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Plan Outline
Laundromat Business Plan
Universal Laundromat
Financial Plan
In this business, it is expected that the revenue is 30% more in the winter due to more machine-drying and less hang-drying. Conversely, it's also expected that revenue is 30% less in the summer due to hang-drying in the sunlight. Furthermore, with the potential in this particular laundromat and the management confidence, it's expected that growth should be at least 15% annually. It should be noted again that monthly profit shown has already taken into account the minimum monthly loan payback amount. It's planned that all remaining profit will be paid towards loan as additional payback.
6.1 Payback Plan for a 10-year Term Loan
Plan of Payback for a 10-year term loan:
| Total amount of loan | £150,000 |
| Monthly payback including interest | £2,109 |
| Additional payback amount from monthly net profit | £2,838 |
| Monthly net profit (£13,100 - £5402 -£2617.25) | £5,081 |
| Total monthly payback | £4,946 |
For £3,508/month loan payment, the 10-year term loan (11.5% interest rate) will be shortened to less than 36 months (three years). If the interest rate is lower, then the loan will be paid off sooner. Also, if the business does better than usual,then the loan term will be further shortened. The motive here is to pay off the loan as soon as possible to reduce cost of interest paid on the loan. Based on the cash flow and profitability projections in this plan, this accelerated payment scheme could be started at the beginning of FY2002.
The monthly payment against principal is reflected in the Cash Flow table (Long-term Liabilities Principal Repayment).
The monthly interest payment is reflected in the Profit and Loss table (Interest Expense).
6.2 Factors Minimizing Risk of Loan Default
Factors that minimize risk of default on a loan:
- Proven steady net profit from laundromat; it is a reliable source of proof of net steady income.
- Utility bills are the best estimators since no laundromat has income statement due to tax disadvantage reasons.
- Current owner is someone Minh's known for five years in value and trust.
- Current owner sincerely expressed his belief in the accuracy of net income and reassured it by his living next door to the laundromat and first year property tax coverage along with free three months machine maintenance.
- Current owner is also confident that if the business doesn't produce what he claims it has, even without improvement of current store condition, he is willing to carry an interest-free loan up to £20,000 to help keep it up to speed if necessary. This is to ensure the accuracy on the numbers he claimed about Net Income.
- Current owner also covers any raise in rent for the first 2 years at the time of signing a new 10-year lease.
- Additional payback amount will be supplemented from the business' monthly net profit. This will shorten a 10-year loan to less than 36 months. Therefore, this will be a major contributing factor in minimizing risk to a loan.
- Minh owns a Flea Market Power Tools shop. This could be used as a secondary source of capital support to the laundry venture if business doesn't go well.
- Minh will put up £80,000 out-of-pocket investment. According to California Coin Laundry Association, the formula for estimating the value of the business is 50 times the net profit. Since the business brings an average net profit of £7,000 or more, the market value for the business if it was to be sold according to this standard is 47 times (multiplier subtracted because of some older machines) £7,000 = £329,000. Fortunately, the business is under sold (very much below market price) for £225,000, a difference of £104,000.
- Non-depreciation market value of business. In the worst case scenario, if the business doesn't prosper, then it could be sold for at least the amount invested in. Let's say even worse, if the business loses £20,000 after the business is sold, then the loan would be paid in full and Minh will absorb the loss of the amount.
- History has shown that there's NOT a local competitor. In addition, there are two apartment complexes located nearby. Surrounding it, there is also a poor Mexican neighborhood where residents get most of their services and needed goods in this plaza where the laundromat is located.
- In the case of Minh's death, the loan will be insured by his 10-year term, £250,000 life insurance. The bank shall be the primary beneficiary. The insurance policy shall begin once the loan is approved by the bank.
6.3 Key Financial Indicators
This financial indicator shows the potential changes such as growth. This is based on the annual sales, and operating expenses as measured in gross amounts (gross margin is in percentage terms).
6.4 Break-even Analysis
The break-even analysis shows that Universal Laundromat has a good balance of fixed costs and sufficient sales strength to remain healthy. Our break-even point is only 745 customers a month. This was derived by using an average revenue of £8 per customer, and fixed costs of approximately £4,900. This also includes the cost of products for retail sales and all other costs such as payroll, maintenance, garbage, utilities, and insurance.
| Break-even Analysis | |
| Monthly Revenue Break-even | £5,961 |
| Assumptions: | |
| Average Percent Variable Cost | 19% |
| Estimated Monthly Fixed Cost | £4,821 |
6.5 Sales Forecast
The following table and chart illustrate the sales forecast. The first year is an accurate description of the current sales condition based on the last two years of growth. The company's cost of sales or variable cost consists of the company's utility expenses, which are dependant on the number of customers. This is normally a fixed cost for most companies.
| Sales Forecast | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | |||
| Sales of Laundry Service | £132,000 | £165,600 | £190,440 |
| Subletting Sale | £5,500 | £6,600 | £7,200 |
| Sales of Retail Products and Games | £12,100 | £15,180 | £17,457 |
| Total Sales | £149,600 | £187,380 | £215,097 |
| Direct Cost of Sales | Year 1 | Year 2 | Year 3 |
| Sales of Laundry Service | £25,300 | £29,095 | £33,459 |
| Subletting Sale | £0 | £0 | £0 |
| Sales of Retail Products and Games | £3,300 | £4,000 | £4,500 |
| Subtotal Direct Cost of Sales | £28,600 | £33,095 | £37,959 |
6.6 Projected Profit and Loss
The profit projected in the table is after all expenses and monthly loan payback have been taken into account. All net profit will then be paid as an additional sum to greatly shorten the term of the loan.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | £149,600 | £187,380 | £215,097 |
| Direct Cost of Sales | £28,600 | £33,095 | £37,959 |
| Production Payroll | £1,650 | £1,650 | £1,650 |
| Other | £0 | £0 | £0 |
| Total Cost of Sales | £30,250 | £34,745 | £39,609 |
| Gross Margin | £119,350 | £152,635 | £175,488 |
| Gross Margin % | 79.78% | 81.46% | 81.59% |
| Operating Expenses | |||
| Sales and Marketing Expenses | |||
| Sales and Marketing Payroll | £0 | £0 | £0 |
| Business Insurance | £1,177 | £1,177 | £1,177 |
| Miscellaneous | £0 | £0 | £0 |
| Total Sales and Marketing Expenses | £1,177 | £1,177 | £1,177 |
| Sales and Marketing % | 0.79% | 0.63% | 0.55% |
| General and Administrative Expenses | |||
| General and Administrative Payroll | £29,700 | £32,400 | £32,400 |
| Sales and Marketing and Other Expenses | £0 | £0 | £0 |
| Depreciation | £0 | £0 | £0 |
| Misc. | £0 | £0 | £0 |
| Garbage/Sewage | £550 | £550 | £550 |
| Rent | £21,725 | £23,700 | £24,300 |
| Payroll Taxes | £4,703 | £5,108 | £5,108 |
| Other General and Administrative Expenses | £0 | £0 | £0 |
| Total General and Administrative Expenses | £56,678 | £61,758 | £62,358 |
| General and Administrative % | 37.89% | 32.96% | 28.99% |
| Other Expenses: | |||
| Other Payroll | £0 | £0 | £0 |
| Consultants | £0 | £0 | £0 |
| Others | £0 | £0 | £0 |
| Total Other Expenses | £0 | £0 | £0 |
| Other % | 0.00% | 0.00% | 0.00% |
| Total Operating Expenses | £57,854 | £62,935 | £63,535 |
| Profit Before Interest and Taxes | £61,496 | £89,701 | £111,954 |
| EBITDA | £61,496 | £89,701 | £111,954 |
| Interest Expense | £16,826 | £13,981 | £9,140 |
| Taxes Incurred | £11,096 | £18,930 | £26,132 |
| Net Profit | £33,574 | £56,790 | £76,682 |
| Net Profit/Sales | 22.44% | 30.31% | 35.65% |
6.7 Projected Cash Flow
The following is a chart and table showing the cash flow and cash balance every month. The cash flow is the net income after all expenses have been paid. The cash balance shows the accumulation of cash in the business over the periods. The main point of this chart and table is to show the excess cash flow that could be used as additional payback on the loan. Therefore, after such additional payback takes place, all bars should be stabilized and cash flow should be down to zero because none of the profit is withdrawn.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | £149,600 | £187,380 | £215,097 |
| Subtotal Cash from Operations | £149,600 | £187,380 | £215,097 |
| 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 | £149,600 | £187,380 | £215,097 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | £31,350 | £34,050 | £34,050 |
| Bill Payments | £76,121 | £97,160 | £103,722 |
| Subtotal Spent on Operations | £107,471 | £131,210 | £137,772 |
| 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 | £7,381 | £42,096 | £42,096 |
| Purchase Other Current Assets | £0 | £0 | £0 |
| Purchase Long-term Assets | £0 | £0 | £0 |
| Dividends | £0 | £0 | £0 |
| Subtotal Cash Spent | £114,852 | £173,306 | £179,868 |
| Net Cash Flow | £34,748 | £14,074 | £35,229 |
| Cash Balance | £42,010 | £56,084 | £91,313 |
6.8 Projected Balance Sheet
The balance sheet numbers are shown below and in the appendix.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | £42,010 | £56,084 | £91,313 |
| Other Current Assets | £0 | £0 | £0 |
| Total Current Assets | £42,010 | £56,084 | £91,313 |
| Long-term Assets | |||
| Long-term Assets | £0 | £0 | £0 |
| Accumulated Depreciation | £0 | £0 | £0 |
| Total Long-term Assets | £0 | £0 | £0 |
| Total Assets | £42,010 | £56,084 | £91,313 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | £8,555 | £7,935 | £8,578 |
| Current Borrowing | £0 | £0 | £0 |
| Other Current Liabilities | £0 | £0 | £0 |
| Subtotal Current Liabilities | £8,555 | £7,935 | £8,578 |
| Long-term Liabilities | £142,619 | £100,523 | £58,427 |
| Total Liabilities | £151,174 | £108,458 | £67,005 |
| Paid-in Capital | £82,762 | £82,762 | £82,762 |
| Retained Earnings | (£225,500) | (£191,926) | (£135,136) |
| Earnings | £33,574 | £56,790 | £76,682 |
| Total Capital | (£109,164) | (£52,374) | £24,308 |
| Total Liabilities and Capital | £42,010 | £56,084 | £91,313 |
| Net Worth | (£109,164) | (£52,374) | £24,308 |
6.9 Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7215, Coin-Operated Laundries and Cleaning, are shown for comparison.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 25.25% | 14.79% | 5.30% |
| Percent of Total Assets | ||||
| Other Current Assets | 0.00% | 0.00% | 0.00% | 37.50% |
| Total Current Assets | 100.00% | 100.00% | 100.00% | 55.70% |
| Long-term Assets | 0.00% | 0.00% | 0.00% | 44.30% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 20.36% | 14.15% | 9.39% | 30.00% |
| Long-term Liabilities | 339.49% | 179.24% | 63.99% | 24.00% |
| Total Liabilities | 359.85% | 193.38% | 73.38% | 54.00% |
| Net Worth | -259.85% | -93.38% | 26.62% | 46.00% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 79.78% | 81.46% | 81.59% | 0.00% |
| Selling, General & Administrative Expenses | 62.17% | 70.06% | 63.90% | 71.70% |
| Advertising Expenses | 0.79% | 0.63% | 0.55% | 2.40% |
| Profit Before Interest and Taxes | 41.11% | 47.87% | 52.05% | 4.50% |
| Main Ratios | ||||
| Current | 4.91 | 7.07 | 10.65 | 1.97 |
| Quick | 4.91 | 7.07 | 10.65 | 1.48 |
| Total Debt to Total Assets | 359.85% | 193.38% | 73.38% | 54.00% |
| Pre-tax Return on Net Worth | -40.92% | -144.58% | 422.96% | 6.90% |
| Pre-tax Return on Assets | 106.33% | 135.01% | 112.59% | 15.00% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 22.44% | 30.31% | 35.65% | n.a |
| Return on Equity | 0.00% | 0.00% | 315.46% | n.a |
| Activity Ratios | ||||
| Accounts Payable Turnover | 9.90 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 31 | 29 | n.a |
| Total Asset Turnover | 3.56 | 3.34 | 2.36 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.00 | 0.00 | 2.76 | n.a |
| Current Liab. to Liab. | 0.06 | 0.07 | 0.13 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | £33,455 | £48,149 | £82,735 | n.a |
| Interest Coverage | 3.65 | 6.42 | 12.25 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.28 | 0.30 | 0.42 | n.a |
| Current Debt/Total Assets | 20% | 14% | 9% | n.a |
| Acid Test | 4.91 | 7.07 | 10.65 | n.a |
| Sales/Net Worth | 0.00 | 0.00 | 8.85 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |