Organic Soaps Business Plan 2 May 2011
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DOCUMENT CONTACT Name: Company:
Milla Frante Frante Organic Soaps Online Pty. Ltd.
Phone:
1 3453 4344
Email:
m.frante@organicsoap.com
Mail:
21 Wellington St, London, ON N6A 5B5, Canada
DISCLAIMER AND INTELLECTUAL PROPERTY This document is issued by Frante Organic Soaps Online Pty. Ltd.,Business Number” 323 455 4332. (“Organic Soaps”) It is intended only for those persons to whom it is delivered personally by or on behalf of Organic Soaps. It must not be copied or distributed to other persons without the prior written consent of Organic Soaps. While Organic Soaps has taken due care to ensure that the information contained in this business plan is true and correct and is not misleading or deceptive, neither Organic Soaps nor any of its officers,
employees
or
agents
make
any
representations
or
warranties, express or implied, as to the accuracy of the information contained herein. Organic Soaps does not warrant that this business plan is complete or that it contains all material information related to Organic Soaps. Organic Soaps has not carried out any due diligence investigations in connection with the preparation of this business plan or any associated offer. Any investor making an assessment of Organic Soaps and the risks relevant to an investment in Organic Soaps should make its own independent investigation. Information in this business plan
(“Confidential Information”) is confidential. The
Confidential Information is provided to you solely for the purpose of evaluating the merits of Organic Soaps. You must not use the Confidential Information for any other purpose. You must not copy or reproduce the Confidential Information or give it to another person without the prior written approval of Organic Soaps.
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BUSINESS SNAPSHOT
A private company focused on delivering tangible growth in the Eczema skin treatments market
Estimated Annual Net Operating Cash Inflows of $167,682 by the end of year 5
The business solves a key problem for customers in the Natural Eczema treatments Niche
A
series
of
products
designed specifically to meet researched customer needs
A clear market entry and growth strategy
Established repeat
product
customer
and base
(ordering each month)
Unique formula for creating an effective soap
A team with a clear vision alleviate the symptoms of Eczema
for
millions
of
sufferers
Our business model enables us to scale rapidly whilst maintaining sustainable cash flow
Our sustainable competitive advantage is derived from our our unique formula for creating organic soap using a secret ingredient, protected as a trade secret
Our focus on building a current positioning in major search engines positions us strongly to capture the forecast operating cash flows.
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Contents Document Contact ................................................................................................................ 2 Disclaimer and Intellectual Property ...................................................................................... 2 Business Snapshot ................................................................................................................. 3 Executive Summary ............................................................................................................... 6 Overview ............................................................................................................................ 6 Founders and Team ........................................................................................................... 6 Business Objective ............................................................................................................. 6 Our products ..................................................................................................................... 6 Competitors ....................................................................................................................... 6 The Customer .................................................................................................................... 7 The Market ........................................................................................................................ 7 Financial ............................................................................................................................ 7 The Business Opportunity ..................................................................................................... 8 The Value Statement .......................................................................................................... 8 The Window of Opportunity. .............................................................................................. 8 Stage of Development ...................................................................................................... 10 Marketing ............................................................................................................................ 11 Market Size and focus ...................................................................................................... 11 The Customer .................................................................................................................. 13 Positioning ....................................................................................................................... 14 products .......................................................................................................................... 14 Distribution ..................................................................................................................... 14 The Operational Business Model ...................................................................................... 15 Summary ......................................................................................................................... 19 Operations .......................................................................................................................... 20 Team – Executive Capability............................................................................................. 20 Business Development Schedule ...................................................................................... 21 SWOTM Analysis .................................................................................................................. 24
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Strengths ......................................................................................................................... 24 Weaknesses ..................................................................................................................... 24 Opportunities .................................................................................................................. 24 Threats and Mitigation ..................................................................................................... 25 Governance and Ownership ................................................................................................. 26 Owners ............................................................................................................................ 26 Board of Directors ............................................................................................................ 26 Assets .............................................................................................................................. 26 Financials ............................................................................................................................ 28 Investment ....................................................................................................................... 28 Cash Flow Projections ...................................................................................................... 29 Analysis of the Base Case Scenario .................................................................................. 30 Analysis of the Best Case Scenario ................................................................................... 35 Analysis of the Worst Case Scenario ................................................................................. 37 Summary ............................................................................................................................. 39
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EXECUTIVE SUMMARY OVERVIEW
OUR PRODUCTS
Organic Soaps develop, produce, promote
Organic Soaps’s secret ingredient is our
and fulfil organic soaps that reduce the
unique formula for creating organic soap
irritation caused by Eczema.
using a secret ingredient, protected as a
Our goal is to alleviate the symptoms of
trade secret.
Eczema for millions of sufferers.
