1. business and industrial

PolyU Innovation & Entrepreneurship
Student Challenge –
A Global Competition
Business Plan Writing Guide Module
University Students Version
Copyright © Di & Cooke Company Limited
Disclaimer:
This content is provided and written by Di & Cooke Company Limited. We are
pleased to provide permission to the Hong Kong Polytechnic University for the
use of this material on both of its intranet and internet to support the learning
and development of all the challengers who have entered the 2009 PolyU
Innovation and Entrepreneurship Student Challenge
1
Chapter 1 Introduction – What is a Business Plan?
The fundamental role of a business plan is to generate a framework that
evaluates all aspects of the economic feasibility of the business project including
an explanation and analysis of the business prospects.
Functions of a Business Plan:
¾
¾
¾
¾
It can determine and focus your business objective.
It can be used as a selling tool to acquire finance.
It can reveal omissions and weaknesses in the planning process.
It can be used to solicit opinions and advices from experts about your
business.
In order to write a successful business plan, the following steps are important to
notice before you start:
¾
¾
¾
¾
¾
Write out the primitive business concept.
Collect all the necessary information on the feasibility and the specifics of
your business concept.
Focus and perfect your concept based on the data you have collected.
Draft the particulars of your business.
Put your plan into a convincing form.
The course starting from the next chapter will help you create a business plan,
which is divided into seven key elements through chapter two to chapter eight,
including descriptions, guidelines for creation and tips for avoiding common
mistakes, together with a business plan sample and financial statements formats
in the appendices.
2
Chapter 2 Introductory Elements
The very first part of your business plan includes the introductory elements,
which is the cover page, executive summary, and table of contents. It creates the
first impression of the whole investment project to your readers. In such case, the
introductory elements, especially the executive summary, decide whether your
readers will read the rest of your plan or not. Furthermore, the table of contents
indicates how well you have organized the entire plan. Therefore, all of your
introductory elements must be of good quality both in appearance and substance.
A) Cover Page
The cover page should be a simple page that contains the project name and
the presenting team’s name. Also include the words “Business Plan” as the
heading of the page.
B)
Executive Summary
The executive summary is an introduction to your project. It is the part
within the business plan that most readers will go through first. Investors
will read the executive summary first to get a snapshot of your project and
to evaluate your professionalism and the feasibility of your business.
As the executive summary is the most important part in your business plan,
prepare it when you have finished the whole plan. When you write on other
sections of your plan, extract few sentences for insertion in your executive
summary. This work will remind you to include the essence of these
sections. The executive summary should be kept in brief, to the point and
interesting, and should consist of the followings:
¾
¾
¾
¾
¾
¾
A description of your company, including your products or services
Your mission statement
Your business’s management team
The market and your prospect customers
Marketing and sales strategy
Financial projections
The executive summary will end with a summary statement, usually a
3
persuasive sentence, which are designed to convince the readers that your
business is a winner.
It is extremely important to know that the executive summary is the first
thing all readers will examine. If your executive summary is written badly,
then it will be the last thing that people will read and ignore the rest of your
whole plan.
C) Table of Contents
The purpose of the table of contents is to provide readers a quick and easy
way to find particular sections of the plan. All pages of your business plan
should be numbered and the table of contents should include page numbers.
After you have assembled your plan and numbered your pages, go back to
the table of contents and insert the page numbers. Make sure you have
created headings for all major sections and subsections.
4
Chapter 3 Business Description
Your business plan must be able to project a clear picture of what your business
is about. The business description is your corporate vision that includes: what
industry you are in, what products or services you can offer, what is your
position within the market, and at what price range are you going to sell your
products or services.
A) Industry Overview
This section is a brief overview of the industry you will be setting up your
business in. To impress readers, you will need to demonstrate that you are in
a hot industry with a good prospect.
The following points will help you gather information on describing the
industry circumstances:
¾
¾
¾
¾
¾
¾
What is the size of your industry?
Who are the leaders in this industry?
What are the markets for this industry?
What economic trends will affect this industry?
What is the long-term view for this industry?
What are the barriers to entry in this industry?
In order to gain more statistics and information regarding different
industrial sectors, you can visit the government trade department website in
your own country. You can collect more information about industries and
trade demographics from your government statistics department, local
chamber of commerce or economic development center, etc. Try to collect
as up-to-date research information as possible.
The following are some skills for writing on this section:
¾
¾
Don’t just base your business plan on assumptions. Backing up with
solid research work and realistic demographics will make your plan
seem more reliable. Quote for all the sources of these data.
Collect industry and seasonal trends from business newspapers and
magazines.
5
¾
B)
Listing out possible risks your company or your industry may
encounter demonstrates pragmatic research work. Make sure to include
how your company’s policy or marketing strategy can overcome such
risks.
Company Summary
The purpose of this section is to give the readers a clear point of view about
your company. Start with a mission statement on who your product or
service is targeted to. Then elaborate more on the technical aspects of your
company. Maintain your writing in a story telling form to keep it interesting.
Good points for discussion are:
¾
¾
¾
¾
¾
What kind of role is the company playing? Wholesaler? Retailer?
Manufacturer? Service Provider?
What is the legal structure for the business? Sole proprietorship?
Corporation? Partnership?
Who are the company’s principal owners and what pertinent
experience do they bring?
What market needs will you meet? Who will you sell to? How will
your products or services be sold?
What kind of supportive systems will be utilized? Customer service?
Advertising? Promotion?
Overall, this section of your business plan should give the readers a better
understanding of what your company is about. Again, keep it concise and
avoid irrelevant personal information.
C) Products or Services
In this section, provide in details of each of your products or services.
Describe who are the end users. Highlight the specific features or functions
of your products.
Here, you have to emphasize your USP, “Unique Selling Point”. This is
what most bankers and investors would like to explore. Without a Unique
Selling Point, your products or services will not be interesting at all and you
will not be able to convince people to consume them.
6
Examples of USP for several different products:
¾
¾
¾
¾
¾
¾
Head & Shoulders: “You get rid of dandruff”
Olay: “You get younger-looking skin”
Red Bull: “Gives you wings”
Domino's Pizza: “You get fresh, hot pizza delivered to your door in 30
minutes or less - or it's free.”
FedEx: “When your package absolutely, positively has to get there
overnight”
M&M’s: “The milk chocolate only melts in your mouth, not in your
hand”
Also, you may mention a comparison of the products or services your
competitors are offering in relation to yours, and how your products can
prevail in this market. Think of a number of reasons for this – it is a new
technology to the market, the location is excellent, the market is ready for
your product, the product has a competitive production cost such that it can
be sold at a lower price, etc.
D) Positioning
Your position is your standing point in the marketplace. It is about where
your products and those of your competitors will set in the market. As you
cannot sell your products to all customers within the market, your
positioning is based on how much you will charge and which group of
customers you are targeting. The following factors can help you find your
position in the market:
¾
¾
¾
¾
What uniqueness does your product or service have?
What customer demand does your product satisfy?
How do you want people to view your products or services? Hi-tech
and expensive products with better design or cheaper products with
fewer functions?
How do your competitors position themselves within the market?
After analyzing the above factors yon can now clearly know where you can
position yourself, and show the readers a clear picture of which part of the
7
market your products will be sold.
E)
Pricing Strategy
Your pricing strategy demonstrates how you will make a profit while
allowing the price to remain competitive. When calculating the price,
identify fixed costs and variable costs. Determine a breakeven point, that is,
how many products do you have to sell in order to cover your fixed costs.
These can be derived from the financial section later in the plan. You may
have to consider constructing your financial section before completing this
topic.
You may also discuss whether your price will be lower or higher than your
competitors and why you can maintain your market share in the presence of
competition so that your can make profits. For example, a souvenir shop
sets higher prices since it considers its products to be luxury items. A café in
an expensive location may charge slightly more than other restaurants to
cope with higher spending customers.
However, investors are trained to reject business plans in which the
products or services will be higher in quality and lower in price than those
of their competitors. This creates a bad impression since it is inherently
unrealistic. If you really have a higher quality product, it is more likely that
you will charge more to consumers with a higher demand.
8
Chapter 4 Market Analysis
This section is to provide facts to convince readers that your business has enough
customers in an industry, and can create sales in the face of competition. It is one
of the most important parts of the plan. Taking into account the current market
size and trends, you may have to perform extensive research on this. Many of the
financial requirements, such as manufacturing and marketing costs, and the
amount of capital that you need, will be based on the sales estimation you have
created here.
A) Customer Analysis
The description of your target customers defines the characteristics of the
people whom you want to sell your products to. In here you will describe
whether your customers are price elastic or quality conscious.
Before analyzing your customers, research work is necessary. Use the
following questions to start with your analysis:
¾
¾
¾
¾
¾
¾
¾
¾
How old are they?
What gender are they?
Where do they live?
What is their family structure? (Married? Number of kids?)
How much do they earn?
What do they do for a living?
What is their lifestyle like?
How do they like to spend their spare time?
When writing on this section, avoid describing customers in unclear general
terms, such as “all people who want to buy cars” or “anyone who needs a
mobile phone”. You may also need to include details of what geographic
region you plan to sell in. Is your market national, regional, international, or
local?
B)
Market Size and Trends
This section defines the total market size as well as the segment of the
market your business will target. You will have to use numbers as well as
9
trend information to make a case for a feasible current market as well as its
growth potential.
Follow these questions in order to determine the size of the market:
¾
¾
¾
¾
¾
What proportion of your target market has already consumed on a
similar product to yours before?
How much of your product or service might your target market buy?
(In terms of sales amount and/or in units of products sold.)
What proportion of your target market might be repeat customers?
How might your target market be affected by economic events (e.g.
during stock market crash)?
How might your target market be affected by government policies (e.g.
changes in tax rates)?
Once you have all this information, you can start writing on this section in
the form of several short paragraphs. Describe whether these events will
have a positive or negative impact on your specific business. If you have
several target markets for different products, you will have to divide them
into sub-sections. Remember to properly quote your sources of information
within the section.
C) Competition
Competition is a way of life. Presenting your business in the face of
competition proves that you understand your market. Advances in invention
technology can wipe out the profit margins of a successful business and
cause them to collapse overnight. Because of this unpredictability, it is
important to know your competitors well.
