Opening your language school will require proper planning and assessment. A financial plan will help you run your numbers and assess if the project is worth pursuing. There are various factors to consider in preparing a financial plan, starting from projecting the revenue, personnel recruitment plan, capital expenditure (CAPEX), operating expenses, initial investment, funding sources, and the overall financial feasibility. We will discuss these factors below when preparing a financial plan.
1. Projecting Revenue
Presented below are the factors in computing for revenue:
• Course Offerings: Basic, Beginner, Advanced, and Private Lessons
• Estimated Students per Course
• Course Week per Month/Year
• Course Occupancy Factor
• Average Stay per Student
• Pricing per Course
You can now compute for expected revenue after identifying the factors above.
2. Preparing a Personnel Plan
A language school requires skilled language teachers to teach the students effectively. To hire excellent teachers, you need to prepare a personnel plan and allocate a budget for their salaries and benefits. Offering competitive salaries can attract exceptional teachers to your school.
Also, prepare a short-term and medium-term personnel plan. It aids in expansion and ensures that you have allotted funds to hire additional teachers and staff when the operation expands and accepts more students. Teachers and non-teaching staff should be hired few months before class opening and expansion.
3. Allocating Capital Expenditure
You need to invest a considerable amount in Capital Expenditure. It includes the acquisition of land, construction of buildings, purchase of service vehicles, computers, hardware and software, classroom fixtures, office furniture and fixtures, and other needed facilities for the comfort and quality learning of the students.
4. Identifying Operating Expenses
Operating expenses are incurred for the continuous and smooth operation of your language school. These expenses include learning materials, promotions, rent (if applicable), maintenance, supplies, contingencies, permits & licenses, insurance, and other administrative expenses.
5. Needed Initial Investment
How much is needed to start the business operation until you have enough cash to finance the day-to-day business operation? That amount is your needed initial capital.
The initial investment includes initial CAPEX, permits and licenses, salaries & benefits, and other start-up costs.
6. Sources of Funds
Decide whether you need to acquire funds or do bootstrapping. If you are considering acquiring loans from banks, the more you need to prepare a financial plan and present the bankability of your project and why they should lend money to you. For investors, present to them the expected return for this investment.
7. Preparation of Financial Statements
The financial statements assess project viability. The income statement presents the revenue and expenses. Some of the figures you can look at are the Gross Profit, EBITDA, and Net Income Margins. The EBITDA is most suited to compare to peer companies and industry averages since it disregards financial structure, which varies from company to company.
Cash flow shows the ability of the business to finance the day-to-day operation. A negative cash flow in the first year is understandable, but recurring negative cash flows signify financial turmoil.
The balance sheet presents Asset = Liability + Equity. You can assess through the Balance Sheet how much assets are financed by debt or equity.
8. Doing Financial Analysis
The financial analysis is an in-depth evaluation of your financial statements. Since it is presented in percentage and multiples, you can easily compare it to the industry average and assess if your ratios reach the threshold for the industry average.
9. Evaluating Financial Metrics
You can utilize the financial metrics to analyze further if the project is worth it to pursue. The commonly used financial metrics are Net Present Value (NPV), Internal Rate of Return, and Payback Period.
Presented above are the significant factors to consider when preparing a financial plan. Using a financial plan template will be easier and save time than preparing from scratch. eFinancialModels offer Language School and Other School Business Financial Model Templates, which you can find here.