Maddys Paw Feasibility Study

Frances Bloom

June 10, 2013

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Table of Contents MARKET ANALYSIS .............................................................................................................. 2

Market Assessment ......................................................................................................... 2 Target Market .................................................................................................................. 3 Target Market Needs ...................................................................................................... 6 Competitive Analysis ....................................................................................................... 7 Products & Services ......................................................................................................... 9 Market Potential ........................................................................................................... 10

FINANCIAL MODEL ............................................................................................................ 14 Financial Overview ........................................................................................................ 14 Financial Projections ..................................................................................................... 16 Financial Feasibility ....................................................................................................... 19

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MARKET ANALYSIS

Market Assessment >A feasibility study starts with a question - why do you want to pursue this opportunity in the first place? Market potential can often be measured by considering the obvious opportunities and threats. The following are examples of each. You may think of others that fit your situation.

Opportunity o Lots of customers o Clear customer needs o Fulfilling needs by vendors leaves something to be desired o Strong population or economic growth

Threats o Economic or employment downturns on the horizon o Geographical shift of the business district o Strong competition w/ deep pockets o Strong probability of new competition

When considering the above, market potential can be defined as:

Ideal: High in opportunity; low in threats; great promise for success;

Speculative: High in opportunity; high in major threats; risky with potentially large returns;

Mature: Low in major opportunity; low in threats; limited growth potential with low risk;

Risky: Low in opportunity; high in threats; business venture requires immediate reconsideration.

If your market place seems like it is worth pursuing, the feasibility study is intended to validate your assumptions, give you obvious reasons to modify your view of the market or send you a strong signal to reconsider your venture.

Sample Market Assessment (bullet point/notes example)

Pet supply industry: Last year consumers spent over $53 billion on pet food, vet care, kennels and other pet services. Expenditures are expected to increase by 4% to $55.5 billion in the coming year. Conclusion: industry seems robust

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Source: American Pet Products Association

Local area: Burien had a 4.8% increase in population between 2000 and 2010, mostly from the 35 to 44 year old middle age group, families with children under five. This group is likely to own a pet, consider them a part of the family and have a need for natural pet foods and higher quality supplies. Conclusion: local market looks good

Competition: No pet stores in Burien; consumers must travel out of the area on congested roads for natural pet food and quality pet supplies. Conclusion: open field to get established and develop

Potential: US Census reports a $52 per capita expenditure in pet supplies and services in Washington State. Based on the population of Burien market area, the market potential for products we will sell is about $1.4 million annually. Conclusion: ample market to support our revenue goal of $500,000 annual.

In the above sample, information came from the following:

Paragraph 1: web search using pet store industry

Paragraph 2: Wikipedia for data on Burien

Paragraph 3: US Census website

There is a great deal of free data on the US Census website (http://factfinder2.census.gov). You will also find data on your community at (http://www.zip-codes.com). Start your Market Assessment copy here by replacing this copy. When satisfied, delete all the blue and green copy including the > mark and copy will reposition under the topic header.

Target Market > The single most important principle in marketing is: find a needand fill it. Effective marketing is about understanding market needs and filling them better than competition. The selection of a target customer group and understanding their needs is central to that effort. Start by identifying customer groups that have common demographic characteristics and probably some common needs. Then, make choices about which groups are important to your business model and which ones are not. Depending on your business, you will have target markets that are consumers or businesses, and in some cases both.

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Consumer Demographics

Demographics are measurable statistics of a given population. Statistics are used in marketing to identify and quantify a target customer group. The relative importance of specific demographics (i.e. age range) can vary from business to business depending on the products or services sold. When measuring demographics, the considerations are:

Geography Where do the live o Zip code, town, city, county, etc. o Geographical boundaries rivers, highways, canyons, etc.)

Characteristics Which are important to your offering (not all apply) o Age range o Gender o Family size o Income o Occupation o Education o Ethnicity

The US Census has free demographic data on a geographical basis (zip code, town, county, etc.). http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml

Business Characteristics (if applicable)

Businesses evaluate offerings in more detail with a purchasing process that can involve more than one person. You also need to think of your comfort level. Do you want to call on a corporate buyer or talk to the owner? Some business types will work for you and others may not. It is useful to identify commercial customer groups based on the following:

Geography: Where are they located (are they convenient for you) Type: Industry (retail, wholesale, manufacturing, hospitality, etc.) Size: Revenue range, number of employees, etc. Purchasing: Easy access to decision makers

Your target market could be an industry group, types of firms within a group or a specific company.

It pays to visit the US Census Censtats Database and take the time to get acquainted with industries and industry specs. The County Business Patterns (NAICS) should be especially important to you. http://censtats.census.gov/

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Sample Target Market

Target market: Burien pet owners, especially families with children

Geographical area: Burien zip codes 21308 and approximately 50% of 21310.

Target consumer demographics: o Age range: 20 to 60 o Household type: family households, w/ children under 18 years, single

households o Employed, self-employed, professional o Average income and above

Details of Burien market for our demographic.

Demographics

Area 91308 Area 91310 Total Population 42,731 24,092 Ages 20 to 60 24,213 13,459 Households 15,127 8,668 Family households 9,706 5,720 w/ children under 18 years 4,439 2,497 Non-family households 5,421 2,948 Occupation Private wage and salary workers 15,618 8,452 Self-employed & professionals 1,403 626 Median family income $59,966 $67,697

Source: http://factfinder2.census.gov/

Conclusion: local market has ample population in the demographics important to our

concept

Commercial Market

o Commercial market: referral relationships with vets, kennels, grooming and pet care

service providers

o Services: partner with a local carpenter and/or handyman to make dog houses and

dog runs we can market through our store.

Conclusion: modest commercial market; do not budget until retail is established

Start your Target Market here by replacing this copy. When satisfied, delete all the blue

and green copy and including the > mark. Your copy will reposition under the topic header.

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Geographic

Copy

Consumer Demographics Copy

Demographics

Area Area

Commercial Market Copy

Target Market Needs >Your target market will have needs such as, a young working couple needing day care for their small children. However, the couple may also have underlying needs that are more personal in nature. In this case, the young couple may be somewhat discriminating because they really value child safety, tender loving care and children educational programs. Your ability to respond to their underlying concerns is what creates value to the consumer. A day care operator that markets to consumers whose only value is the lowest price in town, is not likely to connect with the needs of a discriminating consumer. The day care provider that understands and fulfills a parents underlying needs is surely in a better position when the purchase decision is being made.

Sample Target Market Needs

(sample of text)

Maddys will focus on families with children under the age of 18. Reports indicate that 50%

of households with dogs or cats consider their pet to be a family member, especially when

they have children.

Because their pet is a cherished member of the family, this group is likely to have

discriminating purchasing values that influence where they shop for their furry family

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member, what goods they will purchase products and how much they will spend on behalf

of their pet. They will also value family promotional events that focus on their pet.

The above information comes from a variety of pet industry reports found on the web. Delving into industry reports can be a real learning experience.

Start your Target Market Needs here by replacing this copy. When satisfied, delete all the

blue and green copy and including the > mark. Your copy will reposition under the topic

header.

Competitive Analysis >Competitive analysis is often the single biggest weakness of a small business operator. It is extremely important to understand how your offering compares to competition in terms of what is important to the customer. Without this knowledge it is impossible to define your competitive edge. Once purchase values of a customer group are defined, you can make a subjective comparison of your business and a competitor. One way is to simply describe the strengths and weakness of your business and each competitor as in the following example. Supermarket A

Maddys

Strengths Weekly exposure to most shoppers National pet food brands Competitive prices

Strengths Owner operated Strong selection of natural & organic pet food Extensive selection of quality pet supplies Staff is trained in pet foods Especially convenient Intriguing store ambiance

Weaknesses No organic or natural pet foods Pet supply inventory is skimpy Pet meds offering is limited No customer service Located on fringe of market area

Weaknesses New business needed market identity Small business w/limited capital Consumers perception of small stores Prices are somewhat higher

Another way is to use a system to compare everyone. The systematic comparison can be descriptive or numerical. The matrix below gives an example of both measures. If using a matrix, it is good to think in terms of numerical ratings based on 5 = Strong market position and 1 = Weak or non-existent.

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Sample Competitive Analysis Competition Our market survey reveals the following:

Chain pet stores None

Mass merchandisers None

Independent pet stores None

The only retailer that stocks pet food and supplies is a supermarket with two stores on the fringe of the market area. Consumer Purchase Values Based on my discussions with other pet store owners, the customer purchasing values we are most likely to experience are: broad inventory selection, good quality and safe products, knowledgeable and engaging employees and competitive pricing. The following indicates how we will compare with the supermarket on Purchase Values. The rating scale is subjective with 5= Excellent or Strong Market Position and 1 = Poor or Non-existent.

Competition

Purchase Values Maddys Paw Supermarket Product selection Premium pet food & treats Natural/Organic (5) National Brands (2) Pet toys Broad (5) Limited (2) Pet supplies 5 2 Vitamins & supplements 4 3 Product quality 5 3 Customer service 5 1 Price 3 5

Summary We will have a compelling competitive edge with premium foods & treats, unique toys and quality pet products. Based on present competition, our competitive edge is sustainable. Start your Competitive Analysis section here by replacing this copy. When satisfied, delete all blue and green copy and content including the > mark. Your copy will reposition under the topic header.

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Competition

Customer Values Your Business Competitor 1 Competitor 2 Competitor 3

Summary Start your summary of the competitive situation here by replacing this copy.

Products & Services > The feasibility study should define the basics of your product/services offering and its value to the customer. The basics usually include:

Overview of your offering

Features and customer benefits of your offering

Supplemental services that add dimension to your offering

Sample Products/Services Description Maddys Paw will provide a selection of pet food and supplies that will fulfill the needs of families that want to treat their pet as a special member of the family and buy products that are healthy and reflect the value of their pet to the family. Maddys product categories will include:

Pet Food: dry, canned, raw & dehydrated

Treats: biscuits, meat jerky, chew, catnip, bonito

Supplies: collars, leashes, harnesses, litter, pans, carriers, beds, bowls, cookie jars

Toys: fetch, chew, tug, snuggle, chase

Pet Care: brushes, shampoo, flea control, skin & nail care, cones, digestive aids

Accessories: ID tags, rain wear, outfits

Family: T-shirts, magnets, key fobs, pet memorial items

Features & Benefits A consumer who treats their pet as a member of their family circle, places a high value on the natural and organic quality of pet food and safe pet products. The main feature of our offering is convenient access to natural, organic and safe pet supplies. The customer benefit from purchasing our products is the health and well-being of their furry family member and fun time with their children.

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Services Maddys will provide a variety of services that should appeal to pet owners.

Canine CPR classes

Family pictures displayed in the store and on the website

Pet birthday tracking program

Special birthday treats

Memorial board for pets that have passed away Start your Product/Services section here by replacing this copy. When satisfied, delete all blue and green copy and content including the > mark. Your copy will reposition under the topic header. Description Copy Features & Benefits Copy Services Copy

Market Potential > You should now be at a point where your feasibility study has either validated your original view of the market place, redefined your vision or encouraged you to reconsider the venture. Assuming the news is positive, remember that potential is one thing and fulfillment is another. In a small business, it is important to give the customer compelling reasons to make choices in favor of your services. Further, you must be a consistent in meeting their needs and constantly reinforce their view of your offering. This takes focus! The keys to success are the absolutes of your business operation that are likely to make the difference between success and failure. Therefore, it is important to identify these absolutes stay focused on them. Keep the list to 3 or 4 because anything beyond is usually not manageable.

Sample Market Potential Based on our analysis, the pet store opportunity is ideal because of the following:

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High in opportunity: Sizeable population in the demographics important to upscale pet supply stores

Low in threats: No direct competition from retailers specializing in pet supplies.

Based on our discussions with other pet store owners, the following are considered critical to achieving long-term success.

Assure that inventory in-stock position is high

Stay competitive on price sensitive items

Provide customers with a well-informed and pleasant retail team

Maintain ongoing image advertising in the market Start your Market Potential section here by replacing this copy. When satisfied, delete all blue and green copy and content including the > mark. Your copy will reposition under the topic header.

Location Requirements At this phase of the study, it is time to think about your location requirements. While location attributes vary from business to business, considerations often include:

Adequate space

Good condition

Remodel needs

Good visibility

Ample parking

Convenience

Safe

Traffic congestion

Walk by traffic

Affordable lease

Renewable lease

Good landlord The following table can help define your needs in terms of the how important a Site Attribute is to you (weight), your ideal situation and your rating of locations in the market that may be worth considering when you are ready. It often helps to rank the Site Attributes in terms of weight. There is a direct relationship between the collective value of a location in terms of meeting your needs and the rent one should consider paying.

Site Attribute

Weight

(1-3)

Ideal (1-5)

Main St. Site #1

(1-5)

Beckham Ave. #2

(1-5)

Adequate space

3 3 3 3

Affordable/renewable lease

3 3 3 2

Good condition

3 3 2 1

Safe area

3 2 2 3

Convenient location

2 2 2 2

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Good visibility

2 2 1 2

Ample parking

2 3 1 3

Minimal congestion

2 2 1 3

Retail pull

2 2 3 1

Good landlord

2 2 2 1

VALUE SUMMARY

n/a 24 20 21

You can see how the overall value a location is more than just the space and monthly rent. Start your Location section here by replacing this copy. When satisfied, delete all blue and green copy and content including the > mark. Your copy will reposition under the topic header.

Site Attribute

Weight

(1-3)

Ideal

Rating (1-5)

Site #1 Rating (1-5)

Site #2 Rating (1-5)

Adequate space

3

Affordable/renewable lease

3

Good condition

3

Safe area

3

Convenient location

1

Good visibility

2

Ample parking

3

Minimal congestion

3

Retail pull

Good landlord

VALUE SUMMARY

n/a

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FINANCIAL MODEL

Financial Overview >The first step in determining financial feasibility is to make a realistic estimate of your start-up cost and funding needs. This includes how the funds will be used and collateral that can be used to secure the loan, if required. The E-Z Financial Model includes a detailed Startup Funding Model along with examples of cost estimates. For those doing the startup cost estimate on their own, the following is offered. Start-up/Organizational Expenses

1. Consulting: architectural & design fees 2. Legal: cost of incorporating if needed; lease negotiation services 3. Accounting: help setting up your bookkeeping system 4. License: State and/or city business license 5. Permits: building permits if needed 6. Loan fees: SBA lenders may pass on loans fee of 2 or 3% 7. Pre-paid insurance (optional): usually insurance is expensed 100% in the forecast

model but you may be required to make a pre-payment; 8. Marketing: pre-opening expenses - website & marketing materials 9. Pre-opening payroll: needed if setting up a facility and/or training employees 10. Supplies: general office supplies & software 11. Small equipment: items paid for such as a microwave, coffee pot, etc. 12. Other: suggest a 5% of total as a buffer to cover anything you may miss; this

number will go away as you refine your actual costs. Start-up Assets

1. Opening day cash: enough cash to cover operating costs (4 to 6 months) until the business starts generating cash; negotiation of free rent for the first 30 to 90 days helps; a credit line can be substituted for some of the cash; the E-Z Financial Model cash flow projection will clearly indicate if your estimated cash reserve is adequate;

2. Inventory for sale: must have enough inventory to maintain sales and anticipated growth; consider the standard Sales/Inventory ratio of your industry (data available on www.bizstats.com.)

