Sports Equipment Retail Business Plan (Sunny)

8/8/2019 Sports Equipment Retail Business Plan (Sunny)

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Sports Equipment Retail Business Plan

Executive SummaryKeith's Sporting Goods (KSG) will be in the business of selling athletic equipment to people at every fitness

level, from aspiring college athletes to weekend warriors. With our knowledgeable staff we will provide an

environment where everyone feels comfortable coming in and asking for training advice and discussing

equipment needs.

Based in Eugene, KSG wants to be a recognized sporting goods store. An exact location has yet to be set,

but owners are avidly searching for a high foot traffic location. Ideally that location would be in central

Eugene where anyone can travel a short distance to find our store.

We fully expect to grow quickly. Many businesses start under the same assumption but due to work ethic,

desire, job enjoyment, KSG is expecting to make a profit in the early stages of its life. Sales are forecasted

to be conservative in the first month but are expected to increase by 2% each month thereafter, with a first

year growth rate of 12%. This assumption appears to be accurate given the fact that the sporting goods

wholesale industry is growing at an 11.5% annual rate.

Keith's Sporting Goods will be filed as an S Corporation where owners will be protected from various forms

of liability and tax shields. In the early stages of business, we will be primarily debt financed through a local

bank and the Small Business Association (SBA). We have forecasted the need for 60% debt, the owner and

operator will invest the rest.

Depending on the timing of financing, we expect to have the store open by January next year and to

produce strong profits by the end of that same year.

1.1 Objectives

The primary objectives for the store are:

1. Brand recognit ion. KSG will be a recognized sporting goods and fitness store in Eugene.

2. To be operating at a profit by the end of the first year of business.

3. Achieve a 15% growth rate in sales from years one and two, and then maintain no less than

a 11.5% growth rate thereafter.


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4. Maintain a constant gross margin of 40%. If we are able to do this and keep costs fixed, sales will

be able to grow faster than total costs.

1.2 Mission

KSG strives toward building long-term relationships with our customers and employees. Working within the

community, promoting community service, and encouraging the additional education of our employees willbe constantly emphasized by store management. We feel it is extremely important to give back to the

community that supports our operations, while also maintaining an atmosphere where our employees have

the opportunity to improve as individuals.

Company SummaryKSG intends to provide customers with the quality products they need to maximize athletic performance and

accomplish their physical and mental goals. We will provide our customers with a knowledgeable staff that

enjoys working in an athletic atmosphere and helping others. We will be located in Eugene where there is a

high concentration of health conscious individuals and a devoted following to both high school and college

athletics.

2.1 Company Ownership

With the intent to operate the store I will be considered the owner of Keith's Sporting Goods. However, I will

not be the only one with a capital investment in the company. A local investor will have equal shares in the

business. The investor will receive dividends starting in year 2, until he has recouped his initial investment,

at which time the owner has reserved the option of buying out his shares.

Under these circumstances, and the fact that the investment is a relatively small undertaking, KSG will be

filed as an S Corporation. The ownership will be split up evenly between myself and the other investor, and

the rest will be debt financed.

2.2 Start-up Summary

Keith's Sporting Goods will be financed through a combination of 60% debt and 40% equity. A local bank will

provide the debt while the equity will be provided by an equal combination of owner investment and an angel

investor. A large portion of the initial investment will be spent on beginning inventory (83%), which we

forecast to be sold within the first two months. Total assets will amount to 93.4% of the initial investment.


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Start-up

Requirements

Start-up Expenses

Legal $300

Operating Assets $0

Brochures $0

Consultants $0

Insurance $0

Rent $4,310

Marketing/ Advertising - Grand Opening $1,000

Renovation $1,000

Other $0

Total Start-up Expenses $6,610

Start-up Assets

Cash Required $8,489

Start-up Inventory $82,901

Other Current Assets $0

Long-term Assets $2,000

Total Assets $93,390

Total Requirements $100,000

Start-up Funding

Start-up Expenses to Fund $6,610

Start-up Assets to Fund $93,390

Total Funding Required $100,000

Assets

Non-cash Assets from Start-up $84,901

Cash Requirements from Start-up $8,489

Additional Cash Raised $0

Cash Balance on Starting Date $8,489

Total Assets $93,390


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Liabilities and Capital

Liabilities

Current Borrowing $0

Long-term Liabilities $60,000

Accounts Payable (Outstanding Bills) $0

Other Current Liabilities (interest-free) $0

Total Liabilities $60,000

Capital

Planned Investment

Owner/Operator $20,000

Angel Investor $20,000

Additional Investment Requirement $0

Total Planned Investment $40,000

Loss at Start-up (Start-up Expenses) ($6,610)

Total Capital $33,390

Total Capital and Liabilities $93,390

Total Funding $100,000

ProductsKeith's Sporting Goods will be a high quality fitness store that focuses on athletic performance and

maximization of athletic potential. In other words, KSG will be designed to supply athletes with the essential

products that are necessary for active lives.

The core products we will carry are:

Shoes

Apparel

Athletic equipment

To complement these goods, we will also carry training equipment like:

Polymeric boxes

Medicine balls

Health supplements

Training literature

Market Analysis SummaryThe Eugene community is very active and has a great athletic heritage. It is the location of the University of

Oregon, home to many running and hiking trails, and has a youth athletic center called Kidsports. Eugene


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also happens to be a growing community that has always supported the small entrepreneurs. Taking these

factors into consideration, KSG will focus on three main groups.

Young parents with children active in youth sports

College students

Active adults

These groups comprise the majority of athletes in the city, and we find them to be the ones with the

disposable income to spend on athletic apparel.

4.1 Market Segmentation

Parents (Elementary & Middle School)

High School Athletes

College Students

Middle-aged Adults (35+)

Market Analysis

Year 1 Year 2 Year 3 Year 4 Year 5

Potential Customers Growth CAGR

Parents 17% 3,150 3,686 4,313 5,046 5,904 17.01%

High School Athletes 25% 3,600 4,500 5,625 7,031 8,789 25.00%

College Students 7% 15,000 16,050 17,174 18,376 19,662 7.00%

Middle-aged Adults 10% 50,000 55,000 60,500 66,550 73,205 10.00%

Total 10.65% 71,750 79,236 87,612 97,003 107,560 10.65%

4.2 Target Market Segment Strategy

Because there are so many different sports and levels at which to compete, there is a broad range of

markets for the company to target. At KSG, we will provide a marketplace that satisfies the needs of each

group. We will stock a variety of goods for the wide variety of our customers.

We strive to build long-term, personal relationships with our customers, in order to do this, we will need to

attract customers at young ages. Therefore, our primary target market will be parents with young children.


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By building a trust relationship, we may be able to maintain a family right up through the child's college

years.

It will be important to target these groups because youth sports are growing at an incredible rate. Data has

indicated that youth sports has the highest growth rate of any segment within the athletic industry. Capturing

the market at a young age will lead to future sales when athletes spend more money on their athletic needs.

Young parents and high school students will not be the only groups that we will focus on because they alsomake up the smallest population. Focusing on college students and active adults will also be key.

4.3 Competition and Buying Patterns

To an athlete who is serious about achieving particular goals, having the correct athletic equipment is

integral. Somebody who runs many miles over the course of a week needs to have shoes that not only last

over time, but also protect joints from over use. It is the same for a basketball player who needs to wear light

clothing that allows him/her to move freely. In either case, the athlete is looking for the best equipment and

is always open to try new, innovative products that might help reach peak performance.

In the sporting goods retailing many companies compete in different ways. For example, Copeland's tries to

sell products more on a cost basis using their capitol power to sell products at the lowest price. When doing

this, they sacrifice the customer service and support that many athletes are looking for.

As a smaller company we intend to provide customers the support and knowledge they need to fulfill their

goals.

