BUSINESS PLAN VIKING GROCERY STORES
3816 South Johnson Street
Springfield, Missouri 65802
This business plan is prepared to obtain joint financing in the amount of $2,746,000, to begin work on site preparation and modifications, purchase equipment, and to cover expenses in the first year of operations. We are seeking joint financing from our local Economic Development Fund.
- executive summary
- company summary
- market analysis summary
- strategy & implementation summary
- management summary
- financial plan
Viking Grocery Stores–Springfield, will be located in the old Lloyd building, located at 3816 South Johnson Street, in the heart of Springfield, Missouri. This business plan is prepared to obtain joint financing in the amount of $2,746,000, to begin work on site preparation and modifications, purchase equipment, and to cover expenses in the first year of operations. We are seeking joint financing from our local Economic Development Fund.
Viking Stores–Springfield, will be incorporated initially as a corporation. This will shield the owners and all other investors from issues of personal liability. The investors will be treated as shareholders and therefore will not be liable for more than their personal investment. Owner Jones Stewart will contribute $70,000 ($20,000 in sweat equity and $50,000 in cash) towards this business venture.
The financing, in addition to the capital contributions from the owner and shareholders, will allow our store to successfully open and maintain operations through the year. A large initial capital investment will allow our store to provide its customers with a fully featured grocery store. A unique, upscale, and innovative environment is required to provide the customer with an atmosphere that will inspire continued use. The successful operation of year one will provide our store with customers that will allow it to be self-sufficient in year two.
The Viking Store concept, as shown in our plan, has an excellent profitability level and growth rate. Our competitive edge, along with new retail techniques and technology, puts our store in the forefront of the retailing of perishable and nonperishable consumer goods. We are living in an age where unique grocery store environments are in great demand. Our store will differ from the traditional grocery store because of our added personal touch.
As a leading wholesale distributor, our commitment is to provide quality products and services in a cost-effective manner, enabling Viking retailers to excel in serving their customers. If you're interested in being supplied by Viking Stores, Inc., the initial, minimum objectives are:
- A clean environment in which to shop
- A safe place to shop
- Great, friendly service
- Our shop will be good neighbors and will be involved in the community
- Our store will be at least 25,000 square feet
- Store will have minimum weekly retail sales of $75,000 which is equivalent to approximately $35,000 of purchases weekly at the wholesale level
- Generate capital by leasing remaining space to two other business tenants
Our most fundamental philosophy is the concern for people. This strong belief in people is the determining factor that motivates our operations in developing our relationship with our employees and customers.
We believe that our responsibility for customer satisfaction is not focused solely on the sale of a product, but rather is the total relationship a customer experiences when interacting with our organization. We believe in honesty and truth in all transactions and in providing products of the highest quality and at fair prices. We should do everything possible to provide outstanding service in marketing the products we sell.
Our philosophy of concern for people gives our Viking Store the drive to be a good corporate citizen. We believe we have a responsibility to be a good neighbor in maintaining our property in first-class condition and by making the appearance of our plant, facilities, equipment, and grounds as attractive as possible, making them an asset to the communities that support our company.
We at Viking Store of Springfield, are committed to bringing you the best all-around shopping experience. Our nice pledge campaign includes an intense training session for all of our employees, and a firm understanding and commitment to deliver these pledge points at the Viking Store in Springfield, Missouri.
Advantage of Selling Viking Brands
- Viking Stores' commitment to quality over the years has strengthened the integrity of the Viking brand. Most private labels can't hold a candle to the quality of Viking products.
- Viking Stores, Inc., regularly evaluates and audits the Viking product mix to keep variety consistent with consumer wants and needs.
- An extensive line of over 2,000 Viking products can be sold throughout your store— from the produce department to the health and beauty care aisle.
- An overwhelming acceptance of products bearing the Viking name has made this brand one of the top sellers in the Midwest. An established loyalty among customers keeps them buying Viking brands.
- Offers customers a double-your-money-back guarantee which encourages them to buy with confidence.
- Allows the retail store to be part of a community contribution program. This program also promotes loyalty for Viking brand products.
Viking Grocery Stores–Springfield will be part of Viking Stores, Inc., a premier regional grocery/drugstore retailer and wholesale distributor based in Kansas City, Missouri. As a result of five acquisitions since 1999, Viking Stores, Inc., now owns and operates 113 supermarkets and 21 drugstores throughout Missouri and Illinois.
Viking Stores, Inc., also distributes more than 40,000 private label and national brand products to more than 325 independently owned grocery stores in Missouri, Illinois, and Arkansas and serves as wholesale distributor to 8,700 convenience stores in nine states throughout the Midwest.
At the end of 1917, a group of independent grocers discussed forming a cooperative to create buying power for group members. In early 1918, 27 members incorporated the Kansas City Grocery Company, a name it kept until 1954 when the company became Viking Stores, Inc., In 1959, the company produced its first private-label Viking brand product—coffee.
Although the company changed its cooperative status to "for profit status" in the early 1970s, the publicly held company did not become publicly traded on the NASDAQ until August 2000 following Viking Stores' merger with Morgan Food Town in St. Louis, Missouri. For the fiscal year ending March 25, 2000, Viking Stores and Morgan Food Town had combined revenues of $3.8 billion, $1.2 billion of which was retail grocery sales.
The Viking Store–Springfield will be a corporation. Currently it will be owned and operated by Jones Stewart and his investors.
We have located the ideal location for our operation. Our store will be located at 3816 South Johnson Street, Springfield, Missouri.
This site will contribute to our success due to being formally used as a grocery store.
Also a real estate company, Viking Stores' Market Space Corporation is in business to offer buildings and properties for sale or lease. Their buildings can be converted to meet various business needs and offer prime locations and ample parking. Throughout Missouri, Arkansas, and Illinois, they have existing improved properties as well as outparcels and land for sale. Market Space Corporation can provide demographic information on their locations to expedite any purchase transactions. Leasing is also an option. Both stand-alone buildings and tenant space within buildings where others businesses operate can be leased. Examples would include strip malls housing such operations as dry cleaners, video stores, hair salons, pizza shops, etc.
Hours of Operation
Store hours will be 7 days a week from 10:00 A.M. until 10:00 P.M. Checks and all major credit cards will be accepted. A food stamp policy along with other policies will be in place.
Start-up costs will be financed through a combination of owner investment, short-term loans, and long-term borrowing. The start-up chart shows the distribution of financing.
|Building Repair Equipment||$1,250,000|
|Doors and Hardware||$33,000|
|Specialties: Tap fees, etc.||$45,000|
|Project Management Fee||$50,000|
|Total Start-up Expense||$2,456,000|
|Start-up Assets Needed|
|Other Short-term Assets||$0|
|Total Short-term Assets||$400,000|
|Total Start-up Requirements:||$2,856,000|
|Left to finance:||$2,786,000|
|Start-up Funding Plan|
|Interest-free Short-term Loans||$0|
|Subtotal Short-term Liabilities||$0|
|Loss at Start-up||$330,000|
|Total Capital and Liabilities||$400,000|
The store will sell over 40,000 private label and national brand products to the community.
MARKET ANALYSIS SUMMARY
By household size, grocery spending ranges from an average of $51 per week in one-person households to $130 per week in households of five or more. Per-person spending is inversely correlated with household size: per-person weekly expenditures are only $23 in households with five or more members but $35 in one-person homes, according to the the Food Marketing Institute.
To make our advertising and printing dollars work their smartest, we need a team that will work its hardest. The Viking Creative Services Department is ready to meet those needs by providing everything from concepts and design to printing and signage. They are experts in the process of creating and printing advertising, brochures, newsletters, business forms, stationery/business cards, P.O.S. materials, screen-printed clothing/merchandise, and weekly 4-color grocery insert mailers/circulars. Whether we need a bag stuffer, a new logo, billboard advertising, radio spots, TV commercials, or a video, their creative and professional team of associates and state-of-the-art printing equipment offer customers high-quality products in a timely and efficient manner.
Seventy-three percent of our shoppers are female head of the households, 11 percent are male head of the households, 15 percent are both and 1 percent are other. Household Income: Average weekly household spending ranges from $68 for shoppers earning under $15,000 to $118 for those earning more than $75,000 per year. Spending on groceries at the consumer's primary store also increases with income from $57 per week for those families earning $15,000 or less per year to $95 per week for those earning over $75,000.
Target Market Segment Strategy
Our store will meet the grocery needs of the surrounding neighborhood of female or male head of households earning $15,000 per year or more.
We will reach our consumers by taking full advantage of Viking Stores' single clearinghouse for manufacturers' coupons, Viking and manufacturers' in-ad coupons, and warehouse damage coupons. Our redemption programs will include Viking gift certificates, selling-show vouchers, and mail-in rebates. Other services include the Viking Gift Certificate program, inad coupon redemption, and scan-down service to manufacturers and brokers.
Technology: Electronic Marketing
Viking is committed to keeping up with technology changes, thereby gaining a competitive edge in the marketplace. Computers and other information systems are integrated to provide management information and time-saving tools.
- E-mail systems
- Standard accounting software
- Computer-based training
Support is always available to answer system and software development questions, or provide programming solutions as new industry developments appear.
To support our retail store(s), electronic marketing allows us to access complete data analysis and marketing services. These services include data storage, strategic planning/consultation, sourcing for card/key tag manufacturing, custom marketing program development, promotions and campaigns, electronic marketing training and education, retailer-specific data analysis, and support of third-party programs.
Building store traffic, generating consumer excitement, accelerating sales and profits, and positioning our store competitively in the market will be relatively simplified by the use of the Sales Promotions Department at Vikings. By combining their purchasing programs with trendsetting insight, Viking has created over 100 profit-generating retail promotions each year. Viking retailers select those promotions that best meet their unique marketing needs. Backed by TV spots, circulars, P.O.S. materials, sweepstakes and more, this promotional activity is key to our retail success.
We will also promote our store using information gathered from our Mystery Shopper Program. This program was developed to provide monthly feedback to owners and managers on the status and condition of the stores. The program focuses on these major areas:
- Internal and external store appearance
- Product availability
- Point-of-purchase materials
- Food service
- Most importantly, the quality of service received at the register
Each store is visited by a mystery shopper once a month, making sure that all shifts are experienced at least twice a year. Employees are eligible to earn cash incentives and top stores are honored with awards quarterly.
In order to portray the professional image that Viking Stores' customers have come to expect, a selection of uniforms are available. Uniform requirements are facilitated with the use of a contracted distribution and laundry service.
According to FMI United States regional average weekly household spending in 1999 was fairly equal across regions, with shoppers in the Midwest spending $83; the South, $83; the East, $98; and the West, $92 per week.
As a progressive leader in the food distribution industry, Viking Stores, Inc., based in Kansas City, Missouri, owns and operates 113 supermarkets and drugstores in Missouri and Illinois under the Ames' Markets, Family Supermarkets, Food Fair, Gordon's Markets, Sunshine Markets, and The Bond banners. Under the direction of corporate leadership and a Board of Directors, Viking Stores, Inc., will continue to foster innovation and support and promote growth of the company to ensure its success.
Sales for Viking Stores' retail grocery segment increased 59.1 percent to $148 million during the first quarter of fiscal 2001, reflecting additional sales from the acquisition of 23 Gordon's Markets and three Sunshine Markets in fiscal 2000. Comparable store sales increased approximately 4.4 percent in the first quarter, primarily because of the company's promotional programs and continued emphasis on product-line expansion.
Grocery distribution segment sales for the quarter declined 2.5 percent to $360 million from $369.3 million for fiscal 2000. Convenience store distribution sales also declined 1.8 percent to $211.5 from $215.4 million. Sales declines in both distribution segments were associated principally with the elimination of intercompany sales for Gordon's Markets and Sunshine Markets.
Gross margin for the quarter widened to 13.1 percent from 12.2 percent, reflecting the higher margins associated with the retail grocery operations acquired in fiscal 2000.
"We are very pleased to begin fiscal 2001 with solid profitability," said William Miller, Viking Stores' President and Chief Executive Officer. "Excluding non-recurring items, this represents the second consecutive quarter of earnings improvement. We are very committed to our retail strategy and believe the approach is beginning to show meaningful results. As we continue integrating our retail acquisitions and bring their performance to optimal levels through enriched promotional programs and expanding product lines, we expect financial profitability to accelerate."
Mr. Miller stated, "Earlier this week, St. Louis, Missouri-based Morgan Food Town shareholders approved the previously announced merger with Viking Stores. Our shareholders also approved certain changes to Viking Stores' charter which were necessary to complete the merger. We are very pleased to welcome Morgan Food Town into Viking Stores rapidly growing retail operations. Adding Morgan's 73 supermarkets and deep-discount drugstores more than doubles our retail store base to 113, gives us a well respected regional name, and significant presence in the greater St. Louis market. The merger represents a significant step forward in our strategic plan to become a major regional retail grocery operator."
Marketed at a lower shelf price than national brands, Viking brand products give Viking retailers a competitive advantage. Viking Stores backs Viking brands with year-round promotional support including a big fall and early spring sale.
The store will be in walking distance of area shoppers, whereas the next nearest grocery store is two to three miles from our store location.
STRATEGY & IMPLEMENTATION SUMMARY
Viking will help us grow and develop our store. Building a new store or undergoing expansion can be a tremendous challenge for retailers, especially when trying to run a business at the same time. Viking store development services include everything from securing real estate and financing to construction and decor. It's another area in which Viking helps retailers solidify strong market positions.
In addition to our store will be space available for two other retail establishments.
