Advanced Entrepreneurship - ABC Cabinets - Example

Running Head: Advanced Entrepreneurship Advanced Entrepreneurship [Institute’s PART BUSINESS PLAN OF ABC CABINETS MANUFACTURER TABLE OF CONTENTS TABLE OF CONTENTS 2 EXECUTIVE SUMMARY 3 Objectives 3 Mission 3 BUSINESS DESCRIPTION 4 DEFINITION OF THE MARKET 5 Market Segmentation Strategy 5 Industry Analysis 6 Competition 6 DESCRIPTION OF PROPOSED PRODUCTS 7 ORGANIZATION / MANAGEMENT DESCRIPTION 7 Personnel Plan 7 MARKETING STRATEGY 8 FINANCIAL MANAGEMENT 8 Projected Profit and Loss 8 Projected Balance Sheet 9 Business Ratios 10 Projected Cash Flow 11 REFERENCES 12 REFERENCES 14 EXECUTIVE SUMMARY ABC Cabinets will be started as a business focusing on custom-made cabinets for the high-end housing, resorts, as well as profit-making market. ABC Cabinets will function under ABC Inc., a construction group sharing human resources, office space, as well as running expenditures. Nonetheless, for the point of business plan, ABC Cabinets will be considered as an individual company. Objectives Following are the objectives of the company: Becoming the leading cabinet provider to lavish residential areas within the local market Aspiring to have 65 percent of sales in high-end housing customer section 15 percent of sales in mid-range housing customer section 20 percent of sales in commercial expansion section Establishing a display area in not more than 2 months in a major retail space Mission To provide a premium quality product, promptly and cost effectively; and also offering a quick, ‘free of error’ ordering method. Figure 1: Projected figures for first 3 years BUSINESS DESCRIPTION ABC Cabinets is a new business that will offer proficiency as well as quality in the cabinet provider marketplace while meeting the challenging executive, forecast, and quality requirements of designers, vendors, and production experts. Overall start-up expenditures, together with apparatus, software, stationery, as well as other associated operating costs are shown in Table 1. Start-up Expenses (all costs are in US Dollar) Business Cards 100 Drill Press 2000 Cabinet Jacks 800 Kitchen Builder Software 2500 Lateral File 250 Marketing 4500 Order Tracking Facility 500 Estimating Record 2000 Total Start-up Expenses 12650 Start-up Assets (all figures are in US Dollar) Required Cash 90000 Current Assets (other) 14500 Total Assets 104500 Total Requirements 117150 Table 1: Total Start-up Requirement Figure 2: Total start-up expenses and assets DEFINITION OF THE MARKET ABC Cabinets will be targeting designers, vendors, and suppliers within the local region who are concerned with high-end housing, resorts, along with profit-making expansion sections. In 2010, 250 new homes worth 170 million USD were built in the vicinity. If the company takes an average of 50,000 USD per kitchen, and it multiplies that by the 250 residences, this gives 12,500,000 USD in kitchens fixed for the year (Conner, 2010). The Company plans to get 5 percent to 6 percent of the market share of this housing sector within the first year. This target is not considered unreachable, particularly within a still flourishing market. Potential Customers Year 1 Year 2 Year 3 Year 4 Year 5 High-end housing 5200 5400 5500 5700 5900 Mid-range housing 3500 3600 3800 4200 4400 Commercial expansion 10000 10500 11200 12400 13100 Total 18700 19500 20500 22300 23400 Table 2: Total market potential of the three key customer sectors Market Segmentation Strategy ABC Cabinets will be concentrating on getting in touch with suppliers as well as designers that handle the lavish residence market. Making the company identified to these individuals will produce a number of sturdy leads, together with receiving special suggestions to the property owners. Figure 3: Market segmentation for ABC Cabinets Plans include upgrading office space to a display area at a ‘high visibility’ spot. This will give the exposure to fresh property owners that are trying to find the product. Industry Analysis There are two leading cabinet dealers in the industry. 1. Resellers of entire cabinet sets utilizing supply items where the cabinets are completely built. Mostly they have no store services; however, they do have display areas. 2. Custom stores with complete, internal production services. They are generally very product focused and under-perform with respect to customer service. ABC Cabinets can offer high-level work, advanced project administration, in addition to outstanding value while keeping a small operating cost. Competition There are a number of competitors within the home market. Even though every one of them provides a classy product, the management thinks they are unable to offer a complete ‘turnkey package’. Four aspects oversee the expenditure of every kitchen project: (1) range, (2) product, (3) design, and (4) after sale services (Wille, 2004). The majority of individuals mistakenly believe that the extent of the project as well as the selection of trademark products will do for the excellent outcomes. However, it is the design along with a companys services that will have the maximum impact on the value and importance of the clientele investment. DESCRIPTION OF PROPOSED PRODUCTS The product is a creation of two key elements. The boxes along with shelves will be ordered from two separate providers, and will be provided in form of kitset. Their finishing can be done with custom coatings. The doors, panes, and drawer fronts will be available from four separate dealers. The company will have 5 to 7 custom designs, with an extensive range of different custom finishes. The other dealers will offer their stock merchandise. ORGANIZATION / MANAGEMENT DESCRIPTION The President of ABC Cabinets has 22 years of manufacturing experience, from common dealing, production management, as well as a personal cabinet company. The Vice President of ABC Cabinets has 7 years of manufacturing experience plus 6 years of management in the hospitality business. An administration or showroom assistant will be hired as the business starts growing. Personnel Plan The following table shows income for the entire company. Salary raise is maintained to a minimum to facilitate the development of the business. An executive P.A. will be appointed by the end of first year of operations. Personnel Plan Year 1 Year 2 Year 3 President $ 25000 $ 38000 $ 47000 Vice President $ 24000 $ 36000 $ 42000 Carpenter(s) $ 16000 $ 51000 $ 78000 Administration Assistant(s) $ 10000 $ 22000 $ 24000 Total Payroll $ 75000 $ 147000 $ 191000 Table 3: Human Resources plan for ABC Cabinets MARKETING STRATEGY The marketing strategy is to make the company well known by help of mailing lists, print marketing, and individual contact with designers as well as suppliers who are mainly concerned with the design / production of commercial expansion and lavish residential buildings. Setting up a display area will be a sales device in itself. A display area will give exposure to the ordinary public, new influx in the region, and manufacturing experts. FINANCIAL MANAGEMENT Following are the primary financial objectives for the business: Acquire a working line of credit from a monetary organization Monetary development via retained earnings Function on a 28 percent to 30 percent gross margin The financial plan relies on significant assumptions, the majority of which are included in the following table as yearly assumptions. Financial Assumptions Year 1 Year 2 Year 3 Plan Month 1 2 3 Current Interest Rate 12 % 12 % 12 % Long-term Interest Rate 12.5 % 12.5 % 12.5 % Tax Rate 17.3 % 16.5 % 17.3 % Other 0 0 0 Table 4: General financial Assumptions for ABC Cabinets Projected Profit and Loss (All values are in thousands of dollars) Year 1 Year 2 Year 3 Sales 442 1000 1500 Direct Cost of Sales 301.6 725 1087.5 Other 0 0 0 Total Cost of Sales 301.6 725 1087.5 Gross Margin 140.4 275 412.5 Gross Margin % 31.7 % 27.5 % 27.5 % Expenditures Payroll 78 157 195 Sales / Marketing and Other Expenses 45.69 44.6 61 Utilities 3 4 5 Insurance 1.14 1.3 1.5 Rental fee 8.4 9 12 Payroll Taxes 11.7 23.55 29.25 Total Operating Expenses 147.92 239.45 303.75 Profit Before Interest and Taxes (7.52) 35.55 108.75 Earnings before interest, taxes, depreciation, and amortization (7.52) 35.55 108.75 Interest Expense 4 3.336 1.937 Taxes Incurred 0 4.832 17.357 Net Profit (11.52) 27.382 89.456 Net Profit/Sales - 2.6 % 2.7 % 5.9 % Table 5: Projected profit and loss for ABC Cabinets Projected Balance Sheet (All values are in thousands of dollars) Year 1 Year 2 Year 3 Assets Current Assets Cash 53.58 46.49 97.93 Accounts Receivable 49.69 112.41 168.62 Other Current Assets 14.48 14.48 14.48 Total Current Assets 117.92 173.39 281.03 Long-term Assets Long-term Assets 0 0 0 Accumulated Depreciation 0 0 0 Total Long-term Assets 0 0 0 Total Assets 117.92 173.39 281.03 Liabilities and Capital Year 1 Year 2 Year 3 Current Liabilities Accounts Payable 25.67 67.04 99.91 Other Current Liabilities 0 0 0 Subtotal Current Liabilities 25.67 67.04 99.91 Long-term Liabilities 40 26.71 12.03 Total Liabilities 65.67 93.75 111.94 Paid-in Capital 88.42 88.42 88.42 Retained Earnings (24.64) (36.16) (8.78) Earnings (11.52) 27.38 89.46 Total Capital 52.26 79.64 169.10 Total Liabilities and Capital 117.92 173.39 281.03 Net Worth 52.26 79.64 169.1 Table 6: Projected balance sheet for ABC Cabinets Business Ratios Year 1 Year 2 Year 3 Sales Growth 0 126 % 50 % Percent of Total Assets Accounts Receivable 42 % 65 % 60 % Other Current Assets 12 % 8 % 5 % Total Current Assets 100 % 100 % 100 % Long-term Assets 0 0 0 Total Assets 100 % 100 % 100 % Current Liabilities 22 % 39 % 36 % Long-term Liabilities 34 % 15 % 4 % Total Liabilities 56 % 54 % 40 % Net Worth 44 % 46 % 60 % Percent of Sales Sales 100 % 100 % 100 % Gross Margin 32 % 28 % 28 % Selling, General & Administrative Expenses 34 % 25 % 21 % Advertising Expenses 1 % 1 % 1 % Profit Before Interest and Taxes - 2 % 4 % 7 % Main Ratios Current 4 3 3 Quick 4 2 3 Total Debt to Total Assets 56 % 54 % 40 % Pre-tax Return on Net Worth - 22 % 40 % 63 % Pre-tax Return on Assets - 10 % 18 % 38 % Additional Ratios Year 1 Year 2 Year 3 Net Profit Margin - 3 % 3 % 6 % Return on Equity - 22 % 34 % 53 % Activity Ratios Accounts Receivable Turnover 7 7 7 Collection Days 58 39 46 Accounts Payable Turnover 15 12 12 Payment Days 27 21 25 Total Asset Turnover 4 6 5 Debt Ratios Debt to Net Worth 1 1 0.7 Current Liability to Liability 0. 4 0.7 0.9 Liquidity Ratios Net Working Capital $ 92200 $ 106300 $ 181100 Interest Coverage - 1.9 11 56 Additional Ratios Assets to Sales 0.3 0.2 0.2 Current Debt/Total Assets 22 % 39 % 36 % Acid Test 3 1 1 Sales/Net Worth 8 12 9 Dividend Payout 0 0 0 Table 7: Business ratios for ABC Cabinets Projected Cash Flow (All values are in thousands of dollars) Year 1 Year 2 Year 3 Cash Received Cash from Operations Cash Sales 110.5 250 375 Cash from Receivables 281.8 697.2 1068.8 Subtotal Cash from Operations 392.3 937.2 1443.8 Additional Cash Received Subtotal Cash Received 392.3 937.2 1443.8 Expenditures Year 1 Year 2 Year 3 Expenditures from Operations Cash Spending 78 157 195 Bill Payments 349.8 774.7 1182.7 Subtotal Spent on Operations 427.8 931.2 1377.7 Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out 0 0 0 Principal Repayment of Current Borrowing 0 0 0 Other Liabilities Principal Repayment 0 0 0 Long-term Liabilities Principal Repayment 0 13.3 14.7 Purchase Other Current Assets 0 0 0 Purchase Long-term Assets 0 0 0 Dividends 0 0 0 Subtotal Cash Spent 427.8 944.3 1392.4 Net Cash Flow (35.5) (7.3) 51.4 Cash Balance 53.8 46.5 97.9 Table 8: Projected cash flows for ABC Cabinets REFERENCES Conner, G. (2010). Lean Manufacturing for the Small Shop. Society of Manufacturing Engineers. Wille, S. (2004). Exporting Household Furniture in the United States. Aktrin Furniture Research. PART 2 The excellent method to approach a venture capitalist is by a quality foreword, as venture capitalists are more expected to refuse an unwanted business plan. This foreword may be via a banker, a legal representative, an accountant, or another capitalist. “If your banker, lawyer, or accountant appears unwilling to provide an introduction, their hesitancy may indicate doubts about the finance ability of you and/or your product. If your contact does not know venture capitalists, you may have the wrong banker, lawyer, or accountant” (Alterowitz & Zonderman, 2002). The presentation should include the following points: What are prospects for growth? “Different risk profiles exist for business plans in established markets versus ideas aimed at creating a new market. The company will clearly articulate the existing market dynamics and why strong growth can be expected over the next 3 years” (Finkel & Greising, 2009). Who are the individuals of the management team and the reason that they are competent to do well in the venture? “Many venture capitalists state that they invest in people before products or markets. Therefore, to build a credible case, the people who are responsible for making it happen must be highlighted” (Hill & Power, 2001). How excellently has the company performed? “In today’s market, many venture capitalists are leery of investing in conceptual business ideas. Entrepreneurs are being rewarded for well developed ideas which include a completed product and beta customers” (Strauss, 2011). REFERENCES Alterowitz, R., and Zonderman, J. (2002). Financing Your New or Growing Business: How to Find and Get Capital for Your Venture. Entrepreneur Press. Finkel, R., and Greising, D. (2009). The Masters of Private Equity and Venture Capital. McGraw-Hill. Hill, B. E., and Power, D. (2001). Inside Secrets to Venture Capital. Wiley. Strauss, S. D. (2011). Get Your Business Funded: Creative Methods for Getting the Money You Need. Wiley. Read More