Which of the following is an example of a fixed cost for a bridal gown shop

Bride’s Entourage expects to be profitable by the end of its second year of operations. To get the business up and running, we will need to obtain financing. The initial market share will be modest; however, significant growth in market share is expected due to the unique niche that the shop is targeting. The market share is expected to grow at a more modest rate after year three.

8.1 Important Assumptions

The following assumptions are key to understanding the profit and loss projections.

  • We do not sell anything on credit – all items must be paid in full before they are taken from the store. 
  • We are estimating that 80% of the purchases will be made with credit cards. The credit card fees are calculated as 80% of the sales, times 1.8 percent (the fee rate). 
  • Cost of sales for the clothing items has a two month delay. This is because most clothing items will be custom ordered and, as a result, Bride’s Entourage will not have to pay for them until they arrive about two months after they are ordered.

General AssumptionsYear 1Year 2Year 3Plan Month123Current Interest Rate6.25%6.25%6.25%Long-term Interest Rate6.25%6.25%6.25%Tax Rate30.00%30.00%30.00%Other000

Need real financials

We recommend using LivePlan as the easiest way to create automatic financials for your own business plan.

Create your own business plan

8.2 Break-even Analysis

For the break-even analysis, the following assumptions were used:

  1. Fixed costs per month are estimated as total first year operating expenses divided by 12.
  2. For each item sold, there is a variable price equal to about 43% of the retail price of the item.

Which of the following is an example of a fixed cost for a bridal gown shop

Need actual charts?

We recommend using LivePlan as the easiest way to create graphs for your own business plan.

Create your own business plan

Break-even AnalysisMonthly Revenue Break-even$21,445Assumptions:Average Percent Variable Cost43%Estimated Monthly Fixed Cost$12,149

8.3 Projected Profit and Loss

We expect losses in the first year, because it will take time for the store to build momentum and generate traffic. However, once sales increase, the results are positive because many of the other expenses will remain fixed. In fact, we expect that sample inventory costs will actually go down in years to come. Some designers will provide sample inventory at deep discounts and/or provide the samples free of charge once good credit terms are established. As a result, the annual expenditures for sample inventory should decrease.

Which of the following is an example of a fixed cost for a bridal gown shop

Need actual charts?

We recommend using LivePlan as the easiest way to create graphs for your own business plan.

Create your own business plan

Which of the following is an example of a fixed cost for a bridal gown shop

Need actual charts?

We recommend using LivePlan as the easiest way to create graphs for your own business plan.

Create your own business plan

Which of the following is an example of a fixed cost for a bridal gown shop
Which of the following is an example of a fixed cost for a bridal gown shop

Need actual charts?

We recommend using LivePlan as the easiest way to create graphs for your own business plan.

Create your own business plan

Which of the following is an example of a fixed cost for a bridal gown shop
Which of the following is an example of a fixed cost for a bridal gown shop

Need actual charts?

We recommend using LivePlan as the easiest way to create graphs for your own business plan.

Create your own business plan

Pro Forma Profit and LossYear 1Year 2Year 3Sales$252,788$394,373$622,855Direct Cost of Sales$109,581$172,183$271,404Credit Card Fees$3,640$3,155$4,983Total Cost of Sales$113,221$175,338$276,387Gross Margin$139,567$219,034$346,468Gross Margin %55.21%55.54%55.63%ExpensesPayroll$30,720$41,000$45,000Sales and Marketing and Other Expenses$11,900$12,000$12,000Depreciation$2,160$2,160$2,160Rent including triple nets$52,800$54,750$66,900Utilities$9,000$9,500$10,000Insurance$4,200$4,600$5,100Payroll Taxes$4,608$6,150$6,750Supplies$3,600$4,000$4,300Repairs and Maintenance$2,400$2,600$2,800Professional Fees$3,300$3,500$4,000Taxes and Licenses$1,100$1,100$1,100New Sample Inventory$20,000$15,000$14,000Total Operating Expenses$145,788$156,360$174,110Profit Before Interest and Taxes($6,221)$62,674$172,358EBITDA($4,061)$64,834$174,518Interest Expense$3,622$2,843$2,030Taxes Incurred$0$17,950$51,098Net Profit($9,842)$41,882$119,230Net Profit/Sales-3.89%10.62%19.14%

8.4 Projected Cash Flow

The cash flow of Bride’s Entourage is somewhat unique. For items that are sold off the floor, the cash flow and revenue recognition is traditional, in that full payment is received at the time of the sale, and the customer takes possession of the item at that time. This is how most of the shoe sales will take place, as well as some of the other accessory purchases.

However, most of the other items in the store have a different flow. Let’s use a dress as an example. The customer will try on a sample in the store, and when she decides to purchase the item, she will most likely have to order it in the size and color of her choosing. For this process to begin, the customer must provide a deposit of at least 50% of the total price of the item (note: while some customers may choose to pay the full amount at the time the order is placed, these illustrations assume that everyone will choose the 50% option). The remaining balance will be due within thirty days of when the item arrives in our store.

This timing issue has also been taken into consideration for the costs of goods sold. The store will be billed for items when the items are shipped, thus cash outflow for the cost of the item will closely match the cash inflow of the customer paying the balance on the item.

Which of the following is an example of a fixed cost for a bridal gown shop
Which of the following is an example of a fixed cost for a bridal gown shop

Need actual charts?

We recommend using LivePlan as the easiest way to create graphs for your own business plan.

Create your own business plan

Pro Forma Cash FlowYear 1Year 2Year 3Cash ReceivedCash from OperationsCash Sales$252,788$394,373$622,855Subtotal Cash from Operations$252,788$394,373$622,855Additional Cash ReceivedSales Tax, VAT, HST/GST Received$0$0$0New Current Borrowing$0$0$0New Other Liabilities (interest-free)$0$0$0New Long-term Liabilities$0$0$0Sales of Other Current Assets$0$0$0Sales of Long-term Assets$0$0$0New Investment Received$0$0$0Subtotal Cash Received$252,788$394,373$622,855ExpendituresYear 1Year 2Year 3Expenditures from OperationsCash Spending$30,720$41,000$45,000Bill Payments$194,477$302,314$450,411Subtotal Spent on Operations$225,197$343,314$495,411Additional Cash SpentSales Tax, VAT, HST/GST Paid Out$0$0$0Principal Repayment of Current Borrowing$0$0$0Other Liabilities Principal Repayment$0$0$0Long-term Liabilities Principal Repayment$13,020$13,000$13,000Purchase Other Current Assets$0$0$0Purchase Long-term Assets$0$0$0Dividends$0$0$0Subtotal Cash Spent$238,217$356,314$508,411Net Cash Flow$14,571$38,058$114,444Cash Balance$36,471$74,529$188,973

8.5 Projected Balance Sheet

Bride’s Entourage maintains a strong current ratio throughout. While the net worth of the business is negative in year one, it makes steady gains and becomes positive in year two. By the end of year three, retained earnings is also close to being positive.

Pro Forma Balance SheetYear 1Year 2Year 3AssetsCurrent AssetsCash$36,471$74,529$188,973Inventory$6,878$10,808$17,036Other Current Assets$1,000$1,000$1,000Total Current Assets$44,349$86,337$207,009Long-term AssetsLong-term Assets$8,500$8,500$8,500Accumulated Depreciation$2,160$4,320$6,480Total Long-term Assets$6,340$4,180$2,020Total Assets$50,689$90,517$209,029Liabilities and CapitalYear 1Year 2Year 3Current LiabilitiesAccounts Payable$14,802$25,747$38,030Current Borrowing$0$0$0Other Current Liabilities$0$0$0Subtotal Current Liabilities$14,802$25,747$38,030Long-term Liabilities$51,980$38,980$25,980Total Liabilities$66,782$64,727$64,010Paid-in Capital$30,000$30,000$30,000Retained Earnings($36,250)($46,092)($4,210)Earnings($9,842)$41,882$119,230Total Capital($16,092)$25,790$145,020Total Liabilities and Capital$50,689$90,517$209,029Net Worth($16,092)$25,790$145,020

Need real financials

We recommend using LivePlan as the easiest way to create automatic financials for your own business plan.

Create your own business plan

8.6 Business Ratios

The following table breaks down some of the key financial ratios. Where available, industry averages for Bridal Shops – SIC code 5621.0102, are shown for comparison.

Ratio AnalysisYear 1Year 2Year 3Industry ProfileSales Growth0.00%56.01%57.94%-0.02%Percent of Total AssetsInventory13.57%11.94%8.15%50.91%Other Current Assets1.97%1.10%0.48%24.44%Total Current Assets87.49%95.38%99.03%85.49%Long-term Assets12.51%4.62%0.97%14.51%Total Assets100.00%100.00%100.00%100.00%Current Liabilities29.20%28.44%18.19%29.49%Long-term Liabilities102.55%43.06%12.43%11.18%Total Liabilities131.75%71.51%30.62%40.67%Net Worth-31.75%28.49%69.38%59.33%Percent of SalesSales100.00%100.00%100.00%100.00%Gross Margin55.21%55.54%55.63%40.07%Selling, General & Administrative Expenses59.10%44.92%36.48%21.95%Advertising Expenses0.00%0.00%0.00%2.92%Profit Before Interest and Taxes-2.46%15.89%27.67%2.90%Main RatiosCurrent3.003.355.442.64Quick2.532.935.000.74Total Debt to Total Assets131.75%71.51%30.62%5.31%Pre-tax Return on Net Worth61.16%232.00%117.45%47.92%Pre-tax Return on Assets-19.42%66.10%81.49%10.20%Additional RatiosYear 1Year 2Year 3Net Profit Margin-3.89%10.62%19.14%n.aReturn on Equity0.00%162.40%82.22%n.aActivity RatiosInventory Turnover6.7819.4719.49n.aAccounts Payable Turnover14.0712.1712.17n.aPayment Days272425n.aTotal Asset Turnover4.994.362.98n.aDebt RatiosDebt to Net Worth0.002.510.44n.aCurrent Liab. to Liab.0.220.400.59n.aLiquidity RatiosNet Working Capital$29,548$60,590$168,980n.aInterest Coverage-1.7222.0584.91n.aAdditional RatiosAssets to Sales0.200.230.34n.aCurrent Debt/Total Assets29%28%18%n.aAcid Test2.532.935.00n.aSales/Net Worth0.0015.294.29n.aDividend Payout0.000.000.00n.a