3. Deposits: lease security deposit (1 or 2 months rent) and utility company deposit

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4. Fixed Assets: allocations of funds used for leasehold improvements (remodeling a rented facility); equipment, machinery, furniture, fixtures, vehicles & business sign

Sample Financial Overview

As an upscale pet supply store, we will need $125,000 to launch and ramp up operations. The funds will be used for:

Start-up expenses: $12,000 Current Assets: $63,000 Fixed Assets: $50,000 TOTAL: $125,000

A detailed explanation of our allocation of capital is detailed in the Start-up Funds section of our Financial Model.

Funding Requirements I will be investing $50,000 (40% equity) in cash and will seek a 7 year SBA loan for $65,000 along with the assumption of $10,000 in credit card debt for organizational costs. The collateral for the business loan will be:

Fixed assets of business $50,000 Personal real estate equity $50,000 TOTAL: $100,000

The collateral offered more than meets the requirements of the Mutual Bank of Seattle.

Use of Funds Funds from the SBA loan will be used for the following: Funding Application Amount When Needed Leasehold improvements $15,000 July, 2013 Equipment $10,000 September, 2013 Furniture & Fixtures $25,000 September, 2013 Inventory $15,000 September, 2013 TOTAL: $65,000

Start your Overview section here by replacing this copy. When satisfied, delete all blue and green copy and content including the > mark. Your copy will reposition under the topic header. Funding Requirements Copy

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Use of Funds Copy

Financial Projections A feasibility study for a small business start-up should focus on the first 12 months of operation. If the business is on solid footing by the end of Year 1, long-term sustainability is fairly predictable barring unforeseen circumstances. When it comes to making financial projections, the words logical and defendable should be considered paramount. Sound financial projections are based on defendable input in three important areas:

Salary and Wages

Fixed Operating Expense

Sales Forecast The following provides examples of all three sections in a financial model. This is basically spread sheets work and while it takes some thinking, it is not complicated.

Personnel Needs

In order to develop realistic financial projections, it is best to start by considering the number of hours you will be open, your salary needs, the managerial support you will need, daily staffing needs and wages.

Sample Personnel Needs

Mary Jones (owner) will work full-time and oversee the operation. All employees will report to Mary. The store will be open 70 hours per week and will require the following personnel functions.

Assistant Manager (1): Management support, buying, oversee customer service o Retail experience required o Demonstration of responsibility o Outgoing personality o Positive employment history o Pass drug test

Retail clerks (2): Customer service, stocking, housekeeping o Outgoing personality o Good references o Pleasant appearance o Pass drug test

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Personnel Model

Salaried # Employees Job Function Salary Notes Owner 1 Oversight $3,000/mo. Assistant Mgr. 1 Management $12.00/hr. Full-time -40 hrs. wk. Retail Clerk 2 Customer Service $10.00/hr. Part-time -20 hrs. wk. each Commissions None Benefits None at start

Start your Personnel Needs here by replacing this copy. When satisfied, delete all blue and green copy and content including the > mark. Your copy will reposition under the topic header.

Personnel Model

Salaried # Employees Job Function Salary Notes

Hourly

Commissions

Benefits

A personnel budget is included in the E-Z Financial Model. Fixed Operating Expenses

The fixed operating expenses estimate considers the average monthly cost over the first 12 months. The expense categories that should be considered are:

Advertising: include grand opening and follow up events

Rent: use the leasing rate in the area

Insurance: business liability, vehicles, buildings, medical, etc.

Office Expenses: paper, supplies, etc.

Utilities: gas, electric, water, garbage pickup, etc.

State Taxes: (optional)

Miscellaneous: (see below)

Miscellaneous: auto operations, bank charges, credit card fees, contract labor, conferences & seminars, dues & subscriptions, leased equipment, licenses, repairs & maintenance,

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postage & deliver, telephone & communications, professional fees (legal, accounting, etc.) and travel.

NOTE: It is possible that www.bizstats.com will have information on operating cost percentages for your business type. The Sole Proprietorships section at Bizstats.com has information on 146 industries.

Sample Fixed Operating Expenses

Expense Item Monthly Notes Advertising 800 Grand opening, follow up events, small weekly ads Rent 45,500 $15.00 per square foot 3,000 sq. ft. Insurance 85 Basic business policy Office Expenses 100 Office & computer supplies Utilities 300 Heat, electric, water trash removal State Taxes (if tax is on gross sales) 212 .00412% of gross sales Miscellaneous 660 Total Expenses $6,657 Miscellaneous Auto 50 Owner vehicle Bad Debt 0 Estimate for bad checks Bank Charges 15 Monthly fees Credit Card Fees 200 2.5% on 80% of sales Contract Labor 0 Help not on payroll Conferences/Seminars 0 Trade shows, etc. Dues & Subscriptions 20 Local organizations Leased Equipment 0 Leased fixtures, sign, equipment Licenses/Fees/Permits 25 Business license Repairs & Maintenance 50 Allowance for equipment repair, cleaning Postage & Delivery 0 Sending product to customer Professional Fees 150 Legal, accounting, etc./ Telephone & Communications 150 Phone, web host, internet hook up Travel 0 Trade shows Total Monthly $660

Sales Forecast The sales forecast is often the most difficult step because the process seems so abstract. The process is not that difficult but it does require some logic and critical thought. Here are the steps in doing a sales forecast.

Monthly Sales Forecast o Sales categories: Define your main revenue streams (no more than four) o Monthly sales: Estimate the average monthly sales for each category when

considering:

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Soft opening Grand opening period Major promotional periods Seasonal affects Probable growth over the first year

o Cost of Sales (if selling from an inventory): Estimate the percent allocated to replace inventory

o Gross Margin: The money left to pay bills and loans (Subtract Cost of Sales from Sales)

The model should look something like the following:

The above sample comes from the E-Z Financial Model Basic template where sales are accounted for in the month projected. If a business will have commercial customers that pay after being billed for services rendered, the forecast would also need to estimate the percent collected in each month over 90 days. The E-Z Financial Model Accrued template provides for this computation.

Financial Feasibility >When borrowing money, the business model is feasible when you have enough cash flow during the first year ramp up period to cover your operating costs and inventory purchases and still be able to make your loan payments.

Factor Mo 1 Mo 2 Mo 3

Sales

Food 13,500 35,100 32,400

Pet Supplies 9,000 23,400 21,600

Other 0 0 0

Services 0 0 0

TOTAL SALES 22,500$ 58,500$ 54,000$

Direct Cost of Sales

Food 65% 8775 22815 21060

Pet Supplies 50% 4500 11700 10800

Other 0% 0 0 0

Services 0% 0 0 0

TOTAL DIRECT COST 13,275$ 34,515$ 31,860$

GROSS MARGIN 9,225$ 23,985$ 22,140$

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If funding is not required, financial feasibility is more about being able to generate a sustainable profit by the end of Year 1 and beyond.

Loan Risk Your financial projections should also consider your ability to pay back your loan if your revenue is below expectations. A lender will usually discount revenue projections by as much as 25% to challenge loan feasibility.

For those who are adept with spreadsheets, you can create your own tables and work this out on your own. However, both versions of the E-Z Financial Model include a Sensitivity Analysis table where you can easily create best and worst case scenarios to ensure you financial model is sound before you present your plan to a lender.

Sample Financial Feasibility

The following suggests the feasibility of our Financial Model.

Cash Flow: The business should have a positive and sustainable cash flow beginning in month 5 and at the end of Year 1. The initial cash reserve estimate of $20,000 is adequate to fund payroll and operating costs until cash flow is self-sustaining.

Profit: The business will show a profit beginning in Month 5 and thereafter.

Sensitivity Analysis: If revenue were to be 10% lower than projections, the business will still have enough EBITDA (earnings before interest, taxes, depreciation and amortization) to fund the loan. This will be calculated when the lease payment is finalized.

Summary The 12 month cash flow model, income projection and sensitivity analysis indicate the financial model is feasible. Start your Financial Feasibility section here by replacing this copy. When satisfied, delete all blue and green copy and content including the > mark. Your copy will reposition under the topic header.