Massage Tools
Financial Plan
The financial picture is quite encouraging. We have been slow to take on debt, but our credit line with the bank is supported by assets.
8.1 Important Assumptions
The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:
- We assume a slow-growth economy, without major recession.
- We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables.
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 | 10.00% | 10.00% | 10.00% |
Tax Rate | 30.00% | 30.00% | 30.00% |
Other | 0 | 0 | 0 |
8.2 Break-even Analysis
The break-even analysis shows that Massage Tools has a good balance of fixed costs and sufficient sales strength to remain healthy. Our break-even point is just over $6,000 per month for the first year.

Break-even Analysis | |
Monthly Revenue Break-even | $6,090 |
Assumptions: | |
Average Percent Variable Cost | 45% |
Estimated Monthly Fixed Cost | $3,359 |
8.3 Projected Profit and Loss
We do expect a significant increase in profitability next year, and in the future, because we will have established ourselves in the market. Our higher sales volume will lower our cost of goods and increase our gross margin. This increase in gross margin is important to profitability.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $182,940 | $199,352 | $217,254 |
Direct Cost of Sales | $82,059 | $89,512 | $97,650 |
Other Costs of Goods | $11 | $0 | $0 |
Total Cost of Sales | $82,070 | $89,512 | $97,650 |
Gross Margin | $100,870 | $109,840 | $119,604 |
Gross Margin % | 55.14% | 55.10% | 55.05% |
Expenses | |||
Payroll | $5,700 | $9,000 | $10,000 |
Sales and Marketing and Other Expenses | $7,800 | $9,500 | $12,500 |
Depreciation | $0 | $0 | $0 |
Rent | $10,200 | $7,200 | $8,500 |
Utilities | $2,400 | $2,800 | $3,200 |
Insurance | $4,200 | $4,750 | $5,000 |
Payroll Taxes | $855 | $1,350 | $1,500 |
Commission | $9,147 | $9,968 | $10,863 |
Total Operating Expenses | $40,302 | $44,568 | $51,563 |
Profit Before Interest and Taxes | $60,568 | $65,272 | $68,041 |
EBITDA | $60,568 | $65,272 | $68,041 |
Interest Expense | ($163) | ($450) | ($750) |
Taxes Incurred | $18,219 | $19,717 | $20,637 |
Net Profit | $42,511 | $46,005 | $48,154 |
Net Profit/Sales | 23.24% | 23.08% | 22.16% |
8.4 Projected Cash Flow
We expect to manage cash flow over the next three years with new investment this year. The additional financing resources are required to finance the working capital of a growing business. However, the investment is small due to the low overhead.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $182,940 | $199,352 | $217,254 |
Subtotal Cash from Operations | $182,940 | $199,352 | $217,254 |
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 | $182,940 | $199,352 | $217,254 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $5,700 | $9,000 | $10,000 |
Bill Payments | $124,321 | $147,772 | $159,059 |
Subtotal Spent on Operations | $130,021 | $156,772 | $169,059 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $3,000 | $3,000 | $3,000 |
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 | $133,021 | $159,772 | $172,059 |
Net Cash Flow | $49,919 | $39,580 | $45,195 |
Cash Balance | $62,619 | $102,198 | $147,394 |
8.5 Projected Balance Sheet
Although we will not begin making a profit until April of this year, we are pleased that we will begin to recoup our investment in only four months. The critical piece of this success is the large margin on each product sold as well as the low operational expenses.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $62,619 | $102,198 | $147,394 |
Inventory | $11,891 | $12,971 | $14,150 |
Other Current Assets | $5,000 | $5,000 | $5,000 |
Total Current Assets | $79,510 | $120,169 | $166,544 |
Long-term Assets | |||
Long-term Assets | $0 | $0 | $0 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $0 | $0 | $0 |
Total Assets | $79,510 | $120,169 | $166,544 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $14,298 | $11,953 | $13,174 |
Current Borrowing | ($3,000) | ($6,000) | ($9,000) |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $11,298 | $5,953 | $4,174 |
Long-term Liabilities | $0 | $0 | $0 |
Total Liabilities | $11,298 | $5,953 | $4,174 |
Paid-in Capital | $45,000 | $45,000 | $45,000 |
Retained Earnings | ($19,300) | $23,211 | $69,217 |
Earnings | $42,511 | $46,005 | $48,154 |
Total Capital | $68,211 | $114,217 | $162,370 |
Total Liabilities and Capital | $79,510 | $120,169 | $166,544 |
Net Worth | $68,211 | $114,217 | $162,370 |
8.6 Business Ratios
Standard business ratios for Health and Personal Care Stores (SIC 5047) are included in the following table. The ratios show a plan for balanced, healthy growth. Our return on sales and return on assets remain as strong as ever, actually increasing in percentage terms by the same year.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 8.97% | 8.98% | 6.98% |
Percent of Total Assets | ||||
Inventory | 14.96% | 10.79% | 8.50% | 39.84% |
Other Current Assets | 6.29% | 4.16% | 3.00% | 22.68% |
Total Current Assets | 100.00% | 100.00% | 100.00% | 91.25% |
Long-term Assets | 0.00% | 0.00% | 0.00% | 8.75% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 14.21% | 4.95% | 2.51% | 37.11% |
Long-term Liabilities | 0.00% | 0.00% | 0.00% | 10.41% |
Total Liabilities | 14.21% | 4.95% | 2.51% | 47.52% |
Net Worth | 85.79% | 95.05% | 97.49% | 52.48% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 55.14% | 55.10% | 55.05% | 30.78% |
Selling, General & Administrative Expenses | 31.96% | 32.18% | 33.13% | 15.53% |
Advertising Expenses | 0.00% | 0.00% | 0.00% | 1.18% |
Profit Before Interest and Taxes | 33.11% | 32.74% | 31.32% | 2.01% |
Main Ratios | ||||
Current | 7.04 | 20.19 | 39.90 | 2.24 |
Quick | 5.98 | 18.01 | 36.51 | 0.99 |
Total Debt to Total Assets | 14.21% | 4.95% | 2.51% | 52.38% |
Pre-tax Return on Net Worth | 89.03% | 57.54% | 42.37% | 6.06% |
Pre-tax Return on Assets | 76.38% | 54.69% | 41.31% | 12.72% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 23.24% | 23.08% | 22.16% | n.a |
Return on Equity | 62.32% | 40.28% | 29.66% | n.a |
Activity Ratios | ||||
Inventory Turnover | 9.88 | 7.20 | 7.20 | n.a |
Accounts Payable Turnover | 9.69 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 33 | 29 | n.a |
Total Asset Turnover | 2.30 | 1.66 | 1.30 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.17 | 0.05 | 0.03 | n.a |
Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $68,211 | $114,217 | $162,370 | n.a |
Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.43 | 0.60 | 0.77 | n.a |
Current Debt/Total Assets | 14% | 5% | 3% | n.a |
Acid Test | 5.98 | 18.01 | 36.51 | n.a |
Sales/Net Worth | 2.68 | 1.75 | 1.34 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |