Adorable Pet Photography
Financial Plan
Photography businesses usually require an enormous initial investment in equipment and facilities. The owner of Adorable Pet Photography has been an avid photographer for many years and possesses professional-level photographic equipment to get the business off to a good start with minimal debt. In addition, the will be a home-based business, with no rent or lease commitment. The charts and tables that follow demonstrate that these up-front investments allow Adorable Pet Photography to function with limited debt and overhead. This gives the business a quicker break-even point and increased profit margins from the start. As Adorable Pet Photography grows, a debt-free philosophy will be maintained.
7.1 Important Assumptions
Tax rates are included for informational purposes. We carry a small loan burden that will affect this rate minimally.
General Assumptions | |||
Year 1 | Year 2 | Year 3 | |
Plan Month | 1 | 2 | 3 |
Current Interest Rate | 8.00% | 8.00% | 8.00% |
Long-term Interest Rate | 10.00% | 10.00% | 10.00% |
Tax Rate | 30.00% | 30.00% | 30.00% |
Other | 0 | 0 | 0 |
7.2 Key Financial Indicators
The following chart benchmarks four key indicators, including sales, gross margin, operating expenses, and inventory turnover. These were chosen due to their significant impact on the health of the business. These are not focused on gross amounts, but on year-to-year changes. The chart uses indicator values that are set to compare changes with the base year showing up as 1.00, and all successive years showing up as multiples from the base.

7.3 Projected Profit and Loss
Adorable Pet Photography expects a 15 percent annual growth rate for the first three years due to the owner’s already established reputation and contacts. Overhead is expected to be stable, with the exception of the receptionist/photographer’s assistant becoming a full-time position in fiscal year 2003. This allows a predicted 20 percent increase in profits before interest and taxes in the second year of business; this figure remains stable even with the increase in personnel expense the third year. It should be noted that the owner’s salary will be taken out of this figure.


Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $88,250 | $99,340 | $116,175 |
Direct Cost of Sales | $27,105 | $31,777 | $36,087 |
Other | $0 | $0 | $0 |
Total Cost of Sales | $27,105 | $31,777 | $36,087 |
Gross Margin | $61,145 | $67,563 | $80,088 |
Gross Margin % | 69.29% | 68.01% | 68.94% |
Expenses | |||
Payroll | $11,000 | $12,000 | $24,000 |
Sales and Marketing and Other Expenses | $9,900 | $7,500 | $7,600 |
Depreciation | $0 | $0 | $0 |
Leased Equipment | $0 | $0 | $0 |
Utilities | $600 | $630 | $650 |
Insurance | $1,800 | $1,800 | $1,800 |
Rent | $0 | $0 | $0 |
Payroll Taxes | $0 | $0 | $0 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $23,300 | $21,930 | $34,050 |
Profit Before Interest and Taxes | $37,845 | $45,633 | $46,038 |
EBITDA | $37,845 | $45,633 | $46,038 |
Interest Expense | $696 | $512 | $320 |
Taxes Incurred | $11,145 | $13,536 | $13,715 |
Net Profit | $26,004 | $31,584 | $32,002 |
Net Profit/Sales | 29.47% | 31.79% | 27.55% |
7.4 Break-even Analysis
The break-even point will appear more rapidly for Adorable Pet Photography than for other types of home-based businesses since start-up costs are limited and there is little to no staff to pay in the beginning. January is expected to be the slowest month of the year, since this is the post-holiday slump.

Break-even Analysis | |
Monthly Units Break-even | 118 |
Monthly Revenue Break-even | $2,802 |
Assumptions: | |
Average Per-Unit Revenue | $23.76 |
Average Per-Unit Variable Cost | $7.30 |
Estimated Monthly Fixed Cost | $1,942 |
7.5 Projected Cash Flow
Our cash situation is optimum. Although Adorable Pet Photography begins with little extra cash, our increased growth allows the business to gain financial ground quickly. The cash flow is negative for only two months of the first year, during the expected off-season months; the business will be prepared for this with cash reserves, and will maintain positive cash balances.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $88,250 | $99,340 | $116,175 |
Subtotal Cash from Operations | $88,250 | $99,340 | $116,175 |
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 | $1,200 | $0 | $0 |
Subtotal Cash Received | $89,450 | $99,340 | $116,175 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $11,000 | $12,000 | $24,000 |
Bill Payments | $48,798 | $54,280 | $60,108 |
Subtotal Spent on Operations | $59,798 | $66,280 | $84,108 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $2,400 | $2,400 | $2,400 |
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 | $62,198 | $68,680 | $86,508 |
Net Cash Flow | $27,252 | $30,660 | $29,667 |
Cash Balance | $40,752 | $71,412 | $101,079 |
7.6 Projected Balance Sheet
Adorable Pet Photography is set up for business. According to the numbers, there is steady accumulation of cash and assets. No major capital investments are expected throughout the early years, so the liabilities remain limited. Net worth steadily grows.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $40,752 | $71,412 | $101,079 |
Inventory | $1,864 | $2,186 | $2,482 |
Other Current Assets | $10,000 | $10,000 | $10,000 |
Total Current Assets | $52,616 | $83,598 | $113,561 |
Long-term Assets | |||
Long-term Assets | $0 | $0 | $0 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $0 | $0 | $0 |
Total Assets | $52,616 | $83,598 | $113,561 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $2,812 | $4,609 | $4,970 |
Current Borrowing | $7,600 | $5,200 | $2,800 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $10,412 | $9,809 | $7,770 |
Long-term Liabilities | $0 | $0 | $0 |
Total Liabilities | $10,412 | $9,809 | $7,770 |
Paid-in Capital | $23,550 | $23,550 | $23,550 |
Retained Earnings | ($7,350) | $18,654 | $50,239 |
Earnings | $26,004 | $31,584 | $32,002 |
Total Capital | $42,204 | $73,789 | $105,791 |
Total Liabilities and Capital | $52,616 | $83,598 | $113,561 |
Net Worth | $42,204 | $73,789 | $105,791 |
7.7 Business Ratios
The following table includes Industry Profile statistics for the photographic studios/portraits industry, as determined by the Standard Industry Classifications (SIC) Index code 7221. These statistics show a comparison of industry standards and the key ratios for this plan.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 12.57% | 16.95% | 10.40% |
Percent of Total Assets | ||||
Inventory | 3.54% | 2.61% | 2.19% | 5.30% |
Other Current Assets | 19.01% | 11.96% | 8.81% | 40.60% |
Total Current Assets | 100.00% | 100.00% | 100.00% | 56.60% |
Long-term Assets | 0.00% | 0.00% | 0.00% | 43.40% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 19.79% | 11.73% | 6.84% | 27.60% |
Long-term Liabilities | 0.00% | 0.00% | 0.00% | 25.80% |
Total Liabilities | 19.79% | 11.73% | 6.84% | 53.40% |
Net Worth | 80.21% | 88.27% | 93.16% | 46.60% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 69.29% | 68.01% | 68.94% | 0.00% |
Selling, General & Administrative Expenses | 39.42% | 35.46% | 40.72% | 77.70% |
Advertising Expenses | 8.50% | 5.03% | 4.30% | 2.00% |
Profit Before Interest and Taxes | 42.88% | 45.94% | 39.63% | 4.80% |
Main Ratios | ||||
Current | 5.05 | 8.52 | 14.62 | 1.83 |
Quick | 4.87 | 8.30 | 14.30 | 1.26 |
Total Debt to Total Assets | 19.79% | 11.73% | 6.84% | 53.40% |
Pre-tax Return on Net Worth | 88.02% | 61.15% | 43.22% | 7.60% |
Pre-tax Return on Assets | 70.60% | 53.97% | 40.26% | 16.20% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 29.47% | 31.79% | 27.55% | n.a |
Return on Equity | 61.62% | 42.80% | 30.25% | n.a |
Activity Ratios | ||||
Inventory Turnover | 8.97 | 15.69 | 15.46 | n.a |
Accounts Payable Turnover | 18.35 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 24 | 29 | n.a |
Total Asset Turnover | 1.68 | 1.19 | 1.02 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.25 | 0.13 | 0.07 | n.a |
Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $42,204 | $73,789 | $105,791 | n.a |
Interest Coverage | 54.38 | 89.13 | 143.87 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.60 | 0.84 | 0.98 | n.a |
Current Debt/Total Assets | 20% | 12% | 7% | n.a |
Acid Test | 4.87 | 8.30 | 14.30 | n.a |
Sales/Net Worth | 2.09 | 1.35 | 1.10 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |