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
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