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ArtSphere

Executive Summary

The ArtSphere Gallery School of Art (ArtSphere) began its operations in September of this year after expanding from its former back room into the full 787 square foot facility on the corner of Main and 1st Streets in Birmingham, AL. Since September the business has grown substantially, but in an unordered way. This business plan is being written to set a rational framework for growth to maximize profit potential. Successful realization of this plan will produce increasing profits annually by the end of the third year.

Keys to success and critical factors are, in order of importance:

  • Penetration into the day-time market for art lessons.
  • Completing some alterations to premises.
  • Making changes to certain operational and pricing practices.
  • Making sale of art supplies an additional profit source.

Art school gallery business plan, executive summary chart image

1.1 Objectives

The greatest opportunity for the ArtSphere is through the teaching of art to paying customers. The capacity to do this is limited in size to approximately eight persons at one time. The most important objective is to successfully penetrate the 9 A.M. to 3 P.M. day-time market. This is the largest portion of ArtSphere’s teaching capacity (61%). This offers without any doubt the most important element in the future development of profits. The prime objective is to gradually increase penetration of this market sector from its present near zero level to 90% of full capacity by the end of second year.

As the afternoon market sector (22% of total capacity) is already nearly fully booked, a secondary objective is to fill the evening hours (Monday through Thursday) 7:30 P.M. to 9:30 P.M. These eight hours are easier to fill. This goal should be reached by the end of Month 5.

A further objective is to separate art supplies from art lessons, so as to make the sale of art supplies a separate profit center.

A final objective is to maintain the present level of portrait work, produced under contract by clients, as well as maintain the historical level of sales of art work created by the owners of ArtSphere prior to the recent mushrooming of art instruction.

1.2 Mission

The ArtSphere is dedicated to providing competent, professional instruction in art in friendly, pleasant surroundings while catering to the varying needs of different target market groups. The ArtSphere tries to cultivate a more personal and longer term relationship with the customer than can be achieved by a typical six session generic art course taught at Bessemer State College. The ArtSphere recognizes that the real product it sells is different from the art instruction given. Helena Rubenstein is quoted as saying, “in the factory we manufacture cosmetics, but the product we sell is called ‘hope.'”

This thinking holds true at the ArtSphere. The product sold is viewed differently by different buyers. A serious young student with potential may need special help in compiling his portfolio when applying to art school. A retired 70 year-old woman may be seeking a fun way to fill up an otherwise empty day. A stress-ridden executive may be seeking solace and relaxation. Encouragement, technical advice, stress-relief, escape from loneliness, self-expression, etc. are just some of the products sold by the ArtSphere. The owners of the ArtSphere recognize that art lessons can be had at less than $5.00/hour in some state college evening courses. The ArtSphere cannot attempt to compete with these prices. It is only by tailoring the “real” product sought by customers that we will create and maintain a high level of sales.

1.3 Keys to Success

The most important element to success is how skillfully the owners can tailor the product to suit the varying needs (emotional, psychological, technical, etc.) of its customers.

  • The limited spaces (maximum of eight) have no shelf life. They are like airplane seats: A 10 o’clock space unsold today is lost forever. It is essential, to avoid the problem of “no-shows,” that customers be signed up on a monthly basis, payable in advance. This does not preclude the possibility of switching time slots. “Walk-ins” can still be accommodated, based on availability, but these “products” must be sold at a premium to encourage customers to sign up.
  • Like most businesses, it is key to recognize and encourage the “heavy user.” A “heavy user” would be someone happy to work at his easel two to three hours at a time, several times a week. If, however, an hour art lesson does not come to a signaled end, for example, lights being turned off, then the customer may simply continue working for hours. It is important to arrange a signaled end to a lesson by collecting students’ canvases to store them for the next session. Those wanting a longer session need only enroll for a longer period. Only in this manner can the owners profit from the “heavy user.”
  • Both owners are artistic and at times reluctant to insist on certain policies designed to encourage profitability. A willingness to be flexible in this department is key to the success of this plan.
  • The special nature of the product does not allow for it to be purchased on a “take-out” basis. It must be consumed on the premises. Therefore it is absolutely essential to create and maintain an environment in keeping with the special needs of customers. Ugly clutter, adequate lighting, clean-up and smoking policies, comfortable seating, etc. all must be addressed. The location of the ArtSphere within sight of the harbor and the town landing has all the potential for superior atmosphere compared to a typical rectangular classroom at a state college.
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Company Summary

The “ArtSphere” was registered DBA jointly in the names of Paul and Hannah Nash several years ago.