Strategy and Implementation SummaryAt KSG, we will use a marketing strategy of developing long-term relationships with our customers. Being

seen at various sporting events will be an integral part of getting our name out in the community. We want to

be seen as a business that cares for our customers and wants to see them accomplish all of their goals.

We want our customers to have complete trust in what our employees are saying. We want them to know all

the information about what they are buying and what is best for them. If customers have a good experiences

with what they purchase, not only will they more likely be repeat customers, but also they will tell friends

about the quality of operations at KSG.

5.1 Competitive Edge

The number one competitive edge KSG enjoys is providing customers with unparalleled service. As a

smaller operation it will be impossible to compete with Copeland's and Play it Again sports on a price

basis. Providing a group of knowledgeable employees who enjoy what they are doing is the only way that

KSG can provide the best customer service. Once this trust is built our competitive advantage can be

sustained.

The type of equipment that KSG will provide will also be a source of competitive edge. Much of the

equipment found at Keith's will not be found at larger chain stores. For example, it is tough to find polymeric

equipment. In fact the only way one can buy high-quality equipment is through catalogs. It is the same for

many types of shoes. Stores like Copeland's tend to only sell shoes that are trendy. Trendy shoes are not a

sign of high quality; they are a sign of great marketing. KSG will provide quality equipment and will be able

to educate customers on why certain equipment is better than the typical mainstream brand equipment.

5.2 Sales Strategy


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Our sales strategy will be built around fully educating customers about their purchases. Many of the

activities that our store is promoting impacts the human body. It is important for the customer to be fully

aware of the repercussions of the activity and how each piece of equipment effects him/her. With that in

mind, sales people will take care of customers on a first come first serve basis. We want to build customer

relationships without discriminating other potential future customers.

Employees will be paid on an hourly wage with no commissions at the beginning of operations. After the

store has a history, a commission package based on sales and education advancement can be

implemented.

KSG will carry a relatively low amount of inventory and have frequent order repurchases in an attempt to

maintain inventory levels and storage costs. Finally, all sales will be in cash to prevent the problems brought

along by late accounts receivable payments.

5.2.1 Sales Forecast

The primary products at KSG will include athletic shoes and apparel. We will also sell equipment,

supplements, and health literature, but we forecast shoes and apparel to drive sales. We expect strong

growth in the first year due to intense marketing and exposure in the Eugene market. Forecasted sales are

expected to increase by 2% from month to month in the first year and then grow at the industry average of

11.50% per year.


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Sales Forecast

Year 1 Year 2 Year 3

SalesShoes $193,134 $201,245 $209,697

Apparel $241,418 $251,557 $261,619

Total Sales $434,552 $452,802 $471,316

Direct Cost of Sales Year 1 Year 2 Year 3

Shoes $115,880 $120,747 $125,818

Apparel $144,851 $150,934 $156,971

Subtotal Direct Cost of Sales $260,731 $271,681 $282,790

Management SummaryThe owner of KSG will also be the operator and decision maker. The philosophy behind the workforce will be

one of total customer satisfaction and education. Since many customers are not aware of the many

repercussions brought on by athletics, employees will be encouraged to continually gain new knowledge and

insight.

6.1 Personnel Plan

Keith's Sporting Goods will begin operations with a relatively small work crew with the intention to grow as

the business grows. The owner/operator will have a base salary of $3,000/mo and that will be a fixed

expense.

We plan on starting with one full time employee who will be the store manager. The manager will work

closely with the owner. During slow hours, they will work closely implementing new strategies and making

store changes. The manager will work 40 hours per week, and will have the weekends off. The manager's

salary, below, includes benefits (paid sick time, holidays, and insurance coverage).

The owner will work the weekend with the other employees. Aside from the owner and manager, KSG will

need an estimated 51 man-hours over the course of the week. There is no estimated number of employees

needed; we just need to fill the extra 51 hours. Employees will make $8/hr, and will be looked upon as

an integral part of the operation.

