Tablature Tattoo

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Tattoo Parlor Business Plan

Financial Plan

The financial plan for Tablature Tattoo is to raise $27,000 from a combination of personal savings, a long-term loan, and short-term borrowing to launch the business. The business will achieve cash flow and profit break-even in the seventh month of operation and net profit will be achieved in the first year, allowing for dividends to be paid to the owners beyond their salaries starting in year two.

Start-up Funding

The start-up funding will be primarily from investment by the co-owners and founders, Julie and Jake Hunt, who will each contribute $7,500. They will borrow $2,000 on credit cards and seek a three-year loan of $10,000 for the remaining cash, with their home equity as collateral. This will cover the required $27,000 in funding needed to launch.

Start-up Funding
Start-up Expenses to Fund $8,700
Start-up Assets to Fund $18,300
Total Funding Required $27,000
Assets
Non-cash Assets from Start-up $8,500
Cash Requirements from Start-up $9,800
Additional Cash Raised $0
Cash Balance on Starting Date $9,800
Total Assets $18,300
Liabilities and Capital
Liabilities
Current Borrowing $2,000
Long-term Liabilities $10,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $12,000
Capital
Planned Investment
Jake Hunt $7,500
Julie Hunt $7,500
Additional Investment Requirement $0
Total Planned Investment $15,000
Loss at Start-up (Start-up Expenses) ($8,700)
Total Capital $6,300
Total Capital and Liabilities $18,300
Total Funding $27,000

Important Assumptions

The table below presents assumptions used in the financial calculations of the business plan.

Break-even Analysis

The monthly break-even is shown below. The units break-even represents an average between the different business services and products and is not as helpful as a target.

Break-even Analysis
Monthly Units Break-even 131
Monthly Revenue Break-even $16,386
Assumptions:
Average Per-Unit Revenue $124.90
Average Per-Unit Variable Cost $8.98
Estimated Monthly Fixed Cost $15,207

Projected Profit and Loss

Gross margins will improve slightly as sales of full sessions increase relative to other services.

The marketing budget includes $150 per month to cover website hosting and maintenance and periodic runs of flyers or new business cards. Depreciation is for the long-term assets of the business over three years. Rent is $1,500 per month and utilities $150 per month (electricity, phone and internet). Insurance is not expected to rise significantly as the business will stay within its insurance bracket during this period. Payroll taxes of 15% and employee benefits of 10% (health insurance) are applied to payroll for the Hunts and the second artist's wages. Tattoo supplies of $100 per month are anticipated to replenish items purchased before the launch. Inflationary increases are applied to most items and to prices charged to customers.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $202,461 $293,434 $327,078
Direct Cost of Sales $14,561 $21,673 $24,109
Other $0 $0 $0
Total Cost of Sales $14,561 $21,673 $24,109
Gross Margin $187,900 $271,761 $302,970
Gross Margin % 92.81% 92.61% 92.63%
Expenses
Payroll $136,192 $163,187 $178,716
Marketing/Promotion $1,800 $1,890 $1,985
Depreciation $1,866 $2,466 $3,466
Rent $18,000 $18,540 $19,096
Utilities $1,800 $1,854 $1,910
Insurance $1,200 $1,236 $1,273
Payroll Taxes $20,429 $24,478 $26,807
Tattoo Supplies $1,200 $1,200 $1,200
Total Operating Expenses $182,487 $214,851 $234,452
Profit Before Interest and Taxes $5,413 $56,910 $68,517
EBITDA $7,279 $59,376 $71,983
Interest Expense $932 $500 $167
Taxes Incurred $1,344 $16,923 $20,505
Net Profit $3,137 $39,487 $47,846
Net Profit/Sales 1.55% 13.46% 14.63%

Projected Cash Flow

The business will reach cash flow break-even mid-year, and be able to pay dividends in year two while keeping a cash balance of around $20,000 for unexpected needs. The short-term debt will be paid off in the first year and the long-term loan will be paid off over the first three years of operation. Some additional long-term assets (replacements of equipment and additional tools) will be purchased over these years as well.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $202,461 $293,434 $327,078
Subtotal Cash from Operations $202,461 $293,434 $327,078
Additional Cash Received
Sales Tax, VAT, HST/GST Received $16,197 $23,475 $26,166
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 $218,658 $316,909 $353,245
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $136,192 $163,187 $178,716
Bill Payments $53,597 $89,359 $95,998
Subtotal Spent on Operations $189,790 $252,546 $274,714
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $16,197 $23,475 $26,166
Principal Repayment of Current Borrowing $2,000 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $3,336 $3,333 $3,331
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $600 $1,200 $1,200
Dividends $0 $30,000 $40,000
Subtotal Cash Spent $211,922 $310,554 $345,411
Net Cash Flow $6,736 $6,355 $7,833
Cash Balance $16,536 $22,891 $30,724

Projected Balance Sheet

The business will create a healthier position as it pays off its long-term and short-term debt, even while accounts payable will increase due to a greater volume of sales.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $16,536 $22,891 $30,724
Inventory $1,624 $2,746 $2,283
Other Current Assets $1,500 $1,500 $1,500
Total Current Assets $19,659 $27,136 $34,506
Long-term Assets
Long-term Assets $5,600 $6,800 $8,000
Accumulated Depreciation $1,866 $4,332 $7,798
Total Long-term Assets $3,734 $2,468 $202
Total Assets $23,393 $29,604 $34,708
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $7,292 $7,349 $7,939
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $7,292 $7,349 $7,939
Long-term Liabilities $6,664 $3,331 $0
Total Liabilities $13,956 $10,680 $7,939
Paid-in Capital $15,000 $15,000 $15,000
Retained Earnings ($8,700) ($35,563) ($36,076)
Earnings $3,137 $39,487 $47,846
Total Capital $9,437 $18,924 $26,770
Total Liabilities and Capital $23,393 $29,604 $34,708
Net Worth $9,437 $18,924 $26,770

Business Ratios

The business ratios here are compared against "other personal care services," NAICS 812199, which includes tattoo parlors.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 44.93% 11.47% -6.55%
Percent of Total Assets
Inventory 6.94% 9.28% 6.58% 3.80%
Other Current Assets 6.41% 5.07% 4.32% 45.54%
Total Current Assets 84.04% 91.66% 99.42% 55.32%
Long-term Assets 15.96% 8.34% 0.58% 44.68%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 31.17% 24.82% 22.87% 20.71%
Long-term Liabilities 28.49% 11.25% 0.00% 74.98%
Total Liabilities 59.66% 36.08% 22.87% 95.69%
Net Worth 40.34% 63.92% 77.13% 4.31%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 92.81% 92.61% 92.63% 75.39%
Selling, General & Administrative Expenses 91.26% 79.16% 78.00% 30.08%
Advertising Expenses 0.89% 0.64% 0.61% 2.46%
Profit Before Interest and Taxes 2.67% 19.39% 20.95% 6.21%
Main Ratios
Current 2.70 3.69 4.35 1.46
Quick 2.47 3.32 4.06 1.28
Total Debt to Total Assets 59.66% 36.08% 22.87% 95.69%
Pre-tax Return on Net Worth 47.49% 298.09% 255.33% 476.96%
Pre-tax Return on Assets 19.16% 190.55% 196.93% 20.53%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 1.55% 13.46% 14.63% n.a
Return on Equity 33.24% 208.66% 178.73% n.a
Activity Ratios
Inventory Turnover 11.75 9.92 9.59 n.a
Accounts Payable Turnover 8.35 12.17 12.17 n.a
Payment Days 27 30 29 n.a
Total Asset Turnover 8.65 9.91 9.42 n.a
Debt Ratios
Debt to Net Worth 1.48 0.56 0.30 n.a
Current Liab. to Liab. 0.52 0.69 1.00 n.a
Liquidity Ratios
Net Working Capital $12,367 $19,787 $26,568 n.a
Interest Coverage 5.81 113.88 411.39 n.a
Additional Ratios
Assets to Sales 0.12 0.10 0.11 n.a
Current Debt/Total Assets 31% 25% 23% n.a
Acid Test 2.47 3.32 4.06 n.a
Sales/Net Worth 21.45 15.51 12.22 n.a
Dividend Payout 0.00 0.76 0.84 n.a