BUSINESS MANAGEMENT PAPAER DUE SATURDAY AT 12:00 NOON- NEED AN A+ !
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I. DESCRIPTION OF YOUR BUSINESS
In recent years, there has been an increase in the number of households that have pets, especially dogs and cats. Further, there is emerging a steadily growing group of pet owners that is will- ing to purchase upscale, unique products for these important members of their family. Pet Élan is an upscale boutique for these discrimi- nating pet owners. Pet Élan will offer high- quality pet products to discerning individuals who wish their pets to enjoy a healthy, fun, and elegant lifestyle while being pampered. By care- fully selecting luxurious accessories made with superior materials, Pet Élan will provide an elite product line that celebrates the uniqueness of each animal’s personality.
II. THE PRODUCT/SERVICE
Unique Features: Benefits Pet Élan will offer products that promote a healthy, fun, and elegant lifestyle for dogs and cats. Our products are grouped into three pri- mary categories: dietary products, playtime products, and accessories.
Dietary Products Pet Élan will offer all-natural pet food and treats, full of essential vitamins and nutrients to pro- mote a healthy diet. We will carry two to three top-selling brands of organic pet food from the industry leaders such as Newman’s Own Organ- ics,2 Natura Pet Products,3 and Organix.4 We will also feature snacks and treats from Old Mother Hubbard,5 Three Dog Bakery,6 Flint River Ranch,7 and Howling Hound Bakery.8
Playtime Products Playing with one’s pet is also a key ingredient for a pet’s healthy lifestyle. Pet Élan will offer products that enable owners and their pets to play in style. For dogs, we will offer toys for chewing, retrieving, tugging, and chasing. For cats, we will offer toys stuffed with premium grade catnip and other toys to chase and fetch. We will offer exclusive toy brands such as Happy Dog Toys,9 KONG Toys,10 and Fat Cat, Inc.11
Accessories Pet Élan will make walking or traveling with a dog or cat an extension of the owner’s unique style with leashes, collars, and travel bags that make a statement. We will also offer pet home accessories including food and water bowls, pet furniture and pillows, and pet clothing made from fine fabrics such as silk, suede, and faux fur.
Unlike other pet stores, Pet Élan will target clientele who demand top quality in pet couture. To fulfill this demand, Pet Élan will order pet clothing and accessories from the trendiest brands such as Woof: The Small Dog Company,12
Dogz Togz,13 and Ruff Ruff and Meow.14
Unique Features: Limitations One of the largest threats to the luxury pet acces- sory industry is the presence of online stores. Pet Élan will compete with these online retailers, as well as other local pet stores. Consumers have the opportunity to comparison shop on the Internet, so Pet Élan will need to carefully determine the pricing strategy for each line of accessories to re- main competitive. However, it is likely that pet owners will want to sample and view unique prod- ucts we carry and will be willing to come to our store for its one-of-a-kind shopping experience— and bring their pets with them.
The rise of larger chain pet stores, like PETCO and PETsMART, has made it much eas- ier for pet owners to satisfy all their pet needs in one place. These stores are now offering pet ap- parel, pet furniture, and natural pet food. Pet Élan will offer a higher quality, but more expen- sive, product mix that may overlap with these stores in some areas. To counter this, Pet Élan will showcase the products we carry that cannot be obtained at the larger retailers.
Competitive Advantage Pet Élan’s competitive advantage is quality and the ability to provide customers with the feeling that pampering their pets is an integral part of a healthy, fun, and contemporary lifestyle. Pet Élan must establish this reputation through high qual- ity products and selective advertising and through exceptional customer service.
Appendix
A Sample Feasibility Study1 PET ÉLAN
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Small Business Ideas: Creativity, Opportunity, and Feasibility C H A P T E R 4 99
Stage of Development Pet Élan is currently in the idea stage. This feasi- bility study is the first step in exploring the mar- ket potential for a luxury pet store. The current time frame for introducing Pet Élan is one year. Pet Élan has set the following milestones to ac- complish prior to launch:
● Complete feasibility study: month 1. ● Begin and complete business plan:
months 2–4. ● Pursue start-up capital: months 5–6. ● Receive start-up capital: month 7. ● Identify store location and secure appro-
priate permits: months 7–8. ● Plan and order inventory: month 9. ● Receive inventory and set up store:
months 10–11. ● Store launch: month 12.
Legal Restrictions and Rights Pet Élan will operate as a Sub-Chapter S Corpora- tion to ensure limited personal liability and for tax advantages. Pet Élan will have one owner, who will have day-to-day responsibility for running the business. The corporation will receive all income generated by the business and pay the owner a salary and/or reinvest in the store. A board of directors will be appointed by the owner.
Insurance Requirements Although business insurance may not be required, Pet Élan will purchase insurance to protect the corporation’s assets and to benefit employees:
● Property insurance will cover the business in the event of damage or loss to the busi- ness property. The insurance will need to cover the store location’s fixtures, cash registers/computers and any other equip- ment, any store furniture such as display tables and shelving, as well as inventory and supplies.
● Liability insurance will protect the busi- ness against the unfortunate situation of a customer or employee being injured on the property and suing.15
As an employer, Pet Élan will also need to secure additional insurance for:
● Workers’ compensation insurance: The Workers’ Compensation and Workers’ Occupational Diseases Acts require
employers to provide insurance for acci- dental deaths, injuries, and occupational diseases of employees arising in the course of employment. Temporary workers who normally do not receive company benefits are still provided workers’ compensation. The Illinois Workers’ Compensation Act requires all employers to post a notice in the workplace that explains workers’ rights and lists the name and address of the workers’ compensation carrier.
● Unemployment insurance: Since Pet Élan will most likely employ one or more work- ers in each of 20 or more calendar weeks, the business will be required to make unem- ployment insurance contributions to the Illi- nois Department of Employment Security.16
Trends Related to the Product or Service Several studies show that pet ownership is at an all-time high and that people are taking better care of their pets and spending more money on them than previously. Surveys conducted every two years by the American Pet Products Manu- facturers Association, Inc. (APPMA) show that 63.4 million households have a pet, compared to 52.6 million households a decade ago.17 Pet Élan will cater to the increasing number of customers that consider their pets a full-fledged member of the family.
Trends in Customer Demographics The demographics of the typical customers of the pet industry have been shifting over recent years from married with children, to younger, cohabitating couples who are waiting longer for marriage, as well as married baby boomers look- ing to fill their empty nests, and single house- holds composed of divorcees and seniors looking for companionship. In fact, only one-third of all pet owners today are married with children.18
Trends in Pet Products The pet products industry is booming. The up- scale pet services industry was named as a hot market by Entrepreneur magazine in its annual prediction of the hottest business ideas for both 2004 and 2005.19 The APPMA also cites luxury, natural, and hygiene products as the top three amongst its top ten trends in pet gifts.20 In fact, the APPMA further notes that high-tech and high-end products such as luxury doghouses are showing the most growth.21
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Similar to the human food industry, pet food trends are moving toward more organic and natural products. The Organic Trade Associa- tion reported that organic pet food sales are up by 63 percent from last year and are growing at almost three times the rate of human organic food sales.22
III. THE INDUSTRY AND MARKET
Current Industry Americans spent a total of $34.4 billion on pet food, care, and supplies in 2004, and the indus- try is estimated to increase to $35.9 billion in 2005. Sixty-five percent of this estimated total was spent on food and supplies alone (supplies also included medicine).23
This growing industry is made up of a diverse customer base. Although families have been the traditional focal point of pet-related businesses, only one-third of all pet owners today are mar- ried with children.24 Pet Élan plans to not only target this traditional market, but also to reach out to newer niche markets such as seniors, young unmarried, and middle-aged couples who are married but have no children.
Thirty-nine percent of Americans between the ages of 55 and 64 own a pet.25 One of the largest percentages of pet owners is 18- to 34-year-old married Americans without children (52 percent). Of this group, 36 percent own a dog and 26 per- cent own a cat. In addition, this group is 33 per- cent more likely than the average American to own more than one pet.26 Finally, 52 percent of married 35- and 54-year-olds without children have a pet and 31 percent have two or more.
Market Potential for This Industry One out of three U.S. households owns a dog or cat,27 and over 80 percent of pet owners pur- chased at least one accessory for their pet during the past year.28 In 2003, MarketResearch.com predicted that the pet supplies industry would be an $8 billion market by 2007.29 Business Com- munications Co. projects that the pet services in- dustry as a whole (including pet food, pet services, and pet supplies) will grow to $36.3 billion by 2008.30
Despite this promising growth and if the econ- omy continues to contract, customers may have less disposable income. The percentage they in- tended to spend on their cat or dog may be diverted for necessity purchases. However,
according to pet industry analyst Julia Dvorko, “Owners tend to pamper their pets even when they have to cut back on [household] spending. After all, even during economic downturns, peo- ple give gifts to family members and buy special treats for their children.”31
The Competition Pet Élan plans to open in the 60657 zip code area of Chicago, Illinois, locally known as Lakeview. There are 22 pet-related businesses in this zip code: nine are veterinarians, three are pet sitting/ walking services, three are pet grooming services, three large chain pet stores (one PETsMart, two PETCO), two combination pet grooming/ accessories stores, a combination boarding/training store, a pet adoption/accessories store, and one boutique called “Sam & Willy’s: A Bow Meow Boutique.”
While not competing directly in the 60657 area code market, national companies including Paul Mitchell, Omaha Steaks, Origins, Harley Davidson, and Old Navy are now offering lines of pet products ranging from dog shampoo, pet attire, and name-brand toys to gourmet treats and food.32 Although these companies have rec- ognizable brand identities, they do not specialize in the pet retail market. They do not carry a full line of pet products as Pet Élan will, and they cater more to impulse buyers rather than dis- cerning pet owners.
The following table compares the strengths and weaknesses of a subset of the competitor pet stores in the 60657 area code, as well as online retailers, and highlights the differentiating fea- tures of Pet Élan.
Customers According to the APPMA, 62 percent of house- holds in the United States own a pet, and 46 per- cent of households own more than one pet. Also, as mentioned earlier, dogs or cats are found in at least one out of three households (in the United States).33 Data collected on dog owners show that they are likely to be married high school graduates who own their homes. As income in- creases, the percentage of households with a dog increases as well.34 In fact, 75 percent of the households with dogs have a combined income of greater than $35,000. This is consistent with the specific market profile of the clientele Pet Élan plans to target in the 60657 zip code.
100 P A R T 1 Entrepreneurs, Ideas, and Plans: The Basis of Small Business
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Small Business Ideas: Creativity, Opportunity, and Feasibility C H A P T E R 4 101
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102 P A R T 1 Entrepreneurs, Ideas, and Plans: The Basis of Small Business
Seventy-six percent of Lakeview households have a combined income of $35,000 or more (see chart).40
Additionally, 30 percent of Lakeview residents own their homes, and 94 percent of residents over age 25 are high school graduates. The aver- age family size is 2.56 with 7,523 residents below the age of 16 and 7,706 senior residents (65�). The median household income is $63,695.41 Of the approximately 49,534 employed residents 16 years and older in the 60657 zip code area (as of the 2000 census), 64 percent are in “manage- ment, professional, and related occupations.”42
Market Penetration Pet Élan will serve customers in a boutique setting where pets are welcome to browse along with their owners. The store will operate with a social entrepreneurial mission and will donate 5 percent of pretax profits to a local no-kill animal shelter. Consistent with this socially responsible mission, Pet Élan will work with other area pet-related businesses to form a network of highly qualified veterinarians, as well as well-established board- ing, grooming, in-home sitting, and training service providers. By connecting Pet Élan customers with reliable service providers, Pet Élan will also bene- fit from the reciprocal referrals from these service providers.
Pet Élan will also maintain a Web site, but ini- tially only to provide the location and hours of operation. As the business grows, the Web site could include tips and trends information for current and future consumers to keep up with the latest in pet fashion accessories. Pet Élan will
seek assistance from a local college or Small Business Development Center for the Web site and market research assistance.
When the Pet Élan storefront opens, we plan to advertise by hosting a series of pet fashion shows, combined with an adoption event with local pet shelters. The events will raise awareness among clientele and would help a good cause. Until Pet Élan breaks even, the store will rely on the advertis- ing and public relations from partnering with other service providers to draw customers into the store.
IV. FINANCIAL PROJECTIONS
Pricing Pet Élan will price the merchandise it intends to sell using cost-plus pricing. The base cost will be the wholesale cost of the pet product, and the markup component will be the profit Pet Élan will make on each product. For purposes of this feasibility study, Pet Élan will assume a 54 per- cent margin on goods sold. Because Pet Élan will be selling luxury products and because the target clientele is customers with a large percentage of disposable income, we will work to maximize the profit from each item sold.
The store will also follow a price skimming strategy, meaning it will set relatively high prices on the newest luxury products when they are first released, and then lower the price over time. By maintaining a wide selection of the newest fashions and accessories for cats and dogs, Pet Élan will be able to charge a higher price for newly released items, reducing prices as the trend becomes more mainstream.
Less than 15K 15K–25K 25K–35K 35K–50K 50K+
Household Income for Lakeview Residents
60%
9%
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Small Business Ideas: Creativity, Opportunity, and Feasibility C H A P T E R 4 103
The social entrepreneurial mission is to do- nate 5 percent of pretax profits to a local no-kill animal shelter, and this amount will be donated quarterly based on pretax profits from that quar- ter. Pet Élan made the following assumptions in putting together the sales revenue forecast for the first three years of operations:
● Pet Élan will sign a three-year rental agree- ment for a 2,000 square-foot storefront lo- cation. The rental property will be priced at $35 per square foot, with an additional real estate tax of $9.50 per square foot per annum.
● Pet Élan will be open for business six days a week (Monday through Saturday) from ten o’clock in the morning until seven o’clock in the evening. The store will be closed on Sunday.
● It is estimated that the average Pet Élan cus- tomer will spend $18 per visit and will visit the store, on average, two times per month.
● Pet Élan will contribute 5 percent of pre- tax profits to a local no-kill animal shelter on a quarterly basis. This contribution has been accounted for in the pretax net profit (loss) forecast.
Based on these assumptions and a break-even analysis, Pet Élan’s break-even sales will be $263,699, or $21,975 per month. This was cal- culated by determining the total fixed costs in the first year and by dividing it by a gross margin ex- pressed as a percentage of sales.
Sales Revenue Forecast Pet Élan forecasts gross revenues during year one of operations to be $296,740. The gross revenues for year two and year three are predicted to in- crease to $404,448 and $458,304, respectively.
Cost Forecast Pet Élan will maintain an inventory of products in each of the three primary areas of focus men- tioned earlier: dietary products, playtime prod- ucts, and accessories. As products are purchased, Pet Élan will reorder monthly to maintain a suf- ficient inventory to serve its customers’ needs. Pet Élan has estimated that initial inventory will cost $20,000. The wholesale cost of inventory for the first year is estimated to be $147,000. As the customer base grows, Pet Élan will need to have a significantly higher amount of inventory
on hand to support increased demand. The future cost of inventory is forecast to be $186,880 for year two and $211,730 for year three.
Gross Margin The gross margin (sales minus cost of goods sold) for Pet Élan during the first three years of opera- tion is estimated to be $159,620, $217,568, and $246,574 respectively.
Operating Expenses There are several operational costs associated with running a pet store like Pet Élan, and these are also accounted for in the budget forecast for the first three years of operation. These opera- tional expenses include items such as rent, utili- ties, advertising costs, and professional services assistance. These operational costs are summa- rized in total operating expenses and are forecast to be $147,907 for year one, $190,881 for year two, and $201,744 for year three.
The owner will be the primary employee of Pet Élan for the first three months of operation. Beginning in the fourth month of operation, Pet Élan will hire one full-time sales associate. As the business grows, Pet Élan anticipates hiring a sec- ond full-time sales associate during the second year of operation. The full-time sales associates will assist the owner with customer service and other retail functions. Pet Élan will pay the sales associate approximately $12.25 per hour (or $25,500 per year) for the work.43
Profitability The expected net profit of Pet Élan for the first year of operation is $10,660. This profit is ex- pected to grow significantly in the future two years as some of the initial start-up costs are de- frayed and the customer base becomes larger. In year two the net profit is forecast to be $25,345, and in year three it is estimated to be $42,589.
V. FUTURE ACTION PLAN
Start-up Capital To start the business, Pet Élan will need to have enough start-up capital to cover leasing costs to secure the storefront location. The start-up cap- ital will also need to cover insurance and oper- ating expenses including appropriate licensing, store utilities, and professional services such as legal and accounting assistance. Initial inventory,
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104 P A R T 1 Entrepreneurs, Ideas, and Plans: The Basis of Small Business
as well as retail equipment needs (such as a cash register) will require a large initial investment. These needs will be funded through the start-up capital that Pet Élan secures prior to opening. The amount needed is estimated to be $70,000.
Sources of Start-up Capital The start-up capital of $70,000 is composed of 45 percent (or $31,500) of the owner’s personal savings, 25 percent (or $17,500) of a bank loan, in addition to two equity investors (one family member of the owner and one local veterinarian), each with a 15 percent stake (or $10,500) in the company.
Further Information Needed To ensure the successful opening of Pet Élan, we must have a deeper understanding of the customer needs in the area. Conducting market research in the 60657 zip code area, using techniques such as surveys and/or focus groups of customers in Pet Élan’s target market, could assess these needs. Pet Élan should also begin to approach other pet ser- vice providers in the area to explore potential partnership opportunities that could help raise awareness about both Pet Élan and the partnering business. This would also allow the owner of Pet
Élan to form a network within the local pet prod- ucts and services industry.
Writing a Business Plan Pet Élan’s next step is to create a business plan to further explore the business model of Pet Élan from an objective point of view. By identifying strengths and weaknesses, opportunities and threats for Pet Élan as compared to other market competitors, the company will have a much bet- ter chance of reaching the business and financial objectives outlined in this feasibility study. The business plan will also provide vital information about the business to potential investors and allow them to evaluate the viability of Pet Élan’s business model.
Support Needed Pet Élan will seek guidance from a local Small Business Development Center. Pet Élan will re- view the initial draft of the business plan with a volunteer from the Service Corps of Retired Ex- ecutives (SCORE), which is associated with the Small Business Association, to learn from his or her experience. Pet Élan will also form an advi- sory board made up of small business owners and members of the pet retail industry.
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Small Business Ideas: Creativity, Opportunity, and Feasibility C H A P T E R 4 105
FINANCIALS–SUMMARY
Year 1 Year 2 Year 3
Revenue $296,740 $404,448 $458,304
Cost of Goods Sold 137,120 186,880 211,730
Gross margin 159,620 217,568 246,574
Operating expenses $147,907 $190,881 $201,744
Net profit (loss) pretax $ 11,713 $ 26,687 $ 44,830
Net profit (loss) pretax and post contribution (5%) $ 10,660 $ 25,345 $ 42,589
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106106 P A R T 1 Entrepreneurs, Ideas, and Plans: The Basis of Small Business
FINANCIALS—YEAR 1
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 September October November December January February
Sales $11,620 $16,900 $20,060 $27,460 $20,060 $21,120
Less Cost of Goods Sold $ 5,370 $ 7,810 $ 9,270 $12,690 $ 9,270 $ 9,760
Gross Margin $ 6,250 $ 9,090 $10,790 $14,770 $10,790 $11,360
Operating Expenses
Utilities 185 160 165 180 200 200
Salaries 2,500 2,500 2,500 2,500 2,500 2,500
Labor — — — 2,125 2,125 2,125
Payroll Taxes and Benefits 313 313 313 578 578 578
Advertising 300 300 300 300 300 300
Website 20 20 20 20 20 20
Office Supplies 150 75 50 50 50 50
Insurance 250 250 250 400 400 400
Maintenance and Cleaning 50 50 50 50 50 50
Legal and Accounting 350 350 350 350 350 350
Licenses 300 — — — — —
Bags, Paper, etc. 150 150 200 250 250 250
Telephone 85 85 85 85 85 85
Miscellaneous 200 200 200 200 200 200
Rent 5,833 5,833 5,833 5,833 5,833 5,833
Total Operating Expenses (Fixed Costs): 10,686 10,286 10,316 12,921 12,941 12,941
Gross Profit (Loss) (4,436) (1,196) 475 1,849 (2,151) (1,581)
Contribution to Charity (5% of net): — — 24 92 — —
Net Profit (Loss) Pre-Tax: (4,436) (1,196) 451 1,756 (2,151) (1,581)
First year fixed costs (FC) $ 147,910
Contribution Margin Ratio (CMR) ((sales - cogs)/sales) 53.8%
Annual breakeven sales (FC / CMR) $ 274,970
Average monthly breakeven sales $ 22,910
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107Small Business Ideas: Creativity, Opportunity, and Feasibility C H A P T E R 4 107
Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Total March April May June July August
$ 24,290 $ 26,400 $ 28,510 $ 31,680 $ 35,900 $ 32,740 $ 296,740
$11,220 $12,200 $13,170 $14,640 $16,590 $15,130 $137,120
$13,070 $14,200 $15,340 $17,040 $19,310 $17,610 $159,620
180 170 165 185 185 185 2,160
2,500 2,500 2,500 2,500 2,500 2,500 30,000
2,125 2,125 2,125 2,125 2,125 2,125 19,125
578 578 578 578 578 578 6,141
300 300 300 300 300 300 3,600
20 20 20 20 20 20 240
50 50 50 50 50 50 725
400 400 400 400 400 400 4,350
50 50 50 50 50 50 600
350 350 350 350 350 350 4,200
— — — — — — 300
300 300 300 300 300 300 3,050
85 85 85 85 85 85 1,020
200 200 200 200 200 200 2,400
5,833 5,833 5,833 5,833 5,833 5,833 69,996
12,971 12,961 12,956 12,976 12,976 12,976 147,907
99 1,239 2,384 4,064 6,334 4,634 11,713
5 62 119 203 317 232 1,054
94 1,177 2,265 3,861 6,017 4,402 $ 10,660
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108108 P A R T 1 Entrepreneurs, Ideas, and Plans: The Basis of Small Business
FINANCIALS—YEAR 2
September October November December January February
Sales: $31,680 $33,790 $35,900 $35,900 $29,570 $32,740
Less Cost of Goods Sold $14,640 $15,610 $16,590 $16,590 $13,660 $15,130
Gross Margin $17,040 $18,180 $19,310 $19,310 $15,910 $17,610
Operating Expenses
Utilities 195 170 175 190 210 210
Salaries 2,500 2,500 2,500 2,500 2,500 2,500
Labor 4,250 4,250 4,250 4,250 4,250 4,250
Payroll Taxes and Benefits 844 844 844 844 844 844
Advertising 400 400 400 400 400 400
Website 30 30 30 30 30 30
Office Supplies 100 100 100 100 100 100
Insurance 550 550 550 550 550 550
Maintenance and Cleaning 60 60 60 60 60 60
Legal and Accounting 400 400 400 400 400 400
Licenses 300 — — — — —
Bags, Paper, etc. 400 400 400 400 400 400
Telephone 100 100 100 100 100 100
Miscellaneous 225 225 225 225 225 225
Rent 5,833 5,833 5,833 5,833 5,833 5,833
Total Operating Expenses: 16,187 15,862 15,867 15,882 15,902 15,902
Gross Profit (Loss) 853 2,318 3,443 3,428 8 1,708 Contribution to Charity (5% of net): 43 116 172 171 0 85
Net Profit (Loss) Pre-Tax: 811 2,202 3,271 3,257 8 1,623
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109Small Business Ideas: Creativity, Opportunity, and Feasibility C H A P T E R 4 109
March April May June July August Total
$31,680 $32,740 $34,850 $35,900 $33,790 $35,900 $404,448
$14,640 $15,130 $16,100 $16,590 $15,610 $16,590 $186,880
$17,040 $17,610 $18,750 $19,310 $18,180 $19,310 $217,568
190 180 175 195 195 195 2,280
2,500 2,500 2,500 2,500 2,500 2,500 30,000
4,250 4,250 4,250 4,250 4,250 4,250 51,000
844 844 844 844 844 844 10,125
400 400 400 400 400 400 4,800
30 30 30 30 30 30 360
100 100 100 100 100 100 1,200
550 550 550 550 550 550 6,600
60 60 60 60 60 60 720
400 400 400 400 400 400 4,800
— — — — — — 300
400 400 400 400 400 400 4,800
100 100 100 100 100 100 1,200
225 225 225 225 225 225 2,700
5,833 5,833 5,833 5,833 5,833 5,833 69,996
15,882 15,872 15,867 15,887 15,887 15,887 190,881
1,158 1,738 2,883 3,423 2,293 3,423 26,687
58 87 144 171 115 171 1,334
1,100 1,651 2,739 3,252 2,179 3,252 $ 25,345
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110110 P A R T 1 Entrepreneurs, Ideas, and Plans: The Basis of Small Business
FINANCIALS—YEAR 3
September October November December January February
Total Sales: $35,904 $33,792 $38,016 $42,240 $33,792 $35,904
Cost of Goods Sold: $16,590 $15,610 $17,560 $19,510 $15,610 $16,590
Gross Margin $19,314 $18,182 $20,456 $22,730 $18,182 $19,314
Operating Expenses
Utilities 205 180 185 200 220 220
Salaries 2,750 2,750 2,750 2,750 2,750 2,750
Variable Labor 4,674 4,674 4,674 4,674 4,674 4,674
Payroll Taxes and Benefits 928 928 928 928 928 928
Advertising 400 400 400 400 400 400
Website 32 32 32 32 32 32
Office Supplies 120 120 120 120 120 120
Insurance 570 570 570 570 570 570
Maintenance and Cleaning 70 70 70 70 70 70
Legal and Accounting 440 440 440 440 440 440
Licenses 300 — — — — —
Bags, Paper, etc. 420 420 420 420 420 420
Telephone 125 125 125 125 125 125
Miscellaneous 225 225 225 225 225 225
Rent 5,833 5,833 5,833 5,833 5,833 5,833
Total Operating Expenses: 17,092 16,767 16,772 16,787 16,807 16,807
Net Profit (Loss) Pre-Tax: 2,222 1,415 3,684 5,943 1,375 2,507 Contribution (5%) 111 71 184 297 69 125
Final Net Profit (Loss) Pre-Tax: 2,111 1,344 3,500 5,646 1,306 2,382
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111Small Business Ideas: Creativity, Opportunity, and Feasibility C H A P T E R 4 111
March April May June July August Total
$38,016 $40,128 $40,128 $40,128 $40,128 $40,128 $458,304
$17,560 $18,540 $18,540 $18,540 $18,540 $18,540 $211,730
$20,456 $21,588 $21,588 $21,588 $21,588 $21,588 $246,574
200 190 185 205 205 205 2,400
2,750 2,750 2,750 2,750 2,750 2,750 33,000
4,674 4,674 4,674 4,674 4,674 4,674 56,088
928 928 928 928 928 928 11,136
400 400 400 400 400 400 4,800
32 32 32 32 32 32 384
120 120 120 120 120 120 1,440
570 570 570 570 570 570 6,840
70 70 70 70 70 70 840
440 440 440 440 440 440 5,280
— — — — — — 300
420 420 420 420 420 420 5,040
125 125 125 125 125 125 1,500
225 225 225 225 225 225 2,700
5,833 5,833 5,833 5,833 5,833 5,833 69,996
16,787 16,777 16,772 16,792 16,792 16,792 201,744
3,669 4,811 4,816 4,796 4,796 4,796 44,830 183 241 241 240 240 240 2,242
3,486 4,570 4,575 4,556 4,556 4,556 $ 42,589
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112112 P A R T 1 Entrepreneurs, Ideas, and Plans: The Basis of Small Business
INITIAL CALCULATIONS Cost Assumptions First Year of Operations
Fixed Costs (FC) Monthly Annually
Lease payment ($35 / sq. foot) $ 5,833 $ 70,000
Utilities 200 2,400
Insurance 833 10,000
Salary of Owner 2,500 30,000
Salary of Sales Assistant 2,125 25,500
Advertising 200 2,400
General supplies 300 3,600
Professional Services 667 8,000
Miscellaneous Expenses 417 5,000
Website 20 240
Total 13,095 157,140
Variable Costs (VC) Monthly Annually
Cost of Goods Sold 11,427 137,120
Total 28,250 339,000
Break-Even Amount Monthly Annually
Contribution margin ratio (CMR) 53.8% 53.8%
Breakeven (FC \ CMR) $ 24,340 $292,082
Daily Monthly Annually
Breakeven number of customers 45 1,352 486,803
Assumptions:
Rental location will be 2,000 square feet
Average customer spends $18 per visit and comes to the store on average twice per month.
One Time Startup Costs
Licensing & permits $ 300
Decorating $ 800
Signage $ 5,000
Beginning Inventory $40,000
Fixtures and Equipment $ 6,000
Professional fees (accountant, attorney) $ 5,000
Total $57,100
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