Magnolia Inn
Financial Plan
The Magnolia Inn expects business to grow steadily until we are at an average of over 90% capacity for the year 2004 with a conservative capacity rate of 50% expected at times. We will be growing slowly with profits growing at a rate of about 10%. Expenses will be well managed, allowing Magnolia to make a profit even if the capacity rate drops as low as 50%.
8.1 Important Assumptions
The following critical assumptions will determine the potential for future success.
- A healthy economy that supports a moderate level of growth in our market.
- Keeping operating costs as low as possible, particularly in the areas of personnel and our ongoing monthly expenses.
| General Assumptions | |||
| Year 1 | Year 2 | Year 3 | |
| Plan Month | 1 | 2 | 3 |
| Current Interest Rate | 9.50% | 9.50% | 9.50% |
| Long-term Interest Rate | 8.50% | 8.50% | 8.50% |
| Tax Rate | 28.17% | 28.00% | 28.17% |
| Other | 0 | 0 | 0 |
8.2 Break-even Analysis
The following chart and table summarize our break-even analysis. Our fixed costs will be $17,000 per month at the onset and we expect to reach the break-even point within the first few months of operation.
| Break-even Analysis | |
| Monthly Revenue Break-even | $18,487 |
| Assumptions: | |
| Average Percent Variable Cost | 5% |
| Estimated Monthly Fixed Cost | $17,563 |
8.3 Projected Profit and Loss
The following represents the Projected Profit and Loss for the Magnolia Inn based on sales and expense projections for 2004 and beyond.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $341,830 | $376,013 | $413,614 |
| Direct Cost of Sales | $17,092 | $21,000 | $24,000 |
| Other Costs of Sales | $12,000 | $14,000 | $16,000 |
| Total Cost of Sales | $29,092 | $35,000 | $40,000 |
| Gross Margin | $312,739 | $341,013 | $373,614 |
| Gross Margin % | 91.49% | 90.69% | 90.33% |
| Expenses | |||
| Payroll | $105,000 | $117,000 | $119,000 |
| Sales and Marketing and Other Expenses | $12,000 | $14,000 | $16,000 |
| Depreciation | $0 | $0 | $0 |
| Rent | $48,000 | $48,000 | $48,000 |
| Utilities | $12,000 | $14,000 | $16,000 |
| Insurance | $6,000 | $7,000 | $8,000 |
| Payroll Taxes | $15,750 | $17,550 | $17,850 |
| Other | $12,000 | $3,000 | $0 |
| Total Operating Expenses | $210,750 | $220,550 | $224,850 |
| Profit Before Interest and Taxes | $101,989 | $120,463 | $148,764 |
| EBITDA | $101,989 | $120,463 | $148,764 |
| Interest Expense | $29,885 | $29,660 | $29,411 |
| Taxes Incurred | $20,188 | $25,425 | $33,618 |
| Net Profit | $51,916 | $65,378 | $85,736 |
| Net Profit/Sales | 15.19% | 17.39% | 20.73% |
8.4 Projected Cash Flow
The Cash Flow projections are outlined below. Again, these projections are based on our basic assumptions with revenue generation factors carrying the most significant weight regarding the outcome. We are anticipating that we will not need to invest any additional capital into the business with a healthy cash flow in place.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $341,830 | $376,013 | $413,614 |
| Subtotal Cash from Operations | $341,830 | $376,013 | $413,614 |
| 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 | $341,830 | $376,013 | $413,614 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $105,000 | $117,000 | $119,000 |
| Bill Payments | $169,225 | $193,409 | $207,626 |
| Subtotal Spent on Operations | $274,225 | $310,409 | $326,626 |
| 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 | $2,646 | $2,831 | $3,029 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $6,000 | $6,000 | $3,000 |
| Subtotal Cash Spent | $282,871 | $319,240 | $332,655 |
| Net Cash Flow | $58,959 | $56,773 | $80,959 |
