Tropical Tan

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Tanning Salon Business Plan

Financial Plan

Tropical Tan expects a profit margin of over 40% starting with year one. By year two, that number should slowly increase as the law of diminishing costs takes hold and the day-to-day activities of the business become less expensive.

Sales are expected to grow 15% per year. Total owner financing of $65,000 will become a return on equity paid in the form of dividends to the owners.

6.1 Important Assumptions

After researching the tanning industry in and around Chino Hills, the following assumptions have been made:

  • Consumers are not happy with the two existing tanning salons' equipment, so by bringing in top-of-the-line products we can provide a higher quality service as well as more clients per hour.
  • Being located across the street from a popular gym we can assume a high amount of foot traffic resulting in higher sales.
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 30.00% 30.00% 30.00%
Other 0 0 0

6.2 Break-even Analysis

The following chart and table summarize our break-even analysis. With fixed costs of $10,332 per month at the outset (a bare minimum), we need to sell 1,041 monthly tanning sessions at $10.00 to break even to cover our costs.

Break-even Analysis
Monthly Revenue Break-even $10,414
Assumptions:
Average Percent Variable Cost 1%
Estimated Monthly Fixed Cost $10,332

6.3 Projected Profit and Loss

Our projected profit and loss is shown on the following table and charts. From our research of the tanning industry our annual projections are quite realistic. The detailed monthly projections are included in the appendix.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $394,344 $414,061 $434,764
Direct Cost of Sales $3,100 $3,500 $3,800
Other Costs of Sales $27,996 $0 $0
Total Cost of Sales $31,096 $3,500 $3,800
Gross Margin $363,248 $410,561 $430,964
Gross Margin % 92.11% 99.15% 99.13%
Expenses
Payroll $65,415 $77,415 $89,415
Sales and Marketing and Other Expenses $600 $600 $600
Depreciation $0 $0 $0
Rent $21,804 $21,804 $21,804
Utilities $4,200 $4,200 $4,200
Insurance $1,200 $1,200 $1,200
Payroll Taxes $9,812 $11,612 $13,412
Loan Repayment $11,952 $11,952 $11,952
Janitorial Service $3,000 $3,000 $3,000
Other $6,000 $6,000 $6,000
Total Operating Expenses $123,983 $137,783 $151,583
Profit Before Interest and Taxes $239,265 $272,778 $279,381
EBITDA $239,265 $272,778 $279,381
Interest Expense $1,626 $965 $310
Taxes Incurred $71,291 $81,544 $83,721
Net Profit $166,347 $190,269 $195,350
Net Profit/Sales 42.18% 45.95% 44.93%

6.4 Projected Cash Flow

The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month, and the other the monthly cash balance. The annual cash flow figures are included here and the detailed monthly numbers are included in the appendix.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $394,344 $414,061 $434,764
Subtotal Cash from Operations $394,344 $414,061 $434,764
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 $394,344 $414,061 $434,764
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $65,415 $77,415 $89,415
Bill Payments $152,361 $146,453 $149,816
Subtotal Spent on Operations $217,776 $223,868 $239,231
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $6,900 $6,900 $6,200
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 $224,676 $230,768 $245,431
Net Cash Flow $169,668 $183,293 $189,333
Cash Balance $199,001 $382,294 $571,626

6.5 Projected Balance Sheet

The balance sheet table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $199,001 $382,294 $571,626
Inventory $1,150 $1,298 $1,410
Other Current Assets $0 $0 $0
Total Current Assets $200,151 $383,592 $573,036
Long-term Assets
Long-term Assets $27,000 $27,000 $27,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $27,000 $27,000 $27,000
Total Assets $227,151 $410,592 $600,036
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $11,971 $12,043 $12,338
Current Borrowing ($6,900) ($13,800) ($20,000)
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $5,071 ($1,757) ($7,662)
Long-term Liabilities $20,000 $20,000 $20,000
Total Liabilities $25,071 $18,243 $12,338
Paid-in Capital $65,000 $65,000 $65,000
Retained Earnings ($29,267) $137,080 $327,349
Earnings $166,347 $190,269 $195,350
Total Capital $202,080 $392,349 $587,698
Total Liabilities and Capital $227,151 $410,592 $600,036
Net Worth $202,080 $392,349 $587,698

6.6 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7299.0105, Tanning salon, are shown for comparison. We expect to maintain healthy ratios for profitability, risk, and return.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 5.00% 5.00% 8.15%
Percent of Total Assets
Inventory 0.51% 0.32% 0.23% 4.93%
Other Current Assets 0.00% 0.00% 0.00% 35.03%
Total Current Assets 88.11% 93.42% 95.50% 55.79%
Long-term Assets 11.89% 6.58% 4.50% 44.21%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 2.23% -0.43% -1.28% 25.11%
Long-term Liabilities 8.80% 4.87% 3.33% 22.00%
Total Liabilities 11.04% 4.44% 2.06% 47.11%
Net Worth 88.96% 95.56% 97.94% 52.89%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 92.11% 99.15% 99.13% 100.00%
Selling, General & Administrative Expenses 48.03% 51.39% 52.54% 77.99%
Advertising Expenses 2.00% 0.00% 0.00% 1.85%
Profit Before Interest and Taxes 60.67% 65.88% 64.26% 3.35%
Main Ratios
Current 39.47 -218.35 -74.79 1.73
Quick 39.24 -217.61 -74.60 1.30
Total Debt to Total Assets 11.04% 4.44% 2.06% 6.16%
Pre-tax Return on Net Worth 117.60% 69.28% 47.49% 59.92%
Pre-tax Return on Assets 104.62% 66.20% 46.51% 15.38%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 42.18% 45.95% 44.93% n.a
Return on Equity 82.32% 48.49% 33.24% n.a
Activity Ratios
Inventory Turnover 3.90 2.86 2.81 n.a
Accounts Payable Turnover 13.66 12.17 12.17 n.a
Payment Days 27 30 30 n.a
Total Asset Turnover 1.74 1.01 0.72 n.a
Debt Ratios
Debt to Net Worth 0.12 0.05 0.02 n.a
Current Liab. to Liab. 0.20 -0.10 -0.62 n.a
Liquidity Ratios
Net Working Capital $195,080 $385,349 $580,698 n.a
Interest Coverage 147.13 282.67 901.23 n.a
Additional Ratios
Assets to Sales 0.58 0.99 1.38 n.a
Current Debt/Total Assets 2% 0% -1% n.a
Acid Test 39.24 0.00 0.00 n.a
Sales/Net Worth 1.95 1.06 0.74 n.a
Dividend Payout 0.00 0.00 0.00 n.a