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Business plan speedway

Business Plan Speedway

Executive Summary

Speedway, unlike a typical cafe, will provide a unique forum for communication and entertainment through the medium of the Internet. Speedway is the answer to an increasing demand. The public wants: (1) access to the methods of communication and volumes of information now available on the Internet, and (2) access at a cost they can afford and in such a way that they aren't socially, economically, or politically isolated. Speedway’s goal is to provide the community with a social, educational, entertaining, atmosphere for worldwide communication.

This business plan is prepared to obtain financing in the amount of $24,000. The supplemental financing is required to begin work on site preparation and modifications, equipment purchases, and to cover expenses in the first year of operations. Additional financing has already been secured in the form of: (1) $24,000 from the Manchester, NH Economic Development Fund (2) $19,000 of personal savings from owner Ali Naqvi (3) $36,000 from three investors (4) and $9,290 in the form of short-term loans.

Speedway will be incorporated as an LLC corporation. This will shield the owner Ali Naqvi, and the three outside investors, Nasir Rafiq, Rizwan Raza, and Waheed Hameed, from issues of personal liability and double taxation. The investors will be treated as shareholders and therefore will not be liable for more than their individual personal investment of $12,000 each.

The financing, in addition to the capital contributions from the owner, shareholders and the Manchester, NH Economic Development Fund, will allow Speedway to successfully open and maintain operations through year one. The large initial capital investment will allow Speedway to provide its customers with a full featured Internet cafe. A unique, upscale, and innovative environment is required to provide the customers with an atmosphere that will spawn socialization. Successful operation in year one will provide Speedway with a customer base that will allow it to be self sufficient in year two.

Objectives

Speedway’s objectives for the first three years of operation include:

· The creation of a unique, upscale, innovative environment that will differentiate Speedway from local coffee houses.

· Educating the community on what the Internet has to offer.

· The formation of an environment that will bring people with diverse interests and backgrounds together in a common forum.

· Good coffee and bakery items at a reasonable price.

· Affordable access to the resources of the Internet and other online services.

Mission

As the popularity of the Internet continues to grow at an exponential rate, easy and affordable access is quickly becoming a necessity of life. Speedway provides communities with the ability to access the Internet, enjoy a cup of coffee, and share Internet experiences in a comfortable environment. People of all ages and backgrounds will come to enjoy the unique, upscale, educational, and innovative environment that Speedway provides.

Keys to Success

The keys to the success for Speedway are:

· The creation of a unique, innovative, upscale atmosphere that will differentiate Speedway from other local coffee shops and future Internet cafes.

· The establishment of Speedway as a community hub for socialization and entertainment.

· The creation of an environment that won't intimidate the novice user. Speedway will position itself as an educational resource for individuals wishing to learn about the benefits the Internet has to offer.

· Great coffee and bakery items

Risks

The risks involved with starting Speedway are:

· Will there be a demand for the services offered by Speedway in Manchester?

· Will the popularity of the Internet continue to grow, or is the Internet a fad?

· Will individuals be willing to pay for the service Speedway offers?

· Will the cost of accessing the Internet from home drop so significantly that there will not be a market for Internet Cafes such as Speedway?

Company Summary

Speedway, soon to be located in downtown Manchester, will offer the community easy and affordable access to the Internet. Speedway will provide full access to email, WWW, FTP, Usenet and other Internet applications such as Telnet and Gopher. Speedway will also provide customers with a unique and innovative environment for enjoying great coffee, specialty beverages, and bakery items.

Speedway will appeal to individuals of all ages and backgrounds. The instructional Internet classes, and the helpful staff that Speedway provides, will appeal to the audience that does not associate themselves with the computer age. This educational aspect will attract younger and elderly members of the community who are rapidly gaining interest in the unique resources that online communications have to offer. The downtown location will provide business people with convenient access to their morning coffee and online needs.

Company Ownership

Speedway is a privately held Manchester, NH Limited Liability Corporation. Ali Naqvi, the founder of Speedway, is the majority owner. Nasir Rafiq, Rizwan Raza, and Waheed Hameed, all hold minority stock positions as private investors.

Start-up Summary

Speedway's start-up costs will cover coffee making equipment, site renovation and modification, capital to cover losses in the first year, and the communications equipment necessary to get its customers online.

The communications equipment necessary to provide Speedway's customers with a high-speed connection to the Internet and the services it has to offer make up a large portion of the start-up costs. These costs will include the computer terminals and all costs associated with their set-up. Costs will also be designated for the purchase of two laser printers and a scanner.

In addition, costs will be allocated for the purchase of coffee making equipment. One espresso machine, an automatic coffee grinder, and minor additional equipment will be purchased from Allann Brothers.

The site at 10th and Oak will require funds for renovation and modification. A single estimated figure will be allocated for this purpose. The renovation/modification cost estimate will include the costs associated with preparing the site for opening business.

Start-upRequirements

Start-up Expenses

Legal $500

Stationery etc. $500

Brochures $500

Consultants $2,000

Insurance $700

Rent $1,445

4-group Automatic Coffee Machine $10,700

Bean Grinder $795

Computer Systems (x11) $24,310

Communication Lines $840

Fixtures / Re-model $20,000

Other $0

Total Start-up Expense $62,290

Start-up Assets Needed

Cash Requirements $24,000

Start-up inventory $2,000

Other Short-term Assets $0

Total Short-term Assets $26,000

Long-term Assets $0

Total Assets $26,000

Total Requirements $88,290

Funding

Investment

Ali Naqvi $19,000

Nasir Rafiq $12,000

Rizwan Raza $12,000

Waheed Hameed $12,000

Other $0

Total Investment $55,000

Short-term Liabilities

Unpaid Expenses $0

Short-term Loans $9,290

Interest-free Short-Loans $0

Subtotal Short-term Liabilities $9,290

Long-term Liabilities $24,000

Total Liabilities $33,290

Loss at Start-up ($62,290)

Total Capital ($7,290)

Total Capital & Liabilities $26,000

Company Locations and Facilities

A site has been chosen at downtown Manchester. This site was chosen for various reasons, including:

· Proximity to the downtown business community.

· Proximity to trendy, upscale restaurants such as Margaritas.

· Proximity to LTD's Manchester Station. Parking availability.

· Low cost rent - $.85 per square foot for 1700 square feet.

· High visibility.

All of these qualities are consistent with Speedway's goal of providing a central hub of communication and socialization for the Manchester community.

Services

Speedway will provide full access to email, WWW, FTP, Usenet and other Internet applications such as Telnet and Gopher. Printing, scanning, and introductory courses to the Internet will also be available to the customer. Speedway will also provide customers with a unique and innovative environment for enjoying great coffee, specialty beverages, and bakery items.

Service Description

Speedway will provide its customers with full access to the Internet and common computer software and hardware. Some of the Internet and computing services available to Speedway customers are listed below:

· Access to external POP3 email accounts.

· Customers can sign up for a Speedway email account. This account will be managed by Speedway servers and accessible from computer systems outside the Speedway network.

· FTP, Telnet, Gopher, and other popular Internet utilities will be available.

· Access to Netscape or Internet Explorer browser.

· Access to laser and color printing.

· Access to popular software applications like Adobe Photoshop and Microsoft Word.

Speedway will also provide its customers with access to introductory Internet and email classes. These classes will be held in the afternoon and late in the evening. By providing these classes, Speedway will build a client base familiar with its services. The computers, Internet access, and classes wouldn't mean half as much if taken out of the environment Speedway will provide. Good coffee, specialty drinks, bakery goods, and a comfortable environment will provide Speedway customers with a home away from home. A place to enjoy the benefits of computing in a comfortable and well-kept environment.

Competitive Comparison

Speedway will be the first Internet cafe in Manchester. Speedway will differentiate itself from the strictly-coffee cafes in Manchester by providing its customers with Internet and computing services

Fulfillment

Speedway will obtain computer support and Internet access from Bellevue Computers located in Manchester. Bellevue will provide the Internet connections, network consulting, and the hardware required to run the Speedwaywork. Allann Brothers will provide Speedway with coffee equipment, bulk coffee, and paper supplies. At this time, a contract for the bakery items has not been completed. Speedway is currently negotiating with Humble Bagel and the French Horn to fulfill the requirement.

Technology

Speedway will invest in high-speed computers to provide its customers with a fast and efficient connection to the Internet. The computers will be reliable and fun to work with. Speedway will continue to upgrade and modify the systems to stay current with communications technology. One of the main attractions associated with Internet cafes, is the state of the art equipment available for use. Not everyone has a Pentium PC in their home or office.

Future Services

As Speedway grows, more communications systems will be added. The possibility of additional units has been accounted for in the current floor plan. As the demand for Internet connectivity increases, along with the increase in competition, Speedway will continue to add new services to keep its customer base coming back for more.

Market Analysis Summary

Speedway is faced with the exciting opportunity of being the first-mover in the Manchester cyber-cafe market. The consistent popularity of coffee, combined with the growing interest in the Internet, has been proven to be a winning concept in other markets and will produce the same results in Manchester.

Market Segmentation

Speedway's customers can be divided into two groups. The first group is familiar with the Internet and desires a progressive and inviting atmosphere where they can get out of their offices or bedrooms and enjoy a great cup of coffee. The second group is not familiar with the Internet, yet, and is just waiting for the right opportunity to enter the online community. Speedway's target market falls anywhere between the ages of 18 and 50. This extremely wide range of ages is due to the fact that both coffee and the Internet appeal to a variety of people. In addition to these two broad categories, Speedway's target market can be divided into more specific market segments. The majority of these individuals are students and business people. See the Market Analysis chart and table below for more specifics.

Market Analysis

Potential Customers Growth 2001 2002 2003 2004 2005 CAGR

University Students 4% 15,000 15,600 16,224 16,873 17,548 4.00%

Office Workers 3% 25,000 25,750 26,523 27,319 28,139 3.00%

Seniors 5% 18,500 19,425 20,396 21,416 22,487 5.00%

Teenagers 2% 12,500 12,750 13,005 13,265 13,530 2.00%

Other 0% 25,000 25,000 25,000 25,000 25,000 0.00%

Total 2.68% 96,000 98,525 101,148 103,873 106,704 2.68%

Target Market Segment Strategy

Speedway intends to cater to people who want a guided tour on their first spin around the Internet and to experienced users eager to indulge their passion for computers in a social setting. Furthermore, Speedway will be a magnet for local and traveling professionals who desire to work or check their email messages in a friendly atmosphere. These professionals will either use Speedway's PCs, or plug their notebooks into Internet connections. Speedway's target market covers a wide range of ages: from members of Generation X who grew up surrounded by computers, to Baby Boomers who have come to the realization that people today cannot afford to ignore computers.

Market Needs

Factors such as current trends, addiction, and historical sales data ensure that the high demand for coffee will remain constant over the next five years. The rapid growth of the Internet and online services, that has been witnessed worldwide, is only the tip of the iceberg. The potential growth of the Internet is enormous, to the point where one day, a computer terminal with an online connection will be as common and necessary as a telephone. This may be 10 or 20 years down the road, but for the next five years, the online service provider market is sure to experience tremendous growth. Being the first cyber-cafe in Manchester, Speedway will enjoy the first-mover advantages of name recognition and customer loyalty. Initially, Speedway will hold a 100 percent share of the cyber-cafe market in Manchester. In the next five years, competitors will enter the market. Speedway has set a goal to maintain greater than a 50 percent market share.

Market Trends

A market survey was conducted in the Fall of 2000. Key questions were asked of fifty potential customers. Some key findings include:

· 35 subjects said they would be willing to pay for access to the Internet.

· Five dollars an hour was the most popular hourly Internet fee.

· 24 subjects use the Internet to communicate with others on a regular basis.

Service Business Analysis

The retail coffee industry in Manchester experienced rapid growth at the beginning of the decade and is now moving into the mature stage of its life cycle. Many factors contribute to the large demand for good coffee in Manchester. The University is a main source of demand for coffee retailers. The climate in Manchester is extremely conducive to coffee consumption. Current trends in the Northwest reflect the popularity of fresh, strong, quality coffee and specialty drinks. Manchester is a haven for coffee lovers.

The popularity of the Internet is growing exponentially. Those who are familiar with the Internet are well aware of how fun and addictive surfing the Net can be. Those who have not yet experienced the Internet, need a convenient, relaxed atmosphere where they can feel comfortable learning about and utilizing the current technologies. Speedway seeks to provide its customers with affordable Internet access in an innovative and supportive environment.

Due to intense competition, cafe owners must look for ways to differentiate their place of business from others in order to achieve and maintain a competitive advantage. The founder of Speedway realizes the need for differentiation and strongly believes that combining a cafe with complete Internet service is the key to success. The fact that no cyber-cafes are established in Manchester, presents Speedway with a chance to enter the window of opportunity and enter into a profitable niche in the market.

Business Participants

There are approximately 16 coffee wholesalers in New England. These wholesalers distribute coffee and espresso beans to over 20 retailers in the Manchester area. Competition in both channels creates an even amount of bargaining power between buyers and suppliers resulting in extremely competitive pricing. Some of these major players in the industry (i.e. Allann Brothers Coffee Co., Inc. and Coffee Corner Ltd.) distribute and retail coffee products.

The number of online service providers in Manchester is approximately eight and counting. These small, regional service providers use a number of different pricing strategies. Some charge a monthly fee, while others charge hourly and/or phone fees. Regardless of the pricing method used, obtaining Internet access through one of these firms can be expensive. Larger Internet servers such as America Online (AOL), Prodigy, and CompuServe, are also fighting for market share in this rapidly growing industry. These service providers are also rather costly for the average consumer. Consumers, who are not convinced they would frequently and consistently travel the Internet, will not be willing to pay these prices.

Distributing a Service

The dual product/service nature of Speedway's business faces competition on two levels. Speedway competes not only with coffee retailers, but also with Internet service providers. The good news is that Speedway does not currently face any direct competition from other cyber-cafes in the Manchester market. There are a total of three cyber-cafes in the state of Manchester, NH: one located in Portland and two in Ashland.

Heavy competition between coffee retailers in Manchester creates an industry where all firms face the same costs. There is a positive relationship between price and quality of coffee. Some coffees retail at $8/pound while other, more exotic beans may sell for as high as $16/pound. Wholesalers sell beans to retailers at an average of a 50 percent discount. For example, a pound of Sumatran beans wholesales for $6.95 and retails for $13.95. And as in most industries, price decreases as volume increases.

Competition and Buying Patterns

The main competitors in the retail coffee segment are Cafe Paradisio, Full City, Coffee Corner and Allann Bros. These businesses are located in or near the downtown area, and target a similar segment to Speedway's (i.e. educated, upwardly-mobile students and business people).

Competition from online service providers comes from locally owned businesses as well as national firms. There are approximately eight, local, online service providers in Manchester. This number is expected to grow with the increasing demand for Internet access. Larger, online service providers, such as AOL and CompuServe are also a competitive threat to Speedway. Due to the nature of the Internet, there are no geographical boundaries restricting competition.

Strategies and Implementation Summary

Speedway has three main strategies. The first strategy focuses on attracting novice Internet users. By providing a novice friendly environment, Speedway hopes to educate and train a loyal customer base.

The second, and most important, strategy focuses on pulling in power Internet users. Power Internet users are extremely familiar with the Internet and its offerings. This group of customers serves an important function at Speedway. Power users have knowledge and web-browsing experience that novice Internet users find attractive and exciting.

The third strategy focuses on building a social environment for Speedway customers. A social environment, that provides entertainment, will serve to attract customers that wouldn't normally think about using the Internet. Once on location at Speedway, these customers that came for the more standard entertainment offerings, will realize the potential entertainment value the Internet can provide.

Strategy Pyramids

The following subtopics provide an overview of Speedway's three key strategies. Strategy pyramid graphics are presented in the appendices of this plan.

Attract Novice Internet Users

Speedway's first strategy focuses on attracting novice Internet users. Speedway plans on attracting these customers by:

· Providing a novice friendly environment. Knowledgeable employees focused on serving the customer’s needs will staff Speedway.

· A customer service desk will always be staffed. If a customer has any type of question or concern, a Speedway employee will always be available to assist.

· Speedway will offer introductory classes on the Internet and email. These classes will be designed to help novice users familiarize themselves with these key tools and the Speedway computer systems.

Attract Power Internet Users

Speedway's second strategy will be focused on attracting power Internet users. Power Internet users provide an important function at Speedway. Speedway plans on attracting this type of customer by:

· Providing the latest in computing technology.

· Providing scanning and printing services.

· Providing access to powerful software applications.

Social Hub

The third strategy focuses on building a social environment for Speedway customers. A social environment, that provides entertainment, will serve to attract customers that wouldn't normally think about using the Internet. Once on location at Speedway, these customers that came for the more standard entertainment offerings, will realize the potential entertainment value the Internet can provide.

Competitive Edge

Speedway will follow a differentiation strategy to achieve a competitive advantage in the cafe market. By providing Internet service, Speedway separates itself from all other cafes in Manchester. In addition, Speedway provides a comfortable environment with coffee and bakery items, distinguishing itself from other Internet providers in Manchester.

Marketing Strategy

Speedway will position itself as an upscale coffee house and Internet service provider. It will serve high-quality coffee and espresso specialty drinks at a competitive price. Due to the number of cafes in Manchester, it is important that Speedway sets fair prices for its coffee. Speedway will use advertising as its main source of promotion. Ads placed in The Register Guard, Manchester Weekly, and the Emerald will help build customer awareness. Accompanying the ad will be a coupon for a free hour of Internet travel. Furthermore, Speedway will give away three free hours of Internet use to beginners who sign up for an introduction to the Internet workshop provided by Speedway.

Pricing Strategy

Speedway bases its prices for coffee and specialty drinks on the "retail profit analysis" provided by our supplier, Allann Brothers Coffee Co., Inc. Allann Brothers has been in the coffee business for 22 years and has developed a solid pricing strategy.

Determining a fair market, hourly price, for online use is more difficult because there is no direct competition from another cyber-cafe in Manchester. Therefore, Speedway considered three sources to determine the hourly charge rate. First, we considered the cost to use other Internet servers, whether it is a local networking firm or a provider such as America Online. Internet access providers use different pricing schemes. Some charge a monthly fee, while others charge an hourly fee. In addition, some providers use a strategy with a combination of both pricing schemes. Thus, it can quickly become a high monthly cost for the individual. Second, Speedway looked at how cyber-cafes in other markets such as Portland and Ashland went about pricing Internet access. Third, Speedway used the market survey conducted in the Fall of 1996. Evaluating these three factors resulted in Speedway's hourly price of five dollars.

Promotion Strategy

Speedway will implement a pull strategy in order to build consumer awareness and demand. Initially, Speedway has budgeted $5,000 for promotional efforts which will include advertising with coupons for a free hour of Internet time in local publications and in-house promotions such as offering customers free Internet time if they pay for an introduction to the Internet workshop taught by Speedway's computer technician.

Speedway realizes that in the future, when competition enters the market, additional revenues must be allocated for promotion in order to maintain market share.

Sales Strategy

As a retail establishment, Speedway employs people to handle sales transactions. Computer literacy is a requirement for Speedway employees. If an employee does not possess basic computer skills when they are hired, they are trained by our full-time technician. Our full-time technician is also available for customers in need of assistance. Speedway's commitment to friendly, helpful service is one of the key factors that distinguishes Speedway from other Internet cafes.

Sales Forecast

Sales forecast data is presented in the chart and table below.

SALES FORCAST SaForecast

Unit Sales 2001 2002 2003

Coffee (based on average) 12,015 14,068 15,475

Specialty Drinks (based on average) 6,654 7,913 8,705

Email Memberships 8,704 10,505 11,556

Hourly Internet Fees 38,270 46,365 51,002

Baked Goods (based on average) 32,673 42,150 46,365

Other 0 0 0

Total Unit Sales 98,316 121,002 133,102

Unit Prices 2001 2002 2003

Coffee (based on average) $1.00 $1.00 $1.00

Specialty Drinks (based on average) $2.00 $2.00 $2.00

Email Memberships $10.00 $10.00 $10.00

Hourly Internet Fees $2.50 $2.50 $2.50

Baked Goods (based on average) $1.25 $1.25 $1.25

Other $0.00 $0.00 $0.00

Sales

Coffee (based on average) $12,015 $14,068 $15,475

Specialty Drinks (based on average) $13,308 $15,826 $17,409

Email Memberships $87,038 $105,053 $115,558

Hourly Internet Fees $95,676 $115,913 $127,505

Baked Goods (based on average) $40,841 $52,688 $57,957

Other $0 $0 $0

Total Sales $248,878 $303,549 $333,904

Direct Unit Costs 2001 2002 2003

Coffee (based on average) $0.25 $0.25 $0.25

Specialty Drinks (based on average) $0.50 $0.50 $0.50

Email Memberships $2.50 $2.50 $2.50

Hourly Internet Fees $0.63 $0.63 $0.63

Baked Goods (based on average) $0.31 $0.31 $0.31

Other $0.00 $0.00 $0.00

Direct Cost of Sales 2001 2002 2003

Coffee (based on average) $3,004 $3,517 $3,869

Specialty Drinks (based on average) $3,327 $3,957 $4,352

Email Memberships $21,759 $26,263 $28,890

Hourly Internet Fees $23,919 $28,978 $31,876

Baked Goods (based on average) $10,210 $13,172 $14,489

Other $0 $0 $0

Subtotal Direct Cost of Sales $62,220 $75,887 $83,476

Milestones

The Speedway management team has established some basic milestones to keep the business plan priorities in place. Responsibility for implementation falls on the shoulders of Ali Naqvi. This Milestones Table below will be updated as the year progresses using the actual tables. New milestones will be added as the first year of operations commences.

Personnel Plan

The staff will consist of six part-time employees working thirty hours a week at $5.50 per hour. In addition, one full-time technician (who is more technologically oriented to handle minor terminal repairs/inquiries) will be employed to work forty hours a week at $10.00 per hour. The three private investors, Nasir Rafiq, Rizwan Raza and Waheed Hameed will not be included in management decisions. This simple structure provides a great deal of flexibility and allows communication to disperse quickly and directly. Because of these characteristics, there are few coordination problems seen at Speedway that are common within larger organizational chains. This strategy will enable Speedway to react quickly to changes in the market.

Personnel Plan

2001 2002 2003

Owner $24,000 $26,400 $29,040

Part Time 1 $7,920 $7,920 $7,920

Part Time 2 $7,920 $7,920 $7,920

Part Time 3 $7,920 $7,920 $7,920

Part Time 4 $7,920 $7,920 $7,920

Part Time 5 $7920 $7,920 $7,920

Part Time 6 $7,920 $7,920 $7,920

Technician $21,731 $23,904 $26,294

Manager $21,818 $24,000 $26,400

Other $0 $0 $0

Total Payroll $115,069 $121,824 $129,254

Total People 0 0 0

Payroll Burden $ $18,274 $19,388

Total Payroll Expenditures $107,284 $140,097 $148,642

Financial Plan

Sales: Speedway is basing their projected coffee and espresso sales on the present environment, competitive market. Internet sales were estimated by calculating the total number of hours each terminal will be active each day and then generating a conservative estimate as to how many hours will be purchased by consumers.

Cost of Goods Sold: The cost of goods sold for coffee-related products was determined by the "retail profit analysis" we obtained from a similar company. The cost of bakery items is 20% of the selling price. The cost of Internet access is $660 per month, paid as networking fees. The cost of e-mail accounts is 25% of the selling price.

Fixture Costs: Fixture costs associated with starting Speedway are the following: 11 computers = $22,000, two printers = $1,000, one scanner = $500, one espresso machine = $10,700, one automatic espresso grinder = $795, two coffee/food preparation counters = $1,000, one information display counter = $1,000, one drinking/eating counter = $500, sixteen stools = $1,600, six computer desks w/chairs = $2,400, stationery goods = $500, two telephones = $200, decoration expense = $14,110 for a total fixture cost of $50,000.

Salaries Expense: The founder of Speedway, Ali Naqvi, will receive a salary of $24,000 in year one, $26,400 in year two, and $29,040 in year three.

Payroll Expense: Speedway intends to hire six part-time employees at $5.75/hour and a full-time technician at $10.00/hour. The total cost of employing seven people at these rates for the first year is $7,240/month.

Rent Expense: Speedway is leasing a 1700 square foot facility at $.85/sq. foot. The lease agreement Speedway signed specifies that we pay $2,000/month for a total of 36 months. At the end of the third year, the lease is open for negotiations and Speedway may or may not re-sign the lease depending on the demands of the lessor.

Utilities Expense: As stated in the contract, the lessor is responsible for the payment of utilities including gas, garbage disposal, and real estate taxes. The only utilities expense that Speedway must pay is the phone bill generated by fifteen phone lines; thirteen will be dedicated to modems and two for business purposes. The basic monthly service charge for each line provided by US West is $17.29. The 13 lines used to connect the modems will make local calls to the network provided by Bellevue resulting in a monthly charge of $224.77. The two additional lines used for business communication will cost $34.58/month plus long distance fees. Speedway assumes that it will not make more than $40.00/month in long distance calls. Therefore, the total cost associated with the two business lines is estimated at $74.58/month and the total phone expense at $299.35/month. In addition, there will be an additional utility expense of $800 for estimated EWEB bills.

Marketing Expense: Speedway will allocate $5,000 for promotional expenses at the time of start-up. These dollars will be used for advertising in local newspapers in order to build consumer awareness. For additional information, please refer to section 5.0 of the business plan.

Insurance Expense: Speedway has allocated $1,440 for insurance for the first year. As revenue increases in the second and third year of business, Speedway intends to invest more money for additional insurance coverage.

Legal and Consulting Fees: The cost of obtaining legal consultation in order to draw up the paper work necessary for an LLC is $1,000.

Depreciation: In depreciating our capital equipment, Speedway used the Modified Accelerated Cost Recovery Method. We depreciated our computers over a five-year time period and our fixtures over seven years.

Taxes: Speedway is an LLC and, as an entity, it is not taxed. However, there is a 26% payroll burden.

Accounts Payable: Speedway acquired a $24,000 loan from a bank at a 10% interest rate. The loan will be paid back at $750/month over the next three years. The $9,290 short term loan will be paid back at a rate of 8%.

Important Assumptions

Basic assumptions are presented in the table below.

General Assumptions

2001 2002 2003

Short-term Interest Rate % 10.00% 10.00% 10.00%

Long-term Interest Rate % 10.00% 10.00% 10.00%

Tax Rate % 25.00% 25.00% 25.00%

Expenses in Cash % 10.00% 10.00% 10.00%

Personnel Burden % 15.00% 15.00% 15.00%

Key Financial Indicators

Profit growth data is presented in the chart below.

Break-even Analysis

Break-even data is presented in the chart and table below.

Break-even Analysis:

Monthly Units Break-even 4,923

Monthly Sales Break-even $12,461

Assumptions:

Average Per-Unit Revenue $2.53

Average Per-Unit Variable Cost $0.50

Estimated Monthly Fixed Cost $10,000

Projected Profit and Loss

P & L data is presented in the table below.

