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Gary Automobile Clinic’s Business & Financial Plan Report (Assessment)

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Updated: Jul 6th, 2021


Financial planning is a critical aspect of management since it determines the feasibility of a business (Nunes & Machado 2014). In the dynamic business environment, it is important to integrate financial management tools (Myerson 2015). This report presents detailed financial projections of an automobile repair business. Specifically, the analysis focuses on fixed and variable costs, budgeted profit, cash flow, and breakeven analysis. In addition, the paper outlines the potential risks that the business might face.

Summary of the Business Idea

Gary Automobile Clinic is a modern motor vehicle service centre located in Tyson region and exists within the Automobile service industry. The company specializes in repairing vehicles and general service. The business targets saloon and SUV vehicles. Among the notable service charters include body repair, engine work, upholstery, and suspension. Although there are several competitors in the market offering the same services, the proposed business offers customized and bundled services in the form of standard and premium options for car repair (Sostrin 2013). The customization and bundled service charter is part unique competitive advantage (Oakland 2014). Another critical success factor is competitive pricing with the average price set at SAR15.06 per service bundle (Singh & Singh 2014). In addition, the company offers a series of after sales services such as free car wash and general waxing (Osterwalder & Pigneur 2013).

Outline and Discussion of Key Fixed and Variable Costs

Variable costs are expenses that change depending on the level of production output while fixed costs do not change whether productivity increases or decreases. In relation to Gary Automobile Clinic, the fixed costs are utility expenses, insurance, salaries, taxes, and rent. The variable costs are machinery, spare parts, production supplies such as oil and grease, utility costs, and sales commissions. The business will plan for fixed costs such as annual rent, the insurance premiums, annual salaries for employees, and fixed utility expenses such as electricity and water. At the same time, the company will experience changing costs associated with the number of service bundles sold. For instance, the cost of utilities such as gas, sales commissions, grease and oil, machinery, and spare parts will vary depending on the level productivity. The fixed and variable costs were estimated based on the expected productivity level for the first year of operation (see table 1).

Table 1. Fixed and variable costs.

Fixed Costs Variable Costs
Item Cost Item Cost
Utility Expenses (Electricity and water) 43,500 Machinery 47,000
Insurance 45,000 Spare parts 150,000
Loan Repayment 145,000 Production supplies (grease and oil) 40,000
Rent 99,600 Variable utilities such as gas 30,000
Taxes 20,000 Sales commissions 15,000

The highest cost will be incurred in procuring spare parts. The most volatile costs are loan repayment and rent since they are fixed within a specified timeline (Osterwalder & Pigneur 2013). This means that the business has to balance its books to ensure that these two costs are met in a timely manner. In order to minimize costs, the business will manage the variable costs for each bundle of output from specific units of inputs.

Several assumptions were made in generating the values for fixed and variable costs. The first assumption is that the initial capital was set at SAR 154,000 with the intention of arranging a long-term bank loan of SAR 534,000. The loan will be taken at an interest rate of 10% payable after every three months (Monks & Minow 2014). The loan repayment will take four years. In calculating the cash flow, sales will be made on credit and cash with a 15-day outstanding account payable (Nobes 2014). The business intends to invest SAR 348,000 in property, equipment, and plant. This investment includes costs such as fittings, furniture, interior design, and office equipment (Marshall, McManus & Viele 2016). The business will be done in a rented premise with a fixed rental advance estimated at of SAR 99,600 for the period of 12 months.

Budgeted Profit for the First Year of Operation

For the year ending on 31st December.

Jan-Apr May-Aug Sept-Dec
Sales 1,275,000 1,338,750 1,445,850
Less: Cost of Sales -522,000 (548,100) (591,948)
Gross Profit 753,000 790,650 853,902
Fixed Expenses:
Worker wages 186,000 195,300 210,924
Factory rent 99,600 104,580 112,946
Electricity and Other Utilities 17,040 17,892 19,323
Other Administrative Expenses 12,240 12,852 13,880
Sales Promotion 20,600 21,630 23,360
Total Expenses -335,480 (352,254) (380,434)
Operating Profit 417,520 438,396 473,468
Interest -53,400 (56,070) (60,556)
Depreciation -23,200 (24,360) (26,309)
Interest and Depreciation 76,600 80,430 86,864
Profit for the year before tax 340,920 357,966 386,603
Less: Taxation (30%) -102,276 (107,390) (115,981)
Net Profit 238,644 250,576 270,622

Budgeted Cash Flow for the First Year of Operation

For the year ending on 31st December.

