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Flash Commercial Photography

Financial Plan

The launch of the business will be financed by the founder’s investment and credit and by investments from limited partners. In exchange for $53,000 investment in the business at startup, limited partners will receive 49% ownership shares. The initial funding requirements are modest for the business.

 

The growth of the business, beyond the first year, will be financed by the free cash flows generated by the business. This will allow for the expansion of staff to include additional photographers, the ramping up of marketing expenditures, and the resulting increase in sales. Only one photographer will be added per year in order to make sure that there is time for adequate training of new staff.

Start-up Funding

Funding for the business is in part from personal loans, credit cards, and cash investment by the owner, Matte Flash. The remainder of funding will be from one to three limited partners in the form of equity investment.

Start-up Funding
Start-up Expenses to Fund $24,500
Start-up Assets to Fund $46,000
Total Funding Required $70,500
Assets
Non-cash Assets from Start-up $31,000
Cash Requirements from Start-up $15,000
Additional Cash Raised $0
Cash Balance on Starting Date $15,000
Total Assets $46,000
Liabilities and Capital
Liabilities
Current Borrowing $5,000
Long-term Liabilities $5,000
Accounts Payable (Outstanding Bills) $2,500
Other Current Liabilities (interest-free) $0
Total Liabilities $12,500
Capital
Planned Investment
Owner $5,000
Limited Partners $53,000
Additional Investment Requirement $0
Total Planned Investment $58,000
Loss at Start-up (Start-up Expenses) ($24,500)
Total Capital $33,500
Total Capital and Liabilities $46,000
Total Funding $70,500

Break-even Analysis

The break even for the business is high, as the salaries of staff are relatively fixed.

Commercial photography business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $22,228
Assumptions:
Average Percent Variable Cost 20%
Estimated Monthly Fixed Cost $17,804

Projected Profit and Loss

Gross margins are expected to remain consistent, as most costs of the business are not direct costs of sales. The greatest cost of the service is labor, which is part of salaries and not cost of sales, for example.

 

In year 2, profit is expected to drop as capacity is increased to prepare for growth. This will rectify in future years as sales come in line with the payroll expenses.

Commercial photography business plan, financial plan chart image

Commercial photography business plan, financial plan chart image

Commercial photography business plan, financial plan chart image

Commercial photography business plan, financial plan chart image

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $356,636 $392,124 $476,000 $600,000 $750,000
Direct Cost of Sales $70,986 $80,562 $108,900 $142,500 $187,500
Other Costs of Sales $0 $0 $0 $0 $0
Total Cost of Sales $70,986 $80,562 $108,900 $142,500 $187,500
Gross Margin $285,650 $311,562 $367,100 $457,500 $562,500
Gross Margin % 80.10% 79.46% 77.12% 76.25% 75.00%
Expenses
Payroll $112,755 $150,286 $164,920 $201,921 $245,193
Marketing/Promotion $36,000 $36,000 $50,000 $60,000 $70,000
Depreciation $6,000 $6,000 $6,000 $6,000 $6,000
Rent $24,000 $25,200 $26,460 $27,783 $29,172
Utilities $2,400 $3,000 $3,500 $3,800 $4,200
Insurance $2,400 $3,000 $3,500 $4,000 $4,500
Payroll Taxes $18,091 $22,543 $24,738 $30,288 $36,779
Other $12,000 $14,400 $17,000 $20,000 $25,000
Total Operating Expenses $213,646 $260,429 $296,118 $353,792 $420,845
Profit Before Interest and Taxes $72,004 $51,134 $70,982 $103,708 $141,655
EBITDA $78,004 $57,134 $76,982 $109,708 $147,655
Interest Expense $458 $0 $0 $0 $0
Taxes Incurred $21,464 $15,340 $21,295 $31,112 $42,497
Net Profit $50,082 $35,793 $49,687 $72,596 $99,159
Net Profit/Sales 14.04% 9.13% 10.44% 12.10% 13.22%

Projected Cash Flow

Cash flow is expected to be positive after the first month of operations. This is due to the fact that Matte Flash has a proven track record and can hit the ground running with continued work for existing clients. Cash reserves in the company will be increased over the first year to prepare for additional expansion in year two.

Commercial photography business plan, financial plan chart image

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $71,327 $78,425 $95,200 $120,000 $150,000
Cash from Receivables $261,059 $310,351 $374,897 $471,273 $589,443
Subtotal Cash from Operations $332,387 $388,775 $470,097 $591,273 $739,443
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0
Subtotal Cash Received $332,387 $388,775 $470,097 $591,273 $739,443
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $112,755 $150,286 $164,920 $201,921 $245,193
Bill Payments $174,582 $198,957 $251,206 $314,216 $393,059
Subtotal Spent on Operations $287,337 $349,243 $416,126 $516,137 $638,252
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $5,000 $0 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $5,000 $0 $0 $0 $0
Purchase Other Current Assets $0 $0 $0 $0 $0
Purchase Long-term Assets $0 $0 $0 $0 $0
Dividends $0 $0 $21,588 $30,054 $40,476
Subtotal Cash Spent $297,337 $349,243 $437,714 $546,191 $678,729
Net Cash Flow $35,049 $39,533 $32,383 $45,082 $60,714
Cash Balance $50,049 $89,582 $121,964 $167,046 $227,760

Projected Balance Sheet

The business is projected to show growth in retained earnings (which allow for dividends to be paid) as there are not substantial additional capital expenditures needed after the launch. There will be healthy growth in net worth over the first five years of operation, as additional debt is not required to fund the business.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $50,049 $89,582 $121,964 $167,046 $227,760
Accounts Receivable $24,249 $27,598 $33,501 $42,228 $52,785
Other Current Assets $1,000 $1,000 $1,000 $1,000 $1,000
Total Current Assets $75,299 $118,180 $156,466 $210,274 $281,546
Long-term Assets
Long-term Assets $30,000 $30,000 $30,000 $30,000 $30,000
Accumulated Depreciation $6,000 $12,000 $18,000 $24,000 $30,000
Total Long-term Assets $24,000 $18,000 $12,000 $6,000 $0
Total Assets $99,299 $136,180 $168,466 $216,274 $281,546
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $15,717 $16,804 $20,991 $26,259 $32,848
Current Borrowing $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $15,717 $16,804 $20,991 $26,259 $32,848
Long-term Liabilities $0 $0 $0 $0 $0
Total Liabilities $15,717 $16,804 $20,991 $26,259 $32,848
Paid-in Capital $58,000 $58,000 $58,000 $58,000 $58,000
Retained Earnings ($24,500) $25,582 $39,787 $59,420 $91,539
Earnings $50,082 $35,793 $49,687 $72,596 $99,159
Total Capital $83,582 $119,375 $147,474 $190,015 $248,698
Total Liabilities and Capital $99,299 $136,180 $168,466 $216,274 $281,546
Net Worth $83,582 $119,375 $147,474 $190,015 $248,698

Business Ratios

The business will spend more than the industry average on advertising, for example, in order to promote the competitive advantage of the company on the Web. The overhead reflected by Selling, General & Administrative expense is lower than the industry, as the business will make use of digital tools, reducing the costs of equipment and supplies.

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth n.a. 9.95% 21.39% 26.05% 25.00% -1.13%
Percent of Total Assets
Accounts Receivable 24.42% 20.27% 19.89% 19.53% 18.75% 20.28%
Other Current Assets 1.01% 0.73% 0.59% 0.46% 0.36% 59.10%
Total Current Assets 75.83% 86.78% 92.88% 97.23% 100.00% 83.86%
Long-term Assets 24.17% 13.22% 7.12% 2.77% 0.00% 16.14%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 15.83% 12.34% 12.46% 12.14% 11.67% 40.82%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 36.82%
Total Liabilities 15.83% 12.34% 12.46% 12.14% 11.67% 77.65%
Net Worth 84.17% 87.66% 87.54% 87.86% 88.33% 22.35%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 80.10% 79.46% 77.12% 76.25% 75.00% 75.47%
Selling, General & Administrative Expenses 66.05% 70.33% 66.68% 64.15% 61.78% 36.59%
Advertising Expenses 10.09% 9.18% 10.50% 10.00% 9.33% 0.94%
Profit Before Interest and Taxes 20.19% 13.04% 14.91% 17.28% 18.89% 6.66%
Main Ratios
Current 4.79 7.03 7.45 8.01 8.57 1.49
Quick 4.79 7.03 7.45 8.01 8.57 1.38
Total Debt to Total Assets 15.83% 12.34% 12.46% 12.14% 11.67% 77.65%
Pre-tax Return on Net Worth 85.60% 42.83% 48.13% 54.58% 56.96% 104.64%
Pre-tax Return on Assets 72.05% 37.55% 42.13% 47.95% 50.31% 23.39%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin 14.04% 9.13% 10.44% 12.10% 13.22% n.a
Return on Equity 59.92% 29.98% 33.69% 38.21% 39.87% n.a
Activity Ratios
Accounts Receivable Turnover 11.77 11.37 11.37 11.37 11.37 n.a
Collection Days 29 30 29 29 29 n.a
Accounts Payable Turnover 11.95 11.90 12.17 12.17 12.17 n.a
Payment Days 28 30 27 27 27 n.a
Total Asset Turnover 3.59 2.88 2.83 2.77 2.66 n.a
Debt Ratios
Debt to Net Worth 0.19 0.14 0.14 0.14 0.13 n.a
Current Liab. to Liab. 1.00 1.00 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $59,582 $101,375 $135,474 $184,015 $248,698 n.a
Interest Coverage 157.10 0.00 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.28 0.35 0.35 0.36 0.38 n.a
Current Debt/Total Assets 16% 12% 12% 12% 12% n.a
Acid Test 3.25 5.39 5.86 6.40 6.96 n.a
Sales/Net Worth 4.27 3.28 3.23 3.16 3.02 n.a
Dividend Payout 0.00 0.00 0.43 0.41 0.41 n.a

Long-term Plan

The profitability of the company will increase in absolute terms with growth. However, the gross margins and net profit margins will not increase dramatically over time as the additional growth in revenues requires additional direct labor. To maintain the reputation of the company, this labor cannot be performed by less skilled, lower-wage photographers.

 

As revenues grow and additional photographers are hired, the CEO will focus a greater percentage of time on sales and prospecting. This will allow for steady growth in revenues while the brand of Flash Commercial Photography becomes established in the market. A larger studio space with multiple rooms can be leased after a critical mass of utilization has been achieved with the current space. This will allow for continued growth.