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F & R Auto (F & R) is the desire of John Ford and Michael Ronald who together have 30 years experience as auto mechanics. Both have a dream of starting up their own company and offering better service to their clients than competitors.
1.1 Objectives
The objectives over the next three years for F & R Auto Repair are the following:
Sales
revenues increase steadily through year three. Institute a program of superior customer service through rigorous evaluation of service experience.
Hire
work. Constant contact with clients so as to keep them informed about the state of their automobile and the repair job progress. Knowledgeable mechanics that are friendly, customer oriented, and will take the time to explain to customer the intricate nature of our business and our work.
1.3 Mission
The mission of F & R Auto Repair is to provide high quality, convenient and comprehensive auto repair at low cost. The most important aspect of our business is trust. It is the goal of our firm to have 100% customer satisfaction in regards to quality, friendliness, time to completion and to discover new ways to exceed the expectations of our clients.
Company Summary
The company will be a partnership with John Ford and Michael Ronald each owning 50% of the company. The company will be a limited liability company registered in the state of Washington. The firm will have facilities on 1312 1st Ave NW in Ballard, a neighborhood of Seattle. The facilities will contain a two-bay garage, office space and storage space for tools, parts, etc. The company is seeking a loan in order to finance the start of operations for the company. Each of the owners will be putting up some of their own capital as equity.
Start-up
Requirements
Start-up Expenses Legal Stationery etc. Advertising Phone Insurance Rent Utilities Computer Other Total Start-up Expenses $500 $200 $600 $200 $800 $4,000 $200 $2,000 $600 $9,100
Start-up Assets Cash Required Start-up Inventory Other Current Assets Long-term Assets Total Assets $2,900 $0 $0 $20,000 $22,900
Total Requirements
$32,000
Start-up Funding
Start-up Expenses to Fund Start-up Assets to Fund $9,100 $22,900
$32,000
Assets Non-cash Assets from Start-up Cash Requirements from Start-up Additional Cash Raised Cash Balance on Starting Date Total Assets $20,000 $2,900 $0 $2,900 $22,900
Liabilities Current Borrowing Long-term Liabilities Accounts Payable (Outstanding Bills) Other Current Liabilities (interest-free) Total Liabilities $0 $20,000 $0 $0 $20,000
Capital
Planned Investment John Ford Michael Ronald Other Additional Investment Requirement Total Planned Investment $6,000 $6,000 $0 $0 $12,000
($9,100) $2,900
$22,900
Total Funding
$32,000
Services
F & R Auto offers a wide range of services as outlined in the detailed sections below. It is ultimately the goal of the company to offer a one-stop facility for all auto servicing needs, including brakes, transmission, wheel alignment, etc. In this way the company can offer greater perceived value for the customer than many other shops which specialize in certain areas. The industry is highly competitive with suppliers having a great deal of power in setting and negotiating the prices of their products and services to repair shops. In addition, because the customers see the service as undifferentiated and a "commodity" with little value separation between competitors, buyer power is also very high. Finally, the barriers to entry are moderately low, and the large number of competitors in this field, including substitutes (such as do-it-yourself work) mean that the pricing for such services are very competitive. The only way to have an advantage in this industry is a low cost leadership principal applied aggressively or to create higher switching costs through the building of strong business to customer ties. F & R Auto will hire trained and certified mechanics who are able to prove they have superior customer awareness and interaction. It is the company's professional people who will fulfill the firm's contracts and goals. The largest part of the company's expenses will be in labor costs.
Brake
repair. Comprehensive engine repair. Transmission. Each job or project will be on a reservation basis, although we will accept a small percentage of drive in repair work.
3.3 Technology
The technological revolution in computers has enhanced our abilities to diagnose and repair our clients vehicles. F &R will remain on the cutting edge by instituting the use of computer diagnostic equipment in its shop. The company will continue to seek new ways to provide a better service through technology.
F & R Auto's competitive edge lies in the vision of its partners, who understand better than many of their rivals that a service visit does not just include repairing a client's car, it includes the entire service experience from the first time a client talks to their mechanic until they decide to stop driving. The long-term profitability of a service firm of this type lies in the repeat customer that finds F & R's services an excellent experience, DESPITE the fact that they usually have suffered a inconvenient breakdown. The company will seek to examine ALL aspects of the service experience to seek ways to improve its customer satisfaction. In addition, all employees will be rigorously trained and retrained to think about customer satisfaction in order to create a self-sustaining company culture that revolves around this issue.
Each of these marketing approaches has the advantage of being low cost and creating service awareness. The company's long-term marketing goals are to use local radio and TV ads similar to the Les Schwab Tire Center ads.
The company is also investigating the possibility of having a grand opening program that would feature discounts, food, a local radio disc jockey, and other promotional ideas.
1. The number of clients Ford and Ronald can attract from their previous companies. 2. The effect of planned promotions and word-of-mouth marketing. 3. Current prices and costs of doing business. 4. The types of automobiles and jobs that will occur in every month. For the most part, sales for an automobile repair firm are steady year round and reflect little seasonality. The table and charts below outline the sales forecast. Three years of annual sales and costs of sales are shown. Twelve monthly tallies are included in the appendices.
Sales Forecast
Year 1 Sales Routine maintenance Small repair jobs Large repair jobs Total Sales $51,000 $60,000 $67,800 $178,800
Year 2
Year 3
Direct Cost of Sales Routine maintenance Small repair jobs Large repair jobs Subtotal Direct Cost of Sales
Management Summary
John Ford began working as an apprentice mechanic in his father's shop in 1984. Since that time, he has worked for a variety of automotive shops and dealerships and has numerous certificates in automobile repair. During the past two years Mr. Ford has attended Bellevue Community College where he received an Associates degree in business administration in June of 2000. Michael Ronald attended ITT Technical Institute where he received a certificate in electronics repair in 1980. In 1983 Mr. Ronald went to work for Jim Click Ford Dealership in Tucson AZ, where he worked on automotive electrical and electronic systems. Desiring to expand his skills, Mr. Ronald received a mechanic's certificate in 1988 and since then has become certified in various automotive fields. In anticipation of F & R's business needs, Mr. Ronald is taking night classes at Seattle University in marketing.
the original facility, plus a full-time office manager. However, management has decided to await future developments before determining the best time to bring on such personnel. Personnel Plan
Year 1 Mr. Ford Mr. Ronald Office manager (part time) Apprentice mechanic (part time) Apprentice mechanic (part time) Apprentice mechanic (part time) Total People $36,000 $36,000 $14,400 $6,900 $0 $0 4 Year 2 $36,000 $36,000 $15,000 $15,000 $0 $0 4 Year 3 $36,000 $36,000 $15,000 $15,000 $15,000 $0 5
Total Payroll
$93,300
$102,000
$117,000
Financial Plan
The following sections outline the financial plan for F & R Auto Repair.
Break-even Analysis
$14,564
Assumptions: Average Percent Variable Cost Estimated Monthly Fixed Cost 10% $13,107
$160,920 90.00%
$180,230 90.00%
$193,875 90.00%
Expenses Payroll Sales and Marketing and Other Expenses Depreciation Leased Equipment Utilities Insurance Rent $93,300 $6,000 $1,992 $6,000 $4,800 $7,200 $24,000 $102,000 $7,200 $2,000 $1,000 $5,000 $7,400 $24,000 $117,000 $7,400 $2,000 $1,000 $5,000 $7,400 $24,000
$13,995 $0
$15,300 $0
$17,550 $0
$157,287
$163,900
$181,350
Profit Before Interest and Taxes EBITDA Interest Expense Taxes Incurred
$1,219 0.68%
$10,241 5.11%
$7,718 3.58%
Additional Cash Received Sales Tax, VAT, HST/GST Received New Current Borrowing New Other Liabilities (interest-free) New Long-term Liabilities Sales of Other Current Assets Sales of Long-term Assets New Investment Received Subtotal Cash Received $0 $0 $0 $0 $0 $0 $0 $175,555 $0 $0 $0 $0 $0 $0 $0 $199,867 $0 $0 $0 $0 $0 $0 $0 $215,142
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations Cash Spending Bill Payments Subtotal Spent on Operations $93,300 $77,017 $170,317 $102,000 $86,232 $188,232 $117,000 $88,638 $205,638
Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out Principal Repayment of Current Borrowing Other Liabilities Principal Repayment Long-term Liabilities Principal Repayment Purchase Other Current Assets Purchase Long-term Assets $0 $0 $0 $2,000 $0 $0 $0 $0 $0 $2,000 $0 $0 $0 $0 $0 $2,000 $0 $0
$0 $172,317
$0 $190,232
$0 $207,638
$3,238 $6,138
$9,634 $15,773
$7,504 $23,277
Current Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets $6,138 $3,245 $1,815 $0 $11,198 $15,773 $3,634 $2,033 $0 $21,440 $23,277 $3,910 $2,187 $0 $29,373
Long-term Assets Long-term Assets Accumulated Depreciation Total Long-term Assets Total Assets $20,000 $1,992 $18,008 $29,206 $20,000 $3,992 $16,008 $37,448 $20,000 $5,992 $14,008 $43,381
Year 1
Year 2
Year 3
$0 $0 $7,088
$0 $0 $7,088
$0 $0 $7,303
$18,000 $25,088
$16,000 $23,088
$14,000 $21,303
Paid-in Capital Retained Earnings Earnings Total Capital Total Liabilities and Capital
Net Worth
$4,119
$14,360
$22,078
Ratio Analysis
Year 1 Sales Growth 0.00% Year 2 12.00% Year 3 Industry Profile 7.57% 7.00%
Percent of Total Assets Accounts Receivable Inventory Other Current Assets Total Current Assets Long-term Assets Total Assets 11.11% 6.21% 0.00% 38.34% 61.66% 100.00% 9.71% 5.43% 0.00% 57.25% 42.75% 100.00% 9.01% 5.04% 0.00% 67.71% 32.29% 100.00% 8.80% 9.60% 23.80% 42.20% 57.80% 100.00%
Percent of Sales Sales Gross Margin Selling, General & Administrative Expenses Advertising Expenses Profit Before Interest and Taxes 100.00% 90.00% 89.32% 1.34% 2.03% 100.00% 90.00% 84.89% 1.50% 8.15% 100.00% 90.00% 86.42% 1.39% 5.81% 100.00% n.a. 75.20% 1.30% 1.70%
Main Ratios Current Quick Total Debt to Total Assets 1.58 1.32 85.90% 3.02 2.74 61.65% 4.02 3.72 49.11% 1.17 0.65 59.50%
42.28% 5.96%
101.88% 39.07%
49.94% 25.41%
1.80% 4.60%
Activity Ratios Accounts Receivable Turnover Collection Days Inventory Turnover Accounts Payable Turnover Payment Days Total Asset Turnover 5.51 57 10.91 11.87 27 6.12 5.51 63 10.41 12.17 30 5.35 5.51 64 10.21 12.17 30 4.97 n.a n.a n.a n.a n.a n.a
Debt Ratios Debt to Net Worth Current Liab. to Liab. 6.09 0.28 1.61 0.31 0.96 0.34 n.a n.a
Liquidity Ratios Net Working Capital Interest Coverage $4,111 1.92 $14,352 9.61 $22,070 8.35 n.a n.a
Additional Ratios Assets to Sales Current Debt/Total Assets Acid Test Sales/Net Worth 0.16 24% 0.87 43.41 0.19 19% 2.23 13.95 0.20 17% 3.19 9.76 n.a n.a n.a n.a
Dividend Payout
0.00
0.00
0.00
n.a
Appendix
Sales Forecast
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Sales Routine maintenance Small repair jobs Large repair jobs Total Sales 0% 0% 0% $4,000 $4,500 $4,800 $4,000 $4,500 $4,800 $4,000 $4,500 $4,800 $4,000 $4,500 $4,800 $4,000 $4,500 $4,800 $4,000 $4,500 $4,800 $4,500 $5,500 $6,500 $4,500 $5,500 $6,500 $4,500 $5,500 $6,500 $4,500 $5,500 $6,500 $4,500 $5,500 $6,500 $4,500 $5,500 $6,500 $16,500 Month 12
$13,300 $13,300 $13,300 $13,300 $13,300 $13,300 $16,500 $16,500 $16,500 $16,500 $16,500
Direct Cost of Sales Routine maintenance Small repair jobs Large repair jobs Subtotal Direct Cost of Sales
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 $400 $450 $480 $1,330 $400 $450 $480 $1,330 $400 $450 $480 $1,330 $400 $450 $480 $1,330 $400 $450 $480 $1,330 $400 $450 $480 $1,330 $450 $550 $650 $1,650 $450 $550 $650 $1,650 $450 $550 $650 $1,650 $450 $550 $650 $1,650 $450 $550 $650 $1,650
Personnel Plan
Month 1Month 2Month 3Month 4Month 5Month 6Month 7Month 8Month 9 Mr. Ford Mr. Ronald Office manager (part time) Apprentice mechanic (part time) Apprentice mechanic (part time) Apprentice mechanic (part time) Total People Month Month Month 12 10 11 $3,000 $3,000 $1,200 $1,150 $0 $0 4 0% $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 0% $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 0% $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 0% 0% 0% $0 $0 $0 3 $0 $0 $0 3 $0 $0 $0 3 $0 $0 $0 3 $0 $0 $0 3 $0 $1,150 $1,150 $1,150 $1,150 $1,150 $0 $0 3 $0 $0 4 $0 $0 4 $0 $0 4 $0 $0 4 $0 $0 4
Total Payroll
$7,200 $7,200 $7,200 $7,200 $7,200 $7,200 $8,350 $8,350 $8,350 $8,350 $8,350
$8,350
General Assumptions
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month Month 12 11
Plan Month Current Interest Rate Long-term Interest Rate Tax Rate Other
10
11
10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 0 0 0 0 0 0 0 0 0 0 0
$11,970 90.00%
$11,970 90.00%
$14,850 90.00%
$14,850 90.00%
$14,850 90.00%
$14,850 90.00%
$14,850 90.00%
$14,850 90.00%
Expenses Payroll Sales and Marketing and Other Expenses Depreciation Leased Equipment Utilities Insurance Rent Payroll Taxes Other 15% $7,200 $7,200 $7,200 $7,200 $7,200 $7,200 $8,350 $8,350 $8,350 $8,350 $8,350 $8,350
$500
$500
$500
$500
$500
$500
$500
$500
$500
$500
$500
$500
$12,446
$12,446
$13,769
$13,769
$13,769
$13,769
$13,769
$13,769
($476) ($310)
($476) ($310)
($476) ($310)
($476) ($310)
($476) ($310)
($476) ($310)
$1,082 $1,248
$1,082 $1,248
$1,082 $1,248
$1,082 $1,248
$1,082 $1,248
$1,082 $1,248
$165 ($192)
$164 ($192)
$162 ($192)
$161 ($191)
$160 ($191)
$158 ($190)
$157 $277
$156 $278
$154 $278
$153 $279
$151 $279
$150 $279
($449) -3.38%
($448) -3.37%
($447) -3.36%
($446) -3.35%
($445) -3.35%
($444) -3.34%
$647 3.92%
$648 3.93%
$649 3.93%
$650 3.94%
$651 3.95%
$652 3.95%
Cash from Operations Cash Sales Cash from Receivables Subtotal Cash from Operations $11,970 $11,970 $11,970 $11,970 $11,970 $11,970 $14,850 $14,850 $14,850 $14,850 $14,850 $0 $44 $1,330 $1,330 $1,330 $1,330 $1,330 $1,341 $1,650 $1,650 $1,650 $14,850 $1,650 $16,500
$11,970 $12,014 $13,300 $13,300 $13,300 $13,300 $16,180 $16,191 $16,500 $16,500 $16,500
Additional Cash Received Sales Tax, VAT, HST/GST Received New Current Borrowing New Other Liabilities (interest-free) New Long-term Liabilities Sales of Other Current Assets Sales of Long-term Assets New Investment Received Subtotal Cash Received 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $16,500
$11,970 $12,014 $13,300 $13,300 $13,300 $13,300 $16,180 $16,191 $16,500 $16,500 $16,500
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 Bill Payments Subtotal Spent on Operations $7,200 $262 $7,200 $7,797 $7,200 $6,382 $7,200 $6,381 $7,200 $6,380 $7,200 $6,379 $8,350 $6,422 $8,350 $7,677 $8,350 $7,336 $8,350 $7,335 $8,350 $7,334 $8,350 $7,333 $15,683
$7,462 $14,997 $13,582 $13,581 $13,580 $13,579 $14,772 $16,027 $15,686 $15,685 $15,684
Sales Tax, VAT, HST/GST Paid Out Principal Repayment of Current Borrowing Other Liabilities Principal Repayment Long-term Liabilities Principal Repayment Purchase Other Current Assets Purchase Long-term Assets Dividends Subtotal Cash Spent
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$167
$167
$167
$167
$167
$167
$167
$167
$167
$167
$167
$167
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0 $15,850
$7,628 $15,164 $13,749 $13,748 $13,747 $13,746 $14,938 $16,194 $15,852 $15,852 $15,851
($449) $3,644
($448) $3,196
($447) $2,750
($446) $2,304
$1,242 $3,546
($3) $3,543
$648 $4,190
$648 $4,839
$649 $5,488
$650 $6,138
Current Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets $2,900 $0 $0 $0 $7,242 $1,330 $1,463 $0 $4,092 $2,616 $1,463 $0 $8,171 $3,644 $2,616 $1,463 $0 $7,722 $3,196 $2,616 $1,463 $0 $7,275 $2,750 $2,616 $1,463 $0 $6,828 $2,304 $2,616 $1,463 $0 $6,383 $3,546 $2,936 $1,815 $0 $8,296 $3,543 $3,245 $1,815 $0 $8,603 $4,190 $3,245 $1,815 $0 $9,250 $4,839 $3,245 $1,815 $0 $5,488 $3,245 $1,815 $0 $6,138 $3,245 $1,815 $0 $11,198
$2,900 $10,035
$9,899 $10,548
Long-term Assets Long-term Assets Accumulated Depreciation Total Long-term Assets Total Assets $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $0 $166 $332 $498 $664 $830 $996 $1,162 $1,328 $1,494 $1,660 $1,826 $20,000 $1,992 $18,008 $29,206
$20,000 $19,834 $19,668 $19,502 $19,336 $19,170 $19,004 $18,838 $18,672 $18,506 $18,340 $18,174 $22,900 $29,869 $27,839 $27,224 $26,611 $25,998 $25,387 $27,134 $27,275 $27,756 $28,239 $28,722
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11
Month 12
Current Liabilities Accounts Payable $0 $7,584 $6,169 $6,168 $6,167 $6,166 $6,165 $7,433 $7,091 $7,090 $7,089 $7,088 $7,088
$0 $0 $0
$0 $0 $7,584
$0 $0 $6,169
$0 $0 $6,168
$0 $0 $6,167
$0 $0 $6,166
$0 $0 $6,165
$0 $0 $7,433
$0 $0 $7,091
$0 $0 $7,090
$0 $0 $7,089
$0 $0 $7,088
$0 $0 $7,088
$20,000 $19,833 $19,667 $19,500 $19,333 $19,167 $19,000 $18,833 $18,667 $18,500 $18,333 $18,167 $20,000 $27,418 $25,836 $25,668 $25,501 $25,333 $25,165 $26,266 $25,758 $25,590 $25,423 $25,255
$18,000 $25,088
Paid-in Capital Retained Earnings Earnings Total Capital Total Liabilities and Capital
$12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) $0 $2,900 ($449) $2,451 ($897) ($1,344) ($1,790) ($2,235) ($2,679) ($2,032) ($1,383) $2,003 $1,556 $1,110 $665 $221 $868 $1,517 ($734) $2,166 ($84) $2,816 $567 $3,467
$22,900 $29,869 $27,839 $27,224 $26,611 $25,998 $25,387 $27,134 $27,275 $27,756 $28,239 $28,722
Net Worth
$2,900
$2,451
$2,003
$1,556
$1,110
$665
$221
$868
$1,517
$2,166
$2,816
$3,467
$4,119