Particulars Start up Jan-Feb Mar-Apr May-Jun Jul-Aug Sep-Oct Nov-Dec
Estimated Sales Units 11500 13000 19,500 50,000 52,500 56,700
Sales Revenue 293250 331500 497,250 1,275,000 1,338,750 1,445,850
Cash Inflow
Accounts Receivable 293250 325125 465,375 1,185,750 1,245,038 1,344,641
Initial capital 154,000 0 0 0 154,000 161,700 174,636
Total debt 534,000 0 0 0 534,000 560,700 605,556
Total (A) 688,000 293250 325125 465,375 1,873,750 1,967,438 2,124,833
Cash outflow
Accounts Payable 143600 167200 175,500 547,400 574,770 620,752
Worker wages 39900 39900 39,900 186,000 195,300 210,924
Factory Rent 24900 24900 24,900 99,600 104,580 112,946
Electricity and Utilities 4260 4260 4,260 17,040 17,892 19,323
Other Admin expenses 3060 3060 3,060 12,240 12,852 13,880
Sales Promotion 4120 4120 4,120 20,600 21,630 23,360
Interest 13350 13350 13,350 53,400 56,070 60,556
Property, Plant and Equipment 348,000 0 0 0 348,000 365,400 394,632
Rent advance 99,600 0 0 0 99,600 104,580 112,946
Loan Repayment 0 0 154,000 154,000 161,700 174,636
Total (B) 447,600 233190 256790 419,090 1,063,880 1,117,074 1,206,440
Net cash (A) – (B) 240,400 60060 68335 46,285 431,270 452,834 489,060
Opening balance 794300 974555 1,281,960 496,155 431,270 452,834
Closing Cash 240,400 854360 1042890 1,346,245 431,270 452,834 489,060

Balance sheet statement. As at 31st December.

Description Jan-Apr May-Aug Sept-Dec
Fixed Assets
Property, Plant and Equipment 348,000 365,400 394632
Less: Depreciation 23,200 24,360 26,309
Total Fixed Assets: 324,800 341,040 368,323
Current Assets:
Cash balance 431,270 452,834 489,060
Accounts receivable 89,250 93,713 101,210
Rent Advance 99,600 104,580 112,946
Total Current Assets 620,120 651,126 703,216
Current Liabilities:
Accounts Payable 70,000 73,500 79,380
Tax Payable 102,276 107,390 115,981
Total Current Liabilities 172,276 180,890 195,361
Net working capital 447,844 470,236 507,855
Total Assets 772,644 811,276 876,178
Source of Fund:
Long-term Loan 380,000 399,000 430,920
Capital 154,000 161,700 174,636
Net Profit for the year 238,644 250,576 270,622
Total Equity 392,644 412,276 445,258
Total Sources 772,644 811,276 876,178

Calculation of Breakeven Point and Margin of Safety

Calculation of the breakeven point was done by dividing the fixed costs with contribution for every unit of sale (Kiran 2016). In the case of the Gary Automobile Clinic, breakeven analysis was computed as follows.

Fixed costs

SAR498, 000

Contribution per unit SAR15.06

Breakeven point = Fixed costs/ Contribution per unit


33,068 units

The resulting value implies that for the revenues to match with the fixed costs, the company should sell at least 33,068 units of service bundles. At this point, there will be not losses or profits.

Breakeven point in terms of in sales value = BEP in Units x Sales price

33,068 × SAR 25.1

SAR 830,006.8

Breakeven point as a capacity percentage = BEP in Units x 100/Capacity in Units

33,068 × 100 / 50,000


The calculations were used to generate a breakeven table to determine the margin of safety at various levels of cost and sales revenues (table 2).

Table 2. Breakeven table.

