Bridal Shop Business Plan

Bride’s Entourage expects to be profitable by the end of its second year of operations. To get the business up and running, we will need to obtain financing. The initial market share will be modest; however, significant growth in market share is expected due to the unique niche that the shop is targeting. The market share is expected to grow at a more modest rate after year three.

8.1 Important Assumptions

The following assumptions are key to understanding the profit and loss projections.

• We do not sell anything on credit – all items must be paid in full before they are taken from the store. 
• We are estimating that 80% of the purchases will be made with credit cards. The credit card fees are calculated as 80% of the sales, times 1.8 percent (the fee rate). 
• Cost of sales for the clothing items has a two month delay. This is because most clothing items will be custom ordered and, as a result, Bride’s Entourage will not have to pay for them until they arrive about two months after they are ordered.

8.2 Break-even Analysis

For the break-even analysis, the following assumptions were used:

1. Fixed costs per month are estimated as total first year operating expenses divided by 12.
2. For each item sold, there is a variable price equal to about 43% of the retail price of the item.

8.3 Projected Profit and Loss

We expect losses in the first year, because it will take time for the store to build momentum and generate traffic. However, once sales increase, the results are positive because many of the other expenses will remain fixed. In fact, we expect that sample inventory costs will actually go down in years to come. Some designers will provide sample inventory at deep discounts and/or provide the samples free of charge once good credit terms are established. As a result, the annual expenditures for sample inventory should decrease.

8.4 Projected Cash Flow

The cash flow of Bride’s Entourage is somewhat unique. For items that are sold off the floor, the cash flow and revenue recognition is traditional, in that full payment is received at the time of the sale, and the customer takes possession of the item at that time. This is how most of the shoe sales will take place, as well as some of the other accessory purchases.

However, most of the other items in the store have a different flow. Let’s use a dress as an example. The customer will try on a sample in the store, and when she decides to purchase the item, she will most likely have to order it in the size and color of her choosing. For this process to begin, the customer must provide a deposit of at least 50% of the total price of the item (note: while some customers may choose to pay the full amount at the time the order is placed, these illustrations assume that everyone will choose the 50% option). The remaining balance will be due within thirty days of when the item arrives in our store.

This timing issue has also been taken into consideration for the costs of goods sold. The store will be billed for items when the items are shipped, thus cash outflow for the cost of the item will closely match the cash inflow of the customer paying the balance on the item.

8.5 Projected Balance Sheet

Bride’s Entourage maintains a strong current ratio throughout. While the net worth of the business is negative in year one, it makes steady gains and becomes positive in year two. By the end of year three, retained earnings is also close to being positive.

8.6 Business Ratios

The following table breaks down some of the key financial ratios. Where available, industry averages for Bridal Shops – SIC code 5621.0102, are shown for comparison.