Our biggest savings of the year
The purpose of this business plan is to estimate start-up and ongoing costs; identify revenue streams; and forecast net cash flow and profits. The venture will be funded solely through paid-in capital provided by the owner.
We estimate our monthly revenue break-even at $66,395, with a per-unit variable cost of 60% and fixed monthly costs of $26,558. Total net profit for our first year is estimated at a negative ($161,031) due to start-up expenses. Our second year forecast shows a positive net profit of $122,498, increasing in our third year to $129,891. Start-up expenses of $40,260 and initial working capital of $150,000 has been provided by owner Wes Anthony.
Our net cash flow for the first year is projected at $22,084, increasing to $103,664 in our second year and $82,157 in our third year. We project ending our first year with a cash balance of $23,084, increasing to $126,748 in our second year and $208,905 in our third year. We anticipate our accounting net worth at the end of our first year to be a negative ($10,031), increasing to $62,468 in our second year and $142,359 in our third year.
The owner is aware of the highly risky nature of launching an entertainment-based restaurant establishment. If the venture fails, the owner’s paid-in capital and expenses may not be recovered. If the venture is undercapitalized and requires more working capital, the owner will consider bringing on investment partners. The owner will also review the return-on-investment for personally providing more paid-in capital. In the event that net profitability cannot be attained, the owner will take sequential steps to exit the venture, as outlined in the Exit Strategy section of the Financial Plan.
The owner’s initial investment of $40,260 in start-up capital, along with paid-in capital of $150,000, results in a total investment of $190,260.
7.1 Important Assumptions
The company does not anticipate securing a conventional loan for funding purposes. Our tax rate is initially set at 0% pending further analysis.
Our payroll expense begins in August 2004 as we prepare for our grand opening. Payroll taxes and employee benefits are forecast at 7% of payroll and identified in the Profit and Loss table of this financial plan.
New accounts payable begin in July 2004 with the leasing of space and initial build-out expenses. We anticipate accounts payable for inventory to begin in July 2004.
Our collections days are estimated at 2 days based on credit card (15% of sales) and cash (85% of sales) merchant account processing. We estimate our payment days to be 30 days to our accounts payable. Our inventory turnover is estimated at 7 days.
All purchased equipment, as well as the build-out costs, will be expensed, which will reduce the asset base of the company.
7.2 Break-even Analysis
We estimate our monthly revenue break-even at $66,395, with a per-unit variable cost of 60% and fixed monthly costs of $26,558. Our targeted break-even month is October 2005.
|Monthly Revenue Break-even||$64,958|
|Average Percent Variable Cost||60%|
|Estimated Monthly Fixed Cost||$25,983|
7.3 Projected Profit and Loss
We anticipate a gross margin of 40% beginning with sales revenue generated in Sept 2004. Gross margin for our first year is projected at approximately $157,600, increasing in our second year to approximately $488,800 and $523,000 in our third year.
Total net profit for our first year is estimated at approximately negative ($161,000) due to start-up expenses. Our second year forecast shows a positive net profit of approximately $122,400, increasing in our third year to $129,800.
Our sales and marketing expense will begin in July 2004 as we start marketing efforts for our grand opening in September 2004. We anticipate a budget of 1% of our gross sales to support our marketing efforts.
Payroll begins in August 2004, along with payroll taxes and employee benefits estimated at 7%. We plan to spend the month of August training all employees prior to our grand opening.
We have allocated $20,000 toward lease improvements and our build-out of the leased space prior to our grand opening. This amount includes construction costs for renovating the existing space to accommodate a stage area, along with making minor space adjustments within the venue.
Equipment and Furnishings are allocated at $30,000 for our first year. Equipment includes Lighting, Sound, and Audio Video expenditures for the build-out of the venue.
Rent is based on securing a 6,600 square foot facility with a monthly rent of approximately $8,000. To secure the lease we anticipate paying first month’s rent and security deposit in July 2004. We plan to negotiate favorable tenant improvement allowances with the owner, including a percentage of the monthly rent discounted as a build-out credit. For this reason, the P&L reflects a monthly rent of $6,000 for the first year.
We anticipate outsourcing most of our general and administrative functions, such as payroll and other day-to-day concerns. This allocation is included in the Profit & Loss as a General And Administrative cost, set initially at $750 per month.
We have allocated an additional $500 per month above operating expenses for ‘Other’ unanticipated costs. This allocation begins in our first month of operations and is regarded as an ongoing monthly expense.
|Pro Forma Profit and Loss|
|Year 1||Year 2||Year 3|
|Direct Cost of Sales||$236,494||$733,298||$784,629|
|Other Costs of Goods||$0||$0||$0|
|Total Cost of Sales||$236,494||$733,298||$784,629|
|Gross Margin %||40.00%||40.00%||40.00%|
|Sales & Marketing and Other Expenses||$25,514||$46,967||$50,255|
|Building Build-Out ($20,000)||$20,000||$2,000||$2,000|
|Lights, Audio, Bumper||$30,000||$2,000||$2,000|
|Permits & Licenses (Beer & Wine)||$5,000||$500||$500|
|Legal and Accounting||$6,000||$6,000||$6,000|
|Payroll Taxes & Employee Benefits||$1,786||$3,288||$3,518|
|General and Adminstrative Expenses||$9,000||$9,000||$9,000|
|Total Operating Expenses||$311,800||$357,755||$383,273|
|Profit Before Interest and Taxes||($154,137)||$131,111||$139,813|
7.4 Projected Cash Flow
Initial capital of $40,260 has been provided by the owner. Additional working capital requirements of $150,000 until we achieve break-even are also provided by the owner.
