Case Overview

Janelle Higgins has decided $to$ start her own event planning business $(JH$ Events$)in$ the upcoming year. She believes that she has $an$ innovative business model and $is$ seeking a business loan. Therefore, Janelle $isin$ the process $of$ putting together a business plan. $As$ part $of$ her business plan, Janelle must include forecasted financial statements for the first $5$ years. The forecasted financial statements $tobe$ included are: Income Statement, Balance Sheet, and Statement $of$ Cash Flows. Janelle must also include a set $of$ calculated ratios along with $an$ overall assessment $on$ the projected health $of$ the company.

Forecasting Assumptions

First year sales are projected $tobe$ $$150,000$ and grow $3\%$ for the next two years and $5\%in$ year $4$ and $5.$

Cost $of$ sales are projected $tobe45\%of$ revenue $in$ the first year and $is$ expected $to$ grow $at$ the same rate $as$ sales.

Advertising expenses are projected $tobe4\%of$ each year$s$ projected revenue.

Janelle will need $to$ rent equipment for the events she puts $on.$ She has $an$ agreement with a rental company for a flat rate $of$ $$500$ per month and $is$ sufficient $to$ cover all $of$ her estimated events. Starting $in$ Year $3,$ she expects $tobe$ able $to$ handle more events and the rental rate will increase $to$ $$750$ per month.

Janelle plans $to$ start off $by$ hiring $2$ people $to$ work the events with her. Each person will $be$ paid $$100$ per event and $is$ expected $to$ work $4$ events per month. After Year $3,$ Janelle plans $to$ hire $2$ additional people. $(At$ this point, each person will $be$ paid $$100$ per event and $is$ expected $to$ work $3$ events per month$).$

Office rent $is$ estimated $tobe$ a flat rate $of$ $$1,200$ per month.

Utilities for the rented office space are estimated $tobe$ $$300$ per month.

The office space Janelle plans $to$ rent $is$ unfurnished. She plans $to$ purchase $$15,000$ worth $of$ furniture and fixtures $at$ the beginning $of$ Year $1.$ The furniture and fixtures will have a useful life $of15$ years. Janelle will also need $to$ buy some computers and other office equipment that she will purchase for $$10,000$ also $at$ the beginning $of$ Year $1.$ The office equipment will have a useful life $of5$ years. Both the furniture and fixtures $as$ well $as$ the equipment will $be$ depreciated $on$ a straight$-$line basis $(Assume$ zero salvage value for calculations$).$ HINT: Fixed Assets $-$ Accumulated Depreciation $=Net$ Fixed Assets

Janelle $is$ asking for $a3-$year bank loan for $$60,000tobe$ funded $on$ Day$1of$ Year $1.$ The estimated interest $on$ the loan $is3\%(assume$ simple interest$).$ She will pay the loan back $in$ $$20,000$ installments starting $in$ Year $2.$ Interest $is$ due $at$ the end $of$ each year and paid $in$ January $of$ the following year. $(Assume$ interest $is$ paid $on$ the principal balance still outstanding $at$ year$-$end$).$

The tax rate for $JH$ Events $is35\%.$ Taxes for the year just ended are payed $in$ the first quarter $of$ the following year.

Janelle will invest $$30,000of$ her own money and from family and friends, before the beginning $of$ the year, $to$ start the business. This $$30,000$ investment $of$ capital $is$ also the beginning bank balance $of$ Year $1.$

Schedule $of$ expected year$-$end balances $of$ selected accounts:

Year $1$

Year $2$

Year $3$

Year $4$

Year $5$

Accounts Receivable

$10,000$

$12,000$

$8,000$

$6,000$

$10,000$

Accounts Payable

$2,000$

$4,000$

$5,000$

$6,000$

$9,000$

Customer Deposits

$1,500$

$2,000$

$3,000$

$4,000$

$5,000$

$At$ the end $of$ Year $2,$ Janelle will purchase $an$ insurance policy $to$ help cover the business. The policy has a term $of3$ years and coverage starts $at$ the beginning $of$ Year $3.$ The policy costs $$12,000.$

During Year $3,$ Janelle plans $to$ personally invest $$10,000of$ additional capital into the business.

Chart $of$ Accounts

All accounts listed here should $be$ included $in$ your financial statements.

Cash

Accounts Receivable

Prepaid Insurance

Furnitures & Fixtures

Equipment

Accounts Payable

Customer Deposits

Interest Payable

Taxes Payable

Bank Loan

Capital

Retained Earnings

Revenue

Cost $of$ Sales

Advertising

Equipment Rental

Wages

Office Rent

Utilities

Insurance Expense

Depreciation

Interest Expense

Income Taxes

FORECASTED INCOME STATEMENT

FORECA $A^{\text{S}\text{a}\text{v}\text{e}\text{d}to\text{t}\text{h}\text{i}\text{s}CC}$