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Hair and Beauty Salon
Business Plan

Trend Setters Hair Studio

1.0 Executive Summary
Highlights
2.0 Company Summary
3.0 Products and Services
4.0 Marketing Strategy
5.0 Management Summary
6.0 Financial Plan
6.1 Break-even Analysis
Break-even Analysis
Break-even Analysis
6.2 Projected Profit and Loss
Profit and Loss
6.3 Projected Cash Flow
Cash
Cash Flow
6.4 Projected Balance Sheet
Balance Sheet
6.5 Business Ratios
Ratios
 
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6. 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

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Break-even Analysis
  
Monthly Revenue Break-even$13,590
  
Assumptions: 
Average Percent Variable Cost3%
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 1997FY 1998FY 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/Sales1.40%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 1997FY 1998FY 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
    
ExpendituresFY 1997FY 1998FY 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 1997FY 1998FY 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 CapitalFY 1997FY 1998FY 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 1997FY 1998FY 1999Industry Profile
Sales Growth0.00%26.82%13.67%7.50%
     
Percent of Total Assets    
Other Current Assets1.00%0.88%0.73%36.10%
Total Current Assets14.58%36.30%57.56%52.40%
Long-term Assets85.42%63.70%42.44%47.60%
Total Assets100.00%100.00%100.00%100.00%
     
Current Liabilities15.30%16.04%15.09%31.90%
Long-term Liabilities83.03%55.90%31.37%26.80%
Total Liabilities98.33%71.94%46.46%58.70%
Net Worth1.67%28.06%53.54%41.30%
     
Percent of Sales    
Sales100.00%100.00%100.00%100.00%
Gross Margin97.40%97.96%98.17%0.00%
Selling, General & Administrative Expenses98.09%92.51%90.52%73.40%
Advertising Expenses2.08%1.67%1.60%2.50%
Profit Before Interest and Taxes1.94%11.87%14.62%3.20%
     
Main Ratios    
Current0.952.263.821.79
Quick0.952.263.821.34
Total Debt to Total Assets98.33%71.94%46.46%58.70%
Pre-tax Return on Net Worth321.52%131.55%79.31%5.20%
Pre-tax Return on Assets5.38%36.91%42.46%12.50%
     
Additional RatiosFY 1997FY 1998FY 1999 
Net Profit Margin1.40%8.54%10.51%n.a
Return on Equity230.94%94.72%56.97%n.a
     
Activity Ratios    
Accounts Payable Turnover11.9112.1712.17n.a
Payment Days272828n.a
Total Asset Turnover2.773.112.90n.a
     
Debt Ratios    
Debt to Net Worth58.772.560.87n.a
Current Liab. to Liab.0.160.220.32n.a
     
Liquidity Ratios    
Net Working Capital($431)$13,742$35,088n.a
Interest Coverage0.000.000.00n.a
     
Additional Ratios    
Assets to Sales0.360.320.34n.a
Current Debt/Total Assets15%16%15%n.a
Acid Test 0.952.263.82n.a
Sales/Net Worth165.4311.095.42n.a
Dividend Payout0.000.000.00n.a

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