OZ Innovations Business Plan - Edwards School of Business Painter/businesspl… · Web viewOZ...

Prepared by: Meahgan Sweet and Patrick Kolla[Type text] 1

OZ Innovations Business Plan

December 2, 2011

Executive Summary

Oz Innovations is a digital gaming system developed by five leading graphic designers and

programmers. In conjunction with retired education planners they will collaborate to create

an innovative way of encouraging elementary and high school students to pursue academia.

Student enrollment in undergrad sciences is down, so to combat this void we at Oz

Innovations have developed a way to engage students through a method of playful learning.

The exciting feature of the game is that it will use cloud computing as its platform enabling

students from all over the world to use the system! Teachers can monitor the results in the

classroom as each student make their own player’s profile. In areas where individuals are

struggling the teacher can then plan their lessons accordingly to ensure that all concepts are

thoroughly understood.

Operations

Plan

Our

major capital

investments will include our

computers, furniture and fixtures,

Research and Development systems,

and leasehold improvements. Our office space will

be located on Millar Avenue and will act as Oz

Innovation’s primary headquarters for

operations. The office renovations will

need to precede the hiring of

more game developers

who will be

responsible for

initiating

the next series of

modules. As the games are finalized

OZ 2


December 2, 2011

they will be released onto the cloud server allowing students to have immediate access

them. Our product will be tested prior to its release. We will be monitoring student

engagement and how well the game stimulates their interest. Quality will be a fundamental

success measure as the company goes through its exponential organizational growth.

Human Resources Plan

The original six founders will be upgraded to thirty-six employees in year one and

progressively will max at 107 employees in the fifth year. The organizational structure has

two sections that will run in parallel, the technology and marketing departments. We will be

hiring more game developers each year to accommodate the growth that we will be

expecting. We will have a substantial number of games developed and in use by students at

the end of year five, when we plan on selling the company for $20,700,000.

The company will be receiving council from two advisory boards and the Board of

Directors. The technology board will focus on the tech market and how we can capitalize on

the current trends. The general advisory board will also contain industry leaders, who will

focus on student development and education. Virtual learning is a trend that has been

discussed among school board districts for years. Consulting these educators will allow the

game developers to make alternations in the games to provide a greater learning

opportunity for the students playing the games. The Board of Directors will include finance

experts, accountants, lawyers, and other well-educated people who will offer insight to

enhance our profitability as we undergo such growth.

The Marketing Plan

Our initial module will be sold at $99.99 per school. The marketplace is large and

untouched by the gaming industry with 759 schools in Saskatchewan and 15,141

nationwide. There is competition from textbook providers that issue free game CDs at the

back of their textbooks. Also, Nintendo, Xbox, and any other console gaming system pose to

threaten our success. Our competitive advantage is that the games will be built and

supported by the student’s educators. Currently, we have a five-year contract underway

with the Saskatchewan Ministry of Education. We will use direct selling as our method of

promotions. This includes traveling to the provincial office and as well as teachers

conventions to demonstrate our product line. As we test our games with students we will

OZ 3


December 2, 2011

compile data which can be used in our marketing pitch to other provincial ministries.

Having evidence and student testimonials to support our claims will contribute to our sales.

The Financial Plan

As the company transitions from the current state of game development into full operations

in the year 2012, the company will need to acquire a equity investment of $3,000,000. The

incorporation of the company will also include the issue of one hundred shares to the

founding developers. These shares will be split and sold privately to generate enough equity

to finance the initial start-up costs. The ROI that we have used throughout our model is 35%

which is relatively high, but necessary due to the high risk of the venture. Projecting our

cash flows over five years, we could expect a net present value of $4,233,589 and a

substantial internal rate of return of 66.6%. These numbers will help to support our

venture’s feasibility.

Table of Contents

Introduction.............................................................................................................................. 5

1.0 Industry Overview..................................................................................................... 6

2.0 Market Research......................................................................................................... 8

3.0 Operations Plan.......................................................................................................... 93.1 Organizational Structure.......................................................................................................103.2 Site Plan....................................................................................................................................... 113.3 Building and Floor Plans....................................................................................................... 113.4 Work Plan................................................................................................................................... 113.5 Quality Control.......................................................................................................................... 113.6 An Average Business Day...................................................................................................... 123.7 Supply Analysis......................................................................................................................... 123.9 Describe the Capital Budget.................................................................................................133.10 What are the environmental limitations to production?.........................................143.11 Cost of Goods Sold for Manufacturing............................................................................14

4.0 Human Recourses Plan................................................................................................ 14

5.0 The Marketing Plan....................................................................................................... 165.1 The Marketing Mix...................................................................................................................165.2 Market Segmentation............................................................................................................. 175.3 Targeting..................................................................................................................................... 185.4 Positioning................................................................................................................................. 185.4 Market Competitors................................................................................................................ 185.5 Marketing Expenses................................................................................................................ 19

OZ 4


December 2, 2011

6.0 Financial Plan.................................................................................................................. 206.1 Working Capital Estimates................................................................................................... 216.2 Capital Budget and Depreciation........................................................................................216.3 Depreciation.............................................................................................................................. 216.4 Financing Budget..................................................................................................................... 226.5 Debt Amortization Schedule................................................................................................ 226.6 Corporate Income Taxes........................................................................................................236.7 Dividend Policy......................................................................................................................... 236.8 Economic Forecast................................................................................................................... 236.9 Management Information System......................................................................................246.10 Financial Analysis (Feasibility and Financial Performance Assessment)..........246.11 Risk Analysis........................................................................................................................... 26

References............................................................................................................................... 27

Appendices.............................................................................................................................. 27Appendix A: Industry Analysis.................................................................................................. 27Appendix B: Operations............................................................................................................... 29Appendix C: Human Resources..................................................................................................30Appendix D: Financials.................................................................................................................31

IntroductionMission Statement

Oz Innovations aims to provide supplementary learning resources for students and teachers

that parallels the education curriculum; and by doing so fostering a fun learning

environment that encourages the exploration of academia, particularly in sciences.

Objectives

The purpose of designing a science-based game for students is to increase the percentage of

undergrad enrollment in health sciences. The current void of science majors reduces our

potential for innovative research and development here in Canada resulting in outsourcing

employees from other countries.

The main priority for Oz Innovations initially is to develop a prototype that will impress the

Saskatchewan’s Ministry of Education. After trial tests and successful implementation of the

first module we will use the Saskatchewan results to influence the purchasing incentive of

OZ 5


December 2, 2011

other provinces. Engaging teachers and other educational professionals at workshops and

meetings will act as a push marketing strategy.

The success of the first module will determine how many additional modules will need to be

produced. The second stage of business operations should be assigned to creating more

modules and marketing the organization as the premier leader in innovative learning.

As identified in financial plan we plan to sell out after five full operational years in business.

It is essential that within those five years that we market effectively and make sales to

increase the value of the company.

Goals

To capture 60% of sales in Canada within our five years of operations (H)

Be recognized internationally as the leading innovator in educational programming

(M)

Sell the company after five years for a profitable price (H)

Be a hub for growth and innovation in the employment industry (L)

Increase the numbers of undergrad Health Science related majors (H)

Ranked according to: High (H), Medium (M) and Low (L) importance.

1.0 Industry Overview

1.1 High Expectations of Technology

In the online journal “How to sell in-class gaming” it discusses how teachers are teachers

are holding e-learning tools to a higher standard (2009). These EduGames must be

reviewed and tested to be effective before being administered in the classroom. Below are

the outlined prerequisites needed for an implementation.

a. Give teachers a metaphor that connects EduGames to something familiar.

In schools, EduGames are most closely related to lab work- hands-on time for

students to explore and use what they have learned elsewhere.

OZ 6


December 2, 2011

b. EduGames need to contain guidelines for classroom management.

Most teachers will need to understand how classroom management and

professional development will be addressed before they will agree to use

EduGames.

c. Teachers need to understand their role as content-area experts.

One of the biggest fears teachers have about using EduGames is that there is not

a role for them, which may lead to a loss of control in the classroom. Explaining

the teacher's role can alleviate their reluctance to try games.

d. Teachers need research and peer references.

A well-researched reference base is essential; it cannot be skimped on.

Educators assume that references are there for more traditional materials, but

newer, riskier products are naturally held to a higher standard.

e. EduGames need proof of efficacy.

One rarely hears school boards demanding to know how much textbooks are

being used and what results are being attained. Education technology is held to

a much higher standard- and particularly so cutting-edge technology.

f. EduGames must be aligned to standards.

Games present some challenges in this area because of the naturally

multidisciplinary nature of gaming, and because many of the skills they

[students] develop are not part of the core curriculum.

This article sustains the fact that the quality of our game will determine our success in the

education gaming industry. We will have to put extra emphasis on thorough product testing

before releasing our first module to public.

1.2 Undergrad Enrollment

As noted previously, one of our goals is to increase undergrad enrollment in science. Below

are the current enrollment stats collected from the University of Saskatchewan website.

Major 2008/2009 2009/2010 2010/2011 2011/2012

Microbiology 114 33 26 12Microbiology and

17 6 4 4

OZ 7


December 2, 2011

Biotechnology

Health Sciences 5 10 13 19

Crop Science - 5 13 14Biochemistry and Biotechnology 174 178 163 164

Chemistry 175 168 175 159

Ag Business 141 160 168 184

Accounting 237 237 240 239Civil Engineering 293 292 300 294

English 378 384 373 377

As evident in the chart students are less interested in science majors than other programs.

This could be assumed to be because of the presumed labor market post graduation. A four-

year science degree on its own does not provide the same level of job security, as does an

accounting or engineering degree.

1.3 Stakeholders

Based on the above research of the education industry, we have determined the following

stakeholders to which will need to be considered as we plan our business.

Students who will be playing the game

Science foundations focused on the future of science education

Teachers and their demands

School boards and their budgets

Ministries focused on curriculum alignment

Advocates and special interest groups which have influence

Complementary companies that do not actually compete but would have an

interest in seeing the product reach production

2.0 Market Research

We decided to first examine how many schools are in the educational marketplace. By doing

so, we will determine whether our gaming product would be a viable venture to undertake.

OZ 8


December 2, 2011

The provincial numbers of schools are as follows:

The Canadian market is large enough to support our company and provide many years of

sustained business. Based on the above information we have determined that there are

enough schools in both Saskatchewan and Canada to pursue this gaming system.

Considering there are no direct substitutes for the product, we will plan on undertaking this

project.

We recommend the following:

1. Due to the fact that Oz Innovations aims to sell the company after five years, it is

best if we do not use direct selling to each school. This would be expensive and

inefficient given the desired timeframe.

2. We will need to hire several employees to ensure the company will have and remain

to have a strong service to the end consumer. Using cloud there will be less

bottlenecks, as servers are frequently the source of product failure.

3.0 Operations Plan

OZ 9

ProvinceNumber of Students

Number of Schools Students/School

Yukon 4981 29 172Manitoba 193071 1335 145Saskatchewan 161216 759 212Alberta 596498 1817 328BC 549785 1622 339NWT 9302 49 190Nova Scotia 142304 434 328New Brunswick 110288 326 338NFLD/Lab 76763 278 276Quebec 1233053 2809 439Ontario 1995485 4903 407Ontario (Private) 700 0Nunavut 9354 6 1559PEI 21562 74 291TotalWestern Canada 1500570 5533Canada 5103662 15141


December 2, 2011

The concept is leveraging leading-edge technologies such as: digital animation, gaming,

web-based interactive and cloud computing technologies with science content providers at

the Graduate and PhD level, to help teachers and curriculum consultants to deliver learning

outcomes tied to the educational curriculum.

We have the technical and content providers and with curriculum advisor's guidance we

will develop content that is easily accessible on any computer or platform (playbooks, iPads,

PDA's, phones, etc.) and then tie the analytics required in the backend so the teachers can

monitor progress for each student. This would allow students to continue to explore

concepts out of the classroom and further learning at a young age.

With each year of operation we expect to learn new methods, which will improve our

efficiency. As the technological market changes on a daily basis, the way we are currently

designing our games will change before we sell our company. Software and hardware

upgrades will likely need to be made around the forth year which conveniently will be the

same year when we undergo our second capital investment.

3.1 Organizational Structure

Oz Innovations will be incorporated to capitalize on the advantages of a corporation. The

goal is to use equity investors to finance the start up and growth of the company. It is easier

to split shares and issue shares in a corporation. The company goal is to increase sales and

grow the company rapidly until a point when the company is sold. To achieve this goal all

profit will have to be reinvested in the company’s research and development sector to

ensure growth.

The Board of Directors will consist of a lawyer, financial expert, accountant and a

professional connected to psychological development in children. This mix will provide a

well-rounded assessment of Oz Innovations. It is important that each aspect is strongly

represented to avoid any future legal percussions, auditing issues, etc..

OZ 10


December 2, 2011

Oz will have two advisory boards, one will be comprised of technological experts and

analysts and the other of a more general representation of top industry leaders. Together

the three boards will provide legitimate direction for the company.

Our organizational structure supports a CEO, CTO, CFO, HR and Sales Manager, R&D

personnel, and part-time office staff. We do not predict the need of a CEO, CTO, and CFO

within the first year of operations. However, we will initially employ a HR and Sales Manger

which will begin approaching the Ministries of Education in other provinces as soon as the

test trial results are recorded. We want to ensure that there are noticeable benefits of using

this supplementary learning tool in the classrooms.

See figure appendix B for a pictorial diagram of the organization.

3.2 Site Plan

We will be leasing our office space on Millar Avenue. There is a parking lot to house our

employees’ vehicles.

The building itself will undergo minor leasehold improvements. These will include erecting

walls to create office spaces, a research and development lab, and a product show room.

See Appendix A for a picture of the rental space.

3.3 Building and Floor Plans

The office space total floor plan is 20,000 square feet. However we will not need to acquire

the totally capacity until our fourth year of operation. Until we transition into the full office

expansion we will rent 10,000 square feet. We will be purchasing computers and office

furniture for all game developers, marketers, and executive staff.

3.4 Work Plan

Our leased space will be designated for game development and sales, which are our two

avenues of business. The CEO will oversee the overall operations and work alongside our

CFO and CMO. Proper integration of our business is key to ensuring that our development is

up to the standard that we will be marketing in the sales department.

OZ 11


December 2, 2011

3.5 Quality Control

We won’t be governed by ISO. We will have to design our software to remain within the

curriculum requirements for the particular school division it is being licensed to.

For a quality control measure we could have figure heads either teachers or division

representatives to check through our game to ensure the information is school appropriate

and relevant. This process will be ongoing until a product is created which satisfies all

parties (within reason). There will be a pilot scale incubation period with actual students to

test the product and see what portions of the program needs work before sending it off for

sale. Also there will be a yearly check of the same sort to ensure the product is current and

information is up to date.

3.6 An Average Business DayWe will run the same business hours as the school system for the majority of our

operations. Depending of the state of the business, a serve agent may be needed after hours

to field calls.

We will collect payments once a year from the ministries. The services will be suspended

until the account is paid. We do not foresee this to happen, as education boards are very

conscientious of services provided to their students.

We swill have a company website to describe our product line. We can have student and

teacher testimonials to help enhance our legitimacy.

The months of summer will be sales intensive. We plan on hiring university students

because it aligns with this peak sales period and it also works within our budget.

Early spring will be a key time for Research and Development. We plan on launching new

innovations and product lines at the end of each school year so teachers can coordinate

their plans with the modules.

OZ 12


December 2, 2011

3.7 Supply Analysis

We will be dependent on Cloud’s host, Microsoft Development Platforms. We do not predict

a large influx in cost as we take on more users however; we have to consider the reputation

of the host before signing our contract.

3.8 Who are service providers for the business?

Oz Innovations will use Microsoft Development Platforms as our primary Cloud service

provider. Once the App is designed will be selling the game to iTunes, Android and Google

Apps.

