Business plan written? Check. Financials complete? Check. Finals of business plan competition? Check. Ready to start the business? No check. Jason Martin was a 26-year-old senior at Shepherd University in the Eastern Panhandle of West Virginia when he entered Eco Excellence Express Cleaners, LLC (E3C) into the statewide business plan competition. He had completed his marketing and entrepreneurship coursework between stints as a truck driver, employee at a beer and wine distributor, and working as a salesperson. He grew up surrounded by family members who owned businesses ranging from a fine dining restaurant to a gourmet gift shop to a beer and wine distributor. He knew that he wanted to start and grow an entrepreneurial venture, but was not certain what that might be. During the fall semester, he identified an opportunity to create an eco-friendly dry cleaning and laundry service for the local area which provided pick-up and delivery to homes and places of employment. He entered his idea into the business plan competition and succeeded in advancing to the semi-final and final rounds. He continued to develop and test the concept into the spring. The value proposition evolved into saving time, improving family health, and being eco-friendly. As the plan evolved, Jasons financial projections became increasingly detailed and fact-based. He secured quotations for many of his start-up costs and benchmarked against other dry cleaning, laundry and mobile dry cleaning services. He found an existing local eco-friendly dry cleaner as a supplier and located a leasing opportunity for the laundry facility. Family and friends stepped forward and committed funds to the proposed business. Jason received feedback from judges and coaches during the competition as well as his classmates and faculty advisor. Because Jason had some savings, substantial equity, and a current job, he could pursue financing through a microloan program to bring E3C into existence. However, he was not certain that he was ready to do so. His financial projections showed that the company would be profitable in the second year and that he would live off his savings in the first year and earn about $24,000 in the second and third years. Jason also knew that by working for an employer he could garner commissions as a salesman that would far exceed his early earnings from the business. He also recognized that the financial projections were just thatprojections and he had heard his advisor say, A business plan is a creative work of fiction that is the story of your expectations. He knew that even with the best of plans the business would not evolve exactly as described. Jason was convinced that he could promote the business and that there was an ample market for it, but he was less certain of the financial projections and the opportunity costs of deciding to move forward upon graduation. Also, he was counting on the $10,000 business plan prize for a significant portion of his equity. Without that funding, he would have to add debt to his financials and revisit the numbers. Graduation was rapidly approaching, and Jason had not begun to line up the business or to search for a full-time job. He faced some difficult choices.

How would the statements change if Jason decided to secure an additional $10,000 in debt to replace the planned equity from the competition?

What do you recommend that Jason do and why?

What factors should Jason consider when deciding whether to proceed with the efforts required to start up E3C? Why?

Financial Ratios Year 1 Year 2 Year 3 Industry 3.9 3.2 6.8 6.2 10.5 9.9 1.6 1.0 65.7% -0.1 52.2% 7.0 35.1% 16.0 Liquidity Ratios Current Ratio Quick Ratio Leverage Ratios Debt-to-Total-Assets Times Interest Earned Profitability Ratios Gross Profit Margin Operating Profit Margin Net Profit Margin Operating Return on Assets Net Return on Assets (ROA or ROI) Return on Equity (ROE) 74.6% 17.0% 43.6% -0.2% -2.7% -0.4% -4.6% -13.5% 43.4% 8.6% 5.9% 23.7% 16.3% 34.1% 44.6% 15.2% 10.7% 37.4% 26.5% 40.5% 22.6% Financial Ratios Year 1 Year 2 Year 3 Industry 3.9 3.2 6.8 6.2 10.5 9.9 1.6 1.0 65.7% -0.1 52.2% 7.0 35.1% 16.0 Liquidity Ratios Current Ratio Quick Ratio Leverage Ratios Debt-to-Total-Assets Times Interest Earned Profitability Ratios Gross Profit Margin Operating Profit Margin Net Profit Margin Operating Return on Assets Net Return on Assets (ROA or ROI) Return on Equity (ROE) 74.6% 17.0% 43.6% -0.2% -2.7% -0.4% -4.6% -13.5% 43.4% 8.6% 5.9% 23.7% 16.3% 34.1% 44.6% 15.2% 10.7% 37.4% 26.5% 40.5% 22.6%