Lowland Heights Roadhouse
Financial Plan
The Lowland Heights Roadhouse expects business to grow steadily until we are at an average of over 60% capacity for the year 2004 with a conservative capacity rate of 50% expected at times. The year 2005 we expect business to grow steadily until we are at an average of over 90% capacity. We will be growing slowly with profits growing at a rate of about 10%. Expenses will be well managed, allowing Lowland Heights Roadhouse to make a profit even if the capacity rate drops as low as 50%.
8.1 Break-even Analysis
We estimate average monthly fixed costs shown below. Peak and off-season will have significant impact on the monthly earnings. For the first year, on-season revenues will offset off-season losses. As Lowland Heights Roadhouse builds its market position among the local patrons, we anticipate that off-season revenues will be enough to break even during that season. Further, a rate increase may be considered in Fiscal Year 2005.
| Break-even Analysis | |
| Monthly Revenue Break-even | $4,103 |
| Assumptions: | |
| Average Percent Variable Cost | 7% |
| Estimated Monthly Fixed Cost | $3,797 |
8.2 Projected Profit and Loss
Below is the Lowland Heights Roadhouse projected income statement for the next three years. As mentioned above, earnings are subject to seasonal fluctuations. The new owners will, however, strengthen the Lowland Heights Roadhouse’s market position among the local communities who will patronize the establishment during the low season, and thus offset the negative impact of the season.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $151,394 | $915,000 | $1,022,000 |
| Direct Cost of Sales | $11,271 | $34,850 | $44,150 |
| Other Production Expenses | $0 | $0 | $0 |
| Total Cost of Sales | $11,271 | $34,850 | $44,150 |
| Gross Margin | $140,123 | $880,150 | $977,850 |
| Gross Margin % | 92.56% | 96.19% | 95.68% |
| Expenses | |||
| Payroll | $2,400 | $251,000 | $266,000 |
| Sales and Marketing and Other Expenses | $1,160 | $80,000 | $100,000 |
| Depreciation | $14,280 | $14,280 | $14,280 |
| Leased Equipment | $0 | $0 | $0 |
| Utilities | $3,725 | $26,000 | $26,000 |
| Insurance | $2,700 | $24,000 | $24,000 |
| Lease | $7,300 | $0 | $0 |
| Mortgage Payment | $14,000 | $62,100 | $65,700 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $45,565 | $457,380 | $495,980 |
| Profit Before Interest and Taxes | $94,558 | $422,770 | $481,870 |
| EBITDA | $108,838 | $437,050 | $496,150 |
| Interest Expense | $22,850 | $20,500 | $17,500 |
| Taxes Incurred | $21,512 | $120,681 | $139,311 |
| Net Profit | $50,195 | $281,589 | $325,059 |
| Net Profit/Sales | 33.16% | 30.77% | 31.81% |
8.3 Projected Cash Flow
The Cash Flow projections are outlined below. Again, these projections are based on our basic assumptions with revenue generation factors carrying the most significant weight regarding the outcome. We are anticipating that we will not need to invest any additional capital into the business with a healthy cash flow in place.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $151,394 | $915,000 | $1,022,000 |
| Subtotal Cash from Operations | $151,394 | $915,000 | $1,022,000 |
| 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 | $151,394 | $915,000 | $1,022,000 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $2,400 | $251,000 | $266,000 |
| Bill Payments | $78,949 | $347,991 | $413,786 |
| Subtotal Spent on Operations | $81,349 | $598,991 | $679,786 |
| 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 | $12,000 | $30,000 | $30,000 |
| Purchase Other Current Assets | $0 | $18,000 | $21,000 |
| Purchase Long-term Assets | $0 | $20,000 | $60,000 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $93,349 | $666,991 | $790,786 |
| Net Cash Flow | $58,044 | $248,009 | $231,214 |
| Cash Balance | $281,627 | $529,636 | $760,850 |
8.4 Projected Balance Sheet
The following is a projected Balance Sheet showing sufficient growth and a very acceptable financial position.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $281,627 | $529,636 | $760,850 |
| Inventory | $1,199 | $3,707 | $4,697 |
| Other Current Assets | $9,827 | $27,827 | $48,827 |
| Total Current Assets | $292,653 | $561,170 | $814,373 |
| Long-term Assets | |||
| Long-term Assets | $15,206 | $35,206 | $95,206 |
| Accumulated Depreciation | $14,280 | $28,560 | $42,840 |
| Total Long-term Assets | $926 | $6,646 | $52,366 |
| Total Assets | $293,579 | $567,817 | $866,740 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $7,815 | $30,464 | $34,327 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $744 | $744 | $744 |
| Subtotal Current Liabilities | $8,559 | $31,207 | $35,071 |
| Long-term Liabilities | $220,000 | $190,000 | $160,000 |
| Total Liabilities | $228,559 | $221,207 | $195,071 |
| Paid-in Capital | $78,000 | $78,000 | $78,000 |
| Retained Earnings | ($63,175) | ($12,980) | $268,609 |
| Earnings | $50,195 | $281,589 | $325,059 |
| Total Capital | $65,020 | $346,609 | $671,668 |
| Total Liabilities and Capital | $293,579 | $567,817 | $866,740 |
| Net Worth | $65,020 | $346,609 | $671,668 |
8.5 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7011, Hotels and Motels, are shown for comparison.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 504.38% | 11.69% | 0.21% |
| Percent of Total Assets | ||||
| Inventory | 0.41% | 0.65% | 0.54% | 1.31% |
| Other Current Assets | 3.35% | 4.90% | 5.63% | 28.59% |
| Total Current Assets | 99.68% | 98.83% | 93.96% | 33.99% |
| Long-term Assets | 0.32% | 1.17% | 6.04% | 66.01% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 2.92% | 5.50% | 4.05% | 10.26% |
| Long-term Liabilities | 74.94% | 33.46% | 18.46% | 25.87% |
| Total Liabilities | 77.85% | 38.96% | 22.51% | 36.13% |
| Net Worth | 22.15% | 61.04% | 77.49% | 63.87% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 92.56% | 96.19% | 95.68% | 100.00% |
| Selling, General & Administrative Expenses | 83.02% | 65.42% | 63.87% | 70.85% |
| Advertising Expenses | 39.63% | 8.74% | 9.78% | 1.66% |
| Profit Before Interest and Taxes | 62.46% | 46.20% | 47.15% | 1.26% |
| Main Ratios | ||||
| Current | 34.19 | 17.98 | 23.22 | 1.68 |
| Quick | 34.05 | 17.86 | 23.09 | 1.29 |
| Total Debt to Total Assets | 77.85% | 38.96% | 22.51% | 50.04% |
| Pre-tax Return on Net Worth | 110.28% | 116.06% | 69.14% | 0.88% |
| Pre-tax Return on Assets | 24.43% | 70.85% | 53.58% | 1.76% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 33.16% | 30.77% | 31.81% | n.a |
| Return on Equity | 77.20% | 81.24% | 48.40% | n.a |
| Activity Ratios | ||||
| Inventory Turnover | 7.85 | 14.21 | 10.51 | n.a |
| Accounts Payable Turnover | 10.97 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 19 | 28 | n.a |
| Total Asset Turnover | 0.52 | 1.61 | 1.18 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 3.52 | 0.64 | 0.29 | n.a |
| Current Liab. to Liab. | 0.04 | 0.14 | 0.18 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $284,094 | $529,963 | $779,302 | n.a |
| Interest Coverage | 4.14 | 20.62 | 27.54 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 1.94 | 0.62 | 0.85 | n.a |
| Current Debt/Total Assets | 3% | 5% | 4% | n.a |
| Acid Test | 34.05 | 17.86 | 23.09 | n.a |
| Sales/Net Worth | 2.33 | 2.64 | 1.52 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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