Business Plan Proposal Template

BUSINESS PLANFOR

NATIONAL FURNITURE

by: JAMES SMITH111 NEW ROAD

WESTSIDE, NEW YORK 90000(212) 999-0808

Presented to:JANE DOE C/O CUSTOM NATIONAL BANK

00/00/19xx

Copy ____ of ____ copies distributed

This business plan contains information that is not to be shared, copied, disclosed or

otherwise compromised without the consent of NATIONAL FURNITURE.

National Furniture Business Plan

Table of Contents

Executive Summary

Introduction 5

Mission Statement 5

Key Considerations 5

Marketing Objectives 5

Expected Accomplishments 6

Required Capital 6

The Business

Purpose Statement 7

Description of the Business 7

History of the Business 8

Founder of the Business 8

Management & Operations 9

Regulations & Licensing 10

Objectives 10

Market Ananlysis

Market Research 11

Target Market 12

Competition 14

Customer Profile 15

Marketing

Objectives 17

Unique Selling Benefit 17

Selling Tactics 17

Pricing 19

Channels of Distribution 21

Table of Contents


Advertising 21

Promotions 24

Publicity and Public Relations 25

The Product

Product Decisions 26

Production 26

Inventory 27

Quality Control 28

The Service

Service Description 29

Related Products 29

Operations

Operations Analysis 31

Location & Facilities 31

Technology/R&D 31

Sourcing 32

Labor 32

Cost Control 32

Risks

Description of Risks 35

Contingency Plans 35

Finances

Assumptions 37

Sources and Uses of Capital 37

Balance Sheet 39

Cash Flow Statement 40

Income Statement 42

Break Even Analysis 45

Ratio Analysis 46

Start-Up Costs 47

Table of Contents


Conclusion

Justification for Loan/Investment/Etc. 48

Milestones/Implementation Timetable 48

Table of Contents


Executive Summary

Introduction

The purpose of this plan is to outline the start up plans for National Furniture. National Furniture plans to manufacture furniture for sale on a wholesale and retail basis and to quickly add an interior design consulting unit. National Furniture requires financing for machinery, advertising, and sales training pursuant to its planned start-up.

Mission Statement

National Furniture will fill a specialized market niche by providing custom interior design services to high-end clients who desire specific, professional advice from the designers of the products they seek to purchase.

National Furniture’s mission is to make elegant, durable furniture affordable to the middle and upper-middle class customers in the tri-state area. Recognizing the need for professional advice regarding the use of its products, National Furniture will also create its own interior design division.

Key Considerations

National Furniture’s unique features are numerous. The Company will be the largest furniture concern in the tri-state area. It will produce extremely durable and elegant, yet reasonably priced furnishings. It will also develop a tight distribution chain maintaining close ties within the company's production, wholesale, and retail divisions. The addition of expert interior design personnel who specialize in the adaptation of National Furniture products to living and working spaces will create a vertically integrated enterprise, and will be the area's only full-service interior furnishing and design provider.

Marketing Objectives

National Furniture plans to competitively market its products and to promote its interior design consulting services. National Furniture’s marketing objective is to achieve a 30% market share in the tri-state area during its first year of operation.

National Furniture intends to meet its targeted objective by training its sales force, increasing their knowledge of interior design in order to sell both products and services, and by spending 13% of gross sales on advertising. To monitor its progress, National Furniture will create weekly and monthly reports based on sales data for the design service as well as for furniture sales. Quarterly sales reports will be compiled every three months at which time an executive meeting will be held to discuss strategies for growth related to

Executive Summary 5


achieving company targets. Year-end reports will be generated in January at which point sales figures will be compared against goals which will influence decisions that will be made regarding the future direction of the company.

Expected Accomplishments

National Furniture expects to capture 30% of the market share for furniture and about 12% of the market share for interior design in the tri-state area in its first year. Thereafter, National Furniture expects to increase its market share for furniture to 39% over five years as its sales and advertising efforts are expanded. National Furniture expects to maintain its 12% market share for interior design in years two and three, moving to 13% in years four and five. The gross market for both is expected to expand in the tri-state area.

Required Capital

Start up capital requirements for National Furniture are $1,250,000. The owner will contribute $250,000 and is seeking the remaining $1,000,000 from outside investors.

Executive Summary 6


The Business

Purpose Statement

The market for furnishings and associated design services in the tri-state area has been consistently solid and is expected to see substantial expansion over the next few years. Because incomes in the tri-state area are far less than they are in major metropolitan areas, consumers often have a lower budget for home furnishings and design. However, interior design of homes and offices in the tri-state area is a high priority for these consumers, so comparison shopping creates intense pressure on vendors.

Vendors have responded by providing greater choices to the consumer, but these choices usually meet the budget of the consumer at the expense of quality and beauty, or are simply overpriced. Consumers also have little luck locating a company that specializes in furniture and provides expert consulting services to assist in designing a livable, working environment, that is customized to the client's home or office, based on their products. Finally, the interior design firms often are not completely familiar with the products the client wishes to purchase and therefore are not as effective at designing space as they could be.

National Furniture will meet the needs of consumers in the tri-state area, for rugged yet elegant furniture, at a price most middle-class residents can afford. The rising demand for interior design consultants has led National Furniture to decide to provide consulting services to consumers who prefer to purchase the National Furniture line and build customized living/working spaces around those products.

Description of the Business

National Furniture will manufacture basic, durable home and office furnishings. Principal among these will be a line of hardwood desks, dressers, bed frames, dining room tables, chairs, credenzas, coffee tables, and home entertainment centers. In addition, National Furniture will purchase lamps, mattresses, and a few other auxiliary products from other manufacturers for sale in its retail showroom locations.

The typical wholesale customers of National Furniture will be retail department store chains. The company's typical retail and service customers will include upper-middle class residents of the tri-state area who will seek to maximize the purchasing power of their interior decorating budgets. These customers will be attracted to National Furniture quality products.

National Furniture intends to expand its customer base in the tri-state area by aggressively promoting the additional value of consulting services it will provide and by capitalizing on its reputation more extensively. A complete training of the sales force coupled with significant advertising expenditures will accomplish this objective.

The Business 7


History of the Business

Twenty-seven years ago, STATEWIDE LUMBER CO. was started as a lumber yard in the tri-state area. L&L FURNITURE had been around for nearly as long and was the leading furniture manufacturer in the area as well as being STATEWIDE’s number one customer.

The owner of L&L, John L. Woodland, had owned the company since its beginning. For the first three years, John ran L&L by himself. The business operated at a profit from the beginning, making Mr. Woodland enough money to live and to reinvest some profits in advertising. In the fourth year of operation, John borrowed money, hired workmen, and began selling his designs to a local department store on consignment. It was at this point the business began to rapidly expand.

L&L quickly attracted attention as a reputable brand manufactured in the area and, in the fifth year, began to receive orders from other department stores. In the seventh year, John hired administrative support personnel, more workmen, and moved L&L to new facilities. The company continued to grow until, thirteen years later, L&L, John Woodland' s business reached $10 million in yearly sales.

For the next four years, L&L weathered economic trouble in the tri-state area. While the furniture market was hit hard, L&L' s reputation sustained company sales at $10 to $11 million dollars each year. However, the company was not well prepared for this unprecedented period of flat sales, and rising costs began to eat into profit margins. Three years ago, the area's economic situation began to improve, and sales began to climb again. Unfortunately, accelerating costs continued to erode the company's profitability.

Tragically, at the beginning of L&L' s twenty-sixth year in operation, John was killed in a boating accident leaving no one in charge of the business. That year was the worst year in L&L' s history, and the company ultimately went out of business.

STATEWIDE LUMBER's owner, Bob Wood Jr., has realized that his lumber business will be severely hurt by the loss of his biggest customer. He has further realized that the loss of L&L has left a large gap in the furniture market of the tri-state area. This potential problem has created an opportunity such that Bob Wood Jr. has decided to start his own furniture business to capitalize on the gap left in the market and to boost his own sagging lumber sales.

Founder of the Business

Bob Wood Sr. founded STATEWIDE LUMBER twenty-seven years ago. He believed in providing the highest quality lumber at a reasonable price to the residents of the tri-state area . In the twenty-six years that he ran STATEWIDE, the company never lost this vision. He instilled in his son, Bob Wood Jr., the same care for the residents of the tri-state area . Bob Wood Jr. is now dedicated to continuing his father’s vision of proudly providing quality, affordable products to people of the tri-state area .

In this same spirit, Bob Wood Jr. has decided to found National Furniture in order to provide high quality, low priced furniture to the residents of the tri-state area.

The Business 8


Management & Operations

Since his father’s retirement, Bob Wood Jr. has taken over management of STATEWIDE LUMBER CO. Bob Wood Jr. has worked at STATEWIDE since he was a child, officially becoming a full-time employee upon finishing college fourteen years ago at the age of twenty.

Bob Wood Jr. received a B.A. in Management from Smart University in 19XX. During school, he worked part-time at STATEWIDE but spent his summers as a business intern in different companies in Big City, USA, in order to broaden his business horizons. While working at ABC Consulting, Inc. one summer, Bob Wood Jr. made connections with the consultants that he is bringing into National Furniture to assist in turning the company around.

As President of National Furniture, Bob Wood Jr. will oversee all its operations, including its manufacturing facility, its wholesale warehouse, its two retail stores, and the consulting function.

National Furniture will be divided into four divisions: Warehouse, Manufacturing, Retail, and Consulting. The warehouse facility will include six employees who will manage incoming inventory and will make deliveries. One of those six persons will be a manager who will have responsibility for successful inventory management and reporting. The manufacturing facility will be the largest division, with twelve full-time personnel operating the machinery which makes the furniture. One of these twelve persons will be the manufacturing manager. The retail facilities will be two small retail outlet stores, one of which will have four employees, the other of which will have six. Each facility will have one manager. The consulting division will have three interior design specialists. These persons will report directly to Bob Wood Jr., who will manage this division. The administrative office will be comprised of one receptionist, Amy Spreadsheet, VP of Accounting; her assistant, Kevin Flowchart, VP of Operations and Human Resources; his assistant, and Bob Wood Jr. and his assistant.

Amy is intimately familiar with every aspect of the planned operations of National Furniture from the purchasing necessary for its manufacturing inputs, to its method of payroll for part-time employees. She will also be responsible for keeping the company's books.

Kevin Flowchart comes to National Furniture from a regional furniture manufacturer in another part of the country. Kevin has helped design the planned organizational structure and was vital in assisting Bob Wood Jr. in conceiving the consulting division for the company, which is now a bright star in the company’s future.

Amy and Kevin both have ample experience within the industry and have already provided invaluable advice and insight to Bob Wood Jr. However, Bob Wood Jr. has recommended to both Amy and Kevin that they seek to further their education and training in computerized information systems. Neither of these two individuals has substantial computer training beyond the skills necessary for their particular job description. Bob Wood Jr. believes computerizing the record keeping and communications could save the company a substantial amount of money. Thus, he has insisted that the three of them attend a management information class at Tri-State University two evenings per week.

The Business 9


Regulations & Licensing

National Furniture believes that in order to minimize liabilities it must adhere to any and all permit and licensing requirements. The following permits and licenses are needed in order for National Furniture to commence business:

- Fleet Vehicle License

- Manufacturer's Permit

- Permit to Conduct Business

- Resale License

- Retail Sales License

Objectives

Next year, National Furniture intends to capture an additional 4% market share over L&L's last year. National Furniture intends to aggressively court customers by emphasizing both its reputation for quality and its interior consulting division.

The Business 10


Market Ananlysis

Market Research

National Furniture is committed to the principle that a lack of furniture manufacturers in the tri-state area region is reducing the selection available to the residents and making the costs of quality furniture more expensive. This need was recognized after conducting interviews with residents and wholesalers.

Several articles in each of the tri-state area’s three major newspapers led Bob Wood Jr. to the conclusion that substantial potential existed in the interior design market there. At least two articles specifically mentioned the growth in demand for interior design consultants.

Another article related several anecdotes about interior design consultants who had assisted local tri-state area residents but only after the residents had actually made their furniture selections. In these cases, customers were invariably less than satisfied since the consultants did not know the available products and could not assist them in assembling an integrated and harmonious design. Yet another article mentioned that, for this same reason, businesses opening and relocating in the area were bringing in interior design consultants from several hundred miles away.

Finally, new, upscale housing developments are booming in the tri-state area. A local Chamber of Commerce press release announced that the total number of new homes built in the fifty mile radius at the core of the tri-state area was projected to increase 72% over the previous year. Based on this research, Bob Wood has concluded that the time is right for an aggressive expansion in the tri-state area. The following table (Market Segments) depicts the division of markets in the tri-state area:

Market Segments

SEGMENT Year 1 Year 2 Year 3 Year 4 Year 5

Dec 1999 Dec 2000 Dec 2001 Dec 2002 Dec 2003

Single Persons $12,885,097 24% $13,254,880 23% $13,580,985 22% $13,801,200 22% $14,205,365 22%

Families $19,588,467 37% $20,580,365 36% $21,390,450 35% $22,050,250 36% $23,100,201 36%

Businesses $20,948,273 39% $23,225,456 41% $25,550,705 42% $25,995,980 42% $26,895,960 42%

Total Market $53,421,837 100% $57,060,701 100% $60,522,140 100% $61,847,430 100% $64,201,526 100%

Market Growth Rate --- 7% 6% 2% 4%

Market Segments

Market Ananlysis 11


Target Market

The target market of National Furniture is comprised primarily of homeowners and small offices in the tri-state area. According to U.S. census statistics, the area includes roughly half a million persons, primarily concentrated in about fifty square miles.

The market for furniture products and design services is, according to a database of tri-state area businesses, about $53 million. However, many newspaper articles have related stories of consumers purchasing furniture and interior design services from out-of-area vendors at an increasing rate due to the lack of availability of expert service and the lack of awareness of local vendors.

National Furniture has compiled the following table (Target Markets) based on its own internal surveys:

Market Ananlysis 12


Target Markets

% of % of Sales

SEGMENT Targeted Year 1 Year 2 Year 3 Year 4 Year 5 Population* Dec 1999 Dec 2000 Dec 2001 Dec 2002 Dec 2003

Homeowners 55% 37% 40% 41% 41% 43%

Small Businesses 15% 32% 36% 37% 38% 39%

Educational and Non-Profit Institutions

2% 14% 10% 9% 8% 7%

Single Persons 65% 10% 7% 7% 6% 5%

Other - - 4% 4% 3% 4% 3%

Students 30% 3% 3% 3% 3% 3%

TOTAL 100% 100% 100% 100% 100%

* Source: i.e. U.S. Census Bureau (1996)

Market Ananlysis 13


Competition

Because National Furniture will be vertically integrated, it has competitors at several different levels.

On the manufacturing and wholesale level, there is no significant competition to National Furniture in the tri-state area. One company, Modern Furnishings, Inc. produces low-end furniture such as futons, student desks and bookshelves, and single and double bed frames. Modern Furnishings' market however, is much more limited -- they cater to students and young working singles. Nevertheless, National Furniture will, to some extent, compete with Modern Furnishings for display space at local wholesalers. Therefore, National Furniture will keep apprised of Modern Furnishings' wholesale network.

On a retail level, the company’s two factory-direct stores will compete primarily with two regional department store chains, SMITH's and JONES' . These two stores are well known for their service and selection which is primarily comprised of furniture made in other states and includes a few imported items. Their service and selection make them mandatory stops for most furniture consumers, and their advertising power sustains an image of reliability and convenience. However, both of these stores will also carry National Furniture products in their selection, so in reality, National Furniture will only compete against the brand name furniture contained in the store.

