An Example Business Plan Model For Urban Metro Cabinet Shop, Inc., a Manufacturer Focusing On Under Utilized Minor Eastern Hardwood Species
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1 Department of Wood and Paper Science Wood Products Extension An Example Business Plan Model For Urban Metro Cabinet Shop, Inc., a Manufacturer Focusing On Under Utilized Minor Eastern Hardwood Species By Harry W. Watt Business Improvement Specialist Wood Products Extension North Carolina State University Raleigh, North Carolina For the Under Utilized Species Marketing Project Wood Education and Resource Center USDA US Forest Service Princeton, West Virginia June 2010 New Business Ideas Workshop Discrimination Policy Statement The work upon which this project is based was funded in whole or in part through a grant awarded by the Wood Education and Resource Center, Northeastern Area State and Private Forestry, U.S. Forest Service. In accordance with Federal Law and U.S. Department of Agriculture policy, this institution is prohibited from discriminating on the basis of race, color, national origin, sex, age, or disability. (Not all prohibited bases apply to all programs.) To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326- W, Whitten Building, 1400 Independence Avenue, SW, Washington, DC or call (202) (voice and TDD). USDA is an equal opportunity provider and employer.
2 TABLE OF CONTENTS Topic Page Executive Summary 2 Business Description 2 Products/Services 3 Management and Personnel 3 Business Strategy Elements Marketing Sales Goals 4 Product Lines 4 Target Markets 4 Main Marketing Strategies 4 Competitive Strategy 4 Promotional Strategy 4 Pricing Strategy 4 Market Budget 4 Financial Plan 5 Equipment 5 Facilities 5 Executive Summary In the large urban centers of the Eastern US, there is a great need for cabinets for homes and businesses and little opportunity to have large commercial cabinet shops located near these urban population centers. It is possible to have local businesses manufacture cabinets when they purchase dimension stock, and panels made of veneer panels, vinyl laminated panels and particleboard and can operate in small footprint buildings. This example business plan outlines a successful local cabinet shop that focuses on using lower priced under utilized Eastern hardwood species to support assembly and finishing operations for cabinets and related wood products. In this example, Urban Metro Cabinet Shop, Inc., UMCS, Inc. has been in business for ten years as a reseller of stock cabinets but has concentrated its efforts on under utilized minor Eastern hardwood species for manufacturing cabinets for the last three years. Business Description The company is a manufacturer of residential and commercial products that includes kitchen base and wall cabinets, entertainment centers, storage cabinets, commercial reception desks, medical nurse s stations, office furnishings and special custom wood products. UMCS is a buyer of dimension panels, rip strips and machined parts from AAA Dimension Products (AAADP). Deliveries are made as often as weekly as needed by the production schedule of UMCS. The company takes advantage of the design system supported by AAADP. The company is able to meet its need for solid lumber for all its products from a total of seven minor hardwoods (beech, sycamore, black gum, sweet gum, tupelo, hackberry and wormy red maple). 2
3 The company operates out of a 10,000 square foot store front first floor building in a large urban Eastern US city that contains a front retail storefront and in the back has the manufacturing operation with a loading dock. The company is able to finish using water borne finishing materials as a method to reduce fire risk and disagreeable finishing fumes. UMCS is a make to order cabinet manufacturer and keeps in inventory $ mainly in a small stock of edge glued panels, plywood panels, hardware and finishing materials. Products/Services The company manufacturers the following cabinet and related products: Kitchen cabinets-base, wall Entertainment centers Household storage units Home office furniture Nurse s stations and reception counters UMCS has grown its business by offering supporting design services that helps buyers define their purchases. The sales and design employees use SketchUp, the 3-D design software package, to draw products and room settings to assist customers make decisions and place orders. Most products are from pre-engineered designs supplies by AAADP. The company operates on a local basis with little work performed outside of a ten mile radius of the shop. Management and Personnel The company is single family owned business with two family members in its employment. Lewis and Margaret Morgan are the legal owners of the business that operates as a corporation. John handles the role of company manager and supports commercial sales effort while Margaret is the primary designer and also supports the retail sales efforts. John also oversees the installation crew. Six production employees perform all the manufacturing and installation tasks and are assigned to these areas for the majority of their weekly tasks: Direct Labor Manning Chart Location # Employees Shop/Install 6 Total Direct Labor 6 Two employees are assigned administration, sales and management tasks, as listed below: 3
4 Overhead Employees Sales/Management 1 Design/Retail Sales 1 Total Overhead Emp. 2 Business Strategy Elements Marketing Sales Goals-the company s annual sales goal is $960,000 a year at a profit margin on sales at 6-1/4%. The company actively works to sell multiple items in any residential or commercial sales, such as offering counter tops, locks, special finishes, etc. Product Lines-using AAADP s design system as a starting point, UMCS is able to quickly and easily convert a customer s wishes into traditional kitchen cabinets, but also in residential furniture and commercial products. The company uses minor species hardwoods for exterior woodwork and laminated panel products for interiors. All wood finishes are water borne materials that have limited petroleum content and are not fire hazards. Target Markets-the company s target markets are urban home owners, apartment and condo owners, and commercial businesses. Main Marketing Strategy-by using under utilized minor Eastern US hardwoods the company is able to offer a product/service package that is cost competitive to imports and premium US hardwoods. By using a make-to-order business strategy UMCS is able to make modifications to standard units on the fly and offer products that are near custom but at a lower cost of design and manufacture. Competitive Strategy-UMCS operates in a niche cabinet role that is unique in its local marketing area. No other cabinet manufacturer, reseller or retailer is able the unique combination of low wood prices (by using under utilized species hardwoods) and wide product line variety. Competitors offering stock cabinets only are not competitive with unique designs or special finishes with UMCS. Promotional Strategy-the company promotes itself by being active in the community and by looking for opportunities for visibility. The company works with local self help organizations when hiring employees and monthly sends out positive press releases to the local media outlets. It also attends local business marketing events, and is a member of the local Chamber of Commerce. Being able to install its own products is a boost to both residential and commercial sales. Pricing Strategy-the company prices its products at competitive prices to most normal retail outlets for the quality level produced. UMCS offers cabinet lines in the good/better/best format as to be able to meet the budget and design needs of cabinet buyers in its local marketing area. Marketing Budget-UMCS budgets $24,000 annual for marketing and is a regular advertiser in local newspapers and magazines. It also rents booth space at local home and garden shows. 4
5 Financial Plan-shown below is the budgeted annual Profit and Loss Statement that shows the company s sales, expenses and profitability on a monthly and annual basis. The company pays about 40% of sales for materials, 19% for direct labor and has an overhead cost of 35%. The profitability level of sales is running 6%. The company s eight employees perform at a productivity annual rate of $120,000 of sales per employee. Profit and Loss Statement-Urban Cabinet Shop for Minor Species Hardwoods Fraction Month Year Sales $80,000 $960,000 Expenses Materials 0.40 $32,000 $384,000 Direct Labor 0.19 $15,000 $180,000 # Employees 6 Annual $/Emp $30,000 Overhead # Employees $28,000 $336,000 Profit $5,000 $60,000 UMCS has typically reinvests $10,000 to $15,000 annually to keep the company s asset base up to date and its labor productivity growing. Most of the company s equipment is either fully depreciated or in the later stages of being written off as the company does use the accelerated depreciated schedules. The company does have approximately $15,000 of raw materials inventory and approximately $75,000 of inventory as work-in-process and finished goods. Equipment-the company has the following equipment: Equipment List Pallet jack Panel sizing saw CNC router Table shaper Pin router Table saw Wide belt sander Edge sander Flap wheel sander Spray paint booth Small box van truck Current book value = $100,000 Facilities-the company has a single 10,000 sf building that has 1,000 sf in offices and showroom/design center, and the balance for manufacturing. The business rents the building on a five year contract basis. 5
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