DAVE&ANNETTE
BUSINESS PLAN
2015
AMANDA DAVIS
Contents 1.0 Executive Summary....................................................................................................................4 1.1 Business Description................................................................................................................4 1.2 Target Market..........................................................................................................................4 1.3 Competition.............................................................................................................................5 1.4 Team.........................................................................................................................................5 1.5 Financial Summary.................................................................................................................5 1.6 Milestones.................................................................................................................................5 2.0 Mission, Vision, Objectives.........................................................................................................6 2.1 Mission:......................................................................................................................................7 2.2 Vision:........................................................................................................................................7 2.2.1 The Rationale...................................................................................................................8 2.2.3 Start Up Funding...............................................................................................................9 3.0 Business Model Outline and Strategy....................................................................................11 3.1 Product Offering:..................................................................................................................14 4.0 Market Research.......................................................................................................................14 4.1 Economic Data.....................................................................................................................14 4.2 Market Data..........................................................................................................................15 4.2.1 Competition Analysis....................................................................................................16 4.3 Demographic Data..........................................................................................................17 4.4 Market Study..........................................................................................................................20 5.0 Operations.................................................................................................................................20 5.1 General Description.............................................................................................................20 5.1.1 Competitive Advantage..............................................................................................22
5.2 Location Selection................................................................................................................22 5.3 Internal Structure...................................................................................................................23 6.0 Management............................................................................................................................23 6.1 Executive................................................................................................................................23 6.1.1 Mid-Level Structure........................................................................................................24 6.2 External Resources................................................................................................................25 7.0 Marketing...................................................................................................................................25 7.1 Marketing Plan......................................................................................................................25 7.1.1 Website:..........................................................................................................................25 7.1.2 Discount Schemes.........................................................................................................26 7.1.3 Social Media Marketing...............................................................................................26 7.1.4 Word of Mouth, Traditional Media and Flyers:..........................................................27 7.1.5 Citations..........................................................................................................................27 7.1.6 Corporate Social Responsibility:..................................................................................27 8.0 Financials....................................................................................................................................28 8.1 Break-even Analysis..............................................................................................................28 8.2 Projected Profit and Loss.....................................................................................................29 8.3 Projected Cash Flow............................................................................................................31 8.4 Projected Balance Sheet....................................................................................................32 9.0 Business Ratios...........................................................................................................................33 10.0 Important Assumptions..........................................................................................................35 11.0 Risks...........................................................................................................................................36 12.0 Viability.....................................................................................................................................37 12.1 Investor Interest...................................................................................................................37 12.2 Net Present Value...............................................................................................................38
12.3 Internal Rate of Return.......................................................................................................39 13.0
Measurement......................................................................................................................40
13.1 Quantitative Goals and measures...................................................................................40 14.0 Special Issues...........................................................................................................................42 15.0 Implementation......................................................................................................................43 15.1 Timelines...............................................................................................................................43 16.0 Exit Plan.....................................................................................................................................44
1.0 Executive Summary 1.1 Business Description Having a new baby is one of life’s most precious blessings, if not THE most precious. When you have a baby, you suddenly have the urge to buy those cute little baby onesies, rompers, and what have you not. Then one day it suddenly hits you, there is a tall pile of quickly outgrown baby clothes that makes you feel guilty of having to have spent so much in so short a time that your baby have worn them. Kid’s grow, and they grow real fast. Clothes don’t. Such pain point for parents is what DAVE&ANETTE will address. DAVE&ANETTEwill be formed as a Limited Liability Company (LLC) in Los Angeles, CA, dealing with the online selling of organic children's clothing. The company has a recycle and donate program, where purchased DAVE&ANETTE piece of clothing can be returned once outgrown by kids in exchange for a discount to be credited for succeeding purchases. All of the clothing will proudly be made in the U.S. and either recycled or resold as gently used. With no middleman or retailers, Dave&Anette is able to bypass heavy markups and keep their fashions sustainable and affordable.
1.2 Target Market The company addresses eco-conscious parents, grandparents, family and friends shopping for children’s clothing 0-6 years of age who want nothing but the safest and softest material of clothing to touch their life’s most precious.
1.3 Competition The market is very competitive and fragmented, with many online shops of various sizes competing for the same customers. Currently, our main competitors are
PureRest
(www.purerest.com),
Two
Crows
for
Joy
(www.twocrowsforjoy.com), Olive Organic (www.oliveorganic.org), Ladybug Baby Organics (www.ladybug.com), Garden Kids (www.gardenkidsclothing.com), along with a wide array of larger and smaller stores.
1.4 Team Ms. Amanda Davis, will serve as the general manager of the small business. She has a Bachelor’s degree in Arts and is currently finishing her certificate program at UCLA-Extension. Given her passion and dedication to give her kids nothing but the very best in terms of eco-friendly clothing, she will lead the company to the best of her ability, in order for it to reach its designated strategic objectives.
1.5 Financial Summary According to the pro-forma projections, our yearly targeted revenue is $1,572,996 by the end of Year One, $1,827,279 by the end of Year Two, $2,375,463
by end of Year Three, $3,325,648 by end of Year Four and
$4,988,472 by end of Year Five.
1.6 Milestones The company plans to open its online store and commence operations on January 2016.
Through its business model, DAVE&ANETTE, which will be registered as a LLC, aims to grow to 6 employees by 2017. We aim to reach a top 5 position within the organic children's clothing market by 2017.
2.0 Mission, Vision, Objectives
The main nature of the business is the retail commercialization, via online sales, of organic children's clothing. To this extent, the business will be an online startup company that sells 100% organic clothing for kids from 0-6 yrs. The organic cotton fabric will be sourced from a 5th generation family cotton farm in Northwest Texas. We chose them over the suppliers in Southern California because their company is fully GOTS certified right through packing in their warehouse. This is very important to us because want to make sure that our supply chain fully adheres to fair trade that provides decent working conditions and wages to people. This commitment is further strengthened as the business will encourage the reduction of heavy footprints in the environment through its recycle and donate program. This recycling program allows the purchased organic clothing to be returned when outgrown by kids and credited for a discount applied on succeeding purchases, through the online store. All clothing that were gently worn will be recycled or resold as “preloved”. Donating comes into play when those that were “much loved” and worn a little less than gently are donated to charitable institutions.
2.1 Mission: The mission of the company is to address the dilemma of parents who find themselves in a continuous cycle of purchasing and storing their children’s quickly outgrown wardrobe in such a short time that they have worn them. It also aims to change the cycle of kids fashion by creating adorable designs with only the best quality organic fabrics and give clothing a second-life through charitable donations while at the same time giving parents a sweet discount of their next purchase.
2.2 Vision: Our vision is to be a quality option for our customers when seeking to purchase certified organic children's clothing, and one of the top 10 suppliers in our niche market nationwide within the next 5 years. Further, the company aims to create a difference in contributing in positive ways to the welfare of our planet and to support non governmental organizations that gives aid to war-torn children in different parts of the world. In order to achieve our mission and vision, the following S.M.A.R.T. (Specific, Measurable, Achievable, Realistic and Time – bound) strategic objectives have been drafted, in order to strengthen the company’s presence in the market over the next 5 years and allow it to expand to become a truly nationwide supplier of organic children's clothing: To reach a yearly revenue of $4,988,472 by year 5 of the current analysis, To serve over 160,000 clients by Year Five. To become a top 3 nationwide supplier of organic children's clothing, by the end of year 5 of our analysis.
We aim to expand our customer portfolio to grow to over 150,000 served clients within the next 5 years. In terms of the company’s expansion over the next five years, two main objectives have been established: 1) To establish trust and quality as our own identity brand; 2) To continue to expand as a socially responsible business, as a considerable part of our earnings will be donated to children in need, through a wide array of social programs
2.2.1 The Rationale Why children’s clothing? – The plan to start a retail online sales of organic children’s clothing came from Ms. Amanda Davis. She has just become a mom again after 12 long years.
She immediately found herself purchasing and
stocking up her daughter’s closet with all sorts of adorable baby apparel. However, she soon realized that much of the clothing she has bought for her ball of joy was not only overly priced but was also of low quality. Added to that was her daughter seemed to be outgrowing clothes faster than she could afford them. Why organic clothing? – In the midst of being wrapped up in all the excitement of welcoming a baby, we at most times lose sight of how our impulsive purchases can affect them. We are often swayed into buying irresistible finds for our little ones that we become unmindful of what is beyond the design and attractive
colors that we are purchasing or how our fabric choices can have considerable effect in giving them a more natural and safer lifestyle. Children’s clothing is in constant contact with our baby’s delicate, sensitive skin, and though there are tons and tons of clothing apparel for kids to choose from, they are mostly made from synthetic fibers that are manufactured with petrochemicals, acrylic (polycrylonitriles), PVC, and esters that are said to cause health problems including cancer, immune system damage, behavioral problems, and hormone disruption. Organic clothing, which are made of sustainable fibers with non toxic dyes, offer a better and safer alternative by giving your baby nothing but the best and at the same time giving them a head start at a very young age to be eco-friendly.
2.2.3 Start Up Funding The start-up capital will be used for legal expenses, equipment, packing and other materials, insurance, rent, promotion and business sign, and inventory on hand at start-up, as shown in the table below. The highest initial expenditure is for the purchase of fabric printing equipment. This is required to launch the business. Cash requirements for start-up are $70,000 and most of this will sit in a bank saving account for easy access, and most of this will sit in a bank savings account for easy access. The first year change in accounts payable will top $ 10,044, so we need this $ 70,000 in the event sales are not what we expected. If the sales are off the projected target, this $70,000 will help us gather enough cash to pay off our accounts payable within 30 days. The principals will invest a combined $100,000 to start-up the franchise. We expect the majority of this will be paid back to the owners within two years of operations, in the form of dividends. This investment makes up 50% of the of the total start-up requirements for the company.
The remainder consists of $100,000 long term loan guaranteed by a financing institution. The term of the expected loan is 5 years. Required Start-Up Funds Fixed Assets Leasehold Improvements Equipment Furniture and Fixtures Vehicles Other Fixed Assets Total Fixed Assets Operating Capital Pre-Opening Expenses Prepaid Insurance Premiums Inventory Legal and Accounting Fees Rent Deposits Utility Deposits Supplies Advertising and Promotions Website Design and Development Working Capital (Cash On Hand) Total Operating Capital
Amount 5,000 60,000 5,000 20,000 -
90,000 2,000 1,000 20,000 1,000 6,000 1,000 1,000 3,000 5,000 70,000 110,000
Total Required Funds Sources of Funding Owner's Equity Outside Investors Additional Loans or Debt Commercial Loan Total Sources of Funding
Totals
200,000 Amount 0.00% 0.00%
Totals 50,000 50,000
50.00%
100,000
50.00%
200,000
Start Up 120,000 100,000 80,000 60,000 40,000 20,000 -
Expenses
Assets
Investment
Loan
Ms. Amanda Davis will own 50% of the shares within the newly formed company.
3.0 Business Model Outline and Strategy The entire scope of our marketing plan will be focused on increasing brand awareness for our company and its products. We will promote ourselves via online and offline promotional tools, aimed at increasing exposure and generating customers for our website and online shop. We will constantly emphasize on our social message, regardless of our communication mean. Our business model is presented in a nutshell by the chart below:
The importance of not having a middleman or retailers is in order to avoid heavy markups and keep the sustainability and affordability of the merchandise. With a business model that affords the company cost-savings, it is able to pass the same benefit to parents by giving them high quality, eco friendly clothing for their kids for as low as $15 a piece, compared with the $20-$25 a piece that other organic clothing company offers. Moreover, DAVE&ANETTE promotes the recycling of its products by accepting the return of the outgrown children’s clothing and offering a discount to be credited on the next purchase. To further encourage its recycling program, the company will offer free shipping on returned products. Our value proposition is based on sending a strong social message, as we will donate 2% of our revenues to help the war-torn children in different parts of the world. We will focus to provide our clients with the clothing they need for their little ones, that is of premium quality without the hefty price tag.
In doing so, we attempt to create new value, true value for each of our clients, with particular care placed on the health of their children. Our business is guided by a renewed commitment to engage with all our customers. It starts with clients ordering our products, but doesn’t end when they make their purchase from us. Our value chain includes our suppliers, and our associates, as well as our local community, which we will seek to build around the business and it sets the path for visionary change, a strive for excellence and sustained, profitable growth.
Ultimately, we value:
People, as we care deeply about the needs of our clients' children and our
internal employees, Performance, as we will continuously strive to outperform our competitors in truly satisfying our client’s needs and concerns about organic children's
clothing, Change, as we understand that only through change and flexibility we can ensure that the company will be ready when changes in our operational environment occur.
At the same time, we will continue to integrate our credo and vision for development into our own.
3.1 Product Offering: We will offer: onesies, footies, layette set, tops & tees, dresses, pants, pajamas, shorts, rompers, baby caps.
We will initially carry only a limited design and quantity to avoid overproduction and excessive inventories.
4.0 Market Research 4.1 Economic Data Upon our conducted research, the following trends emerged from the market analysis that was performed:  The market is growing at a steady rate, both at the local level (state of California, including Los Angeles and the greater L.A. area), as well as at the national level;
People prefer to purchase organic clothes for their children, acknowledging that this alternative is healthier for them; Customers are still rather fearful of purchasing synthetic clothes for their children. Eighty-nine percent (78%) of potential clients we've questioned via Facebook survey are either considering buying organic rather than synthetic clothing; According to the Center for Economic Vitality estimates that the market has the potential to surpass $5 billion during 2015 and reach $8 billion before 2017; The online market for organic children's clothing increased by more than 10 % last year, after only increasing by 11,1% during the last 5 years (2008 – 2013), according to Ibis World research; Online sales of auto parts have tallied up more than $1.5 billion, with the industry currently employing some 3,000 people nationwide. We have identified over fifty (50) nationwide online businesses who are currently active, without taking into account the organic products on sites such as ebay and other similar sites; The Online Organic Children's Clothes industry is in the growth stage of its life cycle and is projected to grow at an average annual rate of 5.9%; Comparatively, US GDP is expected to increase at an annualized rate of 2.1%, placing the industry in a strong growth position. The continued shift by consumers / potential clients toward online retail channels, combined with technological change, indicates a growing industry.
4.2 Market Data
4.2.1 Competition Analysis Our main identified competitors are: PureRest (www.purerest.com), Two Crows for
Joy (www.twocrowsforjoy.com),
Ladybug
Baby
Organics
Olive
Organic
(www.oliveorganic.org),
(www.ladybug.com),
Garden
Kids
(www.gardenkidsclothing.com). In addition, several other organic children's clothes shops exist, such as:
Bambino Land,
Polarn O. Pyret,
Nosilla Organics,
Boob Design,
Finn & Emma,
Eva Spin Dress,
The Spunky Stork,
Funkoos,
B Nature Organic,
Bungalow Bee,
My Natural Baby Boutique,
Swaddle Designs,
Estella-NYC,
Halo,
Best Baby Organics,
All these companies have a very strong online shopping component. On average, the companies usually sell clothes priced between $16 - $40 per item, depending on the complexity of the apparel. No company has control over the market or market prices.
On average, according to research we've conducted on findthecompany.com, these companies have revenues of c. $40,000 - $50,000 per employee per year. Usually, companies have c. $180,000 - $250,000 yearly revenue and between 3 – 5 employees. Most companies offer discounts and online promotional codes for online sales and encourage social networking.
4.3 Demographic Data According to a sacbee.com 2014 research, 'even as the economy improves, Californians aren't having many children, according to new, preliminary figures from the U.S. Centers for Disease Control and Prevention'.
Californians gave birth to about 504,000 children in 2013, equivalent to 13.1 births per 1,000 residents. That's the lowest birth rate in California since 1933 – the heart of the Great Depression.
The biggest decline in births came among non-Hispanic whites. The number of births to non-Hispanic white mothers fell from roughly 149,000 in 2012 to about 146,000 in 2013.
Women across the country and in California continue to put off having children until later in life. Birth rates nationwide last year fell for mothers under 30 but rose for mothers 30 and older.
This chart shows historical birth rates in California.
Source: www.sacbee.com Fortunately, according to the same source, California added 335,000 residents from July 1, 2013, through July 1, 2014. The birthrate continued to drop, and 92,000 more residents came to the state than left it, according to new numbers from the state Department of Finance.
California’s population increased at the fastest clip since before the economic downturn in the year ending July 1, new state figures show, even as the state’s birthrate declined to levels not seen since the depths of the Great Depression.
California’s 38.5 million people resulted from a nearly 0.9 percent growth rate – the highest since 2003-04, according to a report by the State Department of Finance. Experts said the economic recovery reduced the number of residents
leaving for other parts of the United States and helped boost the Golden State’s population.
But while the state added some 335,000 residents, mostly because more people were born than died, the state’s birthrate stood at 12.9 per 1,000 residents in July 2014, the lowest since 1934, when more than one-fifth of Americans were out of work.
Lingering post-recession unease could be be part of the reason for the low birthrate, experts said, but a more concrete cause is a sharp drop in the rate of teen pregnancies. The number of young adults ages 20 to 24 having children also continues to decline.
The number of births from teens ages 15 to 19 dropped from about 31 per 1,000 in 2010 to about 22 per 1,000 in 2013, due to a mix of possible reasons: The federal health care law included more access to contraception, education programs to discourage teenage sex might be working, and teenage parenthood also may face more of a cultural stigma now.
Falling birthrates have meant trouble in some countries. In Russia, Japan and elsewhere, live births have trailed deaths, portending future shortages of workers and taxpayers. In California, though, long-range projections show that live births will continue to exceed deaths, even as members of the post-war baby-boom generation begin to die in greater numbers.
