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Equipment Rental icon Retail Property Sub-leasing Business Plan

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Galerie de Beaute

Financial Plan

The cash flow projections show a steady growth. The pace and rate is consistent. At this rate this gives the Management the time needed to research other locations, establish a strong position when researching financing related to purchase the next location.

7.1 Important Assumptions

The General Assumptions assumes current interest rates are 5%, long term interest rates are 7% and  the tax rate is 30%.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 5.00% 5.00% 5.00%
Long-term Interest Rate 7.00% 7.00% 7.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Projected Profit and Loss

Projected profit and loss assumes long-term interest expense at 7%, it also includes owners’ salaries and taxes. Net profit is calculated after tax. Expenses include triple net lease fees of $2/sq ft, which is approximately $9,600 per year. After several months of operation net profit growth from month to month ranges from approximately 10%-20%. After year 1 net profits continue growth in the range of 10%-15%.

Retail property sub-leasing business plan, financial plan chart image

Retail property sub-leasing business plan, financial plan chart image

Retail property sub-leasing business plan, financial plan chart image

Retail property sub-leasing business plan, financial plan chart image

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $212,980 $234,277 $257,705
Direct Cost of Sales $15,061 $16,567 $18,224
Other Costs of Sales $0 $0 $0
Total Cost of Sales $15,061 $16,567 $18,224
Gross Margin $197,918 $217,710 $239,481
Gross Margin % 92.93% 92.93% 92.93%
Expenses
Payroll $48,000 $72,000 $80,000
Sales and Marketing and Other Expenses $3,600 $3,600 $3,600
Depreciation $9,600 $9,600 $9,600
Rent $47,916 $52,701 $55,096
Utilities $29,450 $0 $0
Insurance $1,500 $1,500 $1,500
Maintenance Contract $6,000 $6,000 $6,000
Triple Net Lease Fees $9,600 $9,600 $9,600
Payroll Taxes $8,100 $11,700 $12,900
Other $2,700 $2,700 $2,700
Total Operating Expenses $166,466 $169,401 $180,996
Profit Before Interest and Taxes $31,452 $48,309 $58,485
EBITDA $41,052 $57,909 $68,085
Interest Expense $6,545 $5,740 $4,900
Taxes Incurred $7,472 $12,771 $16,076
Net Profit $17,435 $29,798 $37,510
Net Profit/Sales 8.19% 12.72% 14.56%

7.3 Break-even Analysis

The break-even analysis of Galerie de Beaute is an illustration of the number of units which are required to be leased at an average rent of $975/month. With 12 units leased, this will cover the fixed costs (i.e. rent, insurance, security, maintenance), variable cost related to triple net leasing of $2/sq ft, water and electricity and the owners’ salaries of $4,000/month.

Retail property sub-leasing business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $14,928
Assumptions:
Average Percent Variable Cost 7%
Estimated Monthly Fixed Cost $13,872

7.4 Projected Cash Flow

Cash flow begins with an adequate cash balance; is negative for four months, then becomes positive. One-hundred fifty five thousand dollars has been invested by the partners. The owners will receive year-end dividend payouts beginning in the second fiscal year. The long-term debt of $100,000 will be repaid over the course of eight years at an interest rate of 7%. The net cash flow is listed before interest and taxes.

Retail property sub-leasing business plan, financial plan chart image

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $212,980 $234,277 $257,705
Subtotal Cash from Operations $212,980 $234,277 $257,705
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 $212,980 $234,277 $257,705
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $48,000 $72,000 $80,000
Bill Payments $124,577 $126,147 $129,961
Subtotal Spent on Operations $172,577 $198,147 $209,961
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 $12,000 $12,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $8,000 $12,000
Subtotal Cash Spent $184,577 $218,147 $233,961
Net Cash Flow $28,403 $16,131 $23,744
Cash Balance $68,403 $84,533 $108,277

7.5 Projected Balance Sheet

The nature of Galerie de Beaute’s business is to carry no inventory; salon unit leases are paid current; thus there are no accounts receivables; and limited long-term assets in equipment on the books are depreciated over five years. In the future we may purchase a building for a 2nd location if demand requires. 

