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Children's Education & Recreation icon Children's Recreation Center Business Plan

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Cabin Fever

Executive Summary

This plan provides detailed information on the initial establishment and operation of Cabin Fever – Child Fun Center. The plan outlines the plans for business growth, methods, procedures for operation, and infrastructure.

Cabin Fever will offer young families in Bemidji, MN and the surrounding area a quality family recreation center, with jungle gyms, soft contained play structures, slides, and imagination-inspiring play areas for children ages 2 to 5. All equipment is safety-tested and approved, employees are trained in child safety and first aid. Parents will have special seating areas where they can watch their children play actively and safely, even in the coldest, darkest months of winter, and can purchase snacks and drinks from a limited selection while they wait.

Brian Solum (owner) and Derek Giesbrecht (advisor) are responsible for the design, building, and development of the daily operations outlined in this plan. Derek is the President of Soft Play, LLC, a leading indoor playground manufacturer, and has been in the Active Play industry for many years. He has established Soft Play as the leader in the Family Entertainment Industry. Brian is a former real estate agent, a father of four, and has over seven years of experience in the child care industry. Brian will be supported by a team-oriented and customer-focused staff. Cabin Fever will retain the services of a CPA firm to perform professional company audits, prepare taxes and payroll, and serve as a business consultant to assist in setting achievable long-range strategic goals.

Based on the current prices in the child recreation market, Cabin Fever has the potential to make sales of $158,000 the first year. With good management, we expect a revenue growth of five percent annually. The following ratios apply in the first year:

  • Gross Margin above 95%
  • Net Profit Margin above 12%
  • Pre-tax Return on Assets over 20%
  • Net Worth over $76,000 by year three

We will minimize risk factors to Cabin Fever’s success by:

  1. Obtaining sufficient capital to build and cover expenses of initial operation. All investor capital will be held in escrow until the project is totally funded.
  2. Minimizing overhead costs, which increases the bottom line profit.
  3. Building a sufficient customer base. We have determined an excellent location using demographics, and our aggressive marketing program will ensure the desired results.
  4. Establishing community involvement to demonstrate how the business will contribute to a better quality of life.
  5. All payments will be cash or check, which eliminates the need for invoicing and collections.

Childrens recreation center business plan, executive summary chart image

1.1 Mission

  1. To provide the greater Bemidji area with a safe, fun, exciting (and profitable) child entertainment facility for children ages 2-5, and their parents, which will help children grow physically, emotionally and mentally through interactive play with their parents, peers and the facility itself.
  2. To listen intently to customer needs regarding the entertainment, activities and facilities relating to safety, environment and services and act accordingly with respect to those needs.
  3. Develop a system of safety, security and accountability on the property between the staff, paying clientele and the general public.

1.2 Keys to Success

  1. Location
  2. Service
  3. Safety
  4. Cash

1.3 Objectives

  1. Attract 30% of my target market to use “Cabin Fever” 1.5 times per month in the 1st year. Based upon the most recent census and demographic statistics available for this region, achieving this objective would mean attracting 3,600 paying children and 1,080 adults through the door the 1st year.
  2. Gain market share of 40% by 3rd year.
  3. Reduce debt load 37% by end of 3rd year.
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Company Summary

Cabin Fever – Child Fun Center is a start-up business that will be owned, operated and managed by Brian Solum. Cabin Fever is an adult supervised children’s play center that offers a series of parent/child activities devoted to the physical, emotional and social development of children. We plan to offer a large, full scale play structure for the child and a smaller play structure for toddlers. In addition, we will also offer nominal vending, snacks and beverages for customers. The facilities are designed to entertain, exercise and stimulate children while reinforcing good social skills in a group play environment.

Cabin Fever offers a unique service in that there is no other program like it in the city of Bemidji or outlying areas. Though the city does have a restaurant with a small scale facility and run some classes for children through their parks and recreation department along with a gymnastics facility open to the public, they are not part of a comprehensive program for kids and parents. Cabin Fever will be a year round, indoor facility that hopes to be located in the booming commercial center northwest of town.

Over the past five years, there has been tremendous housing growth in the Bemidji area. Most these units are being bought or rented by families with young children. Brian Solum is starting Cabin Fever to offer parents and children a safe and exciting environment in which to spend time together and play.

Brian is a parent of three boys and has over seven years experience in the child care industry. He also has four years in a customer service based profession (real estate sales) with an additional two years sales management experience so he is currently capable of handling the sales/management, finance/administration and safety/customer relations areas, respectively.