Questions like these can help you identify your competitors:
¾
¾
¾
¾
¾
¾
Who are your nearest direct competitors?
Who are your indirect competitors (e.g. substitute products)?
How are their businesses? Steady? Increasing? Decreasing?
What are their strengths and weaknesses?
How do their products differ from yours?
Who is the price leader?
10
¾
¾
Who is the quality leader?
Who has the largest market share?
Furthermore, pay attention to your competitors’ sales and promotion
strategies. When did they reduce prices for sales? Using this technique can
help you understand your competitors better on how they operate their
businesses.
When writing on this section, begin with a short discussion of each of your
primary competitors. If possible, include their annual sales and their market
shares. Explain why you can capture a share of their business through their
weaknesses. Is it price? Value? Service? Convenience? Reputation?
Even if your product or service is truly innovative, you need to look at what
else your customers could buy instead (substitute products). Remember, the
first personal computer competed with calculators and typewriters; the first
calculator competed with abacuses.
Consider using a table to present your analysis, since it will allow your
competition to be evaluated at a glance. Columns should include the names
of your competitors and rows can include market share, annual sales (if
available), strengths, weaknesses, and comments, etc.
D) Sales Forecast
The sales forecast is based on the estimation of the size of your market and
your market share. This should include sales in units and dollars for the first
five years, with the first year broken down into months, and the second year
into quarters, if applicable. These numbers are so important to the financial
sections which you will present later in the plan.
For projecting a sales forecast, you may have to find out answers like:
¾
¾
¾
How many customers will consume the same kind of product as yours?
How much will the customer spend on these items annually?
What percentage of their spending will you get, comparing to
competitors?
11
Instead of forecasting the annual sales as a single figure, use the assumption
derived from above and generate three figures: pessimistic, optimistic, and
realistic. Then put the figures in by months, as depending on your business,
there could be huge variations by seasons. In fact, a good method to do
forecasting is to ascertain the average sale per customer from trade
associations.
Once you have made assumptions on the inflation rates and your annual
growth rates, you will be able to forecast the sales from the second year to
the fifth year by multiplying your first year sales with these factors. Besides
using tables or graphs to show your annual sales at a glance, write in short
paragraphs describing the market trends and seasonal trends on the three
circumstances mentioned above.
All this work can be time-consuming, but it has to be done in order to make your
business plan valid. Lastly, don’t forget to quote all your sources of information
within the body of this section. All readers of your plan will need to know the
sources of the statistics or opinions that you have gathered from others.
12
Chapter 5 Start-up Summary
This section will describe the start-up plan for your product’s development. It
gives details of how your product is being developed and what resources are
required to get it produced. You should include details of development costs,
location and labor requirements.
A) Start-up Process
Before launching your product into the market, your product has to be
developed and produced. Demonstrate with a schedule showing when this
work will be completed. Include time provisions for obtaining a patent or a
trademark where applicable.
In detail, also project a timeline you will need to set up factories and offices.
This may include renovations, purchasing necessary machinery and
furniture, and other important stages in this development cycle. Then
describe in small paragraphs to elaborate the whole development process.
B)
Start-up Cost
For every item described in (A) above, construct a simple budget table and
put in numbers for the amount of capital that will be required to incur for all
these expenditures. This budget may include rent (if factory and/or office
are hired), insurance, labor, materials, patents, and the cost of professionals
such as accountants and lawyers, etc. It should also include the cost of the
design of sample products as well as the expense to take it into production.
C) Operating Requirements
In respect of the day-to-day operations, you may have to explain about the
industry’s standards and regulations and describe which industry
organizations or associations you prepare to join, and what you should
perform to comply with the laws and regulations that apply to your industry.
Secondly, give details of your suppliers and their prices, terms, and
conditions. Describe if there are any alternative arrangements you have to
make if these suppliers fail to deliver. You may also explain the quality
13
control measures that you are going to establish on your suppliers’ material
and your own finished products.
The aim for writing this section of the business plan is to demonstrate your
understanding of the manufacturing and operating process of your business.
Therefore you should carefully plan every procedure of the operation on a
step-to-step basis so that you won’t omit any important part of it.
14
Chapter 6 Marketing Plan
This section of your business plan explains how you are going to get your
customers to buy your products and/or services. Strong marketing tactics can
show readers that you have effective ideas for promoting and selling your
products.
A) Marketing Strategy
The marketing strategy defines what customers you are targeting and how
you are going to approach them. This includes the method of educating
them about your product. Refer again to your “Unique Selling Point” and
explain that you will get your customers to notice about this.
Describe if any new sales technique will be introduced, such as online sales
ordering system through the Internet while your competitors are still using
traditional retail channels.
Remember, the essence of your marketing strategy is the message you want
your customers to receive about your products or services. The marketing
plan is all about communicating this central message to your customers. So
demonstrating to readers on how you can emphasize your selling point to
your customers is the aim for this section.
B)
Distribution Plan
In this section you will describe how you get the products to the end users,
that is, your method of distribution and sales.
Explain what kind of salespersons and how many of them you will employ.
Are they on commission basis? Are they product promoters? Are they
telemarketing personnel? Describe your expectations of the effectiveness
from these salespeople.
You may also need to elaborate on the management system of your sales
team such as whether a sales training program is needed, any incentives
they will be offered to encourage their achievements, as well as any
appraisal method going to be applied.
15
If you are outsourcing the sales function to an external force such as sales
agents or a sole distributor, describe the benefits of using these specific
firms and the expertise that they can bring into your operation.
C) Advertising and Promotion
This section describes how you’re going to deliver the message of your
“Unique Selling Point” to your target customers. This involves both
advertising and sales promotion plans.
For advertising, describe which media will be the most effective in reaching
your target market and how much you have prepared for your annual
advertising budget on each medium such as the Internet, television, radio,
newspapers, magazines, subway banners, direct mails, etc. Besides, you can
also put down your sales projections about how much business the
advertising will bring in.
As for sales promotion, you may want to incorporate marketing materials
into your plan, such as free samples, coupons, displays, brochures and
pamphlets, etc. Any publicity activities like press releases, product launches
and trade shows can also be introduced in this area.
16
Chapter 7 The Management Plan
The Management Plan describes your management team and staff and how your
business is structured. Readers will be looking to see not only who’s on your
management team but also how their skills will contribute to the success of the
business.
A) Ownership Structure
This section describes the legal structure of your business. You have to
explain whether your business is a sole proprietorship, a partnership or a
limited liability company. For partnership and limited liability company,
you have to identify who will hold what percentage of ownership within the
structure.
B)
Internal Management Team
The Internal Management Team section will describe the key positions
required to manage the core business within the organization, identify who
will have responsibility for these positions, and outline their expertise.
These people may include the board of directors, the chief executive officer,
the chief financial officer, and controllers for different departments.
Most businesses have various departments to perform different functions
such as sales, marketing, administration, production and accounting, etc.
Some companies may need additional departments such as research and
development as well as human resources. In fact, some key management
people, especially directors, may fill up more than one of these roles as
department heads. In this section therefore, you will have to identify these
key people and explain which role each of them will fill. Sometimes you
may wish to present this by using an organizational chart. You can also
attach complete resumes for each member of the management team as
appendices to your business plan.
Furthermore, You can talk about how your management team will be
remunerated. What salaries and benefits will they receive? Are they entitled
to any profit sharing or any other emoluments? Indicate if there is any work
contract the business may offer to any of these key members.
17
C) External Management Team
Apart from your internal management team, your business may use external
management resources. These resources somehow act as your internal
management team’s backup. Usually there are two main types of external
resources you will procure, which are Professional Services and an
Advisory Board.
The Professional Services represent external expertise that most businesses
will use such as accountants, bankers, lawyers, IT consultants, business
consultants, management trainers, etc.
An Advisory Board is like a mastermind to the management. The members
of this board will provide your organization counsel to run the business
effectively. They may be some senior or retired executives or entrepreneurs
who have run this type of business for years and are only serving your
company in part-time or ad-hoc basis. Their function is simply to provide
expertise that your internal management team lacks. List out their names,
titles and experience, and explain how each advisor will contribute to assist
you to run a profitable business.
18
Chapter 8 Financial Plan
This is the last part of your business plan. The financial plan is the section that
determines whether or not your business is feasible, and is an important element
in deciding whether you will attract any investment to your business idea.
Ultimately, the financial plan will comprise three financial statements: the cash
flow statement, the profit and loss statement and the balance sheet. You will also
indicate in this section that you have evaluated the risks associated with your
business and the funding capital that you require.
Before constructing the three financial statements, mention about the risks that
your organization will encounter during the course of your business as an
opening scene.
A) Risks
All businesses contain their own risks. The approach to determine risks in
your plan indicates that you have carried out extensive and reliable market
research and this will make your plan look more realistic and appealing to
the readers.
Things listed below are possible risks that a business would face typically:
¾
¾
¾
¾
¾
¾
¾
A large cut or promotion by a competitor
An important customer drifted away
The economy goes downhill
Your suppliers increase their prices
Your suppliers fail to deliver on time
A better product launched by your competitor
Scarcity of qualified labor
Put in all assumptions about the risks that you may face during the course of
business. List out the actions that you are prepared to take in order to handle
these risks. This will increase your credibility in front of the readers since
you have demonstrated that you are alert to these issues and be able to
overcome them.
19
B)
Profit and Loss Statement
The Profit and Loss Statement is the very first statement you have to create
out of the three financial statements in the Financial Plan section. This
statement records revenues, expenses and cost of goods sold. The bottom
line is how much profit or loss your business will make at the end of the
accounting period.
First, input your revenue from which you have generated in the Sales
Forecast section earlier in the business plan. If you are in a manufacturing
business, the revenue will be called sales, and cost of goods sold will need
to be accounted for. Next, you will need to gather the financial data on all
expenses, including your start-up cost and your operating expenses. The
difference between revenues and expenses is therefore you gross profit
before taxation. Net profit will be the bottom line after subtracting taxation
and/or dividends distributed to equity owners.
Appendix 1 is a worksheet of a standard Profit and Loss Statement
structure.
C) Cash Flow Statement
A cash flow statement illustrates how much money will come into the
business and how much money will be flowing out during the financial
period. In another sense, it shows readers how much money you will need
and when you will need it from time to time during the course of business.
Generally, only cash items will be accounted for in the correct accounting
period. For example, Sales made last month in credit (account receivables)
may be collected this month and the statement will only record an inflow
for such when it is received.
The cash flow projection is an important tool for cash flow management,
letting you know when you might want to arrange short-term finance as
well as to seek for long-term capital injections.
There are three elements included in the cash flow statement: the cash
revenues, the cash disbursements, and the reconciliation of cash revenues to
20
cash disbursements. The reconciled balance will be exactly equal to the cash
balance recorded in the balance sheet at the end of the financial period.
See Appendix 2 for a worksheet of the Cash Flow Statement Outline.
D) Balance Sheet
The balance sheet is created only once a year to determine the net worth of
a business. It is the last part of the three statements in the Financial Plan
section. The balance sheet represents the business’s financial status at a
particular point of time. It is divided into three main categories: the assets,
the liabilities, and owner’s equity. Assets are tangible and intangible objects
that are in the ownership of the company. Liabilities are debts owed to
creditors and suppliers. Owner’s equity is the net difference when the total
liabilities are subtracted from the total assets.
Once you have your balance sheet completed, you can write a brief analysis
for each of the three financial statements. Keep them concise and cover the
highlights. The financial statements themselves can be either displayed in
this section or as appendices to the business plan.
Appendix 3 is a worksheet of a Balance Sheet outline.
E)
Funding Request and Return
This comes to the last part of the business plan. In this section you will
clearly state the amount of funding whether in debt or equity for the
investment you will need. Indicate when the money is needed in different
phases, and tell the investors what they will receive in return for their
capital.
Lastly, suggest an attractive exit strategy that you will apply, that is, how
investors will get their money back. Often, it can be accomplished either by
a cash-out option in five years or an IPO (Initial Public Offer) plan when the
business has achieved its target profit over the foreseeable period.
As you can see, writing a business planning is not easy at all. However, by following
these critical steps provided from all of the chapters above, you will ensure your
21
business has a fine chance at seeking funds from investors and success in the future.
22
Appendix 1: Profit and Loss Statement
Insert your company's figures into this template to prepare an income statement for your business.
January
February
March
April
May
June
July
August
September
October
REVENUE
REVENUE: Product Sales
Product 1
Product 2
Product 3
TOTAL REVENUE: Product Sales
REVENUE: Miscellaneous
Bank Interest
TOTAL REVENUE: MISCELLANEOUS
TOTAL REVENUE
COST OF SALES
DIRECT COSTS
Direct Material
Direct Labor
Factory Overhead
TOTAL DIRECT COSTS
GENERAL AND ADMINISTRATION
Accounting and Legal Fees
Advertising and Promotion
Bad Debts
Bank Charges
Depreciation and Amortization
Insurance
Interest
Office Rent
Salaries (Owner or Directors)
Salaries (Staff)
Telephone
Utilities
TOTAL GENERAL AND ADMINISTRATION
TOTAL EXPENSES
GROSS PROFIT BEFORE TAX
PROFITS TAX
NET PROFIT
Page 1
November December
Year Two
1ST QTR
2ND QTR 3RD QTR
4TH QTR
Year Three Year Four
Year Five
Appendix 2: Cash Flow Statement
Insert your company's figures into this template to prepare a cash flow statement for your business plan.
January
February
March
April
May
June
July
August
September
October
CASH REVENUES
Revenue from Product Sales
Revenue from Service Sales
TOTAL CASH REVENUES
CASH DISBURSEMENTS
Cash Payments to Trade Suppliers
Management Draws
Salaries and Wages
Promotion Expense Paid
Professional Fees Paid
Rent/Mortgage Payments
Insurance Paid
Telecommunications Payments
Utilities Payments
TOTAL CASH DISBURSEMENTS
RECONCILIATION OF CASH FLOW
OPENING CASH BALANCE
ADD: TOTAL CASH REVENUES
DEDUCT: TOTAL CASH DISBURSEMENTS
CLOSING CASH BALANCE
Page 1
November December
Year Two
1ST QTR
2ND QTR 3RD QTR
4TH QTR
Year Three Year Four
Year Five
Appendix 3: Balance Sheet
Insert your company's financials here to create a balance sheet for your business plan.
Year One
Year Two
Year Three
Year Four
Year Five
Assets
Long-Term Assets
Capital/plant
Investment
Miscellaneous assets
Total long-term assets
Current Assets
Cash
Accounts receivable
Inventory
Total current assets
Total Assets
Liabilities
Current Liabilities
Accounts payable
Accrued expenses
Taxes payable
Total current liabilities
Long-Term liabilities
Bonds payable
Mortage payable
Notes payable
Total long-term liabilities
Total Liabilities
Owner's Equity
Share Capital (For Ltd Co)
Retained Earnings
Total Owner's Equity
Page 1
Appendix 4:
Sample Business Plan
CYBER CAFÉ BUSINESS PLAN
JEDI CAFÉ
1
TABLE OF CONTENT
1. Executive Summary
3
2. Company Summary
5
3. Services
7
4. Market Analysis
8
5. Marketing Strategy
11
6. Management Summary
13
7. Financial Plan
14
2
1.
Executive Summary
Jedi Café, a cyber café located in Happy Valley, Hong Kong Island, offers a perfect spot
for the public in social gathering and leisure. It provides customers free access to the
Internet as well as an area for to meet together in a casual environment under an
economical manner.
The business intends to obtain finance from external equity in the amount of USD61,540,
for which the application will be for commencing work on shop renovation, equipment
purchases, and as operating cash flow. Preliminary capital injection has already been
secured by the initial owners, Obewon Kinobi and Alex Skywalker, in the amounts of
USD24,360 and USD15,385 respectively.
Jedi Café will be incorporated as a limited liability company. The two initial owners will be
the shareholders and their personal liabilities will be subject to a ceiling at the amount of
their respective investments.
The finance acquired through this business proposal will allow Jedi Café to successfully
open and operate as a cyber café. A comfortable and innovative environment is provided
to the customers with a casual atmosphere. Operations in year one will generate Jedi
Café a regular customer base that will allow it to be self-maintained in year two.
1.1
Objectives
Jedi Café’s objectives for the first year of operation include:

The creation of an exclusive, stylish, innovative environment that will
distinguish Jedi Café from other coffee shops.

The creation of a comfortable and casual environment that will bring people
with different interests and backgrounds together for socialization.
1.2

High-quality coffee and bakeries at a reasonable price.

Free access to online services.
Mission
As Internet has become more popular and grown at an expeditious pace, easy
access has become a part of life. Jedi Café provides the public free access to the
Internet, high-quality food and beverages in a comfortable environment. People
from different backgrounds will come to enjoy the exclusive, stylish, and innovative
environment that Jedi Café offers.
1.3
Risks
The risks involved with Jedi Café’s business are:
3

Insufficient demand for the services provided by Jedi Café in Happy Valley.

The popularity of the Internet stops to grow.

The opening of new cafés in the same area which offers the exact services
that Jedi Café provides.
4
2.
Company Summary
Jedi Café, soon to be opened at Shing Wo Road in Happy Valley, Hong Kong Island, will
provide the public free access to the Internet and a special and innovative environment
for enjoying top quality coffee and bakeries.
Individuals of all ages and backgrounds will find Jedi Café appealing. The staffs of Jedi
Café provide not only top quality service but also helpful instructions to customers in
computer usage. This educational aspect will attract elderly customers and youngsters
who do not own computers at home. The easy access location also provides residents in
the same area convenience to their gourmet and online needs.
2.1
Company Ownership
Jedi Café will be privately owned by Obewon Kinobi, the founder and CEO, and
Alex Skywalker, a second shareholder.
2.2
Start-up Summary
Jedi Café’s start-up costs will cover renovation, furniture, computers, coffee
machines and cooking equipment, and running capital to cover expenses in the first
year.
The equipment provided to Jedi Café’s customers with high-speed connection to
the Internet forms a large portion of the start-up costs. These costs will include
computers, two laser printers and a scanner.
Besides, the start-up costs will comprise the coffee machines such as one espresso
machine, one automatic coffee grinder, and other additional equipment. The shop
will also require funds for renovation and modification. Breakdown of the start-up
costs is illustrated as follows:
Start-up Costs
USD
Legal Fee
642
Stationeries
642
Tableware
642
Consultants
2,565
Insurance
900
Rent
1,853
Coffee Machines
13,718
Bean Grinder
1,020
Computer Systems (x11), Software, Printer, Scanner
Internet Lines
31,167
1,077
5
Fixtures/Renovation
25,642
Total Start-up Costs
79,868
Start-up Assets
Running Cash
30,770
Start-up Inventory
2,565
Total Assets
33,335
Total Requirements
2.3
113,203
Company Location
A site has been chosen in Shing Wo Road in Happy Valley for the following
reasons:

Nearness to the close-by residents.

Proximity to stylish, upscale restaurants in the same area.

High visibility.
6
3.
Services
Jedi Café will provide free access to the Internet and computer services such as printing,
scanning to customers. It will also provide customers with a unique and innovative
environment for enjoying top quality coffee and bakeries.
3.1
Service Description
Jedi Café will provide its customers free access to the Internet and common
computer software and hardware. Some of the Internet and computing services
available to Jedi Café’s customers are listed below:

Internet browsers.

Laser color printing, copying and scanning.

Popular software applications.
Also, top quality food and beverages, and a comfortable environment will provide
Jedi Café’s customers with a second home, a place to enjoy the benefits of
computing in a comfortable environment.
3.2
Competitive Comparison
Jedi Café will be the first cyber café in Happy Valley. It will differentiate itself from
other ordinary coffee shops in the same area by providing its customers with free
Internet and computing services.
3.3
Technology
Jedi Café will invest in high-speed computers to provide its customers with a fast
and efficient connection to the Internet. The computers will be reliable and fun to
work with. Jedi Café will continue to upgrade and modify the systems to stay with
current technologies.
7
4.
Market Analysis
Jedi Café is facing the opportunity of being the pioneer in the Happy Valley cyber café
market. The consistent popularity of coffee, combined with the growing interest in the
Internet, has been proven to be a winning concept in other markets and will produce the
same results in Happy Valley.
4.1
Market Segmentation
Jedi Café’s customers can be divided into two groups. The first group is familiar
with the Internet and desires a progressive and inviting atmosphere where they can
get out of their offices or bedrooms and enjoy a great cup of coffee. The second
group is not familiar with the Internet, yet, and is just waiting for the right opportunity
to enter the online community. Jedi Café’s target market falls anywhere between
the ages of 15 and 70. This extremely wide range of ages is due to the fact that
both coffee and the Internet appeal to a variety of people. In addition to these two
broad categories, Jedi Café’s target market can be divided into more specific
market segments. The majority of these individuals are students and business
people. See the Market Analysis table below for more specifics.
Market Analysis
2009
2010
2011
2012
2013
Potential Customers Growth
University Students
4%
15,000
15,600
16,224
16,873
17,548
Office Workers
3%
25,000
25,750
26,523
27,319
28,139
Seniors
5%
18,500
19,425
20,396
21,416
22,487
Teenagers
2%
12,500
12,750
13,005
13,265
13,530
Others
0%
25,000
25,000
25,000
25,000
25,000
2.68%
96,000
98,525 101,148 103,873 106,704
Total
4.2
Target Market Segment Strategy
Jedi Café intends to cater to people who want a guided tour on their first spin
around the Internet and to experienced users eager to indulge their passion for
computers in a social setting. Furthermore, Jedi Café will be a magnet for local and
traveling professionals who desire to work or check their email messages in a
friendly atmosphere. These professionals will either use Jedi Café’s PCs, or plug
their notebooks into Internet connections.
4.2.1 Market Trends
A market survey was conducted recently with key questions asked to fifty
8
potential customers in Happy Valley. Some key findings include:

40 people said they enjoyed free access to the Internet.