Personnel Plan


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Owner Operator $36,000 $36,000 $40,000

Manager $43,200 $45,000 $46,000

Employees $22,032 $24,000 $25,000

Total People 5 6 6

Total Payroll $101,232 $105,000 $111,000

Financial PlanKeith's Sporting Goods will regularly monitor all financial statements because they have a direct correlation

with the health of our business. We have forecasted into the future with a steady but moderate growth rate

where sales will grow by 2% every month. All sales will be in cash leading to positive cash flows whenever

asset acquisition is maintained. Profits will be reinvested into the business in hopes of future product and

store expansions. If no appropriate investment opportunities present themselves excess cash will be placed

into the market through a respected financial consultant.

7.1 Important AssumptionsKey assumptions:

Growth rate of 2% per month

Daily sales: shoes six per day @ $80 each, and apparel 24 items/day @ $25 each

Growth will be steady throughout the year.

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 25.42% 25.00% 25.42%

Other 0 0 0

7.2 Break-even Analysis

The following table and chart show our break-even point.


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Break-even Analysis

Monthly Revenue Break-even $32,540

Assumptions:

Average Percent Variable Cost 60%

Estimated Monthly Fixed Cost $13,016

7.3 Projected Profit and Loss

Due to working with low overhead, we predict early profits in the life of our business. Depending on the

accuracy of our forecasts, we will adjust the amounts spent on marketing and other long-term assets that will

add value to our business.


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Pro Forma Profit and Loss


Sales $434,552 $452,802 $471,316

Direct Cost of Sales $260,731 $271,681 $282,790

Other $0 $0 $0

Total Cost of Sales $260,731 $271,681 $282,790

Gross Margin $173,821 $181,121 $188,526

Gross Margin % 40.00% 40.00% 40.00%

ExpensesPayroll $101,232 $105,000 $111,000

Sales and Marketing and Other Expenses $21,600 $21,600 $21,600

Depreciation $0 $0 $0

Utilities $9,600 $9,600 $9,600

Rent $23,760 $23,760 $23,760

Payroll Taxes $0 $0 $0

Other $0 $0 $0

Total Operating Expenses $156,192 $159,960 $165,960


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Profit Before Interest and Taxes $17,629 $21,161 $22,566

EBITDA $17,629 $21,161 $22,566

Interest Expense $5,350 $4,200 $3,000

Taxes Incurred $3,042 $4,240 $4,973

Net Profit $9,236 $12,721 $14,593

Net Profit/Sales 2.13% 2.81% 3.10%

7.4 Projected Cash Flow

As a retailer, we do not sell on credit, but all of our invetory purchases are made on account. Our net cash

outflows are largely a result of repaying the initial loan.

Pro Forma Cash Flow

Year 1 Year 2 Year 3Cash Received

Cash from Operations

Cash Sales $434,552 $452,802 $471,316

Subtotal Cash from Operations $434,552 $452,802 $471,316

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 $0 $0

Subtotal Cash Received $434,552 $452,802 $471,316

Expenditures Year 1 Year 2 Year 3

Expenditures from Operations

Cash Spending $101,232 $105,000 $111,000

Bill Payments $238,435 $337,901 $345,980

Subtotal Spent on Operations $339,667 $442,901 $456,980


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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 $12,000 $12,000 $12,000

Purchase Other Current Assets $0 $0 $0

Purchase Long-term Assets $0 $0 $0

Dividends $0 $10,000 $10,000

Subtotal Cash Spent $351,667 $464,901 $478,980

Net Cash Flow $82,885 ($12,099) ($7,664)

Cash Balance $91,374 $79,275 $71,611

7.5 Projected Balance Sheet

Among the importance of monitoring liabilities and assets, cash will be of particular importance to our

organization. We will monitor this section of the Balance Sheet constantly. Without cash we will be unable to

react to market changes or survive through tough economic cycles. Our net worth will improve as we grow

and pay off the initial loan.

