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Sammy's Family Entertainment Center

Financial Plan

The rapidly growing family entertainment industry is enjoying great success across the nation. These “too good to be true” numbers are, in fact, realistic. Every effort has been made to use conservative numbers in all categories. This point bears repeating; conservative, well researched numbers have been used in all categories.

The lack of inventory and current liabilities will give some readers problems with the “usual” Business Ratios.

7.1 Important Assumptions

History has proven there are two types of businesses that thrive in depressed economic times. These two categories of businesses are alcohol and family entertainment. As far back as the depression of the early 30s, the family entertainment industry has performed well in prosperous times and in economic downturns.

Sammy’s does not assume they have no competition. But it is worthy to note there is a distinct lack of family entertainment in the area. While one might initially think this means such a business will not flourish here, our research has indicated otherwise. For example:

  • The expanding network of new concept miniature golf courses is finding success in rural America. Locations near rural arterials are performing well across the nation.
  • Locations in cities are doing well also. In our own region we see successful examples in St. Andrews and Mashie Woods.

Note the interest is high for current lending. This is in keeping with the conservative nature of this plan. It further demonstrates the basic health of this conceptual business.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 10.00% 8.00% 10.00%
Long-term Interest Rate 8.00% 8.00% 8.00%
Tax Rate 35.50% 35.50% 35.50%
Other 0 0 0

7.2 Break-even Analysis

We see an extremely low variable cost in the Break-even table. While some would consider this an error, we know it to be the beauty of the business. The variable costs are limited to a scorecard (1 cent), a stubby pencil that is used several times, and the replacement of balls (which are used hundreds of times).

The largest variable that determines the level of success in a miniature golf operation is the percent utilization of the golf course during the season. As the marketing plan points out, there are clearly defined peaks and valleys of activity during a typical week. Evenings and weekends tend to produce very high utilization, even full utilization for much of this time. On the other hand, weekday hours (between 10 am and 4 pm) tend to have lower utilization. On average over the full season, most facilities (with a direct population base of 40,000 to 60,000) experience a utilization of approximately 35%. Sammy’s is fortunate to have a population base of over 150,000 within a 15 mile radius (based on the 2000 US Census). In spite of that, we have used rather conservative estimates of utilization (about 20%) in deriving our projected revenues. But it is worthy to note that if our course utilization were only 10% (half of the 20% projection), we would still break even. This huge margin of error should satisfy even the most skeptical reader.

Miniature golf course business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $16,279
Average Percent Variable Cost 9%
Estimated Monthly Fixed Cost $14,842

7.3 Projected Cash Flow

With a first reading, the projected cash flow numbers appear unrealistic. Allow us to reinforce information given in the notes to the sales forecast.

  • The numbers have been verified by Mulligan-Bogey Leisure Builders. Mulligan-Bogey has built over 400 successful courses in the last ten years and they are well aware of the revenues of their courses.
  • The revenue numbers were presented to two separate owners who have opened courses within the last three years. The owners felt the revenue estimates were conservative, but accurate for planning purposes.
  • Even if, for some catastrophic reason, the actual revenues were substantially lower, the reader can see this business will still be profitable, with positive cash balance from the first month.

Although the Cash Spending row in our projections contains only payroll expenses, we may choose to pay some bills (from the Bill Payments row) in fewer than 30 days, once the business is up and running; these would then also be part of cash spending. Our current projections, however, were designed conservatively.

The cost of the golf course includes everything except the scorecards. So no balls or clubs are included in the startup costs.

Along with a $20,000 option, Sammy’s will offer $1 lease for the first year. Although this initially sounds unacceptable, it is worth noting the owner will receive $20,000 for the option, and the property has been vacant and for sale for two years, without an offer.

Underwriters are working on an insurance quote. We have used the best estimate of insurance professionals.

The arcade will operate on a 50-50 split with an arcade company. We have shown the revenue as a sale and the arcade companies share as an expense.

Miniature golf course business plan, financial plan chart image

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $251,018 $254,433 $257,917
Subtotal Cash from Operations $251,018 $254,433 $257,917
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 $251,018 $254,433 $257,917
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $55,450 $56,836 $58,257
Bill Payments $152,088 $148,781 $156,341
Subtotal Spent on Operations $207,538 $205,617 $214,599
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 $11,837 $12,819 $13,883
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $219,375 $218,436 $228,482
Net Cash Flow $31,643 $35,997 $29,435
Cash Balance $45,412 $81,409 $110,844

7.4 Projected Profit and Loss

Estimates for financial projections are prepared with a conservative look at all aspects of the business. We have relied on three external sources for input and validation. We are in contact with two helpful course owners in similar demographic areas. One business has been operating for one year and the other for four years. Their input has been invaluable in comparing theoretical projections with reality. Another excellent source of data is Mulligan-Bogey Leisure Builders; they have built over 400 successful courses and are able to tell a prospective owner what to realistically expect.

It is important to note, based on their past experience, all three sources of information have agreed that our sales projections are either accurate or too low. They also agree the expense projections are either accurate, or too high. Thus we see a conservative forecast, giving both owner and investor a safety buffer.

Accounting and legal costs are projected at $1,250 at the outset for our Sub S Corporation, then another $500 for set-up by the accounting firm. The company will have its books reviewed each quarter; fees for accounting are listed below.

