Massage Envy is a massage parlor that offers massage services and products. To be competitive, the company focuses on advertising the low costs and friendly therapists at the parlor. The company is staffed by certified massage therapists. This allows the company to advertise not only sales but also reliability and professionalism of their staff. Their salary and sales details are outlined in the company forecast.
While much of the costs of the business come from salaries for the therapists, other costs include the hourly wages of the receptionists and other employees, equipment purchases, and product and supply purchases. All of this information was gathered from research and is included in our forecast before the income statement. Salary estimates were averaged from a wide variety of comparable positions to massage therapy.
The company is to be financed by a mortgage loan, common stock, and a few extra bank loans. The company showed stable free cash flows in the past which allowed the company to have rather low interest rates for both the mortgage loan of $600,000 at 6% and an extra bank loan interest rate of 15%. If the company were to be purchased for $600,000 including the building, the forecast is profitable. Anything higher than that would make the company eventually fail within a ten year period.
There are a few assumptions that should be addressed in this purchase. The first is that the company would be sold along with the building, but the equipment would be sold by the previous owner which would require us to purchase new equipment immediately. If the company were to be purchased along with the building and equipment, the purchase price could be higher. The list price was $800,000. The equipment on the forecast was estimated to cost less than $200,000 which means that the company would not be worth purchasing at $800,000 because the extra $200,000 spent on purchasing the company is more than the cost to replace the equipment.