Cutting Edge Drapery
Financial Plan
The business of Cutting Edge Drapery does not require substantial outlays for inventory and virtually all sales are on a cash basis, so increases in sales will not be accompanied by initial cash-flow deficits.
7.1 Break-even Analysis
Average per-unit revenue and variable costs are weighted averages based on sales/costs of each category of “products.” It is assumed that each unit is a 15-hour job involving 2.5 installation hours.
Total fixed costs are a total of all other costs, not including production wages.
Monthly break-even is very achievable.

Break-even Analysis | |
Monthly Units Break-even | 53 |
Monthly Revenue Break-even | $12,153 |
Assumptions: | |
Average Per-Unit Revenue | $231.37 |
Average Per-Unit Variable Cost | $27.76 |
Estimated Monthly Fixed Cost | $10,694 |
7.2 Projected Profit and Loss
Outlined below, and in the following table and chart, are some of the intrinsic facets of the projected profit and loss for Cutting Edge Drapery.
- Cost of sales reflects direct materials needed to carry out the sewing services, such as thread, sewing supplies, etc.
- Miscellaneous operating expenses are projected to remain flat at approximately $3,800 annually, based on historical numbers.
- All sales and marketing is performed by the principal. Salary is not paid to her, as this is a sole proprietorship.
- 1998 will require a substantial outlay in advertising and promotion. In 1999 and 2000 this can be cut back a bit.
- Car expenses of $560 monthly consist of insurance ($1,000 annually), depreciation and maintenance, taxes and inspection, etc.($3,000 annually) and fuel ($2,800 annually).
- The various General and Administrative expenses are projected based on present actual expenses.


Pro Forma Profit and Loss | |||
1998 | 1999 | 2000 | |
Sales | $293,380 | $336,070 | $357,275 |
Direct Cost of Sales | $35,206 | $40,328 | $42,873 |
Production Payroll | $100,296 | $108,864 | $108,864 |
Misc operating expenses | $3,792 | $3,792 | $3,792 |
Total Cost of Sales | $139,294 | $152,984 | $155,529 |
Gross Margin | $154,086 | $183,086 | $201,746 |
Gross Margin % | 52.52% | 54.48% | 56.47% |
Operating Expenses | |||
Sales and Marketing Expenses | |||
Sales and Marketing Payroll | $60,000 | $60,000 | $60,000 |
Advertising/Promotion | $12,000 | $8,000 | $8,000 |
Car insurance/depreciation/maint./fuel | $6,720 | $6,720 | $6,720 |
Miscellaneous | $0 | $0 | $0 |
Total Sales and Marketing Expenses | $78,720 | $74,720 | $74,720 |
Sales and Marketing % | 26.83% | 22.23% | 20.91% |
General and Administrative Expenses | |||
General and Administrative Payroll | $11,520 | $11,520 | $11,520 |
Sales and Marketing and Other Expenses | $0 | $0 | $0 |
Depreciation | $2,000 | $2,000 | $2,000 |
Accounting/consultants | $3,000 | $3,000 | $3,000 |
Electricity | $1,200 | $1,200 | $1,200 |
Heat | $1,200 | $1,200 | $1,200 |
Postage | $500 | $500 | $500 |
Telephone | $3,000 | $3,000 | $3,000 |
Dues and Subscriptions | $1,080 | $1,080 | $1,080 |
Bank Charges | $204 | $204 | $204 |
Supplies/misc office expense | $1,000 | $1,000 | $1,000 |
Rent | $10,764 | $10,764 | $10,764 |
Payroll Taxes | $14,145 | $15,229 | $15,229 |
Other General and Administrative Expenses | $0 | $0 | $0 |
Total General and Administrative Expenses | $49,613 | $50,697 | $50,697 |
General and Administrative % | 16.91% | 15.09% | 14.19% |
Other Expenses: | |||
Other Payroll | $0 | $0 | $0 |
Consultants | $0 | $0 | $0 |
Contract/Consultants | $0 | $0 | $0 |
Total Other Expenses | $0 | $0 | $0 |
Other % | 0.00% | 0.00% | 0.00% |
Total Operating Expenses | $128,333 | $125,417 | $125,417 |
Profit Before Interest and Taxes | $25,754 | $57,669 | $76,330 |
EBITDA | $27,754 | $59,669 | $78,330 |
Interest Expense | $0 | $0 | $0 |
Taxes Incurred | $9,083 | $20,184 | $26,397 |
Net Profit | $16,671 | $37,485 | $49,932 |
Net Profit/Sales | 5.68% | 11.15% | 13.98% |
7.3 Projected Cash Flow
As can be seen from the Cash Flow chart and table below, Cutting Edge Drapery has a number of advantages that provide for a large amount of growth in the company’s cash account. Because it is the policy of the company’s clients to provide the fabric for the soft window treatment products, the company has a very low cost of goods sold account and therefore a high gross margin. Furthermore, the custom nature of the business means that there is no inventory cost to speak of or accounts payable. Finally, the company does not posess any debt or long term capital assets that would affect the cash flow. With the ability to generate so much cash flow, it is assumed that the company will seek to use this asset to expand its markets and production capacity in the near future.

Pro Forma Cash Flow | |||
1998 | 1999 | 2000 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $293,380 | $336,070 | $357,275 |
Subtotal Cash from Operations | $293,380 | $336,070 | $357,275 |
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 | $293,380 | $336,070 | $357,275 |
Expenditures | 1998 | 1999 | 2000 |
Expenditures from Operations | |||
Cash Spending | $171,816 | $180,384 | $180,384 |
Bill Payments | $96,856 | $115,518 | $124,504 |
Subtotal Spent on Operations | $268,672 | $295,902 | $304,887 |
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 | $0 | $0 | $0 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $0 | $0 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $268,672 | $295,902 | $304,887 |
Net Cash Flow | $24,708 | $40,168 | $52,388 |
Cash Balance | $26,708 | $66,876 | $119,263 |
7.4 Projected Balance Sheet
The following table shows our projected Balance Sheet.
Pro Forma Balance Sheet | |||
1998 | 1999 | 2000 | |
Assets | |||
Current Assets | |||
Cash | $26,708 | $66,876 | $119,263 |
Inventory | $3,380 | $3,872 | $4,116 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $30,087 | $70,747 | $123,379 |
Long-term Assets | |||
Long-term Assets | $30,000 | $30,000 | $30,000 |
Accumulated Depreciation | $2,000 | $4,000 | $6,000 |
Total Long-term Assets | $28,000 | $26,000 | $24,000 |
Total Assets | $58,087 | $96,747 | $147,379 |
Liabilities and Capital | 1998 | 1999 | 2000 |
Current Liabilities | |||
Accounts Payable | $8,416 | $9,591 | $10,291 |
Current Borrowing | $0 | $0 | $0 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $8,416 | $9,591 | $10,291 |
Long-term Liabilities | $0 | $0 | $0 |
Total Liabilities | $8,416 | $9,591 | $10,291 |
Paid-in Capital | $0 | $0 | $0 |
Retained Earnings | $33,000 | $49,671 | $87,156 |
Earnings | $16,671 | $37,485 | $49,932 |
Total Capital | $49,671 | $87,156 | $137,089 |
Total Liabilities and Capital | $58,087 | $96,747 | $147,379 |
Net Worth | $49,671 | $87,156 | $137,089 |
7.5 Business Ratios
The following table outlines some of the more important ratios from the interior design/sewing industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7389.
Ratio Analysis | ||||
1998 | 1999 | 2000 | Industry Profile | |
Sales Growth | 58.58% | 14.55% | 6.31% | 8.20% |
Percent of Total Assets | ||||
Inventory | 5.82% | 4.00% | 2.79% | 3.80% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 44.20% |
Total Current Assets | 51.80% | 73.13% | 83.72% | 74.30% |
Long-term Assets | 48.20% | 26.87% | 16.28% | 25.70% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 14.49% | 9.91% | 6.98% | 49.00% |
Long-term Liabilities | 0.00% | 0.00% | 0.00% | 13.80% |
Total Liabilities | 14.49% | 9.91% | 6.98% | 62.80% |
Net Worth | 85.51% | 90.09% | 93.02% | 37.20% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 52.52% | 54.48% | 56.47% | 0.00% |
Selling, General & Administrative Expenses | 37.59% | 35.28% | 35.01% | 81.40% |
Advertising Expenses | 4.09% | 2.38% | 2.24% | 1.70% |
Profit Before Interest and Taxes | 8.78% | 17.16% | 21.36% | 2.10% |
Main Ratios | ||||
Current | 3.57 | 7.38 | 11.99 | 1.49 |
Quick | 3.17 | 6.97 | 11.59 | 1.17 |
Total Debt to Total Assets | 14.49% | 9.91% | 6.98% | 62.80% |
Pre-tax Return on Net Worth | 51.85% | 66.17% | 55.68% | 4.20% |
Pre-tax Return on Assets | 44.34% | 59.61% | 51.79% | 11.30% |
Additional Ratios | 1998 | 1999 | 2000 | |
Net Profit Margin | 5.68% | 11.15% | 13.98% | n.a |
Return on Equity | 33.56% | 43.01% | 36.42% | n.a |
Activity Ratios | ||||
Inventory Turnover | 10.91 | 11.12 | 10.73 | n.a |
Accounts Payable Turnover | 12.51 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 28 | 29 | n.a |
Total Asset Turnover | 5.05 | 3.47 | 2.42 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.17 | 0.11 | 0.08 | n.a |
Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $21,671 | $61,156 | $113,089 | n.a |
Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.20 | 0.29 | 0.41 | n.a |
Current Debt/Total Assets | 14% | 10% | 7% | n.a |
Acid Test | 3.17 | 6.97 | 11.59 | n.a |
Sales/Net Worth | 5.91 | 3.86 | 2.61 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |