Hart Fraeme Gallery will secure a short-term loan to purchase essential equipment and inventory. By opening for business at the start of the industry's busy season, the company expects to operate for several months with a positive cash influx. This will make it possible for Hart Fraeme Gallery to meet its financial obligations for the remainder of the year.
The company also expects to be able to increase consumer awareness and its customer base to maintain a healthy level of growth over the next several years. This will be made possible through advertising, as well as through word-of-mouth recommendations by exceeding industry standards and customer expectations for order completion time.
Finally, Hart Fraeme Gallery will minimize costs by using its small business, personal nature to build and maintain an enthusiastic, dependable, and flexible workforce.
At this time, Mr. Fraeme has purchased and framed several pieces of artwork, and will provide many of the necessary tools and peripherial equipment for framing, as well as a vehicle to transport equipment and materials. He will also be providing office and break room furnishings, including a computer, tables, desks, chairs, filing cabinets and a refrigerator. In addition to these assets Mr. Fraeme will invest personal savings.
The computerized mat cutter, which represents roughly two-thirds of equipment costs, will be paid for in installments over a period of 48 months via a lease-to-own program, available through the manufacturer.
The initial inventory and materials will be purchased on Net-30 terms, with a possible financing option.
Financing will need to be secured for these and remaining expenses.
Hart Fraeme Gallery makes several important financial assumptions in this plan, as defined below:
For the purposes of a break-even analysis, Hart Fraeme Gallery assumes per month fixed operating costs as shown below. This includes payroll, rent, utilities, and other costs associated with operating an art gallery and custom frame shop. The analysis shows that $30,553 in sales is required to break even, which is roughly 11% below estimated monthly sales for the first year.
In terms of units sold, the business must achieve sales of roughly 3-4 frame orders and 1-3 pieces of artwork on an average day. Because these numbers are approximately 15%-30% below industry norms, Hart Fraeme Gallery is confident that it can maintain its break-even figures.
Hart Fraeme Gallery makes several important assumptions in calculating profit and loss:
The cash flow estimations for Hart Fraeme Gallery hinge on the assumption that the influx of cash from September till February will be strong enough to maintain a positive balance for the remainder of the year. This is especially crucial in the first year, since Hart Fraeme Gallery will not be able to rely on profits from the previous.
Hart Fraeme Gallery is able to employ an effective system to help with cash-flow management. Given the nature of custom framing and the broad scope of materials available, it is most practical to purchase materials for framing after an order has been placed. Combined with the current system for payment on custom framing orders, (50% due on order, with the remainder due upon receipt) this system is advantageous for cash-flow management.
The figures in the Projected Balance Sheet are promising, indicating a slow but steady increase in net worth. Hart Fraeme Gallery does not foresee any difficulty in meeting its financial obligations, provided that revenue predictions are met.
Over the next several years Hart Fraeme Gallery is poised to meet or exceed many of the industry-standard ratios. Nevertheless, there are some discrepancies in the ratio comparison; however, many of these can be explained by the fact that Hart Fraeme Gallery does business in two separate but related industries: art and framing. Because much of the business Hart Fraeme Gallery does will be custom framing, the ratios used for the industry standard are for picture framing, using the Standard Industrial Classification code 7699.1809. In some cases, the ratios for artwork sales are much different. The following ratios are particularly worth noting: