Business plan for Royal Nine Coffee powder industry

Executive Summary

Royal Nine Coffee is a start up Salem, Oregon based coffee roaster that has developed a line of
premium coffees and espressos. Royal Nine Coffee has been formed as an Myanmar Coffee
powder Corporation by the founder Daw MBA. Daw MBA has brought old world Italian
traditions and recipes to meet the market need for premium coffees.

Keys to Success
Royal Nine Coffee has identified three keys that will be instrumental to its success. The first is
the need to develop the finest coffee available. The second requirement to develop a top notch
customer service organization that exceeds customer expectations. The last element is to employ
strict financial controls. The development and implementation of finance and accounting controls
will help ensure fiscal success.

Target Market Segments

Royal Nine Coffee has identified three distinct customer segments that it will actively pursue.
The first group is made up of coffee houses, drive thru establishments, and espresso carts. This
customer segment has 187 potential customers and is growing at a 7% annual rate. The second
group is restaurants with 107 possible customers and is growing at an 8% annual rate. The last
segment is grocery stores that sell unprepared beans to their customers in either whole bean or
ground forms. This segment has 97 potential customers and a 7% growth rate.

Management
Royal Nine Coffee is being lead by Daw MBA. Daw MBA has a strong educational background
and a wealth of applicable industry experience. Daw MBA received his Bachelor degree and
MBA from Willamette University. Daw MBA has worked at several coffee shops, and has
worked in Italy as a coffee roaster under the wing of an Italian master roaster.

Through a combination of a solid business model, strong educational credentials, and proprietary
coffee roasting techniques, Daw MBA will be able to turn Royal Nine Coffee from a start-up
business to a significant market player in the high-end coffee market in the Pyin Oo Lwin. Sales
for year two are forecasted to be $312,000 rising to $355,000 in year three. Net profit is
projected to be 7.58% for year two and will jump to 9.58% in year three.

1.1 Mission

It is Royal Nine Coffee’s mission to offer the finest selection of coffees. By using the customs
from a 54-year-old Italian master roaster, Royal Nine Coffee’s products will surpass all of its
competition. A strong customer service ethic will support the fantastic product.

1.2 Objectives

Royal Nine Coffee’s objectives are to build brand awareness and customer service excellence,
while increasing sales. Royal Nine Coffee intends to utilize the following strategies to achieve
these objectives:

 Develop a high-quality menu of different coffee blends.

 Provide an excellent service experience, anticipating the needs of the customers and
delivering the best service.
 Leverage the old traditional Italian roasting methods to increase market penetration with
the finest product available.

1.3 Keys to Success

Royal Nine Coffee has identified several keys which will be instrumental in the success of the
company.

 Develop the finest product.

 Exceed customer expectations.
 Employ strict financial controls.
Company Summary

Royal Nine Coffee is a start up Salem, Oregon based coffee roaster that has developed a line of
premium coffees and espressos. Royal Nine Coffee has been formed as an Myanmar Coffee
powder Corporation by the founder Daw MBA. Daw MBA has brought old world Italian
traditions and recipes to meet the market need for premium coffees.

2.1 Company Ownership

Royal Nine Coffee is an Myanmar Coffee powder Corporation. The primary stockholder and
founder is Daw MBA.

2.2 Start-up Summary

The following equipment will be needed for the start up of the company:

 Three workstation computers and one central file server.

 Two laser printers.
 Computer software: Microsoft Office, and Peachtree Accounting.
 Assorted office furniture and equipment.
 Assorted buckets, labels, bags, labels, and hooks.
  Topre Izmir perforated drum roaster.
 Heat based bag sealer.
 Hobart scale.
 Van.

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Start-up

Requirements

Start-up Expenses

Legal $5,000

Stationery etc. $500

Brochures $1,000
Consultants $1,500

Research and Development $3,000

Total Start-up Expenses $11,000

Start-up Assets

Cash Required $116,000

Start-up Inventory $0

Other Current Assets $0

Long-term Assets $78,000

Total Assets $194,000

Total Requirements $205,000

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Start-up Funding

Start-up Expenses to Fund $11,000

Start-up Assets to Fund $194,000

Total Funding Required $205,000

Assets

Non-cash Assets from Start-up $78,000

Cash Requirements from Start-up $116,000

Additional Cash Raised $0

Cash Balance on Starting Date $116,000

Total Assets $194,000

Liabilities and Capital

Liabilities

Current Borrowing $0

Long-term Liabilities $0

Accounts Payable (Outstanding Bills) $0

Other Current Liabilities (interest-free) $0

Total Liabilities $0

Capital

Planned Investment

Investor 1 $80,000

Investor 2 $65,000

Other $60,000

Additional Investment Requirement $0

Total Planned Investment $205,000

Loss at Start-up (Start-up Expenses) ($11,000)

Total Capital $194,000

Total Capital and Liabilities $194,000

Total Funding $205,000

Products

Royal Nine Coffee offers a wide range of specially blended and roasted coffees. Royal Nine
Coffee will be using customs passed down from a 54 year old Italian master coffee roaster.
Royal Nine Coffee first will select and cup the coffee, then blend different beans before roasting.

The key to a wonderful bag of roasted beans is the blending of different coffee beans. Coffee
beans are a global commodity. There are many different types of beans, distinctive in the genre
of plant that the bean comes from as well as the region that the bean is grown. Beyond these
distinctions, beans are still a commodity.

Blending different types of beans makes huge differences. Royal Nine Coffee is privy to decades
old blending recipes from old world Italy.The roasting technique also plays a role in the taste of
the coffee.

Royal Nine Coffee will offer a wide range of coffees including:

 Italian Roast
 French Roast
 Columbian Dark
 African Roast
 Sumatra
 Bistro Blend
 Kona
 Kenya
 Decaf- available in the following blends: Bistro, Sumatra, French and Italian Roasts
  Espresso and Decaf Espresso

Each coffee is available in one pound and five pound packages, in both whole bean and ground
versions. Every product that Royal Nine Coffee produces attempts to be the best in its respective
product category based on quality and taste.

Market Analysis Summary

Royal Nine Coffee has decided to concentrate on three distinct customer segments. The first is
coffee houses/drive thru/espresso carts, restaurants, and the last is grocery stores. Each of the
customers is distinct. The first segment prepares beverages for their clients, as does the second
group along with meals, and the third segment sells the whole bean and ground coffee
unprepared to their customers.

While the coffee industry as a whole has been stagnate for a while, the high-end gourmet coffee
market is still growing. This can be attributed to a number of factors including the maturing and
increased sophistication of the American palette. Royal Nine Coffee faces competition from
several competitors who focus on convenience or price as opposed to product quality which is
the strength of Royal Nine Coffee.

4.1 Market Segmentation

Royal Nine Coffee has segmented their market into three distinct customer segments:

1. Coffee houses/drive thrus/carts: These customers are purchasing coffee beans for the
preparation and sale of coffee and espresso based drinks. Their establishments serve a
wide variety of coffee and espresso beverages to customers that visit the coffee houses,
drive thrus, or cart based servers.
2. Restaurants: These establishments are purchasing coffee and espresso to serve to their
retail food customers.
3. Grocery Stores: These customers are purchasing the beans for either prepackaged, or
bulk, resale to their customers. The grocers do not prepare the drinks for the customers
 like the other customer segments, they only sell the Royal Nine product as is purchased
from Royal Nine Coffee.

Below is some demographic information of the end consumers of the above customer segments.

U.S. Demographic Coffee Consumption Patterns

2001- 2002 U.S. Coffee Drinking Trends Survey (according to the National Coffee Association):

2002 2003

U.S. adults who drank coffee every day 107 million 108.7 million

U.S. adults who drank coffee occasionally 57 million 52 million

Gender:

 Men and women consume the same number of cups per day.
 Women are more excited about varieties and source of relaxation (social).
 Men like that coffee helps them “get things done.”
 Women are more price conscious than men.

Age:

 18-25: prefer high caffeine, hot or iced drinks, all high octane, richer blends.
 30-60: prefer premium and espresso with half the caffeine. Lite blends and half-
caffeinated grew approximately 7% in 2001.

Other:

 64% of all coffee is consumed at breakfast; 28% between meals; 8% at all other meals.
 Sweetened or plain: 35% drink coffee black; 65% add sweetener and/or creamer.
 The average daily coffee drinker consumes 3.1 cups per day.
  In 2002, there were 29 million people who drank gourmet coffee every day. Gourmet is
defined as specialty coffee (premium), espresso-based beverages (cappuccino, latte, café
mocha, espresso), or frozen and iced coffee beverages.

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Market Analysis

Potential Customers Growth CAGR

Coffee houses, etc. 7% 120 128 137 147 157 6.95%

Restaurants 8% 107 207 224 242 261 24.97%

Grocery stores 7% 97 104 111 119 127 6.97%

Total 13.88% 324 439 472 508 545 13.88%

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4.2 Target Market Segment Strategy

Royal Nine Coffee will be focusing on the three previously mentioned customer segments
because of their desire of having a high-quality product.

The coffee shops/drive thrus/carts segment often appreciates the finest quality coffee/espresso
product. Restaurants are another customer segment that is attractive because they have a constant
need for coffee and coffee/espresso is a common beverage served with meals, especially when
people eat out.

Additionally, restaurants are a year round business that serves coffee at all times during the day.
Lastly, Royal Nine Coffee will target grocery stores which sell coffee in unprepared forms to a
wide range of customers. Grocery stores are a natural customer since many people buy the bulk
of the food they consume during the week from a grocery store, including coffee.

4.3 Industry Analysis

Global Coffee Market: Coffee is the second-largest commodity traded after oil, with the
worldwide retail coffee market being a $56 billion industry.

The coffee belt is roughly bounded by the Tropics of Cancer and Capricorn and is mainly
comprised of 28 countries. The top-ten coffee-producing countries are, in descending order:
Brazil, Vietnam, Columbia, Indonesia, Mexico, Ethiopia, India, Guatemala, Ivory Coast, and
Uganda.

During the 1990’s, Vietnam moved from fourth largest to second largest producer of coffee in
the world, with most of its production in robusta beans. Coffee is available in several forms:
bean, ground, liquid, and soluble: powdered, granules, freeze-dried. Worldwide, with the
exception of North America, people prefer instant coffee and coffee is mainly prepared at home.

Top coffee-importing countries as a % of world supplies:

USA 55.6%

Germany 14.0%

Japan 7.7%

France 7.5%

Italy 6.2%

Spain 3.8%

Holland 3.4%

UK 3.4%

Sweden 2.2%

Top coffee-consuming regions (by pounds consumed per capita per year):

Northern Europe* 23

Central Europe 16

South America 7

Southern Europe 10

North America 10

Australia 5

Japan 5
* Does not include the UK, which only consumes 5 pounds per capita per year.

U.S. Coffee Market: The total U.S. coffee market is projected to exceed $25 billion in 2002:

1993 1999 2001

Revenues $13 B $18.5 B $20.7 B

The overall U.S. consumption of coffee has stagnated in recent years. However, consumers’
purchase of gourmet coffee (specialty and premium) is increasing, according to the National
Coffee Association.

Consumers are choosing to drink higher-grade coffees, moving away from price-based
purchasing to trends that focus on increased quality in a wide variety of products. In the U.S., the
coffee market has been segmented into two major categories: mass-market and specialty coffees.

1. Mass-Market: Mainly lower-priced product sold through grocery retail outlets and
convenience stores. Mass-market coffee consumption is declining approximately 5% per
year as people of all ages embrace out-of-home specialty coffees. Grocery retail outlets
are providing the consumer with more premium coffee choices and are partnering with
specialty coffee roasters capturing an increasing share of the mass-market sales channels.
2. Specialty Coffee: Characterized by a quality grade product with branding, historically
sold only through coffee shops. Five years ago, there was a clear line between mass-
market and specialty coffees in quality, price and distribution channels. Today, there are
two sub-categories that make the positioning more blurred: Premium and Specialty
coffees.

Specialty coffee retailers sell higher quality coffee at premium prices. Now, premium
coffees have been introduced into other distribution channels to sell below specialty
coffee retailer prices, undercutting the exclusive advantage coffee retailers once had.
Specialty coffee sales grew 38% from $7.76 billion in 2000 to $10.71 billion in 2001,
 comprising 30% of the total U.S. coffee market. The specialty coffee market is
characterized by being high fragmented with one large player, several mid-tier
companies, and thousands of small regional companies.

Before the success of the specialty coffee retailers in the 90’s, coffee was a breakfast drink and
choices were caffeinated or decaffeinated. The incredible success of the specialty coffee retailer
can be attributed to introducing coffee as a social drink and providing the consumer with new
unimagined choices of coffee drinks while introducing and conditioning the consumer to the
taste of specialty coffees.

Trends within the Industry:

 In the U.S., Specialty coffee sales grew 38% from $7.76 billion in 2000 to $10.71 billion
in 2001, comprising 30% of the market. Thanks in large part to the marketing efforts of
Starbucks, specialty coffee has become mainstream. It is the primary growth driver in the
otherwise flat or declining coffee industry. Specialty coffee, which was once limited to
coffee shops, is now available in a wide variety of mass-market channels.
 Specialty coffee is moving into mass-market channels. Coffee is no longer being viewed
as just a breakfast beverage; it is now a social beverage, and people like to drink premium
branded coffee throughout the day.

This has spurred partnerships with convenience stores and service companies that provide
coffee to offices and throughout the hospitality industry. There is also a change in the
type and quality of vending machines. Coffee vending companies are converting their
vending machines to branded coffee.

4.3.1 Competition and Buying Patterns

Royal Nine Coffee several different competitors:

 Allan Brothers: This Oregon based company operates as both a roaster as well as running
coffee houses in Salem, Eugene, and Corvalis. The price point for their coffee is midway.
The quality is decent, particularly at its price point.
  Caffetto: This company widely distributes their roasted coffee throughout the Willamette
River Valley. The quality and price point is pretty low. This company’s coffees are
attractive if the customer is very price sensitive and need an inexpensive product.
 Assorted varieties distributed by food service vendors (e.g., Food Service of America and
Sysco): These varieties are offered at a mid-price point with a low product quality. What
you do get with these offerings is individual serving sizes. For a lot of restaurants this is
advantageous, but the costs is carried over to the customer for this feature.

The buying patterns for customers is based on convenience, cost, and quality. Some customers
are willing to pay more for the convenience of individual sized servings and the benefit of
buying coffee from their existing food product vendor. For others coffee is just one more thing
on the menu and quality is not that important. Lastly, there are many companies that recognize
high quality coffee and espresso and will not settle for anything less.

Strategy and Implementation Summary

Royal Nine Coffee will leverage its competitive edge of the highest quality product to quickly
gain market penetration.  This competitive edge is sustainable because it is based on the
traditional roasting techniques of an old Italian master roaster. Royal Nine Coffee’s marketing
effort will be based on the communications that assert that Royal Nine Coffee has by far the best
products. Royal Nine Coffee will be vocal in their assertion of the message that while its coffee
costs a bit more, the variance is not material and the difference in quality is immeasurable. The
sales strategy will work on converting perspective customers into long-term customers by
emphasizing high-quality products and high levels of customer service.  This strategy recognizes
the fact that even though the company may have the best product, without excellent customer
service the organization will not succeed.

5.1 Competitive Edge

Royal Nine Coffee’s competitive edge is its market leading product quality. By leveraging
personal relationships, Royal Nine Coffee has gained the recipes and knowledge of an old Italian
master roaster. Part of Royal Nine Coffee’s secret is the old world roasting techniques, part of
the winning formula is the art of blending different green beans to come up with special recipes.
Green coffee beans are a commodity, therefore any variations in one company’s coffee to
another is based on roasting techniques if they are using the same types of beans. Royal Nine
Coffee is able to stand out among its competitors by using time tested blends of different green
beans to come up with compelling final products. This competitive edge is sustainable in the
sense that this information that Royal Nine Coffee possesses is a trade secret and not available to
other roasters. This will ensure Royal Nine Coffee will always have the finest products.

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5.2 Marketing Strategy

Royal Nine Coffee’s marketing strategy will communicate to the target customer segments
that its product clearly exceeds all of the competitors. The strategy will employ several methods
to communicate the message. The first will be a print advertising campaign. Several different
sources will be used including a local restaurant industry journal as well as a regional coffee
shop trade publication. Advertisements in these publications will be effective in reaching the
target audience.

A second method that Royal Nine Coffee will use to “get out the word” will be by having several
different cuppings. A cupping is analogous to a wine tasting where many different varieties are
tasted, compared, and analyzed. The cuppings will be a perfect opportunity for Royal Nine
Coffee to have prospective customers taste the difference between its products and the
competition. To develop awareness of the superior product offerings, Royal Nine Coffee must
offer a superior level of customer service to support the products. Royal Nine Coffee recognizes
that you cannot solely compete on product alone, that much of the transaction involves excellent
customer service.

5.3 Sales Strategy

The sales strategy recognizes the need for the company as a whole to back up its superior
product offerings with excellent service. This mantra is important because if there was not a
service organization to back up the product, there would be no customers after the second or
third purchase. Consequently, the sales strategy will focus on customer support and making the
customer’s experience with Royal Nine Coffee as positive as possible. This strategy will use
account managers that look after individual customers, ensuring that their needs are being met.
The account managers will be responsible for a certain number of existing accounts as well as
will be provided the resources to attract new accounts.

5.3.1 Sales Forecast

The sales forecast, described graphically in the following charts, is conservative in order to
prevent unrealistic expectations and to help ensure the achievement of these goals. Sales will
grow slowly but incrementally. As a start-up organization, it is realistic to expect that it will take
time to grow the customer base so that it is at a sustainable level.

As mentioned in the previous section, account managers will be used to service existing
customers as well as generate new accounts. Having account managers with a vested interest in
the satisfaction of the customers will help ensure disciplined sales growth. Without account
managers, the management believes that it would be too easy for customers to “fall through the
cracks.”
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Sales Forecast

Sales

Coffee houses $35,824 $136,004 $154,545

Restaurants $22,211 $84,322 $95,818

Grocery stores $24,360 $92,483 $105,091

Total Sales $82,395 $312,809 $355,454

Direct Cost of Sales Year 1 Year 2 Year 3

Coffee houses $11,822 $44,881 $51,000

Restaurants $7,330 $27,826 $31,620

Grocery stores $8,039 $30,519 $34,680

Subtotal Direct Cost of Sales $27,190 $103,227 $117,300

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5.4 Milestones

Royal Nine Coffee has developed several milestones that will serve as a goal to which the entire
organization will strive to achieve.  All of the milestones are measurable allowing the
responsible department to track progress and assess their ability to reach the milestone.

 Business plan completion.

 First major account: This will be the first large account that provides the company with a
material recurring revenue stream.
 Profitability: For the accounting/finance department, this is a significant milestone.
 Revenue exceeding $300,000.
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Milestones

Milestone Start Date End Date Budget Manager Department

Business plan completion 1/1/2004 2/15/2004 $0 Daw MBA Operations

First major account 1/1/2004 6/15/2004 $0 Sales Manager Sales

Profitability 1/1/2004 10/30/2005 $0 Daw MBA Accounting

Revenue >$500,000 1/1/2004 6/15/2006 $0 Sales Manager Sales

Totals $0

Web Plan Summary

A website will be used to provide information regarding Royal Nine Coffee and the offered
products to current and prospective customers. The site will be used for informational purposes,
it will be not initially used for commerce purposes. Once the organization has been operating for
a while they will reconsider the demand for coffee to be sold via the website.

6.1 Website Marketing Strategy

The marketing strategy for the website will attempt to develop awareness for the website thereby
directing people to the site for more information regarding the complete line of coffees and
espressos that Royal Nine Coffee offers. Royal Nine Coffee will make submissions to search
engines such as Google! to ensure that when a perspective customer types in “gourmet coffee” or
some other such key word that Royal Nine Coffee’s site is high up on the list of hits. In addition
to search engine submissions, all of Royal Nine Coffee’s promotional material will have the
URL for the website, encouraging people to visit the site.

6.2 Development Requirements

As mentioned before, the website will be used as a source of information. Because it will not, at
least initially, have an e-commerce component to it, the development requirements will not be
that significant. Royal Nine Coffee will leverage the technical expertise of a computer science
graduate student (who typically work at below market wages) to develop the informational site.

Management Summary

Daw MBA, the founder and driving force of Royal Nine Coffee will be the main component of
the management team. Daw MBA received his Bachelor of Arts  and MBA from Willamette
University. Daw MBA has worked as a barista at several different coffee houses, and with an
Italian master roaster who took him under his wing and showed him all aspects of the business.
After one year in Italy Daw MBA returned to the states and began to work on a business plan for
a coffee roasting company.

7.1 Personnel Plan

Responsibilities within Royal Nine Coffee will be delegated as follows:

  Daw MBA: Business development, some accounting, some sales, and roasting.
 Sales manager: This person is responsible for the sales effort and will be the account
manager for all of the accounts initially and will develop new sales accounts as well.
 Sales: As the business grows a sales person will be hired for account management
responsibilities as well as some new sales development.
 Shipping: One person will be hired for the position of shipping and delivery. For delivery
within the Willamette River Valley, deliveries will be made by the company vehicle.
Other shipments that are of greater distance from Royal Nine Coffee will be sent via
UPS. This position will coordinate all aspects of order fulfillment.
 Support staff: This position will employ initially one person in a capacity of supporting
operations in a multitude of ways based on need. At times they will help support
production and shipping.
 Administrative support: This position will help with some of the accounting activities as
well as other administrative support functions.

Personnel Plan

Daw MBA $24,000 $24,000 $30,000

Sales manager $20,000 $24,000 $30,000

Sales $10,500 $18,000 $18,000

Support $11,520 $15,360 $15,360

Shipping $7,680 $15,360 $15,360

Administration $10,240 $15,360 $15,360

Total People 6 6 6

Total Payroll $83,940 $112,080 $124,080

Financial Plan
The following sections will outline important financial information.

8.1 Important Assumptions

The following table details important Financial Assumptions.

General Assumptions

Plan Month 1 2 3

Current Interest Rate 10.00% 10.00% 10.00%

Long-term Interest Rate 10.00% 10.00% 10.00%

Tax Rate 30.00% 30.00% 30.00%

Other 0 0 0

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8.2 Break-even Analysis

The Break-even Analysis indicates that approximately $19,000 will be needed in monthly
revenue to reach the break-even point.
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Break-even Analysis

Monthly Revenue Break-even $19,170

Assumptions:

Average Percent Variable Cost 33%

Estimated Monthly Fixed Cost $12,844

8.3 Projected Profit and Loss

The following table will indicate Projected Profit and Loss.

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Pro Forma Profit and Loss

Sales $82,395 $312,809 $355,454

Direct Cost of Sales $27,190 $103,227 $117,300

Other Costs of Goods $0 $0 $0

Total Cost of Sales $27,190 $103,227 $117,300

Gross Margin $55,205 $209,582 $238,154

Gross Margin % 67.00% 67.00% 67.00%

Expenses

Payroll $83,940 $112,080 $124,080

Sales and Marketing and Other Expenses $8,394 $11,208 $12,408

Depreciation $15,600 $15,600 $15,600

Rent $14,400 $14,400 $14,400

Utilities $7,800 $7,800 $7,800

Insurance $9,000 $9,000 $9,000

Payroll Taxes $12,591 $16,812 $18,612

Other $2,400 $2,400 $2,400

Total Operating Expenses $154,125 $189,300 $204,300

Profit Before Interest and Taxes ($98,920) $20,282 $33,854

EBITDA ($83,320) $35,882 $49,454

Interest Expense $0 $0 $0

Taxes Incurred $0 $6,085 $10,156

Net Profit ($98,920) $14,198 $23,698

Net Profit/Sales -120.06% 4.54% 6.67%

8.4 Projected Cash Flow

The following table and chart will detail information regarding Cash Flow.
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Pro Forma Cash Flow

Cash Received

Cash from Operations

Cash Sales $20,599 $78,202 $88,863

Cash from Receivables $43,327 $182,958 $257,031

Subtotal Cash from Operations $63,926 $261,161 $345,895

Additional Cash Received

Sales Tax, VAT, HST/GST Received $0 $0 $0

New Current Borrowing $0 $0 $0

New Other Liabilities (interest-free) $0 $0 $0

New Long-term Liabilities $0 $0 $0

Sales of Other Current Assets $0 $0 $0

Sales of Long-term Assets $0 $0 $0

New Investment Received $0 $20,000 $0

Subtotal Cash Received $63,926 $281,161 $345,895

Expenditures Year 1 Year 2 Year 3

Expenditures from Operations

Cash Spending $83,940 $112,080 $124,080

Bill Payments $77,036 $178,464 $193,666

Subtotal Spent on Operations $160,976 $290,544 $317,746

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0

Principal Repayment of Current Borrowing $0 $0 $0

Other Liabilities Principal Repayment $0 $0 $0

Long-term Liabilities Principal Repayment $0 $0 $0

Purchase Other Current Assets $0 $0 $0

Purchase Long-term Assets $0 $0 $0

Dividends $0 $0 $0
Subtotal Cash Spent $160,976 $290,544 $317,746

Net Cash Flow ($97,050) ($9,383) $28,148

Cash Balance $18,950 $9,567 $37,715

8.5 Projected Balance Sheet

The following table displays the Projected Balance Sheet.

Pro Forma Balance Sheet

Assets

Current Assets

Cash $18,950 $9,567 $37,715

Accounts Receivable $18,469 $70,118 $79,677

Inventory $4,722 $17,928 $20,372

Other Current Assets $0 $0 $0

Total Current Assets $42,141 $97,612 $137,763

Long-term Assets

Long-term Assets $78,000 $78,000 $78,000

Accumulated Depreciation $15,600 $31,200 $46,800

Total Long-term Assets $62,400 $46,800 $31,200

Total Assets $104,541 $144,412 $168,963

Liabilities and Capital Year 1 Year 2 Year 3

Current Liabilities

Accounts Payable $9,461 $15,135 $15,988

Current Borrowing $0 $0 $0

Other Current Liabilities $0 $0 $0

Subtotal Current Liabilities $9,461 $15,135 $15,988

Long-term Liabilities $0 $0 $0

Total Liabilities $9,461 $15,135 $15,988

Paid-in Capital $205,000 $225,000 $225,000

Retained Earnings ($11,000) ($109,920) ($95,723)

Earnings ($98,920) $14,198 $23,698

Total Capital $95,080 $129,277 $152,975

Total Liabilities and Capital $104,541 $144,412 $168,963

Net Worth $95,080 $129,277 $152,975

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8.6 Business Ratios

The following table shows important Business Ratios, specific to Royal Nine as well as the
industry as a whole.
Ratio Analysis

Sales Growth 0.00% 279.64% 13.63% -2.25%

Percent of Total Assets

Accounts Receivable 17.67% 48.55% 47.16% 20.65%

Inventory 4.52% 12.41% 12.06% 16.07%

Other Current Assets 0.00% 0.00% 0.00% 21.35%

Total Current Assets 40.31% 67.59% 81.53% 58.07%

Long-term Assets 59.69% 32.41% 18.47% 41.93%

Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities 9.05% 10.48% 9.46% 21.87%

