Exhibit B: Cash Flow Statement, Year Two
At this point, the business is earning a healthy return and Mr. Ahn is receiving will be able to bring in a reasonable salary. The nature of the business may well change at this point. At the maximum revenue of $144,000 per year the pretax profit would be $63,600. As a result, it is likely that a clinic will be formed with other practitioners in order to minimize expenses and increase profitability.
We did not include taxes in our cash flow examples because the company is going to be set up as a sole proprietorship. This means that the income from the company will be rolled into the income for Mr. Ahn, as well as his liabilities. Mr. Ahn's personal expenses are therefore not included in the model, which is intended to solely illustrate the finances specifically relating to the clinic itself.
Exhibit C: Balance Sheet
Y1
Y2
Assets
Liabilities
Equity
The balance sheet reflects the $10,000 startup cost plus the loss in year one. The profit in year two is then accounted for. It is important to note that Mr. Ahn will not draw a salary directly from the clinic for the first two years of operation. His wife has a full-time job and will meet his basic living expenses while he establishes the business.
Marketing
The target market for the venture will be mainly Koreans living in the downtown/Koreatown area of Los Angeles. Because of Mr. Ahn's language abilities in English, Chinese and Japanese, it is expected that the clinic will be able to draw customers from other groups as well, depending on the visibility of the location. Koreatown is a high-density, multiethnic area and its residents are knowledgeable and open to ideas from other cultures. This means that there is a market for an English-speaking TCM practitioner; few in the Los Angeles area are, particularly not in Koreatown, an area in which Korean immigrants can live for years without developing English language proficiency.
The narrow market consists of the estimated 46,000 Koreans living in the area. The broader market consists of the English-speaking area residents with an interest in TCM, and Koreans from other parts of Los Angeles, particularly those who commute to the area for Korean-specific services such as TCM, restaurants, groceries and entertainment. This broader market is estimated to amount to between 100,000-150,000, as there are other major Korean population centers in the area from which few such commuters can be expected.
The two primary channels used for marketing...
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