GF585 Unit 10 Linen Service Annual Planning Report Example

The Answer on Page One: A Unit 10 Planning Report for a Commercial Linen Service

[Student Name]

Purdue University Global

GF585: Strategic Financial Planning and Forecasting Analytics

Unit 10 Planning Report

[Instructor Name]

[Date]

The linen service, its forecast, scenarios, sensitivity results and decisions are composite and illustrative; the articles and books cited are real.

Page One: The Answer

Next year's revenue is forecast at $17.16 million, up 5.9 percent, with EBITDA of $2.74 million. Across a plausible downside and upside, EBITDA ranges from $1.94 million to $2.91 million. Hotel pounds per account move the result more than any other input, more than gas prices. Last year's forecast ran 4.55 percent high, mostly because it took the sales plan at face value, and this forecast discounts the pipeline and updates occupancy monthly. We ask the executive team to approve, by May 15, a contingent partial second shift for July through September, to start only if June volume passes 505,000 pounds a week.

Every figure on page one can be traced to one exhibit later in the report and to one cell in the workbook, so a reader who doubts a number can check it in under a minute.

The Forecast

The forecast grows because more clinics are signing, not because the business is assumed to grow at a set rate. It is built from three things managers already track each week: how many accounts we serve, how many pounds each sends and what each pound is billed.

Hotels start the year at 140 accounts and lose one a quarter, as they have in each of the last three years. Their volume follows the usual seasonal pattern, highest in the third quarter, with a 1.5 percent lift from the tourism bureau's occupancy outlook. Renewing hotels pay a cent and a half more per pound from April. Clinics and hospitals add two accounts a month from February, ending the year at 107, and their contracts rise 3.0 percent in January under existing clauses.

Quarterly revenue runs $3.79 million, $4.43 million, $4.70 million and $4.25 million. Healthcare reaches 30.3 percent of revenue, up from 27.6 percent, which moves the company toward the board's 40 percent goal on the current plant. A trend projection of past growth would have put revenue at $16.87 million; the difference is the faster clinic pipeline.

One operating fact matters more than the revenue figure. In the third quarter the plant would wash 520,256 pounds weekly, leaving no room on the single shift for any summer surprise.

The Range

Three cases describe the year, and each comes with an action.

In the downside, a tourism slump cuts hotel volume 6 percent below last year, hotels refuse the April increase and pay more slowly, two hotel accounts a quarter are lost, clinic signings halve and gas rises to $1.25. EBITDA falls to $1.94 million, and cash falls further, because about $297,000 more is tied up in slower receivables. Management would defer the $640,000 tunnel washer, hold routes at 23 and move hotels to weekly billing.

In the upside, occupancy runs 3 percent above last year and clinics sign three a month. EBITDA reaches $2.91 million, but the plant would need to wash 534,312 pounds a week in the third quarter, about 14,300 more than one shift allows. Management would staff the partial second shift.

The base case sits between them, and the washer proceeds in the fourth quarter. Each case is reached by several assumptions moving together. Testing occupancy alone would have suggested a mild downside; combined with the price, account and collection changes that travel with it, the downside is about $450,000 worse.

What Moves the Result

Seven inputs were tested for how much EBITDA they would remove in a normal bad year. Hotel pounds per account rank first, at about $340,000, followed by plant productivity, wages, linen loss and, fifth, gas. Gas is volatile but small in the cost base. Hotel price responds most steeply, yet ranks sixth because renewal contracts keep it in a narrow band.

The practical result is a single monthly figure. Hotel pounds per account, taken from route sheets beside the tourism bureau's room-night report, is the earliest and best signal of which case is arriving.

Last Year's Forecast and What Changed

Last year's forecast promised $16.98 million and delivered $16.21 million, a miss of $771,888. Four fewer hotel accounts than planned explain $344,500, lower hotel volume per account $227,500, a renewal price concession traded for longer contracts $94,640, and two clinic openings that slipped past year end $105,248. EBITDA fell about $252,000 short.

The miss was not random. The forecast ran high in ten of twelve months, and the summer carried about 69 percent of the gap. Mean absolute and mean signed percentage errors were nearly equal, 4.73 and 4.61 percent, which shows a lean rather than noise. Forecasts that rest on plans rather than evidence tend to lean this way (Makridakis et al., 2009). This forecast makes three changes: pipeline signings enter at about half their stated value, occupancy is updated monthly from actual reports, and the signed error is reported each month so a lean is visible within a quarter.

Recommendations

Each recommendation has an owner, a date and a trigger.

1. Approve a contingent partial second shift. Owner: plant manager. Decision by May 15, so hiring and training can finish by July. Trigger: average June volume above 505,000 pounds a week. Cost: about $28,000 a month for three months.

2. Hold the tunnel washer decision until August. Owner: chief financial officer. Trigger: proceed if year-to-date EBITDA is within 5 percent of the base case; defer if the downside signposts appear.

3. Report hotel pounds per account monthly. Owner: financial planning analyst. Starting with the January close, beside occupancy and the signed forecast error.

4. Move slow-paying hotels to weekly billing. Owner: controller. Trigger: days sales outstanding above 46 for two consecutive months.

Plans that tie actions to triggers rather than to a fixed annual number tend to adjust faster when conditions change, which is the case for budgeting by rolling review rather than once a year (Hope & Fraser, 2003).

How the Report Was Organized

The report puts conclusions first and methods only where a reader would question a figure. Each section opens with its finding, so a manager reading only first sentences still receives the argument. That structure, the answer before the reasoning, is the standard advice for business reports written to support a decision (Minto, 2009). Spreadsheet vocabulary was left out of the body; drivers are described as accounts, pounds and price.

Appendix: Reconciliation

The appendix lists every figure in the body with its source cell in the workbook: base revenue and EBITDA from the output sheet, scenario results from the scenario sheet, the sensitivity ranking from the sensitivity sheet, and last year's bridge and error measures from the variance sheet. The workbook's own checks, segment sums and the capacity flag, pass in all three cases.

References

Hope, J., & Fraser, R. (2003). Beyond budgeting: How managers can break free from the annual performance trap. Harvard Business School Press.

Makridakis, S., Hogarth, R. M., & Gaba, A. (2009). Forecasting and uncertainty in the economic and business world. International Journal of Forecasting, 25(4), 794-812. https://doi.org/10.1016/j.ijforecast.2009.05.012

Minto, B. (2009). The pyramid principle: Logic in writing and thinking (3rd ed.). Pearson Education.