Business Calc Over the Moon Toys: A Business Proposal

The following pages contain a financial overview and qualitative description of a proposed retail venture. A need for an independent toy store located within the confines of the municipality has been identified, with a growing number of consumers seeking alternatives to the "big-box" retailers and lower-quality merchandise. The project description provides greater detail regarding the focus of Over the Moon Toys, the proposed business, including the impetus for the creation of this business, market and sales expectations based on a qualitative analysis of the local consumer base, and a discussion of the physical location within the community that might best serve this community and the proposed business. Following this project description, a work schedule breakdown and related financial details and estimates of the project are provided. A series of relatively simple yet highly interconnected and dependent tasks will lead to the establishment of the business, which can be started for capital costs of less than $50,000 based on current estimates. A more detailed financial analysis of the proposed business costs based on advanced estimation techniques is also provided, to provide greater assurance of the reliability of the quantitative information used. Finally, projected revenues over the next five years are provided in order to establish some record of the expected profitability and likelihood of success for the venture. With this information, it is concluded that the proposed venture is likely to meet with a high level of success so long as costs are properly controlled.

Project Description

Over the Moon Toys is a proposed small- to medium-sized retail establishment to be operated somewhere within the confines of the local municipality. A growing number of consumers, especially educated members of the middle- and upper-income levels, are actively seeking higher-quality toys manufactured in the United States or Europe as alternatives to the lower-quality offerings manufactured in certain Asian countries and other developing parts of the world. This trend is fueled by safety and ethical concerns, as well as by image and perception; not only are there greater levels of regulatory oversight and more stringent safety standards in place in the United States, Europe, and other nations than in countries such as China, but human rights concerns regarding employment in the manufacturing sector in developing nations are also becoming increasingly prevalent and this is driving many consumers away from such products. Offering these consumers high-quality toys that meet or exceed more stringent safety standards and are ethically manufactured will satisfy this need, and such spending practices and products have also become something of status symbols among certain consumers. Emphasizing the image of quality, the interconnectedness of manufacturing issues and consumer choices, and the real attempt to build an ethically and financially viable business will help to brand Over the Moon Toys.

Because of the specific emphasis Over the Moon Toys is aiming for, it is acknowledged that only a specific demographic will be especially interested in making purchases at the business. For this reason, location will be an especially important aspect of ensuring the success of the store; while there are several well-established and appealing retail areas within the municipality, some might be more supportive of a middle- to higher-income clientele. The downtown area contains several shops with similar intents and emphases, yet without any store focusing primarily or even extensively on toys. Several stores do offer certain toy goods for sale, but selection is limited and there are currently several vacant storefronts in this heavily trafficked area. At a downtown retail establishment, it is estimated that approximately $3,000 in sales revenue can be made in a typical day, though there is likely to be considerable variance between weekend and weekday sales. Retail prices are typically at a 100% markup from wholesale costs, not including shipping (which varies considerably from distributor to distributor and based on order amounts, promotions and sales, etc.), for gross profits from sales equaling approximately $1,000. Along with full-time presence by the owner manager, a total of 80 employee hours over the 60 hours of business operation each week at a rate of $9/hr (total $720/week, $2,880/month); rent and utilities in the downtown area are expected to run a combined total of $7,500/month, for total operating costs of $10,380 each month and total revenue (after the cost of goods sold) of $30,000 (30 x $1,000/day). Additional expenses, product loss, and other issues will likely decrease the projected profits by as much as several thousand dollars a month, and the remaining profits will cover both business improvements and growth and represent the sole income of the owner/manager of the business as well.

Work Schedule Breakdown

EMBED Excel.Sheet.8

Cost Estimate

Advanced Cost Estimate

More detailed cost estimates have been constructed using the method proposed by the U.S. General Accounting Office (GAO). For each estimate, a specific purpose is identified and a plan developed, followed by obtaining the data, conducting a risk and uncertainty analysis, and documenting the estimate. The following estimates are for rent, and employment costs.

Rent Estimate:

Purpose for estimate: Rent will form a considerable portion of the fixed operating costs of the business, and must be adequately planned and prepared for prior to forming any realistic estimate for the project's initial and ongoing costs.

Plan: Call vacant properties and receive price quotes. Call comparable retail establishments and make inquiries as to rent amounts paid.

Data obtained: Rents in the downtown area seem to average approximately $7/sqft. For 900 sqft of retail space, rent should be approximately $6,300.

Risk analysis: Variance in the downtown area ranges within $3/sqft in either direction, meaning total rent for 900 sqft could fluctuate from $3,600 to $9,000 (or space would need to be...

These extremes are rare examples, however, and it is most likely that rent will not be lower than $5,500 or higher than $7,000.
Estimate: $5,500 - $7,000.

Employment Costs Estimate:

Purpose for estimate: Employment will constitute a considerable portion of costs and of legal constraints on the business, making estimates in this area highly sensitive and important to the success of the business. Budgeting for the right number of employee hours will also ensure the greatest level of efficiency and customer service, and savings on employee costs could constitute a revenue and profit loss if taken too far.

Plan: Determine appropriate wage level and additional per-hour costs associated with employees. Estimate demand for employees at different periods of operation.

Data obtained: $8/hr is higher than minimum wage and a decent wage for young college students or others looking for additional (though not typically primary) income. Taxes and other costs will bring this into the range of & 9/hr. With the store open 60 hours a week and the owner/manager planning on being present at all times for the first several months of operation, only one other employee will be needed the majority of the time. During busy weekend and late-afternoon hours (when kids are away from school), extra help will be needed. The previous estimate of 80 employee hours per week stands as a solid estimate.

Risk analysis: Every additional ten hours of employee assistance required increases costs by only $90, meaning time off for the owner/manager or additional assistance during busy periods is fairly easily obtained without major budgetary changes.

Estimate: $720/wk; $2,880/mo.

Net Present Value Assessment

Element

Amount

Year 1

Year 2

Year 3

Year 4

Year 5

Rent

-$75,600

-$73,398

-$71,260

-$69,185

-$67,170

-$65,213

Utilities

-$14,400

-$13,981

-$13,573

-$13,178

-$12,794

-$12,422

Employees

-$34,560

-$33,553

-$32,576

-$31,627

-$30,706

-$29,812

Cost of Goods

-$730,000

-$708,738

-$688,095

-$668,053

-$648,596

-$629,704

Misc., including loss

-$24,000

-$23,301

-$22,622

-$21,963

-$21,324

-$20,703

Sales Revenue

$1,095,000

$1,063,107

$1,032,143

$1,002,080

$972,893

$944,557

Initial Profit

$216,440

$210,136

$204,015

$198,073

$192,304

$186,703

65% profit to owner

-$140,686

-$136,588

-$132,610

-$128,748

-$124,998

-$121,357

Total Profit

$75,754

$73,548

$71,405

$69,326

$67,306

$65,346

Total Net Present Value

$422,685

Current inflation estimate = 3%

Sheet1

Task ID Task Description Start Finish

1.0 Secure physcial retail location 31-Jan 9-Mar

1.1 Assess markets in various locations 31-Jan 20-Feb

1.2 Determine rent feasability based on market/sales expectations 31-Jan 20-Feb

1.3 Visit potential locations, discuss adaptibility and terms 21-Feb 6-Mar

1.4 Develop/sign contract, place deposit 6-Mar 9-Mar

2.0 Obtain retail products (toys) for sale 14-Jan 31-Mar

2.1 Determine distributor market for various brands/items (competition? single-vendor market? etc.). 14-Jan 20-Jan

2.2 Compare potential distributors, initial calls with sales reps 21-Jan 28-Jan

2.3 Re-assess budget with more precise figures 29-Jan 29-Jan

2.4 Determine delivery timeframes, place initial orders to closely coincide in arrival 31-Jan 31-Jan

2.5 Accept shipments, unload and stock/store 14-Mar 31-Mar

3.0 Obtain necessary legal licenses/instruments 14-Jan 31-Jan

3.1 Incorporate as LLC, apply for/make notice of DBA 14-Jan 16-Jan

3.2 Establish accounts for payroll and for purchases/other business expenses 17-Jan 17-Jan

3.3 Establish tax account/records/paperwork as required 18-Jan 22-Jan

3.4 Obtain basic employment contract and necessary tax forms; review employment laws and procedures 23-Jan 31-Jan

4.0 Engage in initial marketing initiative 31-Jan 6-Apr

4.1 Determine effective marketing outlets/strategies through local market investigation/analysis 31-Jan 29-Feb

4.2 Plan opening weekend events/activties/sales 31-Jan 29-Feb

4.3 Design/compose advertisements for the above 20-Feb 4-Mar

4.4 Advertise the above in local outlets, with fliers, potentially with mailers if deemed effective 9-Mar 31-Mar

4.5 Track advertising response through coupon modes, customer inquiries, etc. For future use 31-Mar 6-Apr

5.0 Store opening 29-Feb 14-Apr

5.1 Advertise for employees 29-Feb 14-Mar

5.2 Set-up and conduct interviews 14-Mar 21-Mar

5.3 Hire 21-Mar 24-Mar

5.4 Open with sales/activities/events, then continue tracking business as it progresses 31-Mar 14-Apr

Sheet1

Task ID Task Description Cost Estimate Totals

1.0 Secure physcial retail location

1.1 Assess markets in various locations $150

1.2 Determine rent feasability based on market/sales expectations $0

1.3 Visit potential locations, discuss adaptibility and terms $100

1.4 Develop/sign contract, place deposit $8,000

$8,250.00

2.0 Obtain retail products (toys)…