  • Working Name: Cabin Fever – Child Fun Center
  • Location: Hoping for northwest Bemidji location near major shopping area, motels and airport.
  • History: Start-up business for Bemidji, MN but this type of business has been successful in over 8,500 cities in the US and is also internationally in the UK, Spain, Australia, Canada, France and Japan.
  • Services: Active Play = Fun, physical, social and mental entertainment to kids and parents along with modest food/beverage sales.
  • Customers: Children ages 2-5 and their parents.

2.1 Start-up Summary

The start-up expenses for Cabin Fever include, play equipment, payroll, utilities, legal services, debt service and office materials needed for the facility. Brian Solum will invest $32,000. In addition, Brian will secure up to $100,800 in long-term financing to fund the enterprise. We will incur another $8,000 in short-term debt to finish financing.

Long-term assets includes most play equipment, and a larger service counter for the cafe area. Current assets includes furniture, lighting fixtures, some of the less durable play equipment, and appliances for the cafe area.

Childrens recreation center business plan, company summary chart image

Start-up Funding
Start-up Expenses to Fund $17,800
Start-up Assets to Fund $123,000
Total Funding Required $140,800
Assets
Non-cash Assets from Start-up $115,000
Cash Requirements from Start-up $8,000
Additional Cash Raised $0
Cash Balance on Starting Date $8,000
Total Assets $123,000
Liabilities and Capital
Liabilities
Current Borrowing $8,000
Long-term Liabilities $100,800
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $108,800
Capital
Planned Investment
Brian Solum $32,000
Other $0
Additional Investment Requirement $0
Total Planned Investment $32,000
Loss at Start-up (Start-up Expenses) ($17,800)
Total Capital $14,200
Total Capital and Liabilities $123,000
Total Funding $140,800
Start-up
Requirements
Start-up Expenses
Legal $2,000
Stationery etc. $250
Brochures / Advertising $1,500
Insurance $1,200
Payroll $2,400
Utilities / Phone $1,450
Research and Development $2,000
Expensed Play/Operating Equipment $5,000
Office Supplies $2,000
Total Start-up Expenses $17,800
Start-up Assets
Cash Required $8,000
Other Current Assets $25,000
Long-term Assets $90,000
Total Assets $123,000
Total Requirements $140,800

2.2 Company Ownership

Ownership and legal establishment is anticipated as a Sole Proprietorship and will be owned, operated and managed by Brian Solum with financial backing from a silent partner.

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Products and Services

The service I am selling is called “Active Play.”

Physical Active Play for children
Playing is fun at any age. If you don’t believe me, consider what you do to relieve the stress of an active day at work or school, or how you vacation, or what you spend your money on, if you have a hobby or interest. Or, if you have children, just watch how exuberant, carefree and energized they are when they are having a good time. However, there are other benefits to Active Play besides just having a good time.  Studies have shown that it is also a major factor in the appropriate mental, social, emotional and physical development of children.  When children are engaged in play, they are presented with various situations, interactions and challenges. As they develop competencies in these areas, they are honing the same social, mental and physical skills they’ll need in other aspects of life.

Vicarious Active Play for Parents
There was a saying in my house when I grew up:  “If mama ain’t happy, ain’t nobody happy.”  I think what was meant by this was that we could drive her nuts on occasion, and when she was “nuts” we all suffered.  Those occasions were typically when, as children, we were bored or stuck in the house.  Therefore, I believe that this business is also selling fun, rest, and a social outlet for parents. When the kids are occupied, happy parents can enjoy a book, the newspaper, or a friend’s conversation over a cup of coffee or lunch. However, parents are also encouraged to participate with their children on the equipment themselves. Due to the nature and size of some equipment, it is able to withstand and support adults. The youngest children, in particular, will be happiest and most secure when playing with a parent.

Coffee, tea, juice, and snacks
We have a small cafe area where parents can purchase food and drinks from a (very) small menu, including kid-friendly items like peanut butter and jelly or cheese and tomato sandwiches, animal crackers, fresh carrot and celery matchsticks, and muffins from a local bakery. The items are either pre-made or require very little assembly. It is important to us to offer only healthy and appropriate snacks. We are currently planning to offer only a couple different kinds of coffee and tea, but if we get enough interest, we may invest in an espresso machine later on, and train our part-time help as baristas, since the current trend toward gourmet coffees includes young parents.

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Market Analysis Summary

My market research was directly retrieved from the 2000 US Census, 2002 NARC Census and the BASC 2000 Demographics Study. Per the same data, and to get an accurate idea of current (2003) data, my totals incorporated the projected 1.3% annual growth rate to the demographics. My data was then targeted to the selected townships that use Bemidji for schooling and shopping. They were typically townships within a 24-mile radius around Bemidji. My projected income data from this demographic assumes that only one parent of the households will accompany their children to the facility.

4.1 Market Segmentation

My market demographic is 100% targeted to families, specifically, households with children in the 2 – 5 year-old age group in the Bemidji area.

Childrens recreation center business plan, market analysis summary chart image

Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
Children 1% 4,000 4,052 4,105 4,158 4,212 1.30%
Parents 1% 1,200 1,216 1,232 1,248 1,264 1.31%
Other 0% 0 0 0 0 0 0.00%
Total 1.30% 5,200 5,268 5,337 5,406 5,476 1.30%

4.2 Target Market Segment Strategy

Our research into the local market has indicated that a concentrated target marketing effort will yield the best results. We are therefore focusing on the 1,200 households surrounding Bemidji with 4,000 children between 2 and 5 years of age. Children in this age range are typically not yet in school yet, and in need of diverse means of recreation, including “play groups” with children of their parents’ friends. As members of this demographic, my wife and I fully understand the need and benefit of offering our children diverse recreational and physical outlets. From experience, this demographic will look for and seek out recreational opportunities for their children for not only the child’s benefit, but for the parent’s benefit as well. Out-of-home facilities that can entertain kids and give parents needed respite are in high demand.

This market is greatly under-served with respect to the services Cabin Fever plans to offer in the greater Bemidji area. The school system can provide this type of recreation to an extent, and there are some businesses that have recreational outlets. However, it is my observation that similar facilities are either too small, seasonal, have health hazards, or are not geared to younger children and their family. Winter is long here, and weather is unpredictable. “Cabin Fever” will be a preferred destination for families looking for something new, fun, and exciting for themselves and their children, especially if it promotes physical and social growth.

4.3 Service Business Analysis

About Soft Contained Play Equipment (Soft Play)

Soft Contained Play Equipment is a visually stimulating and mentally exciting configuration of tubes, slides, ladders, nets and mazes. It also incorporates devices which apply the kids’ own energies to make something move mechanically, like a sign or a front-end loader or a fire truck steering wheel. Some equipment is also designed to stimulate the child’s playful creativity such as the double-sided Fantasy Role Play Panel and the Magic Ball Popper. The whole approach of Soft Contained Play Equipment is to design their equipment through the eyes of a child. It is then developed through consultation with child development experts and adheres to ASTM F1918-98 safety requirements.

The Business

As previously mentioned, Cabin Fever is all about family recreation, specifically, child development and fun. As parents continue to look for fun and exciting activities for their kids the family entertainment center (FEC) has become increasingly popular. FECs have traditionally encompassed multiple attractions such as bowling, skating, mini-golf, batting cages, etc… but the one development that has really spurred the popularity of the FEC is soft contained play equipment. Soft contained play systems continue to be major draws to recent FECs. Kids love the fun and interactive play they provide, while parents appreciate the increased safety measures.

Local Competitors

There is a competitive market in the Family Recreation industry in Bemidji. Currently there is a roller-rink, seasonal water park, bowling ally, Gym-Bin, BSU Rec-center and a few city organized activities on a seasonal basis. However, there is no facility dedicated exclusively to building the social, physical, and mental interactions of children ages 2-5 and their parents in an exciting and stimulating environment.

4.3.1 Competition and Buying Patterns

Families make choices for family recreation activities based on cost, availability of activities appropriate for the entire household, and fun. Currently in Bemidji, activities for children under 5 are an after-thought. There may be a smaller wading pool at one end of the water park, or a special roller-skating class for 4 and 5 year olds. This discrepancy is most keenly felt by parents in the winter, when normal outdoor activities are curtailed for the youngest children. At the moment, parents of small children must choose between a small array of limited activities on a schedule not of their choosing, if they want any out-of-home play.

Safety is another major concern for parents of young children. Activities and venues that are perfectly safe for 10-year-olds may be extreme hazards for very young children. The need to be right next to their child during every moment of play in any of the existing offerings does not alow parents any respite or recreation.

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Strategy and Implementation Summary

Emphasize Customer Service
Cabin Fever will differentiate themselves from other facilities. We will establish our business offering as a clear and viable alternative for our target market.

Build a Relationship-Oriented Business
Build long-term relationships with clients, not just an occasional visit. Let them become dependent on Cabin Fever. Make them understand the value of our services.

Focus on Target Markets
We need to focus our offerings on the young family who want a place outside the home to have fun, relax, and experience top quality play equipment services.

Differentiate and Fulfill the Promise
We can’t just market and sell service, we have to deliver as well. We need to make sure we have the service-intensive business we claim to have.

