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Executive Summary
The ArtSphere Gallery School of Art (ArtSphere) began its operations in September of this year after expanding from its former back room into the full 787
square foot facility on the corner of Main and 1st Streets in Birmingham, AL. Since September the business has grown substantially, but in an unordered way.
This business plan is being written to set a rational framework for growth to maximize profit potential. Successful realization of this plan will produce
increasing profits annually by the end of the third year.
Keys to success and critical factors are, in order of importance:
• Penetration into the day-time market for art lessons.
• Completing some alterations to premises.
• Making changes to certain operational and pricing practices.
• Making sale of art supplies an additional profit source.
1.1 Objectives
The greatest opportunity for the ArtSphere is through the teaching of art to paying customers. The capacity to do this is limited in size to approximately eight
persons at one time. The most important objective is to successfully penetrate the 9 A.M. to 3 P.M. day-time market. This is the largest portion of ArtSphere's
teaching capacity (61%). This offers without any doubt the most important element in the future development of profits. The prime objective is to gradually
increase penetration of this market sector from its present near zero level to 90% of full capacity by the end of second year.
As the afternoon market sector (22% of total capacity) is already nearly fully booked, a secondary objective is to fill the evening hours (Monday through
Thursday) 7:30 P.M. to 9:30 P.M. These eight hours are easier to fill. This goal should be reached by the end of Month 5.
A further objective is to separate art supplies from art lessons, so as to make the sale of art supplies a separate profit center.
A final objective is to maintain the present level of portrait work, produced under contract by clients, as well as maintain the historical level of sales of art
work created by the owners of ArtSphere prior to the recent mushrooming of art instruction.
1.2 Mission
The ArtSphere is dedicated to providing competent, professional instruction in art in friendly, pleasant surroundings while catering to the varying needs of
different target market groups. The ArtSphere tries to cultivate a more personal and longer term relationship with the customer than can be achieved by a
typical six session generic art course taught at Bessemer State College. The ArtSphere recognizes that the real product it sells is different from the art
instruction given. Helena Rubenstein is quoted as saying, "in the factory we manufacture cosmetics, but the product we sell is called 'hope.'"
This thinking holds true at the ArtSphere. The product sold is viewed differently by different buyers. A serious young student with potential may need special
help in compiling his portfolio when applying to art school. A retired 70 year-old woman may be seeking a fun way to fill up an otherwise empty day. A stress-
ridden executive may be seeking solace and relaxation. Encouragement, technical advice, stress-relief, escape from loneliness, self-expression, etc. are just
some of the products sold by the ArtSphere. The owners of the ArtSphere recognize that art lessons can be had at less than $5.00/hour in some state college
evening courses. The ArtSphere cannot attempt to compete with these prices. It is only by tailoring the "real" product sought by customers that we will create
and maintain a high level of sales.
1.3 Keys to Success
The most important element to success is how skillfully the owners can tailor the product to suit the varying needs (emotional, psychological, technical, etc.)
of its customers.
• The limited spaces (maximum of eight) have no shelf life. They are like airplane seats: A 10 o'clock space unsold today is lost forever. It is essential, to
avoid the problem of "no-shows," that customers be signed up on a monthly basis, payable in advance. This does not preclude the possibility of
switching time slots. "Walk-ins" can still be accommodated, based on availability, but these "products" must be sold at a premium to encourage
customers to sign up.
• Like most businesses, it is key to recognize and encourage the "heavy user." A "heavy user" would be someone happy to work at his easel two to three
hours at a time, several times a week. If, however, an hour art lesson does not come to a signaled end, for example, lights being turned off, then the
customer may simply continue working for hours. It is important to arrange a signaled end to a lesson by collecting students' canvases to store them for
the next session. Those wanting a longer session need only enroll for a longer period. Only in this manner can the owners profit from the "heavy user."
• Both owners are artistic and at times reluctant to insist on certain policies designed to encourage profitability. A willingness to be flexible in this
department is key to the success of this plan.
• The special nature of the product does not allow for it to be purchased on a "take-out" basis. It must be consumed on the premises. Therefore it is
absolutely essential to create and maintain an environment in keeping with the special needs of customers. Ugly clutter, adequate lighting, clean-up and
smoking policies, comfortable seating, etc. all must be addressed. The location of the ArtSphere within sight of the harbor and the town landing has all
the potential for superior atmosphere compared to a typical rectangular classroom at a state college.
Company Summary
The "ArtSphere" was registered DBA jointly in the names of Paul and Hannah Nash several years ago.
The ArtSphere is located on the corner of Main and 1st Streets in Birmingham, AL. facing the town's public landing. Approximately 75 students, mostly
adolescents, are signed up for lessons at $10/hour which includes materials. The recently increased facilities have made possible an increase in the number of
students. Lessons are offered a total of 49 hours weekly. Maximum capacity is considered eight at any one time, which works out to a possible sales potential
of 392 learning hours/week. Limiting to eight students at any one time allows sufficient room for each student to sit or stand comfortably at an easel.
As penetration into the 9 A.M. to 3 P.M. market increases, Hannah will give up her teaching position in a pre-school and concentrate on the ArtSphere.
Hannah also paints portraits on a contractual basis for customers (approximately $800 per month). This activity will continue unchanged, but will take place
on weekends when classes are not offered. Paul Nash's artwork will continue as well, also with concentration on weekends.
Saturdays and Sundays are when students' and owners' artwork is displayed in the Gallery; buyers and interested potential students are encouraged to come in
the Gallery, have a cup of espresso, and watch an artist at work.
Start-up Funding
Start-up Expenses to Fund $2,065
Start-up Assets to Fund $6,200
Total Funding Required $8,265
Assets
Non-cash Assets from Start-up $6,200
Cash Requirements from Start-up $0
Additional Cash Raised $0
Cash Balance on Starting Date $0
Total Assets $6,200
Start-up
Requirements
Start-up Expenses
Legal (DBA Register) $25
Stationery, etc. $500
Brochures $300
Consultants $950
Coffee Maker $200
Cordless Phone $90
Expensed Equipment $0
Other $0
Total Start-up Expenses $2,065
Start-up Assets
Cash Required $0
Start-up Inventory $0
Other Current Assets $0
Long-term Assets $6,200
Total Assets $6,200
Total Requirements $8,265
The ArtSphere is expanding its offerings. Our primary focus is now on offering art instruction classes. We will tailor our classes by market segment and time
of day, providing instructional opportunities during the morning and mid-day, after school sessions, and evening classes.
We will have a wide range of art supplies available to complement student sessions as well as for sale to the general public.
Additionally, the owners will continue to show and sell their own work in the Gallery, as well as produce commission portraits and other work.
Market Analysis Summary
The offerings by ArtSphere require, by their very nature, an investment of time on the part of the purchaser. Three customer groups have been identified based
on the availability of time on their part:
• School-aged (over 10 yrs).
• Retired/non-working.
• Working/evening class.
This accounts for virtually everyone in Birmingham, AL older than 10 yet younger than 75. It would be more accurate to state that these people will seek,
during their respective free hours, some hobby, some pleasant, time-filling activity, or other form of relaxation.
Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
School-aged 1% 1,666 1,683 1,700 1,717 1,734 1.01%
Retired/Non-work 7% 2,645 2,830 3,028 3,240 3,467 7.00%
Working/Evening Class 9% 12,042 13,126 14,307 15,595 16,999 9.00%
Other 0% 0 0 0 0 0 0.00%
Total 7.94% 16,353 17,639 19,035 20,552 22,200 7.94%
The ArtSphere recognizes that the real product it sells is different from the art instruction given. Helena Rubenstein is quoted as saying, "in the factory we
manufacture cosmetics, but the product we sell is called 'hope.'"
This thinking holds true at the ArtSphere. The product sold is viewed differently by different buyers. A serious young student with potential may need special
help in compiling his portfolio when applying to art school. A retired 70 year-old woman may be seeking a fun way to fill up an otherwise empty day. A stress-
ridden executive may be seeking solace and relaxation. Encouragement, technical advice, stress-relief, escape from loneliness, self-expression, etc are just
some of the products sold by the ArtSphere. The owners of the ArtSphere recognize that art lessons can be had at less than $5.00/hour in some state college
evening courses. The ArtSphere cannot attempt to compete with these prices. It is only by tailoring the "real" product sought by customers that we will create
and maintain a high level of sales.
64 (8 hrs X 8)
Working/Evening Class 7 P.M. to 9 P.M. 12,042
The school-age market group with its potential market size of 1,666 has within the space of a couple months of operation taken up nearly all the limited 88
teaching hours of capacity for that time slot with some spill-over into the smaller evening class time period. This latter time period in the evening should be
the easiest to fill considering its potential market of 12,042.
Clearly, the marketing strategy at ArtSphere needs to be concentrated on the biggest time slot, the 9 A.M. to 3 P.M. period. As of this writing, nearly all of the
8 easels are unoccupied Monday through Friday.
5.4 Milestones
We have set some milestones to help us focus on needed projects and to keep us on track to complete them.
Milestones
Milestone Start Date End Date Budget Manager Department
New Flooring 9/1/1997 9/1/1997 $2,800 PN & HRN N/A
Storage Racks for Canvases 4/1/1997 4/1/1997 $1,000 PN & HRN N/A
Yellow Pages Ad 3/9/1997 3/9/1997 $65 PN & HRN N/A
Seating for Seniors 4/1/1997 4/1/1997 $750 PN & HRN N/A
Printing, L-head, Brochure 2/15/1997 2/15/1997 $800 PN & HRN N/A
Brochure at Yankee D., etc. 4/1/1997 4/1/1997 $0 PN & HRN N/A
Open House Plans 4/1/1997 4/1/1997 $0 PN & HRN N/A
Ads Formulation (Spring Off) 4/15/1997 4/15/1997 $0 PN & HRN N/A
Finished Ads (Two Types) 5/1/1997 5/1/1997 $0 PN & HRN N/A
Finalize Spring Offensive 5/1/1997 5/1/1997 $0 PN & HRN N/A
Totals $5,415
Management Summary
The ArtSphere is owned and operated by Paul Nash and Hannah Rogerson Nash. There are no plans to hire any employees.
Initially, Paul will provide the bulk of instruction. Hannah is currently employed at the Orchard School in Birmingham, and as ArtSphere's class offerings fill,
she intends to leave Orchard School to concentrate fully on ArtSphere.
Hannah and Paul will take minimal salaries during this start-up period to ensure adequate cash flow and cash balance.
Personnel Plan
Year 1 Year 2 Year 3
Hannah $16,000 $26,400 $22,990
Paul $20,000 $26,400 $29,040
Other $0 $0 $0
Total People 0 0 0
Total Payroll $36,000 $52,800 $52,030
Financial Plan
Break-even Analysis
Expenses
Payroll $36,000 $52,800 $52,030
Sales and Marketing and Other Expenses $11,129 $21,626 $23,876
Depreciation $1,892 $2,067 $2,067
Leased Equipment $0 $0 $0
Utilities (Gas & Elec.) $1,642 $1,642 $1,642
Insurance $540 $540 $540
Rent $14,700 $14,700 $14,700
Payroll Taxes $5,400 $7,920 $7,805
Other $0 $0 $0
Total Operating Expenses $71,303 $101,295 $102,660
Profit Before Interest and Taxes $44,387 $103,087 $118,423
EBITDA $46,279 $105,154 $120,490
Interest Expense $0 $0 $0
Taxes Incurred $15,508 $36,080 $40,954
Net Profit $28,879 $67,007 $77,468
Net Profit/Sales 22.23% 28.88% 30.88%
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 78.61% 8.10% 4.59%
Percent of Total Assets
Inventory 5.23% 3.96% 2.50% 2.25%
Other Current Assets 0.00% 0.00% 0.00% 36.99%
Total Current Assets 90.06% 97.99% 99.91% 44.98%
Long-term Assets 9.94% 2.01% 0.09% 55.02%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 19.10% 8.29% 5.19% 23.64%
Long-term Liabilities 0.00% 0.00% 0.00% 33.36%
Total Liabilities 19.10% 8.29% 5.19% 57.00%
Net Worth 80.90% 91.71% 94.81% 43.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 89.05% 88.08% 88.13% 100.00%
Selling, General & Administrative Expenses 66.84% 59.20% 57.45% 63.44%
Advertising Expenses 2.10% 1.24% 1.15% 4.51%
Profit Before Interest and Taxes 34.16% 44.42% 47.21% 3.46%
Main Ratios
Current 4.72 11.82 19.25 1.20
Quick 4.44 11.34 18.76 0.82
Total Debt to Total Assets 19.10% 8.29% 5.19% 59.16%
Pre-tax Return on Net Worth 126.54% 100.98% 65.95% 4.27%
Pre-tax Return on Assets 102.37% 92.61% 62.53% 10.46%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 22.23% 28.88% 30.88% n.a
Return on Equity 82.33% 65.64% 43.14% n.a
Activity Ratios
Inventory Turnover 9.47 8.29 6.51 n.a
Accounts Payable Turnover 7.90 12.17 12.17 n.a
Payment Days 27 28 29 n.a
Total Asset Turnover 3.00 2.08 1.32 n.a
Debt Ratios
Debt to Net Worth 0.24 0.09 0.05 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $30,771 $99,844 $179,379 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.33 0.48 0.75 n.a
Current Debt/Total Assets 19% 8% 5% n.a
Acid Test 4.44 11.34 18.76 n.a
Sales/Net Worth 3.70 2.27 1.40 n.a
Dividend Payout 0.00 0.00 0.00 n.a
Appendix
Sales Forecast
Month Month Month Month Month Month Month Month
Month 6 Month 7 Month 8 Month 9
1 2 3 4 5 10 11 12
Sales
Portrait 0
$650 $650 $650 $650 $650 $650 $650 $650 $650 $650 $650 $650
Sales (HRN) %
Artwork 0
$300 $300 $300 $300 $300 $300 $300 $300 $300 $300 $300 $300
Sales (PN) %
School-aged 0
$3,000 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600
Classes %
Retired/non-
0
work $0 $0 $0 $0 $0 $3,160 $3,160 $3,160 $3,160 $3,160 $3,160 $6,320
%
Classes
Evening/wor 0
$0 $0 $3,584 $3,584 $3,584 $3,584 $3,584 $3,584 $3,584 $3,584 $3,584 $3,584
king Classes %
Sale of Art 0
$0 $0 $640 $640 $640 $1,240 $1,240 $1,240 $2,140 $2,140 $2,140 $2,740
Supplies %
0
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
%
Total Sales $3,950 $4,550 $8,774 $8,774 $8,774 $12,534 $12,534 $12,534 $13,434 $13,434 $13,434 $17,194
Direct Cost Month Month Month Month Month Month Month Month
Month 6 Month 7 Month 8 Month 9
of Sales 1 2 3 4 5 10 11 12
Portrait
$98 $98 $98 $98 $98 $98 $98 $98 $98 $98 $98 $98
Sales (HRN)
Artwork
$45 $45 $45 $45 $45 $45 $45 $45 $45 $45 $45 $45
Sales (PN)
School-aged
$270 $270 $270 $270 $270 $270 $270 $270 $0 $0 $0 $0
Classes
Retired/non-
work $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Classes
Evening/wor
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
king Classes
Sale of Art
$0 $0 $448 $448 $448 $868 $868 $868 $1,498 $1,498 $1,498 $1,918
Supplies
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal $413 $413 $861 $861 $861 $1,281 $1,281 $1,281 $1,641 $1,641 $1,641 $2,061
Direct Cost
of Sales
Personnel Plan
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Hannah 0% $0 $0 $500 $500 $1,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
Paul 0% $1,000 $1,000 $1,000 $1,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
Other 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total People 0 0 0 0 0 0 0 0 0 0 0 0
Total Payroll $1,000 $1,000 $1,500 $1,500 $3,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000
General Assumptions
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Plan Month 1 2 3 4 5 6 7 8 9 10 11 12
Current Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Tax Rate 30.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00%
Other 0 0 0 0 0 0 0 0 0 0 0 0
Expenses
Payroll $1,000 $1,000 $1,500 $1,500 $3,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000
Sales and Marketing and Other
$400 $400 $400 $449 $1,593 $899 $899 $899 $2,043 $899 $899 $1,349
Expenses
Depreciation $0 $172 $172 $172 $172 $172 $172 $172 $172 $172 $172 $172
Leased Equipment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Utilities (Gas & Elec.) $175 $175 $175 $175 $95 $75 $75 $75 $97 $175 $175 $175
Insurance $45 $45 $45 $45 $45 $45 $45 $45 $45 $45 $45 $45
Rent $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225
Payroll Taxes 15% $150 $150 $225 $225 $450 $600 $600 $600 $600 $600 $600 $600
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Operating Expenses $2,995 $3,167 $3,742 $3,791 $6,580 $7,016 $7,016 $7,016 $8,182 $7,116 $7,116 $7,566
Profit Before Interest and Taxes $543 $971 $4,172 $4,123 $1,334 $4,238 $4,238 $4,238 $3,612 $4,678 $4,678 $7,568
EBITDA $543 $1,143 $4,344 $4,295 $1,506 $4,410 $4,410 $4,410 $3,784 $4,850 $4,850 $7,740
Interest Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Taxes Incurred $163 $340 $1,460 $1,443 $467 $1,483 $1,483 $1,483 $1,264 $1,637 $1,637 $2,649
Net Profit $380 $631 $2,711 $2,680 $867 $2,754 $2,754 $2,754 $2,347 $3,040 $3,040 $4,919
Net Profit/Sales 9.61% 13.86% 30.90% 30.54% 9.88% 21.98% 21.98% 21.98% 17.47% 22.63% 22.63% 28.61%
Cash from
Operations
Cash Sales $3,950 $4,550 $8,774 $8,774 $8,774 $12,534 $12,534 $12,534 $13,434 $13,434 $13,434 $17,194
Subtotal Cash
$3,950 $4,550 $8,774 $8,774 $8,774 $12,534 $12,534 $12,534 $13,434 $13,434 $13,434 $17,194
from Operations
Additional Cash
Received
Sales Tax, VAT,
0.00
HST/GST $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
%
Received
New Current
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Borrowing
New Other
Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
(interest-free)
New Long-term
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Liabilities
Sales of Other
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Current Assets
Sales of Long-
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
term Assets
New Investment
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Received
Subtotal Cash
$3,950 $4,550 $8,774 $8,774 $8,774 $12,534 $12,534 $12,534 $13,434 $13,434 $13,434 $17,194
Received
Expenditures Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Expenditures
from Operations
Cash Spending $1,000 $1,000 $1,500 $1,500 $3,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000
Bill Payments $105 $3,164 $3,375 $4,531 $4,572 $4,893 $5,429 $5,608 $5,664 $7,274 $6,222 $6,300
Subtotal Spent
$1,105 $4,164 $4,875 $6,031 $7,572 $8,893 $9,429 $9,608 $9,664 $11,274 $10,222 $10,300
on Operations
Additional Cash
Spent
Sales Tax, VAT,
HST/GST Paid $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Out
Principal
Repayment of
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Current
Borrowing
Other Liabilities
Principal $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Repayment
Long-term
Liabilities
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Principal
Repayment
Purchase Other
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Current Assets
Purchase Long-
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
term Assets
Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash
$1,105 $4,164 $4,875 $6,031 $7,572 $8,893 $9,429 $9,608 $9,664 $11,274 $10,222 $10,300
Spent
Net Cash Flow $2,845 $386 $3,899 $2,743 $1,202 $3,641 $3,105 $2,926 $3,770 $2,160 $3,212 $6,894
Cash Balance $2,845 $3,231 $7,131 $9,873 $11,075 $14,716 $17,821 $20,748 $24,517 $26,677 $29,889 $36,784