Janitorial Services Business Plan

Clean Office Pros

Financial Plan

Clean Office Pros will grow significantly, even over the first three years of operation, by taking advantage of the opportunity presented by its first target market, small offices, and leveraging its success there with medium and large offices. Growth of about $300,000 is expected in sales from the first year to second and over $400,000 from the second year to third.

Financing for this growth will come from the free cash flows generated by the healthy margins in this business once break-even volume has been achieved in the first year.

By the fifth year of operation, the business will be well positioned for a strategic sale to a commercial cleaning franchise (one of the competitors discussed earlier) interested in expanding its expertise with small businesses. At this point an exit will be possible for investors and the original owners.

Start-up Funding

Start-up funding will come in part from the financing of the initial purchases (delivery van, computer and cleaning equipment), and from credit card debt.

Beyond this debt financing, most start-up funding will be provided by the two founders and ;from additional angel investors. Once the additional investment has been contributed, the angel investors will own 49% of the business, Paul Vinci will own 26% and Reid Werbitt will own 25%.

Start-up Funding

Start-up Expenses to Fund	$33,500
Start-up Assets to Fund	$105,000
Total Funding Required	$138,500

Assets
Non-cash Assets from Start-up	$45,000
Cash Requirements from Start-up	$60,000
Additional Cash Raised	$0
Cash Balance on Starting Date	$60,000
Total Assets	$105,000


Liabilities and Capital

Liabilities
Current Borrowing	$5,000
Long-term Liabilities	$20,000
Accounts Payable (Outstanding Bills)	$2,000
Other Current Liabilities (interest-free)	$0
Total Liabilities	$27,000

Capital

Planned Investment
Reid Werbitt	$25,000
Paul Vinci	$25,000
Additional Investors	$61,500
Additional Investment Requirement	$0
Total Planned Investment	$111,500

Loss at Start-up (Start-up Expenses)	($33,500)
Total Capital	$78,000


Total Capital and Liabilities	$105,000

Total Funding	$138,500

Break-even Analysis

Each cleaning service offered has a healthy margin and a break even will occur around 552 units sold per month. This represents 512,000 square feet of offices or around 600 small business clients (or 400 small business and 100 medium business clients). At this point, work will be both over night and on weekends, with an average of 16 clients cleaned per day by shift workers. Six crews will be needed to provide this amount of service.

Janitorial services business plan, financial plan chart image

Break-even Analysis


Monthly Units Break-even	552
Monthly Revenue Break-even	$45,012

Assumptions:
Average Per-Unit Revenue	$81.58
Average Per-Unit Variable Cost	$29.73
Estimated Monthly Fixed Cost	$28,608

Projected Profit and Loss

Gross margins will remain relatively stable and grow slightly as better margin business (medium and large offices) is sought out and better prices are established with vendors for volume discounts. The first year will represent a net profit of $71,000 which will continue to grow.

Pro Forma Profit and Loss
	Year 1	Year 2	Year 3
Sales	$705,053	$1,001,500	$1,452,500
Direct Cost of Sales	$256,951	$360,600	$521,000
Other Costs of Sales	$0	$0	$0
Total Cost of Sales	$256,951	$360,600	$521,000

Gross Margin	$448,102	$640,900	$931,500
Gross Margin %	63.56%	63.99%	64.13%


Expenses
Payroll	$156,000	$180,000	$229,000
Marketing/Promotion	$79,000	$90,000	$110,000
Depreciation	$18,400	$30,000	$35,000
Rent	$30,000	$35,000	$50,000
Utilities	$1,800	$2,400	$3,000
Insurance	$3,000	$4,000	$5,000
Payroll Taxes	$49,095	$63,060	$86,450
Other	$6,000	$10,000	$15,000

Total Operating Expenses	$343,295	$414,460	$533,450

Profit Before Interest and Taxes	$104,807	$226,440	$398,050
EBITDA	$123,207	$256,440	$433,050
Interest Expense	$2,766	$4,809	$6,159
Taxes Incurred	$30,612	$66,489	$117,567

Net Profit	$71,429	$155,142	$274,324
Net Profit/Sales	10.13%	15.49%	18.89%

Projected Cash Flow

Cash flow before dividends will be positive in the first year. Five months of negative cash flow are required for marketing activities to take hold before they show a greater effect on sales. Dividends can be paid out beginning in month nine to investors.

Accounts receivable will be collected in 30 days, but 45 days average has been given to be conservative.

Investment will be continually made in additional cleaning equipment and delivery vans to enable more cleaning crew to work. Furthermore, by the end of the first year, the office will expand to allow for additional storage and staff.

Pro Forma Cash Flow
	Year 1	Year 2	Year 3
Cash Received

Cash from Operations
Cash Sales	$0	$0	$0
Cash from Receivables	$571,061	$945,162	$1,366,790
Subtotal Cash from Operations	$571,061	$945,162	$1,366,790

Additional Cash Received
Sales Tax, VAT, HST/GST Received	$56,404	$80,120	$116,200
New Current Borrowing	$10,000	$17,000	$17,000
New Other Liabilities (interest-free)	$0	$0	$0
New Long-term Liabilities	$20,000	$20,000	$20,000
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	$657,465	$1,062,282	$1,519,990

Expenditures	Year 1	Year 2	Year 3

Expenditures from Operations
Cash Spending	$156,000	$180,000	$229,000
Bill Payments	$405,528	$639,751	$891,342
Subtotal Spent on Operations	$561,528	$819,751	$1,120,342

Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	$56,404	$80,120	$116,200
Principal Repayment of Current Borrowing	$7,913	$15,000	$16,000
Other Liabilities Principal Repayment	$0	$0	$0
Long-term Liabilities Principal Repayment	$6,000	$8,000	$8,000
Purchase Other Current Assets	$2,000	$15,000	$15,000
Purchase Long-term Assets	$20,000	$20,000	$40,000
Dividends	$20,000	$75,000	$200,000
Subtotal Cash Spent	$673,845	$1,032,871	$1,515,542

Net Cash Flow	($16,380)	$29,411	$4,448
Cash Balance	$43,620	$73,031	$77,479

Projected Balance Sheet

The net worth of the business will grow significantly over the first three years of operation as the business will be primarily financed by its own earnings and not need to take on a great deal of new debt. The debt that is taken on will be financing for the purchases of new cleaning equipment and delivery vans, primarily.

Additional capital is not required over the first three years of operation as the free cash flows from the business will support the business.

Pro Forma Balance Sheet
	Year 1	Year 2	Year 3
Assets

Current Assets
Cash	$43,620	$73,031	$77,479
Accounts Receivable	$133,992	$190,330	$276,041
Other Current Assets	$7,000	$22,000	$37,000
Total Current Assets	$184,612	$285,361	$390,519

Long-term Assets
Long-term Assets	$60,000	$80,000	$120,000
Accumulated Depreciation	$18,400	$48,400	$83,400
Total Long-term Assets	$41,600	$31,600	$36,600
Total Assets	$226,212	$316,961	$427,119

Liabilities and Capital	Year 1	Year 2	Year 3

Current Liabilities
Accounts Payable	$55,696	$52,303	$75,138
Current Borrowing	$7,087	$9,087	$10,087
Other Current Liabilities	$0	$0	$0
Subtotal Current Liabilities	$62,784	$61,391	$85,225

Long-term Liabilities	$34,000	$46,000	$58,000
Total Liabilities	$96,784	$107,391	$143,225

Paid-in Capital	$111,500	$111,500	$111,500
Retained Earnings	($53,500)	($57,071)	($101,930)
Earnings	$71,429	$155,142	$274,324
Total Capital	$129,429	$209,570	$283,894
Total Liabilities and Capital	$226,212	$316,961	$427,119

Net Worth	$129,429	$209,570	$283,894

Business Ratios

This table shows ratios for the three years of the plan compared to the janitorial services businesses of similar revenues. Clean Office Pros expects to improve on industry profitability, as shown in this table, even with slightly higher spending on S G A and advertising as a percentage of sales. Gross margins will be slightly better than the comparable industry gross margins.

Ratio Analysis
	Year 1	Year 2	Year 3	Industry Profile
Sales Growth	n.a.	42.05%	45.03%	0.77%

Percent of Total Assets
Accounts Receivable	59.23%	60.05%	64.63%	14.54%
Other Current Assets	3.09%	6.94%	8.66%	37.68%
Total Current Assets	81.61%	90.03%	91.43%	54.28%
Long-term Assets	18.39%	9.97%	8.57%	45.72%
Total Assets	100.00%	100.00%	100.00%	100.00%

Current Liabilities	27.75%	19.37%	19.95%	28.46%
Long-term Liabilities	15.03%	14.51%	13.58%	71.54%
Total Liabilities	42.78%	33.88%	33.53%	100.00%
Net Worth	57.22%	66.12%	66.47%	0.00%

Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	63.56%	63.99%	64.13%	62.79%
Selling, General & Administrative Expenses	53.42%	48.50%	45.24%	17.10%
Advertising Expenses	11.20%	8.99%	7.57%	0.21%
Profit Before Interest and Taxes	14.87%	22.61%	27.40%	5.93%

Main Ratios
Current	2.94	4.65	4.58	1.35
Quick	2.94	4.65	4.58	1.28
Total Debt to Total Assets	42.78%	33.88%	33.53%	100.00%
Pre-tax Return on Net Worth	78.84%	105.75%	138.04%	-6101891.37%
Pre-tax Return on Assets	45.11%	69.92%	91.75%	31.52%

Additional Ratios	Year 1	Year 2	Year 3
Net Profit Margin	10.13%	15.49%	18.89%	n.a
Return on Equity	55.19%	74.03%	96.63%	n.a

Activity Ratios
Accounts Receivable Turnover	5.26	5.26	5.26	n.a
Collection Days	43	59	59	n.a
Accounts Payable Turnover	8.25	12.17	12.17	n.a
Payment Days	27	31	25	n.a
Total Asset Turnover	3.12	3.16	3.40	n.a

Debt Ratios
Debt to Net Worth	0.75	0.51	0.50	n.a
Current Liab. to Liab.	0.65	0.57	0.60	n.a

Liquidity Ratios
Net Working Capital	$121,829	$223,970	$305,294	n.a
Interest Coverage	37.90	47.09	64.63	n.a

Additional Ratios
Assets to Sales	0.32	0.32	0.29	n.a
Current Debt/Total Assets	28%	19%	20%	n.a
Acid Test	0.81	1.55	1.34	n.a
Sales/Net Worth	5.45	4.78	5.12	n.a
Dividend Payout	0.28	0.48	0.73	n.a