This unique capability has been used to
Organic
Soaps’s
current
products
are
develop
our
portfolio
of
products.
targeted at the Eczema skin treatments
Following in depth market research and
marketplace.
testing, range incorporates 4 different
To date, our achievements include the
strengths of Eczema active ingredient
following; development of our Eczema
All of our products have been developed
formula for organic soap that has proven
to meet the needs of identified customers.
results and has been featured on leading consumer TV shows and; establishment of a website that has achieved page 1 for key search terms in leading search engines
FOUNDERS AND TEAM Organic Soaps was founded in 40188 by, Milla Frante, Managing Director to address a specific, identified opportunity in the Natural Eczema treatments market.
BUSINESS OBJECTIVE Organic Soaps’s objectives are focused
COMPETITORS
and business oriented.
Our competitors do not have a current
We aim build a business that generates
positioning in major search engines
recurring revenue, enabling a sale of the
We consider our key competitors to be:
Roze Organic Soaps
manufacturer
Northern Organics
Our strategy for demonstrating near term
Soap treatments
Pfizer Inc.
business
to
a
large
scale
soap
business viability is to grow our sales from 10 units per day to 100 units per day by expanding into international markets.
We
are
strengths
aware and
of
our
weaknesses
competitor’s and
have
developed a comprehensive strategy to capitalise on this knowledge.
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THE CUSTOMER
by year 5 with net operating income of
Organic Soaps’s target customers are
We aim to achieve a return on investment
eczema sufferers that are seeking an
of
effective organic treatment for their skin
$758,702 in year 5.
condition.
A discounted cash flow analysis reveals a
The key issue experienced by our targeted
current
customer group is that a simple, easy to
$39,184 .
$13,973 per month. 1936%,
achieving
valuation
of
a
the
valuation
business
of
of
use solution, that can be part of their every day activities, such as bathing or showering that is effective in reducing the incidence of Eczema
THE MARKET We estimate that market for Eczema skin treatments in whilst organic soaps for Eczema treatment is a global market, we will initially be focused on the English speaking countries to be 150 million sufferers spending in excess of CAD 1bn PA and growing at a rate of 0.04 annually. We have selected the high growth Natural Eczema treatments segment of the market for our initial market entry strategy.
We
believe that this segment is growing at 0.13 PA and currently represents a value of the niche is currently very small with a few niche players.
It is our intention to
contribute substantially to the growth of the niche which we would estimate to be worth 10m PA currently.
FINANCIAL We are seeking an investment of AUD $50,000 in the next 12 months, with a milestone based further injection of AUD $100,000. In year 1 we expect to generate average monthly
cash
receipts
from
sales
of
$1,467 . This figure will rise to $29,167
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THE BUSINESS OPPORTUNITY THE VALUE STATEMENT Organic Soaps has been developed with a core focus on our customer. Before developing our products, we focused on identifying the key value drivers for the Natural Eczema treatments customer segment. To succinctly state how we provide value to our customers, we have developed a value statement that takes into account our positioning and broader business strategy within the marketplace:
“To offer a simple, organic and no-fuss solution to the management of Eczema. Our approach will be incorporated into the existing every day routine of washing.�
THE WINDOW OF OPPORTUNITY. The time is right for Organic Soaps to deliver on its value statement. The opportunity represented in this business plan is time limited.
We are
strongly positioned to take advantage of the window of opportunity as others have identified the niche but do not have access to a formula that delivers real results to sufferers. Whilst they have attempted market entry, they have frequently been blocked. The window of opportunity has emerged because consumer awareness of the need to employ natural remedies where possible has been growing. This combined with the level of evidence we now have that our solution delivers real results makes it the right time to enter the market been emerging over the past 5 years. The issue has been that no natural remedy has been able to demonstrate its level of effectiveness. Whilst others have made early attempts to exploit the opportunity, they have failed to achieve our expected success, as other small players have dabbled in natural treatments, no treatment has proven to be as effective in daily use We expect that entering the initial window of opportunity will open up other additional business opportunities. New opportunities would also be created: once we have established our brand
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as a leading provider of natural remedies for skin conditions, that we will develop other soaps with medicinal benefits covering a wide variety of skin ailments
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STAGE OF DEVELOPMENT The Organic Soaps business has been in development over the past 6 Months. Whilst we have made some substantial progress, we would expect the next 12 months to be critical to our commercial success. We are proud of our success in delivering two significant achievements on time and budget to date: 
development of our Eczema formula for organic soap that has proven results and has been featured on leading consumer TV shows

establishment of a website that has achieved page 1 for key search terms in leading search engines
These activities were delivered within the anticipated time and budget. A project plan of the further development of Organic Soaps will be provided later in this document. It will outline key milestones and is tightly integrated with the financials and financial scenario analysis. The next key steps in our development schedule include: Canadian sales expansion - to achieve sales of 100 units per day Develop commercial production facility - bed down mass manufacturing systems, machinery and processes Global Expansion - replicate the success achieved in the domestic market internationally
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MARKETING MARKET SIZE AND FOCUS Our analysis of the market has focused on a two tiered approach. 1. To understand the broad market in which the business will operate 2. To clearly identify our niche of focus Using this approach to clearly understand the market in which our business will operate has enabled us to clearly focus our positioning, distribution, promotional strategy and pricing.
1. THE MARKET FOR ECZEMA SKIN TREATMENTS PRODUCTS The broader market has been identified as large and growing.
It is currently occupied by several key
industry players including:
Roze Organic Soaps
Northern Organics
Soap treatments
Pfizer Inc
Our preliminary research shows that the broad market size is 150 million sufferers spending in excess of CAD 1bn PA. The market size provided relates to whilst organic soaps for Eczema treatment is a global market, we will initially be focused on the English speaking countries. This research has been compiled from a variety of sources including the Roy Morgan Research report on Eczema pharmaceuticals marketplace. Given industry information we accessed, we estimate that the market will continue its growth at 0.04 for the next 3-5 years. Further to our research, the market has been characterised by chemical based skin ointments. Large drug companies have tried to monopolise the market through integration with doctors surgeries. Sufferers are actively seeking improved treatments.
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2. OUR SELECTED MARKET NICHE There are a number of niches that exist
within
the
overall
marketplace. Attempting to enter the market with a broad based product
would
not
provide
sufficient focus to achieve the desired market penetration. Following in depth analysis of the market,
we
believe
that
an
opportunity exists to focus on developing the Natural Eczema treatments niche. We estimate that to be the niche is currently very small with a few niche players. It is our intention to contribute substantially to the growth of the niche which we would estimate to be worth 10m PA currently. We believe that after years as an Eczema sufferer, I was acutely aware of the issues and discussed these with key members of the Eczema community. We believe that a substantial opportunity exists to build and own the Niche The niche has emerged an increase in awareness of the power of natural remedies, there is a desire to find natural solutions that are integrated into daily life other small players have dabbled in natural treatments, no treatment has proven to be as effective in daily use Our competitive advantage in this niche will be derived from the fact that our unique recipe combined with our on-line marketing capability has enabled us to already make substantial inroads to exploiting the window of opportunity. Our products have been selected specifically to appeal to this address the needs of this niche. Our entry into the niche will be continue to offer our product through our online store. This approach will be combined with selective placement in Naturopath Offices.
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THE CUSTOMER To better explain who our customer is and how they might use our products, we have developed a brief customer scenario: Mary Winsdale is a long time sufferer of Eczema. She has tried a variety of creams and treatments but has not been entirely satisfied with any of them. Following a recent spread of Eczema, she decided to search for a different solution. She is a strong believer in the value of organics and used organic products for some time in an attempt to be her Eczema. Following a search in Google for Eczema treatment, she runs across our site. She orders the product online.
We manufacture and
dispatch the product within 2 days.
She uses the
product each day in her morning shower. She writes to us thanking us for providing the most effective treatment she has tried. Once her first bar is done, she orders 10 more.
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POSITIONING Our position within the market place has been developed to ensure that we offer a natural organic alternative that is integrated into customers existing bathing routine. As a reflection, is at a slight premium to our competition, reflecting the profile we are building in the market
PRODUCTS Our product list has been developed to address the identified customer need of a simple, easy to use solution, that can be part of their every day activities, such as bathing or showering that is effective in reducing the incidence of Eczema. To meet this need range incorporates 4 different strengths of Eczema active ingredient.
DISTRIBUTION To connect our products with customers, the following distribution strategy will be employed: “directly to customers.
In addition to our online store, we do offer product trials and
commissions to Naturopath offices�
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THE OPERATIONAL BUSINESS MODEL Throughout the development stage of this business, we assessed alternate business models for this opportunity using a structured 9 element approach.
The below overview
of the preferred business model for Organic Soaps provides a quick snapshot of the key functions, relationships and revenue sources. The business model provided below was selected following detailed analysis. provides
a
quick
snapshot
of
It
how
Organic Soaps will operate, generate revenue and deliver value to shareholders and customers. The 9 elements considered include: 1. The Value Proposition – What are we offering to our customers? 2. Capabilities/Resources – What skills and capacity do we require to deliver on the value proposition? 3. Partnerships – Who do we need to work with to create value and access our revenue streams? 4. Activities – What will the business actually do? 5. Relationships – What organisations can influence our buyers purchase decision (excludes partners)? 6. Costs – What significant cost types are likely to be incurred as a Select of Organic Formula Eczema Soap? 7. Channel to Market – Who will support us in our desire to connect Organic Formula Eczema Soap with eczema sufferers that are seeking an effective organic treatment for their skin condition. 8. Revenues – What will our customers pay for, how will we earn our revenue? 9. Customers – Who are our customers, purchasers and consumers?
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1. THE VALUE PROPOSITION Our value proposition was developed from our customer’s perspective, to ensure that Organic Soaps solves a key issue/opportunity for our customers. “offer a simple, organic and no-fuss solution to the management of Eczema. Our approach will be incorporated into the existing every day routine of washing”
This value proposition has been used to guide the development of the overall business model.
2. CAPABILITIES & RESOURCES Specific skills and organisational capabilities are required to effectively deliver on our value proposition. These capabilities will be the focus of future recruitment activities. We see our business critical capabilities as:
The ability to scale production from 10 units per day to thousands of units per day
Organic formulation development
Management of accounting and financial information
Internet marketing and SEO
Management of intellectual property protection
We have worked hard to assemble as many as possible of these capabilities into the organisation to date and the focus of our development path will be to acquire outstanding resources to fill any capability gaps.
3. PARTNERSHIPS We understand that Organic Soaps does not operate in isolation, we require active engagement with existing industry participants. Our selection of potential partners for the development of Organic Soaps is critical to influence our customers to engage with our products. We have carefully selected partners that will reflect and support our market positioning. Our early partner development activities will be focused on The supplier of our secret ingredient. Further partnerships will be developed over time including Altoid tree farmers; and Online Affiliates. These partner relationships will assist in building diverse revenue streams and ensuring our products are supported in the market.
4. ACTIVITIES
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Several primary activities will outline what the team at Organic Soaps is actually focused on achieving. The Organic soap formula development will be the primary activity undertaken.
Supporting activities include:
Manufacturing of organic soaps
Website design and development
Online marketing for search engine optimisation
Management of relationships with Naturopaths
By executing effectively on these activities we can ensure effective progress towards grow our sales from 10 units per day to 100 units per day by expanding into international markets over the coming 12 months.
5. RELATIONSHIPS There are a number of organisations that can influence our customer’s decision to purchase. We will develop relationships with the following organisations:
Yambu Naturopathy Centres
The Canadian Organics Association
Ontario Naturopath Guild
We believe that ongoing, sustainable relationships with these organisations can be developed over the next 12-18 months.
6. COSTS Ensuring that costs remain below operating revenue is a core priority. We understand our key cost centres and the interplay of these costs with revenue. Our major cost items include:
Raw materials for the production of our soaps (including our high cost secret ingredient
Production equipment
Development of our website and site maintenance
Search Engine Marketing
Commission Payments to Naturopaths
Detailed costings for each of these items and the associated cash flow implications are provided in the financial forecasts. (See our cash flow statement in the financial section for details)
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7. CHANNEL TO MARKET Reaching our customers is a key priority for Organic Soaps. We understand the alternative market channels for Eczema skin treatments products, and the margins associated with engaging these channels. We have elected to use the following channels to reach the eczema sufferers that are seeking an effective organic treatment for their skin condition:
Direct Online Sales
Sales made through referrals from our network of Naturopaths
Sales made through online marketing affiliates
Word of mouth generated via discount offers for referring a friend
This multi-layered approach will ensure a diverse and secure income stream.
8. REVENUES To further leverage our market entry approach and strategy, we have identified several possible revenue streams.
This breadth of revenue has been designed to maximize our return on
marketing efforts to reach our customers. Expected revenue streams to be developed include:
Individual physical soap products
Premium on short lead time deliveries
Service charges added onto postage
How to manage Eczema books and manuals
Subscription base purchases of the physical product
These revenue streams have been designed to maximize the “Lifetime Customer Value” of our target market to Organic Soaps.
9. CUSTOMERS Combining market research with our understanding of the target market, we have identified several key customer groups. Reaching the following customers will be critical to the success of Organic Soaps :
Canadian long term Eczema sufferers
Newly diagnosed Canadian Eczema sufferers
International Eczema sufferers
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
Non Eczema sufferers that are seeking to take preventative measures

Parents and relatives of Eczema sufferers that are looking for gifts
These customers have been selected to represent only those whose needs are most closely addressed by our products and can be reached effectively using the identified channels to market.
SUMMARY We believe that the unique design of this business model, demonstrated by our unique ability to combine and leverage each of these elements will ensure that Organic Soaps is a success.
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OPERATIONS TEAM – EXECUTIVE CAPABILITY The team has many of the requisite skills to alleviate the symptoms of Eczema for millions of sufferers
Any additional capabilities required will be acquired through contracting and
recruitment of new team members. The team is led by Milla Frante, managing Director whose role it is to Milla is responsible for all elements of the business. As the developer of the secret recipe over 10 years ago, she is now well positioned to guide the growth of this significant opportunity.
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BUSINESS DEVELOPMENT SCHEDULE In building a path forward for Organic Soaps,
we
significant
have
identified
development
three
milestones.
We will monitor the achievement of both time and cost parameters in the achievement closely.
of
Any
these
investment
milestones into
the
business can be provided in tranches, pegged to these. A detailed project plan outlining how and who will be responsible for the delivery of these tasks is provided in Appendix A
MILESTONE 1: CANADIAN SALES EXPANSION We believe this stage is critical in order to achieve sales of 100 units per day. Core tasks to be undertaken in this stage include: a) Obtain approval from regulators b) Develop partnership with Ezcema Foundation c) Buy .ca Domain d) Develop canadian specific website e) Conduct SEO for Canadian Site
We have already commenced delivery of this stage of activity and believe that we are well placed to meet the timeframes outlined in the project plan, and the costs provided in the financial section.
MILESTONE 2: DEVELOP
COMMERCIAL PRODUCTION FACILITY
Our objective in the delivery of this stage is to bed down mass manufacturing systems, machinery and processes. Key actions to deliver this milestone will include: a) Determine square footage required for Canadian Market
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b) Identify core kettles and equipment c) Finanlise trucking and supply logistics d) Commence design of facility e) Construct facility Successful delivery of this milestone will be judged by the efficiency of the Develop commercial production facility of Organic Formula Eczema Soap.
MILESTONE 3: GLOBAL EXPANSION This final stage has been designed replicate the success achieved in the domestic market internationally. To achieve this objective, we will action the following: a) Acquire Dot Com domain for Frante b) Establish relationships with DHL and Fedex c) Finalise international shipping and currency issues d) Construct global E commerce site e) Launch global e-commerce site
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Frante Organic Soaps Online Pty. Ltd. Business Plan 20 1 0 1 0 0 0 0 0 20 1 0 2 Task Id 1
Stage 1 - Canadian sales expansion Obtain approval from regulators Develop partnership with Ezcema Foundation Buy .ca Domain Develop canadian specific website Conduct SEO for Canadian Site
a b c d e
2
Stage 2 - Develop commercial production facility Determine square footage required for Canadian Market Identify core kettles and equipment Finanlise trucking and supply logistics Commence design of facility Construct facility
a b c d e
3 a b c d e
Task Title/Description
Stage 3 - Global Expansion Acquire Dot Com domain for Frante Establish relationships with DHL and Fedex Finalise international shipping and currency issues Construct global E commerce site Launch global e-commerce site
Responsible Resource(s) Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante Milla Frante
Start Date
End Date
Status
1-Jul 11-Jul 21-Jul 31-Jul 10-Aug 20-Aug 1-Sep 1-Sep 19-Sep 7-Oct 25-Oct 12-Nov 1-Dec 1-Dec 19-Dec 6-Jan 24-Jan 11-Feb
19-Sep 29-Jul 8-Aug 18-Aug 28-Aug 19-Sep 20-Nov 19-Sep 7-Oct 25-Oct 12-Nov 20-Nov 19-Feb 19-Dec 6-Jan 24-Jan 11-Feb 19-Feb
In Progress Completed In Progress Completed In Progress Select Select Select Select Select Select Select Select Select Select Select Select Select
0 0 0 0
Powered By
Company Development Roadmap
Jun Jul Aug Sep Oct Nov Dec Ja n Feb Ma r Apr Ma y Jun
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2 3 2 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2 0 2 3 2 1 0 0 0 0 0 0 0 0 0 0 0 0
2 0 0 0 0 1 1 1 1 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 1 0 1 1 1 0 0 0 0 0 0 0
0 0 0 0 0 0 1 0 0 0 1 1 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 1 1 0
0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 1 1
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
A
SWOTM ANALYSIS Our
SWOTM
(Strength,
Weaknesses,
Opportunities Threats and Mitigation Strategies) analysis has been informed
Strengths
by our knowledge of competitors and
SWOTM
the marketplace in which we operate. Following
extensive
facilitated
discussions, the following strengths, weaknesses
and
been developed.
Weaknesses
opportunities
have
Opportunties
Threats & Mitigation
Where possible any
weaknesses have been identified as opportunities for further focus during the development of the business.
STRENGTHS
Established product and repeat customer base (ordering each month)
Patent protection in place
Proven manufacturing processes in small scale operations
Proven ability to obtain and retain customers
Strong financial management and up-to date financial reporting
Strong brand recall and familiarity with a wide range of potential customers
These strengths have been consolidated to achieve our core objective “alleviate the symptoms of Eczema for millions of sufferers”
WEAKNESSES
No relationships with international Naturopaths
Our website is based on a technology that is being superseded within 12 months
Existing funds do not allow for large scale manufacturing
Our production costs are higher than those of large scale soap manufacturers
OPPORTUNITIES
To leverage our existing relationships with Naturopaths in Canada, to request introductions to their international counterparts
To upgrade the website to the latest Joomla platform which will provide an improved browser experience and shopping cart facility
Consider outsourcing manufacture to reduce capital requirements
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Our communication messages should incorporate the clear value proposition our product offers to Eczema sufferers
THREATS AND MITIGATION The key potential threats have been identified, and mitigation strategies developed to minimise their impact on the business. Threats
Mitigation Strategies
The manufacturing techniques are
not scalable as easily as expected
We
will
consider
outsourcing
production to reduce the risk of this eventuating.
Our approach uses
existing soap mixing technologies which should be able to be replicated by existing manufacturers
The drug companies decide to enter
the organic soaps marketplace
The drug companies will find it difficult
to
gain
credibility
as
a
reputable supplier in the organic market. We will stick to our branding of being Organic by Name and by Nature
The soap manufacturers decide to
Our years of history and hundreds of
enter the medicinal soaps
client testimonials will assist us to
marketplace
remain
a
regardless
reputable of
supplier,
lower
cost
manufacturers entering the market
Our search ranking drops substantially
We are talking to several search engine optimisation companies with a view to hiring additional expertise in this area
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GOVERNANCE AND OWNERSHIP OWNERS The current ownership structure of Frante Organic Soaps Online Pty. Ltd. is as follows: Milla Frante, Managing Director owns 1 of the business. Milla is responsible for all elements of the development of the business from product development to website design, SEO and product fulfillment The owner is are driving the plan grow our sales from 10 units per day to 100 units per day by expanding into international markets in the short term, and in the longer term, build a business that generates recurring revenue, enabling a sale of the business to a large scale soap manufacturer
BOARD OF DIRECTORS Milla Frante Milla started the business as founder in 2010, she developed a new soap product that assists with management of Eczema. John Frante As Milla's husband, John has been actively involved in the business from inception.
John
provides support and business advice to Milla, stemming from his 20 years as a financial accountant
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ASSETS The following is a catalogue of the 4 key business assets that will be used to deliver on our strategic objectives. Asset
Ownership Structure
Why it is critical to
Frante
Organic Soaps Online Pty. Ltd. Formula for Eczema Cure organic
Owned
soaps
This
unique
formula,
protected via trade secret is the basis of our product value proposition
Organics Soaps Website
Owned
Our
website
is
the
main
distribution channel for our products.
The quality of the
website ensures an average visit of 3 minutes with 3 page views Page 1 positioning for 12 key search
Owned
terms in Google, Bing and Yahoo
Our
page
ensures
that
1
positioning the
required
traffic volumes to achieve our sales forecasts are achieved High volume production technique
Owned
for Organic Soaps
Our technique enables us to scale
production
as
the
volume of international orders continues to increase
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FINANCIALS INVESTMENT The business is seeking an initial investment of AUD $50,000 in order to meet planned milestones over the next 12 months. Failure to receive the funds will result in a delayed launch schedule.
Beyond the initial tranche, we will require an additional AUD $100,000 to fully
realize our plans. The investments have been assumed in our cash flow model. This model demonstrates the level of free cash flow expected generated, and produces NPV (Net Present Value) and times earnings (cash) valuations.
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CASH FLOW PROJECTIONS Our revenue projections outline the financial implications of our business model and strategy outlined in this document. Three alternative scenarios are presented. 1. The base case scenario represents what we believe to be the most likely scenario. 2. The best case scenario represents above expected results (the variables determining this result are outlined in the Cashflow model assumption table below). 3. The worst case scenario has been developed to “Stress Test� the business and determine the financial impact of a less than favorable operating environment. Model assumptions, analysis and graphical dashboards are provided for each scenario below.
Cash Flow Model Assumptions Forecasting period to begin on Unit of Currency Discount rate for Net Present Value Calculation
6/1/2011 AUD 30%
Best Case Scenario Operating Income is higher than expected by: Operating Costs are higher than expected by:
50% 30%
Worst Case Scenario Sales are lower than expected by: Costs are lower than expected by:
30% 10%
Valuation Multiplier (X Net Operating Cash Flows)
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ANALYSIS OF THE BASE CASE SCENARIO The base case scenario represents most closely the expected financial implications of executing on this business plan. A lack of effective cash flow management can cause significant issues in ensuring stability. We have endeavored to cover all foreseeable costs and revenue, taking into account credit terms where applicable. The most accurate form of financial forecasting is to use both market (Top Down) and Capability to deliver (Bottom Up) assumptions in preparing the forecasts.
NET CASH BALANCE
Net Cash Balance 300,000 250,000
Cash Value
200,000 150,000
100,000 50,000 0 -50,000
Year 1
Year 2
Year 3
Year 4
Our base case forecast, representing a minimum annual cash balance of $
Year 5
(8,298) in Year
2 ensures that all foreseeable variables are taken into account. Costs associated with executing our development plan have been accounted for in these figures. After the end of 5 years we will have $255,657 in funds available. This balance is added to the valuation multiple to determine the business value at the end of 5 years (See Valuation of Base Case Scenario)
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CASH RECEIPTS FROM S ALES
Cash Receipts from Sales 400,000 350,000
Cash Value
300,000 250,000 200,000 150,000 100,000 50,000 0 Year 1
Year 2
Year 3
Year 4
Year 5
The cash receipts from sales represent the cash we have received from customers for operating activity (Cash Revenue). We expect our Cash receipts from sales to grow from an average per month figure of
$1,467
in year 1 to $29,167 per month by Year 5. Given the market size, our entry niche and our business strategy, we believe that this is both possible and achievable.
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NET CASH FLOWS FROM OPERATIONS
Net Cash Flows from Operations 200,000
150,000
Cash Value
100,000 50,000 0
-50,000
Year 1
Year 2
Year 3
Year 4
Year 5
-100,000
The net cash flow from operations figure excludes all financing costs, capital raised and drawings.
The operational cash flow of the business turns positive during Year 3 , delivering
an operating annual surplus of $20,773 in that year. The minimum net annual cash flow from operations is experienced in the first year and is an average of
$(3,460) per month.
An
improved net cash flow position is experienced in year 5, increasing to an average of $13,973 per month.
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BUSINESS VALUATION
Times Earnings Based Valuation 800,000 700,000 Cash Value
600,000 500,000 400,000 300,000 200,000 100,000 0 Year 1
Year 2
Year 3
Year 4
Year 5
The valuation represented by the above graph is determined by using a times earnings multiplier. Based on valuations of other companies in the Eczema skin treatments market, we believe that an earnings multiplier of 3 is reasonable. To determine the year 5 value of Organic Soaps, we multiplied year 5 net operating cash flow ( $167,682 ) X 3 (the earnings multiplier) = 503,045 To this we added the cash at bank ( $255,657 ) to this calculation. The result is a valuation at end of year 5 of $758,702 . As an alternative valuation approach we have also run a Net Present Value (NPV) calculation on our 5 year net operating cash flow. After reviewing reasonable discount factors used for other growth venture investments, we settled on a “Discount Factor� of 30%. Using this approach the Net Present Value of the business under the base case scenario is $39,184 as at 40725.
Hence, given the assumptions used in the cash flow model, and the discount rate used, the current value of the business is $39,184 and is expected to increase to $758,702 over the next 5 years, resulting in a ROI (Return on Investment) of 1936% and an average annual return of 387%.
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Frante Organic Soaps Online Pty. Ltd. Cash Flow Forecast Pre-Start Holdings Cash on Hand (beginning of period)
Jun-11
50,000
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Year 1
Year 2
50,000
45,953
43,022
39,345
36,415
33,505
29,578
25,587
22,647
18,260
15,500
12,797
12,797
300
500
900
1,000
1,200
1,400
1,500
1,700
1,900
2,200
2,500
2,500
17,600
8,475
Year 3
Year 4
Year 5
-8,298
12,475
87,975
80,000 140,000
220,000
350,000
CASH RECEIPTS Organic Formula Eczema Soap Cash Sales inc GST Collections from Credit accounts TOTAL CASH RECEIVED FOR OPERATIONS
0 0
300
500
900
1,000
1,200
1,400
1,500
1,700
1,900
2,200
2,500
2,500
Proceeds from Loan/ or Capital Raised TOTAL CASH RECEIPTS Total Cash Available (before cash out)
17,600
80,000
140,000
220,000
350,000
0 0
300
500
900
1,000
1,200
1,400
1,500
1,700
1,900
2,200
2,500
2,500
17,600
80,000
140,000
220,000
350,000
50,000
50,300
46,453
43,922
40,345
37,615
34,905
31,078
27,287
24,547
20,460
18,000
15,297
30,397
88,475
131,702
232,475
437,975
CASH PAID OUT Purchases (Raw materials for the production of our soaps (including our high cost secret ingredient.) Purchases (Production equipment) Purchases (Development of our w ebsite and site maintenance) Purchases (Search Engine Marketing) Purchases (Commission Payments to Naturopaths) Gross w ages (exact w ithdraw al)
50
100
200
300
400
500
600
700
800
900
1,000
1,100
6,650
8,000
12,000
14,000
16,000
1,000
50
70
90
120
190
230
230
230
230
300
320
3,060
3,000
4,000
5,000
6,000
50
100
200
300
300
300
300
300
300
300
300
300
3,050
2,500
3,500
4,500
6,000
120 100 3,000
60 75 3,000
890 135 3,000
0 150 3,000
0 180 3,000
1,000 210 3,000
1,000 225 3,000
0 255 3,000
1,500 285 3,000
0 330 3,000
0 375 3,000
1,500 375 3,000
6,070
4,000 12,000 60,000
6,000 21,000 60,000
8,000 33,000 60,000
10,000 52,500 60,000
7,273
12,727
20,000
31,818
2,695 36,000
Payroll expenses (taxes, etc.)
0
Outside services
0
SEO (Search Engine Optimisation
0
SEM (Search Engine Marketing)
0
Offline Marketing
0
Car, delivery & travel
0
Accounting & legal
0
Rent
0
Telephone
0
Utilities
0
Insurance
0
27
Taxes (rGST, etc.)
45
82
91
109
127
136
155
173
200
227
227
1,600
Interest
0
Other expenses (specify)
0
Miscellaneous
0
TOTAL CASH PAID FOR OPERATIONS
0
4,347
3,430
4,577
3,931
4,109
5,327
5,491
4,640
6,288
4,960
5,202
6,822
59,125
96,773
119,227
144,500
182,318
NET CASH FLOWS FROM OPERATIONS
0
-4,047
-2,930
-3,677
-2,931
-2,909
-3,927
-3,991
-2,940
-4,388
-2,760
-2,702
-4,322
-41,525
-16,773
20,773
75,500
167,682
Loan principal payment
0
Capital purchase (specify)
0
Other startup costs
0
Reserve and/or Escrow
0
Ow ners' Withdraw al TOTAL CASH PAID OUT Cash Position (end of perioed)
0 0
4,347
3,430
4,577
3,931
4,109
5,327
5,491
4,640
6,288
4,960
5,202
6,822
59,125
96,773
119,227
144,500
182,318
50,000
45,953
43,022
39,345
36,415
33,505
29,578
25,587
22,647
18,260
15,500
12,797
8,475
8,475
-8,298
12,475
87,975
255,657
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ANALYSIS OF THE BEST CASE SCENARIO The best case scenario represents an optimistic outlook. The graphs and figures presented below assume a 50% % increase in sales over the base case scenario and a corresponding increase in costs by 30%. All other variables used are held constant with those reflected in the base case scenario.
Under the best case scenario,
Net Cash Balance
the cash balance ends Year 1 at -463 which is lower than the
600,000
base case scenario by
Cash Value
500,000
8,938 .
By year 5 the cash balance
400,000
would increase substantially to
300,000
478,874 ,
311,192 more than
under the base case scenario.
200,000 100,000 -
-100,000
Year 1
Year 2
Year 3
Year 4
Year 5
Cash Receipts from Sales
Receipts
from
sales
have
increased directly in-line with our assumption of 50%.
600,000
This drives sales growth from
500,000
2,200 per Month in year 1 to
Cash Value
400,000
43,750 in year 5.
300,000 200,000 100,000 Year 1
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Year 3
Year 4
Year 5
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Our
Net Cash Flows from Operations
350,000
net
cash
flow
position
improves markedly over the base case scenario, as the gap between cash expenses and cash receipts
300,000
from sales widens.
250,000 Cash Value
200,000
This leaves us with a substantially
150,000
better operating position at the
100,000
end
50,000
year
23,999
-
-50,000
Year 1
Year 2
Year 3
Year 4
Year 5
per
operating
5
month
cashflow,
of
in
net
a
58%
improvement on the base case.
-100,000
1,600,000
The optimistic scenario produces a
Times Earnings Based Valuation
times
earnings
valuation
1,342,833 at year 5. possible
1,400,000
Cash Value
of
to
of
If it were
execute
on
this
1,200,000
scenario we would be able to
1,000,000
create an additional
584,131
in
800,000
year 5 value.
600,000
Using the NPV approach to value
400,000
the future 5 years cash flow, this
200,000
produces a current valuation of 110,118 .
-
Year 1
Year 2
Year 3
Year 4
Year 5
Successful
delivery
on
the
optimistic scenario will produce a total
return
of
1219%,
or
an
average annual return of 244%. These
percentage
calculated
as
valuation,
and
figures
return hence
on
are initial
may
be
higher or lower than under the base case scenario.
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ANALYSIS OF THE WORST CASE SCENARIO The worst case scenario represents a pessimistic outlook.
It is designed to represent an
unlikely scenario that represents the worst financial outcome anticipated.
The graphs and
figures presented below assume a 30% decrease in sales over the base case scenario and a corresponding decrease in costs by 10%. All other variables used are held constant with those reflected in the base case scenario.
Under
Net Cash Balance
worst
case
scenario, the cash balance ends Year 1 at 9,108 which
80,000
Cash Value
this
is higher than the base case
60,000
scenario by 633 . By year 5
40,000
the
20,000
73,571 , 182,086 less than
decrease
balance
would
substantially
to
that represented by the base
-20,000
cash
Year 1
Year 2
Year 3
Year 4
Year 5
case scenario.
-40,000
Receipts
Cash Receipts from Sales
from
sales
directly
have in-line
with our assumption of a 30% reduction in sales.
350,000
Cash Value
decreased
300,000
This limits sales growth from
250,000
1,027
200,000
to 20,417 in year 5.
per Month in year 1
150,000 100,000 50,000
Year 1
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Year 3
Year 4
Year 5
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Our net cash flow position
Net Cash Flows from Operations 100,000
deteriorates
significantly
when compared to the base case scenario.
Cash Value
80,000 60,000
This
40,000
substantially lower operating
20,000
position at the end of year 5
us
with
Year 1
Year 2
Year 3
Year 4
Year 5
-40,000
operating cashflow, a 48% lower figure than the base case.
-60,000
This
Times Earnings Based Valuation 350,000
pessimistic
valuation of
316,312
year
This
5.
represents
250,000
overall
a
value
in of
in year 5 when
compared to the base case
150,000
scenario.
100,000 50,000 Year 1
at
figure
reduction
business
442,390
200,000
scenario
produces a times earnings
300,000
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a
of 6,743 per month in net
-20,000
Cash Value
leaves
Year 2
Year 3
Year 4
Year 5
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SUMMARY The financial analysis provided demonstrates that the successful execution of our strategy will deliver above average financial returns.
Furthermore, given unfavorable circumstances,
Organic Soaps still manage to deliver a minimum net cash flow in year 5 of $80,914. We would expect our valuation at the end of year 5 to be between $316,312 and $1,342,833. Given the business model and strategy outlined throughout this document, we would expect the most likely valuation to be $758,702.
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