Viking provides a service which helps us manage the information related to our retail business more effectively. Viking Stores, Inc., offers us the complete integration of pricing, promotions, scanning, receiving, and electronic payment systems, including EBT and human resource functions at store and corporate levels. Their commitment to putting retailers in the fast lane with state-of-the-art, point-of-sale technology keeps us on the leading edge.
Our store will sell mostly the Viking store brand instead of the national brands. We feel this is a growing trend amongst shoppers.
Purchases of store or lower-priced brands, instead of national brands, decreased with slightly more than one in ten consumers (15 percent) doing so "pretty much every time" they shop— down three percentage points from 1991. Over half of consumers (52 percent) are doing so "every time" or "fairly often" when they shop. Almost one in four (22 percent) of larger households (five or more members) report purchasing store brands "every time" they shop and almost as many (18 percent) with annual incomes under $15,000 said they buy store brands "every time" they shop according to FMI.
Sales Forecast and Additional Income
The following table gives a run-down on forecasted sales and income. Our sales are based on the industry standard of $11.17 per square foot (store size: 25,000 square feet) for our weekly sales estimate. We expect our sales to grow at least 1 percent per new store brand item added to our product line for a total of 10 percent per year. We also expect to cut cost approximately 10 percent a year through bartering and other means of relationship building.
The remaining 25,000 net square footage not being used for the grocery store will be leased to the public at $4 a square foot.
|Sales 25,000 square feet @ $11.17 per square foot per week||$14,521,000||$15,973,100||$17,570,410|
|Direct Cost of Sales||FY2002||FY2003||FY2004|
|Sales 25,000 square feet @ $11.17 per square foot per week||$6,066,660||$5,459,994||$4,913,994|
|Subtotal Cost of Sales||$6,066,660||$5,459,994||$4,913,994|
Warehousing and Transportation
Purchasing from suppliers throughout the world, Viking Stores warehouses over 40,000 products in St. Louis, Illinois, Kansas City, and Tulsa, Oklahoma. Supplying nearly 500 stores with these quality products at the lowest cost can only be achieved through a proficient distribution system. Viking Stores' state-of-the-art facilities combine manual labor with mechanical technology for optimum efficiency. Viking Stores' streamlined warehouse operations and sophisticated systems expedite product flow and reduce costs in procurement, inventory control and labor.
Today, Viking Stores, Inc., Transportation has two locations, one based in Kansas City, the other in Tulsa. Its combined fleet of 245 full-time drivers travel over 12.5 million miles per year. They utilize 116 tractors, 193 dry van trailers, and 176 refrigerated trailers. In a typical week, they average 2,397 delivery stops, delivering between 28 and 33 million pounds of product. Viking Stores' routing department builds 1,234 truckloads of product per week with an average load size of 25,000-28,000 pounds. Viking Stores Transportation utilizes the latest computer technology including the TRUCKS Routing System, CADEC on-board computers, and the Maintenance Control and Management System.
Much has changed over the years in the transportation system at Viking Stores including the fleet design, safety, and performance of the vehicles used in transporting product. Associated Markets' trucks of the 1940s, not much more than delivery vans, used to service the company's customers. For years, Viking used Delivery Line to carry its groceries, while it had its own drivers (about 20 in 1965) to haul perishables. The truck used was an early 1950s model with a 30-foot trailer.
Viking started its own transportation department in 1967, the same year that many Delivery drivers lost their jobs during a labor dispute. Viking hired many of these drivers. Four people in routing, two in dispatch, and 75 drivers hit the road. The Viking tractor/trailer (40-footer) was one of the first owned outright by Viking Stores.
The trailer of the 1980s and 1990s was the 50-footer, more than twice the size of the Associated Market's trucks of the 1940s. It was nationally recognized for its safety-conscious design. Viking Stores, Inc., has been praised for having one of the most cost-effective fleets anywhere. In 1989, a complex computer program called TRUCKS was used to organize each and every trailer load of product. It could route 100 loads in less than 5 minutes. Viking Stores' transportation fleet also became involved in backhauling activities.
People are our most valuable asset and Viking Stores' ProActive Consulting Services provides a complete line of human resource services designed to help us develop the greatest potential from our associates. The people we employ are also a major investment in our company. It is their goal to help us fully capitalize on this investment. Viking Stores' staff is highly experienced in the retail supermarket industry and familiar with its unique problems and opportunities.
Our store will hire one Manager, one Assistant Manager, four Cashiers, four Laborers/ Stockers, and four Administrative Workers. Our Store Manager will have a college degree and several years of experience with managing a retail store.
The personnel plan is included in the following table. It shows the Manager's hourly pay, followed by that of the rest of the staff. Each of these positions will overlap to make sure the customers are receiving excellent customer service and that adequate help is on hand.
|1 [email protected] $22/hour||$45,760||$45,760||$45,760|
|1 Assistant Manager @$18/hour||$37,440||$37,440||$37,440|
|4 [email protected] $9/hour||$74,880||$74,880||$74,880|
|4 Administrative [email protected] $9/hour||$74,880||$74,880||$74,880|
|4 Laborers/[email protected] $7.50/hour||$62,400||$62,400||$62,400|
|Total Payroll Expenditures||$339,664||$339,664||$339,664|
Viking stores prides itself on being in touch with the financial side of the business at all times. This starts with our budgeting program that sets sales goals, establishes payroll budgets, and creates criteria for gross margin, shrink, expenses, and profit. Exception reporting directs operations in the right direction, saving time, and measuring results.
We will manage and grow our store with a full range of financial services that include five-year financial planning, business valuations, estate planning, buying/selling a store, and financing assistance. Viking will save us valuable time and money plus the headaches and worry often associated with complex money matters.
From Viking, we will receive a complete portfolio of financial, accounting, and payroll services, including comparative operating statements, bank reconciliations, sales tax returns, payroll tax returns, periodic and operational review, cash flows, break-even analyses, financial projections, wages, taxes, deductions, check printing, and deposit advice. It is these kinds of thorough information and accurate recordkeeping that allow Viking retailers to make sound business decisions for the future.
We do not sell anything on credit.
|Short-term Interest Rate %||10.00%||10.00%||10.00%|
|Long-term Interest Rate %||10.00%||10.00%||10.00%|
|Payment Days Estimator||30||30||30|
|Collection Days Estimator||45||45||45|
|Inventory Turnover Estimator||15.70||15.70||15.70|
|Tax Rate %||25.00%||25.00%||25.00%|
|Expenses in Cash %||10.00%||10.00%||10.00%|
|Sales on Credit %||0.00%||0.00%||0.00%|
|Personnel Burden %||15.00%||15.00%||15.00%|
By using a conservative markup of 50 percent, we will have to sell $120,000 worth of goods to break even. A break-even analysis table has been completed on the basis of average costs/ prices.
|Monthly Units Break-even||80,000|
|Monthly Sales Break-even||$80,000|
|Average Per-Unit Revenue||$1.00|
|Average Per-Unit Variable Cost||$0.25|
|Estimated Monthly Fixed Cost||$60,000|
Projected Profit and Loss
We predict consulting and accounting costs will go down in the next three years. Normally, a start-up concern will operate with negative profits through the first two years. We will avoid that kind of operating loss by knowing our competitiors and our target markets.
|Profit and Loss (Income Statement)||FY2002||FY2003||FY2004|
|Direct Cost of Sales||$6,066,660||$5,459,994||$4,913,994|
|Total Cost of Sales||$6,066,660||$5,459,994||$4,913,994|
|Gross Margin %||58.22%||65.82%||72.03%|
|Sales and Marketing Expenses|
|Sales and Marketing Payroll||$0||$0||$0|
|Total Sales and Marketing Expenses||$0||$0||$0|
|Sales and Marketing %||0.00%||0.00%||0.00%|
|General and Administrative Expenses|
|General and Administrative Payroll||$0||$0||$0|
|Total General and Administrative Expenses||$0||$0||$0|
|General and Administrative %||0.00%||0.00%||0.00%|
|Total Other Expenses||$0||$0||$0|
|Total Operating Expenses||$352,664||$339,664||$339,664|
|Profit Before Interest and Taxes||$8,101,676||$10,173,442||$12,316,752|
|Interest Expense Short-term||$0||$0||$0|
|Interest Expense Long-term||$0||$0||$0|
Projected Cash Flow
We are positioning ourselves in the market as a medium risk concern with steady cash flows. Accounts payable is paid at the end of each month while sales are in cash, giving the Viking Store–Springfield an excellent cash structure.
|Projected Cash Flow||FY2002||FY2003||FY2004|
|Change in Accounts Payable||$581,567||$25,135||($2,571)|
|Current Borrowing (repayment)||$0||$0||$0|
|Increase (decrease) Other Liabilities||$0||$0||$0|
|Long-term Borrowing (repayment)||$0||$0||$0|
|Change in Accounts Receivable||$0||$0||$0|
|Change in Inventory||$2,547||($40,255)||($36,229)|
|Change in Other Short-term Assets||$0||$0||$0|
|Net Cash Flow||$6,655,276||$7,695,471||$9,271,222|
Projected Balance Sheet
All of our tables will be updated monthly to reflect past performance and future assumptions. Future assumptions will not be based on past performance but rather on economic cycle activity, regional industry strength, and future cash flow possibilities. We expect solid growth in net worth beyond the year 2002.
|Projected Balance Sheet|
|Other Short-term Assets||$0||$0||$0|
|Total Short-term Assets||$7,057,824||$14,713,040||$23,948,033|
|Total Long-term Assets||$0||$0||$0|
|Liabilities and Capital||FY2002||FY2003||FY2004|
|Other Short-term Liabilities||$0||$0||$0|
|Subtotal Short-term Liabilities||$581,567||$606,701||$604,130|
|Paid in Capital||$70,000||$70,000||$70,000|
|Total Liabilities and Capital||$7,057,824||$14,713,040||$23,948,033|
|Sales 25,000 square feet @ $11.17/square foot/week||$1,396,250||$1,117,000||$1,117,000||$1,117,000||$1,117,000||$1,396,250||$1,117,000|
|Direct Cost of Sales|
|Sales 25,000 square feet @ $11.17/square foot/week||$400,000||$400,000||$526,666||$526,666||$526,666||$526,666||$526,666|
|Subtotal Cost of Sales||$400,000||$400,000||$526,666||$526,666||$526,666||$526,666||$526,666|
|1 [email protected] $22/hour||$4,400||$3,520||$3,520||$3,520||$3,520||$4,400||$3,520|
|1 Assistant Manager @$18/hour||$3,600||$2,880||$2,880||$2,880||$2,880||$3,600||$2,880|
|4 [email protected] $9/hour||$7,200||$5,760||$5,760||$5,760||$5,760||$7,200||$5,760|
|4 Administrative Workers @ $9/hour||$7,200||$5,760||$5,760||$5,760||$5,760||$7,200||$5,760|
|4 Laborers/Stockers @ $7.50/hour||$6,000||$4,800||$4,800||$4,800||$4,800||$6,000||$4,800|
|Total Payroll Expenditures||$32,660||$26,128||$26,128||$26,128||$26,128||$32,660||$26,128|
|Short-term Interest Rate %||10.00%||10.00%||10.00%||10.00%||10.00%||10.00%||10.00%|
|Long-term Interest Rate %||10.00%||10.00%||10.00%||10.00%||10.00%||10.00%||10.00%|
|Payment Days Estimator||30||30||30||30||30||30||30|
|Collection Days Estimator||45||45||45||45||45||45||45|
|Inventory Turnover Estimator||15.70||15.70||15.70||15.70||15.70||15.70||15.70|
|Tax Rate %||25.00%||25.00%||25.00%||25.00%||25.00%||25.00%||25.00%|
|Expenses in Cash %||10.00%||10.00%||10.00%||10.00%||10.00%||10.00%||10.00%|
|Sales on Credit %||0.00%||0.00%||0.00%||0.00%||0.00%||0.00%||0.00%|
|Personnel Burden %||15.00%||15.00%||15.00%||15.00%||15.00%||15.00%||15.00%|
Profit and Loss (Income Statement)
|Direct Cost of Sales||$400,000||$400,000||$526,666||$526,666||$526,666||$526,666||$526,666|
|Total Cost of Sales||$400,000||$400,000||$526,666||$526,666||$526,666||$526,666||$526,666|
|Gross Margin %||71.35%||64.19%||52.85%||52.85%||52.85%||62.28%||52.85%|
|Sales and Marketing Expenses|
|Sales and Marketing Payroll||$0||$0||$0||$0||$0||$0||$0|
|Total Sales and Marketing Expenses||$0||$0||$0||$0||$0||$0||$0|
|Sales and Marketing %||0.00%||0.00%||0.00%||0.00%||0.00%||0.00%||0.00%|
|General and Administrative Expenses|
|General and Administrative Payroll||$0||$0||$0||$0||$0||$0||$0|
|Total General and Administrative Expenses||$0||$0||$0||$0||$0||$0||$0|
|General and Administrative %||0.00%||0.00%||0.00%||0.00%||0.00%||0.00%||0.00%|
|Total Other Expenses||$0||$0||$0||$0||$0||$0||$0|
|Total Operating Expenses||$33,910||$27,128||$27,128||$27,128||$27,128||$33,910||$27,128|
|Profit Before Interest and Taxes||$962,340||$689,872||$563,206||$563,206||$563,206||$835,674||$563,206|
|Interest Expense Short-term||$0||$0||$0||$0||$0||$0||$0|
|Interest Expense Long-term||$0||$0||$0||$0||$0||$0||$0|
Projected Cash Flow
|Change in Accounts Payable||$476,384||$22,533||$166,878||($84,229)||$0||$59,479||($59,479)|
|Current Borrowing (repayment)||$0||$0||$0||$0||$0||$0||$0|
|Increase (decrease) Other Liabilities||$0||$0||$0||$0||$0||$0||$0|
|Long-term Borrowing (repayment)||$0||$0||$0||$0||$0||$0||$0|
|Change in Accounts Receivable||$0||$0||$0||$0||$0||$0||$0|
|Change in Inventory||($94,268)||$0||$96,815||$0||$0||$0||$0|
|Change in Other Short-term Assets||$0||$0||$0||$0||$0||$0||$0|
|Net Cash Flow||$1,292,406||$539,937||$492,468||$338,176||$422,405||$686,235||$362,925|
Projected Balance Sheet
|Other Short-term Assets||$0||$0||$0||$0||$0||$0||$0|
|Total Short-term Assets||$1,598,139||$2,138,076||$2,727,359||$3,065,535||$3,487,939||$4,174,174||$4,537,099|
|Total Long-term Assets||$0||$0||$0||$0||$0||$0||$0|
|Liabilities and Capital|
|Other Short-term Liabilities||$0||$0||$0||$0||$0||$0||$0|
|Subtotal Short-term Liabilities||$476,384||$498,917||$665,796||$581,567||$581,567||$641,046||$581,567|
|Paid in Capital||$70,000||$70,000||$70,000||$70,000||$70,000||$70,000||$70,000|
|Total Liabilities and Capital||$1,598,139||$2,138,076||$2,727,359||$3,065,535||$3,487,939||$4,174,174||$4,537,099|
Retail Business Incubator
Retail Business Incubator
BUSINESS PLAN ACME INCUBATORS
163 Perkins Street
Jackson, Michigan 49204
Business incubation programs have become essential economic development tools for communities that are trying to improve their economies and keep them healthy over the long run. The programs—which house very-early stage companies and provide them with a full array of business planning, management, and financial services—yield excellent returns. According to research, a high percentage (84%) of the companies that "graduate" from incubation programs remain in their communities, and an average 87 percent of incubator graduates are still in business.