3.9 Describe the Capital Budget

Our capital budget reflects our business decision that we will be making major purchases in

years one and four. The year 2012 will the first year of official operations. Prior to this we

will be working out of the Saskatchewan Research Council.

As we acquire the lease space on Millar Avenue we will begin with 10,000 ft2 and then

further upgrade it to 20,000 ft2 taking over the entire rental space. We have predicted that

we will need to make a few minor adjustments in the building such as building offices walls

and electrically wiring the office stations for each computer. The leasehold improvements

have been quoted at $35 per square foot.

Due to the fact that we are building games we are dependent on having modern computers

enhanced by the latest market software. Our capital budget shows how we will be buying

high-end computers for the program designers and then average desktops for the

marketing and administrative staff.

Conscious of the fact that we will be visiting the Ministries of Education and School Boards’

own offices, we will not have to build individual game showrooms to accommodate this

inflow of customers. Instead, we will design the research and develop lab to have the proper

screens and seating that would be needed to project the game for a large group.

OZ 13


December 2, 2011

Our furniture has been sourced from IKEA. We plan on selling out after five years so

investing large sums of money in expensive furniture would not be a sound economic

investment for Oz Innovations.

Research and Development and all that it entails will require the largest investment in the

first year as the first module of the game is released. The first inflow of cash will need to be

larger to ensure that the game developers can start making the next set of modules. Once

the first year’s launch is over we believe the Research and Development team will be more

comfortable designing the game and the sequence will just be repeated.

Info Sourced from Schedule 5 of Financial Statements

3.10 What are the environmental limitations to production?

We do not predict environmental limitations because we will be using cloud computing. If

we had chosen a traditional method to host the game such as a server or licensing it with

Nintendo then we would have been faced with a lot more barriers. This adds to the potential

of our game allowing anyone to have access to the games.

Once the company is sold, the successors may find that the international education systems

are significantly different than Saskatchewan’s and Canada’s. In this instance we would

recommend that they market the game as a learning tool, not a targeted education system

for their schools.

3.11 Cost of Goods Sold for Manufacturing

Unitizing costs has proven to be difficult for Oz Innovations. We will have the same capital

investments and operating expenses regardless of whether we make sales in the first year.

As we prepared our financial statements we placed more emphasis on ensuring that we had

enough cash flows to remain in business from year to year.

4.0 Human Recourses PlanAs show in the organizational chart there is a board of directors and two advisory boards to

go along with our company. As far as employees who will keep the company running day to

OZ 14


December 2, 2011

day there are nine different positions some with multiple employees. All data with respect

to the number of employees for each year, their hourly wage/yearly salary and their total

cost can be viewed in Appendix C A brief description of the roles and responsibilities for

each position is listed below.

CEO- Chief Executive Officer

Sets long term goals and targets for company and ensures management keeps on

track

Conveys BOD messages company

Raise initial $3,000,000 in equity capital

Raise any additional capital for growth

Oversee marketing is aligned to company goals

Hire HR & Sales Manager and all other appropriate management staff

CFO- Chief Financial Officer

Ensure company operates and adheres to GAAP

Hire and manage any administrative staff dealing with finances

Acquiring debt financing

Watch expenditures to ensure company has adequate cash flow

CTO- Chief Technologies Officer

Oversee all product development

Hire and manage R & D designers

Ensure product development deadlines are set and met

Promote innovation in new modules and game applications

HR & Sales Manager

Head marketing team for product and company

Manage HR and admin staff

Ensure sales goals are met and report to CEO

Ensure company adheres to safety and environmental practices

Hire and fire admin and part time staff

Admin Staff

Multiple hourly employees with various jobs but general responsibilities

Be members of HR, Sales or Marketing teams

OZ 15


December 2, 2011

Answer phones and general clerical work

Act as secretary to CEO, CFO, CTO, HR & Sales Manager, and R &D design

department

R & D Designers

High paid to ensure top quality gaming product

Answer to CFO and manage one to three R & D programmers

Research, design and develop new modules and applications

Innovate and keep the game current and appealing to the youth

R & D Programmers

Hourly employee, lower paid

Possibly outsourced or contracted to reduce costs

In charge of doing graphic design and writing the code for the game

Floor level workers responsible for converting Designers ideas into modules

Technical Support

Few well paid hourly employees

Local employees, not outsourced to call center

Answer technical problems for divisions, teachers, schools, students and parents

In charge of interoffice Intranet and network set up

Part-Time Staff

Minimum wage hourly employee

Fill in for Admin Staff over vacation or sick time

Offer support to HR, Sales and Marketing teams

5.0 The Marketing Plan

5.1 The Marketing Mix

1. The Product

The gaming system will grant students the opportunity to further explore academia

on their own time. With the content paralleling the curriculum, students will

interactively build on the foundations of classroom content. With the use of cloud

computing instead of the traditional method of servers, students can access the

OZ 16


December 2, 2011

game from any portable device. Education providers will be able to and encouraged

to monitor the results. Misunderstood areas can be then re-taught on a one-on-one

basis.

2. Pricing

Our gaming module can be leased on cloud computing at a monthly rate of $99.99

per school. This price is higher than the initial price set forth however we have

found that schools are willing to pay for high quality learning tools.

3. Promotion

We want teachers to recognize our brand as “the learning tool” of choice. Therefore,

when we make our presentations for the Ministries’ boards who will be responsible

for buying our product, we will include a product testing component so the teachers

can try the games out for themselves. We could even offer the educators a 30- day

trial so they could take the product home from the conference and show it to their

colleagues. This would maximize our marketing investment by stimulating a “buzz”

marketing strategy.

4. Place

We have allotted an annual marketing budget of $250,000 for each year of

operations. We will use direct selling as our primary marketing strategy. The

Ministry has asked to package the game so they can make the bulk purchase for the

whole province. This benefits us as we can direct this money right back into

Research and Development. We designated $100,000 to pay for our traveling

expenses this will need to occur in order to make the sales. Often we will have to

make follow up visits which is understandable due to the high investment asked

from our company.

5.2 Market Segmentation

Geographic

Each province is responsible to write its own curriculum and to govern the education

system within its boarders. Therefore, it can be assumed that each province will handle

acquiring the gaming system for its own benefit.

OZ 17


December 2, 2011

It may pose to be both difficult and expensive to travel to the northern provinces and

territories marketing the product to these regions. Depending on how many follow-up visits

are required this could be deemed unfeasible.

Demographic

The modules will be designed with the age of the player in mind. The prototype is being

designed for grade eight students. It will be beneficial to create a more elementary version

of each module as well. High school students will obviously be more receptive to different

design features such as having life-like humans instead of animated cartoon figures, which

in return could be utilized for elementary students.

The game would still be entertaining for adults and seniors. However, the purpose of the

game is to supplement the education curriculum; the efforts of designing to spec would be

lost by this age group.

Educational Institute

Through discussion with the Ministry of Education it can be assumed that all public and

Catholic schools will foster the idea of interactive learning. However, there are a lot of

home-school students who represent another segment, which Oz Innovations could

approach.

The gaming system itself will be reflecting the material covered by the Saskatchewan

Ministry of Education as education is a responsibility of the state

5.3 Targeting

Considering that the Saskatchewan Ministry of Education has confirmed their interest in the

procurement of our learning tool, we will designate our efforts into attracting all Canada’s

ministries. Once we have their interest we will compile the Saskatchewan student results

and teachers’ feedback into a formal report and present it to them.

Employing this targeting strategy we can focus our time and marketing budget on direct

marketing techniques.

OZ 18


December 2, 2011

5.4 Positioning

Oz Innovations provides a fun and interactive learning resource for students. Its design

allows teachers’ to monitor student learning and enable them to target individual student

issues.

5.4 Market Competitors

Within the marketplace Oz will see direct competition from online games, free textbook

CDs, and other educationally produced computer games.

The advantage of Oz Innovations is the fact that the gaming system can be accessed from

any portable device once the access code is purchased. This would enable students to play

for free from their cell phone or computer at home, continuing the learning they initiated in

the classroom.

Considering the onetime cost of acquiring the software lease for the year the gaming system

is relatively inexpensive. There are no additional costs such as game controllers or package

upgrades once purchased. This offers value to our consumers.

5.5 Marketing Expenses

The following expenses outline the costs of our direct selling strategy. Providing tangible

resources for the teachers who will be implementing the game into their classrooms will be

an essential part of our business operations. We want to ensure our customers are well

supported. Our marketing budget makes up a substantial percentage of our marketing

budget. This cost will pay off when we sell the company in five years. It is then that we will

realize the market share that we will have successfully capitalized upon.

OZ 19

Marketing Expense

Printing $30,000

Product Design & Pack. $20,000

Media $10,000

Website $30,000

Branding $30,000

Business Development $100,000

Teacher Assistance $30,000

Total $250,000


December 2, 2011

6.0 Financial Plan

All of the financial projections are based on a leasing price of $99.99 per month to each school.

This price of $99.99 was said to be acceptable according to the preliminary meetings with the

Ministry of Education. The sales in year one are 759 school, which is all of Saskatchewan. Due

to the current contract negotiations with the Ministry of Education in Saskatchewan we believe

it is a reasonable projection to assume sales to the entire province. The remaining four years

are based on a steady growth from Saskatchewan’s 759 schools to the 15,142 schools across

Canada. The chart below represents how many school sales are captured each year based on a

percentage of the total market share.

Market % 2012 2013 2014 2015 2016

100% 759 3036 6072 12144 15141

90% 759 2732 5465 10930 13627

80% 759 2429 4858 9715 12113

70% 759 2125 4250 8501 10599

60% 759 1822 3643 7286 908550% 759 1518 3036 6072 7571

40% 759 1214 2429 4858 6056

30% 759 911 1822 3643 4542

20% 759 607 1214 2429 3028

10% 759 304 607 1214 1514

0% 759 0 0 0 0

For the purpose of our financial model 60% of the market was used for the sales projection.

This is justified by using our yearly marketing budget of $250,000 to capture these sales.

See Appendix D for a detailed balance sheet, income statement and statement of cash flows.

OZ 20


December 2, 2011

6.1 Working Capital Estimates

Our company’s product is licensed gaming software, which means we don’t need tangible

inputs in production. We will be paying our cloud lease up front on a yearly basis. Our utilities

and building lease payments will be credited. An operating line of credit would be necessary

to finance unexpected expenses, which could pose to affect our cash flow. A bank line of credit

$50,000 should be enough to finance day-to-day expenditures for the company.

6.2 Capital Budget and Depreciation

We will have an initial equity investment of $3,000,000.00 which will be used to develop the

first module of the game. This cost will include our leasehold improvements, computers and

hardware, office equipment, and product development (R&D). The major capital

expenditures will occur in years one and four. Half of the office space will be renovated in

year one which is 10,000 square feet and the remaining 10,000 square feet will be expanded

into in year four. There will only be 36 employees in year one but each year we will be

hiring to fuel growth.

6

.

3

Depreciation

The building renovations, computers and hardware, furniture and fixtures and intellectual

property through research and product development are all depreciable.

The capital expense chart below shows which class each capital expenditure will be

depreciated by and at what percentage.

OZ 21

Capital Budget 2012 2013 2014 2015 2016

Buildings Renovations 350,000 - - 420,000 -

Computers & Hardware 90,000 - - 108,000 -

Furniture & Fixtures 35,000 - - 42,000 -

R&D/Product Development 100,000 50,000 50,000 50,000 50,000

Total 575,000 50,000 50,000 620,000 50,000


December 2, 2011

Capital Expense CCA Class CCA Rate

Buildings Renovations 1 4%

Computers & Hardware 45 45%

Furniture & Fixtures 8 20% R&D/Product Development 44 25%

Detailed depreciation tables can be viewed in the financial model.

6.4 Financing Budget

As stated in the operations plan previous the initial product development will be completed

by the six developers who will be given equal shares in the company. Once the product is

developed there will be $3,000,000 of capital needed to be raised in order to commercialize

the product. The initial financing plan for Oz Innovations was to use one hundred percent

equity financing giving up 60% to 70% of the company. The remaining portion of the

company will remain between the initial six product developers. The intent of having no

debt financing was to make the company attractive at a point of sale in year 5. After looking

at the initial financial model it was found to be advantageous to take on a portion of debt

financing. Also there is are problems with cash flow in year two and a loan would be an

easier approach than calling out for more money from equity investors. The debt financing

will be taken on in year two and paid down over 6 years making the principal owing low by

the point of sale.

6.5 Debt Amortization Schedule

As stated previously the initial plan was to have no debt financing. There was a need for

additional cash in year two which will be fixed by adding $500,000 of debt financing. The

amortization schedule can be viewed below. The interest rate used is 7% as provided in

class. We feel this is acceptable due to the fact that our company will already have

three million in equity invested and initial sales.

OZ 22


December 2, 2011

6.6

Corporate Income Taxes

Oz Innovations will be incorporated and will follow the corporate tax schedule. The

projected loss in the first three years will carry over allowing for tax exemptions in year

four and partially in year five when gross income is high.

6.7 Dividend Policy

No dividends will be paid during business growth stage. All cash generated will go back into

business growth through research and development and marketing to increase market share.

In year five at which point the company will be sold, all money will be divided among the initial

six owners and the equity investors. The incentive for the equity investors is a minimum 40%

return on investment compounded annually on the $3,000,000 initial equity. They will require

a minimum $16,134,720 return on investment in year five to achieve this desired percent.

6.8 Economic Forecast

The inflation used for the financial model is 2.8% based on Saskatchewan’s most current

inflation rate. All appropriate expenses, salaries and variables are adjusted each year for

inflation. The interest rate for borrowing is set at 7% because of our short six year loan and

also because of the unpredictable market.

OZ 23

Schedule 7: Debt Amortization 2012 2013 2014 2015 2016

Beg Balance - -

430,102

355,311

275,285

Addition - 500,00

0 -

-

-

Payment - 104,89

8 104,8

98 104,89

8 104,8

98

Interest - 35,0

00 30,1

07 24,87

2 19,2

70 Principal Reduction -

69,898

74,791

80,026

85,628

End Balance - 430,10

2 355,3

11 275,28

5 189,6

57


December 2, 2011

2012 2013 2014 2015 2016

Debt Ratio 0.12% 18.76% 11.62% 4.37% 4.15%Debt to Equity Ratio 0.12% 18.76% 11.62% 4.37% 4.15%

6.9 Management Information System

The future sales growth is the main critical variable with this company. The entire basis of the

company is to grow sales, put profit back into the company and then sell the company for a big

payout. This sales growth depends upon marketing and the continual successes in new

product development. Sales contracts will need to be updated quarterly for management to

adjust future expansion schedules. If sales do not increase to fund growth, then building

expansion and money being reinvested into marketing and product development will have to

be reduced. Raising enough capital initially is our key to the success, which will allow us to

continue to develop regardless of initial sales.

6.10 Financial Analysis (Feasibility and Financial Performance Assessment)

The below chart represents the Net Payback, Gross Payback, NPV, IRR, Non-Leveraged IRR. All

of the financial projections are based on a leasing price of $99.99 per month to each school.

The sales in year one are 759 schools, which is all of Saskatchewan. Due to the current

contract negotiations with the Ministry of Education in Saskatchewan we believe it is a

reasonable projection to assume sales to the entire province. The remaining 4 years are based

on a steady growth from Saskatchewan’s 759 schools to the 15,142 schools across Canada. For

the purpose of our financial model 60% of the market was used as a sales projection.

The statement of cash flow below shows the five year cash flow projection based on the above

sales projections and selling price.

OZ 24


December 2, 2011

The table below outlines the key financial indicators for Oz Innovations. The Net Present Value

of the business is based on a 35% ROI for our company. The equity given to the initial

investors is 67%.

