PolyU Innovation & Entrepreneurship Student Challenge – A Global Competition

Business Plan Writing Guide Module Secondary School Students Version

Copyright © Di & Cooke Company Limited

Disclaimer: This content is provided and written by Di & Cooke Company Limited. We are pleased to provide permission to the Hong Kong Polytechnic University for the use of this material on both of its intranet and internet to support the learning and development of all the challengers who have entered the 2009 PolyU Innovation and Entrepreneurship Student Challenge

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Chapter 1 Introduction – What is a Business Plan? The basic role of a business plan is to produce an outline that evaluates all aspects of the economic feasibility of the business project including an explanation and analysis of the business prospects. Functions of a Business Plan:

It can focus on your business objective. It can be used as a selling tool to seek for finance. It can show weaknesses in the planning process. It can be used to get opinions and advice from experts about your business.

In order to write a successful business plan, the following steps are important to notice before you start:

Write out the prime business concept. Collect all the necessary information on the feasibility and the specifics of

your business concept. Focus and perfect your concept based on the data you have collected. Draft the particulars of your business. Put your plan into a convincing form.

The course starting from the next chapter will help you create a business plan, which is divided into seven key elements through chapter two to chapter eight, including descriptions, guidelines for creation and tips for avoiding common mistakes, together with a business plan sample and financial statements formats in the appendices.

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Chapter 2 Introductory Elements The first part of your business plan includes the introductory elements, which is the cover page, executive summary, and table of contents. It gives first impression to your readers. In such case, the introductory elements, especially the executive summary, decide whether your readers will read the rest of your plan or not. Furthermore, the table of contents indicates your organization. Therefore, all of your introductory elements must be of good quality. A) Cover Page

The cover page should be a simple page that contains the project name and the presenting team’s name. Don’t forget to write the words “Business Plan” on the page.

B) Executive Summary

The executive summary is an introduction to your project. Most readers will go through this section first. Investors will read it first to get a picture of your project and to assess whether you are professional or not. Also, they will test the feasibility of your business through reading this section. As the executive summary is the most important part in your business plan, prepare it when you have finished the whole plan. When you write on other sections of your plan, write a few sentences in summary to put into this section. The executive summary should be kept in short, to the point and interesting, and should consist of the followings in brief:

A description of your company, including your products or services Your mission statement Your business’s management team The market and your target customers Marketing and sales strategy Financial plans

The executive summary will end with a summary statement, usually a persuasive sentence, which are designed to convince the readers that your business is a winner.

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It is very important to know that the executive summary is the first thing all readers will examine. If your executive summary is written badly, then it will be the last thing these people will read.

C) Table of Contents

The purpose of the table of contents is to provide readers a quick and easy reference to find different sections of the plan. Number all pages of your business plan. Then, the table of contents should include page numbers. After you have finished your plan and numbered your pages, go back to the table of contents and fill in the page numbers. Make sure you have created headings for all major sections and subsections.

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Chapter 3 Business Description Your business plan must be able to project a clear picture of your business. The business description is your company vision: what industry you are in, what products or services you can sell, what is your position in the market, and how much are you going to sell your products or services. A) Industry Overview

This section is a summary of the industry for your business. To impress readers, you will need to show that you are in a hot industry with a good future. The following points will help you gather information on describing the industry situation:

What is the size of your industry? Who are the leaders in this industry? What are the markets for this industry? What economic trends will affect this industry? What is the long-term view for this industry? What are the barriers to entry in this industry?

For more statistics and information regarding different industrial sectors, you can visit the government trade department website in your own country. You can collect more information about industries and trade statistics from your government statistics department, local chamber of commerce or economic development center, etc. Try to collect the newest information. The followings are some skills for writing on this section:

Don’t just put assumptions for your plan. Back up with good research work and real statistics. This will make your plan look more reliable. Write down all the sources of these data.

Collect industry and seasonal trends from business newspapers and magazines.

List out your company’s possible risks. This shows that you have done your research work. Make sure to tell how your company will

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overcome these risks. B) Company Summary

The purpose of this section is to give the readers a clear point of view about your company. Start with a mission statement on who do you want to sell your product or service to. Then write more on the technical points of your company. Keep your writing in a story telling form to keep it interesting. Good points for discussion are:

What kind of role is the company playing? Wholesaler? Retailer? Manufacturer? Service Provider?

What is the legal structure for the business? Sole proprietorship? Corporation? Partnership?

Who are the company’s principal owners and what experience do they bring to benefit the company?

What market needs will you meet? Who will you sell to? How will your products or services be sold?

What kind of support systems will be used? Customer service? Advertising? Promotion?

Overall, this section of your business plan should give the readers a better idea of what your company is about. Again, keep it brief and avoid unrelated personal information.

C) Products or Services

In this section, provide in details of each of your products or services. Describe who are the end users. Highlight the special features or functions of your products. Here, you have to emphasize your USP, “Unique Selling Point”. This is very important to investors. Without a Unique Selling Point, your products or services will not be interesting and you will not be able to get people to buy them. Examples of USP for several different products:

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Head & Shoulders: “You get rid of dandruff” Olay: “You get younger-looking skin” Red Bull: “Gives you wings” Domino's Pizza: “You get fresh, hot pizza delivered to your door in 30

minutes or less - or it's free.” FedEx: “When your package absolutely, positively has to get there

overnight” M&M’s: “The milk chocolate only melts in your mouth, not in your

hand” Also, compare your products or services with your competitors. Show how your products can win in this market. Think of a number of reasons for this – it is a new technology to the market, the location is excellent, the market is ready for your product, the product has a low production cost so that it can be sold at a lower price, etc.

D) Positioning

Your position is where you are standing in the market. It is about where your products and your competitors’ product will be placed in the market. As you cannot sell your products to all customers within the market, your positioning is based on how much you will sell and which group of customers you are selling to. The following factors can help you find your position in the market:

What specialty does your product or service have? How does your product satisfy your customers? How do you want people to think of your products or services? Hi-tech

and expensive products with better design or cheaper products with fewer functions?

How do your competitors place themselves in the market? After considering the above factors yon can now clearly know where you can position yourself, and show the readers a clear picture of which part of the market your products will be sold.

E) Pricing Strategy

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Your pricing strategy shows how you will make a profit when facing competition. When calculating the price, spot out fixed costs and variable costs. Find out a breakeven point, that is, how many products do you have to sell in order to cover your fixed costs. These can be derived from the financial section later in the plan. You may have to consider constructing your financial section before completing this topic. Tell the readers whether your price will be lower or higher than your competitors. Explain why you can maintain your market share in the competition. For example, a souvenir shop sets higher prices since it thinks its products are luxury items. A café in an expensive location can sell more expansive coffee than other restaurants. However, investors will not believe some business plans if the products or services are higher in quality and lower in price than those of their competitors. They think this is simply not real. If your product really has a better quality, it is more likely that you will sell in a higher price.

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Chapter 4 Market Analysis This section is to provide facts to persuade readers that your business has enough customers in an industry. It is one of the most important parts of the plan. Before writing on this section, you have to carry out a lot of research work. Many information like manufacturing and marketing costs, and the amount of capital that you need, will be based on your sales estimation here. A) Customer Analysis

This is about the characteristics of your customers. In here you will describe whether your customers are sensitive to price or quality of the product. Before analyzing your customers, research work is necessary. Use the following questions to start with your analysis:

How old are they? What gender are they? Where do they live? What is their family structure? (Married? Number of kids?) How much do they earn? What do they do for a living? What is their lifestyle like? What will they do during their spare time?

When writing on this section, don’t just simply put in “all people who want to buy cars” or “anyone who needs a mobile phone”. You may also need to include details of what geographic region you plan to sell in. Is your market national, regional, international, or local?

B) Market Size and Trends

This section describes the total market size and the part of the market your business will target. You may use numbers as well as trend information to show its potential growth. Follow these questions to find out the size of the market:

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What percentage in the market has already bought on a similar product to yours before?

How much of your product or service might your target market buy? (In terms of sales amount and/or in units of products sold.)

What proportion of your target market will buy again? How might your target market be affected by economic events (e.g.

during stock market crash)? How might your target market be affected by government policies (e.g.

changes in tax rates)? Once you have all this information, you can start writing on this section in short paragraphs. Describe whether these events will have a positive or negative impact on your business. If you have several target markets for different products, you will have to divide them into sub-sections. Again, remember to quote your sources of information within the section.

C) Competition

No one can avoid competition. Presenting your business with competition proves that you understand your market. New invented technology can force another company to fall down in a night’s time. Because of this uncertainty, it is important to know your competitors well. Questions like these can help you identify your competitors:

Who are your nearest direct competitors? Who are your indirect competitors (e.g. substitute products)? How are their businesses? Stable? Increasing? Decreasing? What are their strong point and weak point? How are their products different from yours? Who is the price leader in the market? Who is the quality leader? Who has the largest market share?

Furthermore, pay attention to your competitors’ sales and promotion strategies. When did they reduce prices for sales? Using this technique can help you understand your competitors better on how they operate their businesses.

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When writing on this section, begin with a short discussion for each of your main competitors. If possible, include their annual sales and their market shares. Explain why you can obtain a share from their business. Even if your product or service is truly innovative, you need to look at what else your customers could buy instead (substitute products). Remember, the first personal computer competed with calculators and typewriters; the first calculator competed with abacuses. Use a table to show your analysis so that readers can read easily. Columns are the names of your competitors and rows are their market share, annual sales (if available), strengths, weaknesses, and comments, etc.

D) Sales Forecast

The sales forecast is based on the estimation of the size of your market and your market share. This should include sales in units and dollars for the first five years. Break down the first year into months, and the second year into quarters, if applicable. These numbers are very important to the financial sections later in the plan. For projecting a sales forecast, you may have to find out answers like:

How many customers will buy the same kind of product as yours? How much will the customer spend on these items annually? What percentage of their spending will you get, comparing to

competitors? Generate the forecast into three different figures: pessimistic, optimistic, and realistic. Then put the figures in by months, as depending on your business, there could be big difference by seasons. In fact, a good method to do forecasting is to obtain the average sale per customer from trade associations. Once you have made assumptions on the inflation rates and your annual growth rates, you will be able to forecast the sales from the second year to the fifth year by multiplying your first year sales with these factors. Besides

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using tables or graphs to show your annual sales at a glance, write in short paragraphs describing the market trends and seasonal trends on the three different situations.

All these can be a lot of work, but they have to be done to make your business plan convincing. Lastly, don’t forget to quote all your sources of information in this section. All readers will want to know where you get these statistics or opinions from.

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Chapter 5 Start-up Summary This section will describe the start-up plan for your product’s development. It gives details of how your product is being developed and what resources are required to get it produced. You should include details of development costs, location and labor requirements. A) Start-up Process

Before launching your product into the market, your product has to be developed and produced. Demonstrate with a schedule showing when this work will be completed. Include time necessary for obtaining a patent or a trademark where applicable. In detail, also project a timeline you will need to set up factories and offices. This may include renovations, purchasing necessary machinery and furniture, and other important stages in this development cycle. Then describe in small paragraphs for the whole development process.

B) Start-up Cost

For every item described in (A) above, construct a simple budget table and put in numbers for the amount of capital that will be required for these expenses. This budget may include rent (if factory and/or office are hired), insurance, labor, materials, patents, and the cost of professionals such as accountants and lawyers, etc. It should also include the cost of the design of sample products as well as the expense to produce the samples.

C) Operating Requirements

In day-to-day operations, you may have to explain about the industry’s standards and regulations for your product. Then describe which industry organizations or associations you will prepare to join, and what you should do to fulfill with the laws and regulations in your industry. Secondly, give details of your suppliers and their prices, terms, and conditions. Describe if there are any other arrangements you have to make if these suppliers are not delivering the material. Also explain the quality

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control system that you are going to set up on your suppliers’ material and your own finished products. The aim for writing this section of the business plan is to show your understanding of the manufacturing and operating process of your business. Therefore you should carefully plan every part of the operation on a step-to-step basis.

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Chapter 6 Marketing Plan This section explains how you are going to get your customers to buy your products and/or services. Strong marketing plans can show readers that you have good ideas for promoting and selling your products. A) Marketing Strategy

The marketing strategy defines what customers you want to sell to and how you are going to approach them. This includes the method of educating them about your product. Refer again to your “Unique Selling Point” and explain that you will get your customers to notice about this. Describe if you have any new sales technique, such as online sales ordering system through the Internet while your competitors are still using ordinary retail methods. Remember, the theme of your marketing strategy is the message you want your customers to receive about your products or services. The marketing plan is all about sending this important message to your customers. So you aim here is to explain to readers on how you can emphasize your selling point to your customers.

B) Distribution Plan

In this section you will describe how you get the products to the end users. Explain what kind of salespersons and how many of them you will employ. Are they on commission basis? Are they product promoters? Are they telemarketing personnel? Describe how helpful do you expect from these salespeople. You may also expand on the management system of your sales team such as whether a sales training program is needed, any incentives they will get to encourage their work, as well as any reviewing method for their results. If you are use another party such as sales agents or a sole distributor to do the sales for you, describe the benefits of using these parties and the special

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knowledge that they can bring to your business. C) Advertising and Promotion

This section describes how you’re going to deliver the message of your “Unique Selling Point” to your target customers. This involves both advertising and sales promotion plans. For advertising, describe which media will be the most effective in reaching your target market and how much you have prepared for your annual advertising budget on each medium such as the Internet, television, radio, newspapers, magazines, subway banners, direct mails, etc. Also, put down how much sales you will expect to make from this advertising. As for sales promotion, you may want to include marketing materials into your plan, such as free samples, coupons, displays, brochures and pamphlets, etc. Any publicity activities like press releases, product launches and trade shows can also be introduced in this area.

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Chapter 7 The Management Plan The Management Plan describes your management team and staff and how your business is structured. Readers will expect to see not only who is in your management team but also how their skills will input into the business. A) Ownership Structure

This section describes the legal structure of your business. You have to explain whether your business is a sole proprietorship, a partnership or a limited liability company. For partnership and limited liability company, you have to show who will hold what percentage of ownership in the entity.

B) Internal Management Team

The Internal Management Team section will describe the key positions required to manage the core business within the organization, identify who are responsible for these positions, and explain their special skills. These people may include the board of directors, the chief executive officer, the chief financial officer, and controllers for different departments. Most businesses have different departments to carry out different functions such as sales, marketing, administration, production and accounting, etc. Some companies may need extra departments such as research and development as well as human resources. In fact, some key management people, especially directors, may fill up more than one of these roles as department heads. In this section therefore, you will have to identify these key people and explain which role each of them will fill. Sometimes you may wish to present this by using an organizational chart. You can also attach complete resumes for each member of the management team as appendices to your business plan. Furthermore, You can talk about how much salaries your management team will be paid. Do they have any profit sharing or any other benefits? Indicate if there is any work contract the business may offer to any of these key members.

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C) External Management Team Apart from your internal management team, your business may use external management resources. These resources somehow act as your internal management team’s backup. Usually there are two main types of external resources you will use, which are Professional Services and an Advisory Board. The Professional Services represent external expertise that most businesses will use such as accountants, bankers, lawyers, IT consultants, business consultants, management trainers, etc. An Advisory Board is like a brain to the management. The members of this board will provide your organization advice to run the business effectively. They may be some senior or retired executives or entrepreneurs who have run this type of business for years and are only helping your company in part-time or ad-hoc basis. Their function is simply to provide skills that your internal management team doesn’t have. List out their names, titles and experience, and explain how each advisor will input to assist you to run a profitable business.

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Chapter 8 Financial Plan This is the last part of your business plan. The financial plan is the section that determines whether or not your business is feasible, and is an important element to show whether your business will attract any investor. The financial plan will contain three financial statements: the cash flow statement, the profit and loss statement and the balance sheet. You will also indicate in this section that you have considered the risks related to your business and the funding capital that you require. Before creating the three financial statements, mention about the risks that your organization will face during the course of your business as an opening scene. A) Risks

All businesses contain their own risks. The way to determine these risks in your plan shows that you have carried out a lot of market research work and this will make your plan look real and attractive to the readers. Things listed below are possible risks that a business would face typically:

A large cut or promotion by a competitor An important customer leaves you The economy goes bad Your suppliers increase their prices Your suppliers fail to deliver on time A better product launched by your competitor Lack of qualified labor

Put in all assumptions about the risks that you may face during the course of business. List out the actions that you are prepared to take in order to handle these risks. This will increase your credibility in front of the readers since you have shown that you are aware to these issues and be able to treat them.

B) Profit and Loss Statement

The Profit and Loss Statement is the very first statement you have to create

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out of the three financial statements in the Financial Plan section. This statement records revenues, expenses and cost of goods sold. The result is how much profit or loss your business will make at the end of the accounting period. First, input your revenue from which you have done in the Sales Forecast section earlier in the business plan. If you are in a manufacturing business, the revenue will be called sales, and cost of goods sold will need to be calculated. Next, you will need to gather the financial data on all expenses, including your start-up cost and your operating expenses. When you subtract the revenues by the expenses you will get the gross profit before taxation. Net profit will be the result after subtracting taxation and/or dividends from the gross profit. Appendix 1 is a worksheet of a standard Profit and Loss Statement structure.

C) Cash Flow Statement

A cash flow statement shows how much cash will come into the business and how much cash will be used during the financial period. In another sense, it shows readers how much cash you will need and when you will need it during the course of business. Generally, only cash items will be included in the correct accounting period. For example, Sales made last month in credit (account receivables) may be collected this month and the statement will only record an inflow for such when it is received. The cash flow projection is an important tool for cash flow management, letting you know when you might want to borrow some short-term loans as well as to look for long-term capital injections. There are three elements included in the cash flow statement: the cash revenues, the cash disbursements, and the reconciliation of cash revenues to cash disbursements. The reconciled balance will be exactly equal to the cash balance recorded in the balance sheet at the end of the financial period.

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See Appendix 2 for a worksheet of the Cash Flow Statement Outline. D) Balance Sheet

The balance sheet is created only once a year to determine the net worth of a business. It is the last part of the three statements in the Financial Plan section. The balance sheet represents the business’s financial position at a particular point of time. It is divided into three main categories: the assets, the liabilities, and owner’s equity. Assets are tangible and intangible objects that are in the ownership of the company. Liabilities are debts owed to creditors and suppliers. Owner’s equity is the net difference when the total liabilities are subtracted from the total assets. Once you have your balance sheet completed, you can write a brief analysis for each of the three financial statements. Keep them concise and cover the highlights. The financial statements themselves can be either displayed in this section or in the appendices. Appendix 3 is a worksheet of a Balance Sheet outline.

E) Funding Request and Return

This comes to the last part of the business plan. In this section you will clearly state the amount of funding for the investment you will need, and how do want these funds to come in as, e.g. loans or capital. Indicate when the money is needed in different phases, and tell the investors what they will receive in return for their capital. Lastly, suggest an attractive exit strategy that you will apply, that is, how investors will get their money back. Often, it can be achieved either by a cash-out option in five years or an IPO (Initial Public Offer) plan to get it listed in the stock exchange.

As you can see, writing a business planning is not easy at all. However, by following these important steps provided from all of the chapters above, you will ensure your business has a fine chance at seeking funds from investors and success in the future.

Appendix 1: Profit and Loss StatementInsert your company's figures into this template to prepare an income statement for your business.

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January February March April May June July August September October November December Year Two 1ST QTR 2ND QTR 3RD QTR 4TH QTR Year Three Year Four Year Five

REVENUE

REVENUE: Product Sales

Product 1

Product 2

Product 3

TOTAL REVENUE: Product Sales

REVENUE: Miscellaneous

Bank Interest

TOTAL REVENUE: MISCELLANEOUS

TOTAL REVENUE

COST OF SALES

DIRECT COSTS

Direct Material

Direct Labor

Factory Overhead

TOTAL DIRECT COSTS

GENERAL AND ADMINISTRATION

Accounting and Legal Fees

Advertising and Promotion

Bad Debts

Bank Charges

Depreciation and Amortization

Insurance

Interest

Office Rent

Salaries (Owner or Directors)

Salaries (Staff)

Telephone

Utilities

TOTAL GENERAL AND ADMINISTRATION

TOTAL EXPENSES

GROSS PROFIT BEFORE TAX

PROFITS TAX

NET PROFIT

Appendix 2: Cash Flow StatementInsert your company's figures into this template to prepare a cash flow statement for your business plan.

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January February March April May June July August September October November December Year Two 1ST QTR 2ND QTR 3RD QTR 4TH QTR Year Three Year Four Year Five

CASH REVENUES

Revenue from Product Sales

Revenue from Service Sales

TOTAL CASH REVENUES

CASH DISBURSEMENTS

Cash Payments to Trade Suppliers

Management Draws

Salaries and Wages

Promotion Expense Paid

Professional Fees Paid

Rent/Mortgage Payments

Insurance Paid

Telecommunications Payments

Utilities Payments

TOTAL CASH DISBURSEMENTS

RECONCILIATION OF CASH FLOW

OPENING CASH BALANCE

ADD: TOTAL CASH REVENUES

DEDUCT: TOTAL CASH DISBURSEMENTS

CLOSING CASH BALANCE

Appendix 3: Balance SheetInsert your company's financials here to create a balance sheet for your business plan.

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Year One Year Two Year Three Year Four Year FiveAssets

Long-Term AssetsCapital/plantInvestmentMiscellaneous assetsTotal long-term assets

Current AssetsCashAccounts receivable InventoryTotal current assets

Total Assets

LiabilitiesCurrent Liabilities

Accounts payableAccrued expensesTaxes payableTotal current liabilities

Long-Term liabilitiesBonds payableMortage payableNotes payableTotal long-term liabilities

Total Liabilities

Owner's EquityShare Capital (For Ltd Co)Retained Earnings

Total Owner's Equity

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Appendix 4: Sample Business Plan

CYBER CAFÉ BUSINESS PLAN

JEDI CAFÉ

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TABLE OF CONTENT

1. Executive Summary 3

2. Company Summary 5

3. Services 7

4. Market Analysis 8

5. Marketing Strategy 11

6. Management Summary 13

7. Financial Plan 14

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1. Executive Summary

Jedi Café, a cyber café located in Happy Valley, Hong Kong Island, offers a perfect spot

for the public in social gathering and leisure. It provides customers free access to the

Internet as well as an area for to meet together in a casual environment under an

economical manner.

The business intends to obtain finance from external equity in the amount of USD61,540,

for which the application will be for commencing work on shop renovation, equipment

purchases, and as operating cash flow. Preliminary capital injection has already been

secured by the initial owners, Obewon Kinobi and Alex Skywalker, in the amounts of

USD24,360 and USD15,385 respectively.

Jedi Café will be incorporated as a limited liability company. The two initial owners will be

the shareholders and their personal liabilities will be subject to a ceiling at the amount of

their respective investments.

The finance acquired through this business proposal will allow Jedi Café to successfully

open and operate as a cyber café. A comfortable and innovative environment is provided

to the customers with a casual atmosphere. Operations in year one will generate Jedi

Café a regular customer base that will allow it to be self-maintained in year two.

1.1 Objectives

Jedi Café’s objectives for the first year of operation include:

The creation of an exclusive, stylish, innovative environment that will

distinguish Jedi Café from other coffee shops.

The creation of a comfortable and casual environment that will bring people

with different interests and backgrounds together for socialization.

High-quality coffee and bakeries at a reasonable price.

Free access to online services.

1.2 Mission

As Internet has become more popular and grown at an expeditious pace, easy

access has become a part of life. Jedi Café provides the public free access to the

Internet, high-quality food and beverages in a comfortable environment. People

from different backgrounds will come to enjoy the exclusive, stylish, and innovative

environment that Jedi Café offers.

1.3 Risks

The risks involved with Jedi Café’s business are:

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Insufficient demand for the services provided by Jedi Café in Happy Valley.

The popularity of the Internet stops to grow.

The opening of new cafés in the same area which offers the exact services

that Jedi Café provides.

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2. Company Summary

Jedi Café, soon to be opened at Shing Wo Road in Happy Valley, Hong Kong Island, will

provide the public free access to the Internet and a special and innovative environment

for enjoying top quality coffee and bakeries.

Individuals of all ages and backgrounds will find Jedi Café appealing. The staffs of Jedi

Café provide not only top quality service but also helpful instructions to customers in

computer usage. This educational aspect will attract elderly customers and youngsters

who do not own computers at home. The easy access location also provides residents in

the same area convenience to their gourmet and online needs.

2.1 Company Ownership

Jedi Café will be privately owned by Obewon Kinobi, the founder and CEO, and

Alex Skywalker, a second shareholder.

2.2 Start-up Summary

Jedi Café’s start-up costs will cover renovation, furniture, computers, coffee

machines and cooking equipment, and running capital to cover expenses in the first

year.

The equipment provided to Jedi Café’s customers with high-speed connection to

the Internet forms a large portion of the start-up costs. These costs will include

computers, two laser printers and a scanner.

Besides, the start-up costs will comprise the coffee machines such as one espresso

machine, one automatic coffee grinder, and other additional equipment. The shop

will also require funds for renovation and modification. Breakdown of the start-up

costs is illustrated as follows:

Start-up Costs USD

Legal Fee 642

Stationeries 642

Tableware 642

Consultants 2,565

Insurance 900

Rent 1,853

Coffee Machines 13,718

Bean Grinder 1,020

Computer Systems (x11), Software, Printer, Scanner 31,167

Internet Lines 1,077

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Fixtures/Renovation 25,642

Total Start-up Costs 79,868

Start-up Assets

Running Cash 30,770

Start-up Inventory 2,565

Total Assets 33,335

Total Requirements 113,203

2.3 Company Location

A site has been chosen in Shing Wo Road in Happy Valley for the following

reasons:

Nearness to the close-by residents.

Proximity to stylish, upscale restaurants in the same area.

High visibility.

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3. Services

Jedi Café will provide free access to the Internet and computer services such as printing,

scanning to customers. It will also provide customers with a unique and innovative

environment for enjoying top quality coffee and bakeries.

3.1 Service Description

Jedi Café will provide its customers free access to the Internet and common

computer software and hardware. Some of the Internet and computing services

available to Jedi Café’s customers are listed below:

Internet browsers.

Laser color printing, copying and scanning.

Popular software applications.

Also, top quality food and beverages, and a comfortable environment will provide

Jedi Café’s customers with a second home, a place to enjoy the benefits of

computing in a comfortable environment.

3.2 Competitive Comparison

Jedi Café will be the first cyber café in Happy Valley. It will differentiate itself from

other ordinary coffee shops in the same area by providing its customers with free

Internet and computing services.

3.3 Technology

Jedi Café 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. Jedi Café will continue to upgrade and modify the systems to stay with

current technologies.

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4. Market Analysis

Jedi Café is facing the opportunity of being the pioneer in the Happy Valley cyber café

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 Happy Valley.

4.1 Market Segmentation

Jedi Café’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. Jedi Café’s target market falls anywhere between

the ages of 15 and 70. 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, Jedi Café’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 table below for more specifics.

Market Analysis

2009 2010 2011 2012 2013

Potential Customers Growth

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

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

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

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

Others 0% 25,000 25,000 25,000 25,000 25,000

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

4.2 Target Market Segment Strategy

Jedi Café 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, Jedi Café 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 Jedi Café’s PCs, or plug

their notebooks into Internet connections.

4.2.1 Market Trends

A market survey was conducted recently with key questions asked to fifty

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potential customers in Happy Valley. Some key findings include:

40 people said they enjoyed free access to the Internet.

44 subjects use the Internet to communicate with others on a daily basis.

4.2.2 Market Needs

Factors such as current trends, addiction, and historical sales data ensure that

the high demand for coffee and Internet access will remain constant over the

next five years. Being the first cyber café in Happy Valley, Jedi Café will enjoy

the pioneer advantages of name recognition and customer loyalty. Initially,

Jedi Café will hold a 100 percent share of the cyber café market in Happy

Valley. In the next five years, competitors will enter the market. Jedi Café has

set a goal to maintain greater than a 50 percent market share.

