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Convenience Store: Executive Summary and Pro Forma

TERM PROJECT Executive Summary and Pro Forma Jeyhun Taghiyev Park University Executive Summary Brothers’ is a convenience store located in Basehor, Kansas. This family owned business is conveniently located and the cross section of two major highways (K-7 and I-70). This small company expects to capture market share by becoming the low cost leader in the convenience store market by pricing competitively, providing excellent service and products.

The major products offered include: newspapers, magazines, soft drinks, fruit juices, sport drinks, hot and cold snacks, limited grocery items such as canned goods, microwaveable meals, bread, auto products such as fuel additives and cleaning supplies, pet supplies, paper products and toothpaste. Management Since its family business Brother’s management team will consist of Jim Storm, Jack Storm and other the Storm family members. Jim will be an owner and main operator of the business. He will run all aspects of operations. Jack will assist in daily operations of the store as needed and can assist with bookkeeping and financial reporting.

Other family members – Tom and John will be responsible from sales, marketing and human resources relatively. But main weakness is they are fresh graduates and don’t have marketing experience. Second, disadvantage is family is not much familiar with this location. Additionally, company will have mid-level management, such as warehouse manager that will be responsible for inventory of all products and facilities manager to oversee the stocking of the products, maintenance and replacement of equipments. Because the company is a start-up, there will be formal structure at first.

Additional personnel and departments will be added as soon as store will grow. For future company plans to attract employees for management positions as new locations will be opened. Strategic Plan Mission Mission of Brother’s is to create a new distribution outlet that will significantly reduce prices for its customers and provide greater services with an equal level of quality, where customers will find authentic, hard to find, grocery items from around the world. Goals * Get needed funding to start up business * Achieve profitability by August * Achieve nearly $300,000 in sales by Year 2 * Start up second store by the end of year Achieve cash flow self-sufficiency by the end of the first year Situation Analysis (SWOT) Strengths: Convenient location of store in the cross section of two major highways is Brother’s main strength. Main competitor Aldi stores went out of business, due to high lease rates at that location. Brother’s has the advantage of being a business based on reserve, where rent is not a factor in operations. Overall, the environment appears very positive. The forces driving market demand, mainly economic, are strong, with industry growth healthy and new residents moving into the area resulting in a greater demand for store products.

Weaknesses: One weakness is the location of store that is too far from suppliers. Due to the store’s far location transport costs might influence product costs. Opportunities: There is need to launch additional stores due to population of town. Also there is the opportunity to expand the product line(s) that the store carries. There is also the potential that the business may be able to employ local people part time. Other services being considered to present are ATM (Automated teller machine), lower sales, local crafts, fresh coffee.

Threats: The major threat is the possibility of the emergence of new competitors. But Jim will establish a loyal customer base to alleviate transfer of customers to another business. Market Serviced Our target market for our test store encompasses eight mile radius in which the approximate population is 160,000 (based on census information). The majority of the residents in this area are Americans (58. 8%) Black (23. 6%) and Hispanic (19%) with occupations classified as professional/technical, homemaker, or retired. The majority of household incomes range from $20,000 – $30,000 (50. %), yet there are also affluent household incomes ranging from $50,000 – $100,000 (15. 4%). The median income in this area is $47,096, compared to the whole Kansas area which is $33,248. The typical “head of household” age is 25 – 34 (22. 4%) or age 34 – 44 (23. 1%) with a median age of 44. 4 years old and an average age of 32 years old. Convenience stores serve the entire purchasing population of its geographical area but focuses on customers who need to purchase items outside of normal working hours such as hourly employees and quick shoppers looking for snacks and related items.

Relying on statistics residents spend $30. 6 million dollars per year on grocery store and other food products. Based upon the number of households and the average spending residents spend $16,872. 00 per year on grocery store and other food products. Calculating the average spending it is estimated that Brother’s Convenience Store could conservatively gross $100,000. It is anticipated that the market penetration will increase over the next five years from 5% of local residents spending to 10%, and the client market area will increase to a 15-block radius.

Financing Capital The amount and uses of capital required in this business is very little. Brother’s is a small, local and entrepreneur business and it will not require major assets and liabilities to operate. In order for the business to run smoothly and keep up with its finances, Brother’s will use the following assets and liabilities: accounts receivable, accounts payable and inventory. These three items will be used daily to ensure the expenses and revenues are accurately documented. The budget to start the convenience store is $250,000.

This includes purchasing the building, equipments, licenses and fees, items (for purchase) in the store, administrative items and salary for employees for two months. All capital will be financed by Storm family. Companies or individuals looking to invest their money and time can benefit from this small business. The convenience store is not a nation wide competition or a serious threat to other business like companies. Investors can feel secured and confident that Brother’s will profit and expand their business. 10-year Income Pro Forma and After Tax Cash Flow

Following costs will be spent to start business besides asset and equipment: Advertising| Start Date| End Date| Budget| Manager| Implemented by| Radio spot writing and recording| 3/1/2012| 2/15/2012| $2,500 | CEO| Ad Firm| New print ad design| 1/15/2012| 2/1/2012| $1,000 | CEO| Designer| Total Advertising Budget| | | $3,500 | | | PR| Start Date| End Date| Budget| Manager| Department| Redesign marketing kit| 2/15/2012| 2/28/2012| $500 | CEO| Designer/CEO| Create target press list| 3/1/2012| 3/15/2012| $0 | CEO| CEO| Send first round of press releases for theme nights| 3/15/2012| 3/31/2012| $0 | CEO| CEO| Total PR Budget| | | $500 | | |

Direct Marketing| Start Date| End Date| Budget| Manager| Department| Direct mail list development and card design| 2/1/2012| 2/15/2012| $1,500 | CEO| CEO/Designer| Design customer postcard mailing template| 3/15/2012| 3/31/2012| $250 | CEO| Designer| Second list development| 8/1/2012| 8/15/2012| $500 | CEO| CEO| Total Direct Marketing Budget| | | $2,250 | | |

Web Development| Start Date| End Date| Budget| Manager| Department| Website redesign| 2/1/2012| 3/31/2012| $5,000 | CEO| Designer| Face book page design | 4/1/2012| 4/30/2012| $500 | CEO| Designer| Email newsletter template design| 4/1/2012| 4/30/2012| $500 | CEO| Designer| Total Web Development Budget| | | $6,000 | | |

Other| Start Date| End Date| Budget| Manager| Department| Marketing training, planning & curriculum writing| 5/1/2012| 5/15/2012| $1000 | CEO| CEO/Managers| Begin monthly bonus program| 6/30/2012| 7/31/2012| $1000 | CEO| CEO/Managers| Customer feedback system implement (print cards, create box, train employees, create database to track)| 4/1/2012| 4/30/2012| $3,500 | CEO| CEO/Managers| Total Other Budget| | | $5,500 | | | Totals| | | $18,700 | | | Sales Growth

Since store will be a stand-alone, remote facility, there is little in the way being able to directly influence how to close the sales other than to have an attractive storefront with low prices and easy-to-use system. One critical procedure to ensure top customer service and reliability will be establishing a method for keeping enough inventories of all products. Industry data will be used on inventory for other convenience store chains for assistance . Based on a 20% mark-up, forecasted sales for years are depicted in chart below. This gives us an average 27% increase from year to year.

This may seem very high, but considering the level of initial sales and the growth possibilities, management actually considers this to be conservative. Financial Statements Statement of Cash Flow| YEAR| | 1| 2| 3| 4| 5| 6| 7| 8| 9| 10| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash Sales| | $710,000 | $830,780 | $980,860 | $1,166,550 | $1,376,530 | $1,624,310 | $1,916,680 | $2,261,690 | $2,668,790 | $3,149,170 | | | Subtotal Cash from Operations| | $710,000 | $830,780 | $980,860 | $1,166,550 | $1,376,530 | $1,624,310 | $1,916,680 | $2,261,690 | $2,668,790 | $3,149,170 | | | | | | | | | | | | | | | | |

New Current Borrowing| | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $5,000 | $0 | | | | | | | | | | | | | | | | | New Long-term Liabilities| | $0 | $500,000 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | | | Sales of Other Current Assets| | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | | | | | | | | | | | | | | | | | New Investment Received| | $0 | $0 | $0 | $0 | $500,000 | $0 | $0 | $0 | $0 | $0 | | | Subtotal Cash Received| | $710,000 | $1,337,800 $988,600 | $1,166,550 | $1,876,530 | $1,624,310 | $1,916,680 | $2,261,690 | $2,718,790 | $3,149,170 | | | Expenditures| | YEAR 1| YEAR 2| YEAR 3| YEAR 4| YEAR 5| YEAR 6| YEAR 7| YEAR 8| YEAR 9| YEAR 10| | | Expenditures from Operations| | | | | | | | | | | | | | Cash Spending (x10) | | $12,700 | $12,700 | $12,700 | $12,700 | $12,700 | $12,700 | $14,200 | $14,200 | $15,700 | $15,700 | | | Bill Payments(x10)| | $12,062 | $120,914 | $94,045 | $108,734 | $126,066 | $146,518 | $170,637 | $198,680 | $232,293 | $272,239 | | | Subtotal Spent on Operations| | $247,620 | $1,336,140 | $1,067,450 | $1,214,340 | $1,387,660 | $1,592,180 | $1,848,370 | $2,128,800 | $2,499,930 | $2,879,390 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

Purchase Other Current Assets| | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | | | Purchase Long-term Assets| | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | | | Dividends| | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | | | Subtotal Cash Spent| | $247,620 | $1,336,140 | $1,067,450 | $1,214,340 | $1,387,660 | $1,592,180 | $1,848,370 | $2,128,800 | $2,499,930 | $2,879,390 | | | Net Cash Flow| | $462,380 | $1,660 | ($78,850)| ($47,790)| $488,870 | $32,120 | $68,310 | $132,890 | $238,860 | $269,790 | | | Tax, | | $184,953 | $664 | $(31,540) | $(19,116) | $195,548 | $12,848 | $27,324 | $53,156 | $95,544 | $107,916 | | | After Tax Cash Flow| | $277,428 | $996 | $47,310 | $28,647 | $293,322 | $19,272 | $40,986 | $79,734 | $143,316 | $161,874 | | | Income Statement| Year| | 1| 2| 3| 4| 5| 6| 7| 8| 9| 10| | |

Sales| | $710,000 | $830,780 | $980,860 | $1,166,500 | $1,376,530 | $1,624,310 | $1,916,680 | $2,261,690 | $2,668,790 | $3,149,170 | | | Direct Cost of Sales(x10)| | $54,670 | $64,511 | $76,123 | $89,825 | $105,993 | $125,072 | $147,585 | $174,150 | $205,497 | $242,486 | | | Other Costs of Goods| | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | | | Total Cost of Sales(x10)| | $54,670 | $64,511 | $76,123 | $89,825 | $105,993 | $125,072 | $147,585 | $174,150 | $205,497 | $242,486 | | | Gross Margin(x10)| | $16,330 | $19,269 | $22,738 | $26,831 | $31,660 | $37,359 | $44,084 | $52,019 | $61,382 | $72,431 | | | Gross Margin %| | 23. 00% | 23. 00% | 23. 00% | 23. 00% | 23. 00% | 23. 00% | 23. 00% | 23. 00% | 23. 00% | 23. 00% | | | Expenses| | | | | | | | | | | | | |

Payroll(x10)| | $12,700 | $12,700 | $12,700 | $12,700 | $12,700 | $12,700 | $14,200 | $14,200 | $15,700 | $15,700 | | | Sales and Marketing and Other Expenses(x10)| | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | $5,000 | | | Depreciation(x10)| | $600 | $600 | $600 | $600 | $600 | $600 | $600 | $600 | $600 | $600 | | | Leased equipment(x10)| | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | | | Rent(x10)| | $7,000 | $7,000 | $7,000 | $7,000 | $7,000 | $7,000 | $7,000 | $7,000 | $7,000 | $7,000 | | | Utilities(x10)| | $2,400 | $2,400 | $2,400 | $2,400 | $2,400 | $2,400 | $2,400 | $2,400 | $2,400 | $2,400 | | | Accounting/bookeeping(x10)| | $500 | $500 | $500 | $500 | $500 | $500 | $500 | $500 | $500 | $500 | | | Insurance(x10)| | $1,200 | $1,200 | $1,200 | $1,200 | $1,200 | $1,200 | $1,200 | $1,200 | $1,200 | $1,200 | | | | | | | | | | | | | | | | |

Other(x10)| | $2,000 | $2,000 | $2,000 | $2,000 | $2,000 | $2,000 | $2,000 | $2,000 | $3,000 | $4,000 | | | Total Operating Expenses| | $354,000 | $354,000| $354,000| $354,000| $354,000| $354,000| $369,000 | $369,000 | $394,000 | $404,000 | | | Profit Before Interest and Taxes(x10)| | ($19,070)| ($16,131)| ($12,662)| ($8,569)| ($3,740)| $1,959 | $7,184 | $15,119 | $21,982 | $32,031 | | | EBITDA| | ($184,700)| ($155,310)| ($120,620)| ($79,690)| ($31,400)| $25,590 | $77,840 | $157,190 | $225,820 | $326,310 | | | Interest Expense(x10)| | $958 | $1,375 | $1,375 | $1,375 | $1,375 | $1,375 | $1,375 | $1,375 | $1,417 | $1,417 | | | Taxes Incurred(x10)| | $6,008)| ($5,252)| ($4,211)| ($2,983)| ($1,534)| $175 | $1,743 | $4,123 | $6,170 | $9,184 | | | Net Profit| | ($140,200)| ($122,540)| ($98,260)| ($69,610)| ($35,800)| $4,090 | $40,660 | $96,210 | $143,960 | $214,300 | | | Net Profit/Sales| | -19. 75% | -14. 63% | -9. 94% | -5. 97% | -2. 60% | 0. 25% | 2. 12% | 4. 25% | 5. 39% | 6. 80% | | | We used after tax cash flow from cash flow statement above to calculate NPV of this project. Following equation is used to calculate NPV: NPV = CF0+ CF1/(1+k)1 + CF2/(1+k)2 + ……. + CFn/(1+k)n where k is cost of capital that we considered it as 10% NPV = -250,000 + 277,428/(1. 01)1+ 996/(1. 01)2 + 47,310/(1. 01)3+28,674/(1. 01)4+ 293,322/(1. 01)5+19,272/(1. 01)6+ 40,986/(1. 01)7+ 79,734/(1. 1)8+ 143,316/(1. 01)9+ 161,874/(1. 01)10 = $293,025. NPV of project is greater than initial investment that suggests this project is profitable. The Internal Rate of Return (IRR) is defined as the discount rate that equates the present value of project’s expected cash inflows to the present value of the project’s cost. That is, we solve for a discount rate that produces a zero net present value (NPV). Following equation used to calculate IRR: CF0+ CF1/(1+IRR)1 + CF2/(1+IRR)2 + ……. + CFn/(1+IRR)n = 0 We find that IRR is 41%. This is greater than cost of capital which is 10%, so we can conclude from IRR method that project will be profitable.

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