It's Scrappy!
Financial Plan
The following financial plan includes our projected Break Even Analysis, Profit and Loss, Cash Flow and Balance Sheet.
7.1 Break-even Analysis
Our break-even analysis table shows that we will need $7,667 per month to meet our regular expenses and salary costs.

Break-even Analysis | |
Monthly Revenue Break-even | $7,667 |
Assumptions: | |
Average Percent Variable Cost | 25% |
Estimated Monthly Fixed Cost | $5,750 |
7.2 Projected Profit and Loss
As the following table describes, it will take several months before the store can realistically turn a profit. This is in part due to the time it takes to get the word out that the store is open for business and that what it offers for local scrappers is more than what our competition offers.
Although the winter time frame can be the best for class participation, these first monthly estimates were set conservatively, when, in fact, it is hoped that the initial advertising campaign will stimulate more sales and class sign-ups than what has been projected.
Although payroll costs are high for a start-up, the owner feels it is essential to have two part-time employees to help cover the store during its open hours. If necessary, the owner is prepared to reduce her monthly salary to ease the cash flow throughout the first year of operation.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $87,150 | $91,508 | $95,865 |
Direct Cost of Sales | $21,788 | $22,877 | $24,021 |
Other Costs of Goods | $0 | $0 | $0 |
Total Cost of Sales | $21,788 | $22,877 | $24,021 |
Gross Margin | $65,363 | $68,631 | $71,844 |
Gross Margin % | 75.00% | 75.00% | 74.94% |
Expenses | |||
Payroll | $31,200 | $31,200 | $31,200 |
Sales and Marketing and Other Expenses | $6,000 | $6,500 | $6,500 |
Depreciation | $0 | $0 | $0 |
Rent | $18,000 | $18,000 | $18,000 |
Utilities | $6,000 | $6,000 | $6,000 |
Insurance | $1,800 | $1,800 | $1,800 |
Payroll Taxes | $6,000 | $6,000 | $6,000 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $69,000 | $69,500 | $69,500 |
Profit Before Interest and Taxes | ($3,638) | ($869) | $2,344 |
EBITDA | ($3,638) | ($869) | $2,344 |
Interest Expense | $644 | $0 | $0 |
Taxes Incurred | $0 | $0 | $0 |
Net Profit | ($4,282) | ($869) | $2,344 |
Net Profit/Sales | -4.91% | -0.95% | 2.45% |
7.3 Projected Cash Flow
Although the initial profit margins are small, the cash flow is sufficient to cover estimated monthly expenses and inventory purchases. As additional back-up, a personal loan equal to the initial cost of inventory will be secured so It’s Scrappy! can adapt to changes in supply costs over the first year and be more able to make special-order purchases of new supplies and materials.
Estimated sales are expected to increase during the Fall and into the second winter of operation, while costs will be held as close to the same levels as possible.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $87,150 | $91,508 | $95,865 |
Subtotal Cash from Operations | $87,150 | $91,508 | $95,865 |
Additional Cash Received | |||
Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
New Current Borrowing | $7,000 | $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 | $94,150 | $91,508 | $95,865 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $31,200 | $31,200 | $31,200 |
Bill Payments | $50,455 | $61,657 | $62,363 |
Subtotal Spent on Operations | $81,655 | $92,857 | $93,563 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $1,029 | $1,029 | $1,029 |
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 | $82,684 | $93,886 | $94,592 |
Net Cash Flow | $11,466 | ($2,379) | $1,273 |
Cash Balance | $12,966 | $10,587 | $11,860 |
7.4 Projected Balance Sheet
The balance sheet shows are estimated assets and liabilities.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $12,966 | $10,587 | $11,860 |
Inventory | $2,613 | $2,743 | $2,880 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $15,579 | $13,330 | $14,740 |
Long-term Assets | |||
Long-term Assets | $2,500 | $2,500 | $2,500 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $2,500 | $2,500 | $2,500 |
Total Assets | $18,079 | $15,830 | $17,240 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $5,389 | $5,039 | $5,134 |
Current Borrowing | $5,971 | $4,942 | $3,913 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $11,360 | $9,981 | $9,047 |
Long-term Liabilities | $0 | $0 | $0 |
Total Liabilities | $11,360 | $9,981 | $9,047 |
Paid-in Capital | $20,000 | $20,000 | $20,000 |
Retained Earnings | ($9,000) | ($13,282) | ($14,151) |
Earnings | ($4,282) | ($869) | $2,344 |
Total Capital | $6,718 | $5,849 | $8,193 |
Total Liabilities and Capital | $18,079 | $15,830 | $17,240 |
Net Worth | $6,718 | $5,849 | $8,193 |
7.5 Business Ratios
The following comparison Ratios are taken from the Standard Industry Code for “Hobby and Craft Supplies,” Standard Industrial Classification (SIC) code 5945. As the following tables shows, are estimates are within the standard ratios for this industry.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 5.00% | 4.76% | -2.50% |
Percent of Total Assets | ||||
Inventory | 14.45% | 17.33% | 16.71% | 36.25% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 25.68% |
Total Current Assets | 86.17% | 84.21% | 85.50% | 77.69% |
Long-term Assets | 13.83% | 15.79% | 14.50% | 22.31% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 62.84% | 63.05% | 52.48% | 31.11% |
Long-term Liabilities | 0.00% | 0.00% | 0.00% | 18.08% |
Total Liabilities | 62.84% | 63.05% | 52.48% | 49.19% |
Net Worth | 37.16% | 36.95% | 47.52% | 50.81% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 75.00% | 75.00% | 74.94% | 32.08% |
Selling, General & Administrative Expenses | 54.65% | 0.00% | 0.00% | 20.20% |
Advertising Expenses | 0.00% | 0.00% | 0.00% | 1.61% |
Profit Before Interest and Taxes | -4.17% | -0.95% | 2.45% | 0.60% |
Main Ratios | ||||
Current | 1.37 | 1.34 | 1.63 | 2.17 |
Quick | 1.14 | 1.06 | 1.31 | 0.83 |
Total Debt to Total Assets | 62.84% | 63.05% | 52.48% | 58.38% |
Pre-tax Return on Net Worth | -63.73% | -14.86% | 28.61% | 0.96% |
Pre-tax Return on Assets | -23.68% | -5.49% | 13.60% | 2.30% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | -4.91% | -0.95% | 2.45% | n.a |
Return on Equity | -63.73% | -14.86% | 28.61% | n.a |
Activity Ratios | ||||
Inventory Turnover | 7.45 | 8.54 | 8.54 | n.a |
Accounts Payable Turnover | 10.36 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 31 | 30 | n.a |
Total Asset Turnover | 4.82 | 5.78 | 5.56 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 1.69 | 1.71 | 1.10 | n.a |
Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $4,218 | $3,349 | $5,693 | n.a |
Interest Coverage | -5.65 | 0.00 | 0.00 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.21 | 0.17 | 0.18 | n.a |
Current Debt/Total Assets | 63% | 63% | 52% | n.a |
Acid Test | 1.14 | 1.06 | 1.31 | n.a |
Sales/Net Worth | 12.97 | 15.65 | 11.70 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |