Java Culture will capitalize on the strong demand for high-quality gourmet coffee. The owners have provided the company with sufficient start-up capital. With successful management aimed at establishing and growing a loyal customer base, the company will see its net worth doubling in two years. Java Culture will maintain a healthy 65% gross margin, which combined with reasonable operating expenses, will provide enough cash to finance further growth.
7.1 Important Assumptions
General Assumptions
Year 1
Year 2
Year 3
Plan Month
1
2
3
Current Interest Rate
10.00%
10.00%
10.00%
Long-term Interest Rate
10.00%
10.00%
10.00%
Tax Rate
25.42%
25.00%
25.42%
Other
0
0
0
7.2 Projected Cash Flow
As the chart and table below present, the company will maintain a healthy cash flow position, which will allow for timely debt servicing and funds available for future development.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Cash Received
Cash from Operations
Cash Sales
$584,000
$642,400
$706,640
Subtotal Cash from Operations
$584,000
$642,400
$706,640
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
$584,000
$642,400
$706,640
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations
Cash Spending
$124,600
$143,800
$155,144
Bill Payments
$327,865
$388,715
$420,945
Subtotal Spent on Operations
$452,465
$532,515
$576,089
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out
$0
$0
$0
Principal Repayment of Current Borrowing
$3,300
$3,300
$3,300
Other Liabilities Principal Repayment
$0
$0
$0
Long-term Liabilities Principal Repayment
$0
$3,585
$3,961
Purchase Other Current Assets
$0
$0
$0
Purchase Long-term Assets
$0
$2,000
$2,000
Dividends
$0
$0
$0
Subtotal Cash Spent
$455,765
$541,400
$585,350
Net Cash Flow
$128,235
$101,000
$121,290
Cash Balance
$195,358
$296,358
$417,648
7.3 Key Financial Indicators
7.4 Break-even Analysis
With average monthly fixed costs of $20,300 in FY2001 and an average margin of 65%, Java Culture's break-even sales volume is around $31,300 per month. As shown further, the company is expected to generate such sales volume from the outstart.
Break-even Analysis
Monthly Revenue Break-even
$31,247
Assumptions:
Average Percent Variable Cost
35%
Estimated Monthly Fixed Cost
$20,311
7.5 Projected Profit and Loss
Annual projected sales of $584,000 in FY2001 translate into $254.00 of sales per square foot, which is in line with the industry averages for this size of coffee bar. Overall, as the company gets established in the local market, its net profitability increases from 17.06% in FY2001 to 17.63% in FY2003. The table below outlines the projected Profit and Loss Statement for FY2001-2003.
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
$584,000
$642,400
$706,640
Direct Cost of Sales
$204,400
$224,840
$247,324
Other
$0
$0
$0
Total Cost of Sales
$204,400
$224,840
$247,324
Gross Margin
$379,600
$417,560
$459,316
Gross Margin %
65.00%
65.00%
65.00%
Expenses
Payroll
$124,600
$143,800
$155,144
Sales and Marketing and Other Expenses
$25,800
$27,600
$31,000
Depreciation
$5,400
$5,500
$5,500
Rent
$48,400
$52,800
$52,800
Rent
$6,000
$6,000
$6,000
Maintenance
$5,840
$6,424
$7,066
Utilities/Phone
$9,000
$9,500
$10,000
Payroll Taxes
$18,690
$21,570
$23,272
Other
$0
$0
$0
Total Operating Expenses
$243,730
$273,194
$290,782
Profit Before Interest and Taxes
$135,870
$144,366
$168,534
EBITDA
$141,270
$149,866
$174,034
Interest Expense
$2,821
$2,326
$1,618
Taxes Incurred
$33,740
$35,510
$42,424
Net Profit
$99,308
$106,530
$124,491
Net Profit/Sales
17.00%
16.58%
17.62%
7.6 Projected Balance Sheet
The company's net worth is expected to increase from approximately $212,000 by the end of FY2001 to approximately $443,000 in FY2003. The table below summarizes the projected balance sheets for this period.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Assets
Current Assets
Cash
$195,358
$296,358
$417,648
Inventory
$21,175
$23,293
$25,622
Other Current Assets
$0
$0
$0
Total Current Assets
$216,533
$319,651
$443,270
Long-term Assets
Long-term Assets
$59,170
$61,170
$63,170
Accumulated Depreciation
$5,400
$10,900
$16,400
Total Long-term Assets
$53,770
$50,270
$46,770
Total Assets
$270,303
$369,921
$490,040
Liabilities and Capital
Year 1
Year 2
Year 3
Current Liabilities
Accounts Payable
$31,974
$31,947
$34,836
Current Borrowing
$6,700
$3,400
$100
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$38,674
$35,347
$34,936
Long-term Liabilities
$20,000
$16,415
$12,454
Total Liabilities
$58,674
$51,762
$47,390
Paid-in Capital
$140,000
$140,000
$140,000
Retained Earnings
($27,680)
$71,628
$178,159
Earnings
$99,308
$106,530
$124,491
Total Capital
$211,628
$318,159
$442,650
Total Liabilities and Capital
$270,303
$369,921
$490,040
Net Worth
$211,628
$318,159
$442,650
7.7 Business Ratios
The table below outlines the company's business ratios. The last column represents industry average business ratios for Specialty Eating Places (SIC 5812).
Business planning has never been easier. With 500 complete sample plans, easy financials, and access anywhere, LivePlan turns your great idea into a great plan for success.
