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Corporate Fitness

Financial Plan

  • Consulting revenue will make up approximately 85 to 90 percent of total revenue, with the rest coming from service revenue.
  • Salaries and rent are the two major expenses, while depreciation is another significant cost. Although the purchasing of fitness, medical, and office equipment is expensive, constant replacement will be needed to maintain a competitive edge.
  • In order to maintain steady gross margins, salaries and advertising expenses are not likely to increase within the first two years of operation, unless cash flows significantly increase.

7.1 Important Assumptions

Three assumptions for Corporate Fitness are:

  1. A constantly growing economy without any major recession or boom.
  2. No unpredictable changes in fitness, medical, or office equipment.
  3. No major national or global events that threaten the stability and health of the country and its citizens.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 3.00% 3.00% 3.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 25.00% 25.00% 25.00%
Other 0 0 0

7.2 Key Financial Indicators

The most important financial indicators are net increase in cash and net income. Net increase from cash will exemplify the relationship between net income and net cash from operating activities. The greater the increase is, Corporate Fitness has that level of financial strength at that point in time.

Health club business plan, financial plan chart image

7.3 Break-even Analysis

Corporate Fitness’ break-even point is computed in the table below, comparing sales and monthly expenses. Sales forecasts indicate that units sold and monthly sales are expected to be much greater than the break-even point mentioned in the table.

Health club business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $26,683
Assumptions:
Average Percent Variable Cost 6%
Estimated Monthly Fixed Cost $25,050

7.4 Projected Profit and Loss

Sales are predicted to increase each month with first year annual sales totaling close to a half-million dollars. Gross margin, likewise, is expected to increase correspondingly.

Compared to total sales, net profit will increase each month and is predicted to increase for 1995 through 1997.

Health club business plan, financial plan chart image

Health club business plan, financial plan chart image

Health club business plan, financial plan chart image

Health club business plan, financial plan chart image

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $539,075 $650,750 $825,600
Direct Cost of Sales $33,000 $44,000 $55,000
Other Costs of Sales $0 $0 $0
Total Cost of Sales $33,000 $44,000 $55,000
Gross Margin $506,075 $606,750 $770,600
Gross Margin % 93.88% 93.24% 93.34%
Expenses
Payroll $150,000 $150,000 $150,000
Marketing/Promotion $25,200 $25,200 $25,200
Depreciation $7,200 $7,200 $7,200
Rent $60,000 $60,000 $6,000
Utilities $25,200 $25,200 $25,200
Insurance $5,400 $5,400 $5,400
Leased Equipment $27,600 $27,600 $27,600
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $300,600 $300,600 $246,600
Profit Before Interest and Taxes $205,475 $306,150 $524,000
EBITDA $212,675 $313,350 $531,200
Interest Expense $10,449 $8,500 $7,500
Taxes Incurred $48,757 $74,413 $129,125
Net Profit $146,270 $223,238 $387,375
Net Profit/Sales 27.13% 34.30% 46.92%

7.5 Projected Cash Flow

Ordinary cash flow will increase significantly while expenses remain relatively static, with only minimal increases. We plan to take out a short-term loan to cover our receivables and other contingencies in month one, and repay it in month 12.

Health club business plan, financial plan chart image

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $215,630 $260,300 $330,240
Cash from Receivables $230,395 $371,174 $465,179
Subtotal Cash from Operations $446,025 $631,474 $795,419
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $36,000 $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 $482,025 $631,474 $795,419
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $150,000 $150,000 $150,000
Bill Payments $206,122 $277,578 $280,145
Subtotal Spent on Operations $356,122 $427,578 $430,145
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $36,000 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $10,000 $10,000 $10,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $9,600 $9,600 $9,600
Dividends $0 $0 $0
Subtotal Cash Spent $411,722 $447,178 $449,745
Net Cash Flow $70,303 $184,295 $345,675
Cash Balance $80,303 $264,599 $610,273

7.6 Projected Balance Sheet

The balance sheet indicates that at the end of the first year of operation, net worth will be positive and constantly increasing through the end of 1997.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $80,303 $264,599 $610,273
Accounts Receivable $93,050 $112,326 $142,507
Other Current Assets $0 $0 $0
Total Current Assets $173,353 $376,925 $752,780
Long-term Assets
Long-term Assets $9,600 $19,200 $28,800
Accumulated Depreciation $7,200 $14,400 $21,600
Total Long-term Assets $2,400 $4,800 $7,200
Total Assets $175,753 $381,725 $759,980
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $29,483 $22,217 $23,098
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $29,483 $22,217 $23,098
Long-term Liabilities $90,000 $80,000 $70,000
Total Liabilities $119,483 $102,217 $93,098
Paid-in Capital $200,000 $200,000 $200,000
Retained Earnings ($290,000) ($143,730) $79,507
Earnings $146,270 $223,238 $387,375
Total Capital $56,270 $279,507 $666,882
Total Liabilities and Capital $175,753 $381,725 $759,980
Net Worth $56,270 $279,507 $666,882

7.7 Business Ratios

The following table outlines some of Corporate Fitness’ more important business ratios. The final column, Industry Profile, details specific ratios based on the Physical Fitness Facilities industry as it is classified by the Standard Industry Classification (SIC) code, 7991. These ratios indicate strong financial growth and an impressive chance for investment opportunities, making expansion and further development both very possible.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 20.72% 26.87% 4.96%
Percent of Total Assets
Accounts Receivable 52.94% 29.43% 18.75% 5.74%
Other Current Assets 0.00% 0.00% 0.00% 34.12%
Total Current Assets 98.63% 98.74% 99.05% 39.86%
Long-term Assets 1.37% 1.26% 0.95% 60.14%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 16.78% 5.82% 3.04% 21.71%
Long-term Liabilities 51.21% 20.96% 9.21% 29.51%
Total Liabilities 67.98% 26.78% 12.25% 51.22%
Net Worth 32.02% 73.22% 87.75% 48.78%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 93.88% 93.24% 93.34% 100.00%
Selling, General & Administrative Expenses 66.74% 58.93% 46.42% 72.76%
Advertising Expenses 1.34% 1.11% 0.87% 2.44%
Profit Before Interest and Taxes 38.12% 47.05% 63.47% 3.01%
Main Ratios
Current 5.88 16.97 32.59 1.05
Quick 5.88 16.97 32.59 0.73
Total Debt to Total Assets 67.98% 26.78% 12.25% 2.72%
Pre-tax Return on Net Worth 346.59% 106.49% 77.45% 61.25%
Pre-tax Return on Assets 110.97% 77.98% 67.96% 7.03%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 27.13% 34.30% 46.92% n.a
Return on Equity 259.94% 79.87% 58.09% n.a
Activity Ratios
Accounts Receivable Turnover 3.48 3.48 3.48 n.a
Collection Days 55 96 94 n.a
Accounts Payable Turnover 7.99 12.17 12.17 n.a
Payment Days 27 35 29 n.a
Total Asset Turnover 3.07 1.70 1.09 n.a
Debt Ratios
Debt to Net Worth 2.12 0.37 0.14 n.a
Current Liab. to Liab. 0.25 0.22 0.25 n.a
Liquidity Ratios
Net Working Capital $143,870 $354,707 $729,682 n.a
Interest Coverage 19.67 36.02 69.87 n.a
Additional Ratios
Assets to Sales 0.33 0.59 0.92 n.a
Current Debt/Total Assets 17% 6% 3% n.a
Acid Test 2.72 11.91 26.42 n.a
Sales/Net Worth 9.58 2.33 1.24 n.a
Dividend Payout 0.00 0.00 0.00 n.a