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.
Tax rates are included for informational purposes. We carry a small loan burden that will affect this rate minimally.
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.
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.
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.
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.
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.
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.