5.1 Competitive Edge

Cabin Fever’s competitive edge is its positioning as a strategic ally with our customers. By building a business based on long-standing relationships with satisfied customers, we simultaneously build defenses against competition. The longer the relationship stands, the more we help our customers understand what we offer them and why they should both frequent Cabin Fever, and refer it to other families. In close-knit communities like Bemidji, reputation is extremely important, and word-of-mouth advertising is invaluable. The 2 other factors in our competitive edge are:

  • Location: Best location of any child type activity center — At the intersection of Interstate Highways 2 and 71 in the prime business district of the area.
  • Service: Equipment and facilities to appropriately entertain the age group as well amenities catering to adults and parents in the same building. No other indoor facility in Bemidji offers such diverse services and facilities under one roof.

I do not expect parents to choose Cabin Fever exclusively over these other facilities 100% of the time, but I do believe that Soft Play equipment would be the facility of choice for play groups, birthday parties, and child recreation in the Bemidji area. There is also the possibility of Social Government Services and other health professionals directing their clients to the facility for potential therapy issues.

5.2 Marketing Strategy

Technically, my customers can come from anywhere: male and female, all races, every income level, and can be local residents or tourists to the area. That is why our marketing plan will start at the construction phase; by keeping in mind: if it looks fun, people will come. Thus the main factor to success is demonstrating that a person can enjoy themselves at the center while participating in an activity they choose. Realistically, I expect that initial customers will be more educated and affluent than the area’s average, since those types of family are generally the most concerned with providing appropriate stimulation for their very young children. We will therefore make sure to post flyers and advertisements where this group can see them.

By being on site full-time for the first year, I can make sure that customers are satisfied and can also gather information from them about the types of entertainment they most desire. This type of first-hand market research will prove invaluable in attracting more customers and retaining existing ones. A good experience for parents and children will produce best kind of advertising: word-of-mouth recommendations.

We will supplement this informal marketing with announcements, advertisements in the local newspapers and our website:

  • Print Advertising: The Bemidji Pioneer, our local daily newspaper with a circulation of over 22,000, will feature daily ads 2 weeks prior to grand opening and weekly ones thereafter.
  • Direct Mailing/Phone: Mailing lists relating to my target market are available and would be utilized weekly prior to and upon grand opening and on a monthly basis thereafter. Also, mailings and phone contact would be made to local youth organizations such as church groups, scouts and other social clubs that serve children.
  • Signage: Because Bemidji is a vacation destination, the tourism market could be substantial. Roadside billboards on Highways 71 and 2 would be implemented on the four major conduits into town. Also, all local hotels, motels and resorts would be solicited to provide signage.
  • Other Businesses: A relationship with the other businesses in town that cater to birthday parties (Party Store, Special Occasions, pizza restaurants) would be established to try and promote traffic to the facility. Advertising discounts will be offered in exchange for their service.

5.3 Sales Strategy

Cabin Fever will provide a venue in which young children can really enjoy their leisure time by participating in fun and exciting activities that require minimum strength or physical ability. Supported with great service and offered at competitive prices, I believe we have the winning combination.

Once customers choose to come to our location, they have already made a choice to buy our services. We get them there with marketing; we get them back again and again by continuing to offer high-quality, safe, and fun experiences for and with their young children. Our sales strategy involves continuing informal surveys of our customers about their preferences and needs, and keeping an open mind about changes in the adult areas. We may, in the future, institute a small cafe-type service, or offer space for young family book clubs, and so on, depending on feedback from parents.

5.3.1 Sales Forecast

My sales forecast assumes that, on average, 37% of my market (1,465 children, out of a possible 4,000) will visit 1.5 times per month, at an admission price per child of $4.75. We project that parents will spend an average of $4 per visit on food and beverages, at a 20% cost of goods. This would allow me an 80% markup on food and beverages, a reasonable amount given the savings we will get from doing prep work ourselves in the mornings.

Sales will be higher in the winter months, when outdoor competition and free activities are limited, and lower in the summer. In keeping with my sales goals, I anticipate reaching 40% of my market by the 3rd year.

Childrens recreation center business plan, strategy and implementation summary chart image

Childrens recreation center business plan, strategy and implementation summary chart image

Sales Forecast
Year 1 Year 2 Year 3
Sales
Child Admission $125,222 $131,483 $138,057
Additional Parent Spending $33,170 $34,829 $36,570
Total Sales $158,392 $166,312 $174,627
Direct Cost of Sales Year 1 Year 2 Year 3
Child Admission $0 $0 $0
Additional Parent Spending $6,634 $6,966 $7,314
Subtotal Direct Cost of Sales $6,634 $6,966 $7,314

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Web Plan Summary

We are currently working on developing a website for Cabin Fever. A friend of the family is doing the design work for free, and Brian’s wife (who has a thorough knowledge of HTML) will update the content regularly – we do not plan on including any e-commerce capabilities, since they are unnecessary; the website is primarily a marketing tool. We plan to launch our website early in 2005.

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Management Summary

Management: Initially, and for the first year, of operation I anticipate acting as owner/operator/manager. In the future, depending on cash flow or if a gap in service is identified, a FT manager would be implemented to work alongside myself and the rest of the team. Management will be responsible for overseeing all business aspects including but not limited to: Deposits, marketing, safety, scheduling, customer service and staff support and training, cleaning and general maintenance, food prep and service. Minimum qualifications are:

  1. Child Safety, First Aid / CPR certified
  2. Three years management experience
  3. Mature, responsible adult
  4. Enthusiastic, flexible and self motivated
  5. Knowledge of marketing
  6. High sense of professionalism

FT Employees: Based on my assumed hours of operation, I anticipate hiring one FT employee working a 45 hour week. I will look for adults interested and experienced with children who are child safety CPR and first aid certified. Responsibilities will include but are not limited to: Checking in and greeting customers as they arrive, general cleaning and light maintenance, food service. Minimum qualifications are:

  1. Mature, responsible adult
  2. Experience with children in a play setting
  3. Child Safety First Aid / CPR certified

PT Employees: Again, based on assumed hours of operation I anticipate needing at least two PT employees to fill potential gaps in busy times and work weekend hours. While the business could be run with one PT employee I would hire one extra in the need of special circumstances such as holiday, party or weekend crowds as well as filling in for illness and vacation possibilities. Responsibilities would include but not be limited to: Checking in and greeting customers as they arrive, general cleaning and light maintenance. Minimum qualifications would be:

  1. Mature, responsible adult
  2. Experience with children in a play setting
  3. Child Safety First Aid / CPR certified

7.1 Personnel Plan

The company will make gradual investments in personnel on a need basis, always keeping in mind the number of children and parents serviced at the facility with respect to cash flow. Additional full-time paid management will be addressed after the first year of operation and an additional PT employee is built in to the Personnel Table. As owner, I do plan on being on site full-time and will fill the managerial role.

I am committed to paying my employees a fair and equitable wage for their hard work, and giving them benefits such as sick time and vacation time.

Personnel Plan
Year 1 Year 2 Year 3
Owner/Manager $20,000 $25,000 $30,000
FT Employee $24,000 $25,000 $26,000
PT Employee $7,200 $7,200 $7,200
PT Employee $7,200 $7,200 $7,200
Other $0 $0 $0
Total People 4 4 4
Total Payroll $58,400 $64,400 $70,400

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Financial Plan

The most important element in my financial plan is initiating, maintaining, and improving the factors that create, stabilize, and increase the cash flow. These items are:

  1. High visibility so as to create customer flow.
  2. A trained, enthusiastic and knowledgeable staff that answers to customer needs to keep them coming back again and again.
  3. Annual modernization and update of the facility equipment to create new experiences for children.

8.1 Important Assumptions

Commercial lending is currently set at 7% for long term (20 year) lending.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 7.00% 7.00% 7.00%
Long-term Interest Rate 7.00% 7.00% 7.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

8.2 Break-even Analysis

The Break Even chart assumes fixed monthly expenses of approximately $9,600. The expenses are the total of estimated monthly utilities, phone, payroll, legal, insurance, marketing and rent figures. Variable monthly costs are shown as a percentage of total sales. Average Monthly Sales for the first year are anticipated around $13,200 and the break even point would be at $10,069, leaving adequate room and cash flow for possible costs initially overlooked. These figures show a comfortable cushion for operating expenses.

Childrens recreation center business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $9,329
Assumptions:
Average Percent Variable Cost 4%
Estimated Monthly Fixed Cost $8,938

8.3 Projected Profit and Loss

The company will show a profit in the first year of operation. The yearly analysis is indicated in the table below, and the monthly analysis can be found in the appendix. Our most significant operating expenses will be payroll, marketing, and rent. We project a modest net profit increasing gradually over the next three years as we streamline operations.

Childrens recreation center business plan, financial plan chart image

Childrens recreation center business plan, financial plan chart image

Childrens recreation center business plan, financial plan chart image

Childrens recreation center business plan, financial plan chart image

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $158,392 $166,312 $174,627
Direct Cost of Sales $6,634 $6,966 $7,314
Other Costs of Goods $0 $0 $0
Total Cost of Sales $6,634 $6,966 $7,314
Gross Margin $151,758 $159,346 $167,313
Gross Margin % 95.81% 95.81% 95.81%
Expenses
Payroll $58,400 $64,400 $70,400
Marketing/Promotion $12,668 $13,089 $13,521
Depreciation $6,960 $7,000 $7,000
Rent $12,000 $12,000 $12,000
Utilities / Phone / Internet $7,680 $7,680 $7,680
Insurance $4,800 $4,800 $4,800
Payroll Taxes $0 $0 $0
CPA $3,000 $3,000 $3,000
Website hosting $250 $300 $325
Office Expenses $1,500 $1,500 $1,500
Total Operating Expenses $107,258 $113,769 $120,226
Profit Before Interest and Taxes $44,500 $45,577 $47,087
EBITDA $51,460 $52,577 $54,087
Interest Expense $7,105 $6,202 $5,259
Taxes Incurred $11,218 $11,812 $12,548
Net Profit $26,176 $27,562 $29,279
Net Profit/Sales 16.53% 16.57% 16.77%

8.4 Projected Cash Flow

Long Term Debt: My long term debt payments are based on a 10-year note, principle balance of $100,800 @ 7% interest. Principal repayments are shown below, while interest is listed in the profit and Loss. Although the yearly projections indicate a straight-line repayment, we may pay off more principal after year one, depending on cash flow.

Capital Improvements: Making changes to the play structure will need to occur as to keep the facility fresh and new for customers. These changes will take place on an annual basis after the first year with the liquidation of old play materials and the acquisition of new ones.

Childrens recreation center business plan, financial plan chart image

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $158,392 $166,312 $174,627
Subtotal Cash from Operations $158,392 $166,312 $174,627
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 $6,000 $6,000
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $158,392 $172,312 $180,627
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $58,400 $64,400 $70,400
Bill Payments $63,026 $65,644 $67,898
Subtotal Spent on Operations $121,426 $130,044 $138,298
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $2,665 $2,670 $2,665
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $10,800 $10,800 $10,800
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $12,000 $12,000
Dividends $0 $0 $0
Subtotal Cash Spent $134,891 $155,514 $163,763
Net Cash Flow $23,501 $16,798 $16,864
Cash Balance $31,501 $48,299 $65,163

8.5 Projected Balance Sheet

My Projected Balance Sheet shows that I should not have any difficulty meeting my debt obligations. My Marketing Plan should be sufficient to meet the projections. Most significantly, Cabin Fever’s net worth will increase to approximately $77,500 by year three.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $31,501 $48,299 $65,163
Other Current Assets $25,000 $19,000 $13,000
Total Current Assets $56,501 $67,299 $78,163
Long-term Assets
Long-term Assets $90,000 $102,000 $114,000
Accumulated Depreciation $6,960 $13,960 $20,960
Total Long-term Assets $83,040 $88,040 $93,040
Total Assets $139,541 $155,339 $171,203
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $3,830 $5,536 $5,585
Current Borrowing $5,335 $2,665 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $9,165 $8,201 $5,585
Long-term Liabilities $90,000 $79,200 $68,400
Total Liabilities $99,165 $87,401 $73,985
Paid-in Capital $32,000 $32,000 $32,000
Retained Earnings ($17,800) $8,376 $35,939
Earnings $26,176 $27,562 $29,279
Total Capital $40,376 $67,939 $97,218
Total Liabilities and Capital $139,541 $155,339 $171,203
Net Worth $40,376 $67,939 $97,218

8.6 Business Ratios

The following table outlines some of the more important ratios from the Recreation Center industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7999.

