Your Task
Using the information provided below, answer the series of questions presented in Part I and Part II, below. When preparing your written submission, include both your calculations and your written analysis of the financial information.
Claire’s Cuttery
Claire has always loved working with hair and beauty products and has decided that she will quit her day job and use the money her grandfather left her to start a salon. All of her friends think it’s a great idea, but her brother cautions her about jumping in too soon. She decides that, before she begins, she will project her sales for the first year to prove to her family that she has a winning idea.
She sits down with paper and pencil and, making the following assumptions, completes the expense part of the Income Statement shown in the file “Claire’s Income Statement.” She needs help projecting her sales, so using the following assumptions and information, complete the “Income” section of her Income Statement for her.
Year 1 Projections
Her Business
Claire will have 3 stylists available, 30 days per month. She plans to charge $12.00 per haircut, with no discount for multiple services. She estimates that based on her research, it will cost her about $2.50 per customer/per cut. She will operate January through December and close the month of February for a vacation at her favorite ski resort.
Competition
There are 8 other salons in the area that will compete for business. Claire has talked to the local Chamber, and they estimate that about 15,000 people now live in her town. She assumes that she can capture about 24% of the market.
Sales Projections for Year 1
She assumes that the sales volume will be distributed as follows:
- January: 10% of annual sales
- February: CLOSED
- April: 10% of annual sales
- May: 15% of annual sales June: 20% of annual sales
- July: 5% of annual sales
- August: 5% of annual sales
- September: 10% of annual sales
- October: 10% of annual sales
- November: 5% of annual sales
- December: 10% of annual sales
Part I: Questions
- What is the maximum number of customers Claire can take in any one month (assuming a 30-day month)? Is this enough to meet her market and sales projections, or does she have to reduce the sales projections because she runs out of space?
- Can Claire accommodate 15% of her annual sales in one month, given that she has only 3 stylists available? If not, she will have to reduce her income estimates for those months.
- Will she show a profit or a loss for the business if she achieves her sales figures as projected?
Part II: Questions
Good news for Claire! Four local competitors don’t reopen in December, and Claire gets 34% (rather than the projected 24%) of the market. Assume 30 days in each month and a maximum of 35 clients per day. The bad news is that the landlord levies a new common area maintenance fee that will increase her rent by $2.00 per square foot per month.
- Adjust your sales projections and produce a new income statement for the year. (Make sure to save your old version so that you can compare the two!)
- Should Claire add more stylists?
- What factors would you use to decide?