The ArtSphere is located on the corner of Main and 1st  Streets in Birmingham, AL. facing the town’s public landing. Approximately 75 students, mostly adolescents, are signed up for lessons at $10/hour which includes materials. The recently increased facilities have made possible an increase in the number of students. Lessons are offered a total of 49 hours weekly. Maximum capacity is considered eight at any one time, which works out to a possible sales potential of 392 learning hours/week. Limiting to eight students at any one time allows sufficient room for each student to sit or stand comfortably at an easel.

As penetration into the 9 A.M. to 3 P.M. market increases, Hannah will give up her teaching position in a pre-school and concentrate on the ArtSphere. Hannah also paints portraits on a contractual basis for customers (approximately $800 per month). This activity will continue unchanged, but will take place on weekends when classes are not offered. Paul Nash’s artwork will continue as well, also with concentration on weekends.

Saturdays and Sundays are when students’ and owners’ artwork is displayed in the Gallery; buyers and interested potential students are encouraged to come in the Gallery, have a cup of espresso, and watch an artist at work.

2.1 Company Ownership

The ArtSphere is registered DBA jointly under the names of Paul and Hannah Nash. Earnings are taxed according to the personal tax rate schedule.

Paul Nash graduated with a BFA degree from Boston University in 1977. He has been painting since 1970 and teaching since 1980. His work has been featured at many group shows and sometimes at one-man shows such as at the Court Street Gallery in Bessema. Paul has sold seven pieces of his artwork during the past 12 months. Paul is also the owner of “ArtSphere Productions” located in Beverly. “ArtSphere Productions” is involved in film/video production and editing.

Hannah Rogerson Nash graduated from Bessemer High and attended Bessemer State College, Rhode Island School of Design. She has extensive experience in painting, specializing in portrait and still life. She has sold 11 pieces of her work during the past 12 months. Her work is known under her maiden name Rogerson. Her teaching skills are widely recognized, having taught pre-school in Europe as well as locally. She is presently employed at the Orchard School in Birmingham, AL. where she has been a teacher since 1993. In addition, Hannah worked from 1984-1993 as a self-employed photo retoucher.

2.2 Start-up Summary

Our planned expenses for our first full year are shown in the following chart and table.

Art school gallery business plan, company summary chart image

Start-up Funding
Start-up Expenses to Fund $2,065
Start-up Assets to Fund $6,200
Total Funding Required $8,265
Assets
Non-cash Assets from Start-up $6,200
Cash Requirements from Start-up $0
Additional Cash Raised $0
Cash Balance on Starting Date $0
Total Assets $6,200
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $0
Capital
Planned Investment
Principals $8,265
Investor 2 $0
Other $0
Additional Investment Requirement $0
Total Planned Investment $8,265
Loss at Start-up (Start-up Expenses) ($2,065)
Total Capital $6,200
Total Capital and Liabilities $6,200
Total Funding $8,265
Start-up
Requirements
Start-up Expenses
Legal (DBA Register) $25
Stationery, etc. $500
Brochures $300
Consultants $950
Coffee Maker $200
Cordless Phone $90
Expensed Equipment $0
Other $0
Total Start-up Expenses $2,065
Start-up Assets
Cash Required $0
Start-up Inventory $0
Other Current Assets $0
Long-term Assets $6,200
Total Assets $6,200
Total Requirements $8,265

2.3 Company Locations and Facilities

The ArtSphere is located on the corner of Main and 1st Streets in Birmingham, AL. Total square footage comes to 787, with two doors onto the street. The facilities at this location are leased from the owners, John Smith and Andrew Abbot, at a monthly rate of $1,225. Electricity runs about $50/month, and gas about $600 annually. The lessors have indicated their intentions to sell the property and have entered into negotiations with the owners of the ArtSphere. The asking price is $148,000. The unit is one of six units of 1st Street Wharf Condominium Trust which has recently undertaken an extensive condition-of-building study prepared by professional consultants. Current plans are to renovate the 1st Street side of the building including new siding, new corner boards, and paint. The Trustees of FSWCT are committed to a high standard of maintenance.

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Products and Services

The ArtSphere is expanding its offerings. Our primary focus is now on offering art instruction classes. We will tailor our classes by market segment and time of day, providing instructional opportunities during the morning and mid-day, after school sessions, and evening classes.

We will have a wide range of art supplies available to complement student sessions as well as for sale to the general public.

Additionally, the owners will continue to show and sell their own work in the Gallery, as well as produce commission portraits and other work.

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Market Analysis Summary

The offerings by ArtSphere require, by their very nature, an investment of time on the part of the purchaser. Three customer groups have been identified based on the availability of time on their part:

  • School-aged (over 10 yrs).
  • Retired/non-working.
  • Working/evening class.

This accounts for virtually everyone in Birmingham, AL older than 10 yet younger than 75. It would be more accurate to state that these people will seek, during their respective free hours, some hobby, some pleasant, time-filling activity, or other form of relaxation.

4.1 Market Segmentation

Market Group Time Slot Size of Market
School-Aged (Over 10 years) 3:30 P.M. to 5:30 P.M. 1,666
Retired/Non-Working 9 A.M. to 3 P.M. 2,645
Working/Evening Class 7 P.M. to 9 P.M. 12,042
TOTAL All time slots 16,353

The total figure of 16,353 accounts for virtually everyone in Birmingham, AL older than 10 yet younger than 75. Even though there are people older than 75 and younger than 10 who actually take art lessons, the market analysis should not be taken to mean that 16,353 persons in Birmingham, AL are in search of art instruction.

Art school gallery business plan, market analysis summary chart image

Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
School-aged 1% 1,666 1,683 1,700 1,717 1,734 1.01%
Retired/Non-work 7% 2,645 2,830 3,028 3,240 3,467 7.00%
Working/Evening Class 9% 12,042 13,126 14,307 15,595 16,999 9.00%
Other 0% 0 0 0 0 0 0.00%
Total 7.94% 16,353 17,639 19,035 20,552 22,200 7.94%

4.2 Target Market Segment Strategy

Our ultimate goal is to fill all of our scheduled class offerings and fully utilize our newly expanded teaching space. To do that we have looked at the daily time periods when we wished to teach, and then identified the market segment most likely to seek art instruction during those times. We then tailored our class offerings to appeal to the interests and life styles of those people.

We then priced the classes competitively for adults and children and then grouped the lessons into prepaid monthly blocks to fit peoples’ various budgetary needs.

4.2.1 Market Needs

There currently is a need in Birmingham for regularly scheduled, moderately priced, locally sited art instruction classes, available at different times of the day. Existing venues are either fully booked and unable to serve a larger market segment, are membership groups, or are sideline businesses.

The people of Birmingham need more art instructional opportunities, especially ones focused and tailored to the interests, skill levels and time availabilities of the students.

4.3 Service Business Analysis

Art instruction is offered in several ways:

Artists who teach classes

  • To supplement or support their own fine art endeavors.
  • Sideline businesses.
  • Poor setting, usually taught in “extra” or crowded space.
  • Limited class offerings.
  • Prices vary.

Private tutors

  • Very focused instruction for serious students.
  • Expensive.

Arts associations/museums

  • Offer classes to members or the general public.
  • Limited offerings.
  • Often taught by volunteers.
  • Prices generally affordable. May vary with membership.

Galleries

  • Employ artist instructors – classes are marketing tool.
  • Sponsor classes by artists currently displayed.
  • Class offerings often limited to gallery’s genre.
  • Prices vary.

Schools and Colleges

  • Classes may be academia focused.
  • Travel may be necessary.
  • Time slot offerings may be limited.
  • Long term committment to class.
  • Prices may vary.

4.3.1 Main Competitors

Outside of the ArtSphere there are other locations in Birmingham where art lessons are available:

ART SCHOOL OF BIRMINGHAM

This school is located in a room of the Professional Building at 1331 Milgray Lane. Paul Nash has been teaching there in the evenings and on Saturday mornings  since 1975. He has room for about 12-15 and teaches a structured approach. Paul is well-known within the town, having taught art on the local TV channel. The main thrust of his business appears to be his portrait business which is located on School Street across from the Cafe Roma. Lessons are sold in blocks of four for $56. Each lesson is an hour and one half.

Paul mentioned that his classes are generally booked up. He does not offer lessons during the day.

The Art School of Birmingham is listed in the Yellow Pages, Nash’s artwork is shown in several local galleries, and as a teacher, he gives a convincing impression of professionalism when talking about his teaching method.

BIRMINGHAM ART WORKS

Hannah Rogerson Nash has a studio located on the second floor of the same School Street building which houses Paul Nash’s portrait studio. Hannah has, using her own description, a very unstructured approach to teaching art. She is willing to teach anything a person might want to learn. Her Friday afternoons are completely occupied with children, but other than then she is wide open. She did mention teaching two women and a 12-year-old. No schedule of classes or fees is posted outside her studio door and she is not listed in the Yellow Pages. She has placed a small ad in the local paper offering an “Art Workshop.” Within the same ad she offers “orchids, plants, & plant care” indicating that art lessons are not her major line. She mentioned on the phone a price of $20 for a two hour group lesson and $30 for a private lesson. Being able to offer a “private” lesson would indicate a rather light teaching load.

BIRMINGHAM ARTS ASSOCIATION

Birmingham Arts offers a selection of four art classes during the day. They are described in their news letter which is mailed out only to members. Enrollment in the classes does not always reach the cut-off point of six in which case the class is cancelled. A typical class is two hours one morning a week, and runs for six weeks. Cost is $84 for members, slightly more for non-members. This works out to $7.00 per instruction hour.

