Our Financial Plan is based on sound research into similar businesses in similar communities, and cost estimates obtained for equipment, rent, and other operating expenses. As an owner-operated business, we have some leeway in adjusting our own compensation if sales are low in a given month, but our forecasts are conservative. Our top financial priorities in the first three years are repaying our long-term loan, paying our employees fairly, covering our expenses on time, and generating a modest profit.
We are opening this shop because we love tea, we love tea drinkers, and we will enjoy all the hard work we must do to maintain the business. We do not expect to get rich doing this, but we do anticipate steadily increasing profits and net worth as Jasmine Teahouse becomes well-known and establishes a loyal clientele.
Sales growth will be aggressive the first 18 months as we sharpen our merchandise assortment, size scales, and stock levels to better meet our customer's requirements. We anticipate a sales increase of roughly 10% during our second year of operation.
Marketing expenses are budgeted at approximately 3% of total sales.
We will invest residual profits into reducing debt.
Company expansion, while not a necessity, will be an option if sales projections are met and/or exceeded. The location we have chosen contains an additional area we can annex for extra seating if and when it becomes necessary, for a small additional rental charge.
7.1 Important Assumptions
Tax and interest rate assumptions for this plan are on the following table. In addition, there are some non-financial assumptions guiding our forecasts. We assume:
No other teahouses opening in Simsbury in the next year. (A safe assumption)
A continued gradual increase in the population and socio-economic class of the Simsbury area.
Continued tourist interest in our area.
Increasing consumer interest in tea and other "health" foods.
That premium chocolates will continue to symbolize luxury and romance as gift choices.
General Assumptions
Year 1
Year 2
Year 3
Plan Month
1
2
3
Current Interest Rate
9.50%
9.50%
9.50%
Long-term Interest Rate
9.25%
9.25%
9.25%
Tax Rate
30.00%
30.00%
30.00%
Other
0
0
0
7.2 Break-even Analysis
Our break-even analysis is based on our cost and price structure for the first year. As we grow, the fixed costs will grow in proportion to the number of employees. We should surpass our Break-even point early on.
Break-even Analysis
Monthly Revenue Break-even
$11,612
Assumptions:
Average Percent Variable Cost
41%
Estimated Monthly Fixed Cost
$6,883
7.3 Projected Profit and Loss
The following table shows our profit and loss projections for the next three years. We will become profitable early in the first year, with net profits continuing to rise as sales increase. Sales and Marketing expenses include the costs of all advertisements, plus promotions like the monthly tastings and 1/2 off coupons for tourists. Depreciation reflects a straight-line depreciation of our long-term assets over 10 years.
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
$194,245
$211,120
$228,204
Direct Cost of Sales
$79,110
$85,148
$87,612
Other Costs of Goods
$0
$0
$0
Total Cost of Sales
$79,110
$85,148
$87,612
Gross Margin
$115,135
$125,972
$140,592
Gross Margin %
59.27%
59.67%
61.61%
Expenses
Payroll
$43,600
$56,000
$63,500
Marketing/Promotion
$5,400
$6,000
$6,000
Depreciation
$1,380
$1,380
$1,380
Rent
$18,000
$19,000
$20,000
Utilities
$8,010
$8,200
$8,600
Monthly disposable supplies
$1,200
$1,200
$1,200
Insurance
$5,000
$5,000
$5,000
Payroll Taxes
$0
$0
$0
Other
$0
$0
$0
Total Operating Expenses
$82,590
$96,780
$105,680
Profit Before Interest and Taxes
$32,545
$29,192
$34,912
EBITDA
$33,925
$30,572
$36,292
Interest Expense
$4,513
$3,721
$2,894
Taxes Incurred
$8,410
$7,641
$9,606
Net Profit
$19,622
$17,830
$22,413
Net Profit/Sales
10.10%
8.45%
9.82%
7.4 Projected Cash Flow
Our projected cash flow is outlined in the following chart and table. The table shows our planned loan principal repayment. We will be responsible for collecting and repaying sales tax at the 6% rate charged by Connecticut.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Cash Received
Cash from Operations
Cash Sales
$194,245
$211,120
$228,204
Subtotal Cash from Operations
$194,245
$211,120
$228,204
Additional Cash Received
Sales Tax, VAT, HST/GST Received
$11,655
$12,667
$13,692
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
$205,900
$223,787
$241,896
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations
Cash Spending
$43,600
$56,000
$63,500
Bill Payments
$117,261
$135,040
$140,758
Subtotal Spent on Operations
$160,861
$191,040
$204,258
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out
$11,655
$12,667
$13,692
Principal Repayment of Current Borrowing
$0
$0
$0
Other Liabilities Principal Repayment
$0
$0
$0
Long-term Liabilities Principal Repayment
$8,938
$8,938
$8,938
Purchase Other Current Assets
$0
$0
$0
Purchase Long-term Assets
$0
$0
$0
Dividends
$0
$0
$0
Subtotal Cash Spent
$181,453
$212,645
$226,888
Net Cash Flow
$24,446
$11,142
$15,008
Cash Balance
$39,446
$50,589
$65,597
7.5 Projected Balance Sheet
All of our tables will be updated monthly to reflect past performance and future assumptions. Future assumptions will not be based on past performance but rather economic cycle activity, regional industry strength, and future cash flow possibilities. We expect solid growth in Jasmine Teahouse beyond the year 2005.
The accompanying pro forma Balance Sheet shows our steadily increasing net worth, as we pay off our loans.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Assets
Current Assets
Cash
$39,446
$50,589
$65,597
Inventory
$7,400
$7,964
$8,195
Other Current Assets
$6,605
$6,605
$6,605
Total Current Assets
$53,451
$65,158
$80,397
Long-term Assets
Long-term Assets
$13,808
$13,808
$13,808
Accumulated Depreciation
$1,380
$2,760
$4,140
Total Long-term Assets
$12,428
$11,048
$9,668
Total Assets
$65,879
$76,206
$90,065
Liabilities and Capital
Year 1
Year 2
Year 3
Current Liabilities
Accounts Payable
$9,782
$11,217
$11,601
Current Borrowing
$0
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$9,782
$11,217
$11,601
Long-term Liabilities
$44,695
$35,757
$26,819
Total Liabilities
$54,477
$46,974
$38,420
Paid-in Capital
$10,330
$10,330
$10,330
Retained Earnings
($18,550)
$1,072
$18,902
Earnings
$19,622
$17,830
$22,413
Total Capital
$11,402
$29,232
$51,645
Total Liabilities and Capital
$65,879
$76,206
$90,065
Net Worth
$11,402
$29,232
$51,645
7.6 Business Ratios
Business ratios for the next three years are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5812, Eating Places (including cafes and tearooms), are shown for comparison.
The following table outlines some of the more important ratios from the Eating Places industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 5812.
Business planning has never been easier. With 500 complete sample plans, easy financials, and access anywhere, LivePlan turns your great idea into a great plan for success.
