Financial Plan

Jump to section

• Overview & contents
• i. Important Notice
• 1. Executive Summary
• 2. The Business
• 3. Market Analysis
• 4. Service Offering, Pricing and Yield
• 5. Operations
• 6. Marketing and Client Acquisition
• 7. People and Management
• 8. SWOT and Competitive Position
• 9. Financial Plan
• 10. Break-Even and Sensitivity
• 11. Risk Management
• 12. The Funding Proposition
• 13. Implementation Plan
• 14. Key Performance Indicators
• 15. Conclusion
• A. Appendix A: Consolidated Financial Summary
• B. Appendix B: Debt Schedules
• C. Appendix C: Risk Register
• D. Appendix D: Assumption Register
• E. Appendix E: Glossary

9.1 Basis of preparation

• All amounts are in nominal South African rand, exclusive of value-added tax. Revenue is built from chair-hours available, utilisation, service mix and average ticket.
• Prices escalate at approximately six per cent a year and product cost at seven per cent, reflecting the observed relationship between salon pricing and input cost.
• Depreciation is charged at R252,000 a year on a straight-line basis across the fit-out, furniture, technical equipment and systems.
• Interest includes the revolving facility as well as the term loan and asset finance. Facility interest is capitalised into the drawn balance while the facility is in use.
• Corporate income tax is applied at 27 per cent on taxable profit, with assessed losses carried forward subject to the section 20 limitation capping set-off at the higher of R1 million or 80 per cent of taxable income.
• The balance sheet is derived rather than plugged; shareholders’ funds roll forward from the R1.40 million subscription and retained earnings, and the closing cash and facility positions reconcile exactly to the cash flow statement.

9.2 Capital requirement

The working capital reserve of R520,000 is not contingency. It is a calculated requirement: the salon trades at a loss for its first year, buys stock on cash terms until it earns supplier credit, and faces a January in which demand falls to 0.78 times average while rent and the payroll floor do not move.

9.3 Funding structure

Founder equity at 51 per cent is high by the standards of a salon application and is required by the cash profile rather than offered as a courtesy. A conventional structure of thirty per cent equity and seventy per cent debt does not survive Year 1 in this model, because the debt service would exceed EBITDA by a factor of more than three.

The twelve-month capital moratorium on the term loan is the second structural necessity. Without it, Year-1 debt service rises by approximately R116,000 and the peak facility draw increases correspondingly. Lenders in this segment routinely grant such moratoria; this plan simply makes the requirement explicit rather than discovering it in month eight.

9.4 Projected income statement

Between Year 1 and Year 5 the salon adds R4.64 million of service revenue and R1.12 million of retail. Against that, payroll absorbs R2.42 million and rent and other fixed costs a further R345,000. Roughly 42 per cent of every incremental rand of revenue is consumed by payroll.

Assessed losses of R1.11 million accumulate across Years 1 to 3 and are carried forward. Year 4 taxable profit of R116,000 and Year 5 of R606,000 are both fully offset under the section 20 limitation, so no tax is payable within the forecast and R388,000 of assessed loss remains unutilised at Year 5.

At Year 3, payroll takes 42.6 per cent of revenue, product and retail cost of sales 22.1 per cent, rent 11.6 per cent and fixed operating costs 10.2 per cent. What remains is 7.0 per cent. A salon is a business in which four cost lines consume more than ninety per cent of revenue, and the discipline is in managing all four rather than optimising one.

9.5 The cost base in detail

Four lines consume more than ninety per cent of revenue. The build below shows each as a share of revenue across the forecast, which is the only way to see whether a cost is being controlled or merely growing more slowly than the top line.

Rent and occupancy tells the clearest story. It is 21.7 per cent of revenue in Year 1 and 9.1 per cent by Year 5, and not a rand of that improvement comes from negotiating a better lease. The rent is contractual and escalates at seven per cent a year; the ratio falls only because revenue triples. That is the arithmetic of a fixed-cost business filling a fixed capacity, and it is why utilisation rather than cost control is the management priority.

9.6 Cash flow and the facility

The cash story is the honest centre of this plan. The salon opens with the R520,000 reserve, draws R105,000 on its facility by the end of Year 1, R380,000 by the end of Year 2 and peaks at R500,000 during Year 4 before beginning to repay. Against a R650,000 limit that leaves 23 per cent headroom, and the facility should be expected to be drawn for four consecutive years.

9.7 Projected balance sheet

Shareholders’ funds fall from R1.40 million subscribed to R290,000 at the end of Year 3 as the accumulated deficit builds, then recover to R1.01 million by Year 5. Net fixed assets decline from R1.46 million to R856,000 as depreciation of R252,000 a year exceeds maintenance capital expenditure. The balance sheet balances in every year and the cash and facility lines agree exactly with the cash flow statement.

9.8 Returns to equity

Terminal equity value is the enterprise value less the R499,000 of debt outstanding at Year 5. At the central 4.5 times assumption the equity return is 22.8 per cent over five years with a net present value of R310,000 at an eighteen per cent required return.