- executive summary
The number of businesses being started in the U.S. has more than doubled during the past decade, with well over 520,000 new business incorporations during the first nine months of 1988 alone. But the percentage of those that survive has remained the same (according to the Massachusetts Institute of Technology) or declined (according to Dun & Bradstreet). Either way, business start-ups are facing tough odds nationwide. According to the Federal Small Business Administration (SBA), 80 percent of all new small firms opened in 1988 will fail by 1993—out of money or energy or both.
Is there any way for entrepreneurs to combat these statistics? One increasingly popular economic support tool is the business incubator which, as the name implies, is a place designed to foster the growth of small companies.
Business incubation programs have become essential economic development tools for communities that are trying to improve their economies and keep them healthy over the long run. The programs—which house very-early stage companies and provide them with a full array of business planning, management, and financial services—yield excellent returns. According to research, a high percentage (84%) of the companies that "graduate" from incubation programs remain in their communities, and an average 87 percent of incubator graduates are still in business.
A retail business incubator located in Jackson is needed and will be the ideal project to stimulate and promote community and organization partnerships, along with economic growth. It can accomplish this by providing the opportunity for job placement, on-the-job training, entrepreneurial training, business development and technical assistance, career counseling, small business financing, space for business start-ups, space for existing business owners, and space for community organizations. This retail incubator could also satisfy the one-stop-shop needs of the community.
A retail incubator's main purpose would be to catalyze the process of starting and growing retail business. A proven model, it will provide entrepreneurs with the expertise, networks, and tools they need to make their ventures successful. This retail incubation program will diversify economies, commercialize technologies, create jobs, and build wealth. It will also shield new businesses from the harsh environment they face during the first few years of existence—the most critical period.
While the Jackson retail incubator won't work magic, it can provide an encouraging place for young companies to make their start. Oscar Wright, California's Small Business Advocate, is coordinating with numerous public and private entities to encourage and assist in the creating of incubators in the state. Mr. Wright comments: "Incubators are on the cutting edge of developing new and strategic tools for small business success and local economic diversity. Incubators afford each community an opportunity to address specific concerns germane to their own economic reality." Even though we currently have a business incubator in Jackson, it has been proven that no two incubators will be exactly alike, reflecting differing and divergent needs.
Highly adaptable, incubators have differing goals: to diversify rural economies, to provide employment for and increase the wealth of depressed inner cities, and to transfer technology from universities and major corporations.
For National Business Incubator Association's (NBIA) 1998 State of the Business Incubation Industry, surveys were mailed to all incubators in North America. Responses represented 67 percent of the 587 business incubation programs identified in NBIA's database as of spring 1998.
Researchers discovered the following:
- North American incubators have created nearly 19,000 companies still in business and more than 245,000 jobs
- Most incubator facilities (75%) are less than 40,000 square feet (the average is 36,657 square feet; median is 16,000 square feet)
- Incubators overall each served an average of 20 entrepreneurial firms in 1997 (the median number reported was 12)
- NBIA member incubators served, on average, twice as many client companies and nearly twice as many graduates as nonmember incubators
- Client companies in member incubators created, on average, one third more jobs than client companies of nonmember incubators
Primary Sponsors of Incubators
Nonprofit, Public, or Private
51 percent of all North American facilities, these incubators are sponsored by government and nonprofit organizations, and are primarily for economic development. This mission includes job creation, economic diversification, and/or expansion of the tax base.
27 percent of all North American facilities, these incubators are affiliated with universities and colleges and share some of the same objectives of public and private incubators. In addition, they provide faculty with research opportunities, and alumni, faculty, and associated groups with start-up business opportunities. (This percentage includes some of the Hybrid responses that noted universities, community colleges or technical colleges.)
16 percent of all North American facilities, these incubators are joint efforts among government, nonprofit agencies, and/or private developers. These partnerships may offer the incubator access to government funding and resources, and private sector expertise and financing.
Private, for Profit
8 percent of all North American facilities, these incubators are run by investment groups or by real estate development partnerships. Their primary interests are economic reward for investment in tenant firms, new technology applications, and other technological transfers, and added value through development of commercial and industrial real estate.
5 percent of all North American facilities, these incubators are sponsored by a variety of non-conventional sources such as art organizations, Native American, church groups, chambers of commerce, port districts, etc.
- 43%—Mixed Use
- 25%—Technology (general)
The 1998 State of the Business Incubation Industry contains 67 charts and graphs profiling the industry and highlighting results. Some findings:
- Forty-five (45) percent of today's incubators are urban, 36 percent are rural, and the remaining 19 percent are suburban.
- Most (43 percent) are mixed use and another 25 percent are technology. Ten (10) percent focus on manufacturing companies and 6 percent on service companies. The study revealed growth of the newer, "targeted" incubators—ones that focus on a specific industry such as software, food manufacturing, multimedia, or the arts. They are 9 percent of the total.
- The average incubator was established in 1991.
- The average operating expenses are between $72,320 and $207,500.
- There is no such thing as a standard size for incubators. The average incubator is 36,657 square feet, the mean is 16,000 square feet and the range is from 600 to 500,000 square feet. (These numbers exclude space rented to tenants not receiving incubation services.)
- Eighty-five (85) percent of all senior incubator managers have a college degree or post-graduate education.
- The average incubator offers full incubation services to 20 in-house and affiliate companies; member incubators serve an average of 24.
A relatively new concept in economic development circles, business incubation has grown markedly—from 12 North American programs in 1980 to the 587 identified by this study.
The 1998 State of the Business Incubation Industry joins "The Impact of Incubator Investments" study (conducted in 1997 by Ohio University, the Southern Technology Council, University of Michigan and NBIA to paint a picture of today's incubators and the effect they're having. There's no question they are viable economic development tools. Through research we now know incubators are better at what they do if their managers remain involved through membership in the association, the industry's best professional development resource.
The results of the largest study ever conducted on business incubation show that these support programs for entrepreneurial firms have impressive, measurable impacts on the companies they serve. In addition, experts are calling business incubators a "best value" in economic development, based on low program costs and high return on investment to communities.
"Business incubation programs treat entrepreneurial companies as important community and national resources, and they provide assistance that ensures company success. This study should convince communities that if they don't already have a business incubation program, they'll want to start thinking about one," says Dinah Adkins, executive director of the NBIA, Athens, Ohio.
The study, completed in October 1997, was conducted by the University of Michigan, NBIA, Ohio University and the Southern Technology Council under a grant from the U.S. Department of Commerce Economic Development Administration. It examined the impacts of business incubators, which house very-early stage companies and provide on-site management and a full array of business planning, management, and financial services. Entrepreneurial companies stay in an incubator for an average of two to three years, then graduate to become free standing.
Some of the most important results of the study—which enlisted incubator companies, graduates, managers, and stakeholders—show how effective business incubators are:
- Retail incubator companies experience very healthy growth. The average firm's sales increased by more than 400 percent from the time it entered until the time it left the incubator. In addition, the average annual growth in sales per firm in all types of incubators was $239,535.
- Business incubation programs produce graduate firms with high survival rates. A reported 87 percent of incubated companies that fulfilled program graduation requirements are still in business.
- Business incubation programs create new jobs for a low subsidy cost and a good return on investment. The estimated cost per job created in relation to public grants was $1,109. It's not uncommon for the cost per job of other job-generating economic development programs to be three to six times higher.
- Most firms that graduate from business incubators—an average of 84 percent—remain in their communities.
- Business incubation programs assist companies that create many new jobs. In 1996 incubators reported, on average, that their firms had created 468 jobs directly and 234 additional "spin-off" jobs in the community for a total of 702 jobs.
- Despite their early stage, most incubator firms provide employee benefits.
- Retail incubators contribute to their client companies' success and expand community resources, increasing early-stage capital, access to entrepreneurship education, and other sources of help to young companies.
- Retail incubation programs improve local community image.
Earlier studies and surveys had suggested that business incubation was a successful economic development strategy. "The anecdotal information said the same thing, but there had been no large-scale, national study of the industry to confirm that," says research team member Larry Molnar, director, EDA University Center for Economic Diversification, University of Michigan Business School, Ann Arbor.
"Incubation is highly adaptable, which is another reason it's such a good economic development tool," Adkins says.
The research analysis also led investigators to formulate policy recommendations. They urge incubation program sponsors at all levels to, among other things: (1) invest more heavily in incubators as a major tool in economic development, (2) target their investments to the best program type for their community resources and (3) seek evidence that any program they support adheres to the authentic definition of an incubator and strives to institute best practices. They also charged the business incubation industry with developing standard impact measures and distributing to incubators a simple toolkit, developed by the researchers, that will make data collection easy at the local level.
"Adding these measures to incubators' total evaluation process will help them track their growth and effectiveness. It will also allow the industry to create a national database, making it possible to study and improve the business incubation process in years to come," says team member Hugh Sherman, assistant professor of policy and strategy, management systems department, Ohio University in Athens.
There is no single formula for retail incubators. In general, however, they are defined as physical facilities that provide new firms with the supportive network necessary to increase their probability of survival during the crucial early years when they are most vulnerable. Most start-ups are short of everything but the founder's energy, and a Jackson retail incubator is one way of building on that spirit while cushioning the demands on things formative businesses don't have—particularly working capital.
Industry leaders pinpoint three areas in which a facility should "deliver" in order to rightfully be called an incubator:
- The facility should provide flexible space for a number of companies at a rent that is either below average for the area, or an exceptional value for the services provided. There should be plenty of room for each business to expand.
- Shared equipment and services are provided that would otherwise be unavailable or unaffordable to help businesses cut costs. Receptionist, photocopying and conference rooms are most popular, with security, phone answering/message center, computer access, word processing, typing, audiovisual equipment and shipping/receiving also in high demand.
- The incubator should offer experienced management advice and access to professional expertise, backed by a policy which ensures that each participating business completes a thorough business plan and any other strategic planning necessary.
Most incubators with a success rate of over 80 percent also meet a fourth criteria: access to capital. Facilities with in-house funding are often difficult to get into because they evaluate businesses more strictly, but knowing that funding is available when needed helps both the individual business and the incubator management to prosper.
Incubators come in different forms. According to NBIA statistics, most (47 percent) are nonprofit, operated by groups ranging from community development organizations to municipal governments seeking to create new jobs and increase local tax bases. Academic related incubators (14 percent) serve as a link between innovations developed by universities or colleges and the businesses that market them to the general public. The so-called "mixed" incubator or "hybrid," which links private companies and public institutions in an effort to create new business, comprises 14 percent.
A growing number (25 percent) are for-profit incubators, which make money by acquiring part ownership in their tenant companies or from rental payments. For-profit operations are expected to grow to at least half the total of all incubators in the next few years. The future is private, for-profit incubators. Of that there is little doubt, the only uncertainty is timing (The NBIA's Adkins, however, contends that nonprofit incubators are still growing at an extremely rapid rate—faster than for-profits—and will continue to be a strong component of the overall mix).
While the major goal of for-profit incubators is to make money—they are in the business of helping young companies because it pays—their motivation is not dissimilar to that of their tenants. Says the owner of one: "Why are we for-profit? Because like the people in the incubator, we're entrepreneurs, too. It sets up the right incentives for us. We survive because we run it like a business."
Just as incubators come in different forms, their size also varies. The largest, measured by land area, is Science Park in New Haven, Connecticut, with 10 buildings on 80 acres. The Charleston Business and Technology Center in South Carolina has the greatest number of tenants—147 in one building. The University City Science Center in Philadelphia consists of 1,100,000 square feet sprawled over 10 square blocks and divided among approximately 100 tenants. Their proudest boast: graduating over 500 businesses. In addition, California is home to the largest incubator in the Western U.S.—the San Pedro Venture Center.
Unlike the traditional incubator in the East, where older buildings were used for facilities, San Pedro boasts of "modern, clean, new surroundings and a 1,000-line Centrex communication system from Pacific Bell," states Manager Frans Verschoor. "We've also just opened a 5,000- square-foot pre-school daycare center, built according to state requirements at a cost of $100,000, that can accommodate 45 children. Operated by the local YWCA, which is paying $1 annually for rent, its central location means parents will never be further than 800 feet, or one minute, from their children," Verschoor comments.
"The pre-school center, the first we know of nationwide in an incubator setting, was constructed in recognition that the requirements of time have changed the traditional roles of women, who are now equally part of the workforce. The growth of single-parent families is also a factor. Having on-site daycare facilities helps the parent, the employer, and the child."
The San Pedro Venture Center, which opened in September 1988, will ultimately house 125 tenants in 11 buildings situated on 10 acres. It currently provides office suites (492 to 785 square feet) or combination office/warehouse spaces (584 to 1,400 square feet), each of which functions as a totally independent unit. Each unit has air conditioning/heating, lights, blinds, restroom, and transformer (to provide a range of power from normal household to industrial strength). All a tenant needs to bring is a desk and chair to set up operations. Each unit is individually alarmed, and connected to a central system complete with camera surveillance.
Not only space, but leases are flexible, unlike typical five-year contracts, it would require a minimum of only six months. While there is no long-term obligation, most tenants signed up for three years.
A host of "pay as you use them" services is available for tenants, including a fax machine, photocopying, and secretarial services, a conference room (with another under construction that will accommodate up to 400 people for seminars and social gatherings), mailroom, and staffed reception area. These services are provided at cost; the developers receive their income solely from rent.
Verschoor has also negotiated with service firms in the Los Angeles area (including accounting, tax, marketing, legal, advertising, and business planning) which have agreed to give sizeable discounts to San Pedro Venture Center tenants. "Not only does this give tenants access to first-rate counsel," Verschoor emphasizes, "but the arrangement makes sense for the consultants. A small company today could be a Fortune 500 in the future."
Additionally, the center can connect tenants with funding sources, both public and private, and has hooked up with NASA's computer database—the largest in the world—which, in Verschoor's words, "is ready to go when tenant needs for information so require."
While Verschoor uses the number of new tenants—now averaging one a week—as one indicator of success, he is most proud of the resultant job creation. "We're located within the San Pedro/Wilmington Enterprise Zone, where the goal is to establish 1,350 new and lasting jobs within the next five years. In its first five months of operation alone, the San Pedro Venture Center created 30 of those jobs."
It's clear that retail incubators can significantly cut down on a start-up's overhead. They allow entrepreneurs to focus on the development of their ventures, rather than on the more mundane aspects of running a business. As a former incubator tenant in Washington, D.C., comments: "Why should you deal with issues such as what phone system or Xerox to buy? It makes far more sense to rent space in an incubator and concentrate on the success of your business."
In addition to surveying companies, incubation professionals, and community stakeholders, the research team conducted a macroeconomic study in four communities to analyze the expanded impacts of incubators, such as how many direct and community spin-off, or "indirect," jobs they add and what effect they have on the tax base.
The return on investment was clearly healthy. "Looking at the operating subsidies these incubators received and the jobs and local taxes they produced, we estimate the return on public investment at $4.96 for every $1 of public operating subsidies," says Larry Molnar. This calculation did not include state or federal taxes, he notes. "The numbers make it clear that business incubators add considerable resources to—not take resources from—their communities," Molnar adds.
The research team confirmed another important fact about incubators: They are not all alike. Although some impacts were similar regardless of incubator type, other impacts related directly to an incubator's mission and goals.
"For instance, firms in all types of business incubators had similar average increases in their annual gross revenues. But firms from technology incubators created more jobs than other types of incubators," says team member Lou Tornatzky, director of the Southern Technology Council, Research Triangle Park, North Carolina. Incubators that are focused on low-income people and minorities were rated high by their community stakeholders in assisting minorities and women business owners and enhancing the business climate. The study divided incubators into three main categories according to the main types of firms served—mixed use, technology, and empowerment/neighborhood revitalization. There are many other subtypes, though, including manufacturing, arts, software, kitchen, and multimedia incubators.
Phases of Project
For planning purposes it will be beneficial to divide the project into phases and establish the timelines for each distinct phase. The usual divisions are: Feasibility (average time is three months); Development (average nine months); Renovation (average time ranges from three months to one year); and the Early Stage Operations during which the project will experience operational losses (average time is 18 months.) The delineation of each phase's time period is particularly important for those phases that occur after you "sign on the line" as owners or lessees of a facility, thus incurring fixed operational costs.
The availability of funds may necessitate that the renovation work on the facility be divided into phases. Certain sections of the facility may have to remain undeveloped until operating revenues generate enough to support increased mortgage, another tenant is located, or there is an allocation of operating budget revenues for renovation of the next phase.
We will identify portions of the facility we will probably lease first. Create a leasing schedule and, if possible, we will attempt to lease in concentrated areas of the building. Certain portions of the facility may be leased to tenants before renovations while other portions could be used during renovations.
When we formulate the project's classifications and timeline, we will remember that each situation is unique. Though this section sites the most commonly used divisions in the planning process many projects "go their own way" and may require classifications which are exceptions to these rules.
There are four phases in the incubator development process: preliminary planning, initiation and start-up, fine-tuning operations, and growing client firms. The following is a snapshot of the first phase.
- Preliminary Planning —Identify potential stakeholders. These will be the movers and shakers in our community: the successful entrepreneurs, politicians, administrators and community activists who are tied to economic development. After identifying stakeholders, we will get a good handle on their goals and objectives.
- Conduct a Needs Assessment —Identify local entrepreneurial base and gaps in the existing business and financial services for entrepreneurs in the community and barriers to accessing these services. This information would come directly from the entrepreneurs. This assessment will also let us know if the community's entrepreneurs and stakeholders mesh. This could be accomplished by facilitating a strategic planning session to allow the stakeholders and project developers to step back and take a look at the implications of their goals and objectives. Also a focus group would be developed of both experienced and start-up entrepreneurs in the sessions.
- Choosing the Right Real Estate —The following items will be taken into account when choosing a building: zoning, building codes, location factors, traffic, hazards, leasable space, security, insurance, access to facilities, material flow, staging areas, floor loads, ventilation, heating and cooling, electrical service, and plumbing.
- Evaluate Organizational Issues, Financing Options —Identify the relationship between the owner, the developer, and management. At this point, the decisions on legal structure of the incubator ownership and evaluation of potential sources of financing for development and operations.
- Determine Support Services and Operating Pro Forma —Determine the composition, organization, pricing and legal structure of shared services, management assistance, consulting, and business financing programs. To determine these factors we would do an operating scheme for the incubator—based on acquisition or site costs, construction costs, market analysis, rental rates, and lease-up schedule.
- Select a Management Team and Finalize Business Plan —Select a management team that is committed to the community, have sympathy for the need of start-up businesses, flexible, creative, steady under stress, high level of interpersonal skills, and they can mentor, administrate, handle public relations, facilitate and can be a friend. Included in our business plan will be preliminary drawings and a client outreach recruitment plan, fine-tuned construction costs, market and economic information, monthly cash-flow projections for the next five years, description of management team, description of legal and organization structure. We will then nail down our financing—get lenders, grantors, and equity partners to come up with money to start the project.
Our service program will precede the operation of the business incubator. A good business assistance service program will serve as one of our most effective tenant and client recruitment tools. Recruiting will begin well in advance of the availability of space for lease. It would be quite acceptable to begin our service delivery up to a year in advance of available space for lease or facility occupancy.
Our service program will be more concerned with the content and quality of each service provided rather than the number of services provided.
The typical management assistance service programs include office practice services, general management assistance services, and technical services. The following list is a sample of one menu of services provided by a business incubator located in Pennsylvania that has been in operation for more than three years.
Level One—Office Practice Services:
- Clerical services
- Switchboard services
- Voice mailbox/electronic mailbox
- Telephone equipment
- Least cost routing for telephone calls
- FAX service
- Postal service
- Overnight courier service
- Notary services
- VCR/TV equipment station
- Audiovisual equipment rental
- Conference room
- Canteen and coffee service
- Sports ticket purchasing
- Auto service discounts
- Audiotape/videotape/journal clip services
- Annual exhibit event
- Group purchasing/warehouse membership
- Furniture rental
- Laser printing and clip art graphics
- Printing services
- Exhibit area
- Desktop Publishing Services
Level Two—Management Services:
- Capital formation
- Customized job training
- Entrepreneurial classes/training
- Technical and commercial communications
- Technical writing—second draft
- Facts about starting and operating a business in Michigan
- Legal referral
- One hour legal briefings
- New Venture Developments
- Business Plan preparation
- Employment services
- Maintenance of facilities/equipment
- Shipping and receiving services
- Marketing service sampler
–Direct mail campaign
–Printed circuit design
A portion of these services will be offered at first for little or no fee in order to introduce and stimulate initial usage per client. This would be equivalent to a special introductory offer.
It is possible that our management assistance program would charge a fee unless our program's third party funding support restricts or prohibits charging a fee.
We will be proactive in order to generate and maintain a sufficient client base for the service program. One strategy to build our client base volume necessary to continue development of the service program is to accept nontenant client companies.
Responding to an informal e-mail survey and phone interviews by the NBIA, business incubator managers said that their programs' successful entrepreneurial firms had the following characteristics:
- An effective management team that works cooperatively and consists of members selected to provide a range of knowledge and skills
- Sound financing, the earlier the better. Funding is directly related to a firm's success, and in some cases it can be the deciding factor between a business venture's success or failure
- Principals that are able to focus on a lead product or service, and avoid over-investing in development and diversification
- Principals that make business decisions based on a clear understanding of the market and the competition, rather than their own enchantment with their product or service
- Principals that keep on top of best business practices by surrounding themselves with knowledgeable people, by remaining open to their advice and ideas, and by being willing and ready to make changes based on new information
- A well-researched business plan in place that provides clear direction and focus
- Principals that are good money managers and remain in control of the venture's books
- Entrepreneurs who are passionate about their ventures and communicate that excitement to potential funders, customers, and mentors.
Entrepreneurial failures often lacked some or all of these elements, according to survey respondents.
The incubator manager should be able to explain why business planning is important, both during start-up efforts and afterwards. Some firms may never prepare a business plan, because they aren't eligible for venture capital, for instance, but they are the same companies that tend to make "seat-of-the pants decisions," and to lack a clear vision of their future.
Principles of the Incubator
As listed in the NBIA Regional Training Institute curriculum, these 10 principles state that incubators should:
- Concentrate on the development or collection of support services that nurture start-up or emerging businesses. Providing below-market rental rates should not be the primary focus of the incubator.
- Value growth and development of individual companies beyond their ability to pay rent.
- Be judged on their ability to create new businesses or help nurture emerging companies, not on the number of jobs directly created. Successful, growing businesses will create employment opportunities.
- Be structured so that the property element takes a secondary position relative to programs since serving businesses is the core of quality incubation programs. However, the facility can offer the following tangible and intangible benefits:
a. a positive cash flow resulting from successful incubator facilities management
b. a centralized place for entrepreneurs to meet
c. a focus for small business support programs in the community
d. opportunities for valuable interchanges among entrepreneurial firms
- Be viewed as one possible component of an integrated, overall, regional economic development plan and be designed to reflect the strengths and weaknesses of the region.
- Be structured so that program outcomes match both the short-and long-term benefits required by sponsors.
- Work from a clear mission statement with quantifiable goals and objectives tied to an evaluation process which rewards quality performance.
- Be run by highly skilled, street-smart managers who are willing to wear a large number of hats, e.g., those of: general business counselor, triage nurse, facilities manager, psychologist, investment banker, etc.
- Recognize the inevitable tension faced by the manager, who functions as both advocate for the companies and landlord of a facility.
- Set up and run operational policies and systems in a business like fashion.
Many incubation programs are hard to staff. A number of "pressures" on the incubator program drive up expenses and drive down revenue. Many business incubation programs respond to these income pressures by restructuring their staff in one of the following ways:
- Balancing the duties and responsibilities of the incubator manager between facility management and the delivery of management assistance services to the tenant companies. If the duties and responsibilities do not emphasize the management assistance side of the equation, most managers will spend the majority of their time on the property and will neglect client services.
- Carefully considering the need to have a full-time staff member attend to the central switchboard and clerical/word processing services for the tenant companies. This is a key position. The switchboard is the lifeline of communication between the incubator and its marketplace. The impression of the incubator's quality is most influenced by the style and content of the switchboard services. The skill to operate a switchboard is rare. Many secretaries have clerical skills and consider the switchboard a "prison sentence." Someone who enjoys the interaction of a switchboard and has word processing skills as well is invaluable.
- A full-time switchboard/word processing staff person with a part-time manager is more effective than a full-time manager and a part-time switchboard/word processing staff person. If we can afford to have both positions full-time, that is great. However, many incubation projects are forced to operate with part-time staff support and you cannot have a part-time switchboard service: business communication requirements are not part-time. Management assistance, however, can be scheduled into a part-time manager's work week.
- Utilizing community organizations' school-to-work and on-the-job training participants, is another way of addressing staffing needs. This concept accomplishes two objectives:
a. It helps community organizations to place their program completers
b. It maintains an ongoing pool of incubator staff candidates.
Targeting a Facility
The following steps will be used to reach an acquisition lease price for using a facility as a business incubator.
- We will examine floor plans and use our best judgment to sketch partitions on the floor plans to accommodate tenant spaces of 140, 400, 1,100, 3,000, and 6,000 square feet. For each large space we will have two spaces of the next smaller size.
- Measure the linear feet of each designated area.
- Measure the net rentable square feet of the partitions.
- Grade and label our leasable spaces A, B, C, or D based on the quality of the space and its location.
- Seek input from three or four commercial realtors regarding market lease rates for similar property and set our market value at the average.
- Calculate the potential revenue at full occupancy by listing A space at full market value, B space at 90 percent of market, C space at 80 percent of market, and D space at 70 percent of market. The total is our potential full occupancy revenue.
- Starting with this potential full occupancy figure, we will subtract 8 percent for vacancy and 6 percent as bad debt expense.
- Next we will subtract at least $.90 but no more than $1.40 per square foot for contributions toward our service program and staff.
- We then will subtract fixed costs for taxes, insurance, etc.
- By calculating $.90 per square foot for maintenance, cleaning, and repairs, we will subtract it from our balance. The rate can be adjusted up or down depending upon the condition of the facility.
- This final figure is the amount we may spend on a lease or mortgage at "full occupancy," regardless of when this is achieved.
- We will follow a conservative schedule of what we anticipate will be leased to tenants such as:
a. 10 percent pre-leased
b. 40 percent lease-up achieved by end of year one
c. 50 percent lease-up achieved by end of year two
d. 80 percent lease-up achieved by end of year three
- These steps can determine what we will have available for lease or mortgage payments through the first three years.
We will then ask ourselves the following questions: Is there is enough money to support our monthly payment with the anticipated subsidy for the first there years? Is there enough money to support an unsubsidized program at "full occupancy"?
If the answer is yes, we will hire an engineer to corroborate our partitioning plan and construct a rough estimate of our renovation costs. If not, we will go back to the property owner to renegotiate and acquisition cost or lease rate.
Based on both the engineer's assessment of renovation and the evaluation of our leasing plan, we can weigh the advantages and disadvantages of constructing a new facility versus proceeding with acquisition and renovation.
Industry "Rules of Thumb"
- We should be able to demonstrate that the facility will break even at 67 percent occupancy or less.
- We will need at least 30,000 square fee gross space to have any hope of breaking even.
- The candidate facilities that look the best financially would be our targeted facilities. We will need to focus on what the facility will generate in income as an incubator than on the actual market value of the property. The purchase price will be dictated by our calculations.
- Having collected the operating data and renovation estimates, we would then be ready to negotiate a tough acquisition price and terms payment.
Strategic Planning Issues
As development plans are prepared, there are a number of strategic issues that need to be addressed. The issues listed below represent very important, basic questions that will be answered as we move forward with the program.
- Who will fund the phases of this program?
- Will this program be place on a plan to self-sustain?
- How large should the facility be?
- How should we structure management assistance services within the program?
- What comes first?
Most business incubators struggle to attain break-even operating status. Those that generate an operating surplus usually achieve returns on investment that would not excite an investor. Many business incubation programs fall victim to sustaining a difficult facility and having client bases that do not generate user fees sufficient to meet management and office practice costs.
Hopefully, our program will generate regular operating profits or our program's budget and cash flow will never become a concern. The income potential of a building can increase its market value and, hopefully, each audit will show an increase in the physical assets of the corporation so our facility's assessed value will increase our net worth annually.
Most business incubators that achieve self-sustaining operations have more than 30,000 square feet of net rentable space and can generate revenues more than $1.50 per square foot above facility fixed costs. However, with very few exceptions, business incubators cannot support adequate returns on investments to more than one stakeholder organization.
Retail incubators have received loan and grant funding from literally hundreds of public and private funding sources. The following are a few planning issues to be considered relating to funding:
- A. Establishing a nonprofit public or private corporation that will offer access to the widest range of funding sources.
- B. If we plan on accessing federal funds from an organization such as EDA we will plan on allowing nine months to one year for a decision.
- C. After our investment in facility renovation/acquisition, we will plan on raising funds to cover an average of 18 months of operational losses.
- D. Federal and state public funds to support business incubators are growing in number and dollar volume allocated.
- E. Most business incubators have not received grant funding support beyond three years.
- F. We will research the dozens of ways to structure the acquisition or lease of the facility that involve creative financing techniques with the seller that will produce far greater cost savings benefits than do most third party grants and loans.
- G. Unfortunately, there are more funding sources available for facility acquisition and renovation than for service delivery and early stage operational losses.
- H. It is difficult to repay money borrowed for delivery of services and the early stage operational losses of our facility unless we have a substantial return on our leasing plan once we achieve a high occupancy rate. We may be able to support these early stage operational losses via debt financing if the money we borrow is a program-related investment from a foundation. The program-related investment usually provides us with a long-term, unsecured, zero-interest loan.
- I. It is now easier to raise grant funds for new construction than it has been in the past.
- J. We have to beware of agreements accompanying the acceptance of a grant such as:
Agreement to have tenant companies sign lease agreements with strict employment clauses.
Agreeing to create dramatic job growth in early years.
Agreeing to maintain the incubator program for 15 years or longer.
- K. Beware of being pressured into undercapitalizing our project.
- L. Within our proposal narrative we will discuss the entrepreneurs and prospects we have met, surveyed, and served rather than to speak philosophically about our marketing approach for locating tenant prospects.
- M. If training must be offered as a condition to our funding, we will make sure that training includes nontenant business training as well as tenant company training.
- N. Establish a for-profit organization and utilize venture capitalists.
Underlying the retail incubator marketing plan is an exploration of the question: Are there prospective customers for a business incubation program in this community? The following questions are suggested to serve as a catalyst to stimulate some creative ways of identifying collection points where our prospective clients may congregate.
- Are there any clusters of businesses that appear to be significant or emerging in markets that appear to have a positive near-term future?
- If so, what do these cluster companies purchase in some volume that could be supplied locally?
- Do the owners of these cluster companies ever meet together?
- What topics would attract these prospective entrepreneurs to attend a meeting at which the incubation program plan could be introduced and discussed?
In addition to answering these four questions, we would identify a minimum of five or more key contact points in the community whom new entrepreneurs can call or visit to receive information and resources to start their company. These contacts would be educated on the objectives of the incubation program. These contacts would also refer to the incubator those entrepreneurs who show the best promise of business survival and who express an interest in facilities which offer an accompanying access to services.
Identifying these key contact points and answers to the preceding questions will help us to locate potential clients. It will also be important for us to be able to assess the demand for a business incubation program. In addition to conducting a traditional survey and collecting demographic statistics, an alternative approach of assessing client demand will be to offer a demonstration of some components of our management assistance services program. We can then gauge an indication of demand by recording the number and type of participants who access our services.
These services can be demonstrated by a variety of ways: one-day workshops, a series of workshops, one-on-one counseling assistance, etc. These ongoing workshops provided by the incubator will be designed to help the program assess the level of entrepreneurial activity in the area as well as to market the incubator itself.
Once we have gathered this information allowing us to identify sources of potential clients as well as assess market demand for management assistance services, we will be ready to consider other important questions as we prepare our marketing plan.
- How can we position ourselves, our staff, and board to initiate marketing and sales activities rather than just to react to opportunities for promoting our program?
- Do we plan to escrow/allocate funds for marketing and sales activities?
- Do we us the word "incubator" as the primary descriptor to prospective tenants?
- Do we split our potential customers into vertical segments to help target special features of our program to customers?
- Do we have plans to develop a "constancy of purpose" among our staff and stakeholders regarding the continuing development and effective implementation of our marketing plan.
- Do we have plans to establish a "track system" to guide our staff and board through the correct process of presenting the facilities and services of our program to prospective tenants?
- Do we have a clear statement of how we are distinguished from your competitors?
- Are we planning to become an active member in our state and national incubation associations?
- Will our marketing materials focus primarily on what just happened vs. what is planned to happen?
- Will our incubation program staff and service providers have regular planning sessions to focus on new services for our existing clients and to plan activities that demonstrate our services to prospective clients?
- Will we actively use our clients' successes to market to target groups?
Creative Funding Strategies
Because financial resources are limited, one solution we will use is to be creative in negotiating acquisition, renovation, lease agreements, and leasehold improvements. We will use the following suggestions to get our creative thought processes flowing.
- A. Remember to ignore the asking prices on the property/facility. Do our calculations as detailed and make an offer to purchase or lease based on the income value of the property—not the market value.
- B. Request that seller carry a portion of the lease/mortgage, receiving monthly payments based on a graduated scale as defined by a prorated three-year lease plan. This will allow us to pay more only after we have rented a larger percentage of our space.
- C. Consider capital equipment needs and seek contributions for the phone system, office equipment, furniture, etc., from companies that manufacture and/or sell these products.
- D. Ask area banks to pool funds via a CRA plan for leasehold improvements. Then base our leasehold improvements on tenant loans a few percentage points higher than CRA terms, amortizing the payments to the length of the leases. This will enable us to have the tenants pay for more of the capital improvements as well as encourage longer lease agreements.
- E. Permit the anchor tenant to sublease to others as long as the tenant agrees to commit to a larger square foot area than they currently need, but eventually plan to utilize. Give them a lower rate on the extended space allowing them to gain a margin of income on that space.
- F. Include the rental space, leased furniture, and a package of office practice services in one flat rate monthly charge. When using this method, we will calculate the square foot rate of this office at double our normal lease cost. The services fee should be calculated at an hourly rate based on defined usage—assume the maximum number of hours whether or not they use their full allotment. The sum of all three factors equals the monthly charge.
- G. Determine whether the seller has the opportunity to obtain a tax deduction for the amount of the difference between the market appraisal and the sales price. Such a tax deduction would create an incentive for the seller to discount the sale price by the net effect of the tax deduction.
- H. Attempt to restrict grant funds to a specific portion of the facility in order to increase project flexibility and leverage other sources of debt equity.
- I. Identify our net rentable lease units as A, B, C, or D grade space. Attempt to package A space with some B, C, and/or D space per tenant. This will prevent the possibility that we will rent the A space first and experience the increased difficulty of lease the B, C, and D space. Price the lease rates accordingly.
Community Reinvestment Act (CRA)
The CRA, revised in 1989, offers the incubation industry two opportunities: to obtain bank participation in an incubator development project, and to obtain money for revolving loan funds or other lending programs in order to extend credit to incubator tenants and the small- and minority-business community.
Banks can fulfill some of their CRA compliance factors related to their effectiveness in communicating with—and working with—community groups by participating in the development of a business incubator. There are a number of services the incubators can provide to banks with good data about what's happening economically in their neighborhoods and alert banks to the latest neighborhood business trends. Additionally, they can provide banks with a wide range of services including helping to review loan packages and other technical assistance.
Incubation Part of Policy Statement
After a broad-based community task force assesses the credit needs of the community—which is always the first step—it is commonly found that almost every market reports the same needs: financing for small businesses for working capital and for fixed assets. This would be included in the needs statement, the policy statement asks the banks to come with a plan to address these needs. And that's where an incubator can fit in.
The CRA implementation plan can specifically include funding for an incubator project or loans for incubator clients and small businesses.
Federal Reserve states that "Support of small business incubator programs affords institutions an opportunity to provide other services which can stimulate small-business development. These activities, in our view, would be included as part of an institution's record of performance under CRA."
Washington added that this communiqué, received in November 1988, placed incubator projects under the category of "other activities" in which financial institutions may engage in order to receive CRA credits. According to Washington, banks can help incubators address two pressing needs: funding for incubator project and loans for start-up businesses.
According to Washington, an incubator looking to secure these kinds of CRA-related funds from banks must first participate in the formation of a community group such as a city-county reinvestment task force. This task force represents all segments of the community, which is responsible for coordinating and assisting with the assessment of needs and eventually developing a plan.
Funding for projects is not a given. An incubator has to be a viable project and be on the alert for opportunities to promote its work.
Banks must be shown that incubators can offer them a good deal that will help them meet the regulators' CRA expectations.
One group meets with a consortium of seven banks. The group meets with top officers once a month to help them meet CRA requirements. This group has adequate information about their real estate transactions, where they might be lagging behind and what they may do to better market their services in terms of meeting CRA requirements.
Blending bank funds with government and foundation sources creates a solid building block and helps the incubator to be viewed as less risky. The incubator can also engineer some other CRA-related deals: seed capital and subordinate loan pools to help meet the needs of minorities and underserved people in the community.
Another way a bank can help is to provide scholarships for low-income entrepreneurs and owners of small businesses or start-ups to take classes.
The retail incubator can also assist with providing a one-on-one service covering the "pre-application" loan process for a possible citywide seed-capital revolving loan fund; this service can be funded by the Small Business Development Center (SBDC).
Utilizing the CRA is an excellent way for our incubator to leverage financial support, both for ourselves and, perhaps more importantly, our tenants.
Empowerment Zone Initiatives
Detroit's winning proposal was the result of many people representing the community and the gamut of public and private organizations throughout Detroit and the metropolitan area. The vision expressed, the projects proposed, and the commitment guaranteed, truly set Detroit's proposal apart from any of the other submissions.
According to a the Jackson Journal article dated September 27, 2000, and entitled "Gore envisions cash aid for Jackson," it is possible that Jackson, Michigan, may have another opportunity to apply for an empowerment zone designation. A state-of-the-art business incubator could play a role in the strategic plan to outline programs and strategies aimed at reducing the effects of poverty in the inner city. It could also assist in bringing together unlikely groups of community residents, city and state officials, and representatives of local business and financial institutions to work side by side to determine the best ways to address poverty issues in their communities.