Three different stores owned by National Furniture Chain, Inc. carry only national brands and specialize in furniture. These stores have been in business for three years in the tri-state area and have had difficulties persuading the public that they are convenient places to shop. Its salespersons are not as knowledgeable and courteous as the department store personnel, and while they have a wide selection of furniture, it tends to be of very similar design. While the chain is a strong competitor in other regions of the nation, these local stores have had trouble maintaining the standards of quality for which the other locations are noted.

Because of the minimal choice in shopping locations and the lack of a wide selection of products, a few high-end customers actually travel a few hundred miles from the tri-state area to purchase furniture in the nearest large cities where several furniture wholesalers are located.

The interior design division that National Furniture will create will be competing with several local interior design consultants, out-of-area firms, and one boutique, Imma's Interiors.

None of the local design consultants have really made substantial dents in the market. These consultants do little advertising, finding their clients through friends and referrals, and they limit themselves to small homes and offices.

Imma's Interiors is a boutique with three consultants, all of whom have substantial background in interior decoration and design. Imma's Interiors has captured a sizable percentage of the market share.

Finally, many high-end homeowners and larger businesses bring in design consultants from outside the area. It is estimated these consultants currently account for about half of all the area' s gross sales in the design market.

National Furniture has decided to include its own interior design consulting division in response to these national consultants. Obviously, these national consultants are not familiar with National Furniture and will recommend that their clients purchase name-brand furniture. The increasing predominance of consultants in this area will be one of the major obstacles to National Furniture growth.

Market Ananlysis 14


National Furniture intends to launch an aggressive advertising and sales campaign to keep both the furniture and the consulting business at home. The synergistic effect from dual efforts on both fronts will assist National Furniture in its tactics for responding to the competition.

The competitive response to National Furniture is likely to be weak. The furniture chain stores will not want to respond to the company’s advertisements since they will want to sell National Furniture products also. The national furniture stores do not have the money to respond, and their parent company will not be interested in allocating advertising dollars for a response to a company where its stores are not competitive anyway. Similarly, out-of-area design consulting firms will not want to allocate their advertising budgets to the tri-state area. These firms typically have minimal advertising in their own home market and will not be prepared to respond.

The following table (Competitive Analysis) represents National Furniture various competitors:

Competitive Analysis

Description National Furnishings Smith's Jones' Imma's Interiors

Business Type all retail retail service

Size of Business medium large large small

Number of Employees (payroll) 39 85 67 5

Years in Business 27 29 19 3

Market Share 27% 21% 29% 38%

19xx Sales $12,758,490 n/a n/a $1,654,000

Growth Rate 0% n/a n/a 38%

Advertising Budget $1,275,849 $145,000 $220,000 $155,555

Greatest Strength vertical integration economies of scale economies of scale uniqueness

Key Weakness inefficiency price price no product

Price medium high high medium

Quality of Service high medium medium high

Profitability medium high high medium

Advertising Effectiveness high medium medium medium

Strength of Sales Force high medium medium high

Standing in Industry high medium medium high

Future Potential high high high high

Seriousness of Competition high high high high

Customer Profile

Sourcing should not be a major problem for National Furniture, since most of the raw material necessary can be purchased from STATEWIDE LUMBER, the owner, Bob Wood Jr.’s, other company. Still problems sourcing materials at some point are inevitable so National Furniture will hire consultants as needed to help them with any cost reduction strategies or improved sourcing strategies.

Customer Profile

Market Ananlysis 15


Description Year 1 Year 2 Year 3 Year 4 Year 5Dec 1999 Dec 2000 Dec 2001 Dec 2002 Dec 2003

Businesses

Businesses with sales over $100,000 515 589 620 635 670

Mean amount spent on furnishings $1,065 $1,239 $1,485 $1,685 $1,825

Households

Households with incomes $40,000 to $100,000

78459 81659 82995 84201 85859

Mean amount spent on furnishings (estimated)

$695 $786 $820 $850 $885

Households

Households with incomes over $100,000 23938 24958 25780 27600 28960

Mean amount spent on furnishings (estimated)

$2,850 $3,200 $3,410 $3,700 $3,960

Market Ananlysis 16


Marketing

Objectives

National Furniture will maintain a customer profile in order to continue to successfully position the business in the market place. All information will be derived from the 19XX U.S. Census and an electronic database of local demographic information. The following table (Customer Profile) represents a breakdown of the market in the interior furnishings and design industry:

Unique Selling Benefit

National Furniture’s marketing objective is to capture a 30% share of the market in design consulting sales in the next year. National Furniture intends to use an aggressive advertising campaign, coupled with a trained sales force, to lead in the tri-state area furniture and design market.

National Furniture intends to use massive advertising in the area to reiterate its commitment to quality, attractive furniture at a reasonable price, and to promote its expertise in consulting by emphasizing that its consultants have firsthand product knowledge. National Furniture will also train its retail sales force to be concerned with the functionality of the products in the homes and offices of its customers.

Selling Tactics

The unique selling benefit for National Furniture in the tri-state area will be its quality products and services. National Furniture brands will build a strong reputation for quality and dependability at an affordable price. This reputation will carry over to the consultants, who will market their skills as being just as dependable and reliable as the products they support. The commitment to excellence of the company and its trained consultants will be the greatest selling advantage its products have.

Marketing 17


Sales Targets

Products/Services January February March April May June July August September October November December Year19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx Total

Home Furnishings

Cash Sales $288,345 $285,197 $293,588 $207,263 $209,887 $224,846 $204,750 $295,659 $361,821 $261,588 $249,571 $237,464 $3,119,979

Sales on Account $50,500 $60,960 $61,230 $62,100 $60,200 $69,600 $53,450 $48,510 $44,100 $44,230 $12,330 $14,420 $581,630

Business Furnishings

Cash Sales $388,732 $399,578 $390,065 $391,500 $393,276 $391,693 $398,097 $372,165 $381,765 $387,701 $287,364 $392,485 $4,574,421

Sales on Account $15,630 $16,400 $17,800 $17,000 $14,600 $13,200 $16,800 $17,200 $13,600 $14,620 $10,200 $12,300 $179,350

Interior Design Services & Related Sales

Cash Sales $283,285 $290,915 $288,318 $261,487 $290,387 $278,050 $297,807 $295,963 $303,385 $273,754 $301,322 $303,777 $3,468,450

Sales on Account $18,600 $25,200 $20,250 $21,600 $22,900 $23,600 $18,600 $16,150 $24,570 $16,900 $25,600 $26,200 $260,170

Total Cash Sales $960,362 $975,690 $971,971 $860,250 $893,550 $894,589 $900,654 $963,787 $1,046,971 $923,043 $838,257 $933,726 $11,162,850

Total Sales on Account $84,730 $102,560 $99,280 $100,700 $97,700 $106,400 $88,850 $81,860 $82,270 $75,750 $48,130 $52,920 $1,021,150

TOTAL SALES $1,045,092 $1,078,250 $1,071,251 $960,950 $991,250 $1,000,989 $989,504 $1,045,647 $1,129,241 $998,793 $886,387 $986,646 $12,184,000

Marketing 18


Sales Targets

Pricing

National Furniture will employ salespersons for its retail sales facilities. These individuals will be trained professionals in the furniture market. They will be taught the specific niche that National Furniture brands fill in the market and will learn how to carefully identify the needs of customers, and to recommend the most appropriate products. National Furniture management will remain in constant contact with its sales force, because they will be continually in contact with customers. The customer feedback received from the sales force will provide valuable insight into new products and services.

The retail personnel at National Furniture will also be taught how to follow-up on leads they receive. As inquiries come in from prospective clients (whether homeowners or business professionals), the retail staff will send direct letters to these persons offering a consultation and a written, customized assessment of their furnishing needs. High-end clients will prove to be exceptionally responsive to this strategy.

However, the rise in popularity of interior design consultants will make the job of the company’s retail sales personnel more difficult than merely selecting furniture based on a customer's request. Customers will often come to National Furniture without a specific request in the hope that their personnel will not only recommend a type of furniture based on their description but will actually be able to describe options in furnishing strategies to them.Thus, National Furniture has committed to training each of its retail personnel in advanced interior design and decor planning and will advertise their expertise. Since interior design services are in such demand in

Marketing 19


the area, it is expected that these strategies will work together to produce a substantial number of leads, both for the interior design consultants and for the retail furniture sales force.

Further, in order to effectively monitor and respond to potential changes in customer needs and wants, National Furniture will provide for a customer feedback mechanism. With every sale of furniture or interior design assistance National Furniture will include a business reply postcard which will ask the customer to provide National Furniture with information pertaining to their satisfaction with the products or services they have been sold and with the company itself, as well as the customer’s plans regarding furniture or design needs in the future. Similarly, these evaluation cards will be made available in showrooms along with their products. The company has plans to evaluate responses to the survey in order to more effectively serve its customers and to strategically plan the future of the business based, in part, on the feedback the customers provide.

The following table (Sales Targets) displays data for National Furniture projected sales:

Price Comparison

Products/Services Company High End Markup Low End Markup

Home Furnishings National Furniture Chain 84% 45%

Smith's 79% 42%

Jones' 73% 49%

Out of Town Stores 77% 44%

National Furnishings 51% 35%

Business Furnishings James furnishing 67% 32%

Global office furniture 58% 33%

Company #3 0% 0%

Company #4 0% 0%

National Furnishings 74% 29%

Interior Design Services & Related Sales Imma's $70/hour $60/hour

independant consultants $35-$60/hour $25-$40/hour

out-of-town consultants $60-120/hour $50-$90/hour

Company #4 0% 0%

National Furnishings $50/hour $35/hour

Marketing 20


Channels of Distribution

It is the goal of National Furniture to be price competitive with any comparable product in almost any market. National Furniture will make a conscious effort to minimize its own internal costs and to pass that cost savings on to the consumer.

National Furniture has an advantage in that it will be the only company of its kind manufacturing in the tri-state area. Thus, it anticipates much lower transportation and inventory costs than its competitors. National Furniture products will represent a value given their quality, and this attribute, more than anything else, will keep the company’s sales robust .

National Furniture typically expects to mark up its final product by roughly 50% over the cost of its raw material input. Additionally, because National Furniture consultants will make a commission on the furniture they sell, they will not rely solely on consulting fees for their income. Therefore National Furniture will be able to substantially undercut the price of competitors who must cover their wages solely with consulting fees. The company’s sales consultants will have the option to waive fees for design when a customer makes an unusually large furniture purchase (over $50,000, for example).

The following table (Price Comparison) represents the pricing structure National Furniture intends to implement for its products and services:

Advertising

One of National Furniture’s strongest features of its channels of distribution will be vertical integration. National Furniture will be almost completely self-sufficient as a company in its manufacturing and selling operations, and will take advantage of a very tight distribution chain in order to hold costs down and get its products to market as quickly and efficiently as possible.

National Furniture will manufacture almost all of its final products. Only some screws and knobs affixed to the final products will be outsourced. (For more information on the process by which National Furniture will obtain these inputs, please see the Sourcing section of the OPERATIONS chapter of this business plan.)

National Furniture will manufacture ready-to-use furniture, which it will deliver directly to one of three places: its warehouse for inventory, a wholesaler, or one of its two retail outlets. (For more information on the inventory destination, please see the Inventory section of the PRODUCT chapter of this business plan.)

National Furniture will use two wholesale department stores to facilitate distribution of its goods to consumers. National Furniture had entertained the idea of exclusively selling its furniture through its own retail outlets but realized the additional prestige of being carried in fine department stores would make its products more salable, both in the department stores, and in its own stores.

In addition, the effect of cannibalization from competing sales will be small since consumers who tend to shop at upscale fashion malls differ from those who frequent factory-direct outlets. Nevertheless, the products sold will be the same, only the means of distribution will be different in this case.

The consulting services that will accompany product sales will be offered solely by National Furniture. No other companies will be authorized to provide official consulting services for National Furniture products.

Marketing 21


This added value will help bring the consulting division into the mainstream of channels of distribution, since the consultants will often be able to ease the transition between consumer interest and purchase. The expert opinions provided by the National Furniture consultants will make them valuable facilitators in the channel of distribution.

Marketing 22


Advertising

MEDIUM January February March April May June July August September October November December Year19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx Total

Tri-State Daily Express $56,774 $57,854 $46,874 $49,767 $47,774 $46,987 $49,578 $50,754 $48,875 $40,754 $41,845 $41,145 $578,981

Tri-State Rival $5,249 $5,549 $4,987 $7,875 $6,549 $9,549 $6,478 $7,578 $6,547 $6,786 $4,126 $4,549 $75,822

Local Yellow Pages $13,650 $0 $3,578 $3,578 $3,578 $3,578 $3,578 $3,578 $0 $0 $0 $2,478 $37,596

Radio/Television Advertisements $31,114 $34,415 $32,786 $29,184 $31,457 $0 $23,560 $24,347 $33,578 $29,557 $33,574 $33,241 $336,813

PROMOTIONS $12,987 $13,974 $11,586 $14,785 $13,974 $18,576 $14,875 $14,025 $14,679 $14,875 $14,478 $11,974 $170,788

PUBLICITY AND PUBLIC RELATIONS

$75,750 $77,570 $75,125 $77,785 $86,251 $85,750 $47,145 $82,895 $51,974 $85,875 $51,858 $63,712 $861,690

TOTAL SPENDING $195,524 $189,362 $174,936 $182,974 $189,583 $164,440 $145,214 $183,177 $155,653 $177,847 $145,881 $157,099 $2,061,690

GROSS SALES $1,045,092 $1,078,250 $1,071,251 $960,950 $991,250 $1,000,989 $989,504 $1,045,647 $1,129,241 $998,793 $886,387 $986,646 $12,184,000

Percentage of Gross Sales 19% 18% 16% 19% 19% 16% 15% 18% 14% 18% 16% 16%

Marketing 23


Advertising

Promotions

National Furniture should enjoy great success from its advertising campaigns. Most of these successes, likely in terms of increased sales, will come in the print media, but its limited spots on both a local radio station and a local television station should be very successful as well.

The commercials and advertisements will be designed and planned by Bob Wood and will simply be announcements of sales, or straightforward talk about the reliability and price competitiveness of National Furniture products. The logo of the company in the newspaper advertisements and National Furniture no-nonsense, plain-talking attitude are sure to become a hallmark in the tri-state area.

The advertising is projected to be so effective that Bob Wood has decided to increase advertising expenditures, with the intent of increasing sales, across the board over years two and three.

The following table (Advertising) depicts the projected initial and longer-term advertising expenditures for National Furniture. The advertising budget will include budgets for promotions, as well as for publicity and public relations. These topics are covered separately, however, in the next two sections.

Marketing 24


Publicity and Public Relations

National Furniture has effective promotional strategies underway, which will serve the company well.

The company will provide calendars to both its wholesalers and retail customers. The company's interior design consultants will also take these calendars with them on sales calls to area merchants. Each month of the year will have a picture above it which will display an interior done by National Furniture consultants using the company’s furniture. Retail customers will also receive a book of movie tickets to the local cinema with each purchase from one of the company’s two retail outlets.

As an incentive to its retail sales force, National Furniture will commit to paying one tenth of its advertising budget each year in sales bonuses to high-selling employees. The money is divided into bonus awards for performance based on each employee’s expectations for that quarter as determined by National Furniture with the help of the retail sales managers.

Finally, National Furniture is aware of the need to take advantage of special opportunities for promotions. Therefore, it will budget an extra $27,000 this year for ad hoc promotional campaigns based on the market sensitivity.

Marketing 25


The Product

Product Decisions

National Furniture wants to build a solid reputation in the tri-state area as a company that produces quality products at a reasonable price. In addition, it will also attempt to build a reputation as a caring employer that works hard to promote positive influences in the community.

National Furniture intends to have a team of community service worker-employees who will volunteer one weekend each month in service to the elderly members of the tri-state area community. The positive results from this program will be immense. As a result of the media's tendency to focus on such programs, National Furniture will receive much favorable attention.