44 subjects use the Internet to communicate with others on a daily basis.
4.2.2 Market Needs
Factors such as current trends, addiction, and historical sales data ensure that
the high demand for coffee and Internet access will remain constant over the
next five years. Being the first cyber café in Happy Valley, Jedi Café will enjoy
the pioneer advantages of name recognition and customer loyalty. Initially,
Jedi Café will hold a 100 percent share of the cyber café market in Happy
Valley. In the next five years, competitors will enter the market. Jedi Café has
set a goal to maintain greater than a 50 percent market share.
4.3
Service Business Analysis
The retail coffee industry in Happy Valley experienced rapid growth from the 1990’s
and is now moving into the mature stage of its life cycle. Many factors contribute to
the large demand for high-quality coffee in Happy Valley. The yuppies is a main
source of demand for coffee retailers. The climate in Happy Valley is extremely
favorable to coffee consumption. Current trends in this high-spending residential
area reflect the popularity of fresh and strong coffee. Happy Valley is a haven for
coffee lovers.
The popularity of the Internet is growing exponentially. Those who are familiar with
the Internet are well aware of how fun and addictive going online can be. Those
who have not yet experienced with the Internet need a convenient, relaxed
atmosphere where they can feel comfortable learning about and utilizing the current
technologies. Jedi Café seeks to provide its customers with affordable Internet
access in an innovative and supportive environment.
Due to intense competition, café owners must look for ways to differentiate their
place of business from others in order to achieve and maintain a competitive
advantage. The founder of Jedi Café realizes the need for differentiation and
strongly believes that combining a café with complete Internet service is the key to
success. The fact that no cyber cafés are established in Happy Valley, presents
Jedi Café with a great opportunities to enter into a profitable niche in the market.
4.3.1 Competition and Buying Patterns
The main competitors in the retail coffee segment within the same location are
StarBugs and Cathay Coffee. These businesses target a similar segment to
9
Jedi Café’s (i.e. educated, upwardly-mobile students and business people).
However, Jedi Café will offer substantial computing services to its customers
which these competitors are not providing at the moment.
4.3.2 Distributing a Service
The dual product/service nature of Jedi Café’s business faces competition on
two levels. Jedi Café competes not only with coffee shops, but also with
Internet service providers. The good news is that Jedi Café does not currently
face any direct competition from other cyber cafés in the Happy Valley market.
Heavy competition between coffee shops in Happy Valley creates an industry
where all firms face the same costs. There is a positive relationship between
price and quality of coffee. Some coffees retail at USD2.6/cup while other,
more exotic beans may sell for as high as USD3.8/cup. Wholesalers sell
beans to retailers at an average of a 50 percent discount. For example, a
pound of Sumatran beans wholesales for USD9 and retails for USD18. And as
in most industries, price decreases as volume increases.
10
5.
Marketing Strategy
Jedi Café will position itself as a stylish coffee house and Internet service provider. It will
serve high-quality coffee and specialty beverages at competitive prices. Due to the
number of cafés in Happy Valley, it is important that Jedi Café sets fair prices for its
products. Jedi Café will use advertising as its main source of promotion. Ads placed in
food magazines will help build customer awareness. Accompanying the ad will be a
coupon for discounted coffee and nice bakeries.
5.1
Promotion Strategy
Jedi Café will implement a pull strategy in order to build consumer awareness and
demand. Initially, Jedi Café has budgeted USD6,410 for promotional efforts which
will include advertising with food magazines and in-house promotions such as
offering customers free drinks.
Jedi Café realizes that in the future, when competition enters the market, additional
revenues must be allocated for promotion in order to maintain market share.
5.2
Pricing Strategy
Determining a fair market for cyber café is more difficult because there is no direct
competition from another cyber café in Happy Valley. Therefore, Jedi Café has to
base its prices for coffee and specialty drinks on the “retail profit analysis” provided
by our supplier, Jenson Coffee, which has been in the coffee business for over 50
years and has developed a solid pricing strategy.
5.3
Sales Strategy
As a retail establishment, Jedi Café employs people to handle sales transactions.
Computer knowledge is a prerequisite for Jedi Café employees. If an employee
does not possess basic computer skills when they are hired, they are trained by our
full-time technician. Our full-time technician is also available for customers in need
of assistance. Jedi Café’s commitment to friendly, helpful service is one of the key
factors that distinguishes itself from other cyber cafés.
5.4
Sales Forecast
Cost of Sales: The cost of goods sold for coffee-related products was determined
by the "retail profit analysis" we obtained from Jenson Coffee. The cost of bakery
items is 20% of the selling price. The cost of Internet access is USD847 per month,
paid to PC-Net for networking fees.
11
2009
2010
2011
Unit Sales
Coffee
53,844
64,990
71,490
Specialty Drinks
40,135
48,350
49,706
Baked Goods
20,420
26,344
23,182
Total Unit Sales
114,399
139,684
144,378
Unit Prices
USD
USD
USD
Coffee
2.60
2.60
2.60
Specialty Drinks
3.20
3.20
3.20
Baked Goods
2.60
2.60
2.60
Sales
USD
USD
USD
Coffee
138,063
166,642
183,308
Specialty Drinks
128,639
154,970
159,315
52,361
67,549
59,443
Total Sales
319,063
389,161
402,066
Direct Cost of Sales
USD
USD
USD
Baked Goods
Coffee (based on average)
34,515
41,659
45,827
Specialty Drinks (based on average)
32,161
38,744
39,829
Baked Goods (based on average)
13,090
16,888
14,862
79,766
97,291
100518
Subtotal Direct Cost of Sales
12
6.
Management Summary
Jedi Café is owned and operated by Mr. Obewon Kinobi. The company, being small in
nature, requires a simple organizational structure. Implementation of this organizational
form calls for the owner, Mr. Kinobi, to make all of the major management decisions in
addition to monitoring all other business activities.
Personnel Plan
The staff will consist of six part-time employees working thirty hours a week at USD7 per
hour. In addition, one full-time technician (who is more technologically oriented to handle
minor terminal repairs/inquiries) will be employed to work forty hours a week at USD13
per hour. The other shareholder, Alex Skywalker, will not be included in management
decisions. This simple structure provides a great deal of flexibility and allows
communication to disperse quickly and directly. Because of these characteristics, there
are few coordination problems seen at Jedi Café that are common within larger
organizational chains. This strategy will enable Jedi Café to react quickly to changes in
the market.
Total People
2009
2010
2011
9
9
9
USD
USD
USD
Owner
30,770
33,847
37,231
Part Time 1
10,154
10,154
10,154
Part Time 2
10,154
10,154
10,154
Part Time 3
10,154
10,154
10,154
Part Time 4
10,154
10,154
10,154
Part Time 5
10,154
10,154
10,154
Part Time 6
5,077
10,154
10,154
Technician
27,861
30,647
33,711
5,129
30,770
33,847
119,607
156,188
165,713
Manager
Total Payroll
13
7.
Financial Plan
The following sections lay out the details of our financial plan for the next three years.
7.1
Start-up Funding
This business plan is prepared to obtain financing in the amount of USD61,539.
The supplemental financing is required to begin work on site preparation and
modifications, equipment purchases, and to cover expenses in the first year of
operations. This amount is planned to be repaid by USD15,385 each year by four
years.
Owners’ investments has already been secured as follows:
1.
USD24,359 of personal savings from owner Obewon Kinobi.
2.
USD15,385 from the second shareholder, Alex Skywalker.
3.
USD11,911 in the form of short-term bank loans.
USD
Start-up Expenses to Fund
79,859
Start-up Assets to Fund
33,335
Total Funding Required
113,193
Assets
Inventory
2,565
Cash Balance
30,770
Total Assets
33,335
Liabilities
Short Term Bank Loans
11,911
Funds Needed to Raise
61,539
Total Liabilities
73,450
Capital
Obewon Kinobi
24,359
Alex Skywalker
15,385
Total Planned Investment
14
39,744
7.2
Projected Profit and Loss
Payroll Expense: The founder of Jedi Café, Obewon Kinobi, will receive a salary of
USD30,770 in year one, USD33,847 in year two, and USD37,231 in year three.
Jedi Café intends to hire six part-time employees in year one at USD7/hour and a
full-time technician at USD13/hour.
Rent Expense: Jedi Café is leasing a 400 square foot facility at USD2,565/month
for a total of 36 months. At the end of the third year, the lease is open for
negotiations and Jedi Café may or may not re-sign the lease depending on the
demands of the lessor.
Utilities Expense: As stated in the contract, the lessor is responsible for the
payment of utilities including gas, garbage disposal, and real estate taxes. The only
utilities expenses that Jedi Café must pay are electricity and the phone bill
generated by fifteen phone lines; thirteen will be dedicated to broadband and two
for business purposes.
Marketing Expense: Jedi Café will allocate USD43,270 for promotional expenses
over the first year. This amount will be used for advertising in food magazines in
order to build consumer awareness.
Insurance Expense: Jedi Café has allocated USD1,847 for insurance for the first
year. As revenue increases in the second and third year of business, Jedi Café
intends to invest more money for additional insurance coverage.
15
Projected Profit and Loss data is presented in the table below:
2009
2010
2011
USD
USD
USD
319,062
389,159
402,065
79,766
97,290
100,517
398,828
486,449
502,582
119,604
156,185
165,711
Marketing/Promotion
43,270
51,283
55,129
Rent
30,770
30,770
30,770
Utilities
11,693
11,693
11,693
Depreciation
14,309
14,309
14,309
Start-up Cost
8,315
0
0
Insurance
7,693
7,693
7,693
235,654
271,933
285,305
Profit Before Interest and Tax
3,647
19,940
16,247
Interest Expense
2,981
1,885
1,411
100
2,709
2,226
6,548
24,534
19,884
Sales
Direct Cost of Sales
Gross Margin
Expenses
Payroll
Total Operating Expenses
Taxes Incurred
Net Profit
16
7.3
Projected Cash Flow
2009
2010
2011
USD
USD
USD
Cash Received
Cash from Operations
Cash Sales
319,062
389,159
402,065
319,062
389,159
402,065
Capital Investment
39,744
0
0
Short Term Bank Loan
11,911
0
0
Long Term Funding
61,539
0
0
432,256
389,159
402,065
375,732
359,504
375,145
Repayment of Short Term Loan
11,911
0
0
Long-term Liabilities Repayment
15,385
15,385
15,385
403,028
374,889
390,530
Net Cash Flow
29,228
14,270
11,535
Cash Balance
29,228
43,498
55,033
Subtotal Cash from Operations
Additional Cash Received
Subtotal Cash Received
Expenditures
Expenditures from Operations
Additional Cash Spent
Subtotal Cash Spent
17
7.4
Projected Balance Sheet
2009
2010
2011
USD
USD
USD
Assets
Fixed Assets
57,236
42,927
28,618
29,228
43,498
55,033
29,228
43,498
55,033
86,464
86,425
83,651
46,154
30,770
15,385
Total Liabilities
46,154
30,770
15,385
Net Assets
40,310
55,655
68,266
39,744
39,744
39,744
566
15,911
28,522
40,310
55,655
68,266
Current Assets
Cash
Total Current Assets
Total Assets
Liabilities
Long-term Liabilities
Shareholders’ Equity
Paid-in Capital
Retained Earnings
Net Worth
18