Looking for an educational research business plan? You're in the right place.
A research firm that lives on district contracts and foundation grants has to answer questions its funders and its bank will both ask. How much cash covers a year of slow-paying public clients? How much overhead does a grant actually pay for? What happens to the payroll if a large award goes to someone else? A generic template won't show you what a workable answer looks like.
This article walks through a full sample plan for a contract research and evaluation firm in Austin, Texas, section by section. It covers the executive summary, the SWOT and, above all, the financials.
Here's what you'll take away:
- The summary: see how to put a research firm's three revenue lines and its funding on one page
- The pipeline table: learn how proposals, awards and backlog connect, so a forecast of billed work has a basis
- The cost-recovery section: find out why a firm's overhead rate and a funder's cap can differ, and how to plan around the gap
- The staffing plan: see when each researcher is hired and what billable utilisation justifies it
- The first year, month by month: spot the months that lose money before you reach them, and size your cash reserve to match
- The five-year statements: understand how contract mix, pay raises and a larger office show up in profit and cash
- The downside case: have an answer ready for a year of lighter awards, along with the steps the owner takes
If you are setting up a research or evaluation firm, read this before you write your own. The firm is fictional, so take what fits your practice and change the rest.
In this plan
If you need a educational research business plan template for your own plan, start it in the Toolkit.
Summary
Barton Creek Education Research is a contract research and evaluation firm that opens in Austin, Texas on 1 January 2027. School districts, charter networks and state agency program offices pay it to find out whether a program works, and foundations and federally funded programs pay it to evaluate their grants. A smaller third line sells districts an annual survey, a dashboard and a briefing. Founder Dr. Nadia Okafor, PhD, owns 100% of the firm.
The firm raises $285,000: $185,000 of her savings and a $100,000 bank term loan. Of that, $247,000 is a cash reserve, $21,000 buys equipment and fit-out, and $17,000 covers legal work, registrations and the launch.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Revenue | $372,900 | $745,000 | $1,055,000 |
| Net income after start-up costs | ($105,638) | $29,666 | $133,843 |
| Closing cash | $104,070 | $71,489 | $149,979 |
Two awards are signed before opening, worth $182,000 in total. Year 1 still loses money, because salaried researchers are on payroll before the billed hours catch up. Operating profit turns positive in June and in October to December, and Year 2 is the first profitable year. Year 1 closing cash of $104,070 comes from the annual receivables method. On a month-end basis it is about $73,000, as the cash movements section explains.
The plan tests a 20% shortfall in awards. With later hires, a smaller marketing budget, a founder pay cut and no distributions, cash stays positive at every year end, though the margin is thin.
What the firm offers is a short list. It writes the evaluation design with the client before bidding, it keeps student data under a written agreement for the length of the study, and it prices grant work against its own overhead, which means declining some funding that would not cover its costs.
The Firm
Legal name: Barton Creek Education Research, LLC, a Texas limited liability company. Owner: Dr. Nadia Okafor, 100%. Premises: 1,100 square feet of leased office space in central Austin. Opening: 1 January 2027, mid-way through the school year. Stage: pre-launch. The lease is in draft and two awards are signed.
Purpose
Give education decision-makers an answer they can defend to a school board or a funder, on a schedule the program year allows.
Three lines of revenue
| Line | How it earns | Share of Year 1 revenue |
|---|---|---|
| District and state evaluation contracts | Fixed price, billed at deliverables | 54% |
| Foundation and federal-subaward studies | Cost-reimbursable, billed monthly on timesheets | 23% |
| Campus data service | $1,800 a month per district | 23% |
Aims for the first three years
- Four new awards in 2027 on top of the two signed, and seven district data clients by December.
- $745,000 of revenue in 2028 with a profit.
- Billable utilisation of 62% in 2029 across the salaried research staff.
- Contract and grant backlog of about four and a half months at every year end, with no client above 20% of annual revenue from 2028.
Student data
Most of the firm's work needs student records. FERPA, in 34 CFR 99.31(a)(6), lets a school or district disclose personally identifiable information to an organization conducting a study for it, without consent, only under a written agreement. The agreement must set out the study's purpose, scope and duration and the data to be disclosed, limit the use of the data to that purpose, and require the information to be destroyed when no longer needed. The firm uses that structure for every engagement, and a lawyer reviews the template annually.
Education Research Work in the Austin Area
Why Austin
The Texas Education Agency and a regional education service center sit in the city, a flagship research university is nearby, and a large number of districts and charter networks can be reached by car in a day. The Texas Education Research Center at The University of Texas at Austin lists a proposal, a signed researcher agreement renewed each year and an access fee as its steps for researchers (its site, October 2026). Whether a private firm qualifies is for the Center to decide, and the plan does not rely on that data.
Who does this work today
| Alternative | What it offers | Why a client picks it | How the firm differs |
|---|---|---|---|
| University research centers | Deep method expertise, faculty names | Credibility with funders | A single-purpose firm with fixed deliverable dates |
| National non-profit research organizations | Large teams, federal-scale studies | Track record on large awards | Smaller studies, a principal who stays on the project |
| Regional education service centers | Local relationships, bundled support | Trusted by member districts | Independent of the district's service provider |
| Independent consultants | Low overhead, flexible | Price and availability | A team that can survey, analyse and write in parallel |
| District research offices | Own the data, know the programs | Control | Outside validation a board can cite |
The table describes positioning and does not rank anyone. Fees differ widely and are not quoted here.
Pay for the people who do the work
The Bureau of Labor Statistics put median pay for survey researchers at $69,460 in May 2025 and projects a 5% fall in employment from 2025 to 2035. It is the closest published comparator and understates pay for evaluators with graduate degrees. The plan pays research associates $80,000, the senior associate $100,000, the data analyst $85,000 and the second senior researcher $108,000.
Strengths, weaknesses, opportunities and threats
| Strengths | Weaknesses |
|---|---|
| Founder with fourteen completed evaluations | No firm track record at opening |
| Two awards already signed | One senior person until month 18 |
| Overhead tracked against what each funder will pay | Year 1 loses money and draws on the reserve |
| Opportunities | Threats |
|---|---|
| Programs with an external evaluation requirement | A funder cutting indirect-cost allowances |
| Districts needing results they can show a board | Slow public payment stretching cash |
| Repeat survey and dashboard work | A lead researcher leaving mid-study |
Who Buys an Evaluation
Five kinds of buyer commission the firm's work.
District accountability and research offices. They need to know whether a literacy or tutoring program is worth renewing before the next budget vote.
Charter school networks. They run several campuses, rarely have a research team and want comparisons across sites.
State agency program offices. They buy evaluations of programs they fund, through formal procurement.
Foundation program officers. They fund a program and want an outside check on whether it did what the proposal said.
Nonprofits running grant-funded programs. The grant often requires an external evaluator, and the nonprofit buys one as part of the budget.
What triggers a purchase: an award with an evaluation requirement, a board member asking whether a program works, or a renewal decision with a date on it. What the buyer looks for: a method they can explain to their own board, a delivery date that fits the budget cycle, and student data handled under a written agreement. Price matters mostly to nonprofits budgeting a grant.
Winning Awards
Work comes from public requests for proposals and from direct invitations by buyers who know the founder. The plan treats half of all proposals as formal RFPs.
Proposals to awards
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Proposals submitted | 20 | 32 | 40 |
| Awards won | 4 | 8 | 10 |
| Average award | $80,000 | $84,000 | $87,000 |
| Value of awards | $320,000 | $672,000 | $870,000 |
| Contract and grant revenue billed | $286,500 | $570,000 | $840,000 |
| Backlog at year end | $215,500 | $317,500 | $347,500 |
Backlog is the value of signed work not yet billed. It starts at $182,000 from the two signed awards and ends each year at about four and a half months of the following year's contract and grant revenue. Win rate is 20% in Year 1 and 25% afterwards, once the firm has references. A proposal takes about 60 hours of senior time on average, around 80 for a formal request for proposals and around 40 for a direct invitation. That is 1,200 hours in Year 1 and 2,400 in Year 3, which is why utilisation stays well below 100% and why the founder bills far less than a full week.
Pricing
Evaluation contracts are quoted at a fixed price tied to deliverables, so the district knows the cost before the study starts. Studies cost $60,000 to $120,000. Grant work is priced to the funder's own rules. Where a funder caps indirect cost below the firm's rate, the proposal either trims other costs, charges allowable items directly where the funder's rules permit, or is declined.
Data service
The data service is sold on renewal. A district signs for a school year, pays $1,800 a month, and receives one survey round, a dashboard and a briefing to its board or leadership team. Seven districts are signed by December 2027.
Proposals and Visibility
Year 1 marketing is $27,000: $9,000 of launch spend from start-up capital and $18,000 of operating spend. That is 7% of Year 1 revenue and falls to about 2% by Year 3. Across four awards and six new data-service districts it comes to about $2,700 per win.
| Item | Year 1 | Purpose |
|---|---|---|
| Website and capabilities statement (launch) | $5,500 | One page per audience: districts, state, foundations |
| First conference season (launch) | $3,500 | Presenting a method paper at one research and one practitioner meeting |
| Proposal production and graphics | $6,000 | Templates, budget sheets and layouts |
| Brief series for district leaders | $5,000 | Short plain-language findings from public data, sent to research offices |
| Conference and association fees | $4,000 | Presence at the meetings buyers attend |
| Procurement registration and bid alerts | $3,000 | Notice of state and district solicitations |
The firm does not run paid advertising. Buyers hear of it through peers, conference sessions and published briefs, and every completed study is offered to the client as a conference co-presentation.
How Studies Get Done
Office and equipment
1,100 square feet in central Austin, with six workstations, a meeting room and a locked server cabinet, on a five-year lease at about $36 a square foot ($39,600 in Year 1). The lease gives the right to take an adjoining 300 square feet, which the firm does in Year 4, so no relocation or sublet cost arises.
Study workflow
Each study has a design memo agreed with the client, a data-sharing agreement signed before any records move, fieldwork in set windows, analysis, and a reviewed report delivered by the contract date. A second researcher reviews every report before release. Spring fieldwork runs in March and April and fall fieldwork in October and November, using contract field researchers whose cost sits in direct costs.
Human subjects and data security
Studies that collect data from students, teachers or parents go through an independent review board, and its fees sit in professional fees. Student records are held on encrypted storage, access is limited to named staff, and files are destroyed at the end of each study as the agreement requires. Contracts usually set minimum limits for professional liability, general liability and cyber cover, and the firm confirms them with a broker before signing. The $11,500 Year 1 insurance budget covers those policies, workers' compensation, and key-person life and disability cover on Dr. Okafor.
Who does the work
Three researchers are on payroll at the end of Year 1 (the founder, a research associate and the data analyst from month 8), four at the end of Year 2, five at the end of Year 3 and six in Year 5, plus a part-time administrator from month 10. That is 5.5 full-time equivalents at the end of Year 3. Hires follow billed hours: a researcher is added when utilisation of the existing team reaches the level in the cost-recovery table below. The administrator keeps award terms, deadlines, timesheets and invoices.
Cost recovery
The plan tracks its indirect-cost rate each year, as overhead divided by research payroll plus direct costs. That base is close to the modified total direct costs federal rules use. Federal rules let a recipient without a negotiated rate charge up to 15% of modified total direct costs (2 CFR 200.414, October 2026), so grant work recovers less than the firm spends. The plan holds grants near a quarter of revenue and declines grant work where the shortfall would be larger than the study's margin.
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Billed staff hours | 2,070 | 4,140 | 5,860 | 6,560 | 7,090 |
| Paid hours, salaried researchers | 4,850 | 7,450 | 9,530 | 10,400 | 12,310 |
| Billable utilisation | 43% | 56% | 62% | 63% | 58% |
| Indirect-cost rate | 34% | 30% | 25% | 26% | 21% |
| Gap against a 15% ceiling on grant work | $14,100 | $23,400 | $21,800 | $25,200 | $16,000 |
Hours are revenue after direct costs divided by $160, including the data service, over 2,080 paid hours per salaried researcher. The gap is the difference between the firm's rate and 15%, applied to the direct cost behind each year's grant revenue. Marketing and bad debt are left out of the pool because funders generally do not reimburse them.
What a lender will ask
Customer concentration. The larger signed award, $128,000 over 20 months, is about 21% of Year 1 revenue. The plan limits any one client to 20% of annual revenue from Year 2.
Funding source. Some district contracts and most subawards are paid from federal or state education grants, and the plan cannot split them. All district and state revenue is treated as exposed to budget cycles, and the downside case is built for that.
Prior employer. Dr. Okafor had her employment agreement reviewed by counsel before resigning. The two signed awards came through open solicitations, and the plan does not rely on any client of her former center.
Registrations. State and district procurement usually needs vendor registration, and federal subawards need a SAM.gov unique entity ID. The launch checklist covers both and the rules are confirmed before the first bid.
Who Leads the Work
Dr. Nadia Okafor, founder and principal investigator
Dr. Okafor holds a PhD in education policy. She spent eight years at a university research center in Texas and four at a national evaluation organization, and she has led fourteen completed evaluations for districts and foundations. Her $185,000 is her savings.
Gaps
She has not run a business, built a recurring-revenue product or hired a team. The data analyst joins in month 8 to take over survey work, and the part-time administrator in month 10 takes over invoicing and timesheets. A local accountant sets up the books before opening.
If she is unavailable
Most awards name the principal investigator as key personnel, and a change needs the client's agreement. The senior research associate, hired in month 18, is the named deputy from then on. Until then, a retired evaluator on a retainer of about $4,000 a year, inside professional fees, covers continuity. The firm carries key-person life and disability cover on Dr. Okafor.
Bank terms
Dr. Okafor owns 100% of the firm and gives a personal guarantee on the loan. The bank requires quarterly accounts and a minimum net-worth level, which the firm discusses with it in advance if a downside year approaches.
The Numbers
The model runs monthly through 2027 and by year after that, with each line tied to a contract, a grant or a salary. Funding comes first, then the working figures, then the statements. Utilisation, the indirect-cost rate and contract backlog are worked out from these tables in the operating section above.
Funding and the cash reserve
| Use of funds | Amount |
|---|---|
| Laptops, secure workstations, encrypted storage, video-conferencing kit | $13,000 |
| Office furniture and fit-out | $8,000 |
| Entity formation, registrations and local licences | $1,500 |
| Legal: contract and data-sharing templates, lease review | $6,500 |
| Launch: website, capabilities statement, first conference season | $9,000 |
| Cash reserve for slow-paying public clients | $247,000 |
| Total uses | $285,000 |
| Source of funds | Amount |
|---|---|
| Dr. Nadia Okafor's savings | $185,000 |
| Bank term loan | $100,000 |
| Total sources | $285,000 |
Dr. Okafor puts in $185,000, 65% of the $285,000 raised, and the firm borrows $100,000 from a bank over six years at 10.25%, interest-only for the first six months. The rate is a planning figure for this example. Of the total, $247,000 stays in the bank as a reserve. Public clients pay slowly, Year 1 burns $152,978 in operating cash, and the first full report cycle does not close until June 2027. The statements below carry no payables or accrued payroll, which leaves cash slightly lower than a live balance sheet would show.
Operating figures behind the model
- Staff time is priced at $160 an hour. Billed staff hours are revenue after direct costs divided by $160, with the data-service revenue counted as staff time at the same rate, which gives about 2,070 billed hours in Year 1, 5,860 in Year 3 and 7,090 in Year 5. Field researchers are paid from direct costs, so their hours are outside both the billed and the paid count.
- Billable utilisation is those billed hours divided by paid hours, taken as 2,080 a year per salaried researcher, the founder included, and pro rata in the year of each hire. The part-time administrator is left out. It comes to 43% in Year 1 while the team ramps up, then 56%, 62%, 63% and 58%. The rest of the paid time goes to proposals, client meetings, review, training and leave.
- Evaluation contracts are fixed-price, billed at deliverable milestones: a design memo, a fall data briefing, a final report. Awards run from $60,000 to $120,000. The plan books four awards in Year 1 at $80,000 on average, from 20 proposals at a 20% win rate, then a 25% win rate once the firm has references. A proposal takes about 60 hours of senior time, split between formal requests for proposals at around 80 hours and direct invitations at around 40.
- Foundation and subaward studies are cost-reimbursable and billed monthly on timesheets. Grants and subawards are 23% of Year 1 revenue and 24% of Year 3, and the plan holds them near a quarter of the total, because they recover less overhead than a fixed-price contract.
- The campus data service sells an annual survey round, a dashboard and one briefing to a district for $1,800 a month. It starts the year with 1 district and ends with 7, a run rate of $151,200 a year. Year 2 revenue of $175,000 is about eight districts on average, so the roster reaches nine by the end of Year 2.
- Federal rules let a recipient without a negotiated rate charge up to 15% of modified total direct costs as indirect cost (2 CFR 200.414). The indirect-cost rate used here is the overhead pool divided by research payroll plus direct costs, which is close to that base. The pool holds rent, utilities, insurance, professional fees, software, travel and dues, printing, equipment replacement and the administrator. It leaves out marketing and bad debt, which funders generally do not reimburse. The rate is 34% in Year 1, 30% in Year 2, 25% in Year 3, 26% in Year 4 and 21% in Year 5.
- If the firm priced its grant work at the 15% ceiling, the shortfall against those rates would be about $14,100 in Year 1, $21,800 in Year 3 and $16,000 in Year 5, between 1% and 4% of revenue. The model books grant revenue as received and does not count on a negotiated rate.
- Receivables average 50 days, because district and agency invoices pass through approval before payment. Bad debt is 0.4% of revenue in Year 3, since the payers are public bodies and foundations.
- Direct costs of 10% to 12% of revenue cover seasonal field researchers (March, April, October and November), transcription, survey panels, incentives and outside statistical review.
- Payroll adds 27% to wages for payroll taxes, health cover and a retirement match (15% for the part-time administrator). Workers' compensation sits in insurance. Pay raises of 3% a year appear as their own line from Year 2.
- Rent is 1,100 square feet at about $36 a square foot, which gives $39,600 in Year 1, on a five-year lease with a right to take an adjoining 300 square feet. The firm takes that space in Year 4, which lifts rent to about $38.50 a square foot on 1,400.
- Federal tax is charged at 21%, as though the LLC is taxed as a corporation, which is the cautious case. Texas has no corporate income tax. Its franchise tax carries a no-tax-due threshold of $2,650,000 of revenue for the 2026 report year (Texas Comptroller), above every year of this plan, though the threshold changes. The tax line shows nothing in Year 2 because of the Year 1 loss. Current federal rules limit the use of carried-forward losses to 80% of taxable income, which would add about $1,200 of tax in Year 2, and the $17,000 of start-up costs is not deducted in the tax calculation. The firm's accountant settles both.
- Distributions of $50,000 and $60,000 are paid in Years 4 and 5, and the loan stays in place.
Revenue by funding type
| Revenue stream | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| District and state evaluation contracts | $202,000 | $395,000 | $590,000 | $660,000 | $715,000 |
| Foundation and federal-subaward studies | $84,500 | $175,000 | $250,000 | $275,000 | $295,000 |
| Campus data service subscriptions | $86,400 | $175,000 | $215,000 | $245,000 | $265,000 |
| Total revenue | $372,900 | $745,000 | $1,055,000 | $1,180,000 | $1,275,000 |
| Growth on prior year | – | 100% | 42% | 12% | 8% |
Contracts are the largest line, at 54% of Year 1 revenue and 56% of Year 3. Funding type matters for pricing: a fixed-price contract can carry the firm's full overhead, a federal subaward may not. The data service is the smallest line and gives the firm a base that renews each school year. Growth of 100% in Year 2 comes from a full year of staff, signed backlog and a data service that rises above its exit run rate. It slows to 12% in Year 4 because the team holds at five full-time researchers until the second senior hire in month 50, with utilisation at 63%.
Month by month in 2027
| Month | District and state evaluation contracts | Foundation and federal-subaward studies | Campus data service subscriptions | Total revenue | EBITDA |
|---|---|---|---|---|---|
| Jan 2027 | $9,000 | $5,500 | $1,800 | $16,300 | ($19,370) |
| Feb 2027 | $11,000 | $5,500 | $3,600 | $20,100 | ($15,991) |
| Mar 2027 | $15,000 | $6,500 | $3,600 | $25,100 | ($11,545) |
| Apr 2027 | $16,500 | $6,500 | $5,400 | $28,400 | ($8,611) |
| May 2027 | $13,000 | $6,500 | $5,400 | $24,900 | ($11,723) |
| Jun 2027 | $24,000 | $9,000 | $7,200 | $40,200 | $1,881 |
| Jul 2027 | $10,000 | $4,500 | $7,200 | $21,700 | ($14,569) |
| Aug 2027 | $13,000 | $5,500 | $9,000 | $27,500 | ($9,411) |
| Sep 2027 | $18,000 | $7,500 | $9,000 | $34,500 | ($3,187) |
| Oct 2027 | $22,000 | $8,500 | $10,800 | $41,300 | $2,859 |
| Nov 2027 | $24,000 | $9,000 | $10,800 | $43,800 | $5,082 |
| Dec 2027 | $26,500 | $10,000 | $12,600 | $49,100 | $9,795 |
Revenue dips in January and July, between school years and report cycles, and peaks in June, when the first annual report is billed, and again from October to December. Operating profit is positive in June and from October to December. The lowest month-end cash is in Dec, at about $73,000 after the 50 days clients take to pay. A 20% shortfall with the Year 1 pay cut and marketing cut would bring that December low to about $55,000.
Research staff and hiring dates
| Role | Annual wage | Starts | Year 1 end | Year 2 end | Year 3 end | Year 4 end | Year 5 end |
|---|---|---|---|---|---|---|---|
| Founder and principal investigator | $110,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Research associate | $80,000 | Month 2 | 1 | 1 | 1 | 1 | 1 |
| Data analyst | $85,000 | Month 8 | 1 | 1 | 1 | 1 | 1 |
| Senior research associate | $100,000 | Month 18 | – | 1 | 1 | 1 | 1 |
| Research associate (second) | $80,000 | Month 30 | – | – | 1 | 1 | 1 |
| Grants and contracts administrator (part time, 20 hours a week) | $36,000 | Month 10 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 |
| Second senior researcher | $108,000 | Month 50 | – | – | – | – | 1 |
| Total payroll incl. on-costs | $288,163 | $464,733 | $576,917 | $619,250 | $744,980 |
The founder starts alone in January 2027. A research associate arrives in month 2, ahead of spring fieldwork, and the part-time grants and contracts administrator in month 10, when cost-reimbursable timesheets and monthly invoices begin to pile up. The data analyst joins in month 8, as the first survey rounds come due. The senior research associate follows in month 18, a second associate in month 30 and a second senior researcher in month 50. Seasonal field researchers are paid from direct costs and do not appear here. The administrator is shown at a part-time salary.
Profit and loss
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $372,900 | $745,000 | $1,055,000 | $1,180,000 | $1,275,000 |
| Direct costs (field researchers, subcontracted analysis, survey panels, transcription, incentives) | ($41,330) | ($82,571) | ($116,930) | ($130,784) | ($141,313) |
| Gross profit | $331,570 | $662,429 | $938,070 | $1,049,216 | $1,133,687 |
| Payroll incl. on-costs | ($288,162) | ($464,733) | ($576,917) | ($619,250) | ($744,980) |
| Rent | ($39,600) | ($40,800) | ($42,000) | ($54,000) | ($55,600) |
| Utilities | ($3,600) | ($3,700) | ($3,800) | ($4,200) | ($4,300) |
| Marketing | ($18,000) | ($22,000) | ($26,000) | ($28,000) | ($30,000) |
| Insurance | ($11,500) | ($13,000) | ($14,500) | ($15,500) | ($16,500) |
| Professional fees | ($20,000) | ($22,000) | ($24,000) | ($25,000) | ($26,000) |
| Software subscriptions | ($14,000) | ($19,000) | ($24,000) | ($27,000) | ($29,000) |
| Conference, travel to client sites and professional dues | ($8,000) | ($11,000) | ($14,000) | ($15,500) | ($17,000) |
| Printing, supplies and meeting costs | ($2,000) | ($3,000) | ($3,500) | ($4,000) | ($4,500) |
| Equipment replacement and new-hire kit | $0 | ($4,000) | ($5,000) | ($9,000) | ($5,000) |
| Bad debt allowance | ($1,500) | ($3,000) | ($4,500) | ($5,500) | ($6,200) |
| Annual pay raises (3% a year) | $0 | ($13,942) | ($35,134) | ($57,421) | ($93,502) |
| EBITDA | ($74,792) | $42,253 | $164,719 | $184,845 | $101,105 |
| Depreciation | ($3,743) | ($3,743) | ($3,743) | ($3,743) | ($3,743) |
| Interest | ($10,103) | ($8,845) | ($7,231) | ($5,444) | ($3,465) |
| Income tax | $0 | $0 | ($19,902) | ($36,888) | ($19,718) |
| Net income before start-up costs | ($88,638) | $29,666 | $133,843 | $138,770 | $74,178 |
| Start-up costs expensed at opening (legal, licensing, launch marketing) | ($17,000) | $0 | $0 | $0 | $0 |
| Net income after start-up costs | ($105,638) | $29,666 | $133,843 | $138,770 | $74,178 |
Year 1 loses $88,638 before start-up costs and $105,638 after them. Year 2 is the first profitable year, at $29,666. EBITDA margin reaches 15.6% in Year 3 and 15.7% in Year 4, because the team holds at five full-time researchers for most of that stretch. It falls to 7.9% in Year 5 when the second senior researcher and the accumulated pay raises land together. Income tax is zero in Year 2 because of the Year 1 loss.
Cash movements
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Cash from operations | ($152,978) | ($17,564) | $95,120 | $125,389 | $64,907 |
| Equipment and fit-out | ($21,000) | $0 | $0 | $0 | $0 |
| Funding received | $285,000 | $0 | $0 | $0 | $0 |
| Loan principal repaid | ($6,953) | ($15,016) | ($16,630) | ($18,417) | ($20,396) |
| Owner distributions | $0 | $0 | $0 | ($50,000) | ($60,000) |
| Net change in cash | $104,070 | ($32,581) | $78,490 | $56,972 | ($15,489) |
| Closing cash | $104,070 | $71,489 | $149,979 | $206,951 | $191,463 |
Closing cash is $104,070 at the end of Year 1, $71,489 at the end of Year 2 and $149,979 at the end of Year 3. Year 2 falls despite a profit, because receivables double and loan repayments begin. The year-end statements spread receivables at 50 days of annual revenue. December is the busiest month, so on a monthly basis receivables at 31 December 2027 would be about $82,000 rather than $51,082, and closing cash would be about $73,000 rather than $104,070. The reserve is sized to the lower figure. Distributions start in Year 4.
