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The financial picture is quite encouraging. We have been slow to take on debt, but with our increase in sales we do expect to apply for a credit line with the bank, to a limit of $150,000. The credit line is easily supported by assets.
We do expect to be able to take some money out as dividends. The owners don't take overly generous salaries, so some draw is appropriate.
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Our break-even analysis is based on running costs, the "burn-rate" costs we incur to keep the business running, not on theoretical fixed costs that would be relevant only if we were closing. Between payroll, rent, utilities, and basic marketing costs, we think $30,000 is a good estimate of fixed costs.
Our assumptions on average unit sales and average per-unit costs depend on averaging. We don't really need to calculate an exact average, this is close enough to help us understand what a real break-even point might be.
The essential insight here is that our sales level seems to be running comfortably above break-even.
|Monthly Units Break-even||26|
|Monthly Revenue Break-even||$40,144|
|Average Per-Unit Revenue||$1,518.86|
|Average Per-Unit Variable Cost||$383.80|
|Estimated Monthly Fixed Cost||$30,000|
Our sales forecast assumes no change in costs or prices, which is a reasonable assumption for the last few years.
We are expecting to increase sales grow from $350 thousand last year to $450 thousand this year. The growth forecast is in line with our last year, and is relatively high for our industry because we are developing new channels. In 2001 and 2002 we expect growth closer to 60% per year, to a projected total of more than $1 million in 2002.
For 2000 we plan to internally develop a company catalog, which will include some other products for the same target customers. The focus will be an executive level office catalog, with furniture, lamps, and other accessories.
Our Oregon location is a distinct advantage for local wood. We can buy higher quality oak and cherry than either of our competitors (one in California, one in New York). Since our sales increased over the last two years, we have been able to buy at better prices, because of higher volumes.
We work with three wood suppliers, all local. Bambridge supplies most of our oak, and a bit of cherry and some other specialty woods. Bambridge has been in business for as long as we have, and has given us good service and good prices. This is a good, stable supplier. Duffin Wood Products is a good second source, particularly for cherry and specialty woods. We've used Merlin supplies as well, frequently, for filling in when either of our main two suppliers were short.
We also work with a number of specialty manufacturers for furniture fittings, drawer accessories, glass, shelving accessories, and related purchases.
Although we aren't a major player compared to the largest furniture manufacturers, we are one of the biggest buyers of the custom materials we need. Most of our suppliers are selling through channels to hobbyists and carpenters, so they treat us as a major account.
We depend on our dominance of the latest in technology of ergonomics, combined with classic design elements of fine furniture. We must remain on top of new technologies in display, input and output, and communications. For example, our latest models are already assuming the desktop digital scanner as a frequent accessory, and audio for use in creating presentations, email attachments, etc.
Our assembly patents are an important competitive edge. No competitor can match the way we turn a drawback -- having to assemble the product -- into a feature. Our customer surveys confirm that customers take the interlocking assembly system as an enhancement to the sense of quality.
In 2000 we will introduce the new line based on the executive laptop computer, with docking station to connect to a network. The new variation on the executive desk line has a different configuration to assume easy access to the docking station, and better use of the space that doesn't have to be dedicated the the CPU case.
|Executive Desk Oak||209||350||600|
|Executive Desk Cherry||32||35||40|
|Other Furniture Oak||43||50||50|
|Other Furniture Cherry||7||10||10|
|Custom Designed Furniture||6||10||20|
|Total Unit Sales||297||455||720|
|Executive Desk Oak||$1,600.00||$1,600.00||$1,600.00|
|Executive Desk Cherry||$1,750.00||$1,750.00||$1,750.00|
|Other Furniture Oak||$900.00||$900.00||$900.00|
|Other Furniture Cherry||$1,000.00||$1,000.00||$1,000.00|
|Custom Designed Furniture||$2,500.00||$2,500.00||$2,500.00|
|Executive Desk Oak||$334,400||$560,000||$960,000|
|Executive Desk Cherry||$56,000||$61,250||$70,000|
|Other Furniture Oak||$38,700||$45,000||$45,000|
|Other Furniture Cherry||$7,000||$10,000||$10,000|
|Custom Designed Furniture||$15,000||$25,000||$50,000|
|Direct Unit Costs||2000||2001||2002|
|Executive Desk Oak||$400.00||$400.00||$400.00|
|Executive Desk Cherry||$525.00||$525.00||$525.00|
|Other Furniture Oak||$180.00||$180.00||$180.00|
|Other Furniture Cherry||$300.00||$300.00||$300.00|
|Custom Designed Furniture||$625.00||$625.00||$625.00|
|Direct Cost of Sales|
|Executive Desk Oak||$83,600||$140,000||$240,000|
|Executive Desk Cherry||$16,800||$18,375||$21,000|
|Other Furniture Oak||$7,740||$9,000||$9,000|
|Other Furniture Cherry||$2,100||$3,000||$3,000|
|Custom Designed Furniture||$3,750||$6,250||$12,500|
|Subtotal Direct Cost of Sales||$113,990||$176,625||$285,500|
Willamette's sales in terms of our management structure are represented in the following table. Jack and Cassidy are our strongest generators of sales because of their established relationships with past customers and channels.
We will bring on two new managers due to our progress on the Internet and through internal catalog publishing. Although the first year sales projections for Sampson and Bertha are not extremely high, their positions and customer interactions will increase exponentially with the completion of our websites and internal catalogs.
Willamette has decided to bring them on early because Peggy will be taking a leave of absence during the summer months of 2000. The overlap will also allow Sampson and Bertha to become quite familiar with our product offerings before their respective departments are online.
|Sales by: Manager|
Willamette's sales by program forecasts are a direct result of past performance stemming from outside catalog marketing and market research. Our expanding markets are, by default, heavy users of the World Wide Web. With our technological integration that is key to Willamette's product offerings, it can be assumed that our target customers will find our products via the Internet (with a relatively aggressive Internet marketing scheme).
|Sales by: Segment|
|Small Business Owners||94||136||203|
Our sales by segment show how strategically we have targeted our market segments in the past and project to continue to do so successfully. With historical experience in targeting these market segments, Willamette will only increase in its market share due to expansions in marketing programs tailored to our past success.
|Sales by: Program|
Our expenses occur as the result of both historically successful marketing endeavors and projected marketing programs designed to take advantage of expanding markets and improved product lines. We will be moving into the realm of Internet marketing and sales in the year 2000. The initial costs are high relative to the maintenance costs involved after the websites' creation.
Similarly, the development of an in-house catalog design and publishing department will incur higher start-up expenses than maintenance costs after the initial publication. We have chosen these two new marketing programs as areas where expenses can initially build up because research indicates that they will cause our market share to increase exponentially over time.
|Marketing Expense Budget|
|Total Sales and Marketing Expenses||$156,000||$224,000||$315,000|
|Percent of Sales||34.58%||31.94%||27.75%|
Willamette Furniture's expenses in terms of manager are directly proportionate to the managed program's potential. As our market share increases and capital is generated, we will support further marketing programs and the expansion of current programs, thus increasing our managment budgets for these specific departments and projects.
|Expenses by Manager|
Willamette Furniture's expenses in terms of marketing programs are directly proportionate to the proposed and historical success of these programs. As our market share increases and capital is generated, we will support further marketing programs and the expansion of current programs.
|Expenses by Segment|
|Small Business Owners||$48,000||$58,000||$73,000|
Willamette Furniture's expenses in terms of market segment are directly proportionate to the segment's potential. As our market share increases and capital is generated, we will support further marketing programs and the expansion of current programs.
|Expenses by Program|
Willamette's growth in sales revenue will happen as a result of the implementation of new marketing programs in accordance with market growth. The expenses generated by these new marketing strategies will be greater in the initial design and implementation stages than in later maintenance stages. For example, it is proven that an Internet presence will increase our sales anywhere from 3-10%.
Therefore, it is worth an initial expenditure of $30,000 for design and staffing in order to maintain the websites. Website expenses increase as website importance increases. We will use our increased capital to make wise infrastructure purchases such as internal catalog publishing capabilities and additional design and manufacturing tools.
Willamette's sales will increase as a result of market growth, market share increase, and Internet presence. Our gross margin will remain steady at approximately 75%. The contribution margin will steadily increase as a result of the initial expenses involved with starting marketing programs such as internal catalog publication and website development. These second year expense decreases will offset the increases in retained customer expenses, custom product line development, and outside catalog expansion.
|Direct Costs of Goods||$113,990||$176,625||$285,500|
|Other Variable Costs of Sales||$0||$0||$0|
|Cost of Goods Sold||$113,990||$176,625||$285,500|
|Gross Margin %||74.73%||74.81%||74.85%|
|Marketing Expense Budget||2000||2001||2002|
|Total Sales and Marketing Expenses||$156,000||$224,000||$315,000|
|Percent of Sales||34.58%||31.94%||27.75%|
|Contribution Margin / Sales||40.15%||42.87%||47.09%|
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