Pro Forma Balance Sheet


Assets

Current Assets

Cash $91,374 $79,275 $71,611

Inventory $26,588 $27,705 $28,838

Other Current Assets $0 $0 $0

Total Current Assets $117,962 $106,980 $100,449

Long-term Assets

Long-term Assets $2,000 $2,000 $2,000

Accumulated Depreciation $0 $0 $0Total Long-term Assets $2,000 $2,000 $2,000

Total Assets $119,962 $108,980 $102,449

Liabilities and Capital Year 1 Year 2 Year 3

Current Liabilities

Accounts Payable $29,335 $27,633 $28,509

Current Borrowing $0 $0 $0

Other Current Liabilities $0 $0 $0

Subtotal Current Liabilities $29,335 $27,633 $28,509

Long-term Liabilities $48,000 $36,000 $24,000

Total Liabilities $77,335 $63,633 $52,509

Paid-in Capital $40,000 $40,000 $40,000

Retained Earnings ($6,610) ($7,374) ($4,653)

Earnings $9,236 $12,721 $14,593

Total Capital $42,626 $45,347 $49,940

Total Liabilities and Capital $119,962 $108,980 $102,449

Net Worth $42,626 $45,347 $49,940


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7.6 Business Ratios

The table below contains important business ratios from the sporting goods shops industry (5491), as

determined by the Standard Industry Classification (SIC) Index.

Ratio Analysis

Year 1 Year 2 Year 3 Industry ProfileSales Growth 0.00% 4.20% 4.09% 4.20%

Percent of Total Assets

Inventory 22.16% 25.42% 28.15% 40.20%

Other Current Assets 0.00% 0.00% 0.00% 24.30%

Total Current Assets 98.33% 98.16% 98.05% 81.10%

Long-term Assets 1.67% 1.84% 1.95% 18.90%

Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities 24.45% 25.36% 27.83% 44.70%

Long-term Liabilities 40.01% 33.03% 23.43% 13.00%

Total Liabilities 64.47% 58.39% 51.25% 57.70%

Net Worth 35.53% 41.61% 48.75% 42.30%

Percent of Sales

Sales 100.00% 100.00% 100.00% 100.00%

Gross Margin 40.00% 40.00% 40.00% 31.80%

Selling, General & Administrative Expenses 33.60% 22.50% 21.21% 19.00%

Advertising Expenses 1.66% 0.85% 0.77% 1.90%

Profit Before Interest and Taxes 4.06% 4.67% 4.79% 1.40%

Main Ratios

Current 4.02 3.87 3.52 1.97

Quick 3.11 2.87 2.51 0.75

Total Debt to Total Assets 64.47% 58.39% 51.25% 57.70%

Pre-tax Return on Net Worth 28.81% 37.40% 39.18% 3.40%

Pre-tax Return on Assets 10.24% 15.56% 19.10% 8.20%

Additional Ratios Year 1 Year 2 Year 3

Net Profit Margin 2.13% 2.81% 3.10% n.a

Return on Equity 21.67% 28.05% 29.22% n.a

Activity Ratios

Inventory Turnover 8.89 10.01 10.00 n.a

Accounts Payable Turnover 9.13 12.17 12.17 n.a

Payment Days 27 31 30 n.a

Total Asset Turnover 3.62 4.15 4.60 n.a

Debt Ratios

Debt to Net Worth 1.81 1.40 1.05 n.a

Current Liab. to Liab. 0.38 0.43 0.54 n.a

Liquidity Ratios

Net Working Capital $88,626 $79,347 $71,940 n.a

Interest Coverage 3.30 5.04 7.52 n.a

Additional Ratios

Assets to Sales 0.28 0.24 0.22 n.a

Current Debt/Total Assets 24% 25% 28% n.a


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Acid Test 3.11 2.87 2.51 n.a

Sales/Net Worth 10.19 9.99 9.44 n.a

Dividend Payout 0.00 0.79 0.69 n.a

Documents

Sports Equipment Retail Business Plan (Sunny)