One, Two, Step!
Financial Plan
Sales growth will be aggressive the first 18 months as we sharpen our merchandise assortment, size scales, and stock levels to better meet our customers’ requirements.
However, it is expected that One, Two, Step! will become profitable in the first year, but not excessively so. This is partly due to our lower overall sales price for merchandise, compared to our competitors, but also due to the fact that all our sales must come from customers lured away from other retailers. Once we have a solid customer base, we can increase our margins slightly without risk of losing customers.
Break-even Analysis
Our break-even analysis is summarized by the following chart and table. In order to break even, we must sell at least $7,312 of shoes and accessories per month. We should easily sell more than this even in our first month.
| Break-even Analysis | |
| Monthly Revenue Break-even | $6,585 |
| Assumptions: | |
| Average Percent Variable Cost | 63% |
| Estimated Monthly Fixed Cost | $2,436 |
Projected Profit and Loss
The following table and charts show our profitability for the next three years, and detail our operating expenses. these include a portion of the mortgage for my house, for the spaces which will be dedicated solely to business operations.
| Pro Forma Profit and Loss | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Sales | $107,859 | $111,094 | $114,427 | $117,859 | $121,396 |
| Direct Cost of Sales | $67,951 | $69,989 | $72,089 | $68,405 | $64,468 |
| Other Costs of Sales | $0 | $0 | $0 | $0 | $0 |
| Total Cost of Sales | $67,951 | $69,989 | $72,089 | $68,405 | $64,468 |
| Gross Margin | $39,908 | $41,105 | $42,338 | $49,454 | $56,928 |
| Gross Margin % | 37.00% | 37.00% | 37.00% | 41.96% | 46.89% |
| Expenses | |||||
| Payroll | $21,510 | $21,600 | $21,700 | $21,700 | $21,700 |
| Marketing/Promotion | $2,375 | $1,500 | $2,000 | $2,500 | $2,750 |
| Depreciation | $0 | $0 | $0 | $0 | $0 |
| Mortgage %/Rent | $1,800 | $1,800 | $1,800 | $1,800 | $1,800 |
| Utilities | $960 | $1,000 | $1,100 | $1,200 | $1,300 |
| Insurance | $1,800 | $1,850 | $2,000 | $2,200 | $2,250 |
| Website maintenance | $372 | $375 | $375 | $375 | $375 |
| POS contract/fees | $420 | $450 | $450 | $450 | $450 |
| Payroll taxes | $0 | $0 | $0 | $0 | $0 |
| Total Operating Expenses | $29,237 | $28,575 | $29,425 | $30,225 | $30,625 |
| Profit Before Interest and Taxes | $10,671 | $12,530 | $12,913 | $19,229 | $26,303 |
| EBITDA | $10,671 | $12,530 | $12,913 | $19,229 | $26,303 |
| Interest Expense | $2,274 | $1,875 | $1,459 | $1,042 | $626 |
| Taxes Incurred | $2,519 | $3,196 | $3,436 | $5,456 | $7,703 |
| Net Profit | $5,878 | $7,458 | $8,018 | $12,731 | $17,974 |
| Net Profit/Sales | 5.45% | 6.71% | 7.01% | 10.80% | 14.81% |
Start-up Funding
I will be investing $10,000 in the business, and am seeking another $25,000 in SBA long-term loans, to be repaid over six years.
| Start-up Funding | |
| Start-up Expenses to Fund | $5,000 |
| Start-up Assets to Fund | $30,000 |
| Total Funding Required | $35,000 |
| Assets | |
| Non-cash Assets from Start-up | $20,000 |
| Cash Requirements from Start-up | $10,000 |
| Additional Cash Raised | $0 |
| Cash Balance on Starting Date | $10,000 |
| Total Assets | $30,000 |
| Liabilities and Capital | |
| Liabilities | |
| Current Borrowing | $0 |
| Long-term Liabilities | $25,000 |
| Accounts Payable (Outstanding Bills) | $0 |
| Other Current Liabilities (interest-free) | $0 |
| Total Liabilities | $25,000 |
| Capital | |
| Planned Investment | |
| Owner | $10,000 |
| Investor | $0 |
| Additional Investment Requirement | $0 |
| Total Planned Investment | $10,000 |
| Loss at Start-up (Start-up Expenses) | ($5,000) |
| Total Capital | $5,000 |
| Total Capital and Liabilities | $30,000 |
| Total Funding | $35,000 |
Projected Cash Flow
Our projected cash flow is outlined in the following chart and table. The table lists sales tax collected and paid out, as well as repayment of the loan we are seeking.
| Pro Forma Cash Flow | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Cash Received | |||||
| Cash from Operations | |||||
| Cash Sales | $107,859 | $111,094 | $114,427 | $117,859 | $121,396 |
| Subtotal Cash from Operations | $107,859 | $111,094 | $114,427 | $117,859 | $121,396 |
| Additional Cash Received | |||||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 | $0 | $0 |
| New Current Borrowing | $0 | $0 | $0 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $0 | $0 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| New Investment Received | $0 | $0 | $0 | $0 | $0 |
| Subtotal Cash Received | $107,859 | $111,094 | $114,427 | $117,859 | $121,396 |
| Expenditures | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Expenditures from Operations | |||||
| Cash Spending | $21,510 | $21,600 | $21,700 | $21,700 | $21,700 |
| Bill Payments | $70,868 | $82,102 | $84,729 | $82,123 | $81,093 |
| Subtotal Spent on Operations | $92,378 | $103,702 | $106,429 | $103,823 | $102,793 |
| Additional Cash Spent | |||||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $0 | $0 | $0 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $4,164 | $4,165 | $4,165 | $4,165 | $4,165 |
| Purchase Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 | $0 | $0 |
| Subtotal Cash Spent | $96,542 | $107,867 | $110,594 | $107,988 | $106,958 |
| Net Cash Flow | $11,317 | $3,227 | $3,833 | $9,871 | $14,438 |
| Cash Balance | $21,317 | $24,544 | $28,377 | $38,248 | $52,686 |
Important Assumptions
I assume that the economic conditions will improve in the next two to three years. Therefore, business will be good in year one, but years two and years three. One, Two, Step! will be very successful.
| General Assumptions | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Plan Month | 1 | 2 | 3 | 4 | 5 |
| Current Interest Rate | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% |
| Long-term Interest Rate | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% |
| Tax Rate | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% |
| Other | 0 | 0 | 0 | 0 | 0 |
Projected Balance Sheet
The table below outlines the projected balance sheet. While, as a retail store, we have no plans for long-term assets, we will have a healthy cash balance, growing over the next five years. We plan to pay off our loan within six years, and increase the net worth of the business from $5,000 at start-up to over $15,000 by the end of five years.
| Pro Forma Balance Sheet | |||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Assets | |||||
| Current Assets | |||||
| Cash | $21,317 | $24,544 | $28,377 | $38,248 | $52,686 |
| Inventory | $13,255 | $12,111 | $12,475 | $10,905 | $10,208 |
| Other Current Assets | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 |
| Total Current Assets | $39,573 | $41,655 | $45,852 | $54,154 | $67,894 |
| Long-term Assets | |||||
| Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| Accumulated Depreciation | $0 | $0 | $0 | $0 | $0 |
| Total Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| Total Assets | $39,573 | $41,655 | $45,852 | $54,154 | $67,894 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Current Liabilities | |||||
| Accounts Payable | $7,859 | $6,649 | $6,992 | $6,728 | $6,660 |
| Current Borrowing | $0 | $0 | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 | $0 | $0 |
| Subtotal Current Liabilities | $7,859 | $6,649 | $6,992 | $6,728 | $6,660 |
| Long-term Liabilities | $20,836 | $16,671 | $12,506 | $8,341 | $4,176 |
| Total Liabilities | $28,695 | $23,320 | $19,498 | $15,069 | $10,836 |
| Paid-in Capital | $10,000 | $10,000 | $10,000 | $10,000 | $10,000 |
| Retained Earnings | ($5,000) | $878 | $8,336 | $16,354 | $29,084 |
| Earnings | $5,878 | $7,458 | $8,018 | $12,731 | $17,974 |
| Total Capital | $10,878 | $18,336 | $26,354 | $39,084 | $57,059 |
| Total Liabilities and Capital | $39,573 | $41,655 | $45,852 | $54,154 | $67,894 |
| Net Worth | $10,878 | $18,336 | $26,354 | $39,084 | $57,059 |
Business Ratios
One, Two, Step!’s ratios can be seen in the table below. For comparison, we have included standard business ratios for the Miscellaneous retails stores industry, SIC Code 5999.
