Question
Mike Smith is a long-term resident of Bowling Green, KY and is known by his circle of friends/family as an expert chocolate maker. He had
Mike Smith is a long-term resident of Bowling Green, KY and is known by his circle of friends/family as an expert chocolate maker. He had a sweet tooth growing up and that led to Mike going to culinary school after high school. Mike is now 25 years old and has developed his own recipe for specialty chocolates and desserts. Mike is contemplating the start of his own business, structed as a sole proprietorship, to own a specialty chocolate and dessert shop in Bowling Green, KY.
Mike Smith has saved his money and can contribute $20,000 to help launch the business; however, he is requesting a small business loan and/or investor for the remaining start-up costs. Mr. Smith has identified a few banks that may consider lending him the requisite start-up capital, pending he can develop a set of solid and reasonable financial projections.
Mr. Smith know that there will be startup costs associated with opening the doors of his new business, but he is having trouble identifying accurate startup costs. After some quick research, Mike realized he will need funding for initial inventory, basic kitchen equipment, minor cosmetic changes to any rental location, and any legal/business fees. He also realizes there will be ongoing costs associated with running his business, but Mike is struggling to know what those expenses will be.
Below are some assumptions that Mike Smith has made regarding his proposed financial projections for the first 1 of business operation:
- Sales and Terms Mike believes the below is a reasonable sales forecast for year 1. The assumption is that 60% of sales will be cash sales and 40% will be credit sales (with 30-day terms). Credit sales will be allowed if customers order in bulk for events.
- January - $12,000
- February - $13,500
- March - $15,750
- April - $20,000
- May - $22,000
- June - $24,000
- July - $29,000
- August - $35,000
- September - $42,000
- October - $50,000
- November - $60,000
- December - $72,000
- Cost of Goods Sold Inventory purchases are projected to be 65% of sales. Mike would like to pay inventory as soon as he purchases it.
- Salaries and Wages Mike plans to hire a part-time worker when the business starts, who will work 20 hours a week working minimum wage. Mike will be working full-time in the business as an owner-operator. Note: Mr. Smith needs a minimum of $3,500 per month during the first year of operations to cover personal obligations.
- Marketing Mike wants to spend $1,500 initially to market the new business, and then 2.5% of monthly sales each month for marketing purposes.
- Vehicle Mike will be offering delivery services for customers orders at a premium charge. He will be using his personal vehicle for this.
- Office Supplies $500 will be needed initially to purchase basic office supplies
- Rent There are many options in Bowling Green, KY for rental locations. Mike does not want to purchase a location but rather rent a small location at a high traffic spot in town. He does not know how much it will cost to rent a location but wants to keep monthly rent below $3,000 a month.
Your assignment is to create:
3. Pro-forma Cash Flow for the first 3 years of operations
4. An Executive Summary with the following information:
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