There are also some courses offered in near-by Bessemer:

BESSEMER STATE COLLEGE

The Bessemer State College Community Enrichment Program offers several art classes in the evenings. A typical class (Introduction to Drawing) is offered Thursday evenings from 7:00P.M. to 9:30 P.M. and costs $68 for six sessions. Average cost works out to be about $4.50 per instruction hour. Notification of these courses is mailed to all residential addresses in Birmingham.

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Strategy and Implementation Summary

The ArtSphere recognizes that the real product it sells is different from the art instruction given. Helena Rubenstein is quoted as saying, “in the factory we manufacture cosmetics, but the product we sell is called ‘hope.'”

This thinking holds true at the ArtSphere. The product sold is viewed differently by different buyers. A serious young student with potential may need special help in compiling his portfolio when applying to art school. A retired 70 year-old woman may be seeking a fun way to fill up an otherwise empty day. A stress-ridden executive may be seeking solace and relaxation. Encouragement, technical advice, stress-relief, escape from loneliness, self-expression, etc are just some of the products sold by the ArtSphere. The owners of the ArtSphere recognize that art lessons can be had at less than $5.00/hour in some state college evening courses. The ArtSphere cannot attempt to compete with these prices. It is only by tailoring the “real” product sought by customers that we will create and maintain a high level of sales.

5.1 Competitive Edge

There are many facets of the ArtSphere which make it a top-notch competitor in the art class business, a few are outlined below:

  • All day multi-time slot schedule.
  • Classes tailored to market segment.
  • Two instructors.
  • Dedicated instructional space
  • Art supplies available on-site.
  • Gallery venue for student artwork exhibits.
  • High profile location.

5.2 Marketing Strategy

When comparing the market segment table below with ArtSphere’s available capacity, it is evident which direction the marketing thrust should take:

Market Group Time Slot Capacity

Instruction Hours

School-Aged (Over 10 yrs.) 3:30 P.M. to 5:30 P.M. 1,666

88 (11 hrs X 8 easels)

Retired/Non-Working

9 A.M. to 3 P.M. 2,645

240 (30 hrs X 8)

Working/Evening Class 7 P.M. to 9 P.M. 12,042

64 (8 hrs X 8)

The school-age market group with its potential market size of 1,666 has within the space of a couple months of operation taken up nearly all the limited 88 teaching hours of capacity for that time slot with some spill-over into the smaller evening class time period. This latter time period in the evening should be the easiest to fill considering its potential market of 12,042.

Clearly, the marketing strategy at ArtSphere needs to be concentrated on the biggest time slot, the 9 A.M. to 3 P.M. period. As of this writing, nearly all of the 8 easels are unoccupied Monday through Friday.

5.3 Sales Strategy

The ArtSphere has no sales force outside of its owners, Paul and Hannah, who will close the deals with interested customers created by actions of the marketing strategy. Many of the initial contacts will come via telephone inquiries responding to the offer of a free art lesson. Whoever takes the call should draw out the calling party and jot down a brief profile. Developing a sixth sense for the goals of the customer (stress relief, find new hobby, etc.) is key. If a customer is looking for stress-relief, then peaceful surroundings are essential. That potential customer should not be given his or her first free lesson during a crowded time slot, but rather when things at the studio are quiet and less active. Someone looking to escape boredom on the other hand should be scheduled when there are more people in the studio. A conscious decision also needs to be made concerning which teacher the caller is likely to relate to. If a caller does not come in for the offered free lesson, a follow-up call should be made by one of the owners. There is a direct relationship between the number of free lessons given and the number of people who will sign up.

Directly upon completion of the free lesson, an unabrasive effort should be made to effect a sign-up. If the person does not sign up, a follow-up call should be made. If Paul gave the free lesson, Hannah should make the follow-up call. It could be that the potential customer will respond better to the other teacher.

Walk-in inquiries should be handled in a similar fashion. Brochures containing particulars and an up-to-date price schedule should be available in a box by the door. Because of the studio’s high-profile location with large picture windows facing onto a busy pedestrian area, it is common for passers-by to look in. Good salesmanship will result is developing an ability to differentiate the interested from the merely curious. It is important not to be shy with interested parties. If the same person is noticed frequently looking in the window, or picks up a brochure and scans it, one of the owners must make a sales approach, even if it means opening the door and inviting the person in. Offer a cup of coffee, try to form a rough profile and offer to set up a time for a free lesson.

5.3.1 Sales Forecast

It is assumed that Hannah’s portrait contracts will continue at historical levels (1/month @ ave. price $650).

Sale of Paul Nash’s artwork will continue at historical levels ($3,600 annually, spread out evenly).

School-aged art lessons represent only 88 instruction hours/week taking up the 3:30 P.M. to 5:30 P.M. time slots each day (6:30 P.M. on Fridays). These slots are nearly all filled now. It is assumed that these hours will remain full throughout the year. Assume 75 of the possible 88 will be filled each week, four weeks/month at a sales price of $10/hour lesson.

The retired/non-work art classes will begin to grow after the planned renovations scheduled for January. Projections assume that price for four 90 minute instruction sessions will be $79. Sales to begin in March starting with the one fully booked 90-minute lesson daily Monday-Friday. These classes will have eight students each. A second daily class will be formed six months later, and after one year, there will be a third. This will bring this section of ArtSphere capacity up to 75% (four and one half of six hrs/day, or 180 instruction hours out of 240 possible). Assume each month to contain four weeks exactly.

This sector at the moment is practically nil. Growth depends on completion of modifications to premises, and success in ArtSphere’s marketing approach to this group.

Art school gallery business plan, strategy and implementation summary chart image

Art school gallery business plan, strategy and implementation summary chart image

Sales Forecast
Year 1 Year 2 Year 3
Sales
Portrait Sales (HRN) $7,800 $7,800 $7,800
Artwork Sales (PN) $3,600 $3,600 $3,600
School-aged Classes $42,600 $42,600 $42,600
Retired/non-work Classes $25,280 $97,960 $113,760
Evening/working Classes $35,840 $43,008 $43,008
Sale of Art Supplies $14,800 $37,080 $40,080
Other $0 $0 $0
Total Sales $129,920 $232,048 $250,848
Direct Cost of Sales Year 1 Year 2 Year 3
Portrait Sales (HRN) $1,170 $1,170 $1,170
Artwork Sales (PN) $540 $540 $540
School-aged Classes $2,160 $0 $0
Retired/non-work Classes $0 $0 $0
Evening/working Classes $0 $0 $0
Sale of Art Supplies $10,360 $25,956 $28,056
Other $0 $0 $0
Subtotal Direct Cost of Sales $14,230 $27,666 $29,766

5.3.2 Sales Programs

  • Classes will be offered in many time slots throughout the day and evening, with instruction tailored to the customers.
  • A wide variety of art supplies will be available for purchase by students during their classes, and by the general public.
  • Hannah will continue her commission portrait work and exhibit in the gallery.
  • Paul will continue to produce his artwork and exhibit and sell in the gallery.
  • Weekend gallery exhibitions of owners’ and students’ work will encourage the sale of finished works and supplies and registration of new students.

5.4 Milestones

We have set some milestones to help us focus on needed projects and to keep us on track to complete them.

Milestones
Milestone Start Date End Date Budget Manager Department
New Flooring 9/1/1997 9/1/1997 $2,800 PN & HRN N/A
Storage Racks for Canvases 4/1/1997 4/1/1997 $1,000 PN & HRN N/A
Yellow Pages Ad 3/9/1997 3/9/1997 $65 PN & HRN N/A
Seating for Seniors 4/1/1997 4/1/1997 $750 PN & HRN N/A
Printing, L-head, Brochure 2/15/1997 2/15/1997 $800 PN & HRN N/A
Brochure at Yankee D., etc. 4/1/1997 4/1/1997 $0 PN & HRN N/A
Open House Plans 4/1/1997 4/1/1997 $0 PN & HRN N/A
Ads Formulation (Spring Off) 4/15/1997 4/15/1997 $0 PN & HRN N/A
Finished Ads (Two Types) 5/1/1997 5/1/1997 $0 PN & HRN N/A
Finalize Spring Offensive 5/1/1997 5/1/1997 $0 PN & HRN N/A
Totals $5,415

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Management Summary

The ArtSphere is owned and operated by Paul Nash and Hannah Rogerson Nash. There are no plans to hire any employees.

Initially, Paul will provide the bulk of instruction. Hannah is currently employed at the Orchard School in Birmingham, and as ArtSphere’s class offerings fill, she intends to leave Orchard School to concentrate fully on ArtSphere.

Hannah and Paul will take minimal salaries during this start-up period to ensure adequate cash flow and cash balance.

Personnel Plan
Year 1 Year 2 Year 3
Hannah $16,000 $26,400 $22,990
Paul $20,000 $26,400 $29,040
Other $0 $0 $0
Total People 0 0 0
Total Payroll $36,000 $52,800 $52,030

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Financial Plan

The following subtopics present our financial plan.

7.1 Break-even Analysis

The following table and chart summarize our break-even analysis.

Art school gallery business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $6,673
Assumptions:
Average Percent Variable Cost 11%
Estimated Monthly Fixed Cost $5,942

7.2 Projected Profit and Loss

Our projected profit and loss is shown in the following table and charts.

