Flyleaf Books

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Used Book Store Business Plan

Financial Plan

The following is our financial projects over the next three years. Please note that we expect to be operating at a loss for the first couple of months before advertising begins to take effect and draw in customers.

7.1 Important Assumptions

The company is basing it assumptions on a stable growth market using average interest rates over the past ten years.

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

7.2 Break-even Analysis

The following table and chart show our Break-even Analysis. We are deliberately setting these average costs a little low in order to be conservative and give us an idea of the maximum amount of inventory we need to move per month.

Break-even Analysis
Monthly Revenue Break-even $90,541
Assumptions:
Average Percent Variable Cost 77%
Estimated Monthly Fixed Cost $20,824

7.3 Projected Profit and Loss

The following table explains our itemized costs and determines gross and net margin. Please note that these predictions are weighted toward having higher costs in comparison to revenues in case unexpected hidden costs arise.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $1,304,071 $1,357,569 $1,428,767
Direct Cost of Sales $1,004,135 $1,031,752 $1,071,575
Other Costs of Goods $0 $0 $0
Total Cost of Sales $1,004,135 $1,031,752 $1,071,575
Gross Margin $299,936 $325,817 $357,192
Gross Margin % 23.00% 24.00% 25.00%
Expenses
Payroll $111,000 $125,600 $130,600
Sales and Marketing and Other Expenses $36,000 $15,000 $15,000
Depreciation $0 $0 $0
Leased equipment $0 $0 $0
Rent $60,000 $65,000 $68,000
Utilities $3,600 $4,000 $4,000
Insurance $7,200 $7,200 $7,500
Payroll Taxes $17,093 $18,840 $19,590
Other $15,000 $10,000 $10,000
Total Operating Expenses $249,893 $245,640 $254,690
Profit Before Interest and Taxes $50,044 $80,177 $102,502
EBITDA $50,044 $80,177 $102,502
Interest Expense $13,750 $13,900 $12,050
Taxes Incurred $10,888 $19,883 $27,136
Net Profit $25,406 $46,394 $63,316
Net Profit/Sales 1.95% 3.42% 4.43%

7.4 Projected Cash Flow

Our company will be receiving periodic influxes of cash in order to cover operating expenses during the first two years as it strives toward sustainable profitability. Almost all of this funding has been arranged through lend institutions and private investors already. We do not anticipate any cash flow problems during the next three years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $1,304,071 $1,357,569 $1,428,767
Subtotal Cash from Operations $1,304,071 $1,357,569 $1,428,767
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $5,000 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $50,000 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $54,000 $0 $0
Subtotal Cash Received $1,413,071 $1,357,569 $1,428,767
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $111,000 $125,600 $130,600
Bill Payments $1,156,323 $1,217,129 $1,235,539
Subtotal Spent on Operations $1,267,323 $1,342,729 $1,366,139
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $7,000 $15,000
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $5,000 $10,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $1,267,323 $1,354,729 $1,391,139
Net Cash Flow $145,748 $2,840 $37,628
Cash Balance $179,568 $182,408 $220,036

7.5 Projected Balance Sheet

The following table is the Projected Balance Sheet for Flyleaf Books.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $179,568 $182,408 $220,036
Inventory $122,562 $125,933 $130,793
Other Current Assets $8,000 $8,000 $8,000
Total Current Assets $310,130 $316,341 $358,830
Long-term Assets
Long-term Assets $8,000 $8,000 $8,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $8,000 $8,000 $8,000
Total Assets $318,130 $324,341 $366,830
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $125,904 $97,722 $101,894
Current Borrowing $20,000 $13,000 ($2,000)
Other Current Liabilities $10,000 $10,000 $10,000
Subtotal Current Liabilities $155,904 $120,722 $109,894
Long-term Liabilities $125,000 $120,000 $110,000
Total Liabilities $280,904 $240,722 $219,894
Paid-in Capital $124,000 $124,000 $124,000
Retained Earnings ($112,180) ($86,774) ($40,381)
Earnings $25,406 $46,394 $63,316
Total Capital $37,226 $83,619 $146,935
Total Liabilities and Capital $318,130 $324,341 $366,830
Net Worth $37,226 $83,619 $146,935

7.6 Business Ratios

We are using the industry standard Business Ratios for independent used bookstore chains as a comparison to our own.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 4.10% 5.24% 2.27%
Percent of Total Assets
Inventory 38.53% 38.83% 35.66% 22.18%
Other Current Assets 2.51% 2.47% 2.18% 26.81%
Total Current Assets 97.49% 97.53% 97.82% 56.12%
Long-term Assets 2.51% 2.47% 2.18% 43.88%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 49.01% 37.22% 29.96% 26.39%
Long-term Liabilities 39.29% 37.00% 29.99% 24.87%
Total Liabilities 88.30% 74.22% 59.94% 51.26%
Net Worth 11.70% 25.78% 40.06% 48.74%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 23.00% 24.00% 25.00% 23.55%
Selling, General & Administrative Expenses 21.05% 20.58% 20.57% 16.21%
Advertising Expenses 0.00% 0.00% 0.00% 0.85%
Profit Before Interest and Taxes 3.84% 5.91% 7.17% 1.02%
Main Ratios
Current 1.99 2.62 3.27 1.68
Quick 1.20 1.58 2.08 0.71
Total Debt to Total Assets 88.30% 74.22% 59.94% 4.63%
Pre-tax Return on Net Worth 97.50% 79.26% 61.56% 57.28%
Pre-tax Return on Assets 11.41% 20.43% 24.66% 10.83%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 1.95% 3.42% 4.43% n.a
Return on Equity 68.25% 55.48% 43.09% n.a
Activity Ratios
Inventory Turnover 10.91 8.30 8.35 n.a
Accounts Payable Turnover 10.12 12.17 12.17 n.a
Payment Days 27 34 29 n.a
Total Asset Turnover 4.10 4.19 3.89 n.a
Debt Ratios
Debt to Net Worth 7.55 2.88 1.50 n.a
Current Liab. to Liab. 0.56 0.50 0.50 n.a
Liquidity Ratios
Net Working Capital $154,226 $195,619 $248,935 n.a
Interest Coverage 3.64 5.77 8.51 n.a
Additional Ratios
Assets to Sales 0.24 0.24 0.26 n.a
Current Debt/Total Assets 49% 37% 30% n.a
Acid Test 1.20 1.58 2.08 n.a
Sales/Net Worth 35.03 16.24 9.72 n.a
Dividend Payout 0.00 0.00 0.00 n.a