Guildford Dry Cleaning Service
Financial Plan
The following topics describe the cash flow statement, profit and loss account, and balance sheet have been built using forecasted information which is as accurate and realistic as possible. These financial statements show that the business runs quite well and achieves expected results.
7.1 Important Assumptions
Sales increase gradually over the 12 months showing the positive trend of sales. Guildford Dry Cleaning is steadily gaining market share.
Gross profit and net profit rise proportionately to sales revenue.
Return on capital employed: Pendlebury (2002) indicates this ratio is useful to measure the efficiency which the long term capital has been employed. The business’ return on capital employed (ROCE) increases over the 12 months showing the effect of using capital to grow business, especially in the last months of the year.
| 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 | 6.48% | 6.48% | 6.48% |
| Tax Rate | 30.00% | 30.00% | 30.00% |
| Other | 0 | 0 | 0 |
7.2 Break-even Analysis
The following table and chart show our Break-even Analysis.
| Break-even Analysis | |
| Monthly Revenue Break-even | £16,281 |
| Assumptions: | |
| Average Percent Variable Cost | 11% |
| Estimated Monthly Fixed Cost | £14,493 |
7.3 Projected Profit and Loss
In general, the business might meet some difficulties in the beginning months but after that the business grows as expected and produces a small profit at the end of the year. It is not necessary for the business to gain high profit in the first year, breaking even is acceptable.
Here under are the estimated fixed costs and variable costs for the year 2006. These costs have been divided into two periods:
- Jan – Mar
- Apr – Dec: One more van (£7,000) will be purchased and new staff recruited; therefore interest, maintenance, petrol, salary and national insurance are increased
|
Fixed costs Per Month |
Jan – Mar |
Apr – Dec |
|
Interest rate |
1,264 |
1,604 |
|
Machine leasing |
834 |
834 |
|
Building renting |
600 |
600 |
|
Maintenance |
50 |
100 |
|
Petrol |
150 |
300 |
|
Salary per month |
7,584 |
9,408 |
|
National Insurance |
421 |
620 |
|
Total |
10,903 |
13,466 |
|
Variable costs Per Month |
Jan – Mar |
Apr – Dec |
|
Tea/Coffee break |
100 |
100 |
|
Office cleaning |
100 |
100 |
|
Recruitment cost |
45 |
400 |
|
Advertisement |
150 |
200 |
|
Telephone |
300 |
500 |
|
Electricity |
500 |
500 |
|
Miscellaneous |
300 |
300 |
|
Total |
1,495 |
2,100 |
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | £324,700 | £422,110 | £548,744 |
| Direct Cost of Sales | £35,652 | £46,348 | £60,252 |
| Other Costs of Sales | £0 | £0 | £0 |
| Total Cost of Sales | £35,652 | £46,348 | £60,252 |
| Gross Margin | £289,048 | £375,762 | £488,492 |
| Gross Margin % | 89.02% | 89.02% | 89.02% |
| Expenses | |||
| Payroll | £106,944 | £110,151 | £113,455 |
| Sales and Marketing and Other Expenses | £2,250 | £2,700 | £3,000 |
| Depreciation | £4,236 | £4,700 | £4,700 |
| Rent | £7,200 | £7,200 | £7,200 |
| Utilities | £11,400 | £12,000 | £13,000 |
| Inserted Row | £0 | £0 | £0 |
| Petrol | £3,150 | £3,500 | £4,000 |
| Equipment Lease | £10,008 | £12,000 | £15,000 |
| Maintenance | £1,050 | £1,200 | £1,500 |
| Office Cleaning | £1,200 | £1,500 | £1,500 |
| Insurance | £6,840 | £6,840 | £6,840 |
| Payroll Taxes (National Insurance, etc.) | £16,042 | £16,523 | £17,018 |
| Other | £3,600 | £4,000 | £4,000 |
| Total Operating Expenses | £173,920 | £182,314 | £191,213 |
| Profit Before Interest and Taxes | £115,128 | £193,449 | £297,279 |
| EBITDA | £119,364 | £198,149 | £301,979 |
| Interest Expense | £1,469 | £1,297 | £976 |
| Taxes Incurred | £34,098 | £57,645 | £88,891 |
| Net Profit | £79,562 | £134,506 | £207,412 |
| Net Profit/Sales | 24.50% | 31.87% | 37.80% |
7.4 Projected Cash Flow
Cash flow increases gradually over the year creating the positive net present value. To exist and develop in the competitive market are getting more and more difficult. Obtaining loyal customers and recruiting new customers in term of long run business are extremely difficult therefore the service aims to achieve low profit create and enhance the service’s image which are the advantage competition in the market.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | £324,700 | £422,110 | £548,744 |