OZ 25

Net Cash Flow $1,035,410

$86,512

$543,644

$2,636,759

(840,431)

Dividends - - - - $4,302,325

Terminal Value $20,771,368

Total Cash Flow to Equity Investors

$1,035,410

$86,512

$543,644

$2,636,759

$24,233,263

Gross Payback $ 28,535,588 Net Payback $ 25,535,588 Net Present Value $ 4,233,589 Internal Rate of Return 66.6%Return on Equity $ 16,134,720 Initial Equity to Investors 67%External Rate of Return 52.9%


December 2, 2011

6.11 Risk AnalysisThe variables altered for risk analysis will be sales and the cost to lease per month.

Sensitivity Analysis 1 2 3 4 5 6

% of Market 60% 70% 50% 40% 40% 40%

Lease Rate $99.99 $99.99 $99.99 $99.99 $129.99 $159.99

Gross Payback $28,535,588 $40,979,029 $16,120,902 $3,474,535 $18,783,161 $33,917,614

Net Payback $25,535,588 $37,979,029 $13,120,902 $474,535 $15,783,161 $30,917,614

Net Present Value $4,233,589 $7,335,503 $1,132,249 $(2,067,079

) $1,930,627 $5,831,494

Internal Rate of Return 66.6% 81.7% 45.7% 3.1% 52.7% 77.7%

Return on Equity $16,134,720 $16,134,720 $16,134,720 $16,134,720 $16,134,720 $16,134,720

Initial Equity given to Investors 67% 47% 116% 411% 102% 57%

External Rate of Return 52.9% 64.4% 36.3% 2.3% 40.7% 58.3%

The above chart represents the key financial indicators for Oz Innovations and how

they will change with the alteration of the percentage of the Canadian schools in sales

and the lease rate per month. As shown above the company is extremely high risk due

to the volatility. With a 10% decrease in sales under the 50% column the company

returns a healthy profit, yet over 100% of the company must be given away for the

equity investment. However, as shown in the far right column with an increase in

price to $159.99 and only 40% of the market share the company can be both profitable

and only have to give up 57% to equity investment.

OZ 26


December 2, 2011

References

Signal, N., & Swann, M. (2011). Children’s perception of themselves as learned inside and outside school. Research Papers in Education, 26(4), 469-484.

How to sell in-class gaming. (2009). Tech & Learning, 29(9), 14-14. Retrieved from http://search.proquest.com/docview/212101639?accountid=14739

University of Saskatchewan Enrollment (2011). http://www.usask.ca/isa/statistics/students/headcount-demographics.php (Accessed November 30, 2011)

OZ 27

http://search.proquest.com/docview/212101639?accountid=14739


December 2, 2011

Appendices

Appendix A: Industry AnalysisTechnology in EducationSchoolsTechnology is widely used in elementary and secondary education for a number of purposes:

In 2006, virtually all schools in Canada had computers, providing one computer for five students.

Ninety-eight per cent of schools had an Internet connection. The computers were used for word processing, research, and individualized and on-

line learning. Some provincial services and several school boards offer the provincial curriculum

on-line for distance learning and for course enhancement in small and rural schools. A broad range of technology — television, print, teleconferencing and on-line — is

used in classrooms and distance learning throughout Canada. In the 2006 Programme for International Student Assessment, 94 per cent of the 15-

year-olds surveyed in Canada reported using a computer every day or often during the week at home, while 47 per cent reported the same amount of usage at school.

Postsecondary EducationPostsecondary students in all jurisdictions have access to technological resources for learning, both on campus and through distributed learning. Three provinces have open universities, and all have colleges and universities that offer distance courses. Consortia at the provincial and pan-Canadian levels also provide access to university and college programs.

Home AccessDuring 2005, about 26 per cent of adult Canadians went on-line for education, training, or school work. These education users reported going on-line on a daily basis and spending more than five hours a week on-line. Of this group, two-thirds used the Internet to research information for project assignments, and 26 per cent did so for distance education, self-directed learning, or correspondence courses. Nearly 80 per cent of full- and part-time students used the Internet for educational purposes.

Website http://www.cmec.ca/pages/canadawide.aspx

OZ 28


December 2, 2011

Appendix B: Operations

OZ 29


December 2, 2011

Appendix C: Human Resources

Number of Employees: 2012 2013 2014 2015 2016CEO 1 1 1 1 1 CFO 1 1 1 1 1 CTO 1 1 1 1 1 HR & Sales Manager 1 1 1 1 1 Admin staff 5 5 8 8 20 R & D Designer 7 7 12 16 20 R & D Programmer 15 18 25 35 40 Tech. Support 3 3 5 11 13 Part time staff 2 2 4 4 10 Total Employees 36 39 58 78 107

Salaries/Wages 2012 2013 2014 2015 2016CEO 200,000$ 205,600$ 211,357$ 217,275$ 223,358$ CFO 160,000$ 164,480$ 169,085$ 173,820$ 178,687$ CTO 160,000$ 164,480$ 169,085$ 173,820$ 178,687$ HR & Sales Manager 120,000$ 123,360$ 126,814$ 130,365$ 134,015$ Admin staff 20.00$ 20.56$ 21.14$ 21.73$ 22.34$ R & D designer 90,000.00$ 92,520.00$ 95,110.56$ 97,773.66$ 100,511.32$ R & D programmer 18.00$ 18.50$ 19.02$ 19.55$ 20.10$ Tech. Support 35.00$ 35.98$ 36.99$ 38.02$ 39.09$ Part time staff 9.50$ 9.77$ 10.04$ 10.32$ 10.61$

