Phoebe's Photo Studio will become profitable in its fifth month of operation, by May 2006. It will grow vigorously each year after that to its optimum level during 2008. This optimum level will produce sales sufficient for a generous net profit, even with the owner's and employee's salaries.
The business will be funded with an investment by the owner and loan secured by real estate.
The start-up requirements for Phoebe's Photo Studio including start-up expenses, current assets, cash on hand, and long-term assets were presented earlier in this plan. Start-up funding is presented in the table below.
The owner, Phoebe Peters will provide a seed investment. A loan for the balance will be secured by real estate.
We assume a stable economy with reasonable growth and a steady rise in interest rates. We also assume that our competitors won't adopt our strategy within the first two years. After that, our approach is likely to make a change in what our competitors charge for digital files, because they'll see it's effective in bringing in repeat business as well as new business.
The average monthly expenses are shown in the table below. With low average direct unit costs, we will need to make the monthly sales displayed to break even. We expect to pass the break-even point in May.
The benchmarks chart, below, shows a quick comparison of Sales, Gross Margin %, and Operating Expenses over the next three years. Although Operating Expenses will rise slightly in future years, they are not rising proportionally with sales growth. The higher operating cost ratio in the first reflects the higher costs of advertising to establish visibility at the start of the business.
This business is projected to become profitable in May 2006, after the start-up advertising is completed and customers begin to discover the service. For the year 2006, the business will be profitable. It will grow at a vigorous rate over the next two years.
Our utility costs include monthly charges for high-speed Internet access via a corporate account, which will essential to delivering our finished images to most of our customers.
The optimum level of profitability for this one-photographer shop is reached in 2008. Our profit margins are much higher than the industry average because of our innovative product-delivery options - digital images require no film, no paper, and no chemicals, just storage units (CDs and DVDs) and delivery (computer and Internet access).
Cash reserves reach the minimum point in March 2006. From that point, cash flow is positive, reaching a robust level by the end of 2008.
As sales increase, we will supplement our prop and furniture inventory with the purchase of new items as current assets.
Net worth becomes positive in the second year. It then steadily builds through the end of this plan, in 2008. There is an excellent return on equity by the third year.
Phoebe's Photo Studios is part of the photographic portrait studio industry (SIC Code 7221). Industry standard growth is currently 7.3% annually. Phoebe's Photo Studio is projected to grow weed-like annually by seizing its target market early and building on it.
Long-term assets are a smaller percentage of this business because expensive printing equipment isn't required. High resolution printing will be outsourced and is included under Cost of Goods Sold.