Miniature golf course business plan, financial plan chart image

Miniature golf course business plan, financial plan chart image

Miniature golf course business plan, financial plan chart image

Miniature golf course business plan, financial plan chart image

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $251,018 $254,433 $257,917
Direct Cost of Sales $22,155 $22,325 $22,498
Other Costs of Sales $0 $0 $0
Total Cost of Sales $22,155 $22,325 $22,498
Gross Margin $228,863 $232,108 $235,419
Gross Margin % 91.17% 91.23% 91.28%
Payroll $55,450 $56,836 $58,257
Sales and Marketing and Other Expenses $9,250 $6,150 $6,335
Depreciation $32,640 $32,640 $32,640
Land Lease $33,000 $33,000 $33,000
Utilities $15,550 $16,328 $17,144
Insurance $10,000 $10,500 $11,025
Payroll Taxes $6,654 $6,854 $7,059
Acctg & Legal $2,750 $2,833 $2,917
Operating Supplies $2,510 $2,585 $2,663
Telephone $1,800 $1,854 $1,910
Continuing Education $8,500 $3,500 $3,850
Total Operating Expenses $178,104 $173,079 $176,800
Profit Before Interest and Taxes $50,759 $59,029 $58,619
EBITDA $83,399 $91,669 $91,259
Interest Expense $44,293 $43,340 $42,272
Taxes Incurred $2,295 $5,569 $5,803
Net Profit $4,170 $10,119 $10,543
Net Profit/Sales 1.66% 3.98% 4.09%

7.5 Projected Balance Sheet

The asset side of the balance sheet shows an accurate picture.

The Balance Sheet shows the current liabilities at a zero balance. This is because all purchases and payroll are paid on a cash basis. >/P>

The beauty of this business is beginning to become apparent. There is a reasonably high capital output, but the operation of the business is completed with virtually no inventory to purchase and low labor cost. When the reader combines this information with the fact that the sales forecast is conservative, one can see that success is assured.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Current Assets
Cash $45,412 $81,409 $110,844
Other Current Assets $23,230 $23,230 $23,230
Total Current Assets $68,642 $104,639 $134,074
Long-term Assets
Long-term Assets $649,500 $649,500 $649,500
Accumulated Depreciation $32,640 $65,280 $97,920
Total Long-term Assets $616,860 $584,220 $551,580
Total Assets $685,502 $688,859 $685,654
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $6,669 $12,726 $12,861
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $6,669 $12,726 $12,861
Long-term Liabilities $548,163 $535,344 $521,461
Total Liabilities $554,833 $548,071 $534,323
Paid-in Capital $140,000 $140,000 $140,000
Retained Earnings ($13,501) ($9,331) $788
Earnings $4,170 $10,119 $10,543
Total Capital $130,669 $140,788 $151,332
Total Liabilities and Capital $685,502 $688,859 $685,654
Net Worth $130,669 $140,788 $151,332

7.6 Business Ratios

As noted earlier, this family entertainment business has no inventory and does not do sales on credit. Therefore several ratios normally deemed important by the reader will not show reasonable numbers. The high value for Profit Before Interest and Taxes is not an error.

The following table outlines some of the more important ratios from the Amusement and Recreation industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the NAICS code 713990.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 1.36% 1.37% 4.59%
Percent of Total Assets
Other Current Assets 3.39% 3.37% 3.39% 41.52%
Total Current Assets 10.01% 15.19% 19.55% 51.30%
Long-term Assets 89.99% 84.81% 80.45% 48.70%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 0.97% 1.85% 1.88% 27.43%
Long-term Liabilities 79.97% 77.71% 76.05% 27.45%
Total Liabilities 80.94% 79.56% 77.93% 54.88%
Net Worth 19.06% 20.44% 22.07% 45.12%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 91.17% 91.23% 91.28% 100.00%
Selling, General & Administrative Expenses 1.11% 0.73% 0.74% 63.25%
Advertising Expenses 2.58% 1.69% 1.72% 4.30%
Profit Before Interest and Taxes 20.22% 23.20% 22.73% 4.21%
Main Ratios
Current 10.29 8.22 10.42 1.04
Quick 10.29 8.22 10.42 0.60
Total Debt to Total Assets 80.94% 79.56% 77.93% 58.43%
Pre-tax Return on Net Worth 4.95% 11.14% 10.80% 6.31%
Pre-tax Return on Assets 0.94% 2.28% 2.38% 15.19%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 1.66% 3.98% 4.09% n.a
Return on Equity 3.19% 7.19% 6.97% n.a
Activity Ratios
Accounts Payable Turnover 23.80 12.17 12.17 n.a
Payment Days 27 23 30 n.a
Total Asset Turnover 0.37 0.37 0.38 n.a
Debt Ratios
Debt to Net Worth 4.25 3.89 3.53 n.a
Current Liab. to Liab. 0.01 0.02 0.02 n.a
Liquidity Ratios
Net Working Capital $61,973 $91,913 $121,213 n.a
Interest Coverage 1.15 1.36 1.39 n.a
Additional Ratios
Assets to Sales 2.73 2.71 2.66 n.a
Current Debt/Total Assets 1% 2% 2% n.a
Acid Test 10.29 8.22 10.42 n.a
Sales/Net Worth 1.92 1.81 1.70 n.a
Dividend Payout 0.00 0.00 0.00 n.a