| Cash Balance | $64,959 | $121,732 | $202,692 |
8.5 Projected Balance Sheet
The Balance Sheet in the following table shows sufficient growth and a very acceptable financial position. The monthly estimates are included and shown in the appendix.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $64,959 | $121,732 | $202,692 |
| Other Current Assets | $10,000 | $10,000 | $10,000 |
| Total Current Assets | $74,959 | $131,732 | $212,692 |
| Long-term Assets | |||
| Long-term Assets | $370,000 | $370,000 | $370,000 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $370,000 | $370,000 | $370,000 |
| Total Assets | $444,959 | $501,732 | $582,692 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $15,689 | $15,915 | $17,168 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $15,689 | $15,915 | $17,168 |
| Long-term Liabilities | $350,354 | $347,523 | $344,494 |
| Total Liabilities | $366,043 | $363,438 | $361,662 |
| Paid-in Capital | $65,000 | $65,000 | $65,000 |
| Retained Earnings | ($38,000) | $7,916 | $70,294 |
| Earnings | $51,916 | $65,378 | $85,736 |
| Total Capital | $78,916 | $138,294 | $221,030 |
| Total Liabilities and Capital | $444,959 | $501,732 | $582,692 |
| Net Worth | $78,916 | $138,294 | $221,030 |
8.6 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7011.0401, Bed and Breakfast Inns are shown for comparison.
The following will enable us to keep on track. If we fail in any of these areas we will need to re-evaluate our business mode:
- Month-to-month annual comparisons indicate an increase of 10% or greater.
- Do not depend on credit line to meet cash requirements.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 10.00% | 10.00% | 7.24% |
| Percent of Total Assets | ||||
| Other Current Assets | 2.25% | 1.99% | 1.72% | 22.48% |
| Total Current Assets | 16.85% | 26.26% | 36.50% | 27.08% |
| Long-term Assets | 83.15% | 73.74% | 63.50% | 72.92% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 3.53% | 3.17% | 2.95% | 14.60% |
| Long-term Liabilities | 78.74% | 69.26% | 59.12% | 32.80% |
| Total Liabilities | 82.26% | 72.44% | 62.07% | 47.40% |
| Net Worth | 17.74% | 27.56% | 37.93% | 52.60% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 91.49% | 90.69% | 90.33% | 100.00% |
| Selling, General & Administrative Expenses | 76.30% | 73.30% | 69.55% | 67.52% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 2.55% |
| Profit Before Interest and Taxes | 29.84% | 32.04% | 35.97% | 0.36% |
| Main Ratios | ||||
| Current | 4.78 | 8.28 | 12.39 | 1.00 |
| Quick | 4.78 | 8.28 | 12.39 | 0.76 |
| Total Debt to Total Assets | 82.26% | 72.44% | 62.07% | 59.90% |
| Pre-tax Return on Net Worth | 91.37% | 65.66% | 54.00% | 0.24% |
| Pre-tax Return on Assets | 16.20% | 18.10% | 20.48% | 0.60% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 15.19% | 17.39% | 20.73% | n.a |
| Return on Equity | 65.79% | 47.27% | 38.79% | n.a |
| Activity Ratios | ||||
| Accounts Payable Turnover | 11.79 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 30 | 29 | n.a |
| Total Asset Turnover | 0.77 | 0.75 | 0.71 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 4.64 | 2.63 | 1.64 | n.a |
| Current Liab. to Liab. | 0.04 | 0.04 | 0.05 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $59,270 | $115,817 | $195,524 | n.a |
| Interest Coverage | 3.41 | 4.06 | 5.06 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 1.30 | 1.33 | 1.41 | n.a |
| Current Debt/Total Assets | 4% | 3% | 3% | n.a |
| Acid Test | 4.78 | 8.28 | 12.39 | n.a |
| Sales/Net Worth | 4.33 | 2.72 | 1.87 | n.a |
| Dividend Payout | 0.12 | 0.09 | 0.03 | n.a |
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