Break-even is expected in October of 2005. In the event that break-even is not achieved in that month, the owner will review the risk and return for providing additional equity. Additionally, the owner may consider bringing on investment partners to generate working capital.
The owner anticipates paying out $50,000 dollar dividends starting at the end of the second year of operation, when the company reaches its full sales potential.
Our net cash flow for the first year is projected at $22,084, increasing to approximately $103,600 in our second year and $82,000 in our third year. We project ending our first year with a cash balance of $23,000, increasing to almost $117,000 in our second year and approximately $198,600 in our third year.
|Pro Forma Cash Flow|
|Year 1||Year 2||Year 3|
|Cash from Operations|
|Subtotal Cash from Operations||$394,157||$1,222,164||$1,307,715|
|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||$150,000||$0||$0|
|Subtotal Cash Received||$544,157||$1,222,164||$1,307,715|
|Expenditures||Year 1||Year 2||Year 3|
|Expenditures from Operations|
|Subtotal Spent on Operations||$515,847||$1,069,739||$1,166,181|
|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||$0||$0||$0|
|Purchase Other Current Assets||$0||$0||$0|
|Purchase Long-term Assets||$0||$0||$0|
|Subtotal Cash Spent||$515,847||$1,119,739||$1,216,181|
|Net Cash Flow||$28,310||$102,425||$91,535|
7.5 Projected Balance Sheet
With a starting cash balance of $1,000, we anticipate that our total assets for our first year will be approximately $30,500, increasing to $149,900 in our second year and $223,500 in our third year. We anticipate our liabilities to total $40,600 in our first year, increasing to approximately $77,700 in our second year and $81,100 in our third year.
We anticipate our accounting net worth at the end of our first year to be approximately negative ($10,000), increasing to a positive $62,400 in our second year and $142,300 in our third year.
|Pro Forma Balance Sheet|
|Year 1||Year 2||Year 3|
|Other Current Assets||$0||$0||$0|
|Total Current Assets||$36,804||$154,971||$248,132|
|Total Long-term Assets||$0||$0||$0|
|Liabilities and Capital||Year 1||Year 2||Year 3|
|Other Current Liabilities||$0||$0||$0|
|Subtotal Current Liabilities||$39,940||$76,997||$80,345|
|Total Liabilities and Capital||$36,804||$154,971||$248,132|
7.6 Exit Strategy and Risk Assessment
The owner is aware of the highly risky nature of launching an entertainment-based restaurant establishment. If the venture fails, the owner’s paid-in capital and expenses may not be recovered.
The venture’s actual revenue will be tracked against projections on a month-to-month basis. If net profitability is not in-line with forecasts, management and operational adjustments will be made to address the issues.
If the venture is undercapitalized and requires more working capital, the owner will consider bringing on investment partners. The owner will also review the return-on-investment for personally providing more paid-in capital.
In the event that net profitability cannot be attained, the owner will take the following sequential steps to exit the venture:
1. The owner will attempt to sell the venture outright to a suitable buyer.
2. If a buyer cannot be found, the owner will liquidate all viable assets, including the establishment’s liquor license.
3. Capital raised through asset liquidation will be used to reduce possible debt. All debt will be negotiated prior to settlement.
4. If debts cannot be eliminated, the owner will discuss corporate bankruptcy options with legal counsel.
7.7 Business Ratios
The table below summarizes key business ratios of E3 Playhouse and compares with the average for the Entertainment services industry. As the company establishes itself financially, most of our business ratios will come into line with the industry averages.
|Year 1||Year 2||Year 3||Industry Profile|
|Percent of Total Assets|
|Other Current Assets||0.00%||0.00%||0.00%||34.79%|
|Total Current Assets||100.00%||100.00%||100.00%||46.78%|
|Percent of Sales|
|Selling, General & Administrative Expenses||67.36%||64.67%||62.20%||75.20%|
|Profit Before Interest and Taxes||-39.11%||10.73%||10.69%||2.40%|
|Total Debt to Total Assets||108.52%||49.68%||32.38%||63.28%|
|Pre-tax Return on Net Worth||4913.71%||168.15%||83.33%||1.80%|
|Pre-tax Return on Assets||-418.81%||84.60%||56.35%||4.89%|
|Additional Ratios||Year 1||Year 2||Year 3|
|Net Profit Margin||-39.11%||10.73%||10.69%||n.a|
|Return on Equity||0.00%||168.15%||83.33%||n.a|
|Accounts Payable Turnover||10.81||12.17||12.17||n.a|
|Total Asset Turnover||10.71||7.89||5.27||n.a|
|Debt to Net Worth||0.00||0.99||0.48||n.a|
|Current Liab. to Liab.||1.00||1.00||1.00||n.a|
|Net Working Capital||($3,137)||$77,974||$167,787||n.a|
|Assets to Sales||0.09||0.13||0.19||n.a|
|Current Debt/Total Assets||109%||50%||32%||n.a|