Liz and Luke have recently decided to open a pastry shop in Baltimore. They have a cousin who is willing to invest $420k into their business. Although Liz and Luke are amazing general managers and have found an incredible Pastry Chef, they need assistance in managing the overall finances of the Company.
Using the following to create 5 years of the projected financial statements Income statement, Cash flow, and Balance Sheet assuming the investor would like to be considered an owner in the company. Possible initial investment: $420,000 cash. Monthly rent in Baltimore: $4,850 and increases 5% a year. Estimated start-up costs to set up the bakery (Decor, kitchen supplies, etc): $175,000
(90,000 of these are depreciable over 6 years) the rest is immediately expensed. Furniture costs to ready the space for customers (in addition to start-up): $45,000
(assume estimated useful life for GAAP is 5 years). Year 2 and year 3: There is a plan to upgrade kitchen appliances/bakery motif each year
with a budget of $34,500 a year (estimated useful lives of 10 years). Leasing options
may be available. Estimated annual revenues from sales are $415,000 the first year, $680,000 the second
year and anticipated growth 2.5% each year following. Annual salary and benefit expense (not including a salary for Liz and Luke’s invested
time) estimated at $150,000 a year. Annual cost for food, supplies, utilities is $350,000 in year one but expected to lower to
$280,000 in subsequent years. The amounts above are before interest, depreciation, and taxes (Liz and Luke need help
estimating). The tax rate is 21% (not including Baltimore city taxes). The market interest rate for a small business owner is 6%