Start-up costs
These costs are required when starting a business. These costs vary depending on type, scope and the nature of the business that an individual intends to start. Even though a cinema theme park business is capital intensive, the amount of startup cost will be low. This can be attributed to the fact that the business intends to offer only two products. Besides, there are plans to rent as opposed to buying (Shapiro 2005). Further, the amount of startup cost will give an indication on the capital that needs to be raised. The table presented below shows a summary of the total startup costs for the business.
The table shows that the total amount of startup cost that is required for the business is €12,000. The assets that will be bought amounts to €6,866.This category comprises items that are bought only once in the business. The second category, expenses, comprises items that will be bought for use in the business. Some of the items that have a life span of only one year will also be included in this category because they cannot be capitalized. The final category is miscellaneous. This will cater for changes in prices. The market is quite dynamic and the current quotes listed above may not remain the same at the time the business will be started. Even though the list of assets and expenses required for the start up is comprehensive, the costs will cater for the items left out. Thus, it will be accounted for under expenses. From the start-up cost, it is easy to estimate the amount of initial capital requirement. Capital can be raised through various ways (Shapiro 2005). The most common ways are through personal savings, family, equity, debt, and through business partners. Thus, the method of raising capital depends on the size of the business and the form of business. In this case, the cinema theme park will be a partnership business of three. The partners will raise the funds equally. The partners will rely on contributions and support of their family members and savings. The table presented below shows a summary of the start-up cost and capital.
The table presented below shows a summary of the capital raised.
Assumptions
Before preparing the financial statements, it is important to come up with the assumptions that will be applied in the preparation of the financial statements. The first assumption will be on population. Analysis of the population will give estimates of the sales value for the business. The business will be located in Apeldoorn. It is one of the largest cities in the Netherlands. The last population census was carried out in 2001 and the city had a total population of 153,681. However, the population has grown significantly over the years. At the beginning of 2015, the population was estimated to be 158,059. The population growth rate currently stands at 0.39%. The population of Netherland is considered to have a high proportion of old people. The table presented below shows the breakdown of the population of the city.
The percentage of the population representing male is 49.54% and 50.46% for female. Thus, the proportion is almost half. The total number of male is 78,302 while the total number of female is 79,757. The business targets people of different age groups because it is a family oriented business. Thus, the most appropriate age group is between 5 and 70 years, both male and female. The total population in this age group is 133,291.The Company targets 4% of the population aged between 5 and 70 years. Thus, the number of estimated customers is 5,325. Further, it is expected that each person will spend approximately €1.46 per year at the park. This will amount to €7,759 for the entire year. The calculations will be based on the assumption that the business will operate at 48% of full capacity. Further, the amortization of the start-up costs will be carried out over a period of six years. The pricing used by the company is based on the averages in the industry. The company will outsource several services such as cable TV, payroll services, and waste management among others. Also, the projection of the staff salaries will be based on the assumption that they are full-time employees working eight hours in a day. All the tax rates that are applicable in the city will be used in the calculations (Shapiro 2005).
Pro forma financial statements
Forecasts
Sales and direct costs forecast
Personnel expenses forecast
The table presented below shows the summary of the salaries and the number of staff members in each department.
Opening balance sheet
- Cinema Theme Park
- Balance sheet
- As at 31st January 2015
- Cinema Theme Park
- Profit and loss projection
- For the 12 month period ended 31st December 2015
- Cinema Theme Park
- Cash flow projections
- For the 12 month period ended 31st December 2014
- Cinema Theme Park
- Balance Sheet
- As at 31st December 2015
Ratio analysis
The table presented below shows a summary of the ratios for the proposed business.
The business does not have both current and long term assets. This implies that the leverage level is zero. Further, the liquidity ratios cannot be estimated. The liquidity and efficiency ratios were relatively high. This implies that the business is expected to perform well at the end of the first year (Shapiro 2005).
Break even analysis
Total revenue (P * Q) = total cost [Variable (VC * Q) + fixed cost]
1.46 * Q = (0.46 *Q) + 75.66046
1Q = 75.66046
Q = 75.66
Thus, the break-even number of units is 75.66. The break-even amount of sales is €110.75. The break-even annual sales total to €1329.02. The estimated annual revenue for the year 2015 is €7,759.11. This value exceeds the break-even annual sales. This shows that the business is profitable (Brigham & Michael 2009).
Profit projection
The table presented below shows the profit projection for four years. The calculations will be based on the assumption that the business will grow at 4% annually.
References
Brigham, E & Michael, J 2009, Financial management theory and practice, South-Western Cengage Learning, USA.
Shapiro, A 2005, Capital budgeting and investment analysis, Pearson Education, New Delhi, India.