When planning to start a language school, you have to do due diligence and prepare financial feasibility to assess if your proposed business is worth it to pursue. In this way, you can better evaluate your project and be more confident in making financial decisions. A financial plan puts in numbers all data in your business plan and assesses project economics. It would be best if you considered all business aspects and their impacts on revenue and costs.
We will present below the significant considerations in preparing financial feasibility for your language school.
1. Revenue Projection
The questions you need to answer when computing revenue are:
- Are you open all year round, or is there some weeks’ break?
- Level of Course Offering: Beginner, Basic, Intermediate, Advanced, and Private Lessons?
- Based on your market research and projection, how many estimated students per class?
- How many weeks per course?
- How much will you charge per course?
After these factors are considered, you can now compute for revenue.
2. Salaries and Benefits of Management, Teachers, and Staff
Salaries and benefits constitute a significant portion of your expenses. You have to hire competitive administrator, principal, teachers, and non-teaching staff. To do that, you must offer competitive salaries and benefits to attract excellent teachers. Also, teachers are significant factors in the success of your language school. If you have a competitive teaching staff, you can attract more students to your school.
3. Learning Materials, Computers, and Other Learning Tools
You must have the suitable textbooks and materials necessary for the effective learning of the students. You can include it in their tuition, or they can buy it on their own. However, including it in your school materials will make it easier for teachers and students to use the same materials.
Setting up the necessary computers and other learning tools for easy learning is critical. You have to invest in this aspect to provide state-of-the-art learning facilities.
4. School Facilities and Service Vehicles
Ensure that all rooms are conducive for learning, starting from chairs, desks, shared facilities, and the room’s ambiance. Provide all the necessary facilities on the school premises for the conducive learning of all students.
If you are catering to children, providing school service vehicles will be a reasonable decision for the safety of your students.
5. Building Construction/Lease
You can consider constructing your building or lease a space. A lease is an option for a small number of students and a few courses level. However, if you plan to expand in the coming years, having your land to construct the school rooms is more suitable.
Land acquisition and building construction would be an enormous investment. Run through your numbers if you can do it on your own or you need outside financing. On the other hand, in leasing space, consider the lease term if there won’t be any problem in the future for long-term use of space/building occupied by the school.
6. Other Operating Expenses
Other expenses to consider are promotions, utilities, supplies, maintenance, contingencies, and administrative expenses.
7. Financial Statements
The financial statements assess profitability, liquidity, and leverage, and other business analysis through your financials.
The income statement shows the revenue, operating expenses, and non-operating expenses. It computes Gross Profit, EBITDA, and Net Income Margins.
Cash flows assess if you are capable of financing day-to-day operations. It is crucial to look at since cash flows show the actual economics of your business, of how much real cash is available to finance your operation.
The balance sheet depicts the business leverage and business growth as the total assets increase.
8. Financial Analysis
Financial analysis is utilized to understand your financial statements better. The standard financial ratios used are liquidity ratios, efficiency ratios, profitability ratios, leverage ratios, and growth ratios. You can use these ratios to compare to peer competitors and industry averages and assess your business standing.
9. Financial Metrics
Financial metrics is a financial planning tool for business valuation and capital budgeting. It assesses if a project is worth it for investment or not. The widely used financial metrics are Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period.
NPV computes the present value of future cash flows, which should be higher than initial investment costs for the business to be deemed feasible. IRR is the discount rate where NPV is zero. IRR should be higher than WACC (Weighted Average Costs of Capital). The payback period should be shorter than the projected years – the shorter, the better. It means more profit after recovering the initial investment.
10. Sensitivity Analysis
Sensitivity analysis determines how variables change, e.g., enrolled students, operation weeks, and course fees. By testing these different variables, you can assess how much change the business can absorb to stay viable. Assessing the worst-case scenarios can help you test your assumptions and make adjustments if needed.
11. Break-Even Point Analysis
The break-even point analysis identifies the dollar value and production units where the business reaches break-even. Your break-even point is when the revenue equals costs or zero profit. The earlier you reach break-even, the earlier you can earn profit. Break-even point analysis helps you assess your expenses, pricing, and course-level offerings. Do you need to adjust costs, increase the pricing, or add courses offered? These are some of the questions you can answer by doing the break-even analysis.
By doing all the preparations listed above, starting from the computations of revenue, estimating the expenses, to the break-even analysis, you are now more confident in pursuing the project.
Utilizing a financial model template for a language school business is the most time-efficient, easy, and cost-saving choice you can make. eFinancialModels offer a Language School Financial Model Template to aid you in your financial modeling. This financial is equipped with the needed metrics and analysis to help in your evaluation. It is easy to use and fully editable, and input your assumptions.
You can find the Language School Financial Model Template and other School Business Financial Model Templates on their website.
About the Author
Lellith Garcia is the Marketing Manager of eFinancialModels.com, which provides a rich inventory of industry-specific financial model templates in Excel spreadsheets. Lellith has been involved in preparing various financial model templates, which are loved by entrepreneurs, consultants, investors, and financial analysts looking for assistance to speed up their financial modeling tasks.