Long-term Liabilities 0.00% 0.00% 0.00% 19.28%

Total Liabilities 9.05% 10.48% 9.46% 41.15%

Net Worth 90.95% 89.52% 90.54% 58.85%

Percent of Sales

Sales 100.00% 100.00% 100.00% 100.00%

Gross Margin 67.00% 67.00% 67.00% 32.41%

Selling, General & Administrative Expenses 187.06% 62.46% 60.33% 21.65%

Advertising Expenses 0.00% 0.00% 0.00% 1.81%

Profit Before Interest and Taxes -120.06% 6.48% 9.52% 1.84%

Main Ratios
Current 4.45 6.45 8.62 2.24

Quick 3.95 5.27 7.34 1.31

Total Debt to Total Assets 9.05% 10.48% 9.46% 3.37%

Pre-tax Return on Net Worth -104.04% 15.69% 22.13% 45.32%

Pre-tax Return on Assets -94.62% 14.04% 20.04% 6.17%

Additional Ratios Year 1 Year 2 Year 3

Net Profit Margin -120.06% 4.54% 6.67% n.a

Return on Equity -104.04% 10.98% 15.49% n.a

Activity Ratios

Accounts Receivable Turnover 3.35 3.35 3.35 n.a

Collection Days 55 69 103 n.a

Inventory Turnover 10.91 9.12 6.13 n.a

Accounts Payable Turnover 9.14 12.17 12.17 n.a

Payment Days 27 24 29 n.a

Total Asset Turnover 0.79 2.17 2.10 n.a

Debt Ratios

Debt to Net Worth 0.10 0.12 0.10 n.a

Current Liab. to Liab. 1.00 1.00 1.00 n.a

Liquidity Ratios

Net Working Capital $32,680 $82,477 $121,775 n.a

Interest Coverage 0.00 0.00 0.00 n.a

Additional Ratios

Assets to Sales 1.27 0.46 0.48 n.a

Current Debt/Total Assets 9% 10% 9% n.a

Acid Test 2.00 0.63 2.36 n.a

Sales/Net Worth 0.87 2.42 2.32 n.a

Dividend Payout 0.00 0.00 0.00 n.a

Appendix

Sales Forecast

Sales

Coffee 0 $2,50 $2,65 $2,89 $3,36 $3,98

$0 $0 $0 $4,545 $4,989 $5,225 $5,656
houses % 0 6 9 5 9

Restaurant 0 $1,55 $1,64 $1,79 $2,08 $2,47

$0 $0 $0 $2,818 $3,093 $3,240 $3,507
s % 0 7 7 6 3

Grocery 0 $1,70 $1,80 $1,97 $2,28 $2,71

$0 $0 $0 $3,091 $3,393 $3,553 $3,846
stores % 0 6 1 8 3

Total $5,75 $6,10 $6,66 $7,74 $9,17 $10,45 $11,47 $12,01 $13,00
$0 $0 $0
Sales 0 9 8 0 5 4 5 8 9

Direct
Mont Mont Mont Mont Mont Mont Mont Mont Month Month Month Month
Cost of
h1 h2 h3 h4 h5 h6 h7 h8 9 10 11 12
Sales
Coffee $1,11 $1,31
$0 $0 $0 $825 $876 $957 $1,500 $1,646 $1,724 $1,866
houses 0 6

Restaurant
$0 $0 $0 $512 $543 $593 $688 $816 $930 $1,021 $1,069 $1,157
s

Grocery
$0 $0 $0 $561 $596 $651 $755 $895 $1,020 $1,120 $1,172 $1,269
stores

Subtotal
Direct $1,89 $2,01 $2,20 $2,55 $3,02
$0 $0 $0 $3,450 $3,787 $3,966 $4,293
Cost of 8 6 0 4 8
Sales

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Personnel Plan

$2,00 $2,0 $2,00 $2,00 $2,00 $2,00 $2,00 $2,00 $2,00 $2,00 $2,00
Daw MBA 0% $2,000
0 00 0 0 0 0 0 0 0 0 0

Sales $2,0 $2,00 $2,00 $2,00 $2,00 $2,00 $2,00 $2,00 $2,00 $2,00
0% $0 $0
manager 00 0 0 0 0 0 0 0 0 0

$1,50 $1,50 $1,50 $1,50 $1,50 $1,50 $1,50

Sales 0% $0 $0 $0 $0 $0
0 0 0 0 0 0 0

$1,28 $1,28 $1,28 $1,28 $1,28 $1,28 $1,28 $1,28 $1,28

Support 0% $0 $0 $0
0 0 0 0 0 0 0 0 0

Shipping 0% $0 $0 $0 $0 $0 $0 $1,28 $1,28 $1,28 $1,28 $1,28 $1,28

 0 0 0 0 0 0

Administrat $1,28 $1,28 $1,28 $1,28 $1,28 $1,28 $1,28 $1,28

0% $0 $0 $0 $0
ion 0 0 0 0 0 0 0 0

Total
1 1 2 2 3 5 6 6 6 6 6 6
People

Total $2,00 $4,0 $5,28 $6,56 $8,06 $9,34 $9,34 $9,34 $9,34 $9,34 $9,34
$2,000
Payroll 0 00 0 0 0 0 0 0 0 0 0

General Assumptions

Plan
1 2 3 4 5 6 7 8 9 10 11 12
Month

Current
10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00
Interest 10.00% 10.00%
% % % % % % % % % %
Rate

Long-term
10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00
Interest 10.00% 10.00%
% % % % % % % % % %
Rate

30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00
Tax Rate 30.00% 30.00%
% % % % % % % % % %

Other 0 0 0 0 0 0 0 0 0 0 0 0

Pro Forma Profit and Loss

$5,75 $6,10 $6,66 $10,4 $11,4 $13,0

Sales $0 $0 $0 $7,740 $9,175 $12,018
0 9 8 54 75 09

Direct $0 $0 $0 $1,89 $2,01 $2,20 $2,554 $3,028 $3,45 $3,78 $3,966 $4,29
Cost of 8 6 0 0 7 3
Sales

Other
Costs of $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Goods

Total
$1,89 $2,01 $2,20 $3,45 $3,78 $4,29
Cost of $0 $0 $0 $2,554 $3,028 $3,966
8 6 0 0 7 3
Sales

Gross $3,85 $4,09 $4,46 $7,00 $7,68 $8,71

$0 $0 $0 $5,185 $6,147 $8,052
Margin 3 3 7 4 8 6

Gross
0.00 67.00 67.00 67.00 67.00 67.00 67.00 67.00 67.00
Margin 0.00% 0.00% 67.00%
% % % % % % % % %
%

Expenses

$2,00 $2,00 $4,00 $5,28 $6,56 $8,06 $9,34 $9,34 $9,34

Payroll $9,340 $9,340 $9,340
0 0 0 0 0 0 0 0 0

Sales
and
Marketin
$200 $200 $400 $528 $656 $806 $934 $934 $934 $934 $934 $934
g and
Other
Expenses

Deprecia $1,30 $1,30 $1,30 $1,30 $1,30 $1,30 $1,30 $1,30 $1,30
$1,300 $1,300 $1,300
tion 0 0 0 0 0 0 0 0 0

$1,20 $1,20 $1,20 $1,20 $1,20 $1,20 $1,20 $1,20 $1,20

Rent $1,200 $1,200 $1,200
0 0 0 0 0 0 0 0 0
Utilities $650 $650 $650 $650 $650 $650 $650 $650 $650 $650 $650 $650

Insuranc
$750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $750
e

Payroll 15 $1,20 $1,40 $1,40 $1,40

$300 $300 $600 $792 $984 $1,401 $1,401 $1,401
Taxes % 9 1 1 1

Other $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200

Total
Operatin $6,60 $6,60 $9,10 $10,7 $12,3 $14,1 $15,77 $15,77 $15,7 $15,7 $15,7
$15,775
g 0 0 0 00 00 75 5 5 75 75 75
Expenses

Profit
Before
($6,6 ($6,60 ($9,10 ($6,84 ($8,20 ($9,70 ($10,5 ($9,62 ($8,7 ($8,0 ($7,05
Interest ($7,723)
00) 0) 0) 8) 7) 8) 90) 8) 71) 87) 9)
and
Taxes

($5,3 ($5,30 ($7,80 ($5,54 ($6,90 ($8,40 ($9,29 ($8,32 ($7,4 ($6,7 ($5,75
EBITDA ($6,423)
00) 0) 0) 8) 7) 8) 0) 8) 71) 87) 9)

Interest
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Expense

Taxes
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Incurred

Net ($6,6 ($6,60 ($9,10 ($6,84 ($8,20 ($9,70 ($10,5 ($9,62 ($8,7 ($8,0 ($7,05
($7,723)
Profit 00) 0) 0) 8) 7) 8) 90) 8) 71) 87) 9)
Net - - - - - - - -
0.00
Profit/Sa 0.00% 0.00% 119.0 134.3 145.5 136.82 104.94 83.91 70.48 -64.27% 54.26
%
les 9% 5% 9% % % % % %

Pro Forma Cash Flow

Cash
Receive
d

Cash
from
Operatio
ns

Cash $1,43 $1,66 $2,61 $2,86 $3,00 $3,25

$0 $0 $0 $1,527 $1,935 $2,294
Sales 8 7 3 9 4 2

Cash
from $4,32 $5,84 $6,91 $7,86 $8,62
$0 $0 $0 $0 $144 $4,596 $5,028
Receiva 1 1 3 6 0
bles

Subtotal
Cash
$1,43 $5,98 $8,45 $9,78 $10,8 $11,8
from $0 $0 $0 $1,671 $6,530 $7,321
8 8 4 2 70 72
Operatio
ns

Addition
al Cash
Receive
d

Sales 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Tax,
VAT,
HST/GS
T
Receive
d

New
Current
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Borrowi
ng

New
Other
Liabiliti
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
es
(interest-
free)

New
Long-
term $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Liabiliti
es

Sales of
Other
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Current
Assets

Sales of $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Long-
term
Assets

New
Investm
ent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Receive
d

Subtotal
Cash $1,43 $5,98 $8,45 $9,78 $10,8 $11,8
$0 $0 $0 $1,671 $6,530 $7,321
Receive 8 8 4 2 70 72
d

Expendit Mont Mont Mont Mont Month Mont Month Month Mont Mont Mont Mont
ures h1 h2 h3 h4 5 h6 7 8 h9 h 10 h 11 h 12

Expendit
ures
from
Operatio
ns

Cash
$2,00 $2,00 $4,00 $5,28 $8,06 $9,34 $9,34 $9,34 $9,34
Spendin $6,560 $9,340 $9,340
0 0 0 0 0 0 0 0 0
g

Bill
$3,30 $3,31 $3,94 $6,60 $8,69 $9,05 $9,29 $9,31
Payment $110 $8,054 $7,247 $8,098
0 7 3 7 6 7 3 4
s

Subtotal $2,11 $5,30 $7,31 $9,22 $14,61 $14,6 $16,58 $17,43 $18,0 $18,3 $18,6 $18,6
Spent on 0 0 7 3 4 67 7 8 36 97 33 54
Operatio
ns

Addition
al Cash
Spent

Sales
Tax,
VAT,
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
HST/GS
T Paid
Out

Principal
Repaym
ent of
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Current
Borrowi
ng

Other
Liabiliti
es
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Principal
Repaym
ent

Long- $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
term
Liabiliti
es
Principal
Repaym
ent

Purchase
Other
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Current
Assets

Purchase
Long-
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
term
Assets

Dividen
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
ds

Subtotal
$2,11 $5,30 $7,31 $9,22 $14,61 $14,6 $16,58 $17,43 $18,0 $18,3 $18,6 $18,6
Cash
0 0 7 3 4 67 7 8 36 97 33 54
Spent

Net
($2,11 ($5,30 ($7,31 ($7,7 ($12,9 ($8,67 ($10,0 ($10,1 ($9,5 ($8,6 ($7,7 ($6,7
Cash
0) 0) 7) 86) 43) 9) 56) 17) 82) 15) 62) 82)
Flow

Cash $113, $108, $101, $93,4 $80,54 $71,8 $61,80 $51,69 $42,1 $33,4 $25,7 $18,9
Balance 890 590 273 87 4 65 9 2 10 95 32 50

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Pro Forma Balance Sheet

 Starti
ng
Assets
Balan
ces

Current
Assets

$116, $113, $108, $101, $93,4 $80,5 $71,8 $61,8 $51,6 $42,1 $33,4 $25,7 $18,9
Cash
000 890 590 273 87 44 65 09 92 10 95 32 50

Account
s $4,31 $8,75 $9,43 $10,6 $12,4 $14,4 $16,1 $17,3 $18,4
$0 $0 $0 $0
Receiva 3 0 0 39 92 92 85 32 69
ble

Inventor $2,08 $2,21 $2,42 $2,80 $3,33 $3,79 $4,16 $4,36 $4,72
$0 $0 $0 $0
y 7 7 0 9 0 5 5 2 2

Other
Current $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Assets

Total
$116, $113, $108, $101, $99,8 $91,5 $83,7 $75,2 $67,5 $60,3 $53,8 $47,4 $42,1
Current
000 890 590 273 87 12 15 57 14 96 45 27 41
Assets

Long-
term
Assets

Long-
$78,0 $78,0 $78,0 $78,0 $78,0 $78,0 $78,0 $78,0 $78,0 $78,0 $78,0 $78,0 $78,0
term
00 00 00 00 00 00 00 00 00 00 00 00 00
Assets
Accumu
lated $1,30 $2,60 $3,90 $5,20 $6,50 $7,80 $9,10 $10,4 $11,7 $13,0 $14,3 $15,6
$0
Depreci 0 0 0 0 0 0 0 00 00 00 00 00
ation

Total
Long- $78,0 $76,7 $75,4 $74,1 $72,8 $71,5 $70,2 $68,9 $67,6 $66,3 $65,0 $63,7 $62,4
term 00 00 00 00 00 00 00 00 00 00 00 00 00
Assets

Total $194, $190, $183, $175, $172, $163, $153, $144, $135, $126, $118, $111, $104,
Assets 000 590 990 373 687 012 915 157 114 696 845 127 541

Liabiliti
Mont Mont Mont Mont Mont Mont Mont Mont Mont Mont Mont Month
es and
h1 h2 h3 h4 h5 h6 h7 h8 h9 h 10 h 11 12
Capital

Current
Liabiliti
es

Account
$3,19 $3,19 $3,67 $7,83 $6,36 $6,97 $7,80 $8,39 $8,74 $8,98 $8,98 $9,46
s $0
0 0 3 5 7 8 9 4 7 3 8 1
Payable

Current
Borrowi $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
ng

Other
Current
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Liabiliti
es

Subtotal $0 $3,19 $3,19 $3,67 $7,83 $6,36 $6,97 $7,80 $8,39 $8,74 $8,98 $8,98 $9,46
Current
Liabiliti 0 0 3 5 7 8 9 4 7 3 8 1
es

Long-
term
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Liabiliti
es

Total
$3,19 $3,19 $3,67 $7,83 $6,36 $6,97 $7,80 $8,39 $8,74 $8,98 $8,98 $9,46
Liabiliti $0
0 0 3 5 7 8 9 4 7 3 8 1
es

Paid-in $205, $205, $205, $205, $205, $205, $205, $205, $205, $205, $205, $205, $205,
Capital 000 000 000 000 000 000 000 000 000 000 000 000 000

Retained ($11,0 ($11,0 ($11,0 ($11,0 ($11,0 ($11,0 ($11,0 ($11,0 ($11,0 ($11,0 ($11,0 ($11,0 ($11,0
Earnings 00) 00) 00) 00) 00) 00) 00) 00) 00) 00) 00) 00) 00)

($6,60 ($13,2 ($22,3 ($29,1 ($37,3 ($47,0 ($57,6 ($67,2 ($76,0 ($84,1 ($91,8 ($98,9
Earnings $0
0) 00) 00) 48) 55) 62) 52) 80) 51) 38) 61) 20)

Total $194, $187, $180, $171, $164, $156, $146, $136, $126, $117, $109, $102, $95,0
Capital 000 400 800 700 853 645 938 348 720 949 862 139 80

Total
Liabiliti $194, $190, $183, $175, $172, $163, $153, $144, $135, $126, $118, $111, $104,
es and 000 590 990 373 687 012 915 157 114 696 845 127 541
Capital

Net $194, $187, $180, $171, $164, $156, $146, $136,

$126
Worth 000 400 800 700 853 645 938 348