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Hair and Beauty Salon
Business Plan
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1.0 Executive Summary
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2.0 Company Summary
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3.0 Products and Services
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4.0 Marketing Strategy
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5.0 Management Summary
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6.0 Financial Plan
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| 6.0 Financial Plan | [back to top] |
Our goal is to be a profitable business beginning in the first month. The business will not have to wait long for clients to learn about it since the stylists will already have an existing client base.
The financials that are enclosed have a number of assumptions:
Revenues will grow at an annual rate of 15%, increasing 20% in November and December due to a historical jump in revenues at this time of year. We anticipate this increase to stay steady throughout the following year to account for the normal flow of new clients coming into the salon. Estimates for sales revenue and growth are intentionally low, while anticipated expenses are exaggerated to the high side to illustrate a worst case scenario.
We did not use cost of goods sold in our calculations of net service sales, but included all related recurring expenses, such as payroll and supplies, in the operating expenses area of the profit and loss table. The only direct costs in the sales forecast are for projected product sales.
Product sales are a minimal part of our market. We are not quite sure how much revenue will be derived from products, so we took a low-ball approach and estimated sales of $800 a month. Also in the sales projections table are services such as nails and massages. We are not quite sure how much revenue these two services will generate. We are certain that in time these services will be a large part of our revenue, but to err on the conservative side, we estimate revenues from these services to be only $1,500 a month for the first year.
To assure the start-up funds lender that the owners are financially stable, a personal financial statement is enclosed illustrating other sources of income that include interest and dividend income from investments ($2,840), salary income ($29,658), and commission income ($15,000).
| 6.1 Break-even Analysis | [back to top] |
The break-even analysis shows that Trend Setters has a good balance of fixed costs and sufficient sales strength to remain healthy. This calculation is focused on service sales, and excludes costs related to product sales. Our conservative forecast shows the salon just passing the break-even point throughout most of the first year, but we expect actual sales to be higher.
Break-even Analysis
Click to Enlarge
| Break-even Analysis | |
| Monthly Revenue Break-even | $13,590 |
| Assumptions: | |
| Average Percent Variable Cost | 3% |
| Estimated Monthly Fixed Cost | $13,237 |
| 6.2 Projected Profit and Loss | [back to top] |
The following table shows our very conservative profit and loss projections for the next three years. The table includes the payments for all independently contracted stylists and technicians, as well for all regularly occurring supply expenses associated with service sales.
| Pro Forma Profit and Loss | |||
| FY 1997 | FY 1998 | FY 1999 | |
| Sales | $166,400 | $211,022 | $239,875 |
| Direct Costs of Goods | $4,320 | $4,300 | $4,400 |
| Other | $0 | $0 | $0 |
| ------------ | ------------ | ------------ | |
| Cost of Goods Sold | $4,320 | $4,300 | $4,400 |
| Gross Margin | $162,080 | $206,722 | $235,475 |
| Gross Margin % | 97.40% | 97.96% | 98.17% |
| Expenses | |||
| Payroll | $46,400 | $52,520 | $54,876 |
| Marketing/Promotion | $22,800 | $24,000 | $26,000 |
| Depreciation | $8,146 | $8,146 | $8,146 |
| Leased Equipment | $0 | $0 | $0 |
| Utilities | $4,200 | $4,200 | $4,200 |
| Insurance | $1,200 | $1,200 | $1,200 |
| Rent | $22,740 | $22,740 | $22,740 |
| Independently Contracted Stylists | $40,400 | $55,000 | $69,000 |
| Supplies | $6,000 | $6,000 | $6,000 |
| Payroll Taxes | $6,960 | $7,878 | $8,231 |
| Other | $0 | $0 | $0 |
| ------------ | ------------ | ------------ | |
| Total Operating Expenses | $158,846 | $181,684 | $200,393 |
| Profit Before Interest and Taxes | $3,234 | $25,038 | $35,082 |
| EBITDA | $11,380 | $33,184 | $43,228 |
| Interest Expense | $0 | $0 | $0 |
| Taxes Incurred | $911 | $7,011 | $9,881 |
| Net Profit | $2,323 | $18,027 | $25,200 |
| Net Profit/Sales | 1.40% | 8.54% | 10.51% |
| 6.3 Projected Cash Flow | [back to top] |
We expect to manage cash flow over the next three years simply by the growth of the cash flow of the business. The business will generate more than enough cash flow to cover all of its expenses.