Art school gallery business plan, financial plan chart image

Art school gallery business plan, financial plan chart image

Art school gallery business plan, financial plan chart image

Art school gallery business plan, financial plan chart image

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $129,920 $232,048 $250,848
Direct Cost of Sales $14,230 $27,666 $29,766
Other $0 $0 $0
Total Cost of Sales $14,230 $27,666 $29,766
Gross Margin $115,690 $204,382 $221,082
Gross Margin % 89.05% 88.08% 88.13%
Expenses
Payroll $36,000 $52,800 $52,030
Sales and Marketing and Other Expenses $11,129 $21,626 $23,876
Depreciation $1,892 $2,067 $2,067
Leased Equipment $0 $0 $0
Utilities (Gas & Elec.) $1,642 $1,642 $1,642
Insurance $540 $540 $540
Rent $14,700 $14,700 $14,700
Payroll Taxes $5,400 $7,920 $7,805
Other $0 $0 $0
Total Operating Expenses $71,303 $101,295 $102,660
Profit Before Interest and Taxes $44,387 $103,087 $118,423
EBITDA $46,279 $105,154 $120,490
Interest Expense $0 $0 $0
Taxes Incurred $15,508 $36,080 $40,954
Net Profit $28,879 $67,007 $77,468
Net Profit/Sales 22.23% 28.88% 30.88%

7.3 Projected Cash Flow

The following chart and table show our projected cash flow.

Art school gallery business plan, financial plan chart image

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $129,920 $232,048 $250,848
Subtotal Cash from Operations $129,920 $232,048 $250,848
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 $129,920 $232,048 $250,848
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $36,000 $52,800 $52,030
Bill Payments $57,136 $111,363 $119,017
Subtotal Spent on Operations $93,136 $164,163 $171,047
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
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 $93,136 $164,163 $171,047
Net Cash Flow $36,784 $67,885 $79,801
Cash Balance $36,784 $104,669 $184,470

7.4 Projected Balance Sheet

The following table outlines our projected balance sheet.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $36,784 $104,669 $184,470
Inventory $2,267 $4,407 $4,741
Other Current Assets $0 $0 $0
Total Current Assets $39,050 $109,076 $189,211
Long-term Assets
Long-term Assets $6,200 $6,200 $6,200
Accumulated Depreciation $1,892 $3,959 $6,026
Total Long-term Assets $4,308 $2,241 $174
Total Assets $43,358 $111,317 $189,385
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $8,280 $9,231 $9,832
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $8,280 $9,231 $9,832
Long-term Liabilities $0 $0 $0
Total Liabilities $8,280 $9,231 $9,832
Paid-in Capital $8,265 $8,265 $8,265
Retained Earnings ($2,065) $26,814 $93,820
Earnings $28,879 $67,007 $77,468
Total Capital $35,079 $102,085 $179,553
Total Liabilities and Capital $43,358 $111,317 $189,385
Net Worth $35,079 $102,085 $179,553

7.5 Business Ratios

The following table compares computed standard business rations for this plan against averaged ratios for the Fine Arts Schools industry, NAICS code 611610.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 78.61% 8.10% 4.59%
Percent of Total Assets
Inventory 5.23% 3.96% 2.50% 2.25%
Other Current Assets 0.00% 0.00% 0.00% 36.99%
Total Current Assets 90.06% 97.99% 99.91% 44.98%
Long-term Assets 9.94% 2.01% 0.09% 55.02%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 19.10% 8.29% 5.19% 23.64%
Long-term Liabilities 0.00% 0.00% 0.00% 33.36%
Total Liabilities 19.10% 8.29% 5.19% 57.00%
Net Worth 80.90% 91.71% 94.81% 43.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 89.05% 88.08% 88.13% 100.00%
Selling, General & Administrative Expenses 66.84% 59.20% 57.45% 63.44%
Advertising Expenses 2.10% 1.24% 1.15% 4.51%
Profit Before Interest and Taxes 34.16% 44.42% 47.21% 3.46%
Main Ratios
Current 4.72 11.82 19.25 1.20
Quick 4.44 11.34 18.76 0.82
Total Debt to Total Assets 19.10% 8.29% 5.19% 59.16%
Pre-tax Return on Net Worth 126.54% 100.98% 65.95% 4.27%
Pre-tax Return on Assets 102.37% 92.61% 62.53% 10.46%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 22.23% 28.88% 30.88% n.a
Return on Equity 82.33% 65.64% 43.14% n.a
Activity Ratios
Inventory Turnover 9.47 8.29 6.51 n.a
Accounts Payable Turnover 7.90 12.17 12.17 n.a
Payment Days 27 28 29 n.a
Total Asset Turnover 3.00 2.08 1.32 n.a
Debt Ratios
Debt to Net Worth 0.24 0.09 0.05 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $30,771 $99,844 $179,379 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.33 0.48 0.75 n.a
Current Debt/Total Assets 19% 8% 5% n.a
Acid Test 4.44 11.34 18.76 n.a
Sales/Net Worth 3.70 2.27 1.40 n.a
Dividend Payout 0.00 0.00 0.00 n.a