Revenue (SAR)
Cost (SAR)
Margin (SAR)
Cost (SAR)
Cost (SAR)
Profit/Loss (SAR)
20,000 510,000 208,800 301,200 498000 706,800 -196,800
30,000 765,000 313,200 451,800 498000 811,200 -46,200
40,000 1,020,000 417,600 602,400 498000 915,600 104,400
50,000 1,275,000 522,000 753,000 498000 1,020,00 255,000
60,000 1,530,000 626,400 903,600 498000 1,124,400 405,600
70,000 1,785,000 730,800 1,054,200 498000 1,228,800 556,200
80,000 2,040,000 835,200 1,204,800 498000 1,333,200 706,800
90,000 2,295,000 939,400 1,355,600 498000 1,437,400 857,600
100,000 2,550,000 1,044,000 1,506,000 498000 1,542,000 1,008,000

The values generated from the safety margin were used to generate a graphical representation of the revenue, value of sales, and breakeven point, which suggests that the margin of safety is low (Kimmel, Weygandt & Kieso 2014) (see graph 1).

The values revenue, sales, and breakeven point.
Graph 1. The values revenue, sales, and breakeven point.

Risks the Business Will Face

The business is likely to face risks associated with financial management (Blaxter, Hughes & Malcolm, 2014). The first risk would be inability to repay the loan when the business is not in a position to meet its projections (Brigham & Ehrhardt 2016). Another potential risk is the inability to get the proposed loan (Daft & Marcic 2016). The business might be forced to lower its fixed and variables costs, thus, the breakeven period might be elongated (Horner 2013). The third risk is market unpredictability. The forecasts were made with the assumption that the market will be receptive of this business idea and quickly accept its services (Damodaran 2016). However, in the event that the market develops differently than earlier predicted, the business might be forced to make adjustments that are likely to slow down its growth (Bryman & Bell 2015). The fourth potential risk is the people threat, since the business depends on certain kinds of employees. In the event of a high employee turnover, it may take a long time to recruit competent engineers to take over the operations (Gordon, 2013). For instance, the company will have to spend substantial resources in training its engineers to meet the market demand (Sostrin 2013). These costs might exceed the current allocation.


The proposed financial forecast was created for an automobile repair company called Gary Automobile Clinic. The estimated costs of starting the business were divided into fixed and variable costs. The plan also created a profit and cash flow statements. The values generated were used to calculate the breakeven point and estimate the margin of safety. When all other factors are held constant, the business is expected to breakeven within the first year of operations. The margin of safety is relatively low.

Reference List

Blaxter, L, Hughes, C & Malcolm, T 2014, How to research, Open University Press, Berkshire, UK.

Brigham, E & Ehrhardt, M 2016, Corporate finance: a focused approach, Cengage Learning, Boston, MA.

Bryman, A & Bell, E 2015, Business research methods, 4th edn, Oxford University Press, Oxford.

Daft, R & Marcic, D 2016, Understanding management, 10th edn, Cengage Learning, London.

Damodaran, A 2016, Damodaran on valuation: security analysis for investment and corporate finance, John Wiley & Sons, Inc. New York, NY.

Gordon, J 2013, Project management and project planning, Prentice Hall, New York, NY.

Horner, D 2013, Accounting for non-accountants, Kogan Page Limited, Philadelphia.

Kimmel, D, Weygandt, J & Kieso, D 2014, Financial accounting: tools for business decision making, John Wiley & Sons, Inc, New Jersey, NJ.

Kiran, D 2016, Total quality management: key concepts and case studies, Elsevier Science, New York, NY.

Marshall, H, McManus, W & Viele, F 2016, Loose leaf for accounting: what the numbers mean, McGraw-Hill/Irwin, New York, NY.

Monks, R & Minow, N 2014, Corporate governance, John Wiley & Sons, New York, NY.

Myerson, P 2015, Supply chain and logistics management made easy: methods and applications for planning, operations, integration, control and improvement, and network design, FT Press, New York, NY.

Nobes, C 2014, Accounting: a very short introduction, Oxford University Press, Oxford.

Nunes, C & Machado, M 2014, ‘Performance evaluation methods in the hotel industry’, Tourism & Management Studies, vol. 10, no. 1, pp. 24-30.

Oakland, JS 2014, Total quality management and operational excellence: text with Cases, 4th edn, Routledge, London.

Osterwalder, A & Pigneur, Y 2013, Business model generation: a handbook for visionaries, game changers, and challengers, John Wiley & Sons, New York, NY.

Singh, H & Singh, B 2014, ‘Total quality management: today’s business excellence strategy’, International Letters of Social and Humanistic Sciences, vol. 12, no. 32, pp. 188-196.

Sostrin, J 2013, Beyond the job description: how managers and employees can navigate the true demands of the job, Palgrave Macmillan, London.

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