Executive Summary
Luxa Salon Suites presents a financially sound business model with conservative projections demonstrating clear viability. The 18-suite facility achieves break-even at 62% occupancy, providing substantial cushion below the 85% target occupancy. Year 1 is a ramp-up period requiring working capital support, while Years 2-3 generate strong gross profits exceeding $56,000 annually with DSCR above 1.50x.
1. Financial Highlights Summary
| Metric | Year 1 | Year 2 | Year 3 |
|---|
| Total Revenue | $185,871 | $235,684 | $242,720 |
| Operating Expenses | $177,766 | $178,872 | $184,244 |
| Gross Profit | $8,105 | $56,812 | $58,476 |
| Gross Margin | 4.4% | 24.1% | 24.1% |
| Average Occupancy | 68% | 85% | 85% |
| DSCR | 0.22x* | 1.54x | 1.59x |
*Year 1 shortfall covered by $35,000 working capital reserve
Three-Year Cumulative Performance
| Metric | 3-Year Total |
|---|
| Total Revenue | $664,275 |
| Total Operating Expenses | $540,882 |
| Cumulative Gross Profit | $123,393 |
| Average Gross Margin | 18.6% |
2. Revenue Model
Revenue Source
All revenue is generated from weekly suite rentals to independent beauty professionals. The suite rental model provides predictable, recurring revenue with minimal collection risk due to weekly payment structure.
Suite Mix and Pricing
| Suite Type | Count | Size (SF) | Weekly Rate | Monthly Rate* | Annual Rate |
|---|
| Standard | 8 | 100 | $325 | $1,407 | $16,884 |
| Plus | 5 | 130 | $365 | $1,581 | $18,972 |
| Large | 3 | 160 | $395 | $1,710 | $20,520 |
| Executive | 2 | 200 | $425 | $1,840 | $22,080 |
| Total | 18 | 2,330 | - | - | - |
*Monthly calculated as Weekly x 4.33 weeks
Blended Revenue Analysis
| Metric | Value |
|---|
| Blended Average Weekly Rate | ~$365/week |
| Blended Average Monthly Rate | ~$1,581/month |
| At 100% Occupancy | $22,640/month ($271,680/year) |
| At 85% Occupancy | $19,244/month ($230,928/year) |
| At 62% Occupancy (Break-even) | $14,037/month ($168,444/year) |
Pricing Rationale
Pricing is positioned at the value end of the local market while maintaining quality:
- Competitor Range: Sola and Phenix $300-$375/week est.
- Luxa Average: $365/week (competitive with mid-range competitor pricing)
- Value Proposition: Premium soundproofing and amenities at competitive rates
3. Occupancy Projections
Base Case Assumptions
| Parameter | Value |
|---|
| Opening Occupancy | 35% (6-7 suites pre-leased) |
| Monthly Ramp Rate | 7% per month |
| Stabilization Month | Month 9 |
| Stabilized Occupancy | 85% (15.3 suites) |
| Break-even Occupancy | 62% (11 suites) |
Month-by-Month Occupancy (Year 1)
| Month | Occupancy % | Suites Occupied | Monthly Revenue | Status |
|---|
| 1 | 35% | 6.3 | $7,925 | Ramp-up |
| 2 | 42% | 7.6 | $9,561 | Ramp-up |
| 3 | 49% | 8.8 | $11,197 | Ramp-up |
| 4 | 56% | 10.1 | $12,706 | Ramp-up |
| 5 | 63% | 11.3 | $14,215 | Break-even reached |
| 6 | 70% | 12.6 | $15,848 | Cash-flow positive |
| 7 | 77% | 13.9 | $17,481 | Growing |
| 8 | 84% | 15.1 | $19,002 | Near target |
| 9 | 85% | 15.3 | $19,244 | Target reached |
| 10 | 85% | 15.3 | $19,244 | Stabilized |
| 11 | 85% | 15.3 | $19,244 | Stabilized |
| 12 | 85% | 15.3 | $19,244 | Stabilized |
Occupancy Assumptions Justification
- 35% Opening: Conservative estimate based on 4-month pre-opening marketing period
- 7% Monthly Ramp: Achievable with targeted marketing and geographic gap demand capture
- 85% Stabilization: Industry standard for mature salon suites facilities
- Cushion: 23-point buffer above 62% break-even provides margin of safety
4. Operating Expenses
Monthly Operating Cost Summary
| Category | Monthly | Annual | % of Total |
|---|
| Occupancy (rent/NNN) | $9,500 | $114,000 | 64.1% |
| Utilities | $625 | $7,500 | 4.2% |
| Insurance | $400 | $4,800 | 2.7% |
| Maintenance/Reserve | $1,800 | $21,600 | 12.1% |
| Common Area | $950 | $11,400 | 6.4% |
| Administrative | $800 | $9,600 | 5.4% |
| Turnover Reserve | $750 | $9,000 | 5.1% |
| Total | $14,825 | $177,900 | 100% |
Expense Category Details
Occupancy Costs ($114,000/year)
- Base Rent: $7,000/month (~$28/SF gross)
- NNN/CAM: $2,500/month (~$10/SF)
- Committed regardless of vacancy level
Utilities ($7,500/year)
- Electric, gas, water included in tenant rent
- Base load: $375/month
- Variable component scales with occupancy
Insurance ($4,800/year)
- General Liability: $3,000/year ($1M/$2M policy)
- Property Insurance: $1,800/year (based on $300K build-out value)
Maintenance & Reserve ($21,600/year)
- Routine Maintenance: $14,400/year
- Capital Reserve: $7,200/year (increased to $12,000 in Year 2)
- Covers equipment replacement, unexpected repairs
Common Area ($11,400/year)
- Janitorial/Cleaning: $6,000/year
- Supplies: $1,800/year
- Laundry Operations: $1,800/year
- Break Room: $1,800/year
Administrative ($9,600/year)
- Software/Systems: $3,600/year
- Accounting/Legal: $3,000/year
- Marketing (ongoing): $1,800/year
- Miscellaneous: $1,200/year
Turnover Reserve ($9,000/year)
- Budgeted for tenant transition costs
- Average turnover cost: $2,428/suite
- Assumes 20% annual turnover rate (3.6 turnovers)
5. Pro Forma Income Statement (3 Years)
Year 1 Monthly Detail
| Line Item | M1 | M2 | M3 | M4 | M5 | M6 | M7 | M8 | M9 | M10 | M11 | M12 | Y1 Total |
|---|
| Revenue | | | | | | | | | | | | | |
| Rental Income | $7,925 | $9,561 | $11,197 | $12,706 | $14,215 | $15,848 | $17,481 | $19,002 | $19,244 | $19,244 | $19,244 | $19,244 | $184,911 |
| Admin/Late Fees | $50 | $50 | $60 | $70 | $75 | $80 | $85 | $90 | $100 | $100 | $100 | $100 | $960 |
| Total Revenue | $7,975 | $9,611 | $11,257 | $12,776 | $14,290 | $15,928 | $17,566 | $19,092 | $19,344 | $19,344 | $19,344 | $19,344 | $185,871 |
| | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | |
| Occupancy | $9,500 | $9,500 | $9,500 | $9,500 | $9,500 | $9,500 | $9,500 | $9,500 | $9,500 | $9,500 | $9,500 | $9,500 | $114,000 |
| Utilities | $438 | $473 | $509 | $548 | $586 | $625 | $663 | $700 | $706 | $706 | $706 | $706 | $7,366 |
| Insurance | $400 | $400 | $400 | $400 | $400 | $400 | $400 | $400 | $400 | $400 | $400 | $400 | $4,800 |
| Maintenance | $1,800 | $1,800 | $1,800 | $1,800 | $1,800 | $1,800 | $1,800 | $1,800 | $1,800 | $1,800 | $1,800 | $1,800 | $21,600 |
| Common Area | $950 | $950 | $950 | $950 | $950 | $950 | $950 | $950 | $950 | $950 | $950 | $950 | $11,400 |
| Administrative | $800 | $800 | $800 | $800 | $800 | $800 | $800 | $800 | $800 | $800 | $800 | $800 | $9,600 |
| Turnover Reserve | $750 | $750 | $750 | $750 | $750 | $750 | $750 | $750 | $750 | $750 | $750 | $750 | $9,000 |
| Total Operating | $14,638 | $14,673 | $14,709 | $14,748 | $14,786 | $14,825 | $14,863 | $14,900 | $14,906 | $14,906 | $14,906 | $14,906 | $177,766 |
| | | | | | | | | | | | | |
| Gross Profit | ($6,663) | ($5,062) | ($3,452) | ($1,972) | ($496) | $1,103 | $2,703 | $4,192 | $4,438 | $4,438 | $4,438 | $4,438 | $8,105 |
| Gross Margin % | -84% | -53% | -31% | -15% | -3% | 7% | 15% | 22% | 23% | 23% | 23% | 23% | 4.4% |
Year 2-3 Annual Summary
| Line Item | Year 1 | Year 2 | Year 3 | 3-Year Total |
|---|
| Revenue | | | | |
| Rental Income | $184,911 | $234,484 | $241,520 | $660,915 |
| Admin/Late Fees | $960 | $1,200 | $1,200 | $3,360 |
| Total Revenue | $185,871 | $235,684 | $242,720 | $664,275 |
| | | | |
| Operating Expenses | | | | |
| Occupancy Costs | $114,000 | $114,000 | $117,420 | $345,420 |
| Utilities | $7,366 | $8,472 | $8,728 | $24,566 |
| Insurance | $4,800 | $4,800 | $4,944 | $14,544 |
| Maintenance | $21,600 | $21,600 | $22,248 | $65,448 |
| Common Area | $11,400 | $11,400 | $11,744 | $34,544 |
| Administrative | $9,600 | $9,600 | $9,888 | $29,088 |
| Turnover Reserve | $9,000 | $9,000 | $9,272 | $27,272 |
| Total Operating | $177,766 | $178,872 | $184,244 | $540,882 |
| | | | |
| Gross Profit | $8,105 | $56,812 | $58,476 | $123,393 |
| Gross Margin % | 4.4% | 24.1% | 24.1% | 18.6% |
6. Break-Even Analysis
Break-Even Occupancy
| Metric | Value |
|---|
| Fixed Monthly Costs | $13,942 |
| Variable Cost per Suite | ~$636 |
| Revenue per Suite | $1,258 |
| Break-Even Point | 62% occupancy (11 suites) |
Break-Even by Occupancy Level
| Occupancy | Suites Filled | Monthly Revenue | Monthly Costs | Gross Profit | Status |
|---|
| 50% | 9.0 | $11,320 | $14,688 | ($3,368) | Loss |
| 55% | 9.9 | $12,452 | $14,735 | ($2,283) | Loss |
| 60% | 10.8 | $13,584 | $14,783 | ($1,199) | Loss |
| 62% | 11.2 | $14,037 | $14,816 | ($779) | Near Break-even |
| 65% | 11.7 | $14,716 | $14,850 | ($134) | Minimal Loss |
| 67% | 12.1 | $15,169 | $14,878 | $291 | Break-even |
| 70% | 12.6 | $15,848 | $14,903 | $945 | Profitable |
| 75% | 13.5 | $16,980 | $14,953 | $2,027 | Profitable |
| 80% | 14.4 | $18,112 | $15,003 | $3,109 | Profitable |
| 85% | 15.3 | $19,244 | $15,050 | $4,194 | Target |
| 90% | 16.2 | $20,376 | $15,100 | $5,276 | Optimal |
Break-Even Timeline (Base Case)
| Milestone | Month | Occupancy | Notes |
|---|
| Monthly Break-even | Month 6 | 70% | First month with positive gross profit |
| Cumulative Break-even | Month 11 | 85% | Recovered all ramp-up losses |
| Maximum Cash Deficit | Month 5 | 63% | ($17,645) cumulative |
7. Debt Service Coverage
Annual DSCR Summary
| Year | Gross Profit | Annual Debt Service | DSCR | SBA Minimum (1.25x) |
|---|
| 1 | $8,105 | $36,768 | 0.22x* | Below - covered by WC |
| 2 | $56,812 | $36,768 | 1.54x | PASS (+23%) |
| 3 | $58,476 | $36,768 | 1.59x | PASS (+27%) |
*Year 1 debt service shortfall of approximately $28,663 is covered by $35,000 working capital reserve, leaving $6,337 cushion for unexpected needs.
DSCR by Occupancy Level (Years 2-3)
| Occupancy | Annual Gross Profit | Annual Debt Service | DSCR | Status |
|---|
| 70% | $11,340 | $36,768 | 0.31x | Below threshold |
| 75% | $24,420 | $36,768 | 0.66x | Below threshold |
| 80% | $37,392 | $36,768 | 1.02x | Below threshold |
| 82% | $46,100 | $36,768 | 1.25x | SBA minimum |
| 85% | $56,812 | $36,768 | 1.54x | Target |
| 90% | $67,092 | $36,768 | 1.82x | Strong coverage |
| 95% | $77,988 | $36,768 | 2.12x | Excellent coverage |
8. Cash Flow Projection
Year 1 Monthly Cash Flow
| Month | Revenue | Expenses | Net Cash | Cumulative |
|---|
| M1 | $7,975 | $14,638 | ($6,663) | ($6,663) |
| M2 | $9,611 | $14,673 | ($5,062) | ($11,725) |
| M3 | $11,257 | $14,709 | ($3,452) | ($15,177) |
| M4 | $12,776 | $14,748 | ($1,972) | ($17,149) |
| M5 | $14,290 | $14,786 | ($496) | ($17,645) |
| M6 | $15,928 | $14,825 | $1,103 | ($16,542) |
| M7 | $17,566 | $14,863 | $2,703 | ($13,839) |
| M8 | $19,092 | $14,900 | $4,192 | ($9,647) |
| M9 | $19,344 | $14,906 | $4,438 | ($5,209) |
| M10 | $19,344 | $14,906 | $4,438 | ($771) |
| M11 | $19,344 | $14,906 | $4,438 | $3,667 |
| M12 | $19,344 | $14,906 | $4,438 | $8,105 |
Key Milestones:
- Maximum Cash Deficit: Month 5 at ($17,645) cumulative
- Working Capital Bridge Required: $35,000 (covers deficit + buffer)
- Cumulative Break-even: Month 11
Cash Flow After Debt Service
| Year | Gross Profit | Debt Service | Cash Before Owner Draw |
|---|
| 1 | $8,105 | $36,768 | ($28,663)* |
| 2 | $56,812 | $36,768 | $20,044 |
| 3 | $58,476 | $36,768 | $21,708 |
*Covered by working capital reserve
9. Key Assumptions
Revenue Assumptions
| Assumption | Value | Rationale |
|---|
| Suite pricing | $325-$425/week | Competitive with local market (Sola/Phenix $300-$375 est.) |
| Opening occupancy | 35% | 6 suites pre-leased through marketing |
| Ramp rate | 7%/month | Based on competitor lease-up patterns |
| Stabilized occupancy | 85% | Industry standard for mature facilities |
| Rent escalation | 3% annually | Market standard for commercial leases |
Cost Assumptions
| Assumption | Value | Rationale |
|---|
| Base occupancy cost | $9,500/month | Target per site selection criteria |
| Utility base/variable | 60%/40% split | Industry standard |
| Operating cost inflation | 3% annually | CPI projection |
| Turnover rate | 20% annually | Industry average |
| No owner salary | Years 1-3 | Owner-operated model |
Financing Assumptions
| Assumption | Value | Rationale |
|---|
| Loan amount | $228,000 | Mid-range build-out estimate |
| Interest rate | 10.5% | Conservative estimate (Prime + 3%) |
| Term | 10 years | SBA 7(a) standard |
| Equity injection | 20% | Exceeds SBA 10% minimum |
10. Sensitivity Analysis
Impact of Occupancy Variation
| Scenario | Occupancy | Annual Gross Profit | DSCR | Impact |
|---|
| Conservative | 80% | $37,392 | 1.02x | Below SBA minimum |
| Base Case | 85% | $56,812 | 1.54x | Target |
| Optimistic | 90% | $67,092 | 1.82x | Strong performance |
Impact of Rent Variation (+/- 10%)
| Scenario | Blended Weekly | Annual Revenue (85%) | Gross Profit | Impact on Margin |
|---|
| -10% Rent | $284/week | $212,116 | $33,244 | -$23,568 (-41.5%) |
| Base | $365/week | $235,684 | $56,812 | Base |
| +10% Rent | $347/week | $259,252 | $80,380 | +$23,568 (+41.5%) |
Interest Rate Sensitivity
| Rate | Monthly P&I | Annual Debt Service | DSCR @ 85% | Impact |
|---|
| 10.0% | $3,017 | $36,204 | 1.57x | +0.03x |
| 10.5% | $3,064 | $36,768 | 1.54x | Base |
| 11.25% | $3,151 | $37,812 | 1.50x | -0.04x |
| 12.0% | $3,266 | $39,192 | 1.45x | -0.09x |
Finding: All modeled interest rate scenarios maintain DSCR above SBA minimum of 1.25x with adequate margin.
Combined Downside Scenario
| Variable | Base Case | Downside | Combined Impact |
|---|
| Occupancy | 85% | 80% | |
| Rate | 10.5% | 12.0% | |
| Gross Profit | $56,812 | $37,392 | ($19,420) |
| Debt Service | $36,768 | $39,192 | ($2,424) |
| DSCR | 1.54x | 0.95x | (0.59x) |
Conclusion: Combined downside scenario falls below SBA threshold. However, the 62% break-even occupancy and $35,000 working capital reserve provide substantial protection against this unlikely scenario.
Appendix: Supporting Schedules
A.1 Revenue by Suite Type at Stabilization (85%)
| Suite Type | Count | Occupied (85%) | Weekly Rate | Monthly Revenue | Annual Revenue |
|---|
| Standard | 8 | 6.8 | $325 | $9,564 | $114,768 |
| Plus | 5 | 4.25 | $365 | $6,721 | $80,652 |
| Large | 3 | 2.55 | $395 | $4,361 | $52,332 |
| Executive | 2 | 1.7 | $425 | $3,128 | $37,536 |
| Total | 18 | 15.3 | - | $20,832 | $249,984 |
A.2 Per-Suite Profitability
| Suite Type | Monthly Revenue | Monthly Costs | Gross Margin | Margin % |
|---|
| Standard | $1,234 | $675 | $559 | 45.3% |
| Plus | $1,364 | $812 | $552 | 40.5% |
| Large | $1,494 | $949 | $545 | 36.5% |
| Executive | $1,667 | $1,131 | $536 | 32.2% |
Financial Projections prepared for SBA 7(a) Small Loan Application
Luxa Salon Suites - Phase 14 Business Plan Assembly