National Furniture also intends to give away a substantial amount of free furniture each year to persons who have suffered tragedies in their lives, such as deaths of relatives or natural disasters.

Production

National Furniture is developing a product mix which will capitalize and focus on its core competencies. As a newcomer to the market, National Furniture has considered other furniture materials such as plastic, steel, and glass but has rejected the possibility of diversifying this way.

Some of the reasons include:

> The expense necessary in initiating additional production facilities.

> The increased demands this would place on its sales personnel.

> The market in the tri-state area not being firm for alternative furniture designs.

> Formidable competition in the alternative furniture materials market.

> The much smaller margins than exist for wood products.

National Furniture will design distinctive products. The basic design of the company’s products will be classical wood furniture. It is this look which continues to sell in the tri-state area.

National Furniture will have the advantage of being the only real wood furniture manufacturer for its market in that area. Since it will also be small enough to avoid capturing the attention of national manufacturers, its product designs won' t be copied unless National Furniture tries to expand and market its products beyond the tri-state area.

The Product 26


National Furniture will carefully avoid creating too many product designs in order to prevent cannibalization of its own products -- a real danger since it has committed itself to a single, limited category of furniture style. National Furniture has essentially decided on two product lines; one based on cherry with a rich stain for a look of elegance, the other based on oak with a light stain for a classic look. The two looks have almost the same design but are distinctive enough in appearance that they will not compete with each other. Rather, they will offer the client a choice between styles which will help to sustain sales.

Inventory

National Furniture will rely primarily on raw materials such as lumber, nails, and glue to make its furniture products, although some merchandise must be bought on a wholesale basis to be affixed to the final product (for example, drawer knobs, hinges, etc.). Both the raw materials and the wholesale products will be classified as purchases for the purpose of financial statements.

The manufacturing facility will be a giant warehouse, divided by partition into five large areas, with a small office for the manufacturing manager, including a kitchen and restroom facilities for the employees. One of the areas will be a receiving and storage area for raw materials and auxiliary items to be used in producing the furniture. A second area will be used for the cutting and sanding of the wood products. A third area will be used in assembly line fashion to assemble the final furniture product. A fourth area will be dedicated to staining/painting the final product. A fifth area will serve as the stock house for inventory as it awaits pickup and delivery.

National Furniture will rely on skilled craftsmen for the production of its furniture products. These craftsmen will be assisted by precision machinery in both the drafting and design of the final product.

Drafting at National Furniture will be done at the most advanced levels. Furniture will not be designed by hand, but will be electronically envisioned through CAD (computer assisted drafting) even before being built as a prototype. The company will use desktop 486 technology for this purpose.

National Furniture intends to buy the newest and best machinery available in order to defray the costs of errors and mechanical failure, characteristic of the older machines. The new technologies are relatively easy to learn, and are definitely easier to operate than the outdated processes. Retraining labor and locating skilled labor to operate these machines will pose no challenge. Thus, a program of purchasing the best available equipment is a beneficial use of the company’s capital.

The Product 27


Quality Control

National Furniture will use an inventory tracking and shipping system designed by Amy Spreadsheet. Amy's background as an accountant in the furniture business has given her substantial industry-specific experience with such systems. She purchased a software package designed by ABC Consultants specifically for use in the furniture industry, and is tailoring it to meet the specific needs of National Furniture.

National Furniture will produce and ship several million dollars worth of inventory each year, and deliveries will be made on a daily basis. The company will have a limited production capability, so ability to supply demand and warehousing needs will be calculated according to production schedules. (For more information on this process please see the Operations Analysis section of the Operations chapter of this plan.)

Inventory will be secured against theft and fire through advanced systems. A state of the art sprinkler system which sprays fire retardant chemicals will be installed in the warehouse and checked every six months. The area of the warehouse where the inventory is stored will be double-deadbolted with top locking mechanisms on the two doors, the outer one of which will be made of steel. National Furniture will be well prepared against damaging fire or robbery and will maintain paid up insurance policies.

National Furniture plans to make efficient use of its inventory space by turning over its entire inventory approximately twice a month. Although National Furniture will apportion value to its inventory space based on the cost of goods sold (see the Assumptions section of the Finances chapter of this plan for more information), it will also track its inventory turnover based on the value of the finished product. The warehouse, when operating at capacity, will hold approximately $500,000 worth of finished product.

The Product 28


The Service

Service Description

National Furniture will be firmly committed to maintaining a reputation as a manufacturer of fine, quality furniture and will implement significant quality control measures. At the manufacturing level, all raw materials will be inspected for defects upon delivery. Material judged by the manufacturing warehouse manager to be less than 95% pristine based on an extensive and rigid checklist will be returned. Spot checks will be performed by the manager at random intervals during the production process. Additionally, each piece of furniture will be inspected by a different member of the warehouse, and each member of the warehouse team will be completely trained in inspection techniques before being allowed to begin work.

At the retail stores, each manager will be trained to review employee performance through random monitoring and customer follow-up techniques. An extensive checklist will be used for evaluation purposes, and managers will be expected to review every employee's checklist each week.

Finally, National Furniture will employ independent consultants to perform quality control samples at the manufacturing, wholesale, and retail level for each employee. These will be surprise visits. Only Bob Wood will know when to expect them, and the evaluations will also include the Vice Presidents of the company. National Furniture will also hire a team of consultants to conduct random inspections of the machinery for precision and uniformity.

As a result of these measures, the National Furniture standards for quality control will be among the finest in the industry.

Related Products

National Furniture also intends to establish an interior design consulting division. The market in the tri-state area is booming, and the demand for consultants who specialize in specific product lines is immense.

National Furniture intends to hire three consultants who have university degrees to provide clients with detailed knowledge of National Furniture line of furniture. More importantly, however, the consultants will provide the expertise to assure that the furniture schemes are designed perfectly for the user's requirements and desires before any purchasing decisions have been made.

In addition to furniture products, the consultants from National Furniture will be experts in the use of space, color, and perspective. National Furniture interior design consultants will do hypothetical room layouts in blueprint form to satisfy the customer's desire for choices. These consultants will also maintain a cache of impressive references for the prospective client's consideration.The consulting services National Furniture will provide will extend to the preparation of a design and layout for the home or office. They will also include assistance in selecting, locating, negotiating, and ordering the

The Service 29


product, and the arrangement of the product in the designed space. The consultants will not include assistance in wallpaper or works of art, although, they will design layouts and select furniture to match these.

The Service 30


Operations

Operations Analysis

The National Furniture consulting division will provide its clients access to National Furniture products. The consultants will be able to obtain other products for clients as well, but these will almost always be non-competing type products offered when the clients' needs call for a completely different product type. National Furniture consultants will be typically hired for their knowledge of National Furniture products however, in most cases the sale of National Furniture furniture will be a fait accompli. (For more information on the products central to the National Furniture consulting services, please see the Product chapter of this business plan.)

Location & Facilities

National Furniture is concerned with the quality of its products so effective manufacturing processes are critical to the company's success. (For more information about the inputs into the production process as well as quality control of that process, please see the appropriate chapters in the OPERATIONS section.)

Production scheduling is a function of allocating the company’s limited manufacturing resources correctly to fill both real orders and anticipated demand, within the constrains of the National Furniture inventory warehouse space. The quantity of items produced and the production schedule will be delivered weekly to the manufacturing manager by Amy Spreadsheet. She will use a complex inventory counting and tracking program which will interact with the National Furniture order processing system. Essentially, Amy Spreadsheet will effectively balance the interests of the National Furniture inventory controls, customer demand, and manufacturing constraints through the use of this system.

Technology/R&D

The National Furniture administrative office, manufacturing facility, and warehouse will be located on Highway 6, about nine miles east of downtown. The location of National Furniture was strategically planned so that it will be far enough outside the city limits to avoid city ordinances for noise and traffic due to operations; however, the facility will be positioned along a major highway only three miles from the interstate which links the tri-state area. This location will provide National Furniture with excellent supply routes to its retail stores, including delivery routes to its wholesale customers.

National Furniture will have two retail stores which will be located in North Suburbia and Eastern Outskirts, both across from popular malls on the edge of town. These locations promise to contribute significantly to the overall sales of the company.

Operations 31


National Furniture will also locate its interior design consultants in a small office space in the downtown area for closer proximity to corporate clients. However, at least one of the consultants will meet with clients either in a residential area or at one of the retail store facilities.

Sourcing

National Furniture will rely on new technology for its manufacturing process. National Furniture proposes to purchase new, state-of-the-art technology because of the inherent problems with the designs of the older, lower-tech models.

In addition to the massive cost saving that can be realized using these machines, the company will also be capable of producing more advanced product designs and of replicating them more quickly. This will enable National Furniture to expand the sales effort. The purchase of new technology is vital to the company’s long-term viability as a furniture manufacturer.

Labor

National Furniture has found that an excellent labor pool exists in the tri-state area. The average worker at National Furniture should have at least two years of college education and must have graduated from high school.

For its manufacturing facility, National Furniture will require workers with artisan-level craftsmanship, demonstrated through solid work experience. National Furniture will hire extraordinarily skilled individuals for assembling and finishing the furniture pieces it creates. Each worker will be individually tested for aptitude with the machines used before being hired, and each will have to demonstrate his or her ability to operate at least one key machine in the National Furniture facility before being hired.

National Furniture also has found a fertile base for sales personnel recruits at the local university. Thus, National Furniture is able to be extremely selective in recruiting individuals for these positions.

Kevin Flowchart will serve as the compliance officer for human resources and labor purposes. Kevin will stay familiar with legislation regarding all forms of discrimination, fair hiring practices, etc., and will periodically issue memos clarifying company policies on these issues.

Cost Control

National Furniture will initiate an aggressive cost-control system, to prevent costs from escalating throughout the company, particularly in the production process where preventing eroding profit margins will be a high priority.

Bob Wood Jr. has also hired ABC Consulting, an international consulting organization with whom he had established ties as a college intern. Working closely with ABC Consultants, Bob Wood Jr. will make great strides in implementing a cost containment program and a timetable to be implemented with it. The table (Cost Containment) is a basic version of the expected timetable.

Operations 32


The self-directed, cost audit containment will be comprised of several programs to be used for internal cost control purposes. Four of the programs are mentioned above. The Cost Reduction Reward Program will be designed to enable employees to earn bonuses based on the projected cost savings of the suggestions they provide.

Bob Wood will also direct Kevin Flowchart to conduct a periodic analyses of the management structure of the company to determine if any alternative organization of that structure would result in significant savings

The two Vice Presidents, Kevin Flowchart and Amy Spreadsheet, will conduct thorough reviews of the National Furniture insurance and outside services portfolio to allow for substantial savings through combining certain services and restructuring coverage. Amy Spreadsheet has also dramatically reduced costs by developing an effective plan for purchasing raw materials and supplies that are used in production processes and front offices. Monitoring these purchases has allowed National Furniture to budget its expenses more efficiently.

The External Cost Audit portion of the Cost Containment Strategy program will be designed to review and implement specific suggestions of the ABC Consulting Company.

The Production Cost Audit portion of the Cost Containment Strategy is the area in which the most substantial savings can be realized. Upon the recommendation of ABC Consulting, National Furniture will conduct a vigorous study of the potential for cost savings in the production input area to follow-up on ABC' s studies.

Finally, a current study by National Furniture has also confirmed ABC's analysis that National Furniture should make a substantial investment in new machinery. This modern machinery will increase the company’s net assets over the long-term and will enable National Furniture to purchase more equipment to support increased sales.

Operations 33


Cost Containment

Item Program Name\Task Name Impl. Date Review Date

1 Self-Directed Cost Audit

Cost Reduction Rewards program 1/1/19XX 1/31/19XX

Management Structure review 2/12/19XX 3/18/19XX

Outside Services review 2/19/19XX 3/12/19XX

Insurance portfolio review 2/12/19XX 2/21/19XX

2 External Cost Audit

ABC Consulting Followup Review 3/1/19XX 4/1/19XX

ABC Cost Reduction Implementation 1/1/19XX 3/1/19XX

3 Production Cost Audit

Purchasing diversification 1/1/19XX 2/15/19XX

New Machinery 10/15/19XX 12/31/19XX

Operations 34


Risks

Description of Risks

The management team at National Furniture has critically analyzed the company and the market and has identified two major areas of risk for the company:

> Diversion from core competency.

National Furniture is in the process of starting up, and part of this entails the aggressive promotion of its consulting services division. National Furniture is a new company, and there is the danger that this booming service division will grow very quickly thereby distracting the company from its mission statement of providing fine quality furniture and consulting services.

> Implications of fast growth.

The current start up plans call for rapid growth in both consulting and furniture sales. These goals, coupled with National Furniture modern production process, will lead to a fast pace of activity. This will have profound implications for National Furniture in terms of its employment possibilities, its computer systems, and its management structure. There is a danger that National Furniture will expand its sales orders and accounts faster than the company can adapt to its environment.

Contingency Plans

In response to the major risk factors identified, National Furniture has formulated the following plans:

> Diversion from Core Competency

National Furniture will not allow its mission statement to be diluted. Therefore, it has included in its mission statement the use of consulting as another means of implementing the mission itself. Since the public increasingly demands guidance in purchasing the products that National Furniture produces and integrating them into their spaces, the company has decided to include the consulting division as a way to fulfill its mission statement of making these products more accessible to the public.

National Furniture will commit itself to maintaining its core competency, the making of high quality, classic, wood furniture. In order to do this, it will divorce its consulting operation from its production facilities and will provide the consulting arm of the company with only limited support through its retail system. The consulting department will operate with its own line items under each budget item, and will place orders with the company through its wholesale and retail line as do other companies. Once the orders are received they will be given priority, but the consultants will not have direct access to the computers or specific resources of the other divisions.

Risks 35


Finally, there will be no intersection in the management structure of the company. Kevin Flowchart and Amy Spreadsheet, the two vice-presidents, will have no supervision of, and little interaction with the consultants. This division will report directly to Bob Wood Jr., with no manager in the middle.

As the consulting division grows, Bob Wood will consider creating a separate corporate structure for the consulting division with its own management, and National Furniture as the holding company.

> Implications of fast growth.

The company will have frequent management meetings to discuss the potential for quick growth, and to formulate a number of tactics to identify problems and smooth the transition.

First, National Furniture will commit to detecting transition problems in their infancy. Because this is not always easy, Bob Wood has developed ten benchmarks to serve as triggering points for reevaluation of the company’s growth. For example:

> if a manager ever becomes responsible for more than ten persons at one time, that position will be immediately assessed for signs that it is becoming overburdened.

> if employees in a division are consistently putting in more than 50 hours per week, that division will be re-evaluated for signs that it is becoming overburdened.

> if gross sales exceed 7% over the previous year on an annualized basis, for a one-month period in the retail division, a meeting will be called with all employees to investigate hiring and promotion needs.

Second, National Furniture will be committed to early education of employees about the changes that can occur with the anticipated rapid growth. A series of five company-wide seminars will be held periodically in order for top management to present ideas on their possibility of modernizing computer systems, hiring efforts, and their anticipated effects on the corporate structure, as well as personnel policy changes that may occur as a result of growth.

Third, National Furniture will use ABC Consulting to review its growth patterns and the subsequent effects on the organization every six months for the next three years since ABC Consultants have several noted authorities on managing growth in organizational development.

Risks 36


Finances

Assumptions

National Furniture will use the following assumptions in the preparation of its financial statements. All calculation methods adhere to Generally Accepted Accounting Principles.

> The method of inventory valuation will be used on a last-in, first-out basis.

> The cash method of accounting will be used.

> A straight line depreciation formula will be used.

Sources and Uses of Capital

In order for National Furniture to successfully complete its start-up plans, an investment of $1,250,000 will be required. The owner will contribute $250,000 of his own money and require $1,000,000 financing from a lender. The business requires a $1,000,000 loan that will be repaid in monthly installments at 12% interest and within 6 years. The table below (Sources and Uses of Capital) represents how the funds will be utilized in a one year period. National Furniture will primarily use the money in three areas: to purchase manufacturing equipment, to train sales people, and to bolster working capital while the company gets started.

Finances 37


Sources and Uses of Capital

Description Amount

S O U R C E S

Business Loan $1,000,000

Owner Investment $250,000

TOTAL SOURCES $1,250,000

U S E S

Sales Training Program $175,000

Capital Equipment Purchase $625,489

Capital Equipment Installation $87,194

Working Capital Infusion $362,317

TOTAL USES $1,250,000

Finances 38


Balance Sheet

The following table (Balance Sheet) provides an overall picture of the company's anticipated assets and liabilities:

Balance Sheet

Description Year 1 Year 2 Year 3 Year 4 Year 5Dec 1999 Dec 2000 Dec 2001 Dec 2002 Dec 2003

A S S E T S

Current Assets

Cash - Checking $4,380,110 $5,769,848 $8,964,945 $13,515,655 $19,951,093

Accounts Receivable $499,900 $488,280 $802,296 $906,340 $840,608

Inventory $1,717,200 $1,120,325 $1,000,000 $850,000 $839,250

Total Current Assets $6,597,210 $7,378,453 $10,767,241 $15,271,995 $21,630,951

Fixed Assets

Plant Improvements $1,110,089 $1,800,000 $1,350,080 $1,550,230 $1,459,865

LESS: Accum. Deprec.- Improvements $85,005 $190,500 $165,254 $165,850 $150,250

Furniture and Fixtures $360,150 $487,860 $564,310 $262,250 $0

LESS: Accum. Deprec.-Furniture/Fixtures $18,250 $22,860 $26,800 $12,250 $0

Vehicles $107,400 $225,084 $154,700 $0 $0

LESS: Accum. Deprec.-Vehicles $4,800 $10,430 $7,510 $0 $0

Total Fixed Assets $1,469,584 $2,289,154 $1,869,526 $1,634,380 $1,309,615

TOTAL ASSETS $8,066,794 $9,667,607 $12,636,767 $16,906,375 $22,940,566

L I A B I L I T I E S A N D E Q U I T Y

Current Liabilities

Accounts Payable $129,824 $550,712 $1,672,530 $2,677,035 $4,230,217

Federal W/H Taxes Payable $120,000 $175,000 $178,000 $176,000 $169,000

FICA W/H Taxes Payable $11,500 $11,650 $12,200 $11,950 $12,200

State W/H Taxes Payable $8,960 $9,600 $9,875 $9,740 $9,150

Notes Payable $1,323,065 $1,032,865 $757,595 $492,175 $236,400

Total Current Liabilities $1,593,349 $1,779,827 $2,630,200 $3,366,900 $4,656,967

Equity

Paid-in Capital $5,503,940 $6,515,447 $8,105,533 $10,977,886 $15,237,236

Retained Earnings $969,505 $1,372,333 $1,901,034 $2,561,589 $3,046,363

Total Equity $6,473,445 $7,887,780 $10,006,567 $13,539,475 $18,283,599

TOTAL LIABILITIES AND EQUITY $8,066,794 $9,667,607 $12,636,767 $16,906,375 $22,940,566

CURRENT RATIO 4.14 4.15 4.09 4.54 4.64

Finances 39


Cash Flow Statement

The following table (Cash Flow Statement) covers the projected first year cash flow for National Furniture. National Furniture will use the Cash Flow Statement to help in the creation of its yearly budget and goals.

Finances 40


Cash Flow Statement

Description January February March April May June July August September October November December Year19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx End

R E C E I P T S

Beginning Cash Balance $250,000 $504,633 $587,156 $673,175 $642,348 $631,397 $572,591 $600,478 $809,712 $1,094,873 $1,180,686 $1,176,316 $1,176,316

Cash Sales $960,362 $975,690 $971,971 $860,250 $893,550 $894,589 $900,654 $963,787 $1,046,971 $923,043 $838,257 $933,726 $11,162,850

Accounts Receivable $34,730 $36,560 $28,280 $40,700 $47,230 $56,400 $38,850 $56,960 $42,770 $45,720 $41,130 $51,920 $521,250

Owner Investment $250,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $250,000

Loan Proceeds $0 $0 $0 $0 $0 $0 $0 $200,000 $200,000 $200,000 $200,000 $200,000 $1,000,000

Total Cash Available $1,495,092 $1,516,883 $1,587,407 $1,574,125 $1,583,128 $1,582,386 $1,512,095 $1,821,225 $2,099,453 $2,263,636 $2,260,073 $2,361,962 $2,361,962

D I S B U R S E M E N T

Purchases (collateral material) $470,000 $423,600 $430,200 $432,100 $443,412 $510,165 $445,800 $420,300 $463,223 $468,600 $488,700 $548,500 $5,544,600

Advertising $195,524 $189,362 $174,936 $182,974 $189,583 $164,440 $145,214 $183,177 $155,653 $177,847 $145,881 $157,099 $2,061,690

Repairs and Maintanence $4,600 $5,438 $5,280 $5,042 $5,320 $5,410 $5,480 $5,120 $4,950 $4,930 $5,920 $1,785 $59,275

Leasehold Improvements $50,780 $51,600 $52,875 $50,120 $53,285 $48,750 $49,700 $52,900 $57,093 $88,442 $89,630 $84,100 $729,275

Entertainment $2,005 $2,148 $2,240 $2,110 $2,260 $2,350 $2,178 $2,190 $2,300 $2,280 $2,000 $1,700 $25,761

Insurance $14,965 $14,800 $13,200 $12,900 $11,400 $14,500 $12,684 $14,610 $12,850 $13,900 $14,700 $14,710 $165,219

Legal Expenses $0 $0 $0 $0 $0 $25,600 $25,600 $29,400 $28,640 $33,520 $26,820 $43,500 $213,080

Office Supplies $13,405 $12,600 $14,200 $13,820 $11,258 $11,050 $14,600 $11,800 $13,600 $13,100 $13,229 $15,180 $157,842

Outside Services $16,819 $19,819 $20,180 $19,500 $20,410 $20,900 $19,400 $18,750 $20,430 $18,620 $21,500 $21,560 $237,888

Postage $2,100 $2,050 $1,960 $2,300 $2,410 $2,250 $2,000 $2,400 $1,950 $2,250 $2,600 $2,700 $26,970

Taxes (Fed., Sales, State) $23,000 $23,600 $23,600 $23,500 $23,200 $23,200 $23,760 $23,600 $23,600 $23,500 $23,200 $22,200 $279,960

Telephone $18,900 $17,500 $18,600 $19,750 $15,900 $13,200 $12,000 $17,600 $12,800 $14,670 $15,420 $12,750 $189,090

Selling Expenses $64,741 $47,500 $34,741 $34,741 $34,741 $52,740 $34,741 $34,710 $34,741 $34,741 $34,741 $34,741 $477,619

Travel Expenses $3,500 $4,210 $2,800 $3,720 $3,610 $3,120 $2,760 $3,556 $2,050 $3,500 $4,556 $4,614 $41,996

Wages $103,000 $106,900 $111,600 $104,900 $109,742 $102,600 $106,800 $113,600 $96,200 $110,600 $121,600 $116,500 $1,304,042

Other $7,120 $8,600 $7,820 $9,300 $10,200 $9,520 $8,900 $11,200 $8,900 $7,850 $9,660 $10,500 $109,570

Loan Payment $0 $0 $0 $0 $0 $0 $0 $50,000 $50,000 $50,000 $50,000 $37,490 $237,490

Total Disbursement $990,459 $929,727 $914,232 $916,777 $936,731 $1,009,795 $911,617 $994,913 $988,980 $1,068,350 $1,070,157 $1,129,629 $11,861,367

