Business Plan
for
Submitted to:
Dave Clark
Live
Extreme
Submitted by:
GS3 Consulting Ltd.
Sean Georget
Josh Safronetz
Dana Stoughton
Dave Sullivan
February, 2008
Clark’s Xtreme Sports Co.
February 2008
GS3 Consulting Ltd.
Executive Summary
The extreme sports market in Saskatoon is growing. As X-Games and other popular extreme television
shows are increasing in popularity, more and more people are pursuing extreme activities of biking,
snowboarding, kite surfing, and skateboarding. While traditional team sports of basketball and baseball
are declining in numbers, soccer, ultimate Frisbee, and rugby are increasing among adults and kids.
Soccer is currently the fastest growing sport in Saskatchewan. Clark’s Xtreme Sports Co. (Clark’s) will
take advantage of this emerging market by selling extreme sports equipment such as bikes, snowboards,
kite surfing equipment, skateboards, and apparel. Clark’s will also sell merchandise for soccer, rugby,
and ultimate Frisbee.
Clark’s will be located in the Broadway district of Saskatoon. Broadway is known as an alternative
culture market and has a reputation as a unique shopping district. Broadway used to be Saskatoon’s
shopping hub, but now its reputation makes it a popular destination for shoppers and other popular
events like the Fringe Festival. In 2007, the Fringe Festival attracted 65,000 people.
Clark’s will establish a brand image and name that is associated with a quality while providing Saskatoon
and Saskatchewan with high end extreme sporting goods merchandise. Clark’s is a direct sales company
that will rely on Dave Clark and two additional full time knowledgeable staff to provide high quality of
service 7 days per week, with extended hours of operation on Thursday’s and Friday’s. Dave Clark will
assume the General Manager position and be responsible for marketing and advertising, inventory
management, book-keeping, and overall leadership. The 2000 ft2 store provides plenty of room to
showcase the extreme sports merchandise as well as two change rooms, an office, a stock room, and
washroom. The merchandise will change according to the season and the layout of the store will be
adjusted to maximize the exposure of popular items.
Clark’s requires approximately $90,000 in capital to begin the business, which includes remodeling costs,
sales equipment, and net working capital costs. Clark’s will initially carry approximately $75,000 in
summer inventory, and then require $75,000 for winter inventory. Clark’s operating expenditures are
mostly fixed, with annual overhead costs of $33,500 per year and labour costs of $56,000 annually.
Clark’s will enter the Saskatoon market with a clear marketing strategy. Clark’s will use a differentiated
pricing strategy to provide high quality sports merchandise at a premium price to customers. Clark’s is
targeting the people of Saskatoon and area who have above average income levels or want high quality
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equipment. The Broadway district is known for providing high quality items at a premium price so
shoppers in this district will see Clark’s as a perfect fit. Clark’s is also targeting adult and kids sports
teams.
The sports merchandise industry in Saskatoon is competitive, but Clark’s will rely on a reputable brand
image, location, service, and quality to compete effectively in the market. As mentioned earlier, the
extreme sports market is expanding and Clark’s will take advantage of this. Clark’s is targeting $400,000
worth of sales in year 1 with sales increasing to $490,000 by year 5. This will be achieved through instore purchases with the option of online sales being evaluated in the future. Sales of $400,000 per
year are achievable as the industry indicates that sales of $20 per square foot per month are reasonable.
$400,000 in annual sales translates to $1,100 per day. Merchandise will be marked up an average of
75%, with the industry average ranging from 60% to over 100%.
Advertising is critical to achieving sales. Clark’s will rely on many mediums to create exposure and
increase sales, including billboards, radio ads, brochures, newspaper ads, website, and posters. Year 1
marketing expenses are predicted at $30,000.
Financially, Dave Clark will provide $30,000 in equity with the additional $60,000 of required capital
being acquired through debt with 7.4% annual interest. For the business to be successful, a 20% return
is required. Based on the estimates from the business plan, it is predicted that the business can achieve
a 38% internal rate of return (IRR), an 11% return on assets, and an 8.8% external rate of return. Based
on this success, Clark’s should incorporate for tax advantages. At some point during the year, Dave Clark
could lower his salary and pay himself in dividends. According to the sensitivity analysis, the critical
variable is sales. To breakeven, annual sales need to reach $395,000, which does not leave a lot of room
from predicted sales in year 1. However, as a contingency plan, Dave Clark can run the business alone
or with a reduced staff until sales are established if need be. If Clark’s eliminates one of the staff
members, the breakeven in sales is $330,000 annually. If both staff members are eliminated, the
breakeven point $265,000 in sales annually. The worst case scenario for the business makes it unviable.
In conclusion, Clark’s is a potentially viable business if it can establish itself as a reputable sports store in
Saskatoon. Clark’s marketing and advertising has to reach the target market to ensure that there are
enough sales to make the business profitable. However, consumer spending should increase with the
boom in Saskatchewan and the growing popularity of extreme sports makes Clark’s a potentially
successful business and smart investment.
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Table of Contents
1.0 Introduction ............................................................................................................................................ 3
1.1 Industry ............................................................................................................................................... 3
1.2 Mission Statement .............................................................................................................................. 4
1.3 Goals and Objectives........................................................................................................................... 4
2.0 Operations Plan....................................................................................................................................... 4
2.1 Location ............................................................................................................................................... 5
2.2 Floor Plan ............................................................................................................................................ 6
2.3 Average Business Cycles ..................................................................................................................... 8
2.3.1 Average Day ................................................................................................................................. 8
2.3.2 Average Week .............................................................................................................................. 8
2.3.3 Average Month ............................................................................................................................ 8
2.3.4 Average Year ................................................................................................................................ 9
2.4 Supply Analysis .................................................................................................................................... 9
2.5 Capital Budget ..................................................................................................................................... 9
2.6 Operating Expense ............................................................................................................................ 10
2.7 Cost of Goods .................................................................................................................................... 11
3.0 Human Resource Plan ........................................................................................................................... 12
3.1 Job Descriptions ................................................................................................................................ 12
3.1.1 General Manager ....................................................................................................................... 12
3.1.2 Direct-Sales Staff ........................................................................................................................ 13
3.2 Scheduling ......................................................................................................................................... 13
3.3 Labour Costs Breakdown .................................................................................................................. 14
3.4 Training Programs ............................................................................................................................. 15
4.0 Marketing .............................................................................................................................................. 16
4.1 Marketing Introduction..................................................................................................................... 16
4.1.1 Products and Services ................................................................................................................ 16
4.1.2 Pricing......................................................................................................................................... 16
4.1.3 Promotion .................................................................................................................................. 16
4.1.4 Place ........................................................................................................................................... 16
4.1.5 Segmentation, Targeting, and Positioning ................................................................................. 16
4.2 Projections of Revenues and Marketing Expenses ........................................................................... 17
4.3 Specific Market Analysis ................................................................................................................... 17
4.4 Marketing Strategy ........................................................................................................................... 18
4.5 Selling and Advertising ...................................................................................................................... 19
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5.0 Financial Plan ........................................................................................................................................ 21
6.0 Conclusion ............................................................................................................................................. 25
Appendix A: Inventory Requirements ......................................................................................................... 26
Appendix B: Clark’s Xtreme Sports - Products ............................................................................................ 28
Appendix C: Competitive Industry Analysis ................................................................................................ 36
Appendix D: Demographic Profile............................................................................................................... 38
Appendix E: Yearly Financial Projections .................................................................................................... 40
Appendix F: Monthly Financial Projections for Year One ........................................................................... 52
List of Figures..
Figure 2.1.1 – Location of Clark’s Xtreme Sports Company………………………………………………………………..…….6
Figure 2.2.1 Store Layout…………………………………………………………………………………………………………………………7
Figure 3.2.1 – Typical Workweek Schedule……………………………………………………………………………………..…….14
Figure 5.1.1 Sensitivity Analysis……………………………………………………………………………………………………………..22
List of Tables
Table 2.5.1 – Capital Cost Expenditures……………………………………………………………………….………………………..10
Table 2.6.1 – Operating Expenditures………………………………………………………………………….………………………..10
Table 2.7.1 – Summer Inventory……………………………...………………………………………………….………………………..11
Table 2.7.2 – Winter Inventory…………………………………………………………………………………….………………………..12
Table 3.3.1 – Labour Cost Projections………………………………………………………………………….………………………..15
Table 4.2.1 - Projected Sales Revenues and Marketing Expenses………………………….………………………………17
Table 4.5.1 - Marketing Expenses …………………….……………………………………………………………………..……...……21
Table 5.1.1 - Sensitivity Analysis Inputs…………………………………………………………………………………………..…….23
Table 5.1.2 - Base case / Worst case / Best case Scenario Variables……………………………………………….….…23
Table 5.1.3 - Base case / Worst case / Best case Scenario Results….……….……………………………………………23
Table 5.4.1 - Summary of Financial Objectives………………………………………….……………………………………….…24
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1.0 Introduction
1.1 Industry
High-intensity, individualistic sport involves everything from winter snowboarding to summer
wakeboarding and long boarding, and has encroached upon tradition sports in popularity. Viewership
has steadily increased each year for sporting events such as X Games on ESPN and the Gravity Games on
NBC, while viewership for Monday Night football for example has recently struggled for an audience.
This is directly related to the increase in participation and interest in Extreme Sports. As membership in
team sports is declining; baseball is down 28 percent since 1987, to 10.9 million players, basketball
declined by 5 percent in 2000 and 17 percent from its 1997 peak and since 1987, involvement in softball
and volleyball has plunged by 37 percent and 36 percent, respectively. Snowboarding which was once
rare on the ski slopes - now claims over 7.2 million participants, up 51 percent from 1999. The kindred
extreme sports of skateboarding and wakeboarding have increased over 49 percent and 32 percent,
respectively since 1999 and these numbers continue to grow. These extreme "board" sports have taken
over the top three growth positions among all alternative sports. “These new sports are an authentic
slice of the wider youth culture and not just a fad," says Harvey Lauer, president of American Sports
Data, Inc. (ASD), a sports marketing Research Company in Hartsdale, N.Y.
Extreme sports were once considered the sole province of the multi-pierced, tattooed slacker, have
entered the mainstream. And the age demographics of participant’s in extreme sports increases every
year, as adults enter the market and youth start participating at an earlier age.
3,000 years old and counting. Soccer is a game grown in tradition and made for people of all ages and
offers an opportunity in life to grow as individuals and teammates. Although a relatively simple game it
is the imagination and emotion the game offers that keeps people involved. Because of this, soccer lives
to be more than just a game, as it reaches out and embraces the extreme athlete. Soccer is currently
making waves as a fast growing sport in Saskatchewan.
Rugby is one of the most highly skilled, elegant and extreme sports. "Elegant and extreme" may surprise
people who don't know the game and see only a bunch of people on a field bashing into each other, but
there is no better word. It is fifteen people on one pitch, each with a different role, but organizing
together into an amazingly well-coordinated and subtle whole. The hits, bruises and exhaustion have
made this extreme sport the fastest growing women’s sport in Canada. Marketing efforts to clean up
the rugby image have dramatically increased the number of young players in the country.
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The image of kite surfing or Kite boarding recently changed from an exclusive extreme sport to a sport
for all, resulting in rapidly growing popularity and fast market development, although this sport has
been in existence less than a decade. The typical stereotype of a kite surfer/boarder is 25 years old,
male, risk seeking and embodies a surf/snowboarding-style image. However, the 45-year old
businessman has been known to kite surf during his lunch-break and the 14 year-old kite
surfing/boarding girl who lives for the sport are not that uncommon. Classic market segmentation
approaches fail to understand the kite surfing/boarding market, like many other alternative sports- or
culture markets, since most of them are based on scenes.
This has led to the relatively slow
introduction of the sport into traditional extreme sporting goods stores.
1.2 Mission Statement
“Clark’s Xtreme Sports Company is committed to being the premier Extreme Sporting Goods Store in
Saskatoon and area, by serving the alternative sport enthusiasts and providing merchandise of
exceptional quality and value in a friendly, service-oriented environment.”
1.3 Goals and Objectives

Establish an image and name that is associated with quality and value;

Provide Saskatoon and area with high end sporting goods in a few specific sporting markets;

Help establish the alternative sport industry in Saskatoon and Saskatchewan;

Support local Extreme Sport athletes by providing them with the best available equipment;

Maximizes sales at $480,000 by year 5;

Achieve monthly sales of $20 per square foot of retail space;

Provide at least 20% return on equity.
2.0 Operations Plan
Clark’s Xtreme Sports Company (Clark’s) is a direct sales company that will sell sports equipment
catering to the very popular and fast growing extreme sports crowd. Sales will be done at the retail
store through one-on-one direct interaction sales. The staff will be extreme sport enthusiasts and will
be very knowledgeable about all the products available for sale in the store.
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The store hours will be as follows:
Store Hours
Monday – Wednesday
10:00AM to 6:00PM
Thursday & Friday
10:00AM to 9:00PM
Saturday
10:00AM to 6:00PM
Sunday
11:00AM to 5:00PM
To accommodate the high level of customer service that Clark’s is determined to give their customers,
there will always be two employees at the store during the hours of operations. When Dave Clark is on
shift, he will spend some of his time in the office working on the marketing and book-keeping needs of
the company. In addition to direct individual sales, Clark’s will target sport teams for jersey and
equipment sales. These sales will be coordinated through the General Manager of Clark’s. Clark’s will
be owned and managed by Dave Clark.
2.1 Location
Clark’s Xtreme Sports Co. will be located on Broadway Avenue in-between 11th and 12th Street. Figure
2.1.1 shows the location. The location is a 2000 square foot retail space that will be leased for $2000
per month. This location was chosen based on the following factors:
1. Broadway is known as an alternative culture market. The Broadway area has long been known
as a spot of convergence for people with alternative lifestyles. The Broadway location for Clark’s
will take advantage of this convergence and tailor to this market.
2. Broadway is known as a very unique shopping district. The Broadway area hosts many
different shops that accommodate the needs of many people. The shops are very unique in
nature and most offer a higher quality specialized product. This fits very well with the products
that Clark’s offers.
3. Synergy based on other stores in the area. Many stores in the Broadway area cater to the highquality and/or the alternative and extreme lifestyle. By be located in the Broadway area, Clark’s
and other stores can feed off of some of the retail synergy that can be created by stores serving
a similar market.
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Figure 2.1.1 – Location of Clark’s Xtreme Sports Company
2.2 Floor Plan
The floor plan of Clark’s is designed to allow for customers to easily move around the store and find all
items they are looking for (and items they are not looking for). A typical layout for both summer and
winter stock can be seen in Figure 2.2.1.
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Figure 2.2.1 Store Layout
The layout will allow for similar products to be grouped together and signage will be very visible from all
areas of the store. The check-out counter will be located close to the entrance to allow for good traffic
flow through the store, efficient customer transactions, and for quick customer service for newly
arriving customers. There will be two change rooms located in the back corner of the store to allow
customers to try on clothes.
The back of the store will have a stock room, washroom, and office. The stockroom will be an area to
store excess inventory and will also have a table and microwave to accommodate mealtime needs. The
office will be used by the General Manager to conduct marketing, sales calls, and book-keeping duties.
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2.3 Average Business Cycles
2.3.1 Average Day
A typical day at Clark’s will not vary much from one day to the next. The staff will arrive before opening
to go through the pre-opening checklist and get the store ready for opening. This list may change from
day to day and season to season, but would include such things as the turning on of all lights and signs,
cleaning the front sidewalk, and any new product placement. Once the doors are open the staff’s first
responsibility will be to assist the customers in any way possible. They will help them with trying on
footwear and make recommendations as they see fit.
Their expertise and experience with the
equipment will come in useful to teach the customers about the products and promote sales. It is
anticipated that mornings and mid afternoons will be slow during the week, while noon time, late
afternoon, evenings, and weekends will be busy.
During slower periods, the employees will be required to restock shelves and maintain a clean sales
environment. At the end of each business day, the employees will be expected to clean the store
including sweeping and/or vacuuming the floors.
The General Manager will be responsible for
performing the daily cash-outs and making any bank deposits as necessary. During slow times when the
General Manager is working on the floor with another employee, the General Manager will use that
time to perform book-keeping and marketing duties associated with his job.
2.3.2 Average Week
Every week, the General Manager will have to assess the week’s sales and inventory levels and submit
orders to the suppliers to restock inventory. Orders to different suppliers will be done on different days
of the week. This will help to ease this work or ordering and inventory counts and to spread out of the
receiving of goods. The weekly flyers and advertisements will also have to be created by the General
Manager during the week to be ready for the following week. Payroll will be done every two weeks and
will also be the responsibility of the General Manager.
2.3.3 Average Month
On a monthly basis, the work associated with Clark’s will not change much. The General Manager will
have to produce and analyze the monthly financial and sales statements. These statements will be used
to assess the business and adjust the marketing focus and inventory as needed.
Part of Clark’s sales is targeted to seasonal markets, and therefore inventory needs will have to change
to accommodate the seasons. This would most likely happen only a couple times of year to switch from
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the summer water sports to the winter snow sports and vice-versa. The marketing focus will also have
to change during these times to advertise the new inventory to the targeted group. This will also
include establishing sales periods at the end of the winter and summer seasons. With the growing
Saskatoon market, the General Manager will also have to complete monthly environmental analysis’ to
determine what is happening in the industry and in Saskatoon.
2.3.4 Average Year
Year-end financial statements will need to be produced by the General Manager once a year. A full
analysis of the company should be completed to investigate the marketing, sales, HR troubles, bright
spots of the company from the previous year, and a summary of the environmental analysis. This
analysis should lead to a change in the company’s goals and objectives and marketing strategy if
needed. It will also show sales items that don’t move or don’t make enough money and should maybe
be remarketed or removed from the inventory. It might also bring to light other items that could be
added to the company’s inventory.
2.4 Supply Analysis
All sales items will be purchased from reputable distributors and manufacturers that have been around
for years and are very unlikely to go out of business. When possible, products will be purchased directly
from the manufacturer to eliminate the middleman and reduce the cost. Current and potential
suppliers will be analyzed on a monthly basis to determine the best suppliers for Clark’s based on price,
service, and delivery. When a change in supplier needs to happen, it will first be done on a parallel basis
with current suppliers to determine the most suitable supplier for Clark’s.
2.5 Capital Budget
The total capital requirement for Clark’s is $93,500. This cost includes building remodeling costs, sales
equipment, and net working capital costs. The breakdown of the costs can be found in Table 1.5.1. The
inventory estimate is based on the average inventory requirements for the summer and winter seasons.
The inventory requirements and breakdowns can be found in Appendix A. There is no accounts
receivable as all sales will be on a cash basis (including interact) or with a credit card. The accounts
payable is based on the purchasing of sales goods from suppliers. As shown in Table 1.5.1, the majority
of capital requirements are for inventory needs to supply the store. Since Clark’s will have a large line of
different extreme sports equipment, the inventory costs are high, but the liquidity value of the
merchandise is still very high and would be above the purchase price is most cases.
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Table 2.5.1 – Capital Cost Expenditures
Description
Remodeling
Sales Equipment
Shelves, racks, displays
Cash Register
Check-out Counter
Office Equipment
Total Sales Equipment Costs
Working Capital
Overhead
Labour and Manager
Marketing
Inventory
Accounts Payable
Total Net Working Capital
Total Capital Required
Estimated Costs
$4,000
$5,000
$800
$500
$1,000
$7,300
7,560
8,471
5,258
$80,000
$19,048
$82,241
$93,541
2.6 Operating Expense
Clark’s will be open 7 days a week, 52 weeks a year, excluding statutory holidays. The anticipated
operating costs for the first year of operation are listed below in Table 2.6.1.
Table 2.6.1 – Operating Expenditures
Variable Overhead Costs
Maintenance
Total Variable Overhead
$300
Fixed Overhead Costs
Rent
Utilities
Insurance
Business License
Capital Cost Allowance
Telephone
Total Fixed Overhead
$24,000
$2,400
$5,000
$200
$1,015
$600
Total Overhead
$300
$33,215
$33,515
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2.7 Cost of Goods
The cost of goods for all products is the purchase price of the inventory items. Table 2.7.1 shows a
breakdown of the summer inventory, while Table 2.7.2 has a breakdown of the winter inventory. The
markup on all items will be 75% and is based on the items being high-quality premier items with no to
little competition elsewhere in Saskatoon and area.
Table 2.7.1 – Summer Inventory
Category
Item
Soccer/Rugby balls
shoes
clothing
Long Boards
Boards
Bikes
Men's
Women's
Skateboards
Sk8brd
Prot Appr
Frisbee
Frisbee
Apparel
Shirts
Shorts
Hoodies
Sweat Pants
Kite Surfing
Kite
Wakeboards Boards
Unit
Cost
Units
Purchased
Total
Cost
$20
$85
$40
$250
$1,400
$1,400
$80
$40
$15
$50
$50
$75
$50
$1,100
$275
20
150
50
15
10
10
30
30
50
75
50
50
50
7
15
$400
$12,750
$2,000
$3,750
$14,000
$14,000
$2,400
$1,200
$750
$3,750
$2,500
$3,750
$2,500
$7,700
$4,125
$15,150
Total
$75,575
SubTotal
$3,750
$28,000
$3,600
$750
$12,500
$7,700
$4,125
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Table 2.7.2 – Winter Inventory
Category
Soccer/Rugby
Item
balls
shoes
clothing
Snowboards
Boards
Bindings
Helmet
Boots
Kite
Cross
country
Boots
Downhill
Boots
Poles
shoes
Shirts
Shorts
Hoodies
Sweat Pants
Kite Boarding
Skis
Snow shoes
Apparel
Unit
Cost
$20
$85
$40
Units
Purchased
20
100
50
Total
Cost
$400
$8,500
$2,000
$800
$200
$40
$300
$800
20
50
20
50
5
$16,000
$10,000
$800
$15,000
$4,000
$41,800
$150
$50
$400
$150
$30
$150
$50
$50
$75
$65
15
15
20
20
20
15
75
10
50
50
$2,250
$750
$8,000
$3,000
$600
$2,250
$3,750
$500
$3,750
$3,250
$14,600
Total
$84,800
SubTotal
$10,900
$4,000
$2,250
$11,250
3.0 Human Resource Plan
3.1 Job Descriptions
3.1.1 General Manager
Dave Clark will be the owner and General Manager of Clark’s Xtreme Sports Co. His duties would
include the following:
-
coordinate the scheduling of employees;
-
order inventory weekly to maintain proper inventory levels;
-
organization of marketing efforts;
-
direct sales to walk-in customers;
-
work with sports team on large contract items;
-
book-keeping; and
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payroll duties.
3.1.2 Direct-Sales Staff
Clark’s will need to employ 2 full time employees to work at the store. Clark’s will also hire casual staff
to fill in for vacation and sick days. As well, the casual staff may be needed to accommodate a large
increase in sales and/or busy times of year such as Christmas. The direct-sales staff will be people that
have extreme sports experience and have used the products available in the store. As great customer
service will be the key to keep customers happy and keep their repeat business, the employees will have
to be very friendly and courteous to all customers. The direct-sales staff will report directly to the
General Manager. Their duties will include the following:
-
Direct sales to walk-in customers;
-
Answer any technical questions that may arise from the customer;
-
Restocking of shelves and racks as needed, including the unloading of delivery trucks;
-
Daily cleaning of store;
-
Retagging of items as needed;
-
Inventory changeovers for each season;
-
Keep front sidewalks clear, including shoveling of snow in winter; and
-
Anything else that the general manager asks them to do.
As an incentive for the direct-sales employees, they will be allowed to purchase items for personal use
at cost plus 10%. These sales with have to have the consent of the General Managers to ensure that the
incentive program is not being taken advantage of and being used to buy items for friends or for resale.
3.2 Scheduling
To maintain a high level of customer service to their customers, Clark’s will always have two employees
at the store during the hours of operations. This will allow for better customer service as well as allow
for staff to take breaks. When Dave Clark is on shift, he will spend some time in the office working on
the marketing and book-keeping needs of the company, with him coming from the office to help out
when the store is busy. Figure 3.2.1 is a sample staffing chart that shows the staffing breakdown as
needed, with the shaded blue area being the store hours of operations. The two hourly employees will
each work 40 hours per week and Dave will work between 45 and 50 hours as he will often close up the
shop, which will allow for him to do the necessary book-keeping after the store is closed. Employees
will be paid through their lunch breaks, because they might have to respond to customer needs and not
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be able to take their full breaks. With this schedule, one direct-sales employee would get Wednesday
and Saturday off, while the other would get Sunday and Monday off. It is recommended to alternate
the employees from week to week to allow them to get two days off in a row every other week.
Figure 3.2.1 – Typical Workweek Schedule
3.3 Labour Costs Breakdown
The 5 year projection for labour costs is shown in Table 3.3.1. The figures are based on the two directsales staff (or a combination of full-time and casual) working 40 hours per week each and Dave being on
a salary. This projection does not take into account any part-time employees that may be needed to fill
in for holidays or sick days, because they would be getting paid instead of the regular employees and so
the figures wouldn’t change.
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Table 3.3.1 – Labour Cost Projections
2008
Total Labour Wages
Wage
Hours per worker
Total wages (Wage x Hrs x Staff)
Total Direct Labour
$
12.00
2,000
2009
$
12.30
2,000
2010
$
12.61
2,000
2011
$
12.92
2,000
2012
$
13.25
2,000
48,000
48,000
49,200
49,200
50,430
50,430
51,691
51,691
52,983
52,983
Benefits for Labour
Employment Insurance
Canada Pension Plan
Holiday Pay
1,478
2,256
2,784
1,515
2,312
2,854
1,553
2,370
2,925
1,592
2,429
2,998
1,632
2,490
3,073
Workers Compensation
1,440
1,476
1,513
1,551
1,589
7,958
55,958
8,157
57,357
8,361
58,791
8,570
60,261
8,785
61,768
42,000
42,000
47,355
47,355
48,539
48,539
49,752
49,752
50,996
50,996
Benefits for Manager
Employment Insurance
Canada Pension Plan
1,294
1,974
1,459
2,226
1,495
2,281
1,532
2,338
1,571
2,397
Workers Compensation
420
474
485
498
510
3,688
4,158
4,262
4,368
4,477
45,688
51,513
52,801
54,121
55,474
101,646
108,870
111,592
114,382
117,241
Total Benefits for Wage-Earning Employees
Total Direct Labour + Benefits
Total Annual Salaries
Manager
Total Salaries
Total Benefits for Salary Employees
Total Marketing Salaries, Wages and Benefits
Total Salary and Wages Paid
3.4 Training Programs
There will be no additional training needed by the staff at Clark’s Xtreme Sports Co. Dave Clark recently
graduated from the University of Western Ontario in London, Ontario with a Commerce Degree and will
be fully capable of doing all the book-keeping for the company. He is an avid extreme sports enthusiast
that had experience and expertise with most of the equipment sold in the store. The direct-sales staff
will be people that have experience and expertise with the equipment and will need no additional
training. When a new product is brought in to the store, all staff will be encouraged to research it and
more importantly test it out personally. This will allow the staff to train and gain better expertise of the
product to allow for better knowledge and customer service.
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4.0 Marketing
4.1 Marketing Introduction
4.1.1 Products and Services
Clark’s is a high end sporting goods store that provides knowledgeable staff and excellent service in the
Broadway district of Saskatoon. Clark’s will serve a niche market, carrying products from the following
sports: soccer/rugby, snowboarding, biking, ultimate Frisbee, skateboarding, kite surfing, skis and Under
Armour apparel. Appendix B illustrates the products in detail.
4.1.2 Pricing
Clark’s is entering the competitive sporting goods industry. In Saskatoon, there are two Canadian
franchises (SportChek and Sportmart) that provide a wide array of sporting goods and a few local
specialty stores. Appendix C illustrates the competitive industry in Saskatoon at the current time.
Clark’s is using a differentiated pricing strategy to enter into the sporting goods market. Like other
stores on Broadway, Clark’s is providing high end sporting goods in a few specific sporting markets,
mostly merchandise in the extreme or alternative sporting market. Clark’s plan is to provide high quality
equipment and apparel at a premium price as well as providing excellent service through knowledgeable
staff. Clark’s also will become Saskatoon’s only store to serve the emerging market of kite surfing.
4.1.3 Promotion
Clark’s promotion strategy is in line with the products, services, and pricing - a high end provider of
specific sporting goods. Clark’s will be known for providing high quality equipment and apparel to
people who like to “live Xtreme”.
4.1.4 Place
Clark’s will be established in the Broadway district of Saskatoon. As Saskatoon’s original commercial
district, Broadway used to be the commercial centre of activity in Saskatoon. Broadway attracts a wide
range of local, regional, national and international customers to its 150 unique stores. In the summer,
the Fringe Festival attracts thousands of visitors (65,000 in 2007) from around the world. Broadway
provides the atmosphere and location for a high end specialty sports store.
4.1.5 Segmentation, Targeting, and Positioning
The target market will be Saskatoon and area residents. Saskatoon is home to approximately 225,000
people, with an age distribution as shown in Appendix D. As well as the people in Saskatoon, the
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surrounding rural area, as far as Lloydminster and Yorkton, is a potential market because those residents
have no access to the high end extreme sporting goods. Generally, the target market for the products
will be individuals and families with above average income levels or people who want quality sporting
goods.
In addition to the extreme sports cliental, Clarks is specifically targeting rugby, soccer, and ultimate
frisbee sports teams. In 2005, approximately 6,000 kids played indoor and outdoor soccer. With the
increase in population in Saskatoon and the number of participants increasing in extreme sports, the
market is growing. As mentioned previously, soccer is Saskatchewan’s fastest growing sport.
4.2 Projections of Revenues and Marketing Expenses
Table 2.2.1 summarizes the projected sales revenues as well as the projected marketing salaries and
marketing expenses. Note that the marketing expenses are advertising costs and explained in detail in a
later section.
Projected Sales Revenues and Marketing Expenses
500,000
450,000
400,000
$
350,000
300,000
Sales Revenue
250,000
Marketing Salaries
200,000
Marketing Expenses
150,000
100,000
50,000
2007
2008
2009
2010
2011
Year
Figure 4.2.1 - Projected Sales Revenues and Marketing Expenses
4.3 Specific Market Analysis
Clark’s is a good match to the cliental in the Broadway district and the products and services provided.
As well as customer sales from advertising (which will be discussed in Section 4.5), Clark’s will bring in
walk-in customers that are shopping in the Broadway district and will draw extreme and alternate sports
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teams because of the high quality reputation of the merchandise and the knowledgeable staff. The
products will be high-end sporting goods targeted to people that want quality products. Additionally,
“Live Xtreme” will serve as Clark’s brand image, which represents quality high-end sports products for
people that enjoy living.
Clark’s competition is other sporting goods stores that sell similar products, mainly those stores that sell
high quality. The current competition and their strengths/weaknesses are shown in Appendix C. In
summary, there is competition in the high end soccer, bike, and snowboard industry but Clark’s has a
significant advantage in terms of location and potential buyers (high number of walk in customers in
Broadway district).
Unlike the competition, Clarks has focused its merchandise exclusively on a
premium product and pricing strategy. Clark’s will be known for providing high end products and quality
service.
The future for extreme and alternative sports is optimistic.
As mentioned previously, the age
demographics of participants in extreme sports are increasing every year. With the GDP per capita
increasing in Saskatoon, the future buying power of customers is increasing and thus resulting in
increased expenditures on luxury items. The increased enrolment and optimistic future for soccer,
rugby, and ultimate frisbee reduces Clark’s risk in starting a new business.
To summarize, there is an opportunity to sell certain high end sporting goods in the Broadway district to
the people of Saskatoon and area. Clark’s will have a location advantage (compared to its competitors)
and offer products in growing markets like soccer, rugby, ultimate Frisbee, and kite surfing. By
differentiating and focusing on certain products, Clark’s can establish itself as a high end sports store
that provides excellent service for those that want to “Live Xtreme”.
4.4 Marketing Strategy
As mentioned earlier, the objectives of Clark’s, with respect to sales and profit objectives, are:



Maximizes sales at $480,000 by year 5
Reach monthly sales of $20 per square foot of retail space
Provide at least 20% return on equity
The channel of distribution for Clarks is in-store purchasing. This model of direct sales works best for
Clark’s strategy because highly qualified and knowledgeable sales staff are interacting with customers to
sell high-end extreme sports merchandise. Once the business is established, Clarks will evaluate the
potential of selling merchandise over the internet.
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Clark’s wants to establish itself as the high-end, high quality merchandise provider in Saskatoon. With
this strategy and predicted success for the company, new or existing customers may enter the market.
However, the combination of first to market extreme sports in Saskatoon and the enviable location of
the store places Clark’s in a good spot, with respect to market position. However, with the ever
changing environment in the future, Clark’s will have to continuously monitor and evaluate the
competitive environment to ensure that it does not lose its potential position in the market.
Clark’s can meet its objectives by achieving the results that are predicted in the financial analysis.
Clark’s has to reach a sales target of $400,000 in year 1 and increase to $490,000 by year 5. These sales
predictions are conservative as research indicates that sporting goods stores are achieving annual sales
of at least $20 per square foot per month. With the pedestrian traffic on Broadway and Saskatoon’s
exposure to its first extreme sporting goods store, $400,000 for sales is more than achievable. With the
store open approximately 355 days, daily sales in the first year of $1,100 are conservative. On average,
the mark up for products is 75%. In discussions with sports stores, mark up for merchandise ranges
from 60% to over 100%. As far as discounts, there will be one week in the fall and one in the spring to
clear some of the summer and winter merchandise.
In the Saskatoon and area market, Clark’s is going to be a significant player in the extreme sporting
goods. Although other stores may enter the market or bring in similar products, the reputation for high
end merchandise and knowledgeable sales staff, combined with the prime Saskatoon location, will make
Clark’s difficult to duplicate.
4.5 Selling and Advertising
The advertising objective in the first two years of operations will be to inform and persuade the
Saskatoon and area alternative sport customer of the high quality, high value merchandise available at
Clark’s. In subsequent years the main advertising objective will be to remind and reinforce the
customer’s view of Clark’s as the best place to shop for all their extreme sporting needs. The advertising
mix has been developed to obtain the most amount of exposure in the shortest amount of time
possible. No additional staff will be required for the advertising efforts.
The advertising mix includes:
Billboards - Billboards present large advertisements to passing pedestrians and drivers. Typically
showing large, witty slogans like “Live Extreme” and distinctive visuals, billboards are highly visible and
command high-density consumer exposure. There will be one billboard up year round and it will be
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located on the corner of Idylwyld Dr N and 19th street. This location provides exposure to the heavy
downtown traffic. This road is very popular with tourists and it is located at the on ramp of the Senator
Sid. Buckwold bridge, which is the busiest bridge in the city.
Radio Ads – Radio Ads represent the majority of the advertising budget. Radio advertising provides the
opportunity to deliver a simple yet powerful message to a targeted group of consumers. There will be
advertising on Rock 102.1 fm. The majority of Rock 102 listeners are young, male and enjoy more
alternative hard rock music; this closely represent the target market. There will be a number of different
ads throughout the year depending on the season. 2-3 ads per day, every day will provide the exposure
needed to reach the targeted sales.
Brochures – In order to quickly inform the Saskatoon consumer about the store and products, Clark’s
will be sending out over 20,000 brochures to Saskatoon households. The average household has 2.5
people, meaning it should be able to reach over 50,000 people. Clark’s will target the brochures to the
more affluent neighborhoods as this is the socio economic demographic that is most likely to purchase
from the store. The brochures will also serve to establish Clark’s brand as a house hold name associated
with quality and high end extreme sport merchandise.
Newspaper Ads – Newspaper advertising will provide Clark’s with exposure and leads although it isn’t
expected that the response rate will be overwhelming in comparison to the other advertising mediums
such as direct mail or broadcast advertising but it’s an important component to the overall advertising
strategy, which is to gain exposure in Saskatoon quickly. Advertisements will be made weekly in the
Saturday paper for the first 5 years. The advertisement will change depending on the season and
popularity of different products.
Website – The internet is the fastest growing advertising medium in the world. Clark’s feels that a
dynamic, interactive website will serve to promote our high end, quality brand image. The website will
also showcase our products, their uses and be a tool for our customers to learn more about the exciting
world of extreme sports. Additionally having a website will give Clark’s the opportunity to grow business
by pursuing online sales at a later date, as mentioned previously.
Posters (Captive Audience) – Captive Audience ads are strategically placed in striking locations, for
example in the restrooms and common areas of bars, nightclubs and restaurants across Saskatoon. This
type of advertising provides clutter-free, uninterrupted, one-on-one advertising exposure. Clark’s has
targeted the captive audience advertising to restaurants and bars frequented by Saskatoon’s young, hip
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and affluent. Some locations include; Earl’s, Athena’s, the Keg, the Pat, Joe Dogs, Bailey’s, the
Sutherland and Jax Nightclub, as well as in the numerous bars, pubs and eateries along Broadway. A
summary of the marketing expenses are shown in Table 4.5.1.
Table 4.5.1 - Marketing Expenses
Billboards
Radio Ads
Brochures
Newspaper ads
Webpage
Posters (Captive Audience)
Total Marketing Expense
Year 1
3,600
20,000
2,000
1,500
1,000
2,000
30,100
Year 2
3,690
20,500
2,205
1,538
360
2,050
30,383
Year 3
3,782
21,013
2,431
1,576
369
2,101
31,313
Year 4
3,877
21,538
2,680
1,615
378
2,154
32,284
Year 5
3,974
22,076
2,955
1,656
388
2,208
33,299
Sales staff will be selected based on personality, experience and expertise in the extreme sporting
industry. No additional training will be required as we expect our customers and sales staff to be
knowledgeable in the sports. Staff will be encouraged to try new products as they come in. Having
knowledgeable customer service will a huge part of our sale strategy, you cannot fake product
knowledge in extreme sports and this is the most important factor to the extreme sport consumer.
5.0 Financial Plan
Financially, Clark’s Xtreme Sports has some very positive dimensions. The high end extreme sports retail
business achieves very high mark ups, with over 100% markup being achieved on some items. For
conservatism, due to sales, write downs, and demos, a markup of 75% was used to calculate the
financial plan, which is slightly below industry average (Doug’s Spoke and Sport).
Other major
assumptions made were the inflation rate of 2.5% affecting costs and revenues going forward, and a
cost of debt of 7.4%, which is a reasonable rate for a small business loan of this size (Conexus Credit
Union). $30,000 of owner’s equity was used, as well as $60,000 of long-term debt to finance the startup
the business. Sales in year one are projected to be $400,000, and slowly growing going forward. This
assumption is based on conversations with local businesses in the extreme sports industry, using a
calculation of floor space, mark up, and industry averages (Doug’s Spoke and Sport). The financial tables
are shown in Appendix E, including a balance sheet, income statement and cash flow statement for
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Clarks Xtreme Sports for 5 years. Also the supporting documents used to produce these documents are
also included.
With the 75% markup and the predicted sales, the business has a positive net present value. The
required return on equity was set at 20% and with the financial analysis presented; a rate of return of
38% is achieved. This IRR is very sensitive to changes in the model because of the low amount invested
by the owner ($30,000). Also, the firm is very sensitive to change in the financial scenario. A small
change in markup, labour wages, or sales reduces the IRR and NPV. This is illustrated in Figure 5.1.1,
with the inputs shown in Table 5.1.1.
% Change in Variable
120%
IRR = 0%
NPV = 0
103%
100%
88%
80%
62%
60%
40%
26%
16%
20%
8%
0%
-8%
-20%
Cost of Debt
-5% -3%
-4%
Markup
Labour Wage
Sales
Inventory
Figure 5.1.1 Sensitivity Analysis
As shown above, the most critical variable is the sales volume. A 5% decrease in sales will result in an
IRR of 0%, while just a 3% decrease will result in a NPV of 0.
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Table 5.1.1 Sensitivity Analysis Inputs
Scenario
Cost of Debt
Base
Sales
Inventory
NPV = 0
Changed
to
% Change
7.40%
15.0%
103%
12.0%
62%
75%
69%
-8%
72%
-4%
$12.00
$13.89
16%
$12.98
8%
$400,000
$381,000
-5%
$390,000
-3%
$80,000
$150,000
88%
$101,000
26%
Markup
Labour Wage
0% IRR
Changed
to
% Change
Because of the sensitivity to change in variables, this business is high risk. But with the risk, there is also
a reward if the assumptions for the business plan were low. But as a conservative approach is taken, the
changes not being in the business’ favor are top of mind. To further exemplify these findings a scenario
analysis was performed to measure the best and worst case scenarios with logical variables being
adjusted arbitrarily to demonstrate the large effect these variables have in the profitability of the
business.
Table 5.1.2 Base case / Worst case / Best case Scenario variables
Variable
Base Case
Worst Case
Best Case
400,000
300,000
500,000
Mark up
75%
65%
85%
Wage/hr
12.00
15.00
10.00
Interest Rates
7.4%
10.0%
5.0%
Sales (Year 1)
Table 5.1.3 Base case / Worst case / Best case Scenario results
Scenario
Base Case
Worst Case
Best Case
NPV
IRR
Avg Annual
Cash Flow
Avg Annual
Net Income
16,595
38%
8,808
10,572
(297,500)
n/a
(65,926)
(63,582)
72,204
73,502
283,203
249%
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As demonstrated by the scenario analysis, when a few variables go in favor or a few variables go against
the profitability of the business, Clarks Xtreme Sports can become very profitable, or very, very
unprofitable.
A summary of the financial data can be seen in Table 5.4. Appendix F details the monthly expenditures.
As the financial analysis has uncovered, Clarks Xtreme Sports has the potential for business in
Saskatoon, but there are many hurdles to overcome. As the analysis reveals, the investment does
return the 20% required IRR, but is very risky, with only small changes in critical variables, naming sales,
erasing any profitability of the business. If sales go below $395,000 (break-even), the business will
experience financial hardship. Further analysis would need to be done to establish if there is a market,
what costs would need to be included, and if there are anyways Clarks Xtreme Sports can be more
profitable than presented here.
As a contingency plan, Dave Clark could run the store at reduced hours or with reduced staff until sales
picked up. This would reduce Clark’s staffing costs and make the breakeven point lower. If Clark’s
eliminated one of the staff members the breakeven point would be $330,000 in sales, and if both
employees were eliminated the breakeven point would be $265,000. This would be more work for Dave
Clark initially, but would contribute to the long-term viability of the company for the future.
Table 5.4.1 Summary of Financial Projections
Year
Sales Revenue
Cost of Goods Sold
Gross Margin
Total Expenses
Net Income Before Taxes
Income Taxes
Net Income(Loss)
Net Cash Flows to Equity
Net Present Value (NPV)
IRR
2008
2009
2010
2011
2012
400,000
430,500
451,000
471,500
492,000
228,571
244,000
253,563
262,804
271,512
171,429
186,500
197,437
208,696
220,488
169,701
179,448
184,443
190,189
196,200
1,728
7,052
12,994
18,507
24,289
322
1,278
2,355
3,353
4,401
1,406
5,774
10,639
15,153
19,887
17,853
4,218
5,675
16,595
7,430
54,546
38%
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6.0 Conclusion
Clark’s Xtreme Sporting Goods is proposed to be located in the Broadway area of Saskatoon, SK, offering
a wide range of summer and winter extreme sporting merchandise. By providing high end sports
equipment and establishing a reputation of knowledgeable staff, Clark’s can use its strategic location
and effective advertising to sell to extreme sports enthusiasts, wannabe’s, and sports teams. With an
average mark up of 75% and annual sales growing slightly from the first year total of $400,000, Clark’s
provides an IRR of 38% and a return on assets (ROA) of 10.6%. Because of the predicted success, it is
recommended that Clark’s incorporate. Incorporation provides potential limited liability for the owner
as well as provides tax advantages for a profitable company.
Based on the sensitivity analysis, changes in mark up and sales affect the viability of the business. The
critical variable for Clark’s is sales; if sales go below $395,000 (break-even), the business will experience
financial hardship. As a contingency plan, Clark’s can eliminate one of the staff members making the
breakeven point $330,000 or eliminate both staff members making the breakeven point $265,000.
Clark’s can continue to operate in this fashion until sales pick up. If sales do not pick up, Clark’s should
have a clearing out sale and close the business. Overall, it is believed that there is a market for extreme
sports equipment in Saskatoon and that Clark’s will be able to provide a long term viable business for its
owner.
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Appendix A:
Inventory Requirements
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Retail
Cost
Mark up
Unit Cost
Units
Purchased
Total Cost
SubTotal
50%
60%
80%
balls
$20
20
$400
$15,150
$30.00
$32.00
$36.00
shoes
$85
150
$12,750
$127.50
$136.00
$153.00
clothing
$40
50
$2,000
Boards
$800
25
$20,000
Bindings
$200
25
Helmet
$40
Boots
Long Boards
Bikes
Soccer/Rugby
$60.00
$64.00
$72.00
$1,200.00
$1,280.00
$1,440.00
$5,000
$300.00
$320.00
$360.00
20
$800
$60.00
$64.00
$72.00
$300
50
$15,000
$450.00
$480.00
$540.00
Boards
$250
10
$2,500
$2,500
Men's
$800
10
$8,000
$16,000
Women's
$800
10
$8,000
Sk8brd
$80
40
$3,200
Prot Appr
$40
30
$1,200
Frisbee
Frisbee
$20
50
$1,000
Apparel
Shirts
$50
75
$3,750
Shorts
$50
50
$2,500
Hoodies
$75
50
Sweat Pants
$65
Snowboards
Skateboards
$40,800
$375.00
$400.00
$450.00
$1,200.00
$1,280.00
$1,440.00
$1,200.00
$1,280.00
$1,440.00
$120.00
$128.00
$144.00
$60.00
$64.00
$72.00
$1,000
$30.00
$32.00
$36.00
$13,250
$75.00
$80.00
$90.00
$75.00
$80.00
$90.00
$3,750
$112.50
$120.00
$135.00
50
$3,250
$97.50
$104.00
$117.00
$1,000
7
$7,000
$7,000
$1,500.00
$1,600.00
$1,800.00
$4,400
Kite Surfing
Kite
Wakeboards
Boards
$275
15
$4,125
$4,125
$412.50
$440.00
$495.00
Skis
Cross country
$150
15
$2,250
$20,100
$225.00
$240.00
$270.00
Boots
$50
15
$750
$75.00
$80.00
$90.00
Downhill
$400
30
$12,000
$600.00
$640.00
$720.00
Boots
$150
30
$4,500
$225.00
$240.00
$270.00
Poles
$30
20
$600
$45.00
$48.00
$54.00
shoes
$150
15
$2,250
$225.00
$240.00
$270.00
Snow shoes
$2,250
$126,575
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Appendix B:
Clark’s Xtreme Sports - Products
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Appendix C:
Competitive Industry Analysis
36
Bikes
Skateboards
Frisbee
Apparel
Skis
Cross Country
Longboards
Snowshoes
Wakeboards
Kite Surfing
Sportchek
Snowboards
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Soccer/Rugby
Clark’s Xtreme Sports Co.
Industry
x
x
x
x
x
x
x
x
x
x
x
x Highest quality,
High End
y
y
y
y
y
y
y
y
y
y
y
y best brands
Industry
x
x
x
x
x
x
x
x
National Brand, low price
Poor service, low quality
x
x
x
x
x
x
x
x
National Brand, low price
Poor service, low quality
Industry
x
x
x
x
x
x
x
High quality
Poor Location
High End
y
y
y
y
y
y
y
x
x
x
Selection
Poor location
Known for Apparel
Poor location
High quality
Poor location
High quality
Not Diversified
Focus on Soccer
Poor location
Strength
Weakness
High End
Sportmart
Industry
High End
Ski & Bike
Al Anderson's
Industry
x
High End
Olympian
Industry
x
x
x
High End
Momentum
y
Industry
x
x
High End
Bike Doctor
Soccer Locker
Industry
x
High End
y
Industry
x
High End
Spoke N' Sport
Xtratime Sports
Outtabounds
Backside Boards
Undergrind
Industry
x
x
High End
y
y
Industry
x
High End
y
x
x
x
Diverse products; quality
and price
Industry
x
x
x
High End
y
y
y
Industry
x
x
High End
y
y
x
x
x
y
y
Industry
x
x
x
High End
y
y
y
Growing Industry
Not Diversified
Bikes and Snowboards
Poor Location
High End, High Quality
Poor Location
High End, Good Location
Small Store
37
Clark’s Xtreme Sports Co.
February 2008
GS3 Consulting Ltd.
Appendix D:
Demographic Profile
38
Clark’s Xtreme Sports Co.
GS3 Consulting Ltd.
February 2008
Saskatoon Demographics of our target markets – 2001
http://72.14.205.104/search?q=cache:7UDPxRb9E8kJ:www.sreda.com/resources/pdfs/SREDA_Saskatoo
n_Demographics_Jan-07.pdf+saskatoon+age+demographics&hl=en&ct=clnk&cd=1
Age
Total
Male
Female
5-14
32,455
16,645
15,810
15-19
17,340
8,590
8,750
20-24
19,725
9,500
10,225
25-44
67,930
33,195
34,740
39
Clark’s Xtreme Sports Co.
February 2008
GS3 Consulting Ltd.
Appendix E:
Yearly Financial Projections
40
Clark’s Xtreme Sports Co.
GS3 Consulting Ltd.
February 2008
Clarks Exteme Sports
ProjectedStatement of Income and Retained Earnings
For the year ended March 31
2008
Sales Revenue:
Sporting Goods
2009
2010
2011
2012
400,000
430,500
451,000
471,500
492,000
228,571
244,000
253,563
262,804
271,512
171,429
186,500
197,437
208,696
220,488
55,958
30,100
33,515
45,688
4,440
57,357
30,343
35,967
51,513
4,269
58,791
31,272
37,494
52,801
4,085
60,261
32,242
39,678
54,121
3,887
61,768
33,256
42,028
55,474
3,675
169,701
179,448
184,443
190,189
196,200
Income Before Taxes
Income Taxes
1,728
322
7,052
1,278
12,994
2,355
18,507
3,353
24,289
4,401
Net Income(Loss)
1,406
5,774
10,639
15,153
19,887
Beg Retained Earnings
Net Income(Loss)
Dividends
End Retained Earnings
1,406
1,406
1,406
5,774
7,180
7,180
10,639
17,819
17,819
15,153
32,972
32,972
19,887
52,860
Cost of Goods Sold
Gross Margin
Operating and Marketing Expenses
Labour
Marketing
Overhead
Marketing Salaries
Interest on Long Term Debt
Total Expenses
41
Clark’s Xtreme Sports Co.
GS3 Consulting Ltd.
February 2008
Clarks Exteme Sports
Projected Balance Sheet
As at March 31
2008
Assets
Current Assets:
Cash
Inventories
Total Current Assets
Capital Assets:
Retail Assets
Less Accumulated C.C.A.
2009
2010
2011
2012
17,853
80,000
22,072
82,000
27,746
86,151
35,176
92,775
44,042
102,407
97,853
104,072
113,898
127,952
146,448
11,300
(1,015)
11,300
(2,494)
11,300
(3,374)
11,300
(4,167)
11,300
(4,880)
10,285
8,807
7,926
7,133
6,420
108,138
112,878
121,824
135,085
152,868
Liabilities
Current Liabilities:
Accounts Payable
Noncurrent Liabilities
Long Term Debt
19,048
20,500
21,476
22,452
23,429
57,685
55,199
52,528
49,660
46,580
Total Liabilities
95,961
94,098
91,514
88,666
85,535
Shareholders' Equity
Owner's Equity
Retained Earnings
30,000
1,406
30,000
7,180
30,000
17,819
30,000
32,972
30,000
52,860
Total Shareholder's Equity
31,406
37,180
47,819
62,972
82,860
108,138
112,878
121,824
135,085
152,868
Net Retail Assets
Total Assets
Total Liabilities and
Shareholders Equity
42
Clark’s Xtreme Sports Co.
GS3 Consulting Ltd.
February 2008
Clarks Extreme Sports
Projected Statement of Cash Flows
For the year ended March 31
2008
Cash from (used in) Operating Activities:
Net Income(Loss)
Depreciation
2009
2010
2011
2012
1,406
1,015
5,774
1,479
10,639
881
15,153
793
19,887
713
Inventory
Accounts Payable
(80,000)
19,048
(2,000)
1,452
(4,151)
976
(6,624)
976
(9,631)
976
Net Cash Flow from Operations
(58,531)
6,705
8,345
10,298
11,946
Owner's Equity
Long Term Debt
Dividends
30,000
57,685
-
(2,486)
-
(2,670)
-
(2,868)
-
(3,080)
-
Net Cash Flow from Financing
87,685
(2,486)
(2,670)
(2,868)
(3,080)
Cash from (used for) Investing Activities:
Buildings and Equipment
(11,300)
-
-
-
-
Net Cash Flow from Investing
(11,300)
-
-
-
-
17,853
17,853
4,218
17,853
22,072
5,675
22,072
27,746
7,430
27,746
35,176
8,865
35,176
44,042
Cash from (used for) Financing Activities:
Increase(decrease) in Cash
Cash beginning of year
Cash end of year
Schedule 1: Economic Forecast
2008
7.4%
2.5%
2009
7.4%
2.5%
2010
7.4%
2.5%
2011
7.4%
2.5%
2012
7.4%
2.5%
2008
2009
2010
2011
2012
Growth in Selling Prices
Sporting Goods
2.5%
2.5%
2.5%
2.5%
2.5%
Sales Revenue
2008
2009
2010
2011
2012
400,000
430,500
451,000
471,500
492,000
Long Term Debt Rate
Rate of Inflation (expenses)
Schedule 2: Revenues
Sporting Goods
43
Clark’s Xtreme Sports Co.
GS3 Consulting Ltd.
February 2008
Nominal Growth
Real Growth
8%
5%
5%
2%
5%
2%
4%
2%
400,000
430,500
451,000
471,500
492,000
2008
2009
2010
2011
2012
Sporting Goods
308,571
246,000
257,714
269,429
281,143
Total
308,571
246,000
257,714
269,429
281,143
2
2
2
2
2
Wage
$
12.00
$
12.30
$
12.61
$
12.92
$
13.25
Hours per worker
2,000
2,000
2,000
2,000
2,000
Total wages (Wage x Hrs x Staff)
48,000
49,200
50,430
51,691
52,983
Total Direct Labour
48,000
49,200
50,430
51,691
52,983
Employment Insurance
1,478
1,515
1,553
1,592
1,632
Canada Pension Plan
2,256
2,312
2,370
2,429
2,490
Holiday Pay
2,784
2,854
2,925
2,998
3,073
Workers Compensation
Total Benefits for Wage-Earning
Employees
1,440
1,476
1,513
1,551
1,589
7,958
8,157
8,361
8,570
8,785
Total Direct Labour + Benefits
55,958
57,357
58,791
60,261
61,768
2008
2009
2010
2011
2012
Total
Schedule 3: Cost of Goods Sold
Inventory Purchases
Labour Staff
Total Labour Staffing
Total Labour Wages
Benefits for Labour
Variable Overhead Costs
Maintenance
44
Clark’s Xtreme Sports Co.
GS3 Consulting Ltd.
February 2008
300
308
315
323
331
300
308
315
323
331
Rent
24,000
25,776
27,683
29,732
31,932
Utilities
2,400
2,460
2,522
2,585
2,649
Insurance
5,000
5,125
5,253
5,384
5,519
200
205
210
215
221
1,015
1,479
881
793
713
600
615
630
646
662
Total Fixed Overhead
33,215
35,660
37,179
39,355
41,697
Total Overhead
33,515
35,967
37,494
39,678
42,028
2008
2009
2010
2011
2012
308,571
246,000
257,714
269,429
281,143
2008
2009
2010
2011
2012
80,000
82,000
86,151
92,775
Total Variable Overhead
Fixed Overhead Costs
Business License
Capital Cost Allowance
Telephone
Cost of Goods Sold
Inventory
Schedule 4: Cost of Goods Sold
Beginning Inventory
-
Cost of Inventory Purchased
308,571
246,000
257,714
269,429
281,143
Ending Inventory
80,000
82,000
86,151
92,775
102,407
Cost of Goods Sold
228,571
244,000
253,563
262,804
271,512
2008
2009
2010
2011
2012
1.0
1.0
1.0
1.0
1.0
Schedule 5: Operating and Marketing
Expenses
Marketing Salary and Wages
Staffing
Total Manager/mrktng staff
45
Clark’s Xtreme Sports Co.
GS3 Consulting Ltd.
February 2008
Total Annual Salaries
Manager
42,000
Manager Bonus
Total Salaries
47,355
-
48,539
-
49,752
-
50,996
-
-
42,000
47,355
48,539
49,752
50,996
Employment Insurance
1,294
1,459
1,495
1,532
1,571
Canada Pension Plan
1,974
2,226
2,281
2,338
2,397
420
474
485
498
510
Total Benefits for Salary Employees
3,688
4,158
4,262
4,368
4,477
Total Marketing Salaries, Wages and
Benefits
45,688
51,513
52,801
54,121
55,474
2008
2009
2010
2011
2012
Billboards
3,600
3,690
3,782
3,877
3,974
Radio Ads
20,000
20,500
21,013
21,538
22,076
Brochures
2,000
2,205
2,431
2,680
2,955
Posters (Captive Audience)
2,000
2,050
2,101
2,154
2,208
Webpage
1,000
360
369
378
388
Newspaper ads
1,500
1,538
1,576
1,615
1,656
Total Marketing Expense
30,100
30,343
31,272
32,242
33,256
Marketing Salaries
45,688
51,513
52,801
54,121
55,474
Marketing Expenses
Interest on Long term Debt
30,100
30,343
31,272
32,242
33,256
Benefits for Manager
Workers Compensation
Marketing Expenses
Summary of Operating and Marketing
Expenses
46
Clark’s Xtreme Sports Co.
GS3 Consulting Ltd.
February 2008
4,440
4,269
4,085
3,887
3,675
80,228
86,124
88,157
90,250
92,404
2009
2010
2011
2012
Shelves, racks, displays
Remodeling
Cash Register
Check-out Counter
Office Equipment
2008
5,000
4,000
800
500
1,000
Total Capital Costs
11,300
Total Expenses
Schedule 6: Capital Budget
-
-
-
-
Working Capital
2008
2009
2010
2011
2012
Overhead
7,560
7,749
7,942
8,141
8,344
Labour and Manager
8,471
8,682
8,899
9,122
9,350
Marketing
5,258
5,390
5,525
5,663
5,804
Inventory
80,000
82,000
86,151
92,775
102,407
Accounts Payable
19,048
20,500
21,476
22,452
23,429
Total
82,241
69,249
72,617
78,464
87,323
Average Days Inventory
Average Days Inventory
128
123
124
129
138
Average Days Payables
Cash Conversion Cycle
30
98
30
93
30
94
30
99
30
108
2008
2009
2010
2011
2012
Schedule 7: Financing Budget
Long Term Debt
60,000
-
-
-
-
Owner's Equity
30,000
-
-
-
-
Total
90,000
-
-
-
-
Schedule 8: Long Term Debt
47
Clark’s Xtreme Sports Co.
Interest Rate
Payment Period (Years)
GS3 Consulting Ltd.
February 2008
2008
Beginning Balance
-
2009
2010
2011
2012
57,685
55,199
52,528
49,660
Addition
60,000
-
-
-
-
Interest
4,440
4,269
4,085
3,887
3,675
Debt Payment
6,755
6,755
6,755
6,755
6,755
Ending Balance
57,685
55,199
52,528
49,660
46,580
2008
10%
2009
2010
2011
2012
9,785
8,807
7,926
7,133
Schedule 9: Capital Cost Allowance
Buildings
Beginning Balance
Additions
Capital Cost Allowance
10,300
-
-
-
-
515
979
881
793
713
Ending Balance
9,785
8,807
7,926
7,133
6,420
Office Equipment
100%
Beginning Balance
Additions
-
500
1,000
Capital Cost Allowance
500
Ending Balance
500
Total CCA Expense
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
500
-
Schedule 10: Income Tax
Income Before Taxes
Accumulated Loss Carryforward
Loss Carryforward Used
Taxable Income
2008
2009
2010
2011
2012
1,728
7,052
12,994
18,507
24,289
-
-
-
-
-
-
-
-
-
-
48
Clark’s Xtreme Sports Co.
GS3 Consulting Ltd.
February 2008
1,728
7,052
12,994
18,507
24,289
Federal Tax @ 28%, 21%
484
1,974
3,638
5,182
6,801
Federal Surtax @ 4%
19
79
146
207
272
(276)
(1,128)
(2,079)
(2,961)
(3,886)
Provincial Tax @ 5%, 10%
95
353
650
925
1,214
Total Taxes
322
1,278
2,355
3,353
4,401
Schedule 11: Ratio Analysis
2008
2009
2010
2011
2012
98
93
94
99
108
Liquidity Ratios
Current Ratio
5.14
5.08
5.30
5.70
6.25
Activity and Operating Ratios
Total Asset Turnover
Inventory Turnover
Average Days Inventory
3.70
2.82
129
3.81
2.90
126
3.70
2.83
129
3.49
2.69
136
3.22
5.30
69
Operating Expenses
Inventory/Sales
Labour/Sales
Overhead/Sales
Selling and Administration/Sales
Total Expenses
20.0%
14.0%
8.4%
20.1%
42.4%
19.0%
13.3%
8.4%
20.0%
41.7%
19.1%
13.0%
8.3%
19.5%
40.9%
19.7%
12.8%
8.4%
19.1%
40.3%
20.8%
12.6%
8.5%
18.8%
39.9%
Leverage Ratios
Debt Ratio
Debt to Equity
2008
71.0%
244.3%
2009
67.1%
203.6%
2010
60.7%
154.8%
2011
53.4%
114.5%
2012
45.8%
84.5%
Profitability Ratios
Gross Profit Margin
Net Profit Margin
Return on Total Assets
Return on Equity
Net Profit Margin *
42.9%
0.4%
1.3%
4.5%
0.4%
43.3%
1.3%
5.1%
15.5%
1.6%
43.8%
2.4%
8.7%
22.2%
2.9%
44.3%
3.2%
11.2%
24.1%
3.9%
44.8%
4.0%
13.0%
24.0%
4.9%
Small Bus Tax Credit @ 16%
Cash Conversion Cycle
49
Clark’s Xtreme Sports Co.
GS3 Consulting Ltd.
February 2008
Return on Total Assets *
Return on Equity *
* Using net income before tax
1.3%
5.5%
5.1%
19.0%
8.7%
27.2%
11.2%
29.4%
13.0%
29.3%
Schedule 12: Investment Analysis
2008
2009
2010
2011
2012
Required Return on Equity
20%
Present Value of Equity Investment
Equity Investment
30,000
-
-
-
-
Present Value of Equity Investment
30,000
-
-
-
-
Present Value of Equity Returns
Net Cash Flows to Equity
Dividends
17,853
Salvage Value
Total Net Cash Flow to Equity
17,853
Present Value of Net Cash Flows
46,595
Total Cash Flows to Equity
17,853
Net Present Value of Equity
Investment
16,595
Internal Rate of Return on Equity
Investment
38.4%
4,218
5,675
7,430
8,865
-
-
-
-
-
-
-
-
45,680
4,218
5,675
7,430
54,546
4,218
5,675
7,430
54,546
External Rate of Return on Equity
Investment
Equity Investment
Dividends
-
-
-
-
Salvage Value
Total to Equity Investor
-
-
-
-
45,680
50
Clark’s Xtreme Sports Co.
February 2008
GS3 Consulting Ltd.
45,680
External Rate of Return on Equity
Investment
8.8%
51
Clark’s Xtreme Sports Co.
February 2008
GS3 Consulting Ltd.
Appendix F:
Monthly Financial Projections for Year One
52