There are signs that birthrates have increased among people in their late 20s and older in the first months of 2014. The rest of the age groups have picked up the pace a little bit because they see the fact that economic conditions are improving.
After surging across much of the state in the 1990s and early in the last decade, California’s population growth slowed as the recession took hold. The state population grew by just 0.6 percent in 2009, as tens of thousands of residents left for other states.
The recent report marked the first time in six years that the state had added more than 300,000 residents. The number of people leaving California for other states, meanwhile, dropped to its lowest level since 2003.
4.4 Market Study The company has already conducted a pre-feasibility study of its market, via a survey conducted on 500 Facebook respondents. 369 of online respondents are parents, 220 of them with two kids or more, whereas 98 respondents were either prepping for parenthood or wanting children. 78% of them responded positively to whether or not they would purchase items from such a store, knowing the clothes and apparel are organic. 82% of them responded that they would recommend it to others as well.
5.0 Operations 5.1 General Description
Our customers’ sales funnel follows a rather traditional, and follows the path of leads turned into conversions and orders. We will initially target our customers via online and offline marketing tools. Each campaign or online tool that we will use will run within a designated monthly budget. Through paid and organic traffic, we aim to attract parents of all kinds, to join our social media pages, and to enjoy the benefits of our quality products.
Once we have our orders, we will aim to respond as quickly as possible to each inquiry or placed order, so as to build a reputation as a solid, reliable company.
After an order is placed, we will attempt to maintain customers for as long as possible, using customer retention strategies, including discounts for larger purchases.
5.1.1 Competitive Advantage
Mark-Up Free Pricing When it comes to dressing babies, parents face two dilemma that has little been addressed. So we thought about a way to solve this problem. First, quality kids fashion is expensive. This is because there are middlemen involved, all cutting a share. Such is the reason why we made a conscious decision not to have brick and mortar stores, no wholesalers taking their cut, and no crazy brand markups. By being a solely e-commerce business, we can maintain our team lean and offer amazing baby clothes at great prices.
Second, kids grow, clothes don’t. When kids outgrow their DAVE&ANETTE clothing, parents can send them back to us, free of shipping charges and in return for a discount on future purchases. Returned used clothing is then donated to charity, recycled, or resold at a discount.
Stay financially aware and continue to grow as a company Financial health constitutes a continuous preoccupation for the company. Most companies fail due to lack of cost containment. As a result, all our endeavors will be directed towards achieving and maintaining a positive outcome on the pricing policy and the financial indicators of the company. We will emphasize on the transparency of our financial activities, and seek to apply corrective measures whenever any indicators fail to meet predicted or desired values.
5.2 Location Selection
Office Location: Office and manufacturing will be in Downtown L.A for the following reasons:
1.
Compared to other cities, downtown L.A.’s vibrant geographic core, is central and relatively cheap.
2.
Ability to cast a wider net for potential employees.
3.
Rents are reasonable as well. Last quarter downtown office landlords sought an average of $3.04 per square foot, according to real estate brokerage Cushman & Wakefield. That compares with $4.32 per square foot
in
Santa
Monica.
(Source:
http://touch.latimes.com/#section/-
1/article/p2p-82988453/)
5.3 Internal Structure Please see the staff section and the Management section below for information on our internal structure.
6.0 Management 6.1 Executive The general manager of the company will be Ms. Amanda Davis. Within the company, she will have the following responsibilities:
The general manager of the company will be Ms. Amanda Davies. She will represent the company in all business dealings. Within the company, she will have the following responsibilities:
To achieve the best return on investments of the company each year, and
to oversee the achieving of the company’s strategic objectives, To negotiate with prices and conditions with suppliers, To execute purchase orders to suppliers, To coordinate the logistics side of the business, To manage sales team, To continuously search for new products and ways to innovate the
company's existing array of products. Service budget approvals The manager will also be responsible for overseeing the proper
functioning of the online store, She will evaluate new potential ways to improve the business, She will also performs recruitment of staff according to business needs,
In short, she will represent the company in front of suppliers; being in charge of negotiations with them. She is also in charge of designing sales promotions and strategies to reach the planned objectives, and coordinate its implementation with Sales Management.
6.1.1 Mid-Level Structure A sales assistant will be employed.
6.2 External Resources
Our accounting activities will initially be outsourced.
7.0 Marketing 7.1 Marketing Plan The company will engage identified customers both through traditional marketing means (i.e. coupons, discounts, flyers) as well as through online means of communication, such as social media, in an ongoing growth marketing program that will help in maintaining profitability quickly and set the stage for continual growth.
All our marketing efforts will be in alignment with the mission and vision of our company, and we will follow them to the best of our ability. The marketing programs are explained in detail below, per each source:
7.1.1 Website: The company will own develop, own and operate a new website available at www.DAVE&ANETTE.com which has low management and maintenance costs. The website will be used as a landing page for all our customers, and will be available in both English and Spanish, and built in accordance with modern rules of webpage design, such as user friendly interface and minimalistic design.
Furthermore, comprehensive SEO (Search Engine Optimization) and SEM (Search Engine Marketing) programs will run on a scheduled basis, in order to grow our customer base and expand our market exposure and reach. The
website will have links towards our social media pages, such as Twitter, Pinterest and particularly Facebook, since it is the widest network within our target market.
7.1.2 Discount Schemes All discount schemes, coupons and shopping vouchers will be offered in strict accordance to our policies in this regard. We will accept 'preloved clothes', in an effort to build a community between parents who are purchasing clothes from our online store but who then need to give them back, as their children have outgrown them. Building a strong community is also important for the company.
7.1.3 Social Media Marketing We will actively monitor the company’s Facebook, Instagram, Pininterest and Twitter pages. The main emphasis of using social media will be to target and maintain a positive relation with our customers, and to grow our ‘friends’ network, but also to highlight our products and discounts and our social message. Exposure and quality content will be a key element for our business.
We will tweet at least twice a week and have a new Facebook post on a weekly basis.
We will attempt to have as many friends on Facebook as possible from the areas where we will expand our business.
7.1.4 Word of Mouth, Traditional Media and Flyers: We will treat and provide high-quality products and professional advice on organic children's clothing to all our customers. Flyers will be printed and handed out throughout Los Angeles advertising our offer. Flyers will contain clear contact information, including phone number, website and Facebook page, along with our ‘best deals’. A total of 3,000 flyers will be initially handed out in front of elementary schools and supermarkets known to cater to health conscious consumers, such as Trader Joe’s and Wholefoods. These shoppers most likely have children whom they want to practice a more healthier lifestyle as well. 7.1.5 Citations Citations are usually free listings of the company on local search engines. They include operating hours, physical address, pictures of the stores, and often times, such as on yelp.com, they include reviews from satisfied or dissatisfied clients.
Typical citations / listings where we will publish our company’s contact info will include: HotFrog, FourSquare, Bing Places, Citygrid, E Local, Google +, Yelp, YP, Here.com, Superpages, NeustarLocaleze, Manta.com, Mapquest, White Pages, Yellowbot, EZ Local, Showmelocal, MerchantCircle, local.com,, DexKnows, Brown Book, Place Stars and ibegin.com. 7.1.6 Corporate Social Responsibility: As mentioned prior, our business model is involved in supporting nongovernmental charity institutions, such as orphanages in third world countries. Moreover, the company commits itself to donating a percentage of its revenue to
support programs that address the needs of children in war-torn areas in different parts of the world. Participation programs will be devised as quickly as our marketing budget will allow it, in order to ensure that our aid, both financial and otherwise, is actually helping the community benefit from it. We are planning to donate 2% of our revenues to better aid these children live better lives.
8.0 Financials According to our conservative estimates, DAVE&ANNETTE is expected to maintain a healthy financial position over the next five years. The following plan outlines the financial development of our company. The business will be initially financed by a $100,000 five-year term loan and a total capital investment of $100,000 (Amanda Davis $50,000, plus $50,000 from investors). The source to repay the loan will be the cash flow generated from operations. The company will also finance growth through cash flow. The projected financial statements have been prepared in accordance with the general accounting principles, and necessarily include some amounts that are based on reasonable estimates and judgement. For accounting purposes, the long-term assets are expensed using the straight-line depreciation method, and inventory is accounted for based on the First-In, First-Out (FIFO) method. The following sections outline important financial information.
8.1 Break-even Analysis For our break-even analysis, we assume fixed costs of approximately $36,733 per month, which include payroll, utilities, insurance, rent and other fixed costs. We need to sell about 3,061 assorted organic children’s clothes for minimum $ 45,916 per month to break even, based on our assumptions. DAVE&ANNETTE is expected to break even in the sixth month of operations.
Monthly Units Break-even Monthly Revenue Break-even Assumptions: Average Per-Unit Revenue Average Per-Unit Variable Cost
3,061 $45,916
Estimated Monthly Fixed Cost
$36,733
15 3
8.2 Projected Profit and Loss DAVE&ANNETTE is expected to be profitable in the first year of operations, with profits increasing over the next four years, as we establish and increase customer base. The following table and charts show the projected profit and loss for five years.
Year One Sales Onesies, Footies, Layette Tops, etc Total Sales Cost of Sales Onesies, Footies, Layette Tops, etc Total Cost of Sales Gross Margin Salaries and Wages Owner's Compensation
Year Two
Year Three
Year Four
Year Five
1,572,996 1,572,996
1,827,279 1,827,279
2,375,463 2,375,463
3,325,648 3,325,648
4,988,472 4,988,472
314,599 314,599 1,258,397
365,456 365,456 1,461,823
475,093 475,093 1,900,370
665,130 665,130 2,660,519
997,694 997,694 3,990,778
60,000
61,800
63,654
89,116
133,673
Manager Managers and Supervisors Staff Independent Contractors Payroll Taxes and Benefits Total Salary and Wages Fixed Business Expenses Advertising Car and Truck Expenses Bank & Merchant Fees Customer Discounts and Refunds Dues and Subscriptions Web Hosting Insurance (Liability and Property) Licenses/Fees/Permits Legal and Professional Fees Office Expenses & Supplies Postage and Delivery Rent (on business property) Donation Sales & Marketing Taxes-Other Telephone and Communications Travel Utilities Total Fixed Business Expenses Operating Income (before Other Expenses) Other Expenses Amortized Start-up Expenses Depreciation
96,000 30,000 26,460 2,400 35,452 250,312
98,880 30,900 27,254 2,472 35,710 257,016
101,846 31,827 28,071 2,546 35,975 263,920
142,585 44,558 39,300 3,565 50,365 369,488
213,877 66,837 58,950 5,347 75,548 554,233
24,000 12,000 24,000 6,000 1,200 24,000 1,200 1,200 6,000 3,600 6,000 36,000 31,460 3,000 1,200 2,400 2,400 3,600 189,260 818,825
18,540 12,360 24,720 6,180 1,236 24,720 1,236 1,236 6,180 3,708 6,180 37,080 36,546 3,090 1,236 2,472 2,472 3,708 192,900 1,011,908
25,709 12,854 25,709 6,427 1,285 25,709 1,285 1,285 6,427 3,856 6,427 38,563 47,509 3,214 1,285 2,571 2,571 3,856 216,545 1,419,906
30,851 15,425 30,851 8,998 1,800 35,992 1,800 1,800 8,998 5,399 8,998 53,988 66,513 4,499 1,800 3,599 3,599 5,399 290,308 2,000,722
37,021 18,510 37,021 13,497 2,699 53,988 2,699 2,699 13,497 8,098 13,497 80,983 99,769 6,749 2,699 5,399 5,399 8,098 412,324 3,024,221
4,000 14,286
4,000 14,286
4,000 14,286
4,000 14,286
4,000 14,286
Interest Commercial Loan Taxes Total Other Expenses
8,327 162,922 189,535
6,771 198,170 223,227
5,070 280,110 303,466
3,209 336,132 357,627
1,173 403,358 422,817
Net Income
629,290
788,681
1,116,440
1,643,095
2,601,404
Net Income Yearly 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 Year One
Year Two
Year Three
Year Four
Year Five
Net Income Monthly 300,000 250,000 200,000 150,000 100,000 50,000 (50,000)
8.3 Projected Cash Flow Many profitable companies go bankrupt because of cash flow deficiencies. That is why the Company’s main concern will be to have sufficient cash on hand to meet payment obligations, and be prepared for unexpected needs of cash. Conservative projections indicate that our business is able to generate positive cash flows and sufficient cash reserves.
In addition to normal cash inflows and outflows, the company will focus on establishing sufficient cash reserves for contingencies. That includes a possible line of credit with the bank that could be used in slow sales periods as well. This is a good way to control the cash flow risk. In addition, excess cash, as projected, should not remain idle, especially during periods of high interest rates. Management will consider investing idle funds in time deposits or certificates of deposit at banks, in government securities such as Treasury notes, or in other trading securities (cash equivalents). The following table and chart show the projected cash flow for five years. Beginning Cash Balance Cash Inflows Income from Sales Total Cash Inflows Cash Outflows Investing Activities Cost of Sales Operating Activities Salaries and Wages Fixed Business Expenses Taxes Financing Activities Loan Payments Total Cash Outflows Cash Flow Operating Cash Balance
70,000
711,037
1,498,525
2,616,022
4,255,702
1,572,996
1,827,279
2,375,463
3,325,648
4,988,472
1,572,996
1,827,279
2,375,463
3,325,648
4,988,472
304,555
366,795
472,481
665,130
997,694
250,312
257,016
263,920
369,488
554,233
189,260 162,922
192,900 198,170
216,545 280,110
290,308 336,132
412,324 403,358
24,910 931,960
24,910 1,039,790
24,910 1,257,966
24,910 1,685,968
24,910 2,392,520
641,037
787,489
1,117,497
1,639,680
2,595,953
711,037
1,498,525
2,616,022
4,255,702
6,851,655
Cash 7,000,000 6,000,000 5,000,000 4,000,000
Net Cash Flow
3,000,000
Cash Balance
2,000,000 1,000,000 -
8.4 Projected Balance Sheet DAVE&ANNETTE expect a healthy growth in net worth and a healthy financial position. The company does not project any real trouble meeting our debt obligations, as long as they achieve our specific objectives. The following table is the projected balance sheet for five years. Balance Sheet Year One
Year Two
Year Three
Year Four
Year Five
Assets Current Assets Cash Inventory Prepaid Expenses Other Current Total Current Assets Fixed Assets Leasehold Improvements Equipment Furniture and Fixtures Vehicles Total Fixed Assets Less: Accumulated Depreciation
711,037 20,000 12,000 4,000 747,037
1,498,525 20,000 9,000 3,000 1,530,525
2,616,022 20,000 6,000 2,000 2,644,022
4,255,702 20,000 6,000 1,000 4,282,702
6,851,655 20,000 6,000 6,877,655
5,000 60,000 5,000 20,000 90,000
5,000 60,000 5,000 20,000 90,000
5,000 60,000 5,000 20,000 90,000
5,000 60,000 5,000 20,000 90,000
5,000 60,000 5,000 20,000 90,000
14,286
28,571
42,857
57,143
71,429
Total Assets Liabilities and Owner's Equity Liabilities Accounts Payable Notes Payable Total Liabilities Owner's Equity Common Stock Retained Earnings Total Owner's Equity Total Liabilities and Owner's Equity
822,750
1,591,953
2,691,165
4,315,559
6,896,226
10,044 83,417 93,461
8,705 65,278 73,983
11,316 45,438 56,754
14,316 23,737 38,053
17,316 0 17,316
100,000 629,290 729,290 822,750
100,000 1,417,971 1,517,971 1,591,953
100,000 2,534,411 2,634,411 2,691,165
100,000 4,177,506 4,277,506 4,315,559
100,000 6,778,910 6,878,910 6,896,226
9.0 Business Ratios Business ratios for the five years of this plan are shown below. Management's main responsibility is to put into action and to carry out this plan that is designed to achieve the financial performance objectives. DAVE&ANNETTE management will constantly monitor key financial performance measures, determine the cause of any deviations in the measures, and take corrective actions. A comprehensive ratio analysis can be made to evaluate the financial condition and operating results of our company, based on the calculations included in the next table. The financial ratios are calculated based on our conservative projections in terms of liquidity, profitability, long-term solvency, cash flow adequacy, and market strength. Liquidity ratios (current and quick ratios, receivables turnover, average collection days, inventory turnover, average days inventory on hand, payables turnover, and average payment days) indicate a good debt-paying ability, the effectiveness of customer credit policies, and a number of days needed to collect receivables, to sell inventory, and to pay account payable that is consistent with best business practices in our industry. Liquidity is critical to building a strong and sustainable foundation for future growth. In dealing with short-term liquidity, we will need to correctly address three key issues: managing cash during seasonal cycles, setting sales and credit policies, and financing receivables. Profitability ratios (profit margin, assets turnover, return on assets, and return
on equity) indicate a good profitability of operations, efficient use of assets to produce sales, a good earning power of the assets, and a good profitability of stockholders' investments. Long-term solvency ratios (debt to equity, interest coverage) indicate a good capital structure, and more than adequate creditor's protection from default on interest payments. Cash flow adequacy ratios (cash flow yield, cash flow to sales, cash flow to assets, and net cash flow) indicate a good ability to generate operating cash flows in relation to net income, a good ability of sales and assets to generate operating cash flows, and positive cash flow after providing for commitments. This ratio analysis clearly shows that DAVE&ANNETTE financial condition is expected to remain strong, as measured by its liquidity, long-term solvency, and cash flow adequacy ratios. The company's profitability, as measured by its profitability ratios, is excellent, and will gradually increase over the next three years.
Ratio Liquidity Current Ratio Quick Ratio Safety Debt to Equity Ratio Debt to Coverage Ratio Profitability Sales Growth COGS to Sales Gross Profit Margin SG&A to Sales Net Profit Margin Return on Equity Return on Assets Owner's Compensation to Sales Efficiency Days in Receivables Accounts Receivable Turnover Days in Inventory Inventory Turnover Sales to Total Assets
Year One
Year Two
Year Three
8.0 7.6
20.7 20.3
46.6 46.1
0.1 6.9
0.0 10.9
0.0 19.9
0.0% 20.0% 80.0% 27.9% 40.0% 86.3% 76.5%
16.2% 20.0% 80.0% 24.6% 43.2% 52.0% 49.5%
30.0% 20.0% 80.0% 20.2% 47.0% 42.4% 41.5%
3.8%
3.4%
2.7%
0.0 0.0 22.9 15.7 1.9
0.0 0.0 19.7 18.3 1.1
0.0 0.0 15.2 23.8 0.9
10.0 Important Assumptions Due to the current economic uncertainties, assumptions are conservative. In judging and estimating, the company has chosen the alternatives that are least likely to overstate assets and income. The key underlying assumptions are: • slow economic recovery process over the next five years, but no major depression • access to capital and financing sufficient to maintain our financial plan as shown in the tables • continued demand for organic children’s cloths in the target market Other important assumptions are included in the next table.
Current Interest Rate Long-term Interest Rate Tax Rate Inventory on Hand (days) Inflation Rate Other
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 15.00% 15.00% 15.00% 15.00% 15.00% 9% 9% 9% 9% 9% 20.00% 20.00% 20.00% 20.00% 20.00% 21 21 21 21 21 8.94% 8.94% 8.94% 8.94% 8.94% 0 0 0 0 0
11.0 Risks Company management is responsible for constantly evaluating risks and taking corrective actions to provide adequate prevention, control and risk reserves. The company has identified several risks that are associated with the business project. There are many possible classifications of risks, but for the purposes of this plan, the company have chosen to group them as follows: a) External Risks (These risks come from outside the company and are
more difficult to prevent and control.) Economic depression. Current trends indicate that the economic downturn is reaching the bottom, and chances are that the recovery process will begin soon. However, it is likely to be a slow process, and it will probably take several years until complete recovery and full growth are achieved. We assess the risk of a major depression to be low. Competition and buying patterns changes. There is a high risk that new competitors will arrive in the relevant marketplace. Our continuous improvement management strategy and cost control techniques will help us to stay on top of customer preference. The customer buying patterns are not likely to significantly change over the next five years. In addition, the population growth predicted in the area will increase the chances to maintain and boost sales. Inflation. According to expert estimates, the inflation rate is likely to remain under control over the next five years. We have accounted for a 8 percent annual inflation rate. Currency. All our operations are in U.S. dollars, and both equipment and materials are manufactured in the United States. No currency risk has been accounted for. U.S. taxation and economic policy changes. These changes are likely to occur, and it is not clear how they might influence our financial performance. That is another reason why estimates are conservative. This risk is high.
b) Internal Risks (These risks come from inside the company and can be better prevented or controlled.)
Personnel. There are many skilled sewers and cutters in Los Angeles, CA. The company will be able to select the best new staff members from a large number of valuable applicants. Personnel strategy includes modern management techniques that will be applied to select, hire, motivate, and reward the employees. This strategy is expected to build and maintain employee loyalty, and increase productivity. However, before hiring new employees, their background check will be reviewed, to avoid possible employee theft, which is a frequent risk in the organic clothes industry.
Cash flow deficiency. The company’s main concern will be to have sufficient cash on hand to meet payment obligations, and be prepared for unexpected needs of cash. Conservative projections indicate that the business is able to generate positive cash flows and sufficient cash reserves to reduce the risk of cash flow deficiency.

Business continuity over the next five years. In the event something happens to one of the company's managers and co-owners the other will have the skills and experience required to take over and continue operations. In addition, the company's incorporation legal documents include special provisions for protection in such cases.

Management. Amanda Davis is a hardworking entrepreneur and has proven success in her other business ventures. She has relevant skills and a solid background in the retail industry.
12.0 Viability 12.1 Investor Interest According to our conservative estimates, the cumulative dividends that would be paid to the new investor, based on 50 percent of ownership, over the next five years, would be $3,389,455. Dividend payments to the investor would be made as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Totals
$314,645 394,340 558,220 821,548 1,390,702 $3,389,455
The other co-owner, Amanda Davis, will not take dividends over the next five years. The reasons for this decision are: a) she will receive employment compensation and benefits, and b) the undistributed dividends will increase the amount of retained earnings, as a strategy to strengthen the company's financial position for sustainable future growth, to increase the company's net worth, and subsequently its market value. Key measures of the expected benefit from the investment include: Payback period (the minimum time to recover the initial investment) for the
investor's initial capital contribution of $50,000 is very short, only ten months, computed as follows: Initial Cash Investment $50,000 Less Dividends Paid Year 1 314,645 Year 2 394,340 Year 3 558,220 Year 4 821,548 Year 5 1,390,702 Unrecovered Investment $0 Payback Period: 10 months
12.2 Net Present Value Net present value (NPV), which evaluates the capital investment by discounting at 15 percent its future cash flows to their present values, and subtracting the initial investment of $200,000 from cash flows for five years computed as follows:
Cashflows
Present Values
Year1 Year2 Year3 Year 4
629,290 788,681 1,116,440 1,643,095
547,209 596,356 734,077 939,445
Year 5
2,601,404
1,293,358
Total present cash inflows discounted at 15%
4,110,445
Less initial investment
200,000
Net present value
3,910,445
NPV
Because the net present value is positive, the investment would achieve at least the minimum rate of return of 15 percent, and is expected to yield significant additional returns to the investor.
12.3 Internal Rate of Return Internal Rate of Return (IRR) is the interest rate at which the net present value of all cash flows (both positive and negative) from a project or investment equal zero. Total cash flow for this project is $ 3,910,445 which has an IRR of 344.35891%. Because the IRR is very high at 344.35891%, the project is very viable and attractive and should be supported. In conclusion, all calculated evidence points to the fact that the business is financially sustainable generates more than enough cash flow to repay investors at a premium, while expanding rapidly into new markets and including more and more products into its offer.
13.0 Measurement 13.1 Quantitative Goals and measures Our online marketing budget will be strictly monitored for increased success and monthly reports will be generated and forwarded to Amanda Davis. For all campaigns, we will constantly monitor their R.O.I. rate, in order to measure their effectiveness. An SEO (Search Engine Optimization) specialist will be contracted for this activity.
ROI will be calculated as follows: (return – total spend) / total spend.
For example, if we get revenues (sales) from online marketing of $6,000 and we spend $2,000 per month on online advertising, our R.O.I. for that particular month is ($6,000 - $2,000) / $2,000 = 2 or 200 %.
The KPIs or Key Performance Indicators that will be tracked for our online campaigns are:
New Quality Visits – This indicator is important, as it means how much time a person coming to our website will spend looking for information or browsing for products, before leaving or placing an order. An average time span of about 1 minute is considered to be sufficient for this. A high number of New Quality visits means people are enjoying the content of our website and relate to our business.
Leads – meaning the number of users that have performed a desired action on our website, for example: newsletter subscription or placing an order or an inquiry about a specific product,
Conversions – meaning the number of people that have actually placed an order on our website,
CTR or Click Through Rate – the CTR measures the percent of people who actually saw our (for instance via Google Adwords) ad and clicked it. This metric is extremely important, as higher CTR means that our ads are resonating strongly with our customers and will lead to lower charges by Google or Facebook for the same position in searches and ultimately, more conversions. As a general trend, we need to see this number go as high as possible.
Clicks – An important metric, as ultimately the focus should be on eliminating traffic that is not valuable to the website. A high number of clicks means that people will be drawn to our website and its content. One way to increase traffic is the launch of the company's Blog, as users can subscribe to our ‘newsletter’ service and receive fresh, quality articles about how their purchases impact the children we will support, along with useful tips on organic clothing, and when to drop 'preloved' clothes, once their children have outgrown them. We aim to help our clients see that by helping these children, they are the social proof of how they are ‘the change’.
Impressions Share – This is the percent of the time that our ad could have shown, but did not. Google and social media sites like Facebook don’t show our ad every time our keyword is searched. Factors that impact this are CTR rate, the quality of our site, our bid and our budget. Generally we want this to be as close to 100% as possible. Once we have the cost per conversion where it needs to be, we want our ads showing as much as possible.
All these indicators will be highlighted within the aforementioned reports, in order to guarantee the high efficiency of our online marketing endeavors.
In terms of our offline monitoring indicators, we will track traditional sales channels, such as phone calls, references or participating at events which we will organize. However, emphasis will be placed on online tracking of the aforementioned KPIs.
14.0 Special Issues Risk is incumbent to any economic activity. However, risk acknowledgement and monitoring considerably limits the potential negative effects on the company. We have identified the following risk categories, along with the steps we can take in order to minimize their impact:
.Technical risks – can be caused by crashes or malfunctions of the hardware and software that we use for running and operating our website, blog, newsletter database and online orders. This can lead to disruptions in processing customer orders and subsequently can affect our cash flow generation. We will address these risks by storing all our sensitive data on a
state
of
the
art
server,
secured
by
Digital
Ocean
(www.digitalocean.com).
Financial risks – additional expenses, which have not been included into the current projections, such as additional investment needs, rising operational expenses, which can affect the financial health of the company. In order to avoid such situations, the financial indicators within the financial projections will be monitored continuously (on a month-tomonth basis).
Assumptions validation – although realistic assumptions have been made and due diligence was a primary concern, projections have to be validated in time.
15.0 Implementation 15.1 Timelines
The table below reflects the schedule of some significant milestones, main activities and actions planned for the company during the period of the first 12 months, in the start-up process of its operations. 7/1/15
8/20/15 10/9/15 11/28/15 1/17/16
3/7/16
Register New Business Pay Rent Advance and Deposit Purchase Equipments and Inventory Website Development Pre-Launcing Marketing Launcing of Website
16.0 Exit Plan We recognize that any investor in a start-up company, no matter how well on paper, ultimately needs an exit vehicle. Our purpose is to provide the best alternatives to protect investor's interest, while maintaining the potential growth of our company, the liquidity, and the profitability of future operations. Typically, the fear of investors is that they will become locked into a company that might show no sign of either going public or going bankrupt. To overcome this potential threat, we are open to discuss with the investor several exit alternatives, and include the best provisions in the agreements that are expected be reached by the time of the incorporation. There are several options that could be discussed while considering alternative methods for the investor to turn illiquid securities into readily tradable securities or cash. These options include, but are not limited to: • IPO (Initial Public Offering)
• Acquisition terms • Liquidation terms, certain rights and liquidation preferences over common stock • Selling to a friendly buyer • Preferred stock, redeemable at option of the holder • Convertible preferred stock • Investor's right of first refusal in the next round of financing • Anti-dilution measures • Buy-back after the initial five years In addition, we believe that following negotiating terms are expected to increase investor confidence, and improve management-investor communication: • A board position and consulting role of the investor • Good communication between company's management and the investor (For example: quarterly reports, monthly updates, etc.) • Setting clear return objectives for the management (projected IRR, potential returns, sales projections, etc.) • Not taking certain actions without investor's approval, such as: selling all or substantially all of the company's assets, setting stock options programs, issuing additional stock to existing management, selling stock below prices paid by the investor, or creating classes of stock with liquidation preferences or other rights senior to the investor's class of security. • Stock price protection, an anti-dilution provision that will result in the investor receiving more stock, should the company issue stock at a lower price that paid by the investor • Corporate governance provisions.