Balance sheet
| At year end | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Cash | $104,070 | $71,489 | $149,979 | $206,951 | $191,463 |
| Accounts receivable | $51,082 | $102,055 | $144,521 | $161,644 | $174,658 |
| Equipment and fit-out (net) | $17,257 | $13,514 | $9,771 | $6,029 | $2,286 |
| Total assets | $172,409 | $187,058 | $304,271 | $374,624 | $368,406 |
| Bank loan | $93,047 | $78,031 | $61,401 | $42,984 | $22,588 |
| Paid-in capital | $185,000 | $185,000 | $185,000 | $185,000 | $185,000 |
| Retained earnings | ($105,638) | ($75,973) | $57,870 | $146,640 | $160,818 |
| Total liabilities and equity | $172,409 | $187,058 | $304,271 | $374,624 | $368,406 |
Margins and break-even
| Measure | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| EBITDA margin | -20.1% | 5.7% | 15.6% | 15.7% | 7.9% |
| Net margin (before start-up costs) | -23.8% | 4.0% | 12.7% | 11.8% | 5.8% |
| Payroll incl. pay raises as share of revenue | 77% | 64% | 58% | 57% | 66% |
| Revenue per full-time equivalent at year end | $106,543 | $165,556 | $191,818 | $214,545 | $196,154 |
| Average monthly revenue | $31,075 | $62,083 | $87,917 | $98,333 | $106,250 |
| Monthly revenue needed to cover operating costs | $38,085 | $58,123 | $72,479 | $81,010 | $96,774 |
| Debt service cover (EBITDA / interest + principal) | -4.4x | 1.8x | 6.9x | 7.7x | 4.2x |
The last two rows compare average monthly revenue with the amount needed to cover operating costs. Year 1 averages $31,075 against $38,085 needed. Year 2 averages $62,083 against $58,123, the first year above the line. Year 5 clears it by a narrower margin, $106,250 against $96,774, after the second senior hire. Debt service cover is negative in Year 1 while the firm loses money, 1.8x in Year 2 and above 4x afterwards.
If awards come in 20% lighter
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $298,320 | $596,000 | $844,000 | $944,000 | $1,020,000 |
| Net income before start-up costs | ($123,412) | ($4,237) | $54,866 | $12,686 | $57,158 |
| Net income after start-up costs | ($140,412) | ($4,237) | $54,866 | $12,686 | $57,158 |
| Closing cash | $79,512 | $23,223 | $31,230 | $15,542 | $45,636 |
This case cuts every revenue line by 20% in every year. The response has six parts: every hire from month 13 starts six months later, the second senior researcher is dropped, marketing falls by 20%, Dr. Okafor takes a 20% pay cut, the firm stays in its first office and no distributions are paid. On those terms cash never falls below $15,542 at a year end, the lowest point being Year 4, and the firm is profitable from Year 3 after a small loss in Year 2. Year 1 equity falls to $44,588, which a lender watching net worth would notice. The firm would go back to the bank before any covenant date.
Sources
- Bureau of Labor Statistics, Survey researchers, Occupational Outlook Handbook, May 2025 pay and 2025 to 2035 projection.
- Code of Federal Regulations, 34 CFR 99.31, disclosures without consent, paragraph (a)(6), studies.
- Code of Federal Regulations, 2 CFR 200.414, indirect costs and the de minimis rate.
- Texas Comptroller of Public Accounts, Franchise tax, no-tax-due threshold for the 2026 report year.
- Texas Education Research Center, researcher access, The University of Texas at Austin.
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