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $68,403 $84,533 $108,277
Other Current Assets $2,000 $2,000 $2,000
Total Current Assets $70,403 $86,533 $110,277
Long-term Assets
Long-term Assets $44,000 $44,000 $44,000
Accumulated Depreciation $9,600 $19,200 $28,800
Total Long-term Assets $34,400 $24,800 $15,200
Total Assets $104,803 $111,333 $125,477
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $13,367 $10,100 $10,734
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $13,367 $10,100 $10,734
Long-term Liabilities $88,000 $76,000 $64,000
Total Liabilities $101,367 $86,100 $74,734
Paid-in Capital $140,000 $140,000 $140,000
Retained Earnings ($154,000) ($144,565) ($126,766)
Earnings $17,435 $29,798 $37,510
Total Capital $3,435 $25,234 $50,743
Total Liabilities and Capital $104,803 $111,333 $125,477
Net Worth $3,435 $25,234 $50,743

7.6 Business Ratios

The ratios are not relevant to Galerie de Beaute for several reasons. Galerie de Beaute does not possess inventory to be evaluated in that fashion. Galerie de Beaute possesses limited equipment long-term assets, but does not carry accounts receivables. Because salon malls are fairly new there are no industry indicators for comparisons; therefore the ratio table is not a good indicator. The Industry Profiles shown correspond to SIC code 6512.0200, Operators of Nonresidential Buildings, chosen because our company is sub-leasing business real estate space to independent business entrepreneurs.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.00% 10.00% 3.46%
Percent of Total Assets
Other Current Assets 1.91% 1.80% 1.59% 19.37%
Total Current Assets 67.18% 77.72% 87.89% 22.19%
Long-term Assets 32.82% 22.28% 12.11% 77.81%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 12.75% 9.07% 8.55% 6.80%
Long-term Liabilities 83.97% 68.26% 51.01% 51.69%
Total Liabilities 96.72% 77.34% 59.56% 58.49%
Net Worth 3.28% 22.66% 40.44% 41.51%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 92.93% 92.93% 92.93% 100.00%
Selling, General & Administrative Expenses 80.50% 76.48% 75.05% 63.74%
Advertising Expenses 0.00% 0.00% 0.00% 0.37%
Profit Before Interest and Taxes 14.77% 20.62% 22.69% 3.52%
Main Ratios
Current 5.27 8.57 10.27 1.84
Quick 5.27 8.57 10.27 1.44
Total Debt to Total Assets 96.72% 77.34% 59.56% 68.83%
Pre-tax Return on Net Worth 725.08% 168.70% 105.60% 1.15%
Pre-tax Return on Assets 23.77% 38.24% 42.71% 3.68%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 8.19% 12.72% 14.56% n.a
Return on Equity 507.55% 118.09% 73.92% n.a
Activity Ratios
Accounts Payable Turnover 10.32 12.17 12.17 n.a
Payment Days 27 35 29 n.a
Total Asset Turnover 2.03 2.10 2.05 n.a
Debt Ratios
Debt to Net Worth 29.51 3.41 1.47 n.a
Current Liab. to Liab. 0.13 0.12 0.14 n.a
Liquidity Ratios
Net Working Capital $57,035 $76,434 $99,543 n.a
Interest Coverage 4.81 8.42 11.94 n.a
Additional Ratios
Assets to Sales 0.49 0.48 0.49 n.a
Current Debt/Total Assets 13% 9% 9% n.a
Acid Test 5.27 8.57 10.27 n.a
Sales/Net Worth 62.00 9.28 5.08 n.a
Dividend Payout 0.00 0.27 0.32 n.a