McKenzie Roller Rink
Financial Plan
The financial plan contains these essential factors:
- A growth rate of 5% for the year 2004.
- Do not depend on credit lines to support cash flow.
- An average sales per business day (305 days per year) in excess of $1,000.
8.1 Important Assumptions
The financial plan depends on Important Assumptions, most of which are shown in the following table. The key underlying assumptions are:
- We assume a slow-growth economy, without major recession.
- We assume there will not be any direct competitors for at least several years.
- We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables.
| 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 | 15.00% | 15.00% | 15.00% |
| Tax Rate | 30.00% | 30.00% | 30.00% |
| Other | 0 | 0 | 0 |
8.2 Break-even Analysis
Our Break-even Analysis is shown below.
| Break-even Analysis | |
| Monthly Revenue Break-even | $35,022 |
| Assumptions: | |
| Average Percent Variable Cost | 11% |
| Estimated Monthly Fixed Cost | $31,332 |
8.3 Projected Profit and Loss
The most important assumption in the Projected Profit and Loss statement is a steady growth into 2006. The increase in gross margin is based on an agressive marketing approach, and it is critical.
Month-by-month assumptions for profit and loss are included in the appendix.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $405,000 | $467,000 | $515,000 |
| Direct Cost of Sales | $42,680 | $46,840 | $53,100 |
| Other Costs of Goods | $0 | $0 | $0 |
| Total Cost of Sales | $42,680 | $46,840 | $53,100 |
| Gross Margin | $362,320 | $420,160 | $461,900 |
| Gross Margin % | 89.46% | 89.97% | 89.69% |
| Expenses | |||
| Payroll | $205,200 | $219,000 | $234,000 |
| Sales and Marketing and Other Expenses | $50,000 | $60,000 | $65,000 |
| Depreciation | $0 | $0 | $0 |
| Rent | $42,000 | $45,000 | $48,000 |
| Utilities | $12,000 | $14,000 | $14,000 |
| Insurance | $12,000 | $14,000 | $16,000 |
| Payroll Taxes | $30,780 | $32,850 | $35,100 |
| Other | $24,000 | $30,000 | $35,000 |
| Total Operating Expenses | $375,980 | $414,850 | $447,100 |
| Profit Before Interest and Taxes | ($13,660) | $5,310 | $14,800 |
| EBITDA | ($13,660) | $5,310 | $14,800 |
| Interest Expense | $0 | $0 | $0 |
| Taxes Incurred | $0 | $1,593 | $4,440 |
| Net Profit | ($13,660) | $3,717 | $10,360 |
| Net Profit/Sales | -3.37% | 0.80% | 2.01% |
8.4 Projected Cash Flow
The following table and chart illustrate McKenzie Roller Rink’s cash flow situation. Cash Flow will be negative for year one as we start up the business and slowly create awareness about our facility. We have planned for this with enough extra cash to keep the cash balance positive.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $405,000 | $467,000 | $515,000 |
| Subtotal Cash from Operations | $405,000 | $467,000 | $515,000 |
| 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 | $405,000 | $467,000 | $515,000 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $205,200 | $219,000 | $234,000 |
| Bill Payments | $207,429 | $243,718 | $269,060 |
| Subtotal Spent on Operations | $412,629 | $462,718 | $503,060 |
| 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 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $412,629 | $462,718 | $503,060 |
| Net Cash Flow | ($7,629) | $4,282 | $11,940 |
| Cash Balance | $86,371 | $90,653 | $102,593 |
8.5 Projected Balance Sheet
The balance sheet is quite solid. We do not project any real trouble meeting our debt obligations – as long as we can achieve our specific objectives.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $86,371 | $90,653 | $102,593 |
| Inventory | $4,114 | $4,515 | $5,118 |
| Other Current Assets | $2,000 | $2,000 | $2,000 |
| Total Current Assets | $92,485 | $97,168 | $109,711 |
| Long-term Assets | |||
| Long-term Assets | $0 | $0 | $0 |
| Accumulated Depreciation | $0 | $0 | $0 |
| Total Long-term Assets | $0 | $0 | $0 |
| Total Assets | $92,485 | $97,168 | $109,711 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $19,145 | $20,111 | $22,294 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $19,145 | $20,111 | $22,294 |
| Long-term Liabilities | $0 | $0 | $0 |
| Total Liabilities | $19,145 | $20,111 | $22,294 |
| Paid-in Capital | $120,000 | $120,000 | $120,000 |
| Retained Earnings | ($33,000) | ($46,660) | ($42,943) |
| Earnings | ($13,660) | $3,717 | $10,360 |
| Total Capital | $73,340 | $77,057 | $87,417 |
| Total Liabilities and Capital | $92,485 | $97,168 | $109,711 |
| Net Worth | $73,340 | $77,057 | $87,417 |
8.6 Business Ratios
Business Ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7999, Roller Rinks are shown for comparison.
The following will enable us to keep on track. If we fail in any of these areas, we will need to re-evaluate our business model:
- Gross margins at or above 88%.
- Do not depend on credit line to meet cash requirements.
- Month-to-month annual comparisons indicate an increase of 5% or greater.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 15.31% | 10.28% | 5.73% |
| Percent of Total Assets | ||||
| Inventory | 4.45% | 4.65% | 4.67% | 2.87% |
| Other Current Assets | 2.16% | 2.06% | 1.82% | 33.26% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 43.21% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 56.79% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 20.70% | 20.70% | 20.32% | 21.91% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 28.81% |
| Total Liabilities | 20.70% | 20.70% | 20.32% | 50.72% |
| Net Worth | 79.30% | 79.30% | 79.68% | 49.28% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 89.46% | 89.97% | 89.69% | 100.00% |
| Selling, General & Administrative Expenses | 92.83% | 89.17% | 87.68% | 76.43% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 2.77% |
| Profit Before Interest and Taxes | -3.37% | 1.14% | 2.87% | 1.89% |
| Main Ratios | ||||
| Current | 4.83 | 4.83 | 4.92 | 1.18 |
| Quick | 4.62 | 4.61 | 4.69 | 0.80 |
| Total Debt to Total Assets | 20.70% | 20.70% | 20.32% | 1.76% |
| Pre-tax Return on Net Worth | -18.63% | 6.89% | 16.93% | 61.12% |
| Pre-tax Return on Assets | -14.77% | 5.46% | 13.49% | 4.52% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | -3.37% | 0.80% | 2.01% | n.a |
| Return on Equity | -18.63% | 4.82% | 11.85% | n.a |
| Activity Ratios | ||||
| Inventory Turnover | 10.91 | 10.86 | 11.02 | n.a |
| Accounts Payable Turnover | 11.10 | 12.17 | 12.17 | n.a |
| Payment Days | 29 | 29 | 29 | n.a |
| Total Asset Turnover | 4.38 | 4.81 | 4.69 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.26 | 0.26 | 0.26 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $73,340 | $77,057 | $87,417 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.23 | 0.21 | 0.21 | n.a |
| Current Debt/Total Assets | 21% | 21% | 20% | n.a |
| Acid Test | 4.62 | 4.61 | 4.69 | n.a |
| Sales/Net Worth | 5.52 | 6.06 | 5.89 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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