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Appendix

Sales Forecast
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Sales
Portrait Sales (HRN) 0% $650 $650 $650 $650 $650 $650 $650 $650 $650 $650 $650 $650
Artwork Sales (PN) 0% $300 $300 $300 $300 $300 $300 $300 $300 $300 $300 $300 $300
School-aged Classes 0% $3,000 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600
Retired/non-work Classes 0% $0 $0 $0 $0 $0 $3,160 $3,160 $3,160 $3,160 $3,160 $3,160 $6,320
Evening/working Classes 0% $0 $0 $3,584 $3,584 $3,584 $3,584 $3,584 $3,584 $3,584 $3,584 $3,584 $3,584
Sale of Art Supplies 0% $0 $0 $640 $640 $640 $1,240 $1,240 $1,240 $2,140 $2,140 $2,140 $2,740
Other 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Sales $3,950 $4,550 $8,774 $8,774 $8,774 $12,534 $12,534 $12,534 $13,434 $13,434 $13,434 $17,194
Direct Cost of Sales Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Portrait Sales (HRN) $98 $98 $98 $98 $98 $98 $98 $98 $98 $98 $98 $98
Artwork Sales (PN) $45 $45 $45 $45 $45 $45 $45 $45 $45 $45 $45 $45
School-aged Classes $270 $270 $270 $270 $270 $270 $270 $270 $0 $0 $0 $0
Retired/non-work Classes $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Evening/working Classes $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sale of Art Supplies $0 $0 $448 $448 $448 $868 $868 $868 $1,498 $1,498 $1,498 $1,918
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Direct Cost of Sales $413 $413 $861 $861 $861 $1,281 $1,281 $1,281 $1,641 $1,641 $1,641 $2,061
Personnel Plan
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Hannah 0% $0 $0 $500 $500 $1,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
Paul 0% $1,000 $1,000 $1,000 $1,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
Other 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total People 0 0 0 0 0 0 0 0 0 0 0 0
Total Payroll $1,000 $1,000 $1,500 $1,500 $3,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000

General Assumptions
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Plan Month 1 2 3 4 5 6 7 8 9 10 11 12
Current Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Tax Rate 30.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00%
Other 0 0 0 0 0 0 0 0 0 0 0 0

Pro Forma Profit and Loss
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Sales $3,950 $4,550 $8,774 $8,774 $8,774 $12,534 $12,534 $12,534 $13,434 $13,434 $13,434 $17,194
Direct Cost of Sales $413 $413 $861 $861 $861 $1,281 $1,281 $1,281 $1,641 $1,641 $1,641 $2,061
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Cost of Sales $413 $413 $861 $861 $861 $1,281 $1,281 $1,281 $1,641 $1,641 $1,641 $2,061
Gross Margin $3,538 $4,138 $7,914 $7,914 $7,914 $11,254 $11,254 $11,254 $11,794 $11,794 $11,794 $15,134
Gross Margin % 89.56% 90.93% 90.19% 90.19% 90.19% 89.78% 89.78% 89.78% 87.79% 87.79% 87.79% 88.02%
Expenses
Payroll $1,000 $1,000 $1,500 $1,500 $3,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000
Sales and Marketing and Other Expenses $400 $400 $400 $449 $1,593 $899 $899 $899 $2,043 $899 $899 $1,349
Depreciation $0 $172 $172 $172 $172 $172 $172 $172 $172 $172 $172 $172
Leased Equipment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Utilities (Gas & Elec.) $175 $175 $175 $175 $95 $75 $75 $75 $97 $175 $175 $175
Insurance $45 $45 $45 $45 $45 $45 $45 $45 $45 $45 $45 $45
Rent $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225
Payroll Taxes 15% $150 $150 $225 $225 $450 $600 $600 $600 $600 $600 $600 $600
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Operating Expenses $2,995 $3,167 $3,742 $3,791 $6,580 $7,016 $7,016 $7,016 $8,182 $7,116 $7,116 $7,566
Profit Before Interest and Taxes $543 $971 $4,172 $4,123 $1,334 $4,238 $4,238 $4,238 $3,612 $4,678 $4,678 $7,568
EBITDA $543 $1,143 $4,344 $4,295 $1,506 $4,410 $4,410 $4,410 $3,784 $4,850 $4,850 $7,740
Interest Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Taxes Incurred $163 $340 $1,460 $1,443 $467 $1,483 $1,483 $1,483 $1,264 $1,637 $1,637 $2,649
Net Profit $380 $631 $2,711 $2,680 $867 $2,754 $2,754 $2,754 $2,347 $3,040 $3,040 $4,919
Net Profit/Sales 9.61% 13.86% 30.90% 30.54% 9.88% 21.98% 21.98% 21.98% 17.47% 22.63% 22.63% 28.61%

