Tropical Tan
Financial Plan
Tropical Tan expects a profit margin of over 40% starting with year one. By year two, that number should slowly increase as the law of diminishing costs takes hold and the day-to-day activities of the business become less expensive.
Sales are expected to grow 15% per year. Total owner financing of $65,000 will become a return on equity paid in the form of dividends to the owners.
6.1 Important Assumptions
After researching the tanning industry in and around Chino Hills, the following assumptions have been made:
- Consumers are not happy with the two existing tanning salons’ equipment, so by bringing in top-of-the-line products we can provide a higher quality service as well as more clients per hour.
- Being located across the street from a popular gym we can assume a high amount of foot traffic resulting in higher sales.
General Assumptions | |||
Year 1 | Year 2 | Year 3 | |
Plan Month | 1 | 2 | 3 |
Current Interest Rate | 10.00% | 10.00% | 10.00% |
Long-term Interest Rate | 10.00% | 10.00% | 10.00% |
Tax Rate | 30.00% | 30.00% | 30.00% |
Other | 0 | 0 | 0 |
6.2 Break-even Analysis
The following chart and table summarize our break-even analysis. With fixed costs of $10,332 per month at the outset (a bare minimum), we need to sell 1,041 monthly tanning sessions at $10.00 to break even to cover our costs.

Break-even Analysis | |
Monthly Revenue Break-even | $10,414 |
Assumptions: | |
Average Percent Variable Cost | 1% |
Estimated Monthly Fixed Cost | $10,332 |
6.3 Projected Profit and Loss
Our projected profit and loss is shown on the following table and charts. From our research of the tanning industry our annual projections are quite realistic. The detailed monthly projections are included in the appendix.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $394,344 | $414,061 | $434,764 |
Direct Cost of Sales | $3,100 | $3,500 | $3,800 |
Other Costs of Sales | $27,996 | $0 | $0 |
Total Cost of Sales | $31,096 | $3,500 | $3,800 |
Gross Margin | $363,248 | $410,561 | $430,964 |
Gross Margin % | 92.11% | 99.15% | 99.13% |
Expenses | |||
Payroll | $65,415 | $77,415 | $89,415 |
Sales and Marketing and Other Expenses | $600 | $600 | $600 |
Depreciation | $0 | $0 | $0 |
Rent | $21,804 | $21,804 | $21,804 |
Utilities | $4,200 | $4,200 | $4,200 |
Insurance | $1,200 | $1,200 | $1,200 |
Payroll Taxes | $9,812 | $11,612 | $13,412 |
Loan Repayment | $11,952 | $11,952 | $11,952 |
Janitorial Service | $3,000 | $3,000 | $3,000 |
Other | $6,000 | $6,000 | $6,000 |
Total Operating Expenses | $123,983 | $137,783 | $151,583 |
Profit Before Interest and Taxes | $239,265 | $272,778 | $279,381 |
EBITDA | $239,265 | $272,778 | $279,381 |
Interest Expense | $1,626 | $965 | $310 |
Taxes Incurred | $71,291 | $81,544 | $83,721 |
Net Profit | $166,347 | $190,269 | $195,350 |
Net Profit/Sales | 42.18% | 45.95% | 44.93% |
6.4 Projected Cash Flow
The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month, and the other the monthly cash balance. The annual cash flow figures are included here and the detailed monthly numbers are included in the appendix.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $394,344 | $414,061 | $434,764 |
Subtotal Cash from Operations | $394,344 | $414,061 | $434,764 |
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 | $394,344 | $414,061 | $434,764 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $65,415 | $77,415 | $89,415 |
Bill Payments | $152,361 | $146,453 | $149,816 |
Subtotal Spent on Operations | $217,776 | $223,868 | $239,231 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $6,900 | $6,900 | $6,200 |
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 | $224,676 | $230,768 | $245,431 |
Net Cash Flow | $169,668 | $183,293 | $189,333 |
Cash Balance | $199,001 | $382,294 | $571,626 |
6.5 Projected Balance Sheet
The balance sheet table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $199,001 | $382,294 | $571,626 |
Inventory | $1,150 | $1,298 | $1,410 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $200,151 | $383,592 | $573,036 |
Long-term Assets | |||
Long-term Assets | $27,000 | $27,000 | $27,000 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $27,000 | $27,000 | $27,000 |
Total Assets | $227,151 | $410,592 | $600,036 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $11,971 | $12,043 | $12,338 |
Current Borrowing | ($6,900) | ($13,800) | ($20,000) |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $5,071 | ($1,757) | ($7,662) |
Long-term Liabilities | $20,000 | $20,000 | $20,000 |
Total Liabilities | $25,071 | $18,243 | $12,338 |
Paid-in Capital | $65,000 | $65,000 | $65,000 |
Retained Earnings | ($29,267) | $137,080 | $327,349 |
Earnings | $166,347 | $190,269 | $195,350 |
Total Capital | $202,080 | $392,349 | $587,698 |
Total Liabilities and Capital | $227,151 | $410,592 | $600,036 |
Net Worth | $202,080 | $392,349 | $587,698 |
6.6 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7299.0105, Tanning salon, are shown for comparison. We expect to maintain healthy ratios for profitability, risk, and return.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 5.00% | 5.00% | 8.15% |
Percent of Total Assets | ||||
Inventory | 0.51% | 0.32% | 0.23% | 4.93% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 35.03% |
Total Current Assets | 88.11% | 93.42% | 95.50% | 55.79% |
Long-term Assets | 11.89% | 6.58% | 4.50% | 44.21% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 2.23% | -0.43% | -1.28% | 25.11% |
Long-term Liabilities | 8.80% | 4.87% | 3.33% | 22.00% |
Total Liabilities | 11.04% | 4.44% | 2.06% | 47.11% |
Net Worth | 88.96% | 95.56% | 97.94% | 52.89% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 92.11% | 99.15% | 99.13% | 100.00% |
Selling, General & Administrative Expenses | 48.03% | 51.39% | 52.54% | 77.99% |
Advertising Expenses | 2.00% | 0.00% | 0.00% | 1.85% |
Profit Before Interest and Taxes | 60.67% | 65.88% | 64.26% | 3.35% |
Main Ratios | ||||
Current | 39.47 | -218.35 | -74.79 | 1.73 |
Quick | 39.24 | -217.61 | -74.60 | 1.30 |
Total Debt to Total Assets | 11.04% | 4.44% | 2.06% | 6.16% |
Pre-tax Return on Net Worth | 117.60% | 69.28% | 47.49% | 59.92% |
Pre-tax Return on Assets | 104.62% | 66.20% | 46.51% | 15.38% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 42.18% | 45.95% | 44.93% | n.a |
Return on Equity | 82.32% | 48.49% | 33.24% | n.a |
Activity Ratios | ||||
Inventory Turnover | 3.90 | 2.86 | 2.81 | n.a |
Accounts Payable Turnover | 13.66 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 30 | 30 | n.a |
Total Asset Turnover | 1.74 | 1.01 | 0.72 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.12 | 0.05 | 0.02 | n.a |
Current Liab. to Liab. | 0.20 | -0.10 | -0.62 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $195,080 | $385,349 | $580,698 | n.a |
Interest Coverage | 147.13 | 282.67 | 901.23 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.58 | 0.99 | 1.38 | n.a |
Current Debt/Total Assets | 2% | 0% | -1% | n.a |
Acid Test | 39.24 | 0.00 | 0.00 | n.a |
Sales/Net Worth | 1.95 | 1.06 | 0.74 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |