UNIVERSITY OF WATERLOO. ENGL 210F: Genres of Business Communication Assignment 3: Business Plan - Group

Transcription

1 UNIVERSITY OF WATERLOO ENGL 210F: Genres of Business Communication Assignment 3: Business Plan - Group Prepared by Tem Fleming Kieng Iv Rene Jackson Gabriel Wong Thursday, April 2 nd 2009 i

2 Trend XXI 200 University Avenue. West Waterloo, Ontario N2N 6G9 Mr. Cameron Walker 140 Bay Street Toronto, Ontario L6S 3Y3 March 27, 2009 Dear Mr. Walker, We are four competitive students in various faculties at the University of Waterloo who are looking to fill a demand for quality customized apparel. Our past experiences with custom clothiers in the Kitchener-Waterloo area have been sub-par and have resulted in simple errors such as misspelled names, incorrect sizes and inconvenient office locations with hours that make it impossible to work around for university students. We aim to differentiate ourselves from the competition by taking a traditional product and integrating it with our own personal values. In terms of products we intend to bring clothing made purely from organic materials in a morally sustainable way. This means sweatshop free, child labour free blank apparel from fair trade certified partners, and using environmentally sustainable methods of production. As for our services, we aim to provide a reliable service that will include student-focused conveniences such as on-campus delivery and online ordering and payment systems. Between the four of us, we are prepared to commit a total of $4,000. In order to confidently launch a company, we will need an additional investment of $10,000 to help fund initial expenses and acquire our beginning inventory and equipment. Due to our unique business strategy and extensive market research, we are confident that we will be able to double that investment over the course of five years. We encourage you to review the following documents and contact us for more details on this exciting venture. Sincerely, The Management Team Trend XXI ii

3 Trend XXI 200 University Avenue. West Waterloo, Ontario, N2N 6G Business Plan: Trend XXI Fair trade and environmentally friendly customized clothing Prepared for: Mr. Cameron Walker Prepared by: Ted Fleming, Kieng Iv, Renee Jackson, and Gabriel Wong Prepared on: Thursday, April 2 nd 2009 iii

4 TABLE OF CONTENTS EXECUTIVE SUMMARY... 1 COMPANY PROFILE... 2 PRODUCTS AND SERVICES... 5 ADMINISTRATIVE PLAN START-UP CAPITAL AND EXPENSES... ERROR! BOOKMARK NOT DEFINED. INITIAL FINANCIAL POSITION APPENDIX A: BALANCE SHEET APPENDIX B: PROFIT AND LOSS STATEMENT APPENDIX C: MONTHLY PROFIT AND LOSS STATEMENT APPENDIX D: LETTER OF REFERENCE FROM CIBC EMPLOYEE APPENDIX E: FAIR TRADE APPENDIX F: GROWTH IN FAIR TRADE PRODUCTS APPENDIX G: SUPPORT FOR DEMAND OF GREEN THEMED CLOTHING APPENDIX H: POPULARITY OF SILK SCREENED WORKCITED... 41

5 EXECUTIVE SUMMARY Trend XXI is an entrepreneurial venture proposed by four University of Waterloo Students. These students have used their mix of accounting, economics and arts and business backgrounds to develop an economically viable business plan. Based on market research of the Kitchener-Waterloo area, we have identified a high demand for customized apparel. Residences and student organizations at the two universities purchase custom apparel on a regular, cyclical basis. Trend XXI will meet this demand with an initial product offering of silk screened T-shirts promoted through on-campus flyers, promotional events at local establishments, and direct campaigns. Once our presence in this market has been established, we plan to expand our product breadth, and eventually plan to supply commercial uniforms for local businesses. To distinguish Trend XXI in this highly competitive market, the business is founded on three main principles: purchase non-child labour, free trade certified blank apparel, customize it with an environmentally friendly printing process, and structure our business operations around the needs of student organizations. These ideas of economically friendly and non-child labour clothing have been proven to be highly marketable time and again. The founders of Trend XXI have committed $5,000 of personal assets. However, an additional investment of $10,000 is needed to reach the amount of startup capital estimated in the business plan. This investment will be treated as a five-year note payable, and our sales projections show a 14.86% effective rate of return. The following report provides a detailed look at the business model, and sales projections after twelve months and three years. 1

6 COMPANY PROFILE Trend XXI strives to provide high quality, custom designed clothing for students on university campuses. The business operations will be designed to serve our customers, specifically student organizations and employees in the school community. Trend XXI will offer products that create a strong positive self image and help students and staff look and feel good about themselves and their organization. We hope to better our school community by simplifying the purchase of custom apparel; that way student organizations can spend more effort achieving their goals. Trend XXI is scheduled to be founded in May 2009 in Waterloo Ontario. Our company is set up as a partnership with four owners. The partnership business model best suits our company because the start-up costs are equally shared among the four owners, creating less financial burden for those involved. In this model, the owners agree that responsibilities, work load, business risks and expenses after initial start up will shared equally. A partnership is also beneficial to our company because each partner can use their individual skills and social contacts of create business opportunities. Having a partnership creates an attitude of team work and motivation that extends into our relationships with our customers. Trend XXI falls into the customized apparel category; a small yet distinct niche. It is our mission to expand this market to its full extent with a wide variety of unique products. One of the major keystones of the business plan is to promote our line as an alternative to existing apparel and differentiate itself through ethically sourced raw materials, and friendly environment practices. Trend XXI will only purchase non-child labour, free trade certified blank apparel. This apparel will be printed using environmentally friendly water based, non-toxic inks. We are currently implementing a method to properly dispose for the chemical agents used in printing with as little effect on the environment as possible. 2

7 DeMoulin Uniforms and R.J McCarthy are Trend XXI s largest competitors. These companies make customized clothing for school uniforms rather than extracurricular clubs. DeMoulin and R.J McCarthy are Known for their involvement with major non-profit organizations including United Way and World Vision. These alliances have increased their success because their clothing has now become associated with those charities and the celebrities who endorse them. These ideas of social responsibility have been proven to be highly marketable time and again. Trend XXI is eligible to compete with these types of retailers because we are not limited to producing school uniforms. We offer the widest range of specialty products customized to any and every desire of the customer. In addition to our flexibility with design, our small size allows us to guarantee quick turn around on orders, and offer convenient delivery on-campus. We make customizing apparel convenient and stress free. Trend XXI will also stock extended size, which is a major criticism of current firms. Our ability to accommodate assures students and staff that we will be able to fit each and every student or clubs need. Enhanced technology allows us to offer payment methods targeted towards a group of individuals paying for a single order. Standard office hours allow for ordering in person Monday to Friday from 9am-5pm. However, we expect the majority of orders will be submitted through our website, or faxed. Trend XXI s goal is to create a service-oriented business based on quality, integrity and fairness to all who choose our business. Being university students ourselves, we are best suited to run this business because we know the consumer base so well. As the owners and consumers we understand the uncompromising quality needed to make garments, research and test them to provide durability and ease of care. Our hands on experience in creating the demand and than fulfilling it, lets us 3

8 confidently stand behind our guarantee that all of our products will exceed our customer's expectations. When it comes to Trend XXI, anything less is second best! 4

9 PRODUCTS AND SERVICES The following section will elaborate on a number of products and business practices, touched on in the report that will differentiate our apparel from that of our competitors. Market Gaps Customized apparel is a large market with high competition, so it is important to identify a niche to compete in. The market gap we have identified is the lack of environmentally friendly and fair trade customized clothing. With the growing awareness of social responsibility, this is a market gap that no competitors have targeted and will be the gap that we will fill through our offering of products and services. Apparel American Apparel will be our initial supplier of blank T-shirts. Ideally, our partners corporate vision should be aligned with the values of Trend XXI. American Apparel touts itself as an industry leader in a sweatshop-free apparel production line and prides itself in its humanitarian work for hiring newly landed immigrants. The company offers full-time employment in an industry that is highly dominated by seasonal employment, and as a result the pride in workmanship shows in the product. As of 2007, American Apparel has announced its plans to increase the use of organic cotton from 20% of its lines to 80% of the overall clothing lines. In addition to this, the factories that manufacture all American apparel clothing are retrofitted with environmentally friendly features such as solar panels and water recycling units. Overall, American Apparel and Trend XXI can be seen as perfect fit in terms of corporate values. (American Apparel) 5

10 Environmentally Friendly Silk Screening Trend XXI will strive to be the greenest custom clothing provider in the market. One of the most eluding and unknown causes of environmental harm from customized clothing is the screening process. Most of our competitors use extremely toxic inks to screen their shirts in addition to other business processes that increase their carbon footprint. Our goal at Trend XXI is to be the first major player in the custom clothing industry to use to environmentally friendly ink to make our clothing. Environmentally friendly ink is water based, as opposed to traditional oil based ink. The water based screening process will result in water based residue that is not toxic, unlike conventional oil based inks. This will allow our customers to feel a sense of pride that they are part of the global movement to reduce carbon footprints. Shipping Policy At Trend XXI, our goal is to provide our clients their product on time, every time. In order to ensure that the product arrives on time, we have decided to deliver the product ourselves. Since most of our clients will be at the University of Waterloo, it will not be difficult to add on-campus delivery to our mix of services. There are also several other reasons we will not rely on a third party to ship our product. The reasons include no third party transaction costs, no need for insurance on products and no dependence on third party to transfer goods to our clients. By delivering ourselves we will eliminate costs associated with third party shippers and be able to pass those cost savings to our customers. Whenever possible, we will deliver our products using green methods of transportation which will mainly consist of using the public transit system to deliver merchandise. By 6

11 incorporating this strategy, we will carry our philosophy of being respectful to the environment. This will also reduce the cost of gas which will help the bottom line. Unlike most of our competitors will deliver regardless of the day of the week. This will allow us to work with the student schedule. Most customized clothing businesses are open Monday to Friday from 9-5 and these times do not work around a student s schedule as they are most free in the evening and on weekends. Thus, we will offer delivery seven days a week from 9 AM to 11 PM. Since we have reduced our costs as much as possible by delivering ourselves and whenever possible using free methods of transportation, there will be no additional charges to our customers for shipping. They will already have been included in the original purchase price. Refund policy We want to give our customers the best service possible and reduce the risk that is often associated with customized clothing. For all our orders, if an error is our fault, we will fully refund the customer and allow them to keep the mistaken product as a gift. This will allow the customer to reduce their fear of having incorrect logos printed on their product, and turn a negative experience into one worthy of positive word of mouth. However, if the mistake is on the consumer s side then we will refund the customer 10% of the purchase price as a way to provide great customer service. To avoid unnecessary costs we will not disclose this discount up front to avoid potential fraudulent reports of mistakes. Many of our competitors would be hesitant to offer their clients these discounts but by providing the best service, we will obtain customer loyalty. 7

12 Payment Methods In addition to accepting cash payments in-person at our office, Trend XXI aims to redefine the traditional ordering process for custom apparel. Following the trend of providing student friendly services, we recognize that the modern student will find it more convenient to pay with a credit card or debit card rather than cash. In addition to the online services offered, Trend XXI will team up with PayPal Inc. to take advantages of the benefits provided to small companies. PayPal will essentially allow any small business to accept payments through any major credit card or bank. At a cost of 2.5% per transaction, this greatly simplifies the ordering system since the company will not need to purchase costly a Point-of-Sale terminal to process payments. Individual Payment Option The revolutionary payment method comes from the nature of these bulk orders. Our competitors charge the person placing the order, say $200 for an order of 20 T-shirts. In reality, This order is made up of twenty customers each ordering one shirt. The onus is currently on the person placing the order to record sizes, and collect money from each student. Furthermore, the students must pay the organizer in cash. The organizer of the order takes on the risk of receiving in correct sizes, and not being able to collect money from each person who ordered apparel. Our website offers a solution to this. The organizer creatres a group on our site, and distributes the password to each student. The students log on individually to select their size, any customized details, and method of payment. The students pay Trend XXI directly through PayPal. Once the period for submitting orders has expired, we simply forward the report with a summary sizes to our production facility, and the apparel is on its way to completion. 8

13 This system is aligned with a number of our core business principles. The paperless ordering is environmentally friendly. The time between collection of orders and the start of production is greatly reduced, decreasing turn around time significantly. Most complaints in this industry come from mix ups with sizes, but if each student orders their own apparel, this should be reduced. Finally, all the apparel is paid for before it goes into production. This will speed our cash flow, and take stress off the organizer of the order. The Fit We have chosen American Apparel as one of our major suppliers because of the variety of fits that they offer. The lowest price blank T-shirts have a generic box fit. This means that the shirt falls straight down from the armpits to the bottom hem. This leads to a loose, slouchy appearance where the shirt meets the belt. Today s style among young people is moving towards a tailored look. The shirts available from American Apparel come in a Men s Tapper, and Women s fit. Both shirts are widest over the chest, between the sleeves, and gradually get narrower as they approach the waist. The women s fit shirts are adjusted slightly to compensate for their different anatomy and the expectation of a clingy fit. Shirt Colour In order to keep startup costs to a minimum, we will initially offer only black or white blank T-shits. This is one concession that must be made because inventory is one of our largest expenses. Black and white were selected because of their neutrality, and versatility. However, once sales begin to increase, we will use this cash flow to expand into a variety of colours. We will compensate for this initial lack of selection by purchasing six colours of ink that can be printed in. 9

14 Turn Around Guarantee Through a variety of business practices listed above, we are confident that we can guarantee delivery of an order within 72 hours of the final order being placed. If the following options are all chosen, individual payment option, delivery on campus, and all products being ordered are currently in stock, we will offer a 10% refund of the purchase price if the order is not ready for delivery within 72 hours. Depending on certain factors, we will have to void this guarantee. Some of these factors include, orders over a set number of items, orders requiring multiple screens, orders for which the blanks need to be special ordered, and orders to be delivered off-campus. Online Storefront From past experience ordering from competitors, the company found various steps in the ordering process that seemed overcomplicated and error prone. In an effort to reduce costs and increase efficiency, Trend XXI has gone back to the drawing board to revise the traditional pen and clipboard ordering process, where a single order form with separate payments are collected before submitting a clothing order. To evolve the ordering process, Trend XXI will introduce a system to accept orders online. This online storefront will work to minimize the errors that can be commonly made and will ensure the best possible service. In addition to ease in ordering, the online storefront will also allow all of our clients to be updated should there be an issue with stock, sizing, or availability of certain items. This allows for a more responsive line of communication in case any last minute changes are made. For more information about the details of this service, please refer to the Administration Plan of this document. 10

15 Competitor Analysis A number of our competitors currently operate within the Waterloo region, including Traces, Promotional Elements, and Lighthouse. These are known establishments and have built their brand equity. They offer a wide range of various customizable goods. Each one has a fairly large market within the Waterloo region but Trend XXI will be able to stand out from competitors for a various reasons. Please see the chart below to see a direct comparison between our products and those of our competitors. Apparel Silk Screening Delivery Times Ordering Methods Typical Competitor Third world children making the clothing at very low wages. Uses toxic inks that cause damage to the environment. Monday to Friday from 9-5 and not flexibility to student schedules. Usually only in person or over the phone. Trend XXI Fair trade clothing made domestically. Uses water based ink and leaves no environmental damage. Deliver seven days a week from 9 AM 11 PM. Utilizes the online ordering options. 11

16 MARKETING PLAN Market Description Clothing sales are determined by economic conditions, demographic trends, and pricing. Sales of customized clothing rose approximately 4.7% in 2008, according to NRG Research Group a market research firm located in Toronto, Ontario. In 2000, Canadians purchased approximately $315 billion of apparel representing a 90% growth from its 1990 levels. According to NRG Research Group, approximately $177 billion was spent on clothing in In 2004, the Canadian population was 31.9 million this works out to roughly $ a year per capita spent on apparel. 1 The Apparel Industry Apparel sold in Canada is produced both domestically and internationally. According to estimates from the American Apparel Manufacturers Association (AAMA), the dollar value of domestic apparel production was $39 billion at the wholesale level in 2008, which was less than the $46 billion (Canada wholesale value) of goods imported into the Canada. In addition, $15 billion of goods were produced in both Canada and other countries. The Canadian clothing market can be divided into two levels: national brands, and other apparel. Trend XXI fits under other apparel. National brands are produced by 20 companies and account for 30% of all Canadian clothing sales. The second level is other apparel, which accounts for 70% of all apparel distributed. It is made up of small brands and private label goods. 1 "NPD Group-Style Trends." NPD Market Research NPD Group INC. March 26th, < 12

17 Clothing can be sold at a variety of retail locations. Based on research from NRG Group here is the breakdown for clothing sales in 2008: Discount stores, off-price retailers, and factory outlets: 30% Specialty and department stores: 22% and 18%. Major chain stores: 17% Direct mail/catalogues 6%. Other means of distribution: 7% 2 Market Demographic Trend XXI is directed towards students on university campuses. Within this group, there are no color barriers, and customers come from diverse backgrounds. The Trend XXI customer is versatile, can fit into any environment and is willing to pay for quality clothing. Our company's target group has enough disposable income to spend on affordable quality clothing. For example, from 2000 to 2004, disposable personal income increased an annual average of 7%. Money spent on clothing increased 2% annually during the same period. From 1991 to 2004, disposable personal income rose 4.7% annually and clothing expenses increased 4.5% per year. Second and third year student clothing expenses increased 10% from 2001 to Clothing purchases by fourth year students grew 10% from 2001 to Freshman clothing sales on all post secondary campuses across Ontario excelled 15% from 2001 to Many 2 "Overview of the Canadian Apparel Industry." Canadian Apparel Industry. 7 July Statistics Canada: Canada's National Statistics Agency. March 21th, < 13

18 apparel manufacturers see the United States with a population of 17,338 (2004) enrolled in post secondary education, as an attractive market. Market Analysis Potential Customers Growth CAGR First Year Students Second and Third Year Students Fourth Year Students 15% 2,500,000 2,875,000 3,306,250 3,802,188 4,372, % 10% 1,500,000 1,650,000 1,815,000 1,996,500 2,196, % 10% 1,250,000 1,375,000 1,512,500 1,663,750 1,830, % Total 11.98% 5,500,000 6,150,000 6,883,750 7,712,438 8,648, % 3 Distribution Strategy Trend XXI plans to use: A direct sales force: Students wearing Trend XX1 fashions to create a direct interest with other students. School residencies, student clubs and societies can allow other students to personally witness their ease of care and durability of use. Campus retailers: Located at the Student Centers on campus- most commonplace for student gatherings. Internet: Cost effective, simply updated, and easily accessible for all customers. 3 "Services NRG Research Group." NRG Research Group Canada's fastest growing public opinion and market research company. 02 Apr < 14

19 Paper Print Media (brochures, campus newspaper, flyers and newsletters): Brochures can offer our customers detailed information on products and services, ordering information and pricing. o Flyers can be placed in campus newspapers or throughout the school. They provide colour representation of products and any specials on garments. o Newsletters are printed and also sent out through . Trend XXI garments can be advertised in the monthly newsletter and personally delivered to each student via university directory. Campus events can allow us to market products to a mass amount of students at one time. These outlets are most appropriate due to their time to market, reduced capital requirements, and prompt access to distribution channels. As companies seek full production outside of the Canada we would only order our t-shirts internationally but maintain production in Canada to provide quick turnaround and timely delivery. Outsourced manufacturing has been more popular due to the North American Free Trade Agreement (NAFTA) and the lowering of tariffs. Market Trends Modest growth in 2009 Consumers are continuing to spend on clothing. NRG expects sales for the industry to rise about 4% in It is our goal to make a connection with strong brands, non-profit organizations to get more brand recognition. 15

20 Apparel outlook still positive More schools have taken on casual attire for school. This has continued the need for men and women to establish new wardrobes or alter their existing ones. The need for customized clothing is still a vital part of keeping customers interested. With our updated and accommodating collection Trend XXI will be able to satisfy its customers need, keeping them wanting more. Trend XXI realizes the importance of the youth market and has established product lines to target this group. Generation Y--those between 15 and 21 years of age--are a demographic group with huge spending power. This group is also significant in setting styles and trends that influence the styles for older consumers. The current environment has forced companies to maximize profits, for growth but for survival as well. Trend XXI is always searching for ways to maximize efficiencies, cut costs, and increase sales. Buy now, wear now To keep our products and services modern our designers and production staff work in collaboration with other universities to bring out fresh, new fashions each month. The "buy now, wear now" phenomenon has caused companies to re-assess their manufacturing processes. With more and more production is taking place offshore, the turnaround time for garments can be lengthy. Shortened cycles call for production sites in closer proximity to distribution points. 16

21 ADMINISTRATIVE PLAN An important value within the company is its belief that we should do our due diligence when it comes to being environmentally responsible. Acting on this belief, we take great care to reduce the residual waste left behind from the silkscreen pressing process. The use of all-natural dyes ensures that we do not harm the environment with toxic residual waste that typically goes along with silk screening. Traditionally, the process of silk screening has been extremely detrimental to the environment in terms of waste produced both biologically and toxically. Our company works to minimize the carbon footprint of our business in all manners possible. The use of drying racks in lieu of industrial dryer units will save money and electricity, a benefit for both the business and the earth. Overall the industry appears to be moving towards greener methods of conducting business, which means Trend XXI will need to stay competitive in order to be a competitive business. In order to provide the customer with the best possible service, we put ourselves in the shoes of the customer and found areas in the ordering process that often resulted in mishaps and worked to simplify the entire ordering process. From our past personal experiences with competitors, the ordering process consists of a single order form with separate payments collected in an envelope. This often resulted in confusion as to who has paid in full and who ordered which sizes. In an effort to streamline the ordering process, Trend XXI has worked to allow customers to set up online ordering groups where individuals can log into our website to individually place, update and even pay for clothing orders. Using an online ordering system evolves the traditional pen and clipboard ordering method in several ways. Firstly, it reduces the opportunities for errors that can occur when customizing, for example the messy handwriting of one s name on the order form. Secondly, it will continually keep a level of communication with 17

22 each group member ordering apparel by giving order updates and notifying customers if certain sizes or configurations are no longer available. Finally, the last advantage provided by this online ordering system is the departure from paper throughout the entire process. Staying consistent with our company s aim to be environmentally responsible; this ordering system is just one of the ways we work to create a unique company the provides a truly sustainable product both morally and environmentally. In addition to offering ordering services online, Trend XXI will also be able to take payments online due to a partnership with Paypal Inc. Thanks to the services offered by Paypal, small businesses can now accept all major forms of credit cards or bank deposits without paying for costly credit card transaction or conversion fees. The cost of this service to business owners is 2.5% of sales paid for through the Paypal network. The legal aspect of starting up Trend XXI will consist of acquiring a trademark on our logo and company name. Our lawyers have advised the company that costs for the professional registration package will cost approximately $400. In addition to the trademark, the company should also look into incorporating itself in order to properly protect the investors while providing a tax shelter. Tony Keller of Keller, Morrison and Keller LPP will perform all the initial legal work. At an hourly cost of $250, the company expects to require 4 hours of his time annually. This work will mainly be consultative and based on intellectual property, business law, assistance with the partnership contracts and verifying that all laws are being adhere to within the company. Initially, a contract will be drawn up between all the investors. This contract will ensure the investors do not suddenly drop out and will be binding for the following 3 years and ends with a negotiation period that will allow investors who wish to make changes in ownership based on the volume of business conducted. 18

23 The initial plan for the employee workforce is to have the owners assist with the day-today tasks that are required to help the company through its first year. This will help reduce the overall employee salary and will ensure that the work put in will be of quality since the employees will also be owners. After the company has stabilized its operations, and the part-time employee is trained to an acceptable skill level, the upper management will then be able to focus more time on the company s direction. This includes meeting with clients, working on promotions, and supplier relations. The company s hiring schedule can be found in the Income Statement in Appendix B, where the first year plan is to hire and train a part-time employee to work 15 hours a week. At a wage rate of $9 per hour, the company can expect to have a monthly employee salary expense of $540. As the business continues to expand, the company will gradually extend working hours to 26 hours per week, with a bonus wage totaling $10 per hour. The starting production space will be compromised slightly due to the company s value in cost reduction. Initially, one of the investors will be renting the company the garage in their home in Waterloo. Since this investor owns the property, there should not be and conflict in legal issues for the property. In fact, this may be beneficial for the owner since the property tax can be reduced for a portion of the property since it is being used for business. The overall cost to rent the garage will be $10 per month to cover the minimal utilities that will be used in our company s earth friendly silkscreen process. In terms of an administrative location, the initial plan is to acquire a small office on King Street at a cost of $400 per month with utilities included. This location will be used as a physical location to accept payments, hold meetings and to allow customers to pick up orders at their convenience. The rent will be split equally four ways between all partners with corresponding renting tax receipts issued. Forecasting into the next 3 years, if business progresses steadily, it will be possible to explore the opportunity to 19

24 move into a larger industrialized space in order to take on larger clients and keep a larger variety of inventory in stock, including assorted colours and apparel pieces. With all the complexities around launching a business, Trend XXI will make a conscious effort to expand accordingly. This means avoiding situations where the company over expands too rapidly, which will ultimately result in the customer settling for mediocre products across the entire product range. Instead, Trend XXI will focus solely on t-shirts for the initial year before gradually expanding its lines to hooded sweatshirts, sweat pants and other customizable options. This will ensure that the manufacturing process can be tuned and revised before further complicating the manufacturing logistics with additional products. In the final year of this plan, we will work to expand the customizing options available to customers by acquiring a stitching machine that will be able to stitch custom names and numbers into apparel. A common theme that can be found amongst the overall administrative plan is to never take on more than the company can handle. This applies to everything from inventory to staff hours because once one aspect falters, the customer will be the one that ultimately suffers, be it the quality of product, or the quality of service. 20

25 START-UP CAPITAL AND EXPENSES Start-Up Capital One of the most vital parts of starting a business is start-up capital. Because there are no prior revenues when a business starts up, it is important to obtain the necessary finances to cover initial expenses. During the first few months, a loss is projected to incur because of the high start up costs and low initial revenues (please refer to Appendix C). However, in the future, Trend XXI is projected to expand its business and profit margins to have the necessary cash flows to payback all stakeholders. After contacting and meeting with representatives from the local CIBC situated within the University of Waterloo, it is our belief that we will be able to obtain a $5,000 loan at 6% interest for 5 years. During the 5-year period, we can confidently forecast enough additional revenue to pay off the loan when it reaches maturity. As well, each of the four partners has agreed to contribute $1,000 towards the start up of Trend XXI. We are looking for a start-up investment of $10,000 to help fund initial expenses and finance our beginning inventory. We are confident that over the course of five years, we will be able to double the investment, yielding a nominal return of 100% and effective 14.86% annually. We are convinced that our unique business strategy and fulfilling the needs of our customers will increase the value of your investment. Start-Up Expenses 21

26 The following costs will be incurred during the first two months of business, in May and June of Some of the major expenses will be salary, inventory and promotional. Please see Appendix C to see the totals of expenses for each month. Salary Expenses There are four partners within Trend XXI. As per the partnership agreement, profits will split evenly amongst the four partners who provided the initial investment. The compensation of the partners will be solely based on profit distribution and 50% of all after-tax profits will be disbursed to partners at the year-end. In addition to the four partners, initially there will be one part-time employee that will work on the production of screening the logos on to the shirt. This employee will be compensated at $9.00 per hour and will be working 15 hours a week. Office Equipment Expenses Basic supplies will be needed such as paper; pens, pencils, stapler and other necessary office supplies which are expected to total $120. A used laptop will be purchased for $400 and used to take orders and organize files. The estimated cost of office furniture (such as chairs, table, and filing cabinet) is $600. Production Equipment Expenses The major cost that will be incurred for production equipment is the silkscreen machine. We have decided to lease-to-own our $1,500 silkscreen machine for three years at 0% from a local Waterloo supplier. Thus, the cost will be $500 annually. Further expenses that will be incurred include the cost of environmentally friendly ink. This special ink will cost approximately $1,500 and is expected to last a year. Initial Inventory 22

27 The single most important component of our product will be the t-shirt itself. We have arranged a contract with American Apparel, a fair trade apparel producer. They have agreed to provide us with fair trade t-shirts at $10 a shirt. We plan to have an initial inventory of 600 shirts, which will cost us $6,000. Intellectual Property and Licensing Expenses To register our trademark logo and name, it is estimated to cost around $400. Costs that are expected to incur include a professional registration package, which includes a review of our trademark coverage and consultation with a trademark expert. As well, fees will be incurred to ensure that the name Trend XXI is not already being used. Legal Fees 4 Tony Keller of Keller, Morrison and Keller LPP will perform all legal work at the start of the business. Tony charges $250 an hour and we expected over the course of a year to need four hours of his time for a total of $1,000 per year. We need to consult intellectual property laws, business law, assist in partnership contracts and to verify we are not violating any laws when practicing our business. Rent Expense We will be renting a small office space on King Street which will allow us to perform any administrative tasks. It will also be a place to take orders and have meetings. The rent will come to $400 a month and will include utilities. The renting tax receipts will be split equally four ways between the partners. For production, one of our partners, Kieng Iv, has agreed to let us use his garage for production and we will compensate him $10 a month for using the space. This is where all the shirts will be produced. 4 Keller, Morrison & Winny LLP Keller, Morrison & Winny LLP. 26 Mar < 23

28 Marketing Expenses During our first year, we will have promotions and create a website to generate awareness of our business. We are planning to put up posters across campus and have shirt giveaways at the Bomb Shelter bar. The forecasted promotion expenses will be $1,000. In addition to promotion, we have contacted professional website designers and have received a quote of $300 and $10/month maintenance fee. With the website, it will have information about all of our environmentally and ethical approach to business. As well, the website will provide the means to take orders online which coincides with our paperless approach to business. Internet and Phone-line Expenses In order to achieve our goal of being as paperless as possible, it is necessary to have access to the internet. We will use the internet to contact our clients, collect orders, promote our business, and perform research on our target market. We will also have a phone-line. Having a phone-line allows our clients to contact us and for us to contact our suppliers. There will be only one phone line at first, but as our business grows, we will expand the number of lines. We have contacted Rogers and have negotiated a buddle package in which will we have unlimited local calls and voic for our phone line and high speed Internet with a bandwidth of 50GB for $60 a month. 24

29 INITIAL FINANCIAL POSITION Balance Sheet Analysis December 31, Fiscal Year 01 After the first year of business, we expect to have grown our total assets from the start up capital of $16,107, to $20,802. Our cash on hand should increase by around $2,000 from cash collected on sales. Neither the note payable due to the partners, nor the one due to the investor come due in the first year, so all the cash from sales will be reinvested in the company. It is fair to assume the business will have an accounts receivable of $2,100, or the price of two orders of forty T-shirts. Our year-end is December 31, and there are a number of orders we expect to deliver in the first week of the new semester. To keep the business in a position to produce a number of large orders on short notice, we plan to maintain an inventory of at least 600 blank t- shirts in various sizes worth approximately $6,000. At the end of year one, we expect to owe a total of $15,200 after a small reduction in accounts payable. Accounts payable will be artificially high at inception. We will need to take on a number of small account payables because of the high level of purchasing in the first thirty days of operation. Once the office is established and equipped for business, these initial account payables will be paid. However, it is fair to assume that we will have some minimal trade s payable at year-end from timing differences. We estimate these to be around $200. Both major notes payable will remain unchanged because they are long term in nature. For more information on notes payable, see the Start-Up Capital Section. Even though the company is quite young, simple financial ratio analysis can be helpful in understanding the financial position after twelve months of operation. A quick ratio of 20.5 describes a very high ability to pay expenses in fiscal year 02. This is because almost no longterm debt is maturing in fiscal year 02. The inventory turnover ratio is calculated at 3.62 cycles per year. Unfortunately, the nature of the silk screening industry requires companies to carry 25

30 large amounts of inventory on hand. This is to ensure that a large number of sizes and colors are available to the customer. See Appendix A for more information Balance Sheet Analysis December 31, Fiscal Year 03 After three years of operation, we forecast a significant increase in total assets from $20,802, to $74,351. This increase has three primary causes. The first is that the exponential growth in sales as described in the income statement section will develop a large pool of cash, nearly $40,000 that can be invested back into the company. This growth in sales and expansion in product offerings will necessitate inventory levels of nearly $17,000 on hand at all times. Inventory is also on the rise from the launch of our two new product lines, sweaters and sweat pants. Finally, the revenue cycle revolving around the beginning of academic semesters leads to a large accounts receivable at year-end. We estimate this to be just over $11,000 based on a weighted average of ten outstanding orders. Liabilities are expected to increase by $2,000. Neither of the long term notes become payable, but the company should begin to consider a strategy to pay them off. However, with the drastic increase in sales, comes an increase in raw materials purchased. Trade payables are likely to increase significantly. In terms of financial ratios, the company s financial position looks slightly less appealing than after fiscal year 01. The quick ratio decrease by just over 3 points to This is primarily due to the large increase in inventory, and a slight increase in trade payables. Both of these are indicators of investment and growth in the company. Inventory turnover decreases by over 30% to As mentioned above, two new product lines will be launched in year 03. Much more inventory will need to be on hand to fully support these product lines. See Appendix A for calculations of financial ratios used in this section. 26

31 PROFIT AND LOSS STATEMENT Profit and Loss Statement Analysis December 31, Fiscal Year 01 During the first year, our forecasted revenue is $34,125. This revenue only takes into account two sources: T-shirt sales and setup fees. We have predicted that we will sell 1,300 T- shirts during our first year of operation and charge $50 set up fees. According to the industry average, each order will contain approximately 40 T-shirts. We have forecasted 1,300 t-shirt sales based on calculations that we will get 5% of the University of Waterloo market due to the growing demand for ethical clothing. It is our belief that we will experience exponential growth. Sales in the first few months will be slow; however, we will experience rapid growth after performing promotions at the Bomb shelter Pub and around campus. Please see appendix B for sales calculations. Our cost of goods sold for the first year will total $21,700 and our contribution margin per shirt is approximately $9.50. Labour is our largest expense as we are hiring a production employee to work 15 hours a week for 50 weeks a year for $9.00 an hour. Our gross margin is calculated to be $12,425. This margin will grow as we add more and more lines to our collection since T-shirts generally have a low contribution margin. Our general and administrative expenses are predicted to be $9,380 and this will be a prorated amount as stated in the start up capital and expenses section. The main cost drivers in this section are the rent, registration, and website set up fees. The website and registration fees will not be charged in future years and will reduce our general and administrative expenses. This brings our expected net income to be $2,436 after taxes. The partners of this business have decided to keep all this cash in the business which will not be paid until the business is more profitable. 27

32 Based on these projections, we estimate the return on investment for investors to be 24.36%, which is significantly higher than what was originally offered in the start-up capital section. This should provide positive assurance to all investors that this profitable idea is backed by solid management. Profit and Loss Statement Analysis December 31, Fiscal Year 03 By the third year of business, we predict to have released two additional lines: sweatpants and sweaters. These two lines will be very profitable and will allow us to offer more to our customers as well as staying competitive. As well, at this point we have predicted to contract at least one larger order. Our sales figures are forecasted to be approximately four times first-year sales, mainly because of increased brand power and product lines, to $138,875. Cost of goods sold will in turn increase as we are selling more products. In our third year of business, our cost of goods sold is expected to total $76,550. Again, the main driver of this expense is labour. In order to meet demand, we have to increase our production employee hours from 15 to 25 hours a week and to give a raise of $1 per hour in order to reward increased productivity. Our gross margin for year three will be $62,325, which breaks down to a contribution margin of $13 per unit. This is a positive increase compared to earning $9 a product in year one because the sweatpants and sweaters are more profitable on a per item basis. In addition, the general and administrative expenses for year three total $12,900 and this increase in expenses is largely due to the need for having a small warehouse to store our increased inventory. The warehouse is predicted to cost $300 per month. In order to fend off competition, we have agreed to increase promotions to $2,000. The net income is expected to rise from $2,436 to $39,540. This is a growth of twentyfold which is explained by increased sales combined with the elimination of start up costs, 28

33 which were a one-time expenses. By year three, it is expected that four partners will be compensated with half the net income and the rest will remain to invest in expanding the business. 29

34 Appendix A: Balance Sheet Comparative Balance Sheet Year 3 Year 1 Year 0 Assets Cash $40,000 $8,000 $6,000 $10 $12,000 $6,000 $6,000 Inventory- $25 $4,500 n/a n/a Inventory- Sweat $15 $450 n/a n/a Inventory- Printing Supplies $3,000 $2,000 $1,405 Accounts Receivable $11,319 $2,100 $0 Silk Screening Machine $1,500 $1,500 $1,500 Office Supplies $500 $120 $120 Office Equipment $1,082 $1,082 $1,082 Total Assets $74,351 $20,802 $16,107 Liabilitites Accounts Payable $2,000 $200 $1,000 Notes Payable- Long Term $5,000 $5,000 $5,000 Notes Payable- Potential Investors $10,000 $10,000 $10,000 Total Liabilities $17,000 $15,200 $16,000 Net Assets $57,351 $5,602 $107 Notes 1. Silk Screen machine is leased to own over 3 0% interest 2. Prodcution facilities are in Owners 3. Office rent of $400 per month 30

35 Appendix B: Profit and Loss Statement Profit & Loss Statement Year 3 Year 1 Revenue Revenue - $25 $100,000 $32,500 Revenue- $50 $30,000 $0 Revenue- Sweat $30 $3,000 $0 Revenue - Setup $50 $5,875 $1,625 Total Revenue $138,875 $34,125 Cost of Good Sold $10 $40,000 $13,000 $25 $15,000 $0 Sweat $15 $1,500 $0 Labour - Production $13,000 $6,750 $2,350 $650 Ink per Item@ $1 $4,700 $1,300 Total Cost of Good Sold $76,550 $21,700 Gross Margin $62,325 $12,425 General and Administrative Office Supplies $500 $120 Phone 12 $30 $360 $360 Internet 12 $30 $360 $360 Silk Screen Machine Lease $500 $500 Interest 6% $300 $300 Insurance $360 $120 Rent- Office 12 $400 $4,800 $4,800 Rent- Production Facility 12 months $3,600 $0 Legal Fees $0 $1,000 Registration Fees $0 $400 Website Set up Fees $0 $300 Website Maintenance Fees 12 $120 $120 Promotion $2,000 $1,000 Total General Expenses $12,900 $9,380 Gross Income $49,425 $3,045 20% $9,885 $609 Net Income $39,540 $2,436 Return on Investment (Net % 24.36% 31

36 Appendix C: Monthly Profit and Loss Statement 32

37 Appendix D: Letter of Reference from CIBC Employee 33

38 Appendix E: Fair Trade Women's Fashion Site Tamira Williams BellaOnline's Women's Fashion Editor Fair Trade Fortnight - Guilt-free fashion for true Chico -Warriors Guest Author - Vicky Talbot We have all felt the occasional pang of guilt on missing recycling day (the wellintentioned stack of newspapers and clean glass bottles destined to join the contemptible blackbag rubbish), we ve all guiltily chose cheap bread over organic batch and the less said of our self-calculated carbon footprint the better. Saving the planet can, quite simply be a drag and does nothing for our already guilty conscience, but here s an incentive for you: responsible eco-fashion is here and it s seriously cool. With Fair Trade Fortnight (February 26th March 11th) in full swing celebrating ethical products that originate from ethical sources, by ethical means, we are now being urged to make a socially responsible statement through our clothes, choosing only fair trade garments made from natural fibres such as fair trade cotton, organic bamboo and hemp. But before you start scratching at the thought of wearing a stiff, itchy smock, the ecofashion world have come a long way, experimenting with natural materials that are so soft to the touch - you can expect to be pulling out a pair of organic soy silk panties from your underwear drawer before long. The main driving force behind this surge in interest for eco-friendly fashion has been it s backing by A-List celebrities giving Hollywood stars from Scarlet Johansson to Natalie Portman the green stamp of approval. However, some famous campaigners have taken this trend further, by not only donning organic clothing, but by designing their own collections. Husband and wife team Bono and Ali Hewson joined forces with New York fashion designer, Rogan Gregory to create Edun in 2005, a label that works to sustain employment in developing countries such as Africa, moving away from the concept of providing aid to providing trade. Edun and the vast selection of emerging eco-fashion labels have all proved that going green can be incredibly stylish, providing wearable, affordable clothes with an ethical story. But what about the fast fashion industryat-large, the factories dedicated to fast, high turnovers, mass-dyeing/bleaching methods, sweat shop workers, bad working conditions and the current high demand for brightly coloured, cheap garments we all love to wear? The fashion industry is traditionally profit-led and it is the cheaper, stylish, high street clothing that sells fast. There is therefore a pressure on green-fashion labels to provide both aesthetics and ethics, in order to influence consumers into choosing ethical fashion brands. One way this imbalance is being tackled is by Product (RED), the business model launched last year aiming to raise money for the Global Fund through partnerships with big fashion brands such as Gap, Converse and Armani. These brands and others have all had the (RED) treatment with special Product (RED) collections released with a percentage of profits going to the purchase and distribution of antiretroviral medicines in Africa, helping to treat those suffering from Aids. This is one example of how we can move forward in the quest to making saving the planet stylish, getting big businesses involved and encouraging other big brands to jump on the eco-friendly bandwagon at the promise of bigger profits for them as the demand for socially responsible clothing rockets. So whether you re going to start wearing organic, natural fibres, experiment with recycled materials or buy into socially responsible brands, stay one step ahead of the fickle fashion crowd and indulge in a little fair trade shopping this fortnight giving yourself an ethical makeover that will more than make up for missing the recycling man (again) asp 34

39 Appendix F: Growth in Fair Trade Products Figures Fairtrade Labelling has experienced very impressive growth rates over the last years, not only regarding the volume of sales worldwide but also in terms of the number of producer organizations which have joined the FLO system. By the end of 2007, there were 632 Fairtrade certified producer organizations in 58 producing countries, representing 1.5 million farmers and workers. With their families and dependents, FLO estimates that 7.5 million people directly benefit from Fairtrade. The growing number of Fairtrade certified producer organizations from 2001 to 2007 Growth of estimated retail value of Fairtrade certified products from 2004 to 2007 (in millions of euros) 35

40 The sales of Fairtrade certified products have been growing on an average of 40% per year in the last five years. In 2007, Fairtrade certified sales amounted to approximately 2.3 billion worldwide, a 47% year-to-year increase. To find about about Fairtrade sales by product, please go to the section products of the website. 5 5 "FLO International: Figures." FLO International: Home. 26 Mar < 36