Pro Forma Cash Flow
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Cash Received
Cash from Operations
Cash Sales $3,950 $4,550 $8,774 $8,774 $8,774 $12,534 $12,534 $12,534 $13,434 $13,434 $13,434 $17,194
Subtotal Cash from Operations $3,950 $4,550 $8,774 $8,774 $8,774 $12,534 $12,534 $12,534 $13,434 $13,434 $13,434 $17,194
Additional Cash Received
Sales Tax, VAT, HST/GST Received 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash Received $3,950 $4,550 $8,774 $8,774 $8,774 $12,534 $12,534 $12,534 $13,434 $13,434 $13,434 $17,194
Expenditures Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Expenditures from Operations
Cash Spending $1,000 $1,000 $1,500 $1,500 $3,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000
Bill Payments $105 $3,164 $3,375 $4,531 $4,572 $4,893 $5,429 $5,608 $5,664 $7,274 $6,222 $6,300
Subtotal Spent on Operations $1,105 $4,164 $4,875 $6,031 $7,572 $8,893 $9,429 $9,608 $9,664 $11,274 $10,222 $10,300
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Purchase Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Purchase Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash Spent $1,105 $4,164 $4,875 $6,031 $7,572 $8,893 $9,429 $9,608 $9,664 $11,274 $10,222 $10,300
Net Cash Flow $2,845 $386 $3,899 $2,743 $1,202 $3,641 $3,105 $2,926 $3,770 $2,160 $3,212 $6,894
Cash Balance $2,845 $3,231 $7,131 $9,873 $11,075 $14,716 $17,821 $20,748 $24,517 $26,677 $29,889 $36,784
Pro Forma Balance Sheet
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Assets Starting Balances
Current Assets
Cash $0 $2,845 $3,231 $7,131 $9,873 $11,075 $14,716 $17,821 $20,748 $24,517 $26,677 $29,889 $36,784
Inventory $0 $588 $1,175 $1,315 $1,454 $1,594 $1,409 $1,409 $1,409 $1,805 $1,805 $1,805 $2,267
Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Current Assets $0 $3,432 $4,406 $8,445 $11,327 $12,669 $16,125 $19,230 $22,156 $26,322 $28,482 $31,694 $39,050
Long-term Assets
Long-term Assets $6,200 $6,200 $6,200 $6,200 $6,200 $6,200 $6,200 $6,200 $6,200 $6,200 $6,200 $6,200 $6,200
Accumulated Depreciation $0 $0 $172 $344 $516 $688 $860 $1,032 $1,204 $1,376 $1,548 $1,720 $1,892
Total Long-term Assets $6,200 $6,200 $6,028 $5,856 $5,684 $5,512 $5,340 $5,168 $4,996 $4,824 $4,652 $4,480 $4,308
Total Assets $6,200 $9,632 $10,434 $14,301 $17,011 $18,181 $21,465 $24,398 $27,152 $31,146 $33,134 $36,174 $43,358
Liabilities and Capital Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Current Liabilities
Accounts Payable $0 $3,052 $3,224 $4,379 $4,410 $4,712 $5,242 $5,421 $5,421 $7,067 $6,014 $6,014 $8,280
Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Current Liabilities $0 $3,052 $3,224 $4,379 $4,410 $4,712 $5,242 $5,421 $5,421 $7,067 $6,014 $6,014 $8,280
Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Liabilities $0 $3,052 $3,224 $4,379 $4,410 $4,712 $5,242 $5,421 $5,421 $7,067 $6,014 $6,014 $8,280
Paid-in Capital $8,265 $8,265 $8,265 $8,265 $8,265 $8,265 $8,265 $8,265 $8,265 $8,265 $8,265 $8,265 $8,265
Retained Earnings ($2,065) ($2,065) ($2,065) ($2,065) ($2,065) ($2,065) ($2,065) ($2,065) ($2,065) ($2,065) ($2,065) ($2,065) ($2,065)
Earnings $0 $380 $1,011 $3,722 $6,402 $7,268 $10,023 $12,777 $15,532 $17,879 $20,919 $23,960 $28,879
Total Capital $6,200 $6,580 $7,211 $9,922 $12,602 $13,468 $16,223 $18,977 $21,732 $24,079 $27,119 $30,160 $35,079
Total Liabilities and Capital $6,200 $9,632 $10,434 $14,301 $17,011 $18,181 $21,465 $24,398 $27,152 $31,146 $33,134 $36,174 $43,358
Net Worth $6,200 $6,580 $7,211 $9,922 $12,602 $13,468 $16,223 $18,977 $21,732 $24,079 $27,119 $30,160 $35,079

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