Aftermarket Skate Store Business Plan


BUSINESS PLAN     PEGASUS SPORTS INTERNATIONAL


2200 Alta Vista Boulevard
Venice, California 90294-1366


Pegasus Sports International is planning on fulfilling the need for skating aftermarket products, a market we have identified, based on the large volume of skates that have been sold in the last five years. We will establish a service network for in-line skaters by providing products that help people incorporate more skating into their daily lifestyles. This business plan was compiled using Business Plan Pro, © 1999, Palo Alto Software, www.paloaltosoftware.com, 800-229-7526.


  • EXECUTIVE SUMMARY
  • COMPANY SUMMARY
  • PRODUCTS
  • MARKET ANALYSIS SUMMARY
  • STRATEGY & IMPLEMENTATION SUMMARY
  • MANAGEMENT SUMMARY
  • FINANCIAL PLAN

EXECUTIVE SUMMARY

At Pegasus Sports International, our emphasis is to provide quality products at the fairest price. Our pricing is determined by the cost of production, customer demand, demographics, and sales. Our products will fulfill the needs of all levels of in-line skaters.

The uniqueness of our product line and the existing untapped market will pave the way for our success in the skating market.

We will schedule production based on our monthly sales which will keep production costs down.

It is of the utmost importance that we protect our inventions by applying for patents as soon as possible.

Our goal is to borrow $50,000 for ten years. The loan will be repaid in 120 equal payments, including interest and principal. Our present plan is to utilize the borrowed money for the first year's operating expenses, with cash inputs on a monthly basis. Such cash input will aid our advertising, operating costs, and salaries. We should reach our break-even point after our first year. Upon receiving our loan, we would like to incorporate the business, as this will protect our company, investors, lenders, products, and stockholders. We expect income to reach $473,000 the first year, $1,104,000 the second year, and $1,699,000 the third year.

Objectives

  • To fulfill the aftermarket skate accessory demand with top quality products.
  • To develop and manufacture SkaterAids by December 1999.
  • To develop skate tours by spring 2000.
  • To reach sales of $473,000 by the end of our first year in business, and reach sales of $39,000 monthly.
  • To break even by the end of the first year in business.
  • To encourage our customers to live healthy lives by making skating more fun and convenient for them.
  • To offer skaters support through our website, such as interviews with Dr. Kaye, podiatrist, with answers to skater-specific foot problems.
  • To develop a solid e-commerce market and to maximize our profit margin. We make full retail profit through e-commerce.

Mission

Pegasus Sports International is planning on fulfilling the need for skating aftermarket products, a market we have identified, based on the large volume of skates that have been sold in the last five years.

Pegasus Sports International will establish a service network for in-line skaters by providing products that help people incorporate more skating into their daily lifestyles. Our goal is to:

  • Expand skating as an alternative to driving to do local errands.
  • Form a network of skating enthusiasts with an emphasis on health and fitness.
  • To encourage SkateSailing as a new international sport.
  • To develop SkateAids and other new products.

Keys to Success

  1. Developing quality in-line skating accessories through feedback from skaters.
  2. Developing a niche market for our unique skating accessories.
  3. Maximizing profits by selling through the Internet at full retail price.
  4. Maintaining low overhead costs by monitoring and scheduling production.
  5. Developing a network with other businesses and experts, such as podiatrist and skater Dr. Kaye, through interviews published on our website.

COMPANY SUMMARY

Pegasus Sports International was conceived by skaters who can devise practical ideas and designs for in-line skating accessories. Being avid health and fitness advocates, we promote in-line skating as a lifestyle.

Our products make the trip to the local store or coffee shop easier and an enjoyable way to get exercise. This will eliminate the stress of driving in traffic and having to search for parking.

The main problem skaters encounter is poor fit. Lateral ankle support is essential due to the narrow wheel footprint of in-line skates. Because of this, skate boots have to be worn tighter than shoes. We have invented a solution to this problem and are excited about its application to other footwear as well. There is a lack of inexpensive accessory products available. Other needs can be addressed with new products.

Company Ownership

Pegasus Sports International currently is a limited partnership.

Presently, Sal M. Chavez is chief executive officer and owns 80 percent of the company.

Presently, Sandi M. Arnold is vice president and owns 20 percent of the company.

Upon incorporating, Sal M. Chavez and Sandi M. Arnold will change their partnership agreement so Sandi and Sal will divide profits to 45 percent to Sandi and 55 percent to Sal.

Ten percent of Internet sales will go to Beth Laird, our webmaster and office administrator.

Start-up Summary

Our start-up cost has been $10,000. Primarily, the money has been for materials for prototypes, product development, trademark acquisition, rental equipment, operating and administrative costs, and establishing a website.

Upon receiving our loan for the first month, we plan on heavy advertising through the Internet, skating publications, and on-site events such as skating races.

The start-up costs are shown in the following table.

Start-up Expenses

Start-up Plan
Legal $671
Office & Computer Supply $1,453
Advertising $1,000
Consultants $20
Insurance $0
Rent $2,500
Research and Development $1,827
Expensed Equipment $233
Other $1,500
Total Start-up Expenses $9,204
Start-up Assets Needed
Cash Requirements $10,000
Start-up inventory $1,500
Other Short-term Assets $0
Total Short-term Assets $11,500
Long-term Assets $0
Total Assets $11,500
Total Start-up Requirements: $20,704
Left to finance: $0
Start-up Funding Plan
Investment
Paul Neugas $3,000
Garry Waldie $3,000
Sandi M. Arnold $2,004
Beth Laird $3,000
Lamiah G. Arnold/Trower $3,000
Sal M. Chavez $2,000
Other $0
Total investment $16,004
Short-term Liabilities
Unpaid Expenses $200
Short-term Loans $4,500
Interest-free Short-term Loans $0
Subtotal Short-term Liabilities $4,700
Long-term Liabilities $0
Total Liabilities $4,700
Loss at Start-up ($9,204)
Total Capital $6,800
Total Capital and Liabilities $11,500
Checkline $0

Company Locations and Facilities

At present we are located in Venice, California. From our location, we will warehouse, package, and ship our products. We will find a larger site as the business expands.

We have manufacturers lined up to subcontract our large production jobs. We plan to produce products on a monthly basis to cut our need for a large inventory space.

PRODUCTS

Pegasus Sports International now offers several products:

  • The first product we have developed is BladeBoots™, a cover for the wheels and frame of in-line skates, which allow skaters to enter places that normally would not allow them in. BladeBoots™ come with a small pouch and belt which converts to a well-designed skate carrier.
  • The second product we have invented is our SkateSails. These sails are specifically designed for use while skating. Feedback that we have received from skaters indicate this could become a very popular sport. Trademarking this product is currently in progress.
  • The third product will be referred to as SkateAid and will be in production by December.

Other ideas for products are under development, but we must hold back until we can protect ourselves through pending patent applications.

Product Description

We have two products now being marketed on our website (http://www.pegasussportsint.com), with two more products to be introduced in the near future.

  • BladeBoots™ are made from Cordura, a nylon composite cloth that is extremely durable. BladeBoots enable the skater to enter places that normally don't allow skates while wearing their skates. Our cost to manufacture is $10.00 per set, and they retail for $24.95 per set. The packaging is simple, inexpensive, elegant, and done in-house.
  • SkateSails are made of Dacron. The window of the sail is made of carbon fiber-reinforced Mylar. This product is an original concept and design. Our sails come with an alpha design, known for being very stable and easy to use. We incorporated a swallow-tail design for better upwind performance, speed, and excellent maneuverability. We have a choice of three beautiful colors. The manufacturing cost is $100 and retails for $350 to $500, depending on size.
  • We are developing SkateAids, a new product that we feel has a large potential in this market. The estimated cost to manufacture each unit is $10. They will retail for $45.00. This product is in its advanced development stage so a pending patent and trademark have been applied for.
  • Our fourth product is a service: Skate Tours. We are currently working out details with Terry's Café, a skate outlet shop on Santa Monica Beach, and a major skate manufacturer. This tour will take skaters out to sail with SkateSails.

Competitive Comparison

Our products are unique in the existing skate accessory market. While there are other accessory companies, none produce products as versatile as ours. Our ideas come from listening to what other skaters have to say.

Sales Literature

For 1999, we are developing a company brochure which will include our products.

We are targeting our market by focusing on Internet sales. A large portion of our advertising budget will be used for Internet advertising such as banners and site-promoting services.

We also plan on a mass postcard mailing media blitz to skate shops and to advertise in most of the major in-line skate magazines by spring time.

Sourcing

Our Venice, California, location is ideal, since Venice is considered the center and birthplace of roller skating. Major local skate shops in the area are now carrying our products.

Our supplier for Cordura is the major distributor on the West Coast. We have a supplier of Dacron (our sail cloth), and a source for aluminum.

All of our costs are at the manufacturer level, and the prices should drop as our production increases.

Technology

Pegasus Sports International is a progressive company that has been able to combine high-tech materials and innovative ideas to produce new products with no present competition. We now have a trademark on BladeBoots™, and we are in the process of acquiring trademarks on our other products along with corresponding patents. Some of our high-tech implementation will be more noticeable when we introduce our SkateAid. This product should make skating more comfortable due to the new chemical products. Our SkateSails are made of aircraft-quality aluminum, the lightest and strongest of sail materials.

We have already designed the next two generations of sails, and this should keep us ahead of any spin-off products that will try to copy us.

Future Products

We are constantly talking with skaters in order to develop unique products. We feel that the new products we are developing will be very useful, functional, and practical. There are a few more concepts on the drawing board. SkateAids, the newest one, will be in production by December of 1999. This product is being developed with the aid of a foot doctor who is also an avid skater.

MARKET ANALYSIS SUMMARY

With 31 million skates sold and no support products available, we have an opportunity to reach a market of approximately 26 million recreational and fitness enthusiasts.

There is now a growing trend towards fitness skating. With this large potential market, our products will be there to address this need.

Market Segmentation

With a world skating market of over 31 million and steadily growing (statistics released by the Sporting Goods Manufacturers Association), our niche has been created. Our aim is to expand this market by promoting SkateSailing, a new sport which is popular at both Santa Monica and Venice Beach in California.

The Sporting Goods Manufacturers Association survey indicates that in-line skating now has more participation than football, softball, skiing, and snowboarding combined. The breakdown of participation in in-line skating is as follows: 1% percent speed (growing), 8% hockey (declining), 7% extreme/aggressive (declining), 22% fitness (nearly 7 million—the fastest growing), and 61% recreational (first-timers). Our products are targeting the fitness and recreational groups, as they are the fastest growing. These groups are gearing themselves towards health and fitness, and combined, they can easily grow to 85% (or 26 million) of the market in the next five years.

Market Analysis

Potential Customers Growth 1999 2000 2001 2002 2003 CAGR
Recreational 61% 58% 54% 47% 40% -10.01%
Fitness 22% 27% 30% 35% 40% 16.12%
Speed 2% 5% 8% 15% 17% 83.48%
Hockey 8% 5% 4% 2% 2% -29.29%
Extreme 7% 5% 4% 1% 1% -38.52%
Total 0.13% 1 1 1 1 1 0.13%

Target Market Segment Strategy

Our target market is the recreational skater and the health and fitness enthusiast. This segment can be reached over the Internet and through skate magazine advertising.

We plan on developing the skate shop market through an inexpensive postcard method.

BladeBoots™ and SkateSails are now sold at the two major skate shops in Santa Monica and Venice, California. Surveys indicate that in the fitness and speed market, the average age is 34 years old, breaking down to 48 percent women, 52 percent men, an average of 1.8 years of college education, an average household income of $52,600, and 71 percent skate on four-wheel in-line skates.

Market Needs

We recognize the need for accessories for the growing market of skaters.

  • We promote SkateSailing as a new sport by providing excursions to wide open areas. A major skate company is willing to lend us the new large-wheel skates for our SkateSailing excursions. However, conventional in-line skates will work just as well.
  • Soon we will offer SkateAids. The sheer number of existing skates purchased has created a whole new market for products to help increase the life of skates.

We have learned what skaters need for accessories by interviewing experienced skaters.

A person does not have to make time to exercise if skating becomes a lifestyle and is worked into daily activities. Skating is fun and a great cardiovascular workout at the same time.

Market Trends

We will distinguish ourselves by marketing products not previously available to skaters. The emphasis in the past has been to sell skates and very few replacement parts.

The number of skaters is not restricted to any one single country, continent, or age group, so there is a world market. We have products for virtually every group of skaters.

The fastest growing segment of this sport is the fitness skater. Therefore, our marketing is being directed to service this group. BladeBoots™ will enable them to enter establishments without having to remove their skates. BladeBoots will be aimed at the recreational skater, the largest segment; however, SkateAids are great for everyone.

There is one more way the sport of skating will grow, and that is through SkateSailing. This sport is primarily for the medium to advanced skater. The growth potential for this sport is tremendous. The sails we've manufactured so far have ended up in Europe. The same thing happened with windsurfing. It started out here in Santa Monica but did not take off until it had already grown big in Europe. More and more groups are getting together on skate excursions in cities all over the world. For example, San Francisco has night group skating that numbers in the hundreds of people. The market trends are showing continued growth in all directions of skating.

Market Growth

With the price of skates going down due to competition by so many skate companies, the market has had steady growth throughout the world, with 22.5 million in 1995 to over 31 million in 1997.

By January 2000 we will get the growth statistics for this year; it is estimated to be over 35 million. More and more people are discovering, and in many cases rediscovering, the health benefits and fun of skating

Industry Analysis

Skate sales have undergone tremendous growth and distribution throughout the country.

Presently, we will concentrate on Internet marketing. This will maximize our profit.

The Internet is probably the best communication medium for skaters all over the world, and we believe this is the best way to retail our products. The sales on the World Wide Web are now over $28 billion, as quoted by Forrester Research, in e-commerce.

Industry Participants

The number of skate companies is very large as many shoe companies have joined in; however, the major and biggest companies are Rollerblade®, Roces®, Solomon®, and K2®.

Some companies make skate bags whose price is in the $20 range. None of them address the problem of entrance to areas that will not allow you to enter while wearing skates, and those products are for the most part bulky and impractical to skate with.

Distribution Patterns

We plan on shipping our products using express mail at the U.S. Post Office as our way of distribution, because it is the least expensive way; however, some credit companies demand a shipping receipt and those will be handled by established shippers.

We are also in touch with a few foreign distribution companies that have contacted us and are interested in our products.

Competition and Buying Patterns

Each segment of skating has its own buying patterns depending on its own needs.

Main Competitors

Pegasus Sports International is forming its own market. While there are a few companies that do make sails and foils that a few skaters are using, ours is the only one that is truly designed for and by skaters. Our few competitors' sails are not designed for skating, but for windsurfing or for skateboards. In the case of foils, storage and carrying are not practical.

We need the capital to protect our inventions through patent application and trademark registration. Our other products do not have competition at this time.

STRATEGY & IMPLEMENTATION SUMMARY

Our involvement in roller skating goes back more than 25 years in Venice, California. We have the reputation and experience that has gained respect from some of the most skilled skaters. We remain close to the skating community through contact with the local skate shops and by giving lessons. Close contact with the public has put us in a unique position to be able to get feedback from skaters of all types on our products and ideas, designed for them.

Value Proposition

At Pegasus Sports International our emphasis is on quality at a fair price. Our pricing is determined by the cost of production and customer demand, so we pace production by need.

Speed skating's demographics show affluent and prime candidates for our higher ticket items. We develop our products for all skaters, but some of our products are more segment-specific, such as our SkateSails which are more for the experienced to expert skater. For example, the speed skating segment is only 1.5 percent of the entire market, but this is roughly 7 million skaters.

Competitive Edge

Our company's competitive edge exists because we are the only company addressing the needs that have resulted from the extensive sales of in-line skates. We wish to fill the need for items which could double the life of a pair of skates.

Accessories such as BladeBoots™ encourage people and make it more convenient to include skating into their lifestyles.

There are several other projects we are currently working on that will broaden our product line and open up our market even more. We will be more than glad to discuss in length some of our future confidential plans, upon request.

Marketing Strategy

The key to our marketing strategy is focusing on the speed, health and fitness, and recreational skaters. We can cover about 80 percent of the skating market since we produce products geared towards each segment.

The speed and fitness skaters are an average age of 34 years old with a salary of about $54,000 a year and an average of two years of college. This is our SkateSail market. We are in the process of designing more advanced safety equipment that is well-suited for skate sailing, in the future.

Our BladeBoots™ and SkateAids are items that can be useful to all segments of the market.

Positioning Statements

We design our products for the skaters who depend on their skating products to be well-designed and practical. We want to help lengthen and improve the life of our customers' investment—their skates.

The present skate companies concentrate on new skate sales with no support for products already sold, and that is our forte.

Pricing Strategy

Pegasus Sports' products are priced to encourage the customer to impulse buy, experiment, and repeat buy.

SkateSails are priced from $350 to $500. Lower-priced items are BladeBoots™ at $24.95 and SkateAids for $45.00.

Promotion Strategy

Our long-range goal is to gain enough visibility to expand the product line into other industries and other regions, and to generate inquiries from potential inventors. To do that we need $50,000, or a line of credit.

We also plan on promoting our goods at various skating races held throughout the country.

Distribution Strategy

We plan to enter the now extensive specialty skate shop market with SkateAid. We feel this is the competitive edge skate shops need to compete with the large chain discount distributors. The additional products, such as BladeBoots™ and SkateSails, should also help stimulate skate shop sales.

Sales Strategy

For now, our products are sold through our web site (http://www.pegasussportsint.com). This earns us full retail price.

In nine months, we will gear sales towards the skate shops with SkateAids. Through retail skate shops, we will increase our sales.

Visibility will be very important, and we will gain exposure at skate racing events. We will target our advertising through the major in-line skate magazines and on the Internet.

Sales Forecast

We feel that our sales forecasting is conservative. We will steadily increase sales as our advertising budget allows. Please refer to the Sales Forecast chart in the Appendix portion of this plan.

Sales Forecast

Unit Sales FY2000 FY2001 FY2002
BladeBoots 1,140 2,200 3,400
SkateSails 1,072 2,100 3,200
SkateAid 1,560 7,000 11,000
Total Unit Sales 3,772 11,300 17,600
Unit Prices
BladeBoots $24.95 $24.95 $24.95
SkateSails $350.00 $350.00 $350.00
SkateAid $45.00 $45.00 $45.00
Sales
BladeBoots $28,443 $54,890 $84,830
SkateSails $375,200 $735,000 $1,120,000
SkateAid $70,200 $315,000 $495,000
Total Sales $473,843 $1,104,890 $1,699,830
Direct Unit Costs
BladeBoots $10.00 $10.00 $10.00
SkateSails $100.00 $100.00 $100.00
SkateAid $7.00 $7.00 $7.00
Direct Cost of Sales
BladeBoots $11,400 $22,000 $34,000
SkateSails $107,200 $210,000 $320,000
SkateAid $10,920 $49,000 $77,000
Subtotal Direct Cost of Sales $129,520 $281,000 $431,000

Sales Programs

Our sales program consists of Internet advertising and skating magazine ads in order to target our market. On the Internet, banner advertising utilizing link exchange services and high search engine placement will be our primary method of selling.

We presently accept credit card orders through our website. We plan to capture the impulse buyer market, which makes up 80 percent of all Internet sales.

Strategic Alliances

Cooperation between Pegasus Sports International and the local skate shops in both Venice and Santa Monica, California, is very good. We hope that our growth will be mutual, since some of our products are designed for the skate shops.

Since Terry's Café in Santa Monica is situated in a parking lot, where skate sailing can be taught and SkateSails can be sold, this can be our home site where we also can arrange the skate sailing excursions.

Milestones

Sal M. Chavez will concentrate on sales and promotion, teaching skate sailing lessons in addition to overseeing product development.

Sandi M. Arnold will be in charge of production by making sure we have ordered the products needed to maintain a smooth production. Sandi will see to it that our orders will be filled and shipped to their destination.

Beth A. Laird will be in charge of the administrative functions. Her duties will be to run the office. Beth is also our webmaster and will maintain and update our website.

We will work as a team and help each other with all the work required for a smooth running company. Together, we will do whatever it takes to succeed.

Milestones

Milestone Start Date End Date Budget Manager Department
Sal Chavez 10/10/1998 10/10/1998 $20,000 CEO Sales/Research
Sandi Arnold 1/1/1998 1/1/1998 $15,600 Vice Pres. Production
Beth Laird 1/1/1998 1/1/1998 0 Admin. Administrative
Other
Totals $35,600

MANAGEMENT SUMMARY

Our group has very diverse talents that seem to complement each other well. Our common bond is our love for skating and fitness. We will create small businesses by teaching independent producers how to make our products. We have developed partnerships so we can control production quality and maintain exclusivity of all products produced.

Organizational Structure

Pegasus Sports International is organized in three main functional areas: production, sales, and administrative. We all have our assigned jobs but can and will help each other in other areas whenever necessary.

Sal and Sandi will continue to cooperate on product development. Sal Chavez and Sandi Arnold, as owners, are willing to accept the wages of $20,000-Sandi and $15,000-Sal, for the first year in order to help Pegasus Sports International to grow past the break-even point, with the expectations of a steady growth in salary as Pegasus Sports International becomes more successful.

Management Team

Sal M. Chavez, CEO, has over 23 years of skating experience and is the main force behind our company having earned the respect and good standing of the skating community. He has not driven an automobile in five years, instead skating for all his transportation needs. Because of skating instead of driving, he has not only regained his health, but is now in the best health condition ever thanks to skating. He has worked as a designer of skate products in the past for companies such as ZFlex, Dog Town, and Cheap Skates. This has given him some insight into product development. For the last three years, he worked selling skates at local skate shops and has developed a feel for skaters' needs and market trends. In college, he majored in chemistry and physics, which has helped tremendously in identifying and developing products that are applicable to our needs.

Sandi M. Arnold, vice president, loves skating for fitness and speed, which is a real asset for the company. Her ability in the inventing process is invaluable. Sandi's ability to input ideas when developing products and production procedures makes her a perfect partner in our endeavors.

Beth Laird, our administrator and webmaster, has been skating for many years. Beth has been doing our administration work and has been helping to make Pegasus Sports International a reality. Her computer and organizational skills are an imperative part of our development.

Management Team Gaps

To maintain a lower start-up budget, Sal and Sandi will be the only salaried employees until at least nine months into our operation. We wish to bring Beth into a salaried position as soon as possible. Beth will receive a 10 percent commission on website orders until the company can afford to hire her full-time. Beth will receive 10 percent of Pegasus Sports International ownership.

Personnel Plan

The personnel plan calls for increasing headcount by one more employee by April 2000 since an increase in forecasted sales necessitate more administrative help.

Our aim is to increase salary and compensation in line with a projected increase in sales and profits. Our overall personnel costs will be $35,000 for the first 12 months, which includes principals only. The present personnel cost figure is subject to change as business demands it.

Personnel Plan

Personnel FY2000 FY2001 FY2002
Payroll $26,244 $75,600 $100,000

FINANCIAL PLAN

Our goal is to borrow $50,000 for 10 years. Our present plan is to utilize the borrowed money for the first year's operating capital, with cash input on a monthly basis. Such cash input will aid our operating costs and salaries. We should reach our break-even point after our first year. Upon receiving our loan, we would like to incorporate, as this will protect our company, investors, lenders, products, and stockholders. We expect sales to reach $473,843 after the first year, $1,104,890 after our second year, and $1,699,830 after the third year.

If sales don't measure up to our expectations, this could add an additional six months and an influx of another $20,000, which could be carried by credit card, but we don't expect this to happen.

These are our strong points:

  • We want to finance growth mainly through cash flow. We recognize that this means we will will have to grow at a slower pace than we would like, but this will enable us to build sales through investing in more advertising.
  • Our most important asset is inventory turnover. Our ability to schedule production from month to month will help to control inventory costs.
  • Collection is not a problem, since we will be credited payment to our bank account in two days by American Merchant Center for all our credit card sales over the Internet.

Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following General Assumptions table. The key underlying assumptions are:

  • A slow-growth economy, without major recession.
  • No unforeseen changes in technology to make our products immediately obsolete.
  • Access to equity capital and financing sufficient to maintain our financial plan as presented in this table.
General Assumptions FY2001 FY2002 FY2003
Short-term Interest Rate % 12.00% 12.00% 0.00%
Long-term Interest Rate % 10.50% 10.50% 10.00%
Payment Days Estimator 30 30 30
Collection Days Estimator 2 2 2
Inventory Turnover Estimator 12 12 12
Tax Rate % 25.00% 25.00% 25.00%
Expenses in Cash % 10.00% 10.00% 10.00%
Sales on Credit % 2.50% 10.00% 10.00%
Personnel Burden % 10.00% 10.00% 10.00%

Key Financial Indicators

  • The most important indicator is inventory turnover. We have to make sure that turnover stays above 10, or we are clogged with inventory.
  • Collection is not a problem, since payment to our bank is two days after receiving our orders via credit card. However, by October 1999, we will initiate skate shop sales and experience an approximately 30-45 day average payment delay. This could cause a change in cash flow, but can be easily managed.

Break-even Analysis

The following is a simplified breakdown of our first year's break-even analysis:

First Year's Projected Sales: $473,843
Less 25% Tax: -11,846
$461,997
Less Production Costs: -129,520
$332,477
Less Operating Costs: -71,450
Profit: $261,027
Plus Loan: $50,000
Cash at end of the first year: $311,027
Production Costs for Year 2001: -281,065
Projected Profit First Year: $29,962

For more detail, see the Projected Profit and Loss table in the Appendix.

Break-even Analysis:
Monthly Units Break-even 11
Monthly Sales Break-even $3,889
Assumptions:
Average Per-Unit Revenue $350
Average Per-Unit Variable Cost $80
Estimated Monthly Fixed Cost $3,000

Projected Profit and Loss

Our goal is to borrow $50,000 for the total of ten years. Our present plan is to utilize the borrowed money for the first year's operating expenses, with cash input on a monthly basis. Such cash input will aid in our advertising, operating costs, and salaries. This loan should help us maintain production and operating costs while developing our customer base and sales. Should sales lag, we plan to maintain solvency with credit card financing. We should reach our break-even point after our first year. We expect sales to hit $473,843 the first year, $1,104,870 our second year, and $1,699,830 the third year. Our sales projection is very conservative, considering the sales potential.

Profit and Loss (Income Statement)

FY2000 FY2001 FY2002
Sales $473,843 $1,104,890 $1,699,830
Direct Cost of Sales $129,520 $281,000 $431,000
Production Payroll $0 $0 $0
$0
Total Cost of Sales $129,520 $281,000 $431,000
Gross Margin $344,323 $823,890 $1,268,830
Gross Margin % 72.67% 74.57% 74.64%
FY2000 FY2001 FY2002
Advertising/Promotion (including website) $12,000 $25,000 $35,000
Travel $1,800 $7,000 $10,000
Miscellaneous $1,250 $1,300 $1,500
Payroll Expenses $0 $0 $0
Payroll Burden $0 $0 $0
Depreciation $0 $0 $0
Leased Equipment $1,800 $5,000 $10,000
Utilities $600 $1,500 $2,000
Insurance $6,000 $12,000 $12,000
Rent $10,800 $12,000 $15,000
Contract/Consultants $3,600 $3,000 $3,000
Total Operating Expenses $37,850 $66,800 $88,500
Profit Before Interest and Taxes $280,229 $757,090 $1,180,330
Interest Expense Short-term $1,059 $2,713 $0
Interest Expense Long-term $0 $1,811 $5,175
Taxes Incurred $76,353 $188,141 $293,789
Extraordinary Items $0 $0 $0
Net Profit $209,377 $564,424 $881,366
Net Profit/Sales 48.34% 51.08% 51.85%

Projected Cash Flow

  • We want to finance our first year's growth through a loan.
  • The most important indicator is inventory turnover. Our ability to schedule production from month to month will help control inventory costs.
  • Collection is not a problem since we will be credited payment to our bank account in two days by American Merchants Center, our credit card company for Internet sales.
  • Selling our products over the Internet will allow us full retail price and maximize our profit.
Projected Cash Flow FY2000 FY2001 FY2002
Net Profit $229,060 $564,424 $881,366
Plus:
Depreciation $0 $0 $0
Change in Accounts Payable $44,311 $54,587 $48,644
Current Borrowing (repayment) $7,992 $20,235 $20,235
Increase (decrease) Other Liabilities $0 $0 $0
Long-term Borrowing (repayment) $0 $34,500 $34,500
Capital Input $50,000 $39,000 $45,000
Subtotal $331,363 $712,746 $1,029,745
Less:
Change in Accounts Receivable $0 $0 $0
Change in Inventory $24,450 $52,050 $41,637
Change in Other Short-term Assets $2,000 $0 $0
Capital Expenditure $0 $0 $0
Dividends $0 $0 $0
Subtotal $26,450 $52,050 $41,637
Net Cash Flow $304,913 $660,696 $988,108
Cash Balance $314,913 $975,609 $1,963,717

Projected Balance Sheet

As shown on the balance sheet in the following table, we expect a healthy growth in net worth to more than $1,664,260 by the end of the third year.

Projected Balance Sheet

Assets
Short-term Assets FY2000 FY2001 FY2002
Cash $314,913 $975,609 $1,963,717
Accounts Receivable $0 $0 $0
Inventory $25,950 $78,000 $119,637
Other Short-term Assets $2,000 $2,000 $2,000
Total Short-term Assets $342,863 $1,055,609 $2,085,354
Long-term Assets
Capital Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $342,863 $1,055,609 $2,085,354
Liabilities and Capital
Accounts Payable $44,511 $99,098 $147,742
Short-term Notes $12,492 $32,727 $52,962
Other Short-term Liabilities $0 $0 $0
Subtotal Short-term Liabilities $57,003 $131,825 $200,704
Long-term Liabilities $0 $34,500 $69,000
Total Liabilities $57,003 $166,325 $269,704
Paid in Capital $66,004 $105,004 $150,004
Retained Earnings ($9,204) $219,856 $784,280
Earnings $229,060 $564,424 $881,366
Total Capital $285,860 $889,284 $1,815,651
Total Liabilities and Capital $342,863 $1,055,609 $2,085,354
Net Worth $285,860 $889,284 $1,815,651

Business Ratios

Standard business ratios are included in the table. The ratio shows a plan for balanced and healthy growth.

Ratio Analysis

Profitability Ratios: FY2000 FY2001 FY2002 RMA
Gross Margin 72.67% 74.57% 74.64% 0
Net Profit Margin 48.34% 51.08% 51.85% 0
Return on Assets 66.81% 53.47% 42.26% 0
Return on Equity 80.13% 63.47% 48.54% 0
Activity Ratios
AR Turnover 0.00 0.00 0.00 0
Collection Days 0 0 0 0
Inventory Turnover 9.44 5.41 4.36 0
Accts Payable Turnover 5.48 5.48 5.48 0
Total Asset Turnover 1.38 1.05 0.82 0
Debt Ratios
Debt to Net Worth 0.20 0.19 0.15 0
Short-term Liability to Liability 1.00 0.79 0.74 0
Liquidity Ratios
Current Ratio 6.01 8.01 10.39 0
Quick Ratio 5.56 7.42 9.79 0
Net Working Capital $285,860 $923,784 $1,884,651 0
Interest Coverage 289.27 167.34 228.08 0
Additional Ratios
Assets to Sales 0.72 0.96 1.23 0
Debt/Assets 17% 16% 13% 0
Current Debt/Total Assets 17% 12% 10% 0
Acid Test 5.56 7.42 9.79 0
Asset Turnover 1.38 1.05 0.82 0
Sales/Net Worth 1.66 1.24 0.94 0
Dividend Payout $0 $0 $0 $0

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APPENDIX

Projected Balance Sheet

Assets
Short-term Assets Starting Balances Oct Nov Dec Jan Feb
Cash $10,000 $23,038 $32,897 $49,104 $64,904 $85,210
Accounts Receivable $0 $0 $0 $0 $0 $0
Inventory $1,500 $600 $1,160 $3,095 $3,400 $8,225
Other Short-term Assets $0 $0 $0 $0 $0 $0
Total Short-term Assets $11,500 $23,638 $34,057 $52,199 $68,304 $93,435
Long-term Assets
Capital Assets $0 $0 $0 $0 $0 $0
Accumulated Depreciation $0 $0 $0 $0 $0 $0
Total Long-term Assets $0 $0 $0 $0 $0 $0
Total Assets $11,500 $23,638 $34,057 $52,199 $68,304 $93,435
Liabilities and Capital
Accounts Payable $200 $2,484 $5,621 $10,850 $11,399 $18,238
Short-term Notes $4,500 $5,166 $5,832 $6,498 $7,164 $7,830
Other Short-term Liabilities $0 $0 $0 $0 $0 $0
Subtotal Short-term Liabilities $4,700 $7,650 $11,453 $17,348 $18,563 $26,068
Long-term Liabilities $0 $0 $0 $0 $0 $0
Total Liabilities $4,700 $7,650 $11,453 $17,348 $18,563 $26,068
Paid in Capital $16,004 $26,004 $31,004 $36,004 $41,004 $45,004
Retained Earnings ($9,204) ($9,204) ($9,204) ($9,204) ($9,204) ($9,204)
Earnings $0 ($812) $804 $8,051 $17,941 $31,567
Total Capital $6,800 $15,988 $22,604 $34,851 $49,741 $67,367
Total Liabilities and Capital $11,500 $23,638 $34,057 $52,199 $68,304 $93,435
Net Worth $6,800 $15,988 $22,604 $34,851 $49,741 $67,367
Mar Apr May Jun Jul Aug Sep
$88,726 $106,800 $129,756 $153,864 $187,831 $226,340 $276,210
$0 $0 $0 $0 $0 $0 $0
$8,810 $9,555 $11,920 $12,475 $18,000 $20,710 $25,950
$0 $0 $0 $0 $0 $2,000 $2,000
$97,536 $116,355 $141,676 $166,339 $205,831 $249,050 $304,160
$0 $0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0 $0
$97,536 $116,355 $141,676 $166,339 $205,831 $249,050 $304,160
$15,373 $16,735 $21,716 $20,893 $33,151 $36,625 $44,511
$8,496 $9,162 $9,828 $10,494 $11,160 $11,826 $12,492
$0 $0 $0 $0 $0 $0 $0
$23,869 $25,897 $31,544 $31,387 $44,311 $48,451 $57,003
$0 $0 $0 $0 $0 $0 $0
$23,869 $25,897 $31,544 $31,387 $44,311 $48,451 $57,003
$48,004 $51,004 $54,004 $57,004 $60,004 $63,004 $66,004
($9,204) ($9,204) ($9,204) ($9,204) ($9,204) ($9,204) ($9,204)
$46,324 $63,011 $84,782 $107,480 $104,653 $180,019 $229,060
$85,124 $104,811 $129,582 $155,280 $191,453 $233,819 $285,860
$108,993 $130,708 $161,126 $186,667 $235,764 $282,270 $342,863
$85,124 $104,811 $129,582 $155,280 $191,453 $233,819 $285,860

Projected Cash Flow

Oct Nov Dec Jan Feb Mar
Net Profit ($812) $1,616 $7,247 $9,889 $13,626 $14,757
Plus:
Depreciation $0 $0 $0 $0 $0 $0
Change in Accounts Payable $2,284 $3,137 $5,229 $550 $6,839 ($2,866)
Current Borrowing (repayment) $666 $666 $666 $666 $666 $666
Increase (decrease) Other Liabilities $0 $0 $0 $0 $0 $0
Long-term Borrowing (repayment) $0 $0 $0 $0 $0 $0
Capital Input $10,000 $5,000 $5,000 $5,000 $4,000 $3,000
Subtotal $12,138 $10,419 $18,142 $16,105 $25,131 $15,558
Less:
Change in Accounts Receivable $0 $0 $0 $0 $0 $0
Change in Inventory ($900) $560 $1,935 $305 $4,825 $585
Change in Other Short-term Assets $0 $0 $0 $0 $0 $0
Capital Expenditures $0 $0 $0 $0 $0 $0
Dividends $0 $0 $0 $0 $0 $0
Subtotal ($900) $560 $1,935 $305 $4,825 $585
Net Cash Flow $13,038 $9,859 $16,207 $15,800 $20,306 $14,973
Cash Balance $23,038 $32,897 $49,104 $64,904 $85,210 $100,183
Apr May Jun Jul Aug Sep
$16,687 $21,771 $22,698 $33,173 $39,366 $49,041
$0 $0 $0 $0 $0 $0
$1,362 $4,981 ($823) $12,258 $3,474 $7,885
$666 $666 $666 $666 $666 $666
$0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0
$3,000 $3,000 $3,000 $3,000 $3,000 $3,000
$21,715 $30,418 $25,541 $49,097 $46,506 $60,593
$0 $0 $0 $0 $0 $0
$745 $2,365 $555 $5,525 $2,710 $5,240
$0 $0 $0 $0 $2,000 $0
$0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0
$745 $2,365 $555 $5,525 $4,710 $5,240
$20,970 $28,053 $24,986 $43,572 $41,796 $55,353
$121,153 $149,206 $174,192 $217,764 $259,560 $314,913

General Assumptions

Oct Nov Dec Jan Feb Mar
Short-term Interest Rate % 12.00% 12.00% 12.00% 12.00% 12.00% 12.00%
Long-term Interest Rate % 10.50% 10.50% 10.50% 10.50% 10.50% 10.50%
Payment Days Estimator 30 30 30 30 30 30
Collection Days Estimator 2 2 2 2 2 2
Inventory Turnover Estimator 12.00 12.00 12.00 12.00 12.00 12.00
Tax Rate % 25.00% 25.00% 25.00% 25.00% 25.00% 25.00%
Expenses in Cash % 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Sales on Credit % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Personnel Burden % 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%

Personnel Plan

Personnel Oct Nov Dec Jan Feb Mar
Payroll $0 $0 $0 $2,916 $2,916 $2,916
Apr May Jun Jul Aug Sep
12.00% 12.00% 12.00% 12.00% 12.00% 12.00%
10.50% 10.50% 10.50% 10.50% 10.50% 10.50%
30 30 30 30 30 30
2 2 2 2 2 2
12.00 12.00 12.00 12.00 12.00 12.00
25.00% 25.00% 25.00% 25.00% 25.00% 25.00%
10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
0.00% 0.00% 0.00% 10.00% 10.00% 10.00%
10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Apr May Jun Jul Aug Sep
$2,916 $2,916 $2,916 $2,916 $2,916 $2,916

Profit and Loss (Income Statement)

Oct Nov Dec Jan Feb Mar
Sales $2,924 $7,473 $17,698 $22,598 $29,622 $31,721
Direct Cost of Sales $805 $2,060 $4,820 $6,190 $8,225 $8,810
Production Payroll $0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0
Total Cost of Sales $805 $2,060 $4,820 $6,190 $8,225 $8,810
Gross Margin $2,119 $5,413 $12,878 $16,408 $21,397 $22,911
Gross Margin % 72.47% 72.44% 72.77% 72.61% 72.23% 72.23%
Advertising/Promotion (including website) $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
Travel $150 $150 $150 $150 $150 $150
Miscellaneous $100 $150 $100 $100 $100 $100
Payroll Expense $0 $0 $0 $0 $0 $0
Payroll Burden $0 $0 $0 $0 $0 $0
Depreciation $0 $0 $0 $0 $0 $0
Leased Equipment $150 $150 $150 $150 $150 $150
Utilities $50 $50 $50 $50 $50 $50
Insurance $500 $500 $500 $500 $500 $500
Rent $900 $900 $900 $900 $900 $900
Other Payroll $0 $0 $0 $0 $0 $0
Contract/Consultants CPA $300 $300 $300 $300 $300 $300
Total Operating Expenses $3,150 $3,200 $3,150 $3,150 $3,150 $3,150
Profit Before Interest and Taxes ($1,031) $2,213 $9,728 $13,258 $18,247 $19,761
Interest Expense Short-term $52 $58 $65 $72 $78 $85
Interest Expense Long-term $0 $0 $0 $0 $0 $0
Taxes Incurred ($271) $539 $2,416 $3,296 $4,542 $4,919
Extraordinary Items $0 $0 $0 $0 $0 $0
Net Profit ($812) $1,616 $7,247 $9,889 $13,626 $14,757
Net Profit/Sales -27.77% 21.63% 40.95% 43.76% 46.00% 46.52%
Apr May Jun Jul Aug Sep
$35,046 $44,196 $45,994 $65,492 $76,466 $94,613
$9,555 $11,920 $12,475 $18,000 $20,710 $25,950
$0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0
$9,555 $11,920 $12,475 $18,000 $20,710 $25,950
$25,491 $32,276 $33,519 $47,492 $55,756 $68,663
72.74% 73.03% 72.88% 72.52% 72.92% 72.57%
$1,000 $1,000 $1,000 $1,000 $1,000 $1,000
$150 $150 $150 $150 $150 $150
$100 $100 $100 $100 $100 $100
$0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0
$150 $150 $150 $150 $150 $150
$50 $50 $50 $50 $50 $50
$500 $500 $500 $500 $500 $500
$900 $900 $900 $900 $900 $900
$0 $0 $0 $0 $0 $0
$300 $300 $300 $300 $300 $300
$3,150 $3,150 $3,150 $3,150 $3,150 $3,150
$22,341 $29,126 $30,369 $44,342 $52,606 $65,513
$92 $98 $105 $112 $118 $125
$0 $0 $0 $0 $0 $0
$5,562 $7,257 $7,566 $11,058 $13,122 $16,347
$0 $0 $0 $0 $0 $0
$16,687 $21,771 $22,698 $33,173 $39,366 $49,041
47.61% 49.26% 49.35% 50.65% 51.48% 51.83%

Sales Forecast

Unit Sales Oct Nov Dec Jan Feb Mar
BladeBoots 20 35 40 50 70 75
SkateSails 5 15 40 52 70 75
SkateAid 15 30 60 70 75 80
Total Unit Sales 40 80 140 172 215 230
Unit Prices
BladeBoots $24.95 $24.95 $24.95 $24.95 $24.95 $24.95
SkateSails $350.00 $350.00 $350.00 $350.00 $350.00 $350.00
SkateAid $45.00 $45.00 $45.00 $45.00 $45.00 $45.00
Sales
BladeBoots $499 $873 $998 $1,248 $1,747 $1,871
SkateSails $1,750 $5,250 $14,000 $18,200 $24,500 $26,250
SkateAid $675 $1,350 $2,700 $3,150 $3,375 $3,600
Total Sales $2,924 $7,473 $17,698 $22,598 $29,622 $31,721
Direct Unit Costs
BladeBoots $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
SkateSails $100.00 $100.00 $100.00 $100.00 $100.00 $100.00
SkateAid $7.00 $7.00 $7.00 $7.00 $7.00 $7.00
Direct Cost of Sales
BladeBoots $200 $350 $400 $500 $700 $750
SkateSails $500 $1,500 $4,000 $5,200 $7,000 $7,500
SkateAid $105 $210 $420 $490 $525 $560
Subtotal Direct Cost of Sales $805 $2,060 $4,820 $6,190 $8,225 $8,810
Apr May Jun Jul Aug Sep
75 80 125 160 175 235
80 100 100 150 170 215
115 160 175 200 280 300
270 340 400 510 625 750
$24.95 $24.95 $24.95 $24.95 $24.95 $24.95
$350.00 $350.00 $350.00 $350.00 $350.00 $350.00
$45.00 $45.00 $45.00 $45.00 $45.00 $45.00
$1,871 $1,996 $3,119 $3,992 $4,366 $5,863
$28,000 $35,000 $35,000 $52,500 $59,500 $75,250
$5,175 $7,200 $7,875 $9,000 $12,600 $13,500
$35,046 $44,196 $45,994 $65,492 $76,466 $94,613
$10.00 $10.00 $10.00 $10.00 $10.00 $10.00
$100.00 $100.00 $100.00 $100.00 $100.00 $100.00
$7.00 $7.00 $7.00 $7.00 $7.00 $7.00
$750 $800 $1,250 $1,600 $1,750 $2,350
$8,000 $10,000 $10,000 $15,000 $17,000 $21,500
$805 $1,120 $1,225 $1,400 $1,960 $2,100
$9,555 $11,920 $12,475 $18,000 $20,710 $25,950
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