4.3 Service Business Analysis

The retail coffee industry in Happy Valley experienced rapid growth from the 1990’s

and is now moving into the mature stage of its life cycle. Many factors contribute to

the large demand for high-quality coffee in Happy Valley. The yuppies is a main

source of demand for coffee retailers. The climate in Happy Valley is extremely

favorable to coffee consumption. Current trends in this high-spending residential

area reflect the popularity of fresh and strong coffee. Happy Valley 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 going online can be. Those

who have not yet experienced with the Internet need a convenient, relaxed

atmosphere where they can feel comfortable learning about and utilizing the current

technologies. Jedi Café seeks to provide its customers with affordable Internet

access in an innovative and supportive environment.

Due to intense competition, café 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 Jedi Café realizes the need for differentiation and

strongly believes that combining a café with complete Internet service is the key to

success. The fact that no cyber cafés are established in Happy Valley, presents

Jedi Café with a great opportunities to enter into a profitable niche in the market.

4.3.1 Competition and Buying Patterns

The main competitors in the retail coffee segment within the same location are

StarBugs and Cathay Coffee. These businesses target a similar segment to

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Jedi Café’s (i.e. educated, upwardly-mobile students and business people).

However, Jedi Café will offer substantial computing services to its customers

which these competitors are not providing at the moment.

4.3.2 Distributing a Service

The dual product/service nature of Jedi Café’s business faces competition on

two levels. Jedi Café competes not only with coffee shops, but also with

Internet service providers. The good news is that Jedi Café does not currently

face any direct competition from other cyber cafés in the Happy Valley market.

Heavy competition between coffee shops in Happy Valley 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 USD2.6/cup while other,

more exotic beans may sell for as high as USD3.8/cup. Wholesalers sell

beans to retailers at an average of a 50 percent discount. For example, a

pound of Sumatran beans wholesales for USD9 and retails for USD18. And as

in most industries, price decreases as volume increases.

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5. Marketing Strategy

Jedi Café will position itself as a stylish coffee house and Internet service provider. It will

serve high-quality coffee and specialty beverages at competitive prices. Due to the

number of cafés in Happy Valley, it is important that Jedi Café sets fair prices for its

products. Jedi Café will use advertising as its main source of promotion. Ads placed in

food magazines will help build customer awareness. Accompanying the ad will be a

coupon for discounted coffee and nice bakeries.

5.1 Promotion Strategy

Jedi Café will implement a pull strategy in order to build consumer awareness and

demand. Initially, Jedi Café has budgeted USD6,410 for promotional efforts which

will include advertising with food magazines and in-house promotions such as

offering customers free drinks.

Jedi Café realizes that in the future, when competition enters the market, additional

revenues must be allocated for promotion in order to maintain market share.

5.2 Pricing Strategy

Determining a fair market for cyber café is more difficult because there is no direct

competition from another cyber café in Happy Valley. Therefore, Jedi Café has to

base its prices for coffee and specialty drinks on the “retail profit analysis” provided

by our supplier, Jenson Coffee, which has been in the coffee business for over 50

years and has developed a solid pricing strategy.

5.3 Sales Strategy

As a retail establishment, Jedi Café employs people to handle sales transactions.

Computer knowledge is a prerequisite for Jedi Café 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. Jedi Café’s commitment to friendly, helpful service is one of the key

factors that distinguishes itself from other cyber cafés.

5.4 Sales Forecast

Cost of Sales: The cost of goods sold for coffee-related products was determined

by the "retail profit analysis" we obtained from Jenson Coffee. The cost of bakery

items is 20% of the selling price. The cost of Internet access is USD847 per month,

paid to PC-Net for networking fees.

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2009 2010 2011

Unit Sales

Coffee 53,844 64,990 71,490

Specialty Drinks 40,135 48,350 49,706

Baked Goods 20,420 26,344 23,182

Total Unit Sales 114,399 139,684 144,378

Unit Prices USD USD USD

Coffee 2.60 2.60 2.60

Specialty Drinks 3.20 3.20 3.20

Baked Goods 2.60 2.60 2.60

Sales USD USD USD

Coffee 138,063 166,642 183,308

Specialty Drinks 128,639 154,970 159,315

Baked Goods 52,361 67,549 59,443

Total Sales 319,063 389,161 402,066

Direct Cost of Sales USD USD USD

Coffee (based on average) 34,515 41,659 45,827

Specialty Drinks (based on average) 32,161 38,744 39,829

Baked Goods (based on average) 13,090 16,888 14,862

Subtotal Direct Cost of Sales 79,766 97,291 100518

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6. Management Summary

Jedi Café is owned and operated by Mr. Obewon Kinobi. The company, being small in

nature, requires a simple organizational structure. Implementation of this organizational

form calls for the owner, Mr. Kinobi, to make all of the major management decisions in

addition to monitoring all other business activities.

