BUSINESS IDEAS Forum

7.0 Financial Plan

The business of Cutting Edge Drapery does not require substantial outlays for inventory and virtually all sales are on a cash basis, so increases in sales will not be accompanied by initial cash-flow deficits.

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7.1 Break-even Analysis

Average per-unit revenue and variable costs are weighted averages based on sales/costs of each category of "products." It is assumed that each unit is a 15-hour job involving 2.5 installation hours.

Total fixed costs are a total of all other costs not including production wages.

Monthly break-even stands at 35 units. The company must keep stitchers busy producing a mixed quota of 35 units per month to break even. Total production at the time of this writing was approximately 98 units, which will increase to 115 by the end of the year 2000. Beak-even is at 30% of capacity initially.

Break-even Analysis

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7.2 Projected Profit and Loss

Outlined below, and in the following table and chart, are some of the intrinsic facets of the projected profit and loss for Cutting Edge Drapery.

• Cost of sales reflects direct materials needed to carry out the sewing services, such as thread, sewing supplies, etc.
• Miscellaneous operating expenses are projected to remain flat at approximately $3,800 annually, based on historical numbers.
• All sales and marketing is performed by the principal. Salary is not paid to her, as this is a sole proprietorship.
• 1998 will require a substantial outlay in advertising and promotion. In 1999 and 2000 this can be cut back a bit.
• Car expenses of $560 monthly consist of insurance ($1,000 annually), depreciation and maintenance, taxes and inspection, etc.($3,000 annually) and fuel ($2,800 annually).
• The various General and Administrative expenses are projected based on present actual expenses.
• The salary of the administrative assistant includes social security (7.65%) unemployment (2%) and workers compensation (3%).

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7.3 Projected Cash Flow

As can be seen from the Cash Flow chart and table below, Cutting Edge Drapery has a number of advantages that provide for a large amount of growth in the company's cash account. Because it is the policy of the company's clients to provide the fabric for the soft window treatment products, the company has a very low cost of goods sold account and therefore a high gross margin. Furthermore, the custom nature of the business means that there is no inventory cost to speak of or accounts payable. Finally, the company does not posess any debt or long term capital assets that would affect the cash flow. With the ability to generate so much cash flow, it is assumed that the company will seek to use this asset to expand its markets and production capacity in the near future.

Cash

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7.4 Business Ratios

The following table outlines some of the more important ratios from the interior design/sewing industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7389.

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