Herr Haar is expecting growth of at least 5% each year and we anticipate the increase to continue as new clients come to the salon. Our financial plan for the next three years includes several new revenue streams from massage therapy and booth rental from affiliated stylists. The projections for the first year are therefore much different from the starting balances for our last year, even considering that the past performance included only six months of data. The major accompanying expense is a much higher personnel payroll, as well as higher rent for the new location, to accommodate all these people.
Our advertising expenses will be higher than those of similar businesses, because after only six months in business, we are still a "start-up," and because our new location and services will be unknown to many in the community without heavy advertising. We will work hard to keep costs down and to use word-of-mouth as much as possible to build our business.
Herr Haar is seeking financing to achieve the goal of becoming a great hair clinic which focuses on the total wellness of clients. We will use this money to renovate the new space, so that we can build our clientele base, increase revenues, maintain a positive cash flow, and steadily increase the net worth of the business with good management.
7.1 Important Assumptions
The following table shows important financials assumptions for our plan, including a projected interest rate for the short-term loan we are seeking. We are also assuming:
- No serious disability on the part of either owner which prevents her from working
- No new direct competition for hair replacement services in Anytown in the next three years
- No sudden changes in licensing or technology which would make our services obsolete
7.2 Break-even Analysis
For our break-even analysis, we assume running costs which include full payroll, rent, utilities, and an estimation of other running costs. Payroll alone, at our present rate, is only $8,930/month. We will reach our break-even point at the new location in March.
7.3 Projected Profit and Loss
We expect net profit to reach $17,795 at the end of the next fiscal year. We will take on a smaller net profit in years two and three in order to increase the salaries of our workers as the salon becomes busier. Happy employees make for good customer experiences, which generates increased revenues.
7.4 Projected Cash Flow
Herr Haar expects to manage cash flow conservatively over the next three years. The business will generate more than enough cash flow to cover all of its expenses, and we will pace growth slowly.
In addition to showing repayment of the loan, the Cash Flow table, below, shows the purchase of new current assets in January. We will purchase a water- and energy-efficient washing machine and dryer in the first month to clean towels and drapes from hair services and massage.
7.5 Projected Balance Sheet
The Balance Sheet shows our projected steady increase in net worth. With no accounts receivable, our cash sales go immediately into our assets. We also expect a steady increase in retained earnings.
7.6 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) Index code 7231, Cosmetologist and personal hygiene salon, are shown for comparison.
Our huge sales growth in the first year is, as stated before, due to a radical change in the revenue structure of the business in the new location. Although our asset base is smaller than many similar businesses, partly because we are leasing a location, our debt to asset ratio is quite good compared to the industry standard.