A Gift from China
Business Plan Prepared by Shan Wang (11060195)
Commerce 447 Entrepreneurship and Small Business
Forbidden City
The Executive Summary ___________________________________________________________
4
1.0 Introduction
Business Overview __________________________________________________________
5
2.0 Operations Plan
Location_______________________________________________________________________
6
Site Plan_______________________________________________________________________
7
Process Flow__________________________________________________________________
8
Return Policy_________________________________________________________________
8
Daily Operations______________________________________________________________
9
Star-up Budget________________________________________________________________
10
Fund Available_________________________________________________________________
11
Cost of Goods Sold______________________________________________________________ 11
Cost of Sales_____________________________________________________________________ 12
3.0 Human Resources Plan
Corporate Structure________________________________________________________
13
Organizational Task_______________________________________________________
13
Training Programs___________________________________________________________
Job Description____________________________________________________________
14
14
4.0 Marketing Plan
Target Market______________________________________________________________
17
Competition Analysis_______________________________________________________
18
The Marketing Mix________________________________________________________
19
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Forbidden City
Products__________________________________________________________
19
Pricing____________________________________________________________
21
Promotion_____________________________________________________________
21
Place____________________________________________________________________
22
Revenue Projection____________________________________________________
23
Marketing Budget________________________________________________
24
5.0 Financial Plan
Capital Budget__________________________________________________________
26
Summary of Projected Operational Performance_________________
27
Sales Projection_____________________________________________
27
Revenue and I/S Summary____________________________________
27
Owner Compensation_____________________________________________________28
Balance Sheet and Cash Flow Projection__________________________
Accounts Receivable________________________________________
29
29
Accounts Payable_______________________________________________________
30
Financing_____________________________________________________________________
30
Capital Budget & Depreciation ________________________________________________
30
Income Tax___________________________________________________________________
31
Dividend Policy_______________________________________________________________
Ratio Analysis___________________________________________________
Break-Even Analysis___________________________________________
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33
31
Forbidden City
Risk Analysis _________________________________________________________
33
Contingency Plan______________________________________________________
34
6.0 Summary__________________________________________________________
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Forbidden City
The Executive Summary
Forbidden City is a Chinese gift store, locates in Saskatoon. We want to enhance
Chinese culture into local community, and to value the culture diversity in Canada.
Forbidden City will carry on our purposes with the generate profit for its
shareholders, and it will be added special customer experiences at the same time.
Since the similar Chinese gift stores are rare in Saskatoon, Forbidden City had good
opportunities to grow and develop in the local community.
With growing Chinese immigration rate in Saskatchewan, Forbidden City will build
an excellent bridge between Western culture and Asian culture. Also, customer
experience is our marketing strategy to this business. The best way to promote a
culture is to let customers experience it in the store. The unique experience from
Forbidden City will make our business more memorable.
This document outlines our operational, human resource, marketing, and financial
plans which will be given in details. The main ideas of our business plan will
facilitate the conversion into its tangible form.
The professional business plans are usually prepared by operational team posses
who have board knowledge and experiences in real business world. However, I do
not have any previous market experience in this particular venture, so there some
assumptions have been made for the requirements in this business plan.
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Forbidden City
1.0 Introduction
Forbidden City is focus on selling traditional Chinese items and promotes Chinese
Culture at same time. With customer experience strategy, the value of Chinese
Culture will be delivered into markets and customers. Also, all the items are from
China, and all the goods are related to Chinese culture. The owner is original from
China and already has her network relations with Chinese retail markets, so the
existed relationship will help the business to start up.
Since the goal of Forbidden City is to extend Chinese culture in Saskatoon, our target
market is everyone who is interested in our culture, thereafter to provide a good
awareness is our main occupation in marketing plan. We want to let people know
that they can experience Chinese culture even they are in Canada.
The main products include traditional Chinese items, jewelry, and artwork. Besides
selling products, we also sell experiences. We add “Do It Yourself”(DIY) idea into
jewelry section, and in the artwork section, customer can learn how to draw Chinese
art and letters. We hope the unique business strategy will lead Forbidden City be
successful in the future.
Mission Statement: Buying gifts in Forbidden City makes your cultural experiences
richer!
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Forbidden City
2.0 Operations plan
Forbidden City is a gift retail store. The main products are traditional Chinese items,
jewelry, and artwork. The proposition of the Forbidden City is to spread Chinese
culture through products and customer experiences. As a Chinese cultural channel,
we will give customer cheaper prices with unforgettable experiences.
Location
Forbidden City is located in the University Heights Square (Unit 150, 1840
McOrmond Drive) in Saskatoon. University Heights Square is Saskatoon’s largest
northeast retail project, surrounded 7 neighborhoods with above 33,500
populations. Although the location is not close to city center, we still believe
University Height, the new largest retail area, can bring us good opportunities with
acceptable leasing price. Moreover, Forbidden City is the only gift shop in that
location, and many other retail shops surround it, which is an advantage to have
stream of people every day.
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Forbidden City
Site Plan
I will lease 1400 square feet space from the University Heights Square. The space
will be divided into two areas: selling area and experience area. In the selling area,
we have all the traditional Chinese items, artwork on the shelves and walls. There
will be around 50 Chinese lanterns hanging on the ceiling to keep the store bright. In
the experience area, we include the jewelry “DIY” and Chinese Art Tutorial. Because
Art Tutorial usually needs 40 minutes per customer, we do recommend customers to
make appointment for our Art Tutorial lessons.
Jewelry DIY
Inventory Room
Art Tutorial
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Forbidden City
Process Flow
All products in Forbidden City will be shipped from China. Because the owner has
reliable suppliers in China, they will ship items to the store once a month. It takes
about one week to receive the items from China. Also, suppliers have responsibility
to update the information to the owner about current market prices, varieties, and
trends on products. In order to give customers more choices to buy, I want to put as
many items as possible on the shelves, so our inventory will not be huge. For the
organization structure, as a small business, we only require two full-time employees
in the store with the manager (owner). Currently, the manager is the owner of store;
however, if the business runs well, I may hire part-time staff and one extra manager
to take care the store. More details about employees and managers information will
be shown in Human Resource Plan.
Return Policy
In the Forbidden City training program, all the employees are required to check the
products quality before customers making purchases. There is no refund available in
the store. The sign of “no refund available” will post in the fount of checkout counter.
Daily Operations
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Forbidden City
Monday
11:00a.m.
-
7:00p.m.
Tuesday
11:00a.m.
-
7:00p.m.
Wednesday
11:00a.m.
-
7:00p.m.
Thursday
11:00a.m.
-
7:00p.m.
Friday
11:00a.m.
-
7:00p.m.
Saturday
11:00a.m.
-
6:00p.m.
Sunday
11:00a.m.
-
6:00p.m.
Forbidden City opens 7 days a week. Because we want to increase the business
awareness and income in the first couple years, we do not have a break day.
Consider to a gift store, holiday season provides big opportunities to gather
customers in the store, so, in the national holiday, we still open. In the daily
operation, there two employees and owner in the store. The owner is expected to
arrive at the store at 11 a.m. each morning. We will hire three employees, and two of
them work are required to the work each day. The reason why we hire three
employees is we want to make the shifts flexible for them to switch. For the
employees, they are also required to come to work at 11 a.m. every day. Employee’s
main responsibility is to solve customers concerns, delivery Chinese culture
knowledge to customers, and receive feedback. The owner do the cash, inventory,
and returns. If the business is busy during the holiday season, we will have a
additional employee to help with customers or casher.
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Forbidden City
Star-up Budget
The initial capital investment of the Forbidden City is standard. Three major
acquisitions required during the start-up include setup, equipment, and furniture
and fixtures.
Capital Budget
Setup
Equipment
Furniture and Fixtures
Total
Working
Capital
Inventory
Acc Pay
2013
$35,300
$17,900
$100,000
$153,200
2013
2014
2015
2016
2017
$8,190
$11,607
$9,654
$13,576
$10,885
$15,235
$12,273
$17,104
$13,208
$18,370
As show above, our initial capital investment will be approximately $153,200 in total.
In the setup cost, the biggest part is decoration, around $20,000; other costs include
paint, signage, electrical, telephone installation, and licenses and permits. The main
equipment we need for the business is mini video cameras, computer, cash register,
and checkout counter. Because we want to provide Chinese cultural environment in
the store, we will spend approximately $100,000 on Chinese style furniture and
fixtures. In order to make our store unique and memorable, we agree that the
internal environment gives customers first impression of our store’s value, which is
the reason why we decide to spend more money in furniture and fixtures areas.
Forbidden City wants to give customers more choices on items, so there will have
fewer inventories on hand. The owner wants to update the business products once a
month. Each month, there will be something brand new on the shelf. The available
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Forbidden City
inventory includes some business equipment, products in different sizes or colors,
and some specific orders from customers.
Funds Available
Plan A:
The business will be funded by the owner’s equity. Since the start-up budget is not
significantly high, the owner is not going to take loan from bank. The capital
investment is approximately $153,200, so the owner personal investment is around
$160,000. The owner will have personal support from her family members, and she
would like to share her business profits with her family in the future.
Plan B:
If in the business, the owner needs more financial budgets; she will find supports
from social groups, such as Chinese Student Union (CSU) in University of
Saskatchewan. This social group specially helps international student living in
Saskatoon. As a young international enterpriser, the owner can find some helps and
suggestions in CSU. Depending on the success of the business, owner also can take
loan from Business Development Bank. According to the bank, there is no specific
interest rate on lending and it is negotiated with the manager on business future.
Cost of Goods Sold
The cost of good sold of the Forbidden City is directly based on sale figures. The
following table shows our best estimation of sales and related cost of good sold for
the next five years.
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Forbidden City
Sales
COGS
Gross Profit
Gross
Margin
2013
351,000
196,560
154,440
44%
2014
413,741
231,695
182,046
44%
2015
466,493
261,236
205,257
44%
2016
525,971
294,544
231,427
44%
2017
566,076
317,003
249,074
44%
Forbidden City’s revenue mainly comes from the traditional items, jewelry, and
artwork. Since all products are from China, beside the shipping fee, the cost of goods
is low. The owner set different gross margins with three types products: traditional
items (30%), jewelry (50%), and artwork (40%). Although Forbidden City sells
jewelry with 50% gross margin, still the price of jewelry is approximately $10/each.
The reason behind that is the owner has long-term relationship with suppliers, so
she can get discount on purchasing in a larger volume. However, the global economic
crisis will move the import tariff and shipping payment, so the COGS are still
changeable with crucial reasons.
Cost of Sales
Inventory + Purchases
= Good Available for Sale
- Ending Finished Goods Inventory
Cost of Sales
0+ $100,000
=$100,000
-$35,000
= $65,000
3.0 Human Resource Plan
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Forbidden City
Corporate Structure
Forbidden City will be a privately held
corporation managed by Shan Wang, the
owner of the store. The buyer and
supplier positions are located in China.
She will hire three full-time employees for
the business, but only two of them need
to be at store each day. The owner, Shan
Wang, will design the schedule for her employees each month. Also, all employees
are allowed to switch shifts with each other for good reasons, and give one-week
ahead notice. Because Shan is the original founder of Forbidden City, all the shares of
the company will be belong to her. She also has responsibility to take care of
accounting, financial, and marketing tasks of Forbidden City; since the store just
starts up, she is able to take care the business alone for first two years. Depending
on the success of the business, she may hire financial advisor, accounting advisor,
and marketing advisor in the future.
Organizational Task
Initially, the owner will act as sales personnel for the firm. The day-to-day task will
include setting-up appointments with clients, and making sales call. Shan Wang also
response for staff training program, staff schedule, and staff organization. Since the
business is small, Shan believes she is able to take care the employees and
customers’ issues by herself. Because of financial issues, she may not have ability to
hire other employers. Shan wants to provide the Forbidden City as a Chinese culture
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Forbidden City
store; therefore, the whole store will be in the Chinese style atmosphere. Shan and
other employees are required to wear traditional Chinese style clothes in the firm. In
addition, since Shan is the owner and manager in the Forbidden City, she responses
to connect with buyers and suppliers in China. The company’s account is under
Shan’s name, so she also responses all the expenses and incomes.
Training Programs
Forbidden City is a friendly gift shop, owned by Shan Wang. She is the training
provider in the firm. All the new resumes need to hand into her office, and she has
responsibility to look through each of them and make calls. The training program
policy is simplified and unified by Shan. All the employees are required to be
friendly with each customer, be patient to customer concerns, and be able to use
Chinese traditional items. For example, employees need to have skill for using
chopsticks, and for drawing Chinese art. In the training process, employees are able
to learn those skills from Shan; then, they can teach customers in the store.
Moreover, in the training program, Shan will mention all the rules and policies in the
store, and there will be a copy in the store available for employees to look through.
Shan will highlight the return and schedule policy to her employees, and make sure
they memorized the important points. The whole training program for each
employee will be two days, and Shan has right to adjust employees after training.
Job Description
Initially, the owner will act as a sales agent for the company.
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Forbidden City
Shan Wang has reliable relationship with buyer and supplier in China; she is the
channel person between China and Canada. Although she does not have experience
with small business ownership, her close friend who owns similar business in China
for many years can be her advisor in business. Also, as a management major student,
she will fully use the knowledge from school tied to the real business situation.
Therefore, Shan will be held responsible for the sales& promotion and planning
&budgeting of the Forbidden City.

Plan potential target market

Making sales calls

Approve major investment and expense

Training program

Human resource management

Recruit new associates

Planning and budgeting

Oversee all the other minor duties
Depending on the growth of the sales, Shan may hire a manager person to help her
with the business after two years. The owner compensation each year will be based
wage ($30,000) plus dividends. If the business runs well, Shan’s owner
compensation will be the approximately $ 114,648 in the 5th year.
The owner compensation growth in the next five years in shown below
(The dividends start on the 3rd year)
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Forbidden City
The projected human resource expense for the next five years in shown below
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Forbidden City
4. 0Marketing Plan
Target Market
Our target market is really board, everyone who is interested in Chinese culture in
Saskatoon. Since Forbidden City’s purpose is to extend one culture into another
community, we have challenges on our target market. We think Saskatoon is
developing fast, more Chinese immigrations have moved into this city to do
businesses or study. The Chinese culture is intangible growth into Saskatoon
community. To open a Chinese culture store has good business opportunity for local
people who are interested in our culture, and willing to learn and experience more
about our culture.
By demographic: Forbidden City is a gift type business, we believe our jewelry
products and tradition items are more attracted to female customers. So, we target
60% of customers are female, and 40% are male.
By Race: Our purpose is to increase Chinese culture awareness in the Saskatoon, so
we want our customers are non-Chinese customers (70%); therefore, we can reach
our goal to enhance Chinese culture in local community.
Customer Value Proposition: With reasonable prices, you can buy unique gifts and
experience Chinese culture.
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Forbidden City
Competition Analysis
In terms of competition analysis, Forbidden City does not have direct competitors
with similar business idea in local market. However, as a gift store or retail store, we
have many competitors from local retail industry. Dollar Store is one well-known gift
shop in Saskatoon, and its competitive strategy is lower price, which can attract
customers in reality. Other competitors, such as Hallmark Gift Shop located in the
big shopping malls, have good locations to increase their business awareness to
market. In fact, the most popular location for gift shops is the Broadway Street, since
this street has long history with retail businesses. With the benefits from this
well-known location in Saskatoon, many gift shop owners choose to open their
business there, and use the location strategy to increase their business profits.
Moreover, we also treat Wal-Mart as one competitor. This big retail company owns
the most market share in retail industry; thus, customers want to buy gifts from
them with cheaper prices and more choices.
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Forbidden City
In order to give customers a clear vision of Forbidden City’s position among the
retail competitions, we created the position map (at above). The main variants are
price and merchandise. We cannot grantee our price is as low as Dollar Store and
Wal-Mart; but we have more variety of merchandise in our store. Also, compared
with other gift shops, we associate with Chinese culture elements into our marketing
strategy as well.
The Marketing Mix (Four P’s and Marketing)
Products
Forbidden City mainly sells three type products: Traditional Chinese items, jewelry,
and artwork. In order to increase customer experience with Chinese culture, jewelry
and artwork contain “Do It Yourself” and art tutorial lessons. With our jewelry
material, customers can design them by their hands; however, we also provide
finished Chinese style jewelry, already made from China, to those customers who are
willing to buy finished products. For the art tutorial, we allow customers to order
their own Chinese Art paintings from us, such as English names written into Chines
words. Also, we will have art tutorial class every week. Customers can learn how to
use Chinese written brush to create Chinese words or paintings. However, because
of limited spots available in the store, we suggest customers to book appointments
with us two days ahead, so we will have enough time to arrange the classes.
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Forbidden City
Product Samples: Traditional Items
Jewelry (DIY)
Artwork
Price
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Forbidden City
One position strategy of Forbidden City is the lower price compared to other gift
shops. The selling price for traditional items is $5 - $25; jewelry is approximately
$10; artwork is $10 - $35. We have planned our to use price strategy on jewelry
products. From research in other jewelry stores, the jewelry price is usually above
$15. The owner expects a purchase discount as well will be purchasing in a bulk
quantity material from China.
We believe that our rational prices compared to other retail stores should attract
more customers to walk into our store and to make a purchase. The expected
average purchase per customer is $15.
Promotion
We believe that the most important key to be success as one brand new business is
to increase our awareness. Our promotional strategy is to be partner with local
Chinese restaurants and Asian markets. Bringing our products into their workplaces,
and having price tag on each one, therefore, customers can see our products in other
places as well. Also, we will print posters and put them into public areas, for
example, we will put posters on the fount door in Yip Hong Restaurant.
In addition, we will fully use social media as a free promotion tool for our business.
Owner will create the Forbidden City webpage, Facebook account, and Twitter blog.
Internet is an effective channel to let people know about the store. Updating product
photos and information daily online can provide a space for customer discussion.
Meanwhile, the owner can collect customer suggestions online and improve the
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Forbidden City
management regularly.
Other
external
promotions
include,
billboards,
newspaper
advertisement, and bus advertisement. Depending on the revenue of
the business, some promotion options need to be considered due to
high costs.
Beside the external promotions, Forbidden City also has internal
promotion strategies. In a part of branding strategy, we created our
Bookmark
(Sample)
logo, membership cards and business cards. Moreover, we will give
reusable shopping bags (with our logo on it), stickers and
Forbidden City bookmarks to customers for free
in the store. In addition, since Forbidden City is culture-based
business, the owner requires all the employees wear Chinese
style clothes at work; therefore, the environmental promotion
makes the whole store be specialized.
Place
As mentioned, our location is in the University Heights Square. The owner compared
downtown area, Broadway area and the University Heights. She found out that the
University Heights has more opportunities for growth, and its leasing price is
acceptable for operational budget. In that location, Forbidden City will be the only
cultural style gift shop in among of other retail shops; we believe it is an opportunity
to gather customers in this commercial center. However, because the location is not
close to the city center, we will mainly focus on awareness improvement in
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Forbidden City
marketing.
Although Forbidden City only has one location in Saskatoon, we plan to have online
shop in the next couple years. Customers in other cities can order our products
online, and we will ship items to other cities. Online shop has less operational cost
than the physical store. Therefore, the online shop is the next plan in the owner’s
mind if the business runs great in the next couple years.
Projection of Revenue
Our best estimate sales forecast for the next five years upon application of our
planned marketing strategy is shown as following:
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Forbidden City
We estimate 40%of the total revenue is jewelry sales, due to its low price and good
deal. Other 60% of total revenue just simplify into two, traditional items (30%) and
artwork (30%). Because the growth rate number of customers per day will be
reduced in the last two years. The total revenue will be slightly increased in the 4th
year and 5th year.
Marketing Budget
Our planned marketing expense for the first year is as following:
Marketing Expenses
Business Cards
Posters
Shopping bags, stickers, bookmarks
Billboards
Social
Media
(Facebook,
twitter, etc.)
Total
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$100
$300
$1000
$3000
Free
$ 4300
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Those items are
from China
Forbidden City
The biggest cost is the billboards for the store marketing, but it is necessary to have
at least one billboard in the University Height Square, so people can notice
Forbidden City’s location. Other items will be produced in China; the owner has
responsibility to find the factory through family relationship, so the costs are
negotiable. Moreover, as we mentioned before, social media is a free promotion tool
to use, and it will help us to increase awareness cross-countries.
Forbidden City also has long-term marketing plan (in below). However, billboards
we only need to purchase in the first year, and continue using it in the later years.
Other items like business cards, posters, and shopping bags may have enough in
inventory for the next few years after first purchase. Therefore, the owner needs to
estimate the marketing budget each year, with subtracting existed value from the
previous years.
Marketing Plan (Long Term)
2013-2014
Business card
posters
Billboards
Shopping bags,
stickers, bookmarks
Social media
2014-2017
Future
Web Page
Newspaper Ads
Bus Ads
Radia Ads
However, we have taken a conservative approach and budgeted 7% of our estimated
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Forbidden City
revenue each year towards marketing purpose. Therefore, we hope that our
marketing budget would be sufficient enough to take care of our marketing expense.
From the Financial Model, Shan found that the available marketing budget is really
low in the first year, in this case, owner will pay for the essential costs for marketing;
the money amount from her personal account will be recorded as additional
personal investment on marketing.
5.0 Accounting and Financial Plan
Capital Budget
Our initial start-up cost is made up of capital cost of setup, equipment, and furniture
and fixtures. The incorporation and licensing can be expensed at the end of the year.
The total start-up will be funded by equity investment. The owner will invest
$160,000 from her bank account, as personal investment. We do not plan to take
loan from bank.
Capital Budget
Setup
Equipment
Furniture and Fixtures
Total Expense
Total Equity Available
2013
$35,300
$17,900
$100,000
$153,200
$160,000
The owner of the Forbidden City mainly focus on the marketing strategy in the first
year, so she would like to put more equity investment to start-up the business. Hope
the extra equity $160,000-$153,200= $6,800 can cover the marketing cost and basic
inventory in the first year.
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Forbidden City
Summary of the projected Operational Performance
Sale Projection
According to our knowledge and the best estimate, our sales and its growth forecast
is showed below. We assume the number of customers per day in the first year is 65.
With the growth rate 15%, 10%, 10%, and 5% in the next four years, our customer
amount will hit 95 per day in the fifth year. The reason why we set the higher growth
rate in the second year is the owner wants to approach strong marketing plan in the
first year to gather loyal customers from society. However, start from third year, we
plan to keep our loyal customers and to increase new customers faintly. In the fifth
year, we believe that we will have a good customer amount base, so the opportunity
of customer growth is low.
Number
Of Customer/day
Growth Rate
2013
65
2014
75
2015
82
2016
90
2017
95
15%
10%
10%
5%
Revenue and Income Statement Summary
Based on above stated sales forecast and growth our revenue estimation is
presented below.
Average Net Income (in five years)
= $44,737
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Forbidden City
2013
Revenue
COGS
Operating
Expenses
Taxable
Income
Taxes
Net Income
2014
2015
2016
2017
$351,000
413,741
466,493
525,971
566,076
(196,560)
(231,695)
(261,236)
(294,544)
(317,003)
(138,963)
(152,696)
(154,781)
(157,941)
(160,756)
15,477
29,351
50,476
73,486
88,318
(2,012)
(3,816)
(6,562)
(9,553)
(11,481)
13,465
25,535
43,915
63,933
76,836
Our cost of goods sold is an approximation based on the sales estimate, without
considering any purchase discount from supplier and shipping. Also, the revenues is
based on each customer pay around $13, each payment is changeable during the
next five years. Taxes computed by Saskatchewan Small Business Tax Policy. The
taxes are changeable by government as well.
Owner Compensation
Shan Wang is the only owner of Forbidden City. Since she just graduated from
University and has no experience with ownership. Shan is not going to give herself a
huge wage as the owner; thus, the business would have less pressure with expenses.
Start from 2013, the owner compensation will be $30,000 per year, slightly higher
than full-time staff wage. However, if she is not going to hire other managers, the
owner compensation will boom up to $70,000 to Shan in the third year (due to
company dividends). In the end of fifth year, the owner compensation is
approximately $ 109,836.
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Forbidden City
Manager
Wage
Dividends
Owner
Compensation
2013
$30,000
2014
30,750
2015
31,519
2016
32,307
30,000
30,750
39,042
70,561
59,571
91,878
2017
33,114
76,721
109,836
Average Owner Compensation= $66,605
Balance Sheet and Cash Flow Projection
Total Asset
Total Liability
Total Equity
Total Lia. &Eq.
Net Cash Flow
2013
$185,072
11,607
173,465
$185,072
2014
212,576
13,576
199,000
212,576
2015
219,107
15,235
203,872
219,107
2016
225,337
17,104
208,233
225,337
2017
226,719
18,370
208,349
226,719
2013
2014
2015
2016
2017
$34,130
79,042
99,571
116,721
127,131
Forbidden City’s common share is $160,000, as equity investment to start up, which
is able to cover all the investment activities expense ($153,200) in the first year.
Therefore, our net cash flow is all positive numbers in Financial Model. Because we
have high start-up cost in the first year, the net cash flow is low; however, the
numbers increase rapidly in the next years. In the fifth year, our net flow will be
approximated $127,131, and total asset will be $226,719.
Accounts Receivable
All point of sale transactions will be cash, credit card or debit, will be expected in full.
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Forbidden City
Forbidden City will not offer any credit to customers, and as such will have no
accounts receivable on Financial Budget. The exception to this would be large
corporate orders, which requires credit terms of net 15 days would be offered.
Therefore, the accounts receivable is usually not expected in Forbidden City.
Accounts Payable
Due to the suppliers in China, we believe that we should be able to get credit terms
from our suppliers. However, the owner will negotiate the credit terms. Because of
the existed relationship between the owner and supplier, we would get longer credit
terms from business. For the rest of the expenses, our policy will be to settle it
within 20 days to avoid any penalty charges.
Financing
The capital budget, as well as start-up inventory will be financed through equity
investment. The capital budget is $153,200. Shan Wang is willing to put $160,000
into star-up equity. She will take $60,000 from her personal bank account; she hopes
her family members can support the rest. If she still has financial issues, she plans to
seek investors through friends, or social groups (such as Chinese Student Union in
University of Saskatchewan). Shan believes she is able to offer the budget from
equity, and not going to take loans.
Capital Budget & Depreciation
Forbidden City capital budget includes setup, equipment, and furniture and fixtures.
The big expense in setup is decoration ($20,000). Because we will lease a unit in the
University Heights Square, the place is new and has not been decorated by others. In
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Forbidden City
order to give customer a unique environment, Shan decided to spend lots money on
store surface. Also, she plans to hang many Chinese lanterns on the ceiling, so the
cost of redesigned wires will be under setup expense as well. Moreover, the
traditional Chinese wood furniture is expensive in Canada; the cost of furniture and
fixtures is approximately $100,000.
Depreciation will be calculated using the Capital Cost Allowance for taxes. This will
result in 20% for our furniture and fixtures, which would include displays and
shelving, and 5% for our leasehold.
Capital Cost Allowance (CCA)
5%
2013
2015
2016
2017
$17,453
16,580
15,751
14,963
14,215
Fixtures (Class 8)
90,000
72,000
57,600
46,080
36,864
Total CCA Expense
10,448
18,873
15,229
12,308
9,964
Leasehold (Class 3)
20%
2014
Furniture
and
Income Tax
As Forbidden City will be incorporated and eligible for the small business deduction,
a combined federal and provincial (Saskatchewan) tax rate of 13% had been showed
to the business financial model.
Dividend Policy
Forbidden City requires that $40,000 is the cash line to pay dividends. If the cash
balance in the end of year is above the $ 40,000, the dividends will be cash amount
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Forbidden City
subtracting $40,000 for the next year. Dividends will directly affect on owner
compensation. Our store starts paying dividends in third year. The detail
information is showen below.
2013
Cash Bal. End
of year
Dividends
2014
2015
2016
2017
$34,130
79,042
99,571
116,721
127,131
(40,000)
(40,000)
(40,000)
(40,000)
(40,000)
39,042
59,571
76,721
-
-
Ratio Analysis
IRR = 22.6%
NPV = $11,428
Gross Margin = 44%
ROI = 20%
Forbidden City is a new gift store type, we have high risk to be successful; therefore,
we set our required Return On Investment (ROI) is 20%. In order to make business
profitable, our gross margin is 44% for each year. Due to low cost of goods, our
selling prices are still lower than other gift shops in the market. After we predicted
our financial model for the next five years, our Net Present Value (NPV) is $11,428,
which means we will meet our required return and have more money left. The
project is standard. Also, our IRR is 22.6%, which is acceptable for a feasible
business. Overall, the owner believes that Forbidden City has opportunity to survive
and grow in the future.
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Forbidden City
Break-Even Analysis
As shown in the above graph, the first year we will be able to achieve break-even
though net income is low. However, the next few years we are confident to beyond
our breakeven and to make our business grow fast in the future.
Critical Risk Factors
Will People Actually Buy? : As a retail business, we cannot grantee each customer
will make a purchase when they walk into the store. Forbidden City had many
unique ideas to attract customers, such as differential our products, specialized our
store environment, and customer experiences strategy. Although we believe those
plans can attract customers to walk in our store, we cannot make sure they are
willing to buy anything. There will be a risk to us to meet our sale goals if many
customers come to “have a look” and not make a purchase action.
Are People Interested In? : Our target market is everyone who is interested in
Chinese culture. The target customers seem really board, but how many people are
actually interested in and want to experience Chinese culture in Saskatoon; we need
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Forbidden City
to question ourselves. Our target market may be really “narrow” in reality.
Contingency Plan
After analyzing the whole situation, Shan Wang, as the owner of Forbidden City,
believes her business is feasible. Therefore, she created three contingency plans to
deal with worse situations.
1. Enhance Marketing Plan: We considered promoting our business into more
public areas, such as University, and Downtown areas. In the University, beside
the word of month, we will also put our posters in each college. As an
entrepreneur from the University, she hopes that university students will be
interested in her business and give her supports. In Downtown, she will mainly
focus on Chinatown area; she will enhance the partnership with Asian
restaurants. Moreover, she would like to create additional partnership with
Chinese Student Union in University. In this case, we is going to promote Chinese
culture instead of the business. She believes letting more people know about
Chinese culture will bring more opportunities on customer growth as well.
2. Seek Investors and Helpers: if we meet serious financing problems on our
business, the contingency plan is to seek investors. Shan would like to ask her
friends if they are interested in to do the business together; or she will take loan
from bank. Also, we hope Chinese Student Union can give us some suggestions or
advice since they have more connections in local society. Moreover, university
professor can be our helper as well, because they have many experiences in
dealing small business issues.
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Forbidden City
3. Switch to Other Business Fields: our last contingency plan is to switch to other
business fields if the external environment forces us to shut down Forbidden City
in the future. The reason can be our target market is too narrow in reality, or the
business is not profitable. In the end of fifth year, we would like to sell the store
for $40,000 (with our inventory and goodwill). However, this plan we do not
expect to use.
6.0 Summary
Based on the material covered in this business plan, Forbidden City had feasibility to
run well in retail industry. As a cultural bridge between China and Western countries,
the business will be specialized itself and perfectly fill a distinctive gap in the
current market in Saskatoon. The unique branding and image will attract the eyes of
our target markets. Also Forbidden City can position itself successfully within the
local community. With the acceptable equity investment and profitable sale process,
Shan Wang has confidence with Forbidden City’s future.
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