 12.17 12.17 12.17 n.a
Payment Days 27 16 28 28 28 n.a
Total Asset Turnover 2.35 2.33 2.58 2.57 2.43 n.a
Debt Ratios
Debt to Net Worth 2.21 2.16 1.55 0.97 0.60 n.a
Current Liab. to Liab. 0.03 0.26 0.30 0.37 0.44 n.a
Liquidity Ratios
Net Working Capital $983,313 $1,002,590 $1,079,512 $1,314,074 $1,704,830 n.a
Interest Coverage 2.19 2.59 4.21 8.89 15.01 n.a
Additional Ratios
Assets to Sales 0.43 0.43 0.39 0.39 0.41 n.a
Current Debt/Total Assets 2% 18% 18% 18% 17% n.a
Acid Test 23.25 2.66 2.37 2.47 2.89 n.a
Sales/Net Worth 7.55 7.37 6.58 5.06 3.90 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a