Pro Forma Profit and Loss

2001 2002 2003

Sales $248,878 $303,549 $333,904

Direct Cost of Sales $62,220 $75,887 $83,476

Other $0 $0 $0

------------ ------------ ------------

Total Cost of Sales $62,220 $75,887 $83,476

Gross Margin $186,659 $227,662 $250,428

Gross Margin % 75.00% 75.00% 75.00%

Operating Expenses:

Advertising/Promotion $15,000 $25,000 $28,000

Travel $750 $0 $0

Miscellaneous $12,000 $12,000 $12,000

Payroll Expense $93,291 $121,824 $129,254

Payroll Burden $13,994 $18,274 $19,388

Depreciation $0 $0 $0

Utilities $9,120 $9,120 $9,120

Insurance $6,000 $6,000 $6,000

Rent $24,000 $24,000 $24,000

Contract/Consultants $6,000 $3,000 $3,000

------------ ------------ ------------

Total Operating Expenses $180,154 $219,217 $230,762

Profit Before Interest and Taxes $6,504 $8,444 $19,665

Interest Expense Short-term $556 $350 $500

Interest Expense Long-term $1,880 $1,190 $700

Taxes Incurred $1,017 $1,726 $4,616

Extraordinary Items $0 $0 $0

Net Profit $3,051 $5,178 $13,849

Net Profit/Sales 1.23% 1.71% 4.15%

Projected Cash Flow

Cash flow data is presented in the chart and table below.

Pro Forma Cash Flow

Cash Received

Cash from Operations:

Cash Sales $248,878 $303,549 $333,904

From Receivables $0 $0 $0

Subtotal Cash from Operations $248,878 $303,549 $333,904

Additional Cash Received

Extraordinary Items $0 $0 $0

Sales Tax, VAT, HST/GST Received $0 $0 $0

New Current Borrowing $2,000 $5,000 $0

New Other Liabilities (interest-free) $0 $0 $0

New Long-term Liabilities $0 $0 $0

Sales of other Short-term Assets $0 $0 $0

Sales of Long-term Assets $0 $0 $0

New Investment Received $0 $0 $0

Subtotal Cash Received $250,878 $308,549 $333,904

Expenditures 2001 2002 2003

Expenditures from Operations:

Cash Spent on Costs and Expenses $14,352 $15,981 $17,226

Wages, Salaries, Payroll Taxes, etc. $107,284 $140,097 $148,642

Payment of Accounts Payable $117,132 $142,460 $153,992

Subtotal Spent on Operations $238,769 $298,538 $319,861

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0

Principal Repayment of Current Borrowing $9,290 $2,000 $0

Other Liabilities Principal Repayment $0 $0 $0

Long-term Liabilities Principal Repayment $9,600 $5,000 $4,800

Purchase Other Short-term Assets $0 $0 $0

Purchase Long-term Assets $0 $0 $0

Dividends $0 $0 $0

Adjustment for Assets Purchased on Credit $0 $0 $0

Subtotal Cash Spent $257,659 $305,538 $324,661

Net Cash Flow ($6,781) $3,010 $9,242

Cash Balance $17,219 $20,230 $29,472

Projected Balance Sheet

Our projected balance sheet is presented in the table below.

Pro Forma Balance Sheet

Assets

Short-term Assets 2001 2002 2003

Cash $17,219 $20,230 $29,472

Inventory $6,981 $8,515 $9,367

Other Short-term Assets $0 $0 $0

Total Short-term Assets $24,201 $28,745 $38,839

Long-term Assets

Long-term Assets $0 $0 $0

Accumulated Depreciation $0 $0 $0

Total Long-term Assets $0 $0 $0

Total Assets $24,201 $28,745 $38,839

Liabilities and Capital

2001 2002 2003

Accounts Payable $12,039 $13,405 $14,450

Current Borrowing $2,000 $5,000 $5,000

Other Short-term Liabilities $0 $0 $0

Subtotal Short-term Liabilities $14,039 $18,405 $19,450

Long-term Liabilities $14,400 $9,400 $4,600

Total Liabilities $28,439 $27,805 $24,050

Paid-in Capital $55,000 $55,000 $55,000

Retained Earnings ($62,290) ($59,239) ($54,061)

Earnings $3,051 $5,178 $13,849

Total Capital ($4,239) $939 $14,788

Total Liabilities and Capital $24,201 $28,745 $38,839

Net Worth ($4,239) $939 $14,788



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