Sample Business Plan

The Business

Based in the Upper Peninsula of Michigan, Quinby's Incredible Fantasy Furniture, doing business as QIFF, manufactures readyto-assemble "fantasy" furniture for children. The company, a Michigan corporation, has a storefront office and showroom at 804 Broad Street in Marquette, Michigan.

Our Mission

Quinby's mission is to create high quality, unique, easy-to-assemble furniture tor children. Our goal is to do so in an environmentally sensitive and profitable manner, while at the same time, taking advantage of tourist traffic in the Upper Peninsula of Michigan.

Products and Services

QIFF offers a full line of children's furniture made from hardwoods such as ash, poplar, and oak. The furniture is configured in unique fantasy shapes and is ready to paint. Customers may also buy it with a sturdy plastic finish. Our product line will include twin and bunk beds, cribs, dressers, desks and tables, rocking chairs, toy boxes, and accessories such as shelves and clothing racks.

Our secondary product line will consist of previouslv assembled and readyto-assemble miniature furniture to be sold at our gift shop/play area. QIFF Miniatures is under contract with Lattel, the toy manufacturer, to produce 250 pieces in the first year.

Ownership

Incorporated as "Quinby's Incredible Fantasv Furniture," the company is at the start-up stage and will be privately owned and operated bv Forrest and Martha Quinby.

Industry Analysis

Trends

Small companies have been producing ready-to-assemble (RTA) furniture for more than 40 years, but it was not until the recent growth in consumer electronic products that the market took off. RTA furniture is mass produced and therefore not labor intensive. Components adhere to strict quality standards and are produced by a tew stable manufacturers. This type of furniture, to date, has not been sensitive to economic conditions because of its low cost, but as quality improves, that situation will change.

Product Introduction

New product introduction occurs twice a year in correspondence with the consumer electronics industry. New QIFF furniture will correspond to these same time frames.

Packaging

Effective packaging is critical to the success of RTA furniture. These items'should be pictured on the package, and the packaging materials must be sturdy enough for consumer transportation. QIFF has addressed both concerns at the design and manufacturing levels. Designers have begun testing packaging materials and configurations to guarantee ^turdy packaging, and the manufacturing site has agreed to take responsibility for any products that are damaged in shipment.

Anticipated Growth

The RTA furniture market is expected to grow 15-20 percent annually, which is considerably higher than traditional furniture, with an anticipated annual growth rate of seven percent.

Target Market

Target Audience

QIFF products will be marketed to adults, ages 25 to 50, who have a total annual income of between $40,000 and $100,000. Statistics indicate that 68 percent of people who fall within this category have at least one child under the age of 15. The secondary audience is grandparents, relatives and other adults.

Our research indicates consumers in this category have a strong interest in the products we manufacture. Focus group and intercept studies we conducted indicate:

• 84% of respondents would seriously consider purchasing at least one item of Fantasy Furniture.
• 33% were attracted to the unique design features of the furniture.
• 44% would purchase because of the ease of assembly.
• 32% liked the safety features. None of the survey respondents felt product cost would be a deterring factor in purchasing.

Market Area

The greater Marquette area hosts more than 2 million tourists each year, many of whom enjoy shopping downtown. Marquette is also home to Northern Michigan University, a four-year institution that supports a local population of 22,000 permanent residents.

Although based in Marquette, the company will reach 90 percent of its customers by offering its furniture in upscale retail showrooms throughout the United States. We currently have sales agreements with retailers in Michigan, Ohio and Wisconsin. These retailers have an average customer count of 25,000 per week and serve an average income range of $35,000 to $150,000. Based upon these confirmed sales agreements, our furniture will be seen by more than 150,000 potential customers each week.

Market Trends and Opportunities

Industry research indicates a growing desire tor furniture that can be easily assembled at home. According to surveys completed by the National Association of Furniture Assemblers:

• The ready-to-assemble furniture market has grown more than 135 percent in the last 10 years. Each vear, more than $600 million worth of ready-to-assemhle furniture is sold in the United States. An estimated 20 percent of that market is children's furniture.
• This market should continue to increase at a rate ot 25 percent each year until 2010.
• One out of three furniture buyers say thev prefer "readv-to-assemble" furniture over conventional furniture because of its convenience and economy.

Additionally, even though the population of children under the age ot 15 is decreasing, that population is expected to level off by 2000 and begin to slowly increase through the next two decades. Also, studies indicate that customers in this price range tend to purchase "big ticket" items, such as furniture, more frequently than customers in lower income groups.

The Competition

Nationally, QIFF will compete against a variety of furniture sellers, including:

• Retail furniture showrooms
• Mail order furniture companies
• Local and national children's furniture stores
• Department stores
• Specialty furniture outlets

According to rhe Industry ot Furniture Sales, there are 212 companies in our initial sales areas that sell children's furniture. None ot those companies sell ready-to-assemble furniture. One chain, "Fun Furniture," sells unique pieces that are comparable to QIFF's product line. Fun Furniture has tour showrooms in our market area and is targeted primarily to adults. Furniture is preassembled and costs about 23 percent more than anything manufactured by our company.

Locally, QIFF will compete against a department store and a locally owned furniture store. The department store carries cribs, beds, and dresser^. The furniture store offers the same inventory, in addition to some rocking chairs and table/chair bets.

Competitive Advantage

Our telephone survey of 250 parents indicates we have a strong competitive advantage over other children's furniture manufacturers. For example:

• Parents purchase a minimum ot a bed, one dresser, and three accessories (chairs, desks, toy boxes) per child. We are well positioned to provide an entire complement of furniture and accessories to furnish the whole bedroom.
• The average amount ot money spent to furnish a child's bedroom is $2,200. Our furniture, while high quality, is priced lower than the competition. A bed costs about $450. Our dressers are about $500 and our bedroom accessories cost an average ot $120 or less. By furnishing a room with our products, our customers could realize a \avings ot as much as $1,000.
• The average child tends to "wear-out" a piece ot furniture within three to six years of its original purchase date. Our extensive consumer product testing indicates our furniture lasts up to three times as long as traditional children's furniture, from nine to 18 years—qualifying it tor "heirloom" status.
• Safety is a high priority for parents. Children's Fantasy Furniture does not have sharp corners or rough edges—perfect tor active young ones.
• Parents are busy people. They look tor convenience and ease of set-up and delivery. Our retail network will make it convenient tor them to shop tor our furniture, and our no-holds-barred delivery policy will ensure delivery to virtually any location in the United States.

Competitor Profile

Although QIFF has a strong competitive advantage, we will encounter stiff competition from two main sources:

• Fun Furniture, which manufactures primarily adult furniture but plans to enter the children's furniture market within the next five years. Fun Furniture offers unique furniture that is preassembled but more expensive than QIFF's product line.
• Children's Place, which makes traditional children's furniture. This profitable, well-managed company has at least 350 franchise stores in even' major metropolitan area in the United States and Canada. Its strong financial standing and aggressive marketing strategy give Children's Place "top-of-mind-awareness" among most children's furniture consumers.

Marketing Plan

QIFF understands the importance ot effectively marketing to our consumers. We have hired a qualified advertising agency (with a proven history of advertising for children's products) to assist us with marketing our furniture. Our first year advertising budget is $72,000.

Based on the advertising agency's recommendations, our strategy will involve three main components:

1. Reaching the consumer through cooperative advertising. Our co-op strategy will involve advertising jointly with the retail outlet whenever it is beneficial to do so. The unique nature of our product calls for a reliance on print and television advertising (mediums that showcase our product well), as opposed to radio ads. Advertising vehicles may include direct mail flyers, television advertising, and newspaper advertising. Catalog sales will be included in this category as we continue to expand. (About 70 percent of our marketing budget will be devoted to cooperative and catalog advertising.)
2. Reaching new retailers through an aggressive, face-to-face sales effort. This component of our marketing strategy involves increasing our retail network from our initial 10 outlets to more than 50 within the first five years. Our sales team will use a" variety of collateral materials, such as brochures and product miniatures, to assist in their efforts. (About 20 percent ot our marketing budget will be used to expand our retail network.)
3. Promoting our fantasy playroom and showroom as a tourist attraction. This effort will involve using billboards and one-page flyers (to be placed at rest stops and other tourist attractions in Michigan, Wisconsin, Minnesota, and Canada) that invite tourists to visit QIFF. (This comprises five percent of our marketing budget.)

The final five percent of our advertising dollars will be spent on local advertising, yellow pages ads, professional trade association memberships and participation, Chamber of Commerce membership, the local business expo, and other opportunities as they arise.

Our long-term marketing goals are to arrange for furniture "appearances" in children's movies and television programs, and to advertise to children during peak viewing times, such as on Saturday morning television.

Operations

Home Base: QIFF will begin operations by outsourcing the labor and materials for our products. The mam warehouse/showroom will be used as a central delivery location and storefront sales site.

Wood Fabrication: We currently have contracts with manufacturers in Michigan and the upper Midwest to provide precut pieces that will be sent to our warehouse for packaging and customer delivery. The manufacturers, one in Rock and the other in Ishpemtng, Michigan, will cut and shape the wood pieces and add the plastic coating where necessary. They will also package the products. Both plants are less than an hour from the main warehouse.

Delivery: Two Marquette-based trucking companies will make deliveries for QIFF. All delivery is FOB Marquette.

Our work force will consist of:

• A contract designer, who will work with the owners to develop the furniture designs. The design team has developed eight designs as the focal point of our new collection. These designs have been assembled and consumer tested at three malls in the U.S.A. All eight designs have also passed our rigid quality and durability standards.
• A purchaser and on-site manufacturing supervisor, whose main responsibilities will be to select and order the appropriate materials tor constructing the furniture and provide on-site supervision at the wood manufacturing plants. This position.will serve as the key interface with our manufacturers to maintain quality control and guarantee smooth operations from raw material through ready-to-ship.
• Three independent regional sales representatives, paid on commission. These reps will make regular sales calls on our existing retail outlets in Michigan, Ohio, and Wisconsin, and will assist retailers in assembling furniture and creating displays at the retail sites. The sales reps will also make calls on other prospective retail outlets throughout the Midwest region.
• The owners will manage all daily operations and assist the designer and purchaser/ supervisor as necessary. Mr. Quinby will manage relationships with our retail outlets and handle all company marketing. Ms. Quinby will manage the company's finances.

Our employee philosophy involves hiring only the most talented workers who will be rewarded for their creativity and loyalty through profit-sharing and other incentives.

Management

Key Employees

Forrest Quinby. President and Chief Executive Officer. Mr. Quinby began his career in the furniture industry in 1968 when he was hired as a field seller for a major line of ready-to-assemble office furniture. After three years in sales, he was promoted to Manager of Sales and eventually became Executive-Vice President, Operations.

Under his leadership, the company's sales increased 85 percent in 10 years. He left his position to start Quinby's Incredible Fantasy Furniture. Mr. Quiriby earned an undergraduate degree in business from Michigan State University.

He is active in the Professional Society of Furniture Sellers, where he served as president for two terms, as well as the Marquette Area Chamber of Commerce.

Martha Quinby, Vice President and Chief Financial Officer. Ms. Quinby has more than 20 years experience in the furniture industry. She began her career as the staff accountant for a global furniture manufacturer and eventually worked her way up to Vice President of Finance and Accounting. She was responsible for all major purchasing and finance decisions and managed a staff of fifteen.

Ms. Quinby earned an undergraduate degree in accounting and a master's degree in finance before joining the furniture company. She participates in the Association for Business Financiers and in the Society of Furniture Sellers. She left her position to join her husband in their new venture.

Mr. and Ms. Quinby are 100 percent stockholders of the company. They will be involved.in the day-to-day operations of the business, with Mr. Quinby having majority responsibility for design, sales, marketing, and distribution, and Ms. Quinby being responsible for purchasing, finance, and quality control.

Development

Within five years, QIFF expects to bring the manufacturing of its products in-house. The staff will include approximately 36 people, and annual sales will reach about $10 million. Our goal is to capture 10 percent of the children's furniture market by 2010.

This ambitious plan will be possible only through controlled growth, aggressive marketing, and keen attention to detail. We will manage our growth by:

• Updating our business plan annually.
• Surveying our customers regularly to determine their current satisfaction and future needs.
• Making every effort to anticipate future trends in the marketplace by talking to our retail partners, listening to our customers, and watching our competitors.
• Hiring only the most talented designers and the most skilled workers.

Assumptions

Income

Average wholesale price is $200 per unit, for a total of 6,000 units in Year One. Sales will peak in the summer months of June, July and August, to reflect summer tourism and new product release, and again in late November and early December, due to holiday purchases and new product release.

Cost of goods sold

70% of sales based on our contract arrangements with two manufacturers in Rock and Ishpeming, Michigan. We have secured 3-year contracts with both manufacturers at a minimum sales level of $250,000 each annually? Both can handle excess capacity, based on our assumptions.

Manufacturing wages and overhead comprise 10% of sales.

Raw materials purchases are based on contract manufacturers' actual costs. All raw materials will be purchased by Q1FF.

Purchasing and on-site agent salary of $30,000 annually is divided evenly between manufacturing wages and office salaries.

Selling and Administrative Expenses

Officer salaries (owners' wages—up to $35,000 the first year, depending on cash flow.)

Contract labor—furniture designer, 100 hours at $90 per hour.

Sales commissions—10.% ot manufacturers representatives' sales. Some sales will be generated by QIFF staff and not subject to commission.

Office salaries—50% of purchasing and on-site salary ($30,000 annually)

Advertising—6% of sales, including sales rep kits and models, floor samples, print media, consulting fees to advertising firm.

Rent—$12,000 per year. Building is 10,000 sq. ft., including 1,000 sq. ft. for retail showroom. Taxes—payroll taxes 14%, personal property tax $3,800.

Depreciation expense—furniture, fixtures 7 years; equipment 5 years, software 3 years; leasehold expenses, 2 years.

Loan—$120,000, 4 years, 11%, payments $3,101 per month. Interest first year—$12,526.

QIFF, Inc. Income Statement

QIFF, Inc. Cash Flow Statement

QUIFF Balance Sheet

QIFF, Inc. Pro Forma Income Statement

QIFF Pro Forma Balance Sheet