Personnel Plan

The staff will consist of six part-time employees working thirty hours a week at USD7 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 USD13

per hour. The other shareholder, Alex Skywalker, 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 Jedi Café that are common within larger

organizational chains. This strategy will enable Jedi Café to react quickly to changes in

the market.

2009 2010 2011

Total People 9 9 9

USD USD USD

Owner 30,770 33,847 37,231

Part Time 1 10,154 10,154 10,154

Part Time 2 10,154 10,154 10,154

Part Time 3 10,154 10,154 10,154

Part Time 4 10,154 10,154 10,154

Part Time 5 10,154 10,154 10,154

Part Time 6 5,077 10,154 10,154

Technician 27,861 30,647 33,711

Manager 5,129 30,770 33,847

Total Payroll 119,607 156,188 165,713

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7. Financial Plan

The following sections lay out the details of our financial plan for the next three years.

7.1 Start-up Funding

This business plan is prepared to obtain financing in the amount of USD61,539.

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. This amount is planned to be repaid by USD15,385 each year by four

years.

Owners’ investments has already been secured as follows:

1. USD24,359 of personal savings from owner Obewon Kinobi.

2. USD15,385 from the second shareholder, Alex Skywalker.

3. USD11,911 in the form of short-term bank loans.

USD

Start-up Expenses to Fund 79,859

Start-up Assets to Fund 33,335

Total Funding Required 113,193

Assets

Inventory 2,565

Cash Balance 30,770

Total Assets 33,335

Liabilities

Short Term Bank Loans 11,911

Funds Needed to Raise 61,539

Total Liabilities 73,450

Capital

Obewon Kinobi 24,359

Alex Skywalker 15,385

Total Planned Investment 39,744

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7.2 Projected Profit and Loss

Payroll Expense: The founder of Jedi Café, Obewon Kinobi, will receive a salary of

USD30,770 in year one, USD33,847 in year two, and USD37,231 in year three.

Jedi Café intends to hire six part-time employees in year one at USD7/hour and a

full-time technician at USD13/hour.

Rent Expense: Jedi Café is leasing a 400 square foot facility at USD2,565/month

for a total of 36 months. At the end of the third year, the lease is open for

negotiations and Jedi Café 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 expenses that Jedi Café must pay are electricity and the phone bill

generated by fifteen phone lines; thirteen will be dedicated to broadband and two

for business purposes.

Marketing Expense: Jedi Café will allocate USD43,270 for promotional expenses

over the first year. This amount will be used for advertising in food magazines in

order to build consumer awareness.

Insurance Expense: Jedi Café has allocated USD1,847 for insurance for the first

year. As revenue increases in the second and third year of business, Jedi Café

intends to invest more money for additional insurance coverage.

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Projected Profit and Loss data is presented in the table below:

2009 2010 2011

USD USD USD

Sales 319,062 389,159 402,065

Direct Cost of Sales 79,766 97,290 100,517

Gross Margin 398,828 486,449 502,582

Expenses

Payroll 119,604 156,185 165,711

Marketing/Promotion 43,270 51,283 55,129

Rent 30,770 30,770 30,770

Utilities 11,693 11,693 11,693

Depreciation 14,309 14,309 14,309

Start-up Cost 8,315 0 0

Insurance 7,693 7,693 7,693

Total Operating Expenses 235,654 271,933 285,305

Profit Before Interest and Tax 3,647 19,940 16,247

Interest Expense 2,981 1,885 1,411

Taxes Incurred 100 2,709 2,226

Net Profit 6,548 24,534 19,884

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7.3 Projected Cash Flow

2009 2010 2011

USD USD USD

Cash Received

Cash from Operations

Cash Sales 319,062 389,159 402,065

Subtotal Cash from Operations 319,062 389,159 402,065

Additional Cash Received

Capital Investment 39,744 0 0

Short Term Bank Loan 11,911 0 0

Long Term Funding 61,539 0 0

Subtotal Cash Received 432,256 389,159 402,065

Expenditures

Expenditures from Operations 375,732 359,504 375,145

Additional Cash Spent

Repayment of Short Term Loan 11,911 0 0

Long-term Liabilities Repayment 15,385 15,385 15,385

Subtotal Cash Spent 403,028 374,889 390,530

Net Cash Flow 29,228 14,270 11,535

Cash Balance 29,228 43,498 55,033

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7.4 Projected Balance Sheet

2009 2010 2011

USD USD USD

Assets

Fixed Assets 57,236 42,927 28,618

Current Assets

Cash 29,228 43,498 55,033

Total Current Assets 29,228 43,498 55,033

Total Assets 86,464 86,425 83,651

Liabilities

Long-term Liabilities 46,154 30,770 15,385

Total Liabilities 46,154 30,770 15,385

Net Assets 40,310 55,655 68,266

Shareholders’ Equity

Paid-in Capital 39,744 39,744 39,744

Retained Earnings 566 15,911 28,522

Net Worth 40,310 55,655 68,266