Cash
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| Pro Forma Cash Flow | |||
| FY 1997 | FY 1998 | FY 1999 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $166,400 | $211,022 | $239,875 |
| Subtotal Cash from Operations | $166,400 | $211,022 | $239,875 |
| 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 | $166,400 | $211,022 | $239,875 |
| Expenditures | FY 1997 | FY 1998 | FY 1999 |
| Expenditures from Operations | |||
| Cash Spending | $46,400 | $52,520 | $54,876 |
| Bill Payments | $100,334 | $130,649 | $150,064 |
| Subtotal Spent on Operations | $146,734 | $183,169 | $204,940 |
| 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 | $12,000 | $12,000 | $12,000 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $158,734 | $195,169 | $216,940 |
| Net Cash Flow | $7,666 | $15,853 | $22,935 |
| Cash Balance | $8,166 | $24,019 | $46,953 |
| 6.4 Projected Balance Sheet | [back to top] |
As shown in the balance sheet, we expect a healthy growth in net worth.
| Pro Forma Balance Sheet | |||
| FY 1997 | FY 1998 | FY 1999 | |
| Assets | |||
| Current Assets | |||
| Cash | $8,166 | $24,019 | $46,953 |
| Other Current Assets | $600 | $600 | $600 |
| Total Current Assets | $8,766 | $24,619 | $47,553 |
| Long-term Assets | |||
| Long-term Assets | $59,500 | $59,500 | $59,500 |
| Accumulated Depreciation | $8,146 | $16,292 | $24,438 |
| Total Long-term Assets | $51,354 | $43,208 | $35,062 |
| Total Assets | $60,120 | $67,827 | $82,615 |
| Liabilities and Capital | FY 1997 | FY 1998 | FY 1999 |
| Current Liabilities | |||
| Accounts Payable | $9,197 | $10,876 | $12,465 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $9,197 | $10,876 | $12,465 |
| Long-term Liabilities | $49,917 | $37,917 | $25,917 |
| Total Liabilities | $59,114 | $48,793 | $38,382 |
| Paid-in Capital | $500 | $500 | $500 |
| Retained Earnings | ($1,817) | $506 | $18,533 |
| Earnings | $2,323 | $18,027 | $25,200 |
| Total Capital | $1,006 | $19,033 | $44,233 |
| Total Liabilities and Capital | $60,120 | $67,827 | $82,615 |
| Net Worth | $1,006 | $19,033 | $44,233 |
| 6.5 Business Ratios | [back to top] |
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) Index code 7231, Beauty Shops, are shown for comparison.
| Ratio Analysis | ||||
| FY 1997 | FY 1998 | FY 1999 | Industry Profile | |
| Sales Growth | 0.00% | 26.82% | 13.67% | 7.50% |
| Percent of Total Assets | ||||
| Other Current Assets | 1.00% | 0.88% | 0.73% | 36.10% |
| Total Current Assets | 14.58% | 36.30% | 57.56% | 52.40% |
| Long-term Assets | 85.42% | 63.70% | 42.44% | 47.60% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 15.30% | 16.04% | 15.09% | 31.90% |
| Long-term Liabilities | 83.03% | 55.90% | 31.37% | 26.80% |
| Total Liabilities | 98.33% | 71.94% | 46.46% | 58.70% |
| Net Worth | 1.67% | 28.06% | 53.54% | 41.30% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 97.40% | 97.96% | 98.17% | 0.00% |
| Selling, General & Administrative Expenses | 98.09% | 92.51% | 90.52% | 73.40% |
| Advertising Expenses | 2.08% | 1.67% | 1.60% | 2.50% |
| Profit Before Interest and Taxes | 1.94% | 11.87% | 14.62% | 3.20% |
| Main Ratios | ||||
| Current | 0.95 | 2.26 | 3.82 | 1.79 |
| Quick | 0.95 | 2.26 | 3.82 | 1.34 |
| Total Debt to Total Assets | 98.33% | 71.94% | 46.46% | 58.70% |
| Pre-tax Return on Net Worth | 321.52% | 131.55% | 79.31% | 5.20% |
| Pre-tax Return on Assets | 5.38% | 36.91% | 42.46% | 12.50% |
| Additional Ratios | FY 1997 | FY 1998 | FY 1999 | |
| Net Profit Margin | 1.40% | 8.54% | 10.51% | n.a |
| Return on Equity | 230.94% | 94.72% | 56.97% | n.a |
| Activity Ratios | ||||
| Accounts Payable Turnover | 11.91 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 28 | 28 | n.a |
| Total Asset Turnover | 2.77 | 3.11 | 2.90 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 58.77 | 2.56 | 0.87 | n.a |
| Current Liab. to Liab. | 0.16 | 0.22 | 0.32 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | ($431) | $13,742 | $35,088 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.36 | 0.32 | 0.34 | n.a |
| Current Debt/Total Assets | 15% | 16% | 15% | n.a |
| Acid Test | 0.95 | 2.26 | 3.82 | n.a |
| Sales/Net Worth | 165.43 | 11.09 | 5.42 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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