Sadie’s Country n’ Western
Business Plan
MPAcc 809
Presented by:
Sherry Deissner
Krista Grahn
Christopher Harding
Zaya Kadyrova
Maura Kearney
Table of Contents
1.0 Executive summary..................................................................................................... 3
1.1 Introduction ....................................................................................................................... 4
1.2 Mission statement ............................................................................................................. 4
1.3 Goals ................................................................................................................................. 4
2.0 Marketing plan ........................................................................................................... 5
2.1. Industry and market overview ......................................................................................... 5
2.2 - Marketing Strategy ......................................................................................................... 7
2.3 Sales and Profit Objectives ............................................................................................. 11
3.0 Operations Plan......................................................................................................... 11
3.1 - Organizational Structure ............................................................................................... 11
3.2 – Site Plan ....................................................................................................................... 12
3.3 – Building and Floor Plan ............................................................................................... 12
3.4 – Daily Operations .......................................................................................................... 13
3.5 - Suppliers ....................................................................................................................... 14
3.6 - Service Providers .......................................................................................................... 17
3.7 – Capital budget .............................................................................................................. 17
3.8 – Cost of Sales ................................................................................................................ 17
3. 9 - Working Capital Management..................................................................................... 18
3.10 – Operating Expenses ................................................................................................... 19
4.0 Human Resources Plan ............................................................................................ 19
4.1 – Job Descriptions ........................................................................................................... 21
4.2 - Training Programs ........................................................................................................ 21
5.0 Financial Plan ............................................................................................................ 23
5.1 - Financial highlights ...................................................................................................... 23
5.2 – Key Ratio Analysis ...................................................................................................... 23
5.3 - Risk analysis ................................................................................................................. 24
5.4 - Sources of Financing: ................................................................................................... 25
5.5 - Investment analysis....................................................................................................... 26
Conclusion ............................................................................................................................ 26
Exhibit 1(a): Site Plan.................................................................................................... 27
Exhibit 1(b): Site Floor Plan ......................................................................................... 28
Exhibit 2: Market Area ................................................................................................. 29
Exhibit 2: Map of Southern Alberta ............................................................................ 30
Exhibits A – N ……………………………………………………………………...See Enclosure
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1. Executive summary
Sadie’s Country n’ Western (Sadie’s) store will be located in Champion, Alberta, on one of the
two major highway routes to Calgary. Sadie’s is dedicated to establishing close relationships and
serving customers that are mostly farmers and ranchers living within the 100 km radius. The
products that Sadie’s will carry are selected to meet the immediate needs of our target customers.
Our product lines will include: casual and western wear for men, women, and children such as
boots, hats, jeans and shirts as well as other country supplies including tack and saddles. Sadie’s
will be a one-stop shop for farmers/ranchers and their families, offering a convenient of our
location and a wide range of clothing necessities. The majority of our customers are pricesensitive families and our customers will be able to purchase their favorite brands as well as
western tack including bridles and halters at low prices. There are few existing competitors
offering similar products in this area, creating an untapped market potential.
Our total target population in the Vulcan County and surrounding area is 61,803 people. We are
targeting to acquire 5% of the market share of Vulcan County in the first year and are projecting
growth to a 10% market share by the end of the third year of operations. Smaller market shares
are expected in other counties outside of the Vulcan County. While not our main customer focus,
but due to our convenient location on a major highway, we will be able to attract some visitors
traveling to Calgary from the US and Lethbridge. There is also a future growth opportunity to
open another store in Lethbridge, with total population of 72,000 people, or develop a larger
franchising opportunity.
Sadie Rogers, who will be the owner and manager of the store, has extensive previous
experience in managing a successful grocery store in the same geographic area. Our low labour
and overhead costs enable us to charge lower prices, advantageously positioning us in a niche
that is currently unoccupied. We believe that our business offers stable positive returns with a
moderate risk. Based on our projections, we expect to realize profits in the first year of
operations, mainly due to our cost advantage. However, two of our biggest risk factors are the
potential entry of a new competitor in our geographic area, which will reduce our market share
and our selling prices, and also the risk of an increased cost of inventory from increased prices
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by our suppliers. The former risk will be mitigated by establishing strong brand recognition
thereby increasing the barriers to entry for potential competition. The latter risk factor will be
mitigated by establishing close business relationships with suppliers and by entering into 1 to 2
year fixed price contracts. Based on our risk analysis performed, the worst case scenario is
projecting losses in the first two years of operations and positive net income and cash flows from
operations in year 3. Our projected healthy cash flows will enable us to make the interest and
principal payments on time, as well as allow us to internally finance any future expansion plans.
1.1 Introduction
Sadie Rogers, an entrepreneur and a successful small business owner, has approached us to aid
her in creating a business plan for her new business idea: a country and western store. Sadie
previously owned and managed a grocery store, which proved to be a great success. As a result
of her past success, Sadie has accumulated an initial investment which she is willing to
contribute to this new venture. She is seeking bank financing for the remaining capital
requirements of opening the business. This report provides an overview of the retail industry,
with an analysis of some of the risks and opportunities that currently exist in the industry. In
response to these risks and opportunities, we have developed a marketing, operational and
human resources strategy. The report concludes with a summary of key financial information and
projections as well as an analysis of this investment.
1.2 Mission statement
Sadie’s Country n’ Western is a retailer of country supplies and casual and
Western wear for men, women, and children. Sadie’s is dedicated to providing
convenience of a one-stop destination of choice for families of Southern Alberta
at competitive prices.
1.3 Goals:
1.3.1 Short term goals:
1) Secure our desired location in the mini mall of Champion, Alberta
2) Acquire the necessary financing
3) Enter into supplier agreements with desirable terms
4) Become profitable in the first few years of operations
5) Achieve market share of 10% in the Vulcan County and 1-2% in surrounding counties
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1.3.2 Long term goals:
1) Monitor key ratios against industry and achieve performance that is at least at par with
industry standards
2) Become a well-recognized brand name in Southern Alberta and Western Canada
3) Maintain healthy positive cash flows from operations
4) Maintain low overhead and other operating costs
5) By year 5 or 7 Sadie hopes to open a new location in Lethbridge, AB. If the current location
proves to be as successful as projected, a franchising plan will be created enabling us to open
new locations across Southern Alberta and Western Canada.
2.0 Marketing plan
2.1. Industry and market overview
Our store will be located in the town of Champion, Alberta. This location was strategically
selected as the target geographic area for Sadie’s is the area of Southern Alberta. There is an
untapped market opportunity in the geographic area as currently there are very few existing
competitors that offer similar products. The market is further narrowed down to the following
counties, all within the 100 km radius from Champion: Vulcan, Wheatland, Newell, Taber,
Lethbridge, Willow Creek and Foothills (Refer to Exhibit 2 (a) for a map of our geographical
target area); these counties were selected because it has been observed that some southern
Alberta residents are willing to drive 90 minutes to our location. Total population of the area is,
including the city of Lethbridge, 134,450 people; 61,803 is the total population in the area
excluding the city of Lethbridge. This area is predominately rural with only a few small urban
centers. The largest industry in the area is agriculture. The closest city center is Lethbridge, about
75 km away from Champion, with total population of approximately 72,000. In our definition of
our target market we are excluding the city of Lethbridge as we will be focusing predominately
on rural population. Lethbridge remains as an opportunity going forward where Sadie’s can
expand in the future by opening another store.
The target population is comprised of local farmers and ranchers that live in the radius of 100 km
from the city of Champion. We will be targeting family units, both men and women with
children of all ages. This target group is from a variety of income backgrounds; however, overall,
they tend to be price-sensitive. According to Stats Canada, average family income in Vulcan
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County, for example, is $58,869. Population growth has been steady in the last few years. About
60% of the population that lives in our target geographic area is occupied in farming and
ranching activities. We believe that this market is currently not being targeted by any other
competitors in the area. As depicted in Exhibit G, we are planning to acquire 5% of the market
share of Vulcan County in the first year and are projecting growth to a market share of 10% by
the end of the third year of operations.
Our target population will also include visitors traveling along the highway to the Stampede and
other similar events, such as rodeos, that take place in Alberta during the summer months. We
believe there is a great opportunity to target those individuals once a year, as Champion is
located on a main highway that is taken by individuals traveling from the US and from
Lethbridge. Please refer to promotions section below for more information.
Some of the trends in the industry that translate to risks and opportunities for our business
include:
Economic Trends
The economic environment of the target counties and the province of Alberta in general is very
positive. Coupled with substantial tax incentives and economic growth, disposable incomes of
Albertans are expected to continue to rise. Overall, due to popularity of biodiesel fuels, prices for
agricultural products have been improving and the farming industry is expected to remain
consistent with potential for future growth. Therefore, our target population is expected to have a
potentially higher disposable income going forward.
Because Sadie’s will be selling predominately necessities, such as everyday work clothes and
tack, our products should be more or less recession resistant. A recession would increase the
price sensitivity of our customers; however, because of Sadie’s ability to offer competitive
prices, we are in an advantageous position. Another economic threat comes from increased
interest rates or taxes; both of these are outside of Sadie’s control. However, with our low fixed
overhead costs and good brand recognition and reputation, we believe that we will be well
prepared for economic downturns.
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Competition
As mentioned above, there are very few competitors in our target geographical area. The main
competition currently comes from the city of Lethbridge, that has similar country and tack stores.
It should be noted however that as Lethbridge is roughly a 150km round trip; the continuing
increase in fuel costs is will help to eliminate some of the competitive elements from the City of
Lethbridge, as the cost of the trip for a resident of Vulcan County and surrounding area can be
significant. The main competitor for Sadie’s is Lammle’s chain of stores that offers a wide range
of similar products. However, Lammle’s is currently operating in major malls in larger cities and
towns. Their target market is therefore people from large urban areas of Alberta. There are no
Lammle’s stores in our target area. Furthermore, Sadie’s strength is its ability to offer lower
prices than Lammle’s. Refer to Exhibit G for chart comparison of our prices. On the other hand,
Lammle’s has an established brand name and brand recognition; something that is Sadie’s main
weakness. We believe that focused marketing efforts will enable us to occupy a market where
Lammle’s currently does not operate will help us overcome this weakness. Our marketing efforts
will be focused on establishing our brand name and reputation. Please refer to the promotion
section below for more details.
Barriers to entry for the retail industry in general are low. Therefore, the biggest threat to Sadie’s
business remains an entry of a competitor who will open a similar store in our geographical
target area. While this is beyond Sadie’s direct control, we believe establishing strong brand
recognition and close customer relationships will increase barriers to entry. Furthermore, as soon
as the business becomes more established, Sadie will have an opportunity to grow by opening
stores in other locations.
Social/cultural trends
The demand for Sadie’s products is subject to changing tastes and preferences of customers. This
risk will be mitigated by the fact that our products in general are staple clothing wear, such as
jeans and shirts that in general has a limited change in fashion or tastes. It is imperative that
Sadie continues to monitor these trends and adjust its product offering accordingly.
2.2 - Marketing Strategy
Product
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Sadie’s will be offering convenience and affordability of western items for our target group. Our
specialized products are currently not readily available in this area. We believe that there will be
high demand for our product amongst our target market due to:
-
convenience, as the closest alternative is driving to Lethbridge.
-
necessity, as most of our product are necessity items, such as clothing and ranchers’
supplies.
Sadie’s will be offering a wide range of products including:
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Western wear, such as cowboy hats and boots, for men, women, and children.
-
Casual wear, such as jeans and shirts, for men, women, and children. While the emphasis
will be on western wear and western supplies, we believe it is still necessary to carry
regular clothing, as there is a great untapped market potential in the area. Furthermore,
carrying regular clothing will offset the seasonality of western wear and western supplies
as well as help us achieve our mission of becoming a one-stop destination of choice.
-
Ranchers’ equipment such as saddles and tack, including bridles, halters, and lines/ropes.
These product will attract both locals for replacement or purchase of western supplies and
tack, as well as Stampede enthusiasts and participants on their drive to the Stampede.
-
Western themed gifts and toys, including country music CDs.
Our products will be differentiated by offering some of the well-recognized and popular brands,
such as Wrangler, at low prices. Please refer to Operations plan for more details on the specific
brand names that we will carry. Our store will offer the convenience of a one-stop destination,
allowing farmers and ranchers to purchase all of their clothing and equipment supplies at one
location.
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Place
Our distribution will take place through direct sales by opening a stand alone store in the mini
mall in the town of Champion. Champion is about 150 km south of Calgary and 100 km north of
Lethbridge. It is conveniently located in the center of our target geographic area in the county of
Vulcan, as can be seen in Exhibit 2 (a). Currently the town of Champion has a school, a bank, a
post office, a restaurant, hotel, grocery store, hardware store, farm machinery dealership, and
services such as insurance, library, and beauty salon. There is no direct competition for the
products that Sadie’s will be offering. Another advantage is that Champion is easily accessible
from other nearby villages and small towns through a well established network of connecting
roads. The store’s location represents one of our major strengths. The mini mall where we will be
opening our store has a grocery store, a bank, and a beauty salon. Sadie’s will be conveniently
located in the high traffic area where people go to buy their groceries, thereby, reinforcing our
image of a one-stop destination. The convenience of the location will help attract customers and
thereby help to the reduce costs of marketing efforts. As mentioned earlier, there are very few
other similar stores in the vicinity of 100 km radius, therefore, direct competition in the region is
not a significant problem.
Price
Our main differentiator will be price, since our target market is price sensitive. Price
differentiation will allow us to fill a currently unoccupied niche in the market, placing us
favorably when compared to Lammle’s, whose prices are currently significantly higher. This will
help us achieve the goal of attracting our target market. We will be able to offer low prices due to
our low overhead costs as well as establish close relationships with some of our suppliers from
the US, such as Wrangler. Please refer to our Operations section for more information on our
suppliers. Pricing will be based on full costs. There is expected to be certain level of seasonality
in our sales, with the majority of sales happening in the months from April to September. We
will be offering price discounts during slower winter months to promote sales and to improve
cash flows. It is imperative that Sadie continues to monitor her pricing strategy and compare it to
direct competitors on a regular basis to ensure that her prices remain lower than competition.
Refer to Exhibit G for a detailed list of products and prices.
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Promotion
In targeting our local customers of the Vulcan County, we will be using catalogues that will be
distributed twice a year. We believe that mail-out catalogues will be the best way to reach our
target market who lives in rural areas. One catalogue will be distributed in April, right before the
peak summer season, highlighting our product offerings. The second catalogue will be
distributed before Christmas and the slower winter months, highlighting some of our price
discounts and encouraging Christmas shopping at Sadie’s. Catalogues will be sent one per each
household in our target market, or approximately 15,000 catalogues every half a year. Sales
through catalogues will not be considered, at least not in the first few years of operations, as it
may add unnecessary overhead as well as increased shipping expenses to rural areas. We will be
distributing flyers monthly to all households in Southern Alberta, as flyers will be a great way to
advertise to a wider range of people in a relatively small geographic area, thereby allowing us to
establish our brand name. We will set up a basic website that will feature all our products, maps
on for the store location, and other necessary contact information. The cost to set up a website
will total approximately $3,000 with annual maintenance of $500/month. Internet sales and
distributions can be considered as a future growth opportunity.
In targeting our visitors once a year, we will be setting up billboards around two main highway
points: at the border entry and at the point where the highway splits in two right after Lethbridge.
The billboards will be set up during the four months of summer, from May to August, and will
targeting visitors on their way to the Stampede and other rodeos taking place in Southern
Alberta. Billboards will increase visibility of our store and therefore help us reach our goal of
becoming a recognized name in Southern Alberta. Refer to Exhibit H for summary of our
marketing costs.
Stampede
As a way to increase awareness of our brand and to increase sales, Sadie will be travelling to
Calgary to participate in the Calgary Stampede. She will set up a booth at the Stampede grounds,
offering her products and distributing flyers promoting Sadie’s name and some of the discounts
available to rodeo professionals and participants. Calgary Stampede attendance is approximately
920,000 visitors annually; this presents a great selling opportunity as well as an opportunity for
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exposure of our store and our name. We want to create a lot of exposure of our name so residents
of rural Southern Alberta will associate Sadie’s with their western wear and tack needs.
Stampede offers a great opportunity for this exposure. If we can attract as little as 0.5% of the
visitors to make a moderate purchase of $55 we will earn an approximate extra $250,000 per
year in revenues. This will come with the requirement of some capital expenditures ( trailer) for
transporting our products to the Stampede. Refer to exhibit J for details of our capital budget.
2.3 Sales and Profit Objectives
Our store will sell to the target market of Vulcan County and Southern Alberta. Our specific
target is Vulcan County which is a smaller area and will allow us to attract a generous proportion
of the population to our store as our name becomes more prominent in the area through our
various marketing efforts. Our sales projections assume attracting 5% of Vulcan County in the
first year, and gradually increasing our market share to 10% by the third year. Our objective is to
become a regular shopping destination for 10% of our target population to fulfill their yearly
needs for western/casual clothing and tack in order to earn pre-tax profits by of $438,000 As you
can see from Exhibit F our goal to sell approximately one western outfit (with average
expenditure of $337 per person/per year) and two casual outfits (with average expenditures of
$137 per person per year) and a small portion of tack products to each customer each year to
yield approximately $788,000 in revenues in year one to approximately $1.7 million in revenues
in year three. This is appropriate and achievable as residents of the area will need these items on
a day-to-day basis for work/farming/ranching/school/recreation and we are in a position to be the
most convenient location for the residents to purchase these items.
3.0 Operations Plan
3.1 - Organizational Structure
We have several options for the legal structure of the business: sole proprietorship, partnership,
corporation or co-op. As there will be a single owner, Sadie Rogers, a partnership or co-op
would not be appropriate. The choice of structure for the business will be either a sole
proprietorship or a corporation. Normally initial losses or minimal income is expected for the
first few years with any new business. Structuring the business as a sole-proprietorship will
allow Sadie to deduct any losses against other sources of income that she may have. As a sole
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proprietorship she will not need to go through the administrative issues of setting up a
corporation and filing additional corporate income tax returns.
A corporation has the benefit of reducing personal liability because any lawsuits or creditor
claims against the company will be limited to the assets of the corporation and Sadie will not
have personal liability. Structuring as a corporation may allow Sadie to defer some taxes by only
paying the corporate level of tax if she plans to keep some of the income in the corporation. She
will be eligible for the small business deduction which allows $400,000 of corporate income to
be taxed at a favorable rate and if she sells her shares in the future she may also be eligible for
the qualified small business exemption. Sadie will have control over when she will pull income
out of the corporation and in what manner either by dividends, salary or bonus. As we expect
Sadie’s Store to become profitable fairly quickly (as can be seen in our Financial Projections
exhibit A) it would be in her best interest to structure the business as a corporation and take
advantage of any tax planning opportunities as well as limited liability advantages.
Sadie Rogers will be the owner and manager of the proposed store. She has significant retail
experience from operating a successful grocery store in the town of Champion. This has given
her the requisite experience of running a small business as well as experience with the local
market. A retail operation of this small scale is not overly complex and her experience in small
business as well as her background in the western lifestyle should provide enough expertise to
properly manage this new venture.
3.2 – Site Plan
Sadie’s Country N’ Western store will be located in the mini mall on 1st avenue and Main Street
in Champion, Alberta. This is the only retail area in Champion and contains a beauty salon,
grocery store and bank. There is ample parking in the front for customers and a back alley behind
the store where goods can be received. Refer to Exhibit 1 (a) for map of our location.
3.3 – Building and Floor Plan
As this is a small retail operation the site plan we are proposing is very simple, refer to Exhibit
1(b) for detailed floor plan. There will be retail areas set-up for the various product lines:
western clothes, toys, gifts, saddles, bridles and other tack. Sadie will require a small storage area
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to contain any extra inventory to ensure there are enough sizes and quantities on hand to meet
demand. The storage area will have a separate entrance to the back alley where goods can be
received.
3.4 – Daily Operations
Day to day operations at Sadie’s Western Wear are expected to be predictable and in line with a
typical small to mid-sized scale retail operations. Store Operational hours will be as follows:
Sadie’s Western Wear
Monday-Friday (10:00 am- 7:00 pm)
Saturday (10:00 am-5:00 pm)
Sunday (closed)
From Sadie’s previous success as a grocery store owner in the town of Champion we have made
assumptions of what the optimal store operations for her retail operations would be. Consistent
with most businesses in Champion and the surrounding rural areas, most retail outlets are closed
on Sundays and consistent with this tradition, Sadie’s personal desires, and expected low level of
traffic, the store will be closed on Sundays. The store will be open until seven o’clock at night
during week nights after discussions that have been held with rural farmers in the surrounding
area who indicated that they generally perform work and chores on their farms in the early
afternoon and would be making trips to Champion to shop in the later afternoon. Our preliminary
analysis has shown that these local customers will most likely travel to Sadie’s during the
weekdays. The store will be open on Saturdays to take advantage of visiting customers who will
be stopping in Champion on their way to/from Calgary who are either stopping in town for gas
and supplies or who have specifically come to shop at Sadie’s on the weekend. For specific
details on staffing the staffing requirements for Sadie’s, refer to the HR plan below.
Day to day operations are expected to remain fairly consistent. Sadie is expected to arrive at the
store at 9:45 each morning for the store’s opening at 10:00 am. Traffic during the first few hours
of the morning is expected to be at minimal levels. At this time Sadie will provide service to
occasional customers and take care of any administrative duties that need to be completed, for
example, payment of store utility bills and supplier invoices. Inventory will be ordered in large
shipments several times a year (refer to inventory levels discussed in detail below); therefore
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there will not be large shipments of inventory to be unpacked on a weekly basis by Sadie. Part
time employees will arrive daily at 11:00 am to assist Sadie with day to day operations. Sadie
will also review the pricing of her floor inventory and make necessary adjustments to sale prices
in the form of sales discounts during these operational hours.
During the month of July a stand will be opened at the Calgary Stampede grounds during the 10day Country Western fair. Sadie will travel to the Stampede to sell some merchandize such as
cowboy hats, boots, tack, and small supply of popular western wear from the store. The purpose
of this booth will be twofold: on the one hand, it will give her an opportunity to sell her
merchandize to country and Stampede enthusiasts. Also, it will give her an opportunity to
showcase our store to people from across the province and build our brand awareness.
Merchandise will be brought to the Stampede in her husband Tom’s family truck and a trailer
purchased specifically for this purpose. The stand will be open from 10:00 am until 11:00 pm for
these ten days and will be staffed the entire time by Sadie and two temporary workers. For
additional details on staffing requirements for the Stampede setup, refer to our HR plan attached
below.
3.5 - Suppliers
The following key suppliers have been highlighted as major contributors to the merchandise that
will be sold at Sadie’s. These particular suppliers have been determined based on their success
in other western apparel locations across Canada and the US. Sadie’s will purchase from other
smaller suppliers in addition to the major suppliers listed in the section below.
Wrangler
This is internationally known western wear denim apparel and accessory provider “Wrangler”
lines will be carried at Sadie’s. We expect that this world renowned brand name known for its
product excellence, durability and protection will attract customers to Sadie’s Western Store.
Wrangler Product items to be carried in Sadie’s Western Wear include:
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Wrangler Western Wear: A denim line for males, females, boys and girls of jean shirts and
accessories including: cowboy cut, original fit and loose fit denim styles for males; boot fit,
relaxed fit, cowboy cut and slim fit for females; low rise and original cut denim styles for girls;
and fit student and cowboy cut denims styles for boys. In addition a variety of western tops will
be purchased from this line for resale at Sadie’s. Trend forecasts and previous items’ popularity
will determine the number and styles of additional items to be purchased on going forward basis.
“Wrangler 20X Wear: Selected items from this specific line from Wrangler known as a
“western line with an edge” will be available for sale at Sadie’s.
“Wrangler Hero”: In addition, selected items from this more casual Wrangler line will be carried
in Sadie’s for men and women.
Prior to opening the store, Sadie has established close business relationship with Wrangler. We
have entered into an agreement with Wrangler to receive preferential corporate deals on all their
merchandize. Wrangler has appointed a sales representative based out of Calgary, who is
responsible for ensuring the store receives the necessary Wrangler inventory it needs on a timely
basis.
Weaver Leather
Sadie has been in discussions with sales representatives from Weaver Leather to be the Vulcan
County’s exclusive dealer of high quality Weather Leather tack products and other hand crafted
products. This respected supplier name is expected to draw local customers into Sadie’s retail
outlet. Weaver Leather is based out of Ohio, USA and inventory will be ordered from Weaver
Leather customer catalogues.
Western Rawhide
Sadie’s will be a retail outlet that supports Canada’s largest saddle manufacturer in Canada,
Western Rawhide, who prides themselves on providing the best leather and raw hide products to
outlets around the world. This line will be carried because of its industry-wide recognition for
quality and durable tack and saddles. Purchases from Western Rawhide will be made through
supplier catalogues from their head office located in Winnipeg, Manitoba.
Cruel Girl Clothing
Sadie’s will also be an authorized dealer of the Cruel Girl line of western and casual style
clothing for ladies and girls known for their fresh modern finishes and details. Selected items
from their annual collections based on their projected trend forecasts and inventory will be
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purchased from supplier catalogues. Inventory will be shipped from Cruel Girl offices located in
Denver, Colorado.
Cinch Jeans Company
Sadie’s will be excited to bring to its customers the men’s line of western denim brand “CinchJeans- for the man who loves life in his denim!” This line will be brought in to give an
alternative to the traditional Wrangler style denim styles for men and will include the following
most popular design style selections of the “Tucker” denim cut and “Coronado” denim cut.
Inventory will be shipped from Cinch Jeans offices located in at their production sties of Denver,
Colorado or Dallas, Texas.
All supplier relationships will be formalized by entering into agreements. While the specific
terms may vary, the contracts span 1 to 2 years on average. For the most part, prices have been
negotiated and fixed for the duration of these contracts. Upon expiry of these contracts, new
prices may be negotiated to reflect inflationary and other adjustments.
Some of the main suppliers mentioned above are American companies with purchases made in
US dollars. This will expose Sadie’s to fluctuations in US and CDN foreign exchange rates. The
Canadian dollar has been close to par with the US dollar in the recent past. Should the currency
experience significant fluctuations in the future, Sadie may wish, with the help of a financial
planner, to enter into USD fixed purchase contracts to hedge away some of that risk.
There is a risk of increased trade tariffs and taxes on goods imported from the US which will
again put an upward pressure on our costs. However, we do not have a dependency on one
particular supplier and we believe there are enough Canadian suppliers that we can replace
American suppliers with should this be necessary. Furthermore, in the event that one supplier
ceases to be in business, Sadie will have the opportunity to obtain similar inventory from another
supplier. Overall the industry in which our suppliers operate in is very competitive, with a large
number and variety of suppliers to choose from. This mitigates our risks involved with
procurement process and enables us to “shop” for best prices.
However, some of the suppliers have established unique brands, such as Wrangler and Weaver
Leather, which makes these suppliers somewhat irreplaceable and increases our dependency on
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carrying these brand names. Because of this, Sadie’s operations must be able to remain viable in
the event that there are reasonable price increases from these key suppliers. Sensitivity analysis
performed in Exhibit C shows a worst case scenario for the expected business that includes the
impact of a 5% increase in COGS from key suppliers. Even in this worst case scenario, Sadie is
still able to generate positive net profits over a 5 year period, indicating her ability to withstand
both decreases in projected customers and increases in prices from key suppliers.
3.6 - Service Providers
Other than the suppliers listed above upon commencement of operations Sadie’s will have the
following service providers:
Utilities/Energy/Power: Alta Gas (refer to operating expenses discussed below)
Telephone Connection: TELUS (refer to operating expenses discussed below)
Accountants: Grant Krystalowich & Bennett - to provide file annual tax returns and notice to
readers.
Accounts will be kept current with the above service providers and connections will be made to
set up accounts two weeks prior to the grand opening of the store.
3.7 – Capital budget
Exhibit J presents a summary of our planned capital expenditures for the next 5 years. Our total
initial capital outlays required total $87,250. Our biggest expenditure of $40,000 is for furnitures
and fixtures, such as hangers, desks, and racks required to set up a store. Approximately $20,000
worth of furniture and fixtures as well as a new POS system for $6,000 will have to be replaced
in year 4.
3.8 – Cost of Sales
Refer to Exhibit L for details on our cost of sales. The following table summarizes Sadie’s Cost
of Goods Sold Schedule for the first year of operations.
Western wear
Casual wear
Gifts
Saddles
Tack
$
$
$
$
$
$
Revenue
415,743.83
141,968.75
61,950.00
110,477.50
58,078.13
788,218.20
Markup
85%
85%
65%
60%
85%
$
$
$
$
$
$
COS
224,726.39
76,739.86
37,545.45
69,048.44
31,393.58
439,453.73
GPM%
46%
46%
39%
38%
46%
44%
GM
$ 191,017.43
$ 65,228.89
$ 24,404.55
$ 41,429.06
$ 26,684.54
$ 348,764.47
17
Cost of Sales
Beginning Inventory
+ Purchases
= Goods Available for Sale
- Ending Finished Goods Inventory
Cost of Sales
$0
$439,454 + 109,863
$549,317
$109,863
$439,454
3. 9 - Working Capital Management
Liquidity management (cash management)
When cash is in excess we will pay down as much long term debt as allowable, replace capital
assets based on our capital budget, and invest in short term investments. We have prepared a
cash budget on a monthly basis for the first year to ensure that we will have sufficient cash to
meet our needs, and this cash budget will be updated on a monthly basis in order to ensure
sufficient cash and to predict future cash needs. Refer to Exhibit B.
Inventory Management
We have planned to manage our inventory so that we will have sufficient inventory throughout
the year to meet our projected sales. Total purchases for the year will be equal to 1 and ¼ of
year one cost of sales, however based on our purchasing strategy we will carry on average
$69,000 in inventory in our first year of operations.
Average Inventory = $69,000
WACC = 10.5%
Cost per year to finance inventories = $69,000 x .105 = $7,245
We have structured our purchasing to meet our sales needs which have resulted in low annual
costs to finance inventory. We will monitor our needs on a regular basis to maintain this optimal
inventory management strategy and to reduce inventory financing costs.
Accounts Receivable
We have decided that we will be offering credit to commercial farm customers who require it.
We have done this as our competitors offer this benefit to commercial clients and it is necessary
to be competitive in the industry. We have estimated that our accounts receivable will be equal
to 1% of our saddle revenue as these will be the product most likely purchased on credit. We will
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invoice our customers monthly and our terms will be N30 days. We will follow up regularly
with all overdue accounts.
Accounts Payable
If our suppliers offer us discounts for early payment we will take advantage of those offers.
Normal terms that are offered in our industry are 2/10 net 30.
Cost of not taking the discount:
= (2%/98%) x (365 days/20days)
= 2% x 18.25 = 36.5%
This is the cost of financing the extra 20 days which is expensive and so if we have the cash to
take advantage of the discount we would take advantage of it.
Cash Conversion Cycle
CCC = Average Days Inventory + Average Collection Period – Average Days Payable
Average Inventory Period = (inventory x 365 days) / cost of sales.
(109,863 x 365) / 439,454 = 91.25
91.24 + 0 – 30 = 61.24
We have decided not to include AR in our cash conversion cycle calculation as this is such an
insignificant amount and does not warrant inclusion in our calculation.
Inventory management will be monitored on a regular basis as discussed in the inventory
management discussion, and if possible we will lower our average days inventory by carrying
less inventory on average in order to reduce our cash conversion cycle.
3.10 – Operating Expenses
Refer to schedule H for monthly breakdown of our total operating expenses. Our operating
expenses in the first year total approximately $270,000, with biggest expenses being rent, wages,
utilities and office expenses. As depicted in our annual 5-year forecast in Exhibit D, operating
expenses are expected to increase by the rate of inflation of 3% every year.
From discussions with Hal, the Director of Sales with AltaGas, the cost of gas is $15/ per GJ and
the cost of electricity is $0.14 per KWH based on a 3 year fixed price contract. The approximate
usage for small retail outlet in our area for gas is 0.086 GJ’s per sq foot per year and 20.4 KWH
19
per sq foot for electricity. These prices include the cost of the commodity and the delivery
charges and are based on the proposed facility size of 3,500 square feet.
Insurance information was obtained through Dianne Wells at Jardine Lloyd Thompson in
Calgary. Insurance coverage through Aviva insurance for property and loss prevention for
inventory up to $500,000 and equipment including racks and computers up to $20,000 and
building and liability up to $2 million is approximately $4,000 per year.
Lease rates in our area range from $7-26 range per square foot. This information was obtained
through ICX.ca, "Canada's Gateway to Commercial Real Estate". We have received a
$10/square foot quote from the mini-mall location where we plan to open our store. To ensure
our overhead remains low in the future, we will enter into a 5-year rental agreement with an
option to renew for another 5 years at the end of the lease term. The rent costs are based on a
facility size of 3,500 square feet. Pricing for telephone services was obtained through Telus and
our projected cost will be $60 per month including voicemail. Office expenses, which include
items such as office suppliers, cleaning supplies, and toiletry expenses, are estimated to be $500
per month based on entrepreneurial experience. See Exhibit I for details on wage expenses.
Bookkeeping services to be provided will be required once a week for 7 hours at $15 per hour.
The services will include accounting for accounts payable, accounts receivable, and payroll.
Accounting costs are for a year end compilation of financial statements and for the year end tax
return, based on bookkeeping being done throughout the year. Legal expenses relate to initial
incorporation costs of $3,500 and annual costs of $300 to document, file and keep records of
annual shareholders’ resolutions. The cost of the security was provided by ADT security based
on our site specifications and will be $29 per month, with an installation fee of $249. This is for
the Premise Pro 1 package which includes a keypad, control panel, motion detector, two door
contacts, indoor sounder and window decals. See Exhibit J for details on CCA expenses, Exhibit
F for details on marketing expenses, and Exhibit M for interest costs.
20
4.0 Human Resources Plan
4.1 – Job Descriptions
Sadie Rogers will be the owner and manager of the store. As this is a very small retail operation
we expect that she will work full time as a sales associate and manager for the store –
approximately 40 hours a week. Sadie will be responsible for management duties including:
ordering and receiving goods shipments, hiring, training and supervising staff, setting staff work
schedules, payroll, nightly cash out and bank deposits. Her past experience with owning and
managing a grocery store will provide her with the necessary skills to perform basic management
activities. There will also be a bookkeeper from a local accounting firm included in service
providers above, who will come in once a week to do bookkeeping as well as assist in
preparation of tax returns and the annual notice to readers.
Sadie will need to hire two part-time sales associates to work in the store. The sales staff will
work approximately 20 hours per week each. The staff will be responsible for basic duties
including greeting customers, answering questions about products, helping customers into
change rooms, stocking goods and receiving payment and recording sales at the sales register. As
Sadie will be working full time she will only need minimal help to cover the additional hours
that the store is open, any extra time Sadie will need to devote to other duties as well as
additional help on busier days such as Saturdays. Having minimal staff will help reduce costs
significantly which will be particularly important during the first few years of setting-up the
business. As the business becomes more profitable Sadie may consider cutting back some hours
and relying more on hired help.
4.2 - Training Programs
Sales associate staff will need to become familiarized on the processes of recording sales on the
register and collecting cash. Staff will need to be trained on some product knowledge particularly
tack in order to answer customer questions. However, it is expected given the region that the
staff will be familiar with western goods including tack. The training in the store can be
performed informally by Sadie with her walking new employees through the store processes
including receiving goods, stocking shelves, helping customers and using the sales register. Sales
staff will report directly to Sadie and will be supervised directly by Sadie. If in the future Sadie
decides to take a less active role and hires either a supervisor or manager she will need to
21
develop a more extensive training program for the other management duties. This may include a
training manual if required to outline the processes. However, even these additional
responsibilities are still relatively simple and could be performed with mostly informal on-thejob type of training and follow-up supervision by Sadie.
Wage Costs
It is expected that the one or two part-time sales associates will work on average 20 hours each a
week and Sadie will work approximately 40 hours including management duties. As Sadie is an
owner she will have flexibility in choosing her compensation. In our projections, we have
estimated an annual salary of $45,000; however, this is subject to change based on her needs.
She does not need to pay employment insurance premiums as she is self-employed. As training
will be performed informally on-the-job it is expected that there will be very minimal costs,
possibly only some extra hours involved in supervision.
Sales associates will not require any special skills or education and as such we can expect to pay
very close to minimum wage with no extra benefits beyond the statutory requirements. Minimum
wage in Alberta is $8.40 according to the Alberta Government Employment and Immigration
division. Alberta as whole is experiencing severe labour shortages due to demand in the oil and
gas industry and this may raise the cost of labour beyond minimum wage. However, Champion
is located in a rural area with a low cost of living and limited employment opportunities. Sadie’s
Store is able to offer flexible hours and good working conditions and should have little difficulty
in attracting employees. For this reason we have set an hourly wage to be slightly higher than
minimum wage at $10.00 an hour to ensure she will still be able to attract and retain employees.
Sadie will also hire two additional temporary workers for the week of Stampede. They are
assumed to work 40 hours during this week at a wage of $17 per hour due to high wages required
for Stampede labour. Exhibit I has provided a five year estimate of the wage and salary costs
including employment insurance, CPP and vacation pay.
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5.0 Financial Plan
5.1 - Financial highlights
Net Income
Cash flows from operations
Debt to equity
Current ratio
$
$
1
35,555 $
47,741 $
1.4
2.7
2
156,624 $
171,614 $
0.9
3.1
3
351,491 $
362,576 $
0.5
3.7
4
360,382 $
372,937 $
0.3
4.9
5
369,764
382,903
0.2
6.1
5.2 – Key Ratio Analysis
Based on our knowledge of the retail sector we have highlighted the following key performance
benchmarks that are particularly important in the retail industry, specifically for small scale retail
operation such as Sadie’s. Ratios below have been computed by using our projections. Sadie will
continue to monitor her performance in the future on a going forward basis against the following
industry standards:
GM %
As product costs (COS) is the single largest expense item on Sadie’s financial statements, this
ratio shows Sadie’s ability to remain competitive in the industry:
Gross Margin %
Industry AVG
47%
Year 1
Year 2
42%
41%
Year 3
41%
Year 4
41%
Year 5
41%
As Sadie’s brand promise to her customers is low prices, even though her gross margins are
below industry standards, this is in line with her goal and mission to be able to pass on cost
savings to her customers while still operating a profitable business.
Pre-tax profit %
This % includes Sadie’s COS and her ability to manage operating costs (wages, rents and other
expenses) against industry standards:
Pre-Tax Profit %
Industry AVG
5%
Year 1
6%
Year 2
17%
Year 3
25%
Year 4
25%
Year 5
25%
23
As shown above, even though her margins are lower than industry standards, Sadie’s pre-tax
profits are much higher than industry standards over a five year period as a result of Sadie’s
ability to manage her operating costs effectively.
Inventory Turnover
The management of inventory levels is key to the success of small business such as Sadie’s.
Since inventory represents cash that is tied up in the working capital of the business, a higher
inventory turnover ratio will represent Sadie’s ability manage her working capital properly:
Inventory Turnover
Industry AVG
Year 1
3.4
Year 2
4
Year 3
4
Year 4
4
Year 5
4
4
A stronger inventory turnover period shows the business’ ability to monitor inventory levels to
minimize cash flow issues and strong working capital management.
Current Ratio
Since the generation of operational cash flows is crucial to the success of a small business such
as Sadie’s, a business’ ability to show enough current assets to support its current liabilities when
compared to industry benchmarks is important for day to day success.
Current Ratio
Industry AVG
1.7
Year 1
2.7
Year 2
3.1
Year 3
Year 4
3.7
4.9
Year 5
6.1
After the second year of operations, Sadie’s will have a stronger current ratio than industry
averages. Beyond year 2 she has an option to pay out cash as dividends to herself and keep the
current ratio around 2.
5.3 - Risk analysis
We have based our financial projections on reasonable expectations of numbers of customers,
amount of purchases per customer, expected margins and inventory costs. We recognize that
while these projections are reasonable, there is still an element of risk incorporated into any
future projections. To address this risk we have compiled a worst (Exhibit C), expected base
(Exhibit D), and best (Exhibit E) case scenarios for Sadie’s five year projected balance sheet,
24
income statement and statement of cash flows. The worst case scenario assumes that we will not
be able to charge our desired prices, and will only be able to charge 85% of our assumed prices.
It also assumes that we will reach only 80% of our planned target market and our supplier will
increase costs of sales by 5%. As can be seen in the Exhibits, even in this worst-case scenario,
both net income and cash flows from operations are expected to become positive by year 3,
illustrating that Sadie’s business model is robust enough to withstand these downturns.
5.4 - Sources of Financing:
Sadie decided to seek 100% debt financing. To help the creditors make their decision, below is
the summary of the 4 Cs of lending:
Capital - As discussed above, our initial start up costs total $248,218. Sadie will be financing
half of the required amount with her personal funds. The total of requested funds is therefore
$124,000. Sadie is seeking 100% debt financing with a 10-year repayment plan at 6% interest
rate.
Character – Sadie, who is the manager and the owner of the store, is an experienced and
successful entrepreneur, with previous experience of successfully managing a grocery store.
Sadie has demonstrated ability to make sound business decisions and has maintained good credit
history.
Collateral – we recognize the capital assets that the business will own are limited and may not
provide with the necessary collateral to the loan. If necessary, Sadie is willing to provide a
personal guarantee on her house.
Capacity – as can be seen in our cash flow projections, Sadie’s will be generating positive cash
flows in the future, and will accumulate significant cash surplus. Based on our annual projections
as depicted in Exhibit A, we will be generating positive cash flows from operations starting in
year 1. In the next 5 years, our cash flows are projected to continue to increase, with cash flows
from operations stabilizing around $380,000 by year 5. As depicted in Exhibit M, cash generated
from operations will be sufficient to cover both planned capital expenditures as well as repay the
long term debt in full by the end of year 10. Refer to exhibit M for the debt amortization
schedule.
25
5.5 - Investment analysis
As can be seen in Exhibit N, we have calculated the Net present value of the investment, which
is $177,317 based on 3 year projection and using the required rate of return of 20%. The internal
rate of return that the business will generate is projected to be 44%, way in excess of the required
return of 20%. The positive NPV is partly driven by the fact that this business is not capital
intensive, requiring very minimal initial cost outlays.
Conclusion
As discussed throughout the business plan, this is a relatively simple operation that requires
minimal initial investment. There is a significant market opportunity in the area where Sadie’s
will operate. Combined with her knowledge and experience, favorable location, low overhead,
minimal labour and inventory costs will enable us to charge significantly lower prices than direct
competition. This will allow us to appeal our target customers and achieve our mission of
becoming a one-stop destination of choice for our customers.
26
Exhibit 1(a): Site Plan
27
Exhibit 1(b): Site Floor Plan
1st Avenue
Clothes
Toys
Gifts
Change rooms
Wash
room
Tack
Register
Storage/Receiving
28
Exhibit 2: Market Area
29
Exhibit 2: Map of Southern Alberta
30