| Subtotal Cash from Operations | £324,700 | £422,110 | £548,744 |
| 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 | £7,000 | £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 | £331,700 | £422,110 | £548,744 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | £106,944 | £110,151 | £113,455 |
| Bill Payments | £123,286 | £173,837 | £220,566 |
| Subtotal Spent on Operations | £230,230 | £283,988 | £334,021 |
| 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 | £4,084 | £4,792 | £5,112 |
| Purchase Other Current Assets | £0 | £0 | £0 |
| Purchase Long-term Assets | £7,000 | £0 | £0 |
| Dividends | £0 | £0 | £0 |
| Subtotal Cash Spent | £241,314 | £288,780 | £339,133 |
| Net Cash Flow | £90,386 | £133,330 | £209,611 |
| Cash Balance | £113,092 | £246,421 | £456,032 |
7.5 Projected Balance Sheet
The table below shows the balance sheet annual figures for the first three years of operation. First year monthly figures are presented in the appendix.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | £113,092 | £246,421 | £456,032 |
| Inventory | £4,008 | £5,210 | £6,773 |
| Other Current Assets | £0 | £0 | £0 |
| Total Current Assets | £117,099 | £251,631 | £462,805 |
| Long-term Assets | |||
| Long-term Assets | £21,000 | £21,000 | £21,000 |
| Accumulated Depreciation | £4,236 | £8,936 | £13,636 |
| Total Long-term Assets | £16,764 | £12,064 | £7,364 |
| Total Assets | £133,863 | £263,695 | £470,169 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | £14,180 | £14,298 | £18,472 |
| Current Borrowing | £0 | £0 | £0 |
| Other Current Liabilities | £0 | £0 | £0 |
| Subtotal Current Liabilities | £14,180 | £14,298 | £18,472 |
| Long-term Liabilities | £22,416 | £17,624 | £12,512 |
| Total Liabilities | £36,596 | £31,922 | £30,984 |
| Paid-in Capital | £32,000 | £32,000 | £32,000 |
| Retained Earnings | (£14,294) | £65,268 | £199,774 |
| Earnings | £79,562 | £134,506 | £207,412 |
| Total Capital | £97,268 | £231,774 | £439,185 |
| Total Liabilities and Capital | £133,863 | £263,695 | £470,169 |
| Net Worth | £97,268 | £231,774 | £439,185 |
7.6 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios for commercial dry cleaning and laundry establishments are shown for comparison.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 30.00% | 30.00% | 0.41% |
| Percent of Total Assets | ||||
| Inventory | 2.99% | 1.98% | 1.44% | 3.56% |
| Other Current Assets | 0.00% | 0.00% | 0.00% | 39.13% |
| Total Current Assets | 87.48% | 95.43% | 98.43% | 57.85% |
| Long-term Assets | 12.52% | 4.57% | 1.57% | 42.15% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 10.59% | 5.42% | 3.93% | 26.66% |
| Long-term Liabilities | 16.75% | 6.68% | 2.66% | 20.51% |
| Total Liabilities | 27.34% | 12.11% | 6.59% | 47.17% |
| Net Worth | 72.66% | 87.89% | 93.41% | 52.83% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 89.02% | 89.02% | 89.02% | 100.00% |
| Selling, General & Administrative Expenses | 55.72% | 51.42% | 46.64% | 78.43% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 1.78% |
| Profit Before Interest and Taxes | 35.46% | 45.83% | 54.17% | 3.01% |
| Main Ratios | ||||
| Current | 8.26 | 17.60 | 25.05 | 1.57 |
| Quick | 7.98 | 17.24 | 24.69 | 1.30 |
| Total Debt to Total Assets | 27.34% | 12.11% | 6.59% | 57.48% |
| Pre-tax Return on Net Worth | 116.85% | 82.90% | 67.47% | 5.38% |
| Pre-tax Return on Assets | 84.91% | 72.87% | 63.02% | 12.65% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 24.50% | 31.87% | 37.80% | n.a |
| Return on Equity | 81.80% | 58.03% | 47.23% | n.a |
| Activity Ratios | ||||
| Inventory Turnover | 12.00 | 10.06 | 10.06 | n.a |
| Accounts Payable Turnover | 9.69 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 30 | 27 | n.a |
| Total Asset Turnover | 2.43 | 1.60 | 1.17 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.38 | 0.14 | 0.07 | n.a |
| Current Liab. to Liab. | 0.39 | 0.45 | 0.60 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | £102,920 | £237,334 | £444,333 | n.a |
| Interest Coverage | 78.38 | 149.12 | 304.46 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.41 | 0.62 | 0.86 | n.a |
| Current Debt/Total Assets | 11% | 5% | 4% | n.a |
| Acid Test | 7.98 | 17.24 | 24.69 | n.a |
| Sales/Net Worth | 3.34 | 1.82 | 1.25 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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