Salary and Wage Costs 2012 2013 2014 2015 2016CEO 200,000 205,600 211,357 217,275 223,358 CFO 160,000 164,480 169,085 173,820 178,687 CTO 160,000 164,480 169,085 173,820 178,687 HR & Sales Manager 120,000 123,360 126,814 130,365 134,015 Admin Staff 196,000 201,488 331,407 340,687 875,565 R & D designer 630,000 647,640 1,141,327 1,564,378 2,010,226 R & D programmer 529,200 652,821 932,083 1,341,455 1,576,017 Tech. Support 205,800 211,562 362,477 819,778 995,955 Part time staff 37,240 38,283 78,709 80,913 207,947 Total Salaries and Wages 1,718,240 1,875,154 2,972,818 4,277,576 5,799,726

OZ 30


December 2, 2011

Appendix D: Financials

Income StatementFor the year ended 2012 2013 2014 2015 2016

Sales 1,457,189 2,396,784 4,927,789 10,131,533 12,985,572 COGS - - - - - Gross Profit 1,457,189 2,396,784 4,927,789 10,131,533 12,985,572

100% 100% 100% 100% 100%Operating ExpensesBuilding Lease 25,000 25,700 132,098 135,797 279,198 Utilities 20,000 22,616 25,574 28,919 32,702 Wages 1,718,240 1,875,154 2,972,818 4,277,576 5,799,726 Employee Benefits 261,344 285,211 452,166 650,619 882,138 Cloud Server Rental 8,000 - - 8,224 - Marketing 250,000 250,000 250,000 250,000 250,000 Repair and Maintenance 2,000 2,056 2,114 2,173 2,234 Other Variable Costs 29,144 47,936 98,556 202,631 259,711 Capital Cost Allowance 43,250 79,533 69,068 100,766 123,047 Debt Interest - 35,000 30,107 24,872 19,270 Total operating Expenses 2,356,978 2,623,205 4,032,500 5,681,577 7,648,027

Taxable Income (899,789) (226,421) 895,288 4,449,957 5,337,546 Income Taxes - - - 994,759 1,274,386 Net Income (899,789) (226,421) 895,288 3,455,198 4,063,159

Retained Earnings AccountBeg RE 0 (899,789) (1,126,210) (230,922) 3,224,276 Net Income (899,789) (226,421) 895,288 3,455,198 4,063,159 Dividends - - - - - (5,506,329) End RE (899,789) (1,126,210) (230,922) 3,224,276 1,781,106

OZ 31


December 2, 2011

Balance SheetYear 2012 2013 2014 2015 2016Current AssetsCash 1,570,961 1,804,359 2,650,000 5,506,329 4,058,755 Accounts Receivable - - - - - Inventories - - - - - Total Current Assets 1,570,961 1,804,359 2,650,000 5,506,329 4,058,755

Non-Current AssetsBuilding Rennovations 350,000 350,000 350,000 770,000 770,000 Computers & Hardware 90,000 90,000 90,000 198,000 198,000 R&D/Product Development 35,000 35,000 35,000 77,000 77,000 Furniture and Fixtures 100,000 150,000 200,000 250,000 300,000 Accumulated CCA (43,250) (122,783) (191,851) (292,617) (415,664) Total Non-Current Assets 531,750 502,218 483,149 1,002,383 929,336

Total Assets 2,102,711 2,306,576 3,133,149 6,508,712 4,988,091

LiabilitiesAccounts Payable 2,500 2,684 8,760 9,151 17,328 Long Term Debt - 430,102 355,311 275,285 189,657 Total Liabilities 2,500 432,786 364,071 284,436 206,985

Common Shares 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 Retained Earnings (899,789) (1,126,210) (230,922) 3,224,276 1,781,106 Total Equity 2,100,211 1,873,790 2,769,078 6,224,276 4,781,106

Total Liab & Equity 2,102,711 2,306,576 3,133,149 6,508,712 4,988,091

OZ 32


December 2, 2011

Cash Flow StatementFor the year ended 2012 2013 2014 2015 2016

Net Income (899,789) (226,421) 895,288 3,455,198 4,063,159 CCA 43,250 79,533 69,068 100,766 123,047 Operating Cash Flow (856,539) (146,889) 964,356 3,555,964 4,186,206

Changes in Working CapitalAccounts Receivable - - - - - Inventories - - - - - Accounts Payable 2,500 184 6,075 391 8,177 Total 2,500 184 6,075 391 8,177

Investment Activities

Building Rennovations (350,000) - - (420,000) - Computers & Hardware (90,000) - - (108,000) - R & Product Development (35,000) - - (42,000) - Furniture and Fixtures (100,000) (50,000) (50,000) (50,000) (50,000) Total (575,000) (50,000) (50,000) (620,000) (50,000)

Financing ActivitiesLong Term debt - 430,102 (74,791) (80,026) (85,628) Common Shares 3,000,000 - - - - Dividends - - - - (5,506,329) Total 3,000,000 430,102 (74,791) (80,026) (5,591,957)

Net Cash Flow 1,570,961 233,398 845,641 2,856,330 (1,447,574) Cash Bal Beg of Year - 1,570,961 1,804,359 2,650,000 5,506,329 Cash Bal End of Year 1,570,961 1,804,359 2,650,000 5,506,329 4,058,755

OZ 33


December 2, 2011

Copyright 2011Oz Innovations

OZ 34

OZ Innovations Business Plan - Edwards School of Business Painter/businesspl… · Web viewOZ...

Documents

Transcript of OZ Innovations Business Plan - Edwards School of Business Painter/businesspl… · Web viewOZ...