We project a higher ratio of long-term to short-term liabilities than is the industry standard. We also project higher expenses for operating expenses and advertising; part of this discrepancy is the result of being a start-up, with no existing reputation. Another is our committment to pay employees a fair wage with decent benefits, including sick time and vacation time. All asset to liability ratios indicate a high ability to pay our creditors.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 5.00% 5.00% 4.94%
Percent of Total Assets
Other Current Assets 17.92% 12.23% 7.59% 36.35%
Total Current Assets 40.49% 43.32% 45.66% 43.63%
Long-term Assets 59.51% 56.68% 54.34% 56.37%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 6.57% 5.28% 3.26% 21.68%
Long-term Liabilities 64.50% 50.99% 39.95% 31.17%
Total Liabilities 71.07% 56.26% 43.21% 52.85%
Net Worth 28.93% 43.74% 56.79% 47.15%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 95.81% 95.81% 95.81% 100.00%
Selling, General & Administrative Expenses 79.29% 79.24% 79.04% 76.74%
Advertising Expenses 4.42% 4.21% 4.01% 2.84%
Profit Before Interest and Taxes 28.09% 27.40% 26.96% 2.11%
Main Ratios
Current 6.16 8.21 14.00 1.05
Quick 6.16 8.21 14.00 0.69
Total Debt to Total Assets 71.07% 56.26% 43.21% 62.49%
Pre-tax Return on Net Worth 92.62% 57.96% 43.02% 2.98%
Pre-tax Return on Assets 26.80% 25.35% 24.43% 7.95%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 16.53% 16.57% 16.77% n.a
Return on Equity 64.83% 40.57% 30.12% n.a
Activity Ratios
Accounts Payable Turnover 17.45 12.17 12.17 n.a
Payment Days 27 25 30 n.a
Total Asset Turnover 1.14 1.07 1.02 n.a
Debt Ratios
Debt to Net Worth 2.46 1.29 0.76 n.a
Current Liab. to Liab. 0.09 0.09 0.08 n.a
Liquidity Ratios
Net Working Capital $47,336 $59,099 $72,578 n.a
Interest Coverage 6.26 7.35 8.95 n.a
Additional Ratios
Assets to Sales 0.88 0.93 0.98 n.a
Current Debt/Total Assets 7% 5% 3% n.a
Acid Test 6.16 8.21 14.00 n.a
Sales/Net Worth 3.92 2.45 1.80 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
Child Admission 0% $8,550 $9,894 $10,986 $12,456 $13,296 $12,944 $11,532 $9,908 $9,740 $9,880 $7,962 $8,074
Additional Parent Spending 0% $2,160 $2,711 $3,244 $3,574 $3,840 $3,498 $2,442 $2,410 $2,646 $2,659 $1,962 $2,026
Total Sales $10,710 $12,605 $14,230 $16,030 $17,136 $16,442 $13,974 $12,318 $12,386 $12,539 $9,924 $10,100
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
Child Admission $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Additional Parent Spending $432 $542 $649 $715 $768 $700 $488 $482 $529 $532 $392 $405
Subtotal Direct Cost of Sales $432 $542 $649 $715 $768 $700 $488 $482 $529 $532 $392 $405
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
Owner/Manager 0% $0 $0 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
FT Employee 0% $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
PT Employee 0% $600 $600 $600 $600 $600 $600 $600 $600 $600 $600 $600 $600
PT Employee 0% $600 $600 $600 $600 $600 $600 $600 $600 $600 $600 $600 $600
Other 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total People 4 4 4 4 4 4 4 4 4 4 4 4
Total Payroll $3,200 $3,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200

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 $10,710 $12,605 $14,230 $16,030 $17,136 $16,442 $13,974 $12,318 $12,386 $12,539 $9,924 $10,100
Direct Cost of Sales $432 $542 $649 $715 $768 $700 $488 $482 $529 $532 $392 $405
Other Costs of Goods $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Cost of Sales $432 $542 $649 $715 $768 $700 $488 $482 $529 $532 $392 $405
Gross Margin $10,278 $12,063 $13,581 $15,315 $16,368 $15,742 $13,485 $11,836 $11,857 $12,007 $9,531 $9,694
Gross Margin % 95.97% 95.70% 95.44% 95.54% 95.52% 95.75% 96.51% 96.09% 95.73% 95.76% 96.05% 95.99%
Expenses
Payroll $3,200 $3,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200
Marketing/Promotion 8% $857 $1,008 $1,138 $1,282 $1,370 $1,315 $1,118 $985 $990 $1,003 $794 $808
Depreciation $580 $580 $580 $580 $580 $580 $580 $580 $580 $580 $580 $580
Rent $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
Utilities / Phone / Internet $640 $640 $640 $640 $640 $640 $640 $640 $640 $640 $640 $640
Insurance $1,200 $0 $0 $1,200 $0 $0 $1,200 $0 $0 $1,200 $0 $0
Payroll Taxes 15% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
CPA $250 $250 $250 $250 $250 $250 $250 $250 $250 $250 $250 $250
Website hosting 15% $0 $0 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25
Office Expenses $125 $125 $125 $125 $125 $125 $125 $125 $125 $125 $125 $125
Total Operating Expenses $7,852 $6,803 $8,958 $10,302 $9,190 $9,135 $10,138 $8,805 $8,810 $10,023 $8,614 $8,628
Profit Before Interest and Taxes $2,426 $5,260 $4,623 $5,013 $7,178 $6,607 $3,347 $3,031 $3,047 $1,984 $917 $1,066
EBITDA $3,006 $5,840 $5,203 $5,593 $7,758 $7,187 $3,927 $3,611 $3,627 $2,564 $1,497 $1,646
Interest Expense $628 $622 $615 $608 $602 $595 $589 $582 $576 $569 $563 $556
Taxes Incurred $539 $1,392 $1,202 $1,321 $1,973 $1,804 $828 $735 $741 $425 $106 $153
Net Profit $1,259 $3,247 $2,805 $3,083 $4,603 $4,208 $1,931 $1,714 $1,730 $991 $248 $357
Net Profit/Sales 11.75% 25.76% 19.72% 19.23% 26.86% 25.59% 13.82% 13.91% 13.97% 7.90% 2.50% 3.54%