| Ratio Analysis | ||||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Industry Profile | |
| Sales Growth | n.a. | 3.00% | 3.00% | 3.00% | 3.00% | 2.79% |
| Percent of Total Assets | ||||||
| Inventory | 33.50% | 29.08% | 27.21% | 20.14% | 15.03% | 33.69% |
| Other Current Assets | 12.64% | 12.00% | 10.90% | 9.23% | 7.36% | 24.88% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 75.34% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 24.66% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 19.86% | 15.96% | 15.25% | 12.42% | 9.81% | 37.95% |
| Long-term Liabilities | 52.65% | 40.02% | 27.27% | 15.40% | 6.15% | 16.70% |
| Total Liabilities | 72.51% | 55.98% | 42.52% | 27.83% | 15.96% | 54.65% |
| Net Worth | 27.49% | 44.02% | 57.48% | 72.17% | 84.04% | 45.35% |
| Percent of Sales | ||||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 37.00% | 37.00% | 37.00% | 41.96% | 46.89% | 31.49% |
| Selling, General & Administrative Expenses | 31.55% | 30.29% | 29.99% | 31.16% | 32.09% | 18.95% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 1.80% |
| Profit Before Interest and Taxes | 9.89% | 11.28% | 11.28% | 16.32% | 21.67% | 1.05% |
| Main Ratios | ||||||
| Current | 5.04 | 6.27 | 6.56 | 8.05 | 10.20 | 1.77 |
| Quick | 3.35 | 4.44 | 4.77 | 6.43 | 8.66 | 0.70 |
| Total Debt to Total Assets | 72.51% | 55.98% | 42.52% | 27.83% | 15.96% | 61.43% |
| Pre-tax Return on Net Worth | 77.19% | 58.11% | 43.46% | 46.53% | 45.00% | 2.23% |
| Pre-tax Return on Assets | 21.22% | 25.58% | 24.98% | 33.58% | 37.82% | 5.78% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Net Profit Margin | 5.45% | 6.71% | 7.01% | 10.80% | 14.81% | n.a |
| Return on Equity | 54.03% | 40.68% | 30.42% | 32.57% | 31.50% | n.a |
| Activity Ratios | ||||||
| Inventory Turnover | 5.95 | 5.52 | 5.86 | 5.85 | 6.11 | n.a |
| Accounts Payable Turnover | 10.02 | 12.17 | 12.17 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 33 | 29 | 31 | 30 | n.a |
| Total Asset Turnover | 2.73 | 2.67 | 2.50 | 2.18 | 1.79 | n.a |
| Debt Ratios | ||||||
| Debt to Net Worth | 2.64 | 1.27 | 0.74 | 0.39 | 0.19 | n.a |
| Current Liab. to Liab. | 0.27 | 0.29 | 0.36 | 0.45 | 0.61 | n.a |
| Liquidity Ratios | ||||||
| Net Working Capital | $31,714 | $35,007 | $38,860 | $47,425 | $61,235 | n.a |
| Interest Coverage | 4.69 | 6.68 | 8.85 | 18.45 | 42.03 | n.a |
| Additional Ratios | ||||||
| Assets to Sales | 0.37 | 0.37 | 0.40 | 0.46 | 0.56 | n.a |
| Current Debt/Total Assets | 20% | 16% | 15% | 12% | 10% | n.a |
| Acid Test | 3.35 | 4.44 | 4.77 | 6.43 | 8.66 | n.a |
| Sales/Net Worth | 9.92 | 6.06 | 4.34 | 3.02 | 2.13 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | n.a |
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