OPERATING CASH $504,633 $587,156 $673,175 $657,348 $646,397 $572,591 $600,478 $826,312 $1,110,473 $1,195,286 $1,189,916 $1,232,333 $1,232,333

Interest Paid $0 $0 $0 $15,000 $15,000 $0 $0 $16,600 $15,600 $14,600 $13,600 $12,700 $103,100

ENDING CASH BALANCE $504,633 $587,156 $673,175 $642,348 $631,397 $572,591 $600,478 $809,712 $1,094,873 $1,180,686 $1,176,316 $1,219,633 $1,219,633

Finances 41


Cash Flow Projections

Income Statement

The following table (Income Statement) provides an overview of the company's first year projected income:

Finances 42


Income Statement

Description January February March April May June July August September October November December Year19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx 19xx End

EARNINGS

Gross Sales $1,045,092 $1,078,250 $1,071,251 $960,950 $991,250 $1,000,989 $989,504 $1,045,647 $1,129,241 $998,793 $886,387 $986,646 $12,184,000

COST OF GOODS SOLD

Beginning Inventory $0 $27,000 $9,000 $8,000 $76,200 $92,000 $178,000 $178,000 $172,000 $78,600 $132,000 $295,400

Purchases $470,000 $423,600 $430,200 $432,100 $443,412 $510,165 $445,800 $420,300 $463,223 $468,600 $488,700 $548,500 $5,544,600

Less end of month inventory $27,000 $9,000 $8,000 $76,200 $92,000 $178,000 $178,000 $172,000 $78,600 $132,000 $295,400 $471,000 $1,717,200

Cost of Goods Sold $443,000 $441,600 $431,200 $363,900 $427,612 $424,165 $445,800 $426,300 $556,623 $415,200 $325,300 $372,900 $5,073,600

Gross Profit on Sales $602,092 $636,650 $640,051 $597,050 $563,638 $576,824 $543,704 $619,347 $572,618 $583,593 $561,087 $613,746 $7,110,400

GENERAL & ADMINISTRATIVE EXPENSES

Advertising $195,524 $189,362 $174,936 $182,974 $189,583 $164,440 $145,214 $183,177 $155,653 $177,847 $145,881 $157,099 $2,061,690

Capital Equipment Depreciation $5,200 $5,700 $5,420 $5,840 $5,320 $5,610 $5,480 $5,120 $5,950 $5,930 $5,920 $5,785 $67,275

Leasehold Depreciation $4,032 $3,080 $3,800 $4,200 $4,612 $4,012 $4,500 $4,120 $4,350 $4,200 $4,100 $4,600 $49,606

Entertainment $2,005 $2,148 $2,240 $2,110 $2,260 $2,350 $2,178 $2,190 $2,300 $2,280 $2,000 $1,700 $25,761

Insurance $14,965 $14,800 $13,200 $12,900 $11,400 $14,500 $12,684 $14,610 $12,850 $13,900 $14,700 $14,710 $165,219

Legal Expenses $0 $0 $0 $0 $0 $25,600 $25,600 $29,400 $28,640 $33,520 $26,820 $43,500 $213,080

Office Supplies $13,405 $12,600 $14,200 $13,820 $11,258 $11,050 $14,600 $11,800 $13,600 $13,100 $13,229 $15,180 $157,842

Outside Services $16,819 $19,819 $20,180 $19,500 $20,410 $20,900 $19,400 $18,750 $20,430 $18,620 $21,500 $21,560 $237,888

Postage $2,100 $2,050 $1,960 $2,300 $2,410 $2,250 $2,000 $2,400 $1,950 $2,250 $2,600 $2,700 $26,970

Taxes (Income) $71,000 $74,600 $68,600 $68,500 $71,200 $70,200 $72,760 $72,300 $74,600 $76,600 $83,240 $98,600 $902,200

Telephone $18,900 $17,500 $18,600 $19,750 $15,900 $13,200 $12,000 $17,600 $12,800 $14,670 $15,420 $12,750 $189,090

Selling Expenses $64,741 $47,500 $34,741 $34,741 $34,741 $52,740 $34,741 $34,710 $34,741 $34,741 $34,741 $34,741 $477,619

Travel Expenses $3,500 $4,210 $2,800 $3,720 $3,610 $3,120 $2,760 $3,556 $2,050 $3,500 $4,556 $4,614 $41,996

Wages $103,000 $106,900 $111,600 $104,900 $109,742 $102,600 $106,800 $113,600 $96,200 $110,600 $121,600 $116,500 $1,304,042

Other $7,120 $8,600 $7,820 $9,300 $10,200 $9,520 $8,900 $11,200 $8,900 $7,850 $9,660 $10,500 $109,570

Interest Paid $0 $0 $0 $15,000 $15,000 $0 $0 $16,600 $15,600 $14,600 $13,600 $12,700 $103,100

Total Gen. & Admin. Exp. $522,311 $508,869 $480,097 $499,555 $507,646 $502,092 $469,617 $541,133 $490,614 $534,208 $519,567 $557,239 $6,132,948

NET INCOME $79,781 $127,781 $159,954 $97,495 $55,992 $74,732 $74,087 $78,214 $82,004 $49,385 $41,520 $56,507 $977,452

% of Gross Profit 7.6% 11.9% 14.9% 10.1% 5.6% 7.5% 7.5% 7.5% 7.3% 4.9% 4.7% 5.7% 8.0%

Finances 43


Income Projections

Finances 44


Break Even Analysis

National Furniture has calculated its break even point -- the point at which its sales will cover its costs. The table below (Break Even Analysis) displays the data used in these calculations, as well as the calculations themselves. The Average Variable Cost ratio calculation expresses the ratio of product cost to gross sales:

Break Even Analysis

Description Year 1Dec 1999

Average Sales/Month $1,015,333

Average Variable Cost Ratio/Month 0.49

Average Fixed Cost/Month $486,596

Average Monthly Sales Break Even point $962,170

Ratio Analysis

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An initial investment will be required in order for National Furniture to commence business. A budget of the company's required resources has been compiled in the table (Start-Up Costs) below.

Ratios

R a t i o Year 1Dec 1999

Current Ratio 4.14

Quick Ratio 3.06

A/R Turnover 4.14

Inventory Turnover 2.95

Profit Margin on Sales 0.14

Rate of Return on Assets 0.12

Rate of Return on Equity 0.15

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Start-Up Costs

The following table (Ratio Analysis) demonstrates some of the critical ratios for National Furniture based on the projected financial statements in the previous sections:

Start-Up Costs

U S E C O S T

Purchases $358,000

Outside Services $75,000

Supplies (Office and Operating) $25,000

Advertising $175,000

Accounting and Legal $75,000

Telephone $12,000

Insurance $48,000

Taxes and Fees $50,000

Travel $8,000

Entertainment $11,000

Miscellaneous $10,000

TOTAL START-UP COSTS $847,000

Finances 47


Conclusion

Justification for Loan/Investment/Etc.

National Furniture has chosen to apply for a bank loan to provide necessary capital for this start-up effort. The company seeks a $1,000,000 investment from an outside investor.

This capital will be used to satisfy the company's initial requirements as set forth in the Sources and Uses of Capital section of the business plan.

Milestones/Implementation Timetable

National Furniture has identified a few key benchmarks it wishes to achieve, and has laid these goals out on a timeline for company success. Each division of the company will be affected, and every employee will assist in achieving these objectives. The following table (Milestones) depicts the name of the objective, the date the goal was set, and the target date for achieving the goal.

Milestones

Milestone Date Adopted Date Enacted Target Date Current Status

Turn over Inventory twice a month 8/15/19XX 8/15/19XX 7/15/19XX on schedule

96% Production Efficiency 9/12/19XX 10/1/19XX 6/1/19XX ahead of schedule

$15 Million Gross Sales 10/1/19XX 10/18/19XX 12/31/19XX behind

Conclusion 48

Documents

Business Plan Proposal Template