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 $10,710 $12,605 $14,230 $16,030 $17,136 $16,442 $13,974 $12,318 $12,386 $12,539 $9,924 $10,100
Subtotal Cash from Operations $10,710 $12,605 $14,230 $16,030 $17,136 $16,442 $13,974 $12,318 $12,386 $12,539 $9,924 $10,100
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 $10,710 $12,605 $14,230 $16,030 $17,136 $16,442 $13,974 $12,318 $12,386 $12,539 $9,924 $10,100
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 $3,200 $3,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $5,200
Bill Payments $189 $5,668 $5,581 $5,695 $7,153 $6,743 $6,447 $6,215 $4,825 $4,906 $5,706 $3,898
Subtotal Spent on Operations $3,389 $8,868 $10,781 $10,895 $12,353 $11,943 $11,647 $11,415 $10,025 $10,106 $10,906 $9,098
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 $222 $222 $222 $222 $222 $222 $222 $222 $222 $222 $222 $223
Other Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $900 $900 $900 $900 $900 $900 $900 $900 $900 $900 $900 $900
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 $4,511 $9,990 $11,903 $12,017 $13,475 $13,065 $12,769 $12,537 $11,147 $11,228 $12,028 $10,221
Net Cash Flow $6,199 $2,615 $2,327 $4,013 $3,661 $3,377 $1,205 ($219) $1,239 $1,311 ($2,105) ($121)
Cash Balance $14,199 $16,814 $19,141 $23,154 $26,815 $30,192 $31,396 $31,177 $32,416 $33,727 $31,622 $31,501

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 $8,000 $14,199 $16,814 $19,141 $23,154 $26,815 $30,192 $31,396 $31,177 $32,416 $33,727 $31,622 $31,501
Other Current Assets $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000
Total Current Assets $33,000 $39,199 $41,814 $44,141 $48,154 $51,815 $55,192 $56,396 $56,177 $57,416 $58,727 $56,622 $56,501
Long-term Assets
Long-term Assets $90,000 $90,000 $90,000 $90,000 $90,000 $90,000 $90,000 $90,000 $90,000 $90,000 $90,000 $90,000 $90,000
Accumulated Depreciation $0 $580 $1,160 $1,740 $2,320 $2,900 $3,480 $4,060 $4,640 $5,220 $5,800 $6,380 $6,960
Total Long-term Assets $90,000 $89,420 $88,840 $88,260 $87,680 $87,100 $86,520 $85,940 $85,360 $84,780 $84,200 $83,620 $83,040
Total Assets $123,000 $128,619 $130,654 $132,401 $135,834 $138,915 $141,712 $142,336 $141,537 $142,196 $142,927 $140,242 $139,541
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 $5,482 $5,392 $5,456 $6,928 $6,528 $6,238 $6,054 $4,663 $4,714 $5,576 $3,766 $3,830
Current Borrowing $8,000 $7,778 $7,556 $7,334 $7,112 $6,890 $6,668 $6,446 $6,224 $6,002 $5,780 $5,558 $5,335
Other Current Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Current Liabilities $8,000 $13,260 $12,948 $12,790 $14,040 $13,418 $12,906 $12,500 $10,887 $10,716 $11,356 $9,324 $9,165
Long-term Liabilities $100,800 $99,900 $99,000 $98,100 $97,200 $96,300 $95,400 $94,500 $93,600 $92,700 $91,800 $90,900 $90,000
Total Liabilities $108,800 $113,160 $111,948 $110,890 $111,240 $109,718 $108,306 $107,000 $104,487 $103,416 $103,156 $100,224 $99,165
Paid-in Capital $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000
Retained Earnings ($17,800) ($17,800) ($17,800) ($17,800) ($17,800) ($17,800) ($17,800) ($17,800) ($17,800) ($17,800) ($17,800) ($17,800) ($17,800)
Earnings $0 $1,259 $4,505 $7,311 $10,394 $14,997 $19,205 $21,136 $22,850 $24,580 $25,571 $25,819 $26,176
Total Capital $14,200 $15,459 $18,705 $21,511 $24,594 $29,197 $33,405 $35,336 $37,050 $38,780 $39,771 $40,019 $40,376
Total Liabilities and Capital $123,000 $128,619 $130,654 $132,401 $135,834 $138,915 $141,712 $142,336 $141,537 $142,196 $142,927 $140,242 $139,541
Net Worth $14,200 $15,459 $18,705 $21,511 $24,594 $29,197 $33,405 $35,336 $37,050 $38,780 $39,771 $40,019 $40,376

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