The business incubator will also assist with the framework of the EZ/EC programs' four key principles:
- Economic Opportunity, including job creation within the community and throughout the region, entrepreneurial initiatives, small business expansion, and training for jobs that offer upward mobility
- Sustainable Community Development, to advance the creation of livable and vibrant communities through comprehensive approaches that coordinate economic, physical, environmental, community, and human development
- Community-Based Partnerships, involving participation of all segments of the community, including the political and governmental leadership, community groups, health and social service groups, environmental groups, religious organizations, the private and nonprofit sectors, centers of learning, other community institutions, and individual citizens
- Strategic Vision for Change, which identifies what the community will become and a strategic map for revitalization
Since the aim of the EZ/EC Initiative is to serve as a catalyst for locally generated strategies, its accountability can be assured through the development of benchmarks such as a business incubator. The initiative's design reflects the benefit of prior experience and knowledge of successful economic development efforts by combining targeted tax incentives with such things as direct financial assistance, job readiness training and placement services, improvements to physical infrastructure and public safety, and the development of strong community partnerships shown to be essential for long-term success.
Like Detroit, Jackson can also empower itself through the strength of a city committed to a new economic future. Our future can also be built upon:
- New economic foundations blending business into the neighborhood, linking training and jobs to Zone residents, offering real access to new financial resources
- The proposed Zone's new vitality can succeed by citywide and regional cooperation. We can build and maintain a positive flow of employment, capital and innovation. Each section of our Plan can also demonstrate a commitment to build new bridges across all economic and social sectors, while removing barriers between citizens, government, foundations, institutions, and our regional neighbors.
By sponsoring small business incubators in their state, state governments can encourage local economic growth through job creation and job retention, the revitalization of underutilized property and the establishment of public-private partnerships.
Partnering for Economic Development
As a focal point of entrepreneurial activity, our business incubator may provide key leadership to the new business formation component of our community's economic development plan.
The most important planks in our economic development plan are retention and expansion of new businesses. The other area of economic development has to do with all of those areas that affect business development. It includes education, taxation, infrastructure, and availability of financing—whether you are expanding or relocating or creating a new business.
After looking at who's doing what in our community and how we are accomplishing our overall economic development, the city, county, and private sector are becoming more educated to the significance of new business formation and to the role it could play in Jackson's economic development.
By bringing together the Jackson Chamber of Commerce, Small Business Development Center, Community Capital Development Corporation, Jackson Area Investment Fund, colleges and universities, Small Business Administration, Business Information Center, Women's Business Center, City of Jackson, Michigan Minority Business Development Center, Enterprise Community, Career Alliance, Metropolitan Chamber of Commerce, Jackson County Planning Commission, HUD, and our local banks into a partnership, we could create a Council of Small Business Enterprises (COSBE). The retail incubator will be the nucleus of these community partnerships and for a new business council component in our economic development plan. This concept can continue to grow by forming linkages with other organizations interested in economic growth.
National Business Incubator Association (NBIA)
Membership in NBIA
A key alliance and support system for the proposed Jackson business incubator will be our membership with the National Business Incubation Association (NBIA). It is the world's leading organization advancing business incubation and entrepreneurship. It provides thousands of professionals with the information, education, advocacy, and networking resources to bring excellence to the process of assisting early-stage companies. It is also the world's largest membership organization for those involved with business incubation programs, and it is committed to advancing the business incubation industry by providing research, technical assistance, and educational opportunities for business incubation professionals, business service providers, investors, and others involved in helping start-up businesses grow and thrive.
NBIA offers professional development activities and specialized training to help business assistance professionals create and administer effective incubation programs. The Association's public awareness activities educate entrepreneurs, public sector leaders, corporations, and investors on the benefits of business incubation. NBIA also conducts research, compiles statistics, produces publications that provide hands-on approaches to developing and managing effective programs, tracks relevant legislative initiatives, and maintains a speakers' bureau and referral service. It creates partnerships with leading private-sector and public-sector entities to further the interests of the industry and its members.
Who belongs to NBIA?
- Incubator executive directors, managers, and staff
- Incubator developers and researchers
- Business assistance professionals
- Economic development professionals
- University-related research park managers
- Corporate joint venture partners
- Industry consultants
- Venture capital investors
- Educational institutions
- People exploring feasibility of business incubation for their communities
- Anyone interested in business incubation
- Provide information, research, and networking resources to help members develop and manage successful incubation programs
- Monitor and disseminate knowledge of industry developments, trends, and best practices
- Inform and educate leaders, potential supporters, and stakeholders of the significant benefits of incubation
- Build public awareness of business incubation as a valuable business development tool
- Expand capacity to create valuable resources for members through partnerships
- Engage and represent all segments of the industry
- Create value for members
- Subscription to NBIA Review and NBIA Updates
- NBIA Member Directory
- Access to members-only section of NBIA website
- Eligibility to join NBIA's member-only listserve
- Information research, referral, documentation, and dissemination service
- Legislative and government program updates
- Special money-saving programs for goods and services with leading providers
- Targeted member mailings including industry press releases and media tool kit
- Eligibility to vote in NBIA elections and run for the NBIA board
Members-only Discounts on:
- NBIA bookstore purchases, including important publications for incubator managers, developers, and clients
Incubator Risks and Failures
Incubator developers are always interested in what makes an incubator work. But we found it can be more useful at what makes an incubator fail. We found there to be five main stumbling blocks to success.
- Expecting too much too quickly. The dynamics behind incubators can be very complicated, which means everything does not come together as quickly as a real estate operation might. But people don't understand that. Some developers believe they can acquire a building and put out a sign shortly thereafter. They fully believe that once the incubator opens, the jobs and companies will flow in. This type of expectation leads to frustration and dissatisfaction at best and failure at worst. Developers also must manage expectations of the public. This is always tough. When city councils and economic development administrators get involved in a job creation goal, they want the community to see immediate results. But they must be made to understand that it takes two to five years for most companies to become viable in the marketplace.
- Selecting the wrong manager. Because the incubator manager is the key person running the incubator—and sometimes the only person—he or she must be well-rounded, well-organized, have good business sense, and be a skilled networker. The latter is especially important. The ability to gain resources and cooperation from important institutions, individuals, and organizations often spells the difference between success and failure.
- Overestimating the incubator's role. Economic development planners can make the error of viewing an incubator as a cure-all for economic growth. It can make a significant contribution, but it cannot cure all the economic ills of a region. The existence of an incubator most likely won't influence a large industry to relocate, for instance. Incubators can make a contribution to expansion and retention of industries already in a region by training, expanding and providing additional resources to companies there. The most important purpose of an incubator is to work with entrepreneurs to accelerate the development of emerging companies. That must be the key focus of management. Thinking that incubators are there to create jobs is a mistake; jobs follow the companies, not vice versa.
- Overspending. Some incubators don't understand the dynamics of their own business—and an incubator is a business after all. The ability to manage cash flow and stay within the boundaries of the operating budget are as critical to incubators as they are for any business.
- Failure to leverage resources. It takes an incubator a few years to get running and become financially stable. Developers must set a realistic timeframe, then leverage resources. As an example, the Austin Technology Incubator in Texas looked for funding for three years out. Its city council committed to $50,000 a year for each three years. The Chamber of Commerce put in $25,000 a year for each of the three years. The incubator raised $50,000 a year from private sources. In addition to that, private companies—such as accounting, law, and marketing firms—made three-year commitments of in-kind support amount to about $100,000 a year. Resources are thus leveraged and, as a bonus, a lot of people gain a stake in the incubator's success. Although Austin did not start out doing so, more incubators are taking equity in client companies as another important leveraging tool.
Until a building has been located and our calculations completed it is difficult to pinpoint exact funding needs. According to NBIA, the average start-up of a business incubator is between $72,320 to 207,500. The breakdown is as follows:
|Low Estimate||High Estimate|
|Note 1. Real Estate costs include the cost of modifying a leasehold to meet criteria for business incubator standards. The cost of such leasehold improvements may be paid by the landlord as a part of the lease negotiation, or may be paid by the Proprietor. These costs have been estimated to be from $0 to $25,000.||Note 2. Total purchase price for this item is represented by the high estimate figure. The equipment may be purchased through a vendor. The initial investment under an equipment lease is represented by the low estimate figure which includes a deposit and six month's payments. Furnishings include desks, chairs, and file cabinets for clients.||Note 3. Organizational Costs include the cost of attorney fees, financial advisors, and other costs associated with the new company.||Note 4. This figure includes cash reserves for the initial start-up period, including salary for Proprietor or General Manager. This is an estimate, and there is no assurance that additional capital will not be necessary during the start-up period.||Note 5. This figure represents costs of an initial marketing and public relations campaign.|
|Leasehold Improvements||$0||$25,000||Note 1|
|Telephone System||$700||$30,500||Note 2|
|Office Equipment||$1,650||$18,750||Note 2|
|Organizational Costs/Other||$3,600||$7,750||Note 3|
|Additional Funds||$20,000||$50,000||Note 4|
|Initial Marketing||$3,500||$5,000||Note 5|
|Prepaid Rent/Utility Deposit||$9,000||$17,500|
|Travel and Lodging||$1,500||$2,500|
Retail incubators are proven tools for creating jobs, encouraging technology transfer, and starting new businesses. Set up to assist in the growth and development of new enterprises, incubators are themselves a growth industry. In 13 years, their number has increased thirty-fold, to more than 500 in 1993. A new incubator becomes operational each week, on average. More than 9,000 small firms currently reside in incubators; thousands more are program "graduates," having moved on to occupy commercial space within their communities.
Retail incubators accelerate the development of successful entrepreneurial companies by providing hands-on assistance and a variety of business and technical support services during the vulnerable early years. Typically, incubators provide space for a number of businesses under one roof with such amenities as flexible space and leases; office services and equipment on a pay-as-you-go basis; an on-site incubator manager as a resource for business advice; orchestrated exposure to a network of outside business and technical consultants, often providing accounting, marketing, engineering and design advice; assistance with financing; and opportunities to network and transact business with other firms in the same facility. Incubators reduce the risks involved in business start-ups, and their young tenant companies gain access to facilities and equipment and equipment that might otherwise be unavailable or unaffordable.
Our incubation program's main goal is to produce successful graduate-businesses that are financially viable when they "graduate" from the incubator, usually within two or three years of entering the program. Research shows that more than 80 percent of firms that have ever been incubated are still in operation. And research on graduates by Coopers & Lybrand has found that these graduates are increasing revenues and creating jobs.
Formalization of the industry was accelerated from 1984 through 1987 by the active involvement of the U.S. Small Business Administration's Office of Private Sector Initiatives. Under the direction of John Cox, now SBA's Director of Finance and Investment, the agency held a series of regional conferences and published a newsletter and several incubator handbooks.
The National Business Incubation Association was formed by industry leaders in 1985, and by 1987 was recognized as the main source of information on incubators. NBIA's membership today numbers over 700 and is primarily composed of incubator developers and managers. Its mission is to provide training and a clearinghouse for information on incubator management and development issues and on tools for assisting start-up and fledgling firms. This organization will provide the technical support and research needed, plus ongoing support in the developmental and completion stages of our incubator.
Ice Cream Shop: Fran's Ice
Ice Cream Shop
Davis Plaza Regional Mall
19 Orchard Avenue
Davis, CA 95616
This business plan details a franchise ice cream shop located in a California shopping center. Fran's Ice anticipates continued success due to its superb location, diverse menu, and well-known quality product
- table of contents
- executive summary
- fact sheet
- description of business objectives
- the market
- competitive analysis
- development timetable
- principals' profiles
- financial information
The purpose of this business plan is to outline the parameters under which the principals will pursue the construction, development and operation of a franchised Fran's Ice Cream Shoppe in a key location at the mall entrance to the food court of Davis Plaza, a successful, dominant, super regional shopping center in metropolitan Woodland - Sacramento.
Davis Plaza's management company, Martin Richardson and the franchisor, the Fran's Ice Shoppe Company, Inc., are optimistic and enthusiastic about locating a high-volume shop within Davis Plaza.
Martin Richardson, The Fran's Ice Shoppe Company, Inc., and the franchisees, Augustus and Cheryl Dwyer, are all confident that this Fran's shop will be successful among the other national stores already committed to doing business in Davis Plaza.
The Fran's Ice Shoppe of Davis (franchisee), will construct, develop and operate a licensed franchised ice cream dipping shop of The Fran's Ice Shoppe Company, Inc. (franchisor). This single retail dipping shop will sell Fran's ice cream and related products, all manufactured by the franchisor under its name.
Revenue will be primarily from the sale of hand-dipped ice cream and related products consumed within Davis Plaza. Franchisees will also sell ice cream cakes, traditional gourmet cakes, birthday cakes and Cola products. Sales are anticipated to be $360,000 in the first year and to increase at an average annual rate of 4% per year in the first five years of operation.
The franchise will be located in Davis Plaza in Davis, California. Because of its location in the center of the Woodland - Sacramento areas, Davis Plaza serves many communities and is commonly considered the Tri-Cities' premier retail facility. Davis Plaza, which opened in 1968, is a two-level, enclosed regional shopping center containing a total of 1.2 million square feet and 200 stores, shops and food service establishments. The Plaza is anchored by Hank's, B.P.'s, and Westbury's. Fran's Ice Shoppe of Davis will be located in "The Outdoorum" which is Davis Plaza's 40,000 square foot food court containing 17 food service establishments including Cheese Pleese, Beefeaters, and Sweet Dreams.
Franchisee's primary customers will be drawn from Davis Plaza's 1994 trade area population of over 853,000 people, which is projected to reach 940,000 people by 1999. Customers shopping The Plaza will purchase Fran's handdipped ice cream and other products on an impulse basis during their shopping trip, or as a dessert treat upon completing a meal at The Outdoorum. Franchisee also anticipates that many patrons will make the shop their primary destination due to name recognition and product quality. Except for a small Earl's Ice Cream Shop and a Frozen Treat selling soft serve vanilla only, there is no other competition within Davis Plaza, and no outside competition within 2 miles of The Plaza.
The principals will be managing their own shop. Augustus Dwyer will be the hands-on manager for daily operations. Cheryl Dwyer will retain her present position as a nurse clinician for J. Landers, but will assist with her employee management and accounting skills. In addition, approximately six to ten school and/or college students will be hired to work shifts during peak sales periods. Other part-time employees may be hired on an "as needed" basis for special projects such as cake decorating, preparing large orders for caterers and servicing of other special functions.
Project costs are projected to be $250,000 which includes leasehold improvements (build out of the shop), equipment purchases, opening inventory, and working capital needs. This amount does not include the $35,000 franchise fee, $3500 Fran's grand opening contribution, or $7870 cost of architect's plans for the store which Gus and Cheryl Dwyer have already invested in this business from their own funds. The principals are seeking to finance the remainder of this project through a local lending institution using the assistance of a Small Business Administration (SBA) guarantee, with an agreement that allows for loan repayment over 10 years.
Based on a preliminary timetable it is anticipated that the shop will be operational for business no later than April, 1, 1996.
|Business Type:||Fran's Ice Franchise Ice Cream Shop|
|Location:||In the food court of Davis Plaza Regional Mall Davis, California|
|Size:||556 Sq. Ft.|
|Rent:||$3,487 gross (includes all CAM charges)|
|Projected Sales - Year 1:||$360,000|
|Loan Collateral Available:||$91,000 Equipment Value|
|$30,000 Equity in home|
|$ 12,000 Opening Inventory|
|Principals:||Augustus and Cheryl Dwyer|
|37 Huckleberry Lane|
|Fair Oaks 95628|
Other Noteworthy Facts:
- A 2.5 gallon tub of ice cream from Fran's costs $29.00 ($11.60 gal.)
- From a 2.5 gallon tub come 724 oz. scoops which sell for from $1.50 to $l.95 a scoop. Therefore a tub will sell for $108 to $140.
- Average ticket for a Fran's shop runs around $2.30.
DESCRIPTION OF THE BUSINESS/OBJECTIVES
The Fran's Ice Shoppe of Montclair (Shoppe), will be a franchised operation of The Fran's Ice Shoppe Company, Inc. licensed to sell Fran's ice cream and related products. The Fran's name has been associated with the ice cream business since 1961. The Company manufactures a large and growing volume of Fran's products which it distributes through a variety of channels. The ice cream ordinarily is not sold for retail dipping except to franchised dipping shops.
The Franchisor is Connecticut Corporation, with principal offices in New Haven, C.T. The ultimate parent of the company is Drake PLC, a public corporation listed on the London Stock Exchange, via ownership of The Harley Company.
Franchisees have been granted a license to sell certain ice cream products under the Fran's name since 1977, although the franchisor has been conducting a business of the type operated by the franchisee since 1983. Affiliates of the franchisor are actively engaged in various other sectors of the food service industry, including fast service restaurants, theme restaurants, food service supply business, institutional and retail food production, distribution and sales and food commodity transactions.
The main items for sale will be hand dipped ice cream and yogurt cups/cones, sundaes finished with a variety of toppings such as hot fudge, caramel, butterscotch or fruit, banana splits shakes malts, and ice cream sodas and floats. Most of these items will be consumed immediately on the premises. Davis Plaza provides extensive indoor seating for the food court customers.
In addition to hand-dipped ice cream sales, the Shoppe anticipates doing a material business in the sale of both ice cream cakes and gourmet traditional cakes and birthday cakes. These cakes will be displayed for immediate sale at all times during business hours and can also be produced in quantity on a special order basis for caterers and parties. Phenomenal foot traffic in the plaza and employees from the 200 shops in the mall can support a lucrative cake business for the Shoppe.
The goals and objectives of The Fran's Ice Shoppe of Davis are as follows:
"To deliver a quality product in a consistent, courteous and timely manner in order to have the customer return again for another satisfying, flavorsome treat, while at the same time earning a reasonable return on the initial investment"
The principals believe that for an organization to be successful, the organization must ensure that the customer continues to return to purchase the product, again and again. One way to ensure repeat business is to provide consistency in both the product and service. Fran's product speaks for itself; the service our Shoppe provides will be a function of training, evaluation, and retraining in order to deliver it courteously and in a timely manner.
In order to earn a reasonable return on the investment, along with the ability to repay debt, strict cost-control measures will be implemented. These measures will include, among others, proper and prudent purchasing practices, maximization of product distribution through strict adherence to weights, amounts and recipes (portion control), effective utilization of personnel, and the constant search for ways to reduce the cost of sales of our products without sacrificing quality and service.
In summary, the principals are committed to ensuring that this operation is successful.
The purchase of hand-dipped ice cream and related products is basically an impulse-type purchase by a consumer relating to one of the following stimuli:
- Passing by the Shoppe on the way to another destination,
- Visual contact with the Shoppe's signs,
- Observing someone else consuming one of the Shoppe's products,
- The final course (dessert) after a meal has been consumed elsewhere.
Locating the Shoppe in Davis Plaza gives the business the opportunity to take advantage of all of the above mentioned ways which motivate the consumer to purchase the products offered.
Passing by on the Way to Another Destination
Davis Plaza is comprised of the best known, nationally recognized retail stores and outlets. The unique blend of these operations draws a large cross section of the population to the Plaza to shop for a variety of goods and services. The Fran's Ice Shoppe of Davis will be a 556 square foot store located at the entrance to the food court of the mall. It is on the second level, right across from the main escalators carrying shoppers from the lower to the second level. It is between the main parking structure and B.P.'s, requiring all B.P.'s patrons entering from the main parking structure to pass directly in from of the Shoppe on their way to B.P.'s. The Shoppe is well within walking distance from anywhere in Davis Plaza in five minutes or less. Because of its location, many patrons of the Plaza will pass by the Shoppe on the way to and from another store, making it convenient for an impulse purchase.
Visual Contact from the Shoppe's Sign
Signage is planned for the Shoppe in two locations. Large, colorful neon signs will be located over the dipping cabinets, making them visible from both the food court and from down the mall. Since the Shoppe will be in a corner location, the Shoppe will be visible from several directions in the "I" shaped mall. There is also an opening to below directly in front of the Shoppe, allowing visibility to patrons on the lower level. The location for the Shoppe has the greatest amount of foot traffic in front of it than any other food service in Davis Plaza.
Observing Someone Else Consuming One of the Products
As previously mentioned, the Shop's products more than likely will be consumed on or nearby the premises. The fact that Davis Plaza is enclosed and self-contained will make Fran's products very visible to many shoppers, particularly since all products will be served in containers that display the Fran's logo.
The Final Course (Dessert) After a Meal has been Consumed Elsewhere
In addition to the tremendous foot traffic generated by the major department stores and numerous nationally renowned shops surrounding The Fran's Ice Shoppe of Davis, the Shoppe is to be located at die entrance to The Outdoorum, the Plaza's food court. The food court houses 17 places to eat. The Shoppe can be seen from anywhere in the food court, making it a likely destination for a dessert treat following a meal for the entire family. The Shoppe will have two 3-foot wide, 4-shelf display cases for cakes. One 3-foot display will be for frozen ice cream cakes, and the other will be refrigerated for display of traditional gourmet cakes and gourmet birthday cakes. The principals believe that tremendous potential exists for the sale of birthday cakes in the Plaza since many gifts are purchased there and no competition exists for these items in the Plaza.
An additional marketing strategy of the Shoppe will be sales generated from freezer carts bearing the Fran's logo and colors off site from Davis Plaza. There are many fairs, festivals and parties within the Shoppe's geographic service area (including the Sacramento County Fair, and Renaissance Days) where significant additional sales may be generated on ice cream bars and other novelties. Most importantly, these outside sales will give the Shoppe name recognition which will help make it a primary destination for an expanded segment of the market.
Additional methods of enhancing the Shoppe's name recognition will be local newspaper advertising with coupons, special promotions and discounts to employees of Davis Plaza, companion promotions and discounts with other merchants in the Plaza, and offers to local schools for discounts to students with good grades.
Lastly, additional sales revenue and name recognition for the Shoppe will be generated by sponsoring sports, social, educational and fund-raising activities within the communities served by Davis Plaza. The principals have numerous fund-raising idea and plans for community involvement that will help make the Shoppe a money-maker.
The primary competitors of The Fran's Ice Shoppe of Davis are within the Davis Plaza itself. The principals have done a detailed analysis of the existing ice cream and yogurt shops outside Davis Plaza, and this study is available upon request. The principals believe that the two ice cream and yogurt related businesses inside Davis Plaza are the Shoppe's main competition. They are:
Located across The Outdoorum from the Shoppe. Frozen Treat does not serve real ice cream at all. They serve only one flavor of soft serve, vanilla. They make cones, cups, sundaes and shakes and, according to Davis Plaza management, enjoyed $550,000 in sales volume in 1994 and approximately the same sales volume in 1995.
Earl's Ice Cream and Yogurt
Located in the Westbury wing of Davis Plaza. This is a small shop with extremely limited visibility. It is not located in The Outdoorum but is on the outskirts of the heavy traffic area of the Plaza. Earl's serves 24 flavors of real ice cream and 2 flavors of frozen yogurt. No cakes are offered for sale. According to Davis Plaza management Earl's enjoyed $303,000 in sales volume in 1994 and approximately the same sales volume in 1995.
The principals believe that there is outstanding potential for the sale of Fran's super premium quality ice cream, yogurt and related products in Davis Plaza. As just noted, in 1994 and 1995 the sales volume generated for ice cream, frozen yogurt and soft serve in Montclair Plaza was $852,000. The Fran's Ice Shoppe of Davis will be located in the most visible food service location in Davis Plaza. The principals feel that Frozen Treat will not hinder the Shoppe's sales because Frozen Treat serves only average quality soft serve vanilla products. The Shoppe will have 32 flavors of the finest quality ice cream and 6 flavors of frozen yogurt and sorbet ready for sale at all times…as well as ice cream cakes, birthday cakes, gourmet traditional cakes by the slice or whole, and shakes, malts, sundaes, ice cream bars, frozen yogurt and sorbet bars, and sodas.
Other ice cream and frozen yogurt stores exist within a three-mile radius of Davis Plaza. There are four small independent stores and three Scoops stores in this three-mile circle. The closest independent to the Plaza is approximately 2 miles away. As stated previously the principals strongly believe that the Shop's main and most important competitors are inside Davis Plaza. The principals also firmly believe that the quality and selection of Fran's products they will offer, coupled with a superior location within the Davis Plaza, will help them achieve the success they anticipate and will work toward. The principals are also actively engaged in negotiations with the landlord to exclude any new competition from The Plaza during the term of their lease.
The principals, themselves, will manage this business. Augustus Dwyer will be the hands-on manager for the daily operation of the Shoppe, assisted by Cheryl Dwyer. Gus Dwyer shall have the following responsibilities and perform the following duties:
- Oversee the design, development and construction of the Shoppe
- Collect competitive bids for the build out of the Shoppe and for the equipment needed for the Shoppe. Select contractors and equipment suppliers to complete the Shoppe.
- Seek and obtain the necessary financing for this project.
- Attend and successfully complete Fran's Ice Basic Management Training Course # 318 at The Fran's Ice Shoppe Company, Inc. corporate offices in New Haven Connecticut. This is an eleven day training course which will prepare Gus to successfully operate a Fran's ice cream shop. Gus is registered to attend this course from 1 -16-96 to 1 -26-96.
- Plan, coordinate and execute merchandising and promotion of the Shoppe, including Grand Opening activities, and a year round calendar of holidays, special events and numerous other promotional activities.
- Prepare all products to be sold, sourcing the most cost effective suppliers on goods not purchased from Fran's directly. Maintain adequate levels of inventory, while maximizing inventory turns and losing no sales due to out-of-stocks.
- Ensure that standards of product quality control and shop cleanliness required by the franchisor are maintained on a daily basis.
- Recruit, select, interview and hire all Shoppe personnel.
- Perform orientation, training and re-training of all Shoppe personnel.
- Perform all required accounting functions for the Shoppe.
- Personally make a commitment to give 100% best effort and a personal full-time commitment to operating the Shoppe to its greatest potential. Gus will demonstrate the leadership necessary to operate the Shoppe successfully on a daily basis, and to ensure an acceptable return on the initial investment and repayment of debt.
The principals will designate certain properly trained personnel who will coordinate the activities of the other employees during periods when Augustus Dwyer is not on the premises. Those employees will be trained to make prudent decisions in the absence of Gus Dwyer and to carry out the duties of the Manager on an as-needed basis. In the event of an emergency, the principals can be contacted by phone or paged by remote pager and be on-site within 15 minutes.
Six to eight high school and/or college students will be hired to work at the Shoppe on a part-time basis. There will be no full-time employees of the Shoppe other than management.
The principals are developing a program of orientation and training which all Shoppe employees must complete prior to starting work. A written policies and procedures manual will be the foundation for that that training. All Shoppe employees will be trained to perform all customer service, quality control, and cleanliness and sanitation procedures utilized by the Shoppe, and will know exactly what is expected of them as a Fran's Ice Shoppe employee.
The principals have worked for many different supervisors in their 37 years of combined work experience, and have seen many different management techniques and styles. Augustus Dwyer has extensive management experience in both retail and wholesale sales and customer service. Cheryl Dwyer brings to Fran's a wealth of experience as house supervisor in a 205 bed J. Landers Hospital, supervising 60 or more nurses at a time. The combined management experience which the principals have will be an asset to them in training and managing a productive team of Shoppe employees.
The proposed timetable for the project is as follows:
|Activity||Target Time table|
|• Site selection approved by Fran's||May 11, 1995|
|• Franchise Agreement signed and franchise fee/grand opening contribution paid to Fran's by principals||Nov. 26, 1995|
|• Submitted lease proposal to Martin Richardson (Davis Plaza management firm)||Nov. 28, 1995|
|• Received draft lease from attorneys for Martin Richardson and forwarded lease to principals lease attorney, Chip Barker of Burns, Webster, Paquette, Walton, and Weig and||Dec. 20, 1995|
|• Submit business plan and loan application to financing institution for review and approval of loan request||Jan. 8, 1996|
|• Receive loan approval from lender and SBA||Jan. 15, 1996|
|• Receive complete Blueprints and drawings of leasehold improvements for the Shoppe from Lee Freemont Architecture & Design, Detroit, MI||Jan. 15, 1995|
|• Attend and successfully complete all courses offered at Fran's Ice Basic Management Training Course # 318 in New Haven, C.T.||Jan. 16-26, 1996|
|• Perform competitive bid process for leasehold improvements (buildout of Shoppe), purchase all Shoppe equipment||Jan. 27, 1996|
|• Award contracts and commence buildout of Shoppe||Feb. 1, 1996|
|• Grand Opening||April 1, 1996|
Augustus Herman Dwyer
A strong, responsible businessman and manager, Augustus Dwyer has over 21 years experience in retailing, wholesaling and customer service Gus' roots are in the grocery industry, where he was employed for 14 years. The first 5 years Gus spent working at store level as a box boy, grocery clerk, produce clerk, and produce department manager. He was elevated by Division Corporate Personnel who felt that his talents would be best utilized at the division level and promoted to Division Produce and Floral Buyer.
During this 9 year period, Gus' hands-on approach to his work greatly benefitted his company. Gus planned, researched and implemented a program of fresh fruit, soup and salad bars for the company and personally assisted in the set-up of 41 new salad bars divisionwide.
Gus was also responsible for planning the division's floral program and purchased cut flowers and plants for 110 stores for 4 years.
Utilizing his knowledge and experience in the floral trade, Gus now works as National Sales Manager for a flower wholesaling company in San Francisco. He has an outstanding record in high volume sales and increasing sales revenues. He has expanded the customer base, sourced new suppliers, and increased the variety of product his company sells, resulting in a 30% increase in sales since coming on board with the company.
Gus' strengths include the ability to plan, organize, achieve results quickly, and evaluate and implement winning marketing strategies. He has significant influence with other employees and positively motivates his subordinated and peers. He is an experienced buyer, merchandiser, salesman, and customer satisfaction specialist.
Cheryl Lynn Dwyer
An experienced nurse manager, Cheryl's nursing background involves a total of 10 years as a Registered Nurse, all employed with J. Landers. Seven of the years have been dedicated towards the Management Of Medical-Surgical And Maternal Child Health Nursing Services. Accountabilities include yearly performance evaluations of approximately 45 employees and the general supervision of J. Landers Florin on the evening shift of the entire hospital, which averages 120 employees. All problems unresolved are directed to her for her successful resolution and followup.
Cheryl is responsible for the successful planning and implementation of the Medical-Surgical Department Quality Management Program, which encompasses directing nurses in data collection, action plans and evaluation on a monthly basis. She has completed a 12 week, total quality management course and participated in two task forces utilizing Total Quality Management (TQM).
Cheryl's strengths include effective organization and leadership abilities and extensive interpersonal skills. Cheryl has seven years experience hiring successful employees, coaching, counseling and motivating them to deliver the best nursing care to J. Landers members.
Note: Please see attached career/work histories of Augustus and Cheryl for details.
Sales Break-Even Point
A common question business owners have when considering new business opportunities is this: "How much do I have to sell just to break even?" In other words, "How much revenue do I need to pay all my expenses?"
The question is not as difficult to answer as it might seem. Only three pieces of information is needed to make the calculation.
- The average price of whatever you sell.
- The average cost of whatever you sell.
- The total fixed costs your have to pay no matter what you sell.
or to state it another way…
In the case of The Fran's Ice Shoppe of Davis the Sales break-even is computed as follows:
Summary of Build-Out and Start-Up Costs
|Build out of leased space (tenant improvements)||110,000|
|Opening Inventory (product & paper supplies)||12,000|
|Working Capital & Misc.||30,000|
|Investment by franchisees, Augustus and Cheryl Dwyer|
|Grand Opening Contribution||3,500|
|Misc. costs, fees and licenses||4,000|
|Projected Income & Expense|
|Cakes & Pastries|
|Cost of Goods Sold||8,068||8,479||9,520||11,097||10,822||10,240||8,320||8,640||14,080||8,654||8,620||8,960||115,200||32|
|Cakes & Pastries|
|Total Cost of Goods||13,111||13,778||15,470||18,033||17,586||16,640||13,520||14,040||22,880||14,063||13,820||14,560||187,200||52|
|Advertising & H-D Marketing Fee||254||254||254||254||254||254||254||254||254||254||254||254||3,048|
|Accounting & Legal||420||420||420||420||420||420||420||420||420||420||420||420||5,040|
|Bank Service Charges|
|Dues & Subscriptions|
|Interest Expense (SEA Guar. Loan)(1)||1,375||1,375||1,375||1,375||1,375||1,375||1,375||1,375||1,375||1,375||1,375||1,375||16,500|
|Licenses & Permits|
|Printing & Reproduction|
|Repairs & Maintenance|
|Travel & Entertainment|
|Net Income Before Taxes||2,276||2,893||4,453||6,820||6,406||5,534||2,654||3,134||11,294||3,155||2,354||3,614||54,587||15|
- Principal reduction on the SBA loan (in the amount of approx. $24,000 is not shown as an expense on the Inc. & Exp. Statement.
- Payroll expenses are listed under "Labor" under cost of goods sold.
Cash Flow Projection - First Year
|(1) Sales figures taken from actual first year revenue figures of the North Point Plaza Fran's Ice Shoppe adjusted down to 81% for size and location and with seasonal adjustment for month of the year. North Point Plaza Fran's Ice Shoppe did $444,176 in sales in the first year. Principals feel that $360,000 (81% of $444,176 = $360,000 rounded) is a conservative figure based on extensive research with four other Fran's locations in malls in California.|
|(2) Related Fringe Benefits is computed at 5% of payroll expense|
|(3) $250,000 @10.5% for 10 years (P&I) = $3375/mo.|
|(4) Food consumed on premises is subject to sales tax. This expense will vary but we assumed a fixed amount each month.|
|(5) Working capital of $30,000 less $20,000 for pre-opening supplies, expenses, labor, training, etc. = $10,000 beginning cash.|
|Expenses - Variable|
|Payroll Expense (16%)||4,034||4,240||4,760||5,549||5,411||5,120||4,160||4,320||7,040||4,327||4,160||4,480||57,600||16|
|Payroll Taxes (20% of payroll)||807||848||952||1,110||1,082||1,024||832||864||1,408||865||832||896||11,520||3|
|Related Fringe Benefits (2)||202||212||238||277||271||256||208||216||352||216||208||224||2,880||1|
|Expenses - Fixed|
|Advertising (includes Mo. H-D 1 Fee)||254||254||254||254||254||254||254||254||254||254||254||254||3,048||1|
|Accounting & Legal||420||420||420||420||420||420||420||420||420||420||420||420||5,040||1|
|Loan Payments (3)||3,375||3,375||3,375||3,375||3,375||3,375||3,375||3,375||3,375||3,375||3,375||3,375||40,500||11|
|Sales Tax (4)||205||205||205||205||205||205||205||205||205||205||205||205||2,460||1|
|Total Cash Paid Out||16,869||17,125||17,776||18,762||18,590||18,226||17,026||17,226||20,626||17,235||17,026||17,426||213,912||59|
|Monthly Cash Surplus (deficit)||276||893||2,454||4,820||4,407||3,534||654||1,134||9,294||1,155||654||1,614||30,888|
|Cash Flow Monthly||276||893||2,454||4,820||4,407||3,534||654||1,134||9,294||1,155||654||1,614|
|Cash Flow Cumulative||10,276||11,169||13,622||18,442||22,849||26,383||27,037||28,171||37,465||38,620||39,274||40,888|
Proforma Balance Sheet
|Prepaid Expenses (Incl. architect Plans)||10,000||12,000||22,000|
|Grand Opening Contribution||3,500||3,500|
|Total Current Assets||18,500||49,000||76,500|
|Signage (included in equipment)|
|Liabilities &Net Worth|
|SBA Loan (Current Portion)||24,000||24,000|
|Total Current Liabilities||24,000|
|Long Term Debt (SBA)||226,000||226,000|
|Total Liabilities & Net Worth||303,500|
|Debt to Worth Ratio||4.8 :1|
|Assumptions||Year 1||Year 2||Year 3||Year 4||Year 5|
|Revenue Rate Increases||4.00%||4.00%||4.00%||4.00%|
|Cost of Sales as % of Revenue|
|Direct Expenses as % of Revenues|
|Controllable Expense as % of Revenue||12.00%||12.00%||12.00%||12.00%||12.00%|
|Interest Rate on Borrowings||10.50%||10.50%||10.50%||10.50%||10.50%|
|Cash Receipts as % of Revenue||99.50%||99.50%||99.50%||99.50%||99.50%|
|Lease Expense/Sq. Ft. (incl. CAM chg.)||$6.27||$6.52||$6.78||$7.05||$7.34|
|Royalty Fees as % of Revenue||2%||2%||2%||2%||2%|
|Years 1 - 5|
|Year 1||Year 2||Year 3||Year 4||Year 5|
|Cash flow based on owner monthly draw of $2500|
|Gross Sales (increase 4%/yr)||360,000||374,400||389,376||404,951||421,149|
|Net Profit Margin||7.00%||7.50%||9.00%||11.00%||13.00%|
|Net Cash Flow(l)||30,888|
Lowest Bid Vendor
|1||16 Can Illuminated Dipping Cabinet||3,208|
|2||8 Can Illuminated Dipping Cabinet - 2 units||3,950|
|3||Dipper Well - 4 units||440|
|4||Upright Pie & Freezer Display Case||5,817|
|5||Refrigerated Pastry Display Case||4,663|
|6||27" Fountainette Cabinet||1,731|
|7||Drop-in Ice Cream Bar Freezer||1,238|
|8||Single Door Reach-in Freezer||1,903|
|9||Single Door Reach-in Flash Freezer||3,219|
|10||Single Door Reach-in Refrigerator||1,593|
|11||6 × 8 ft - 15 degree Walk-in Freezer||4,310|
|12||Medium Capacity (1 phase-air cooled) Ice Machine||2,360|
|13||Soft-serve (3 Phase-AC) Machine w/Faucet - 2 units||17,360|
|Dispensing & Topping Units|
|14||Dip-Coat Warmer - 2 units||242|
|15||Butterscotch & Fudge Warmet with Pump - 3 units||587|
|16||Milk Shake Machine||525|
|18||Spoon Dispenser - 4 units||33|
|20||Counter MTD 2-Comp Hand Sink||295|
|21||Wall Mounted Hand Sink||252|
|Beverage Dispensing Equipment|
|22||Soft Drink Dispenser with Ice Bin (supplied by Coca-Cola at no charge)||0|
|23||Carbonator with Double Check Valve (supplied by Coca-Cola at no charge)||0|
|24||Wall Mounted Syrup Pumps (supplied by Coca-Cola at no charge)||0|
Lowest Bid Vendor
|25||CO-2 Tanks (supplied by Coca-Cola at not charge||0|
|26||Automatic Coffee Maker||472|
|28||Cup Dispensers - 10 units required||388|
|Storage Equipment Units|
|30||6 × 8 Freezer Storage Shelving Set||628|
|31||18" × 36" Storage Shelf Unit - 4 units required||685|
|32||18" × 38" Storage Shelf Unit - 4 units required||774|
|33||42" Overshelves - 2 units required||292|
|34||Electric Can Opener||47|
|Sales & Display Equipment|
|35||Cash Register - 2 units required||5,500|
|36||Menu Board - 1 8-panel unit and 1 4-panel unit required||5,000|
|37||Quality Statement Panel||90|
|38||36" × 33" Topping Unit (Cabinet work by gen. contr.-includ. in his quote)||0|
|39||Dry Topping Bowls with covers - 8 units required||70|
|40||l/9th S/S Insert Pan - 4 units required||19|
|41||36" Sneeze Guard Assembly||1,410|
|47||Mop & Broom Holder||16|
|48||Acrylic Cone/Bowl Holders - 18 units required various sizes||500|
|49||Personal Computer, Printer and Software||3,000|
|50||2 Haagen-Dazs Logo Neon Signs (Incl. freight)||1,250|
|51||Translites (pictures/ads) for Menu Boards - 12 units incl. freight||750|
|52||Freight and Sales Tax for Major Equipment Purchased||6,670|