Business plan 1914525387985(Venture Cup 2009) Table of Contents TOC o "
h z u Executive summary PAGEREF _Toc229243663 h 3 Problem, idea & product PAGEREF _Toc229243664 h 3 The market PAGEREF _Toc229243665 h 3 Financial projections & exit possibilities PAGEREF _Toc229243666 h 3 Product PAGEREF _Toc229243667 h 4 Sample user interaction & data flow (InfoClickPoster) PAGEREF _Toc229243668 h 4 Current products PAGEREF _Toc229243669 h 5 Planned developments of product or service in the future PAGEREF _Toc229243670 h 5 Idea protection PAGEREF _Toc229243671 h 5 Customers and market PAGEREF _Toc229243672 h 6 Benefits offered to target customers according to their needs PAGEREF _Toc229243673 h 6 People and organization PAGEREF _Toc229243674 h 7 Existing management PAGEREF _Toc229243675 h 7 Our knowledge PAGEREF _Toc229243676 h 7 Employment practices PAGEREF _Toc229243677 h 7 Recruitment PAGEREF _Toc229243678 h 8 Retention and motivation PAGEREF _Toc229243679 h 8 Payroll and personnel system PAGEREF _Toc229243680 h 8 Team management PAGEREF _Toc229243681 h 8 Industry and competition PAGEREF _Toc229243682 h 9 Strengths and weaknesses of the major competitors PAGEREF _Toc229243683 h 9 Possible strategic partners PAGEREF _Toc229243684 h 9 Action plan PAGEREF _Toc229243685 h 10 Marketing plan PAGEREF _Toc229243686 h 10 Definition of target market PAGEREF _Toc229243687 h 10 Competitive edge PAGEREF _Toc229243688 h 10 Unique selling point of business PAGEREF _Toc229243689 h 11 Innovation PAGEREF _Toc229243690 h 11 Main features and benefits PAGEREF _Toc229243691 h 11 Product mix PAGEREF _Toc229243692 h 11 Incentives PAGEREF _Toc229243693 h 11 Promotion PAGEREF _Toc229243694 h 12 Distribution PAGEREF _Toc229243695 h 12 Research PAGEREF _Toc229243696 h 13 Confirmation of demand PAGEREF _Toc229243697 h 13 Money: financial analysis PAGEREF _Toc229243698 h 14 Business model PAGEREF _Toc229243699 h 14 Start-up capital PAGEREF _Toc229243700 h 14 Risk and reward PAGEREF _Toc229243701 h 14 Profit and loss PAGEREF _Toc229243702 h 14 Cash flow PAGEREF _Toc229243703 h 15 What-ifs PAGEREF _Toc229243704 h 15 Summary PAGEREF _Toc229243705 h 15 References PAGEREF _Toc229243706 h 17 Appendix PAGEREF _Toc229243707 h 18 Executive summary Problem, idea & product Nowadays we obtain too much information to contemplate them and decide which are important for us and which are not (i.e. you always see all the discounts in the shop, although you are interested in just those you are planning to buy today – information that depends on the user). Also people tend to quickly forget things in this information overflow. And what about relevancy? Nowadays, customers desire time- and location-relevant information, which traditional information channels (leaflets, promotional panels, posters, etc.) are not able to provide. Our invention is focusing on all these aspects of modern every-day life. Idea is quite simple – mobile phone application that enables user, through the simplest possible interface, to grab a snapshot of our barcode, automatically sends an MMS to our servers, that recognize the barcode on the taken photo and provide user with personalized, location and time relevant information via SMS feedback. Even though our base idea could be used in numerous use-cases (as mentioned later), we have decided to focus on two of them in the beginning – InfoClickPoster and InfoClickShop. The first one will enable users to take a photo of barcode placed on usual event poster and provide them with useful information and booking possibilities regarding the event. Moreover, by using this system user is also able to buy the ticket. On the other hand the second one will be positioned at shop entrances and provide users with useful, relevant and personalized information about special discounts and offers at the particular shop. The market End-users differentiate for our selected use-cases; InfoClickPoster primarily targets younger audience and active, modern people, InfoClickShop is more focused on regular grocery shop customers and “discount hunters”. Our revenues however, are not based on end-users. We will sell our services to event organizers and shop owners; organizers will be interested in attracting even more potential visitors and enabling them to book or buy tickets via additional on-spot service, shop owners or big supermarket chains will spot added value in better stock management (they will be able to advertise and discount products that are nearing expiry dates) and new product placement distribution channel. We think that with such diversity of user segments we will be able to attract enough people to reach the critical mass of regular end-users to start and implement new use-cases in our future development. Financial projections & exit possibilities We thought over several different scenarios and finally chose to start our business with two previously mentioned use-cases. From financial point of view, our estimations showed, that we will reach financial balance low-point (about million €) at the end of the third year and from then on, we should start making day to day profit. We have produced detailed three-year estimations, a cash flow based on our predictions and a small market research. Our calculations were mostly based on worst-case or at least pessimistic scenarios. We have specified several possibilities in case of good or bad scenarios. As our solution will be a mobile one, we predict that if our concept really hits the spotlight and reaches broader acceptance there will be a huge interest for our technology from different mobile carriers consequently meaning that our initial investors and also we as part owners will be able to sell the company at a good valuation or engage in worldwide partnerships. On the other hand if our demand estimations would be proven wrong, we would be able to quickly spot the critical signs (because of our detailed financial plan) and thus switch to another use-case, partly sell the company or find possible partnerships with mobile carriers. Product Sample user interaction & data flow (InfoClickPoster) Event poster with our barcode system (1). User chooses type of action (Check available tickets, book a ticket, book a ticket and pay -2). The second click (3) is needed for taking a photo of a barcode. The picture is automatically transmitted via MMS or WLAN (if a network is available) to our system (4). This is a computer server which provides barcode pattern recognition (4). System is thus able to identify the barcode. This is how the system recognizes location of the user (each barcode is different) and identity (using mobile-phone number). (Note: the server will only be mentioned ones, even though all traffic in next steps is made via the server.) Our server exchanges data with a event organizer (5) or a special ticket booking service (via our API and XML data). Available booking information is transferred (via SMS) to the end-user and he/she then selects (6) the category and number of seats he/she would like to book (information is sent back to the server via SMS). The server (4) informs the external ticket service (5) about a new booking and also sends the payment details to the end-user (7). The end-user is able to pay via internet (e.g. at home, office,… - 8), by the reference number or by the mobile carrier monthly receipt (only if we will be able to negotiate this option with mobile carriers) 12345678 Scheme of InfoClickPoster use-case Current products right412115left397510As mentioned before, we are currently focusing on two products, or, as we call them, use-cases: Planned developments of product or service in the future Very important and valuable aspect of our business is also development of new use-cases, which are unfortunately not feasible at the moment due to the financial issues. Moreover, we would also like to consider present customer needs and feedback and then properly react on them. We have three different ideas for future use-cases: InfoClickTuristGuide: in this case, the barcode would take place near interesting spots in museum. By taking a photo user would be provided with spoken description of the sight. It is a cheaper alternative to audio guides, because special hardware (i.e. headphones) is not required. InfoClickPathFinder: in this case, the barcode would take place somewhere in the city. By taking a photo and entering a key-word (what are you looking for? i.e. food shop, toilet) user would receive a SMS with description of the path (or MMS with the map) to the nearest required object (i.e. food shop, toilet). It is an alternative to static maps or signs in the cities. Moreover, it can also avoid obnoxious asking people for directions. InfoClickFoodOrder: In this case, the barcode would take place adjacent to the food menus in restaurants or at home for food delivery companies. By taking a photo, the end-user order (i.e. big-sized vegetarian pizza) would be transferred directly to the kitchen, and the staff would be able to start cooking immediately. The first benefit from this use-case is reduced lead time. End-user don’t have to spend time waiting for the waiter or calling food delivery company. The second benefit is the reduced number of staff required. No waiters or employees for receiving orders would be needed. Idea protection As this idea mostly consists of programs and applications, which, considering laws, cannot be protected, we have decided only to protect the main principle, which could be effectively patented. The most important claims are listed below. Before actually announcing the patent, we have to contemplate this very important issue with some lawyers to find possible disadvantages.
Claims (for better understanding see picture Scheme of InfoClickPoster use-case above): The composition consists of barcode (1), mobile phone with pre-installed software (3), and two computer servers (4,5). Composition from claim 1 utilizes SMS, MMS and XML technology to communicate. One computer server (4) from claim 1 has installed software for barcode recognition. One computer server (5) from claim 1 has installed the database with customer information. End users are able to pay the new ticket, using internet and a reference number, which they receive on the mobile phone (3) at the end of transaction. End customers are also able to pay new ticket together with the mobile phone bill provided by their mobile carrier (8). Instead of barcode (1) in composition from claim 1, the RFID could be utilized. We have also decided to get a trademark and reserve a brand name in cooperation with DPTO. Customers and market InfoClickShop target customer Shop customers (B2C) – customers of next generation, who want relevant information whenever possible and do not have time to check promotional leaflets Shops (B2B) – supermarkets that would like to bring their customers some additional added value InfoClickPoster target customers By-passers in the street (B2C) that get interested in the offer on the poster and would like to have more detailed information about advertisement immediately on the spot. It would be just required that they have mobile phones with our application at hand, which enables them to take a snap-shot and get the instant feedback from our system. The organization advertising on the posters (B2B) – Organizers of the event / Service providers Benefits offered to target customers according to their needs right122555InfoClickShop System allows shop owners (probably big supermarket chains) to set-up special hot-spots at the entrance of supermarkets. A user uses our application when he/she enters a specific supermarket and by doing that obtains some specific, relevant information about current special offers and other discounts of products that are actually on stock. System would use time and location feature of our system and collect information about stock and offers from supermarket`s internal ERP system. There is also a possibility to include identity specific information – information and offers about products that customer is most interested in (information about costumer`s interest could be provided through our internet service). This information would give equipped supermarkets added value for the customers and consequently attract more of them. right118745InfoClickPoster Additionally provided information can be specific to the location of the poster, identity of the inquirer (e.g. booking seats available) or/and time of the inquiry. Our system would also enable combining of those three aspects. In that way the linkage of both our customers (i.e. the advertiser to their potential customer) is established with easy and fast communication and highly increased possibility of desired outcome for the advertiser. As we have shown in the Confirmation of demand section, InfoClickPoster solution should generate enough transaction to satisfy customer needs even in our first year of running. People and organization Existing management Name/nationality Study course Dominika Bezdziel / Poland Business and engineering Torben Borgmann / Germany Business and engineering Tadeja Kadunc / Slovenia Computer and Information Science Andrzej Leoniuk / Poland Business and engineering Jakob Marovt / Slovenia Computer and Information Science Miha Troha / Slovenia Computer and Information Science Our knowledge Math and Statistics Hypothesis forming & testing Statistical calculations Game theory IT AI (expert systems, pattern recognition, machine learning ... ) Databases System architecture Web development Programming languages (Java, C, C++, C#, bash, Prolog, SQL, PHP, assembler ... ) IS (ERP, CRM ...) Economics Accounting Management Organizational theory Project management Managerial Accounting Managing intercultural Teams Different kinds of knowledge which are available in this group are essential for such a complex project we are focusing on. The only disadvantage is the lack of management experiences and therefore we will try to compensate that with hiring professional CEO and CTO. Employment practices We would like to hire motivated skilled people with minimally two-years working experiences. We will of course obey employment regulations and try to provide our staff with best possible working environment and benefits. Recruitment We will need 10 employees with computer science bachelor degree, 2 marketing specialists, 1 accounting specialist, 1 project manager (CTO) and a professional CEO. Retention and motivation We are going to offer our permanent staff (2 years) a possibility to buy a small share of company and consequently connect them even more with the mission of our company. We will organize team-building meetings outside our premises monthly to bond our team. Payroll and personnel system Payroll system (gross figures): development team - 3500€/month implementation team - 20€/hour marketing, accountant, CTO, CEO - 3500€/month Personnel system will be based upon our company`s growth; staff will be able to buy shares, they will be provided with more and more education, be able to attend seminars, conferences, etc. Team management As we will start as a small company we will need a limited number of managers - CEO and CTO. They will be externally advised by business angels and venture capitalist that will provide our start-up capital. We will try to establish horizontal team organization and use progressive agile methods (e.g. SCRUM) for our product development. Industry and competition Base of our business is within Information technology industry sector, where dynamism is very high. Therefore quick breakthroughs of new concepts and also new companies are very likely. But at the same time the competition is really strong and it is difficult to prevail or to predict the outcome. Already at the starting point we come in touch with the retail and the entertainment industry in terms of providing connecting services to players in those two sectors and helping them reach their customers. Advertisers on LCD panels with possibility to change information of an advertisement and thus enabling its continuous update. Online event management and ticketing service (e.g. HYPERLINK "
Eventbrite) Repetitive print of shopping leaflets Strengths and weaknesses of the major competitors LCD panels screening various information might indeed provide updating or changing possibilities and depicting in a visible, flashy manner, catching enough attention even just if driving by. But they certainly cannot offer selling point service as in our case. It could be more secure/predictable for the event organizer to choose this known way but besides lacking the distinctive spark (too short screening time, too many similar ads, usually boring) it also lacks additional custom-tailored value. In a case of RFID technology there is no really equivalent solution on the market. But we surely can expect more development in that category including increases of the storage size of RFID chips and different, improved ways of using them. Although RFID might not replace barcodes entirely it has a potential in location-based services in combination with mobile network. However, RFID equipped mobile phones end-user base will not be big enough (even in a few years time frame) to compete with our basic and already wide-spread solution. Possible strategic partners The only senseful possibility for a partnership for our business would be a partnership with big mobile phone carriers like TDC, VODAFONE, TELIA or SONOFON because we would use their network and increase their SMS and MMS traffic trough that. On the other hand we would benefit from that as well because we could use their invoices services as a way for payment for the ticket service and all mobile phones would have our software preinstalled. From here on, there are two main different approaches to the question of partnership:
Partnership with only one big mobile phone carrier: A partnership would bond us to one company and we could be also supported by this company from financial perspective. On the other hand, in that case we are not able to establish new partnerships with other mobile carriers and this is a huge limitation for our end-customer base. Only one mobile carrier will sell mobile phones with our software preinstalled, and therefore we won't be able to attract enough customers.
Partnership with many big mogile phone carriers: In case that we obtain enough money from other funds, and therefore don't have to establish financial based partnerships, this is the best solution. We can sign contracts with many different mobile carriers, and thus get access to huge end-customer base without any future limitations.
Action plan We plan to start up our venture according to this rough plan:
Internal building of the prototype (2-3 months)
First seed round: business angels, venture capitalists and possible partnerships (unspecified)
Formal and informal business opening activities (1 month)
Creating/building the system (extensive core development – 1 year)
Support, maintenance and adding of new features to the core system: continious process, time is not specified.
Promotion: continious process, time spend on different promotional activities is not specified.
Implementation of the system: continuous process, one implementation time depends on year and use-case; check the three-year forecast in appendix for detailed time information. First sales: we expect and will work on selling our products from day one as we will be able to show the prototype and alpha versions to our first customers. First delivery: it mostly depends on the speed of the development team. Most of the hard work will be put into standardization of our back-end systems, meaning that we a bit effort we could provide our first customers with working beta versions around two months after the start. InfoClickShop break-even: probably in the beginning of the fourth year (1. scenario & 2. scenario) InfoClickPoster break-even: probably in the third year Global financial break-even: we estimate that we should reach our global financial break-even point at the end of the third year (1. scenario) or in the fourth year (2. scenario) Possible second seed round or big bank loan Marketing plan Definition of target market Our direct influence over end-users of entertainment industry sector (i.e. poster use-case; participants of various events) and retailer industry sector (i.e. shop use-case; buyers) is going to be rather small, especially at the beginning. That is why our focus is primarily in B2B market, where our actual customers from both collaborative sectors are to be found. Competitive edge Out of comparison between our business and the competition we can extract quite few unique points. InfoClick in general strives to wisely connect the company behind the poster offer with the end-user after catching her/his attention. Our simplified, instantaneous interaction secures the possibility of desired outcome for both parties, because end-users get information on demand easier and faster.The most noticeable is the created unique selling point (InfoClickPoster use-case). Poster is no longer just an advertisement with this added value as a main advantage, especially comparing to regular posters or LCD advertisements. Unique selling point of business Our innovative product is based on a premise that we live in a constantly changing environment and that lifestyle is becoming faster and more active every day. There is an everlasting need for new and quick information about things that surround us - and here comes our innovative solution. We will provide different types of relevant information directly on the spot; starting with poster information & reservation abilities and shop stock & discount information to other interesting use-cases that we would be able to provide in the future development (e.g. tourist information, bus information, etc.). Niche that we have spotted may be covered by other substitutes as lcd panels but they are much more expensive for possible customers, do not provide customer-based relevant information and do not come with a standardized information updating solution as our service is able to provide. Innovation We will provide customers with innovative, easy-to-use, quickly adoptable product. Our mobile application and web service will work seamlessly together and bring consumers desired information through widely used SMS messages. Our starting point will be a product mix of two in our opinion most attractive use cases: InfoClickPoster and InfoClickShop. Even though final "
are quite different from one another and their markets are differently segmented, they are both based on the same technology so we will be able to profit from this synergy (massive customer base will enable us to build and easily promote new use-cases). Main features and benefits General: on demand relevant information fast "
B2B costumer specific content InfoClickPoster: several ticket reservation/payment methods quick interaction higher attraction level and remember-able value of posters equipped with our system InfoClickShop: consumer relevant information (based on online service consumer information) B2B customers will be able to manage their stock more effectively because of higher possibility of selling near to expiry date products end-users will cherish the added value, that shops equipped with our system will provide Product mix We will primarily focus on two use cases: InfoClickPoster and InfoClickShop. As they target different market segments we will not depend on success of only one product. If we will spot some troubles (not reaching cost break-even point in set time frame) in sales of one of our services we will be able to switch it with one of our reserve use cases, because the base technology framework is the same for all our products. Incentives We decided to start our pricing strategy very aggressively in the first year, as we firstly have to attract critical mass of end-users and also will not be able to provide full quality service to our B2B customers during the continuous development process in our first year. Also direct costs of implementing the services will be quite high because of inexperience of our early implementors and because of all these factors we will not be able to set our prices so high to reach break-even points in the first year.For the shop use case we also decided to charge our customers each consecutive year after the purchase because of maintenance and support costs.Our goal in the first three years will be to reach margin of about 15% per product.We will prepare special discount offers for both target B2B customer variations: big concert/cinema market companies and supermarket chains, that could provide huge increase of revenues and more potential end-costumers. Promotion We will have to differentiate our strategy on many levels. Firstly there will be differentiation between marketing approaches for mobile carriers, B2B customers and end-consumers: Mobile carriers: we will have to persuade them that we could all mutually benefit from our services; they will preinstall our software on new cell phones and thus provide us with potential end-consumers and we on the other hand will enable them to increase their SMS traffic. B2B customers: we divide them in two major groups by use-cases (posters, shops); we will firstly try to contact major organizers and supermarket chains in order to achieve our planned growth of revenues. We will present them benefits of our system and provide them with aggressive pricing options during the first year. If we will be able to achieve planned sustainable growth, B2B customers will probably be more willing to buy our products so we will not have to put in so much effort in the following years. End-users: because of our limited marketing budget we will have to come up with different, guerilla marketing strategies. We will try to engage influential Danish bloggers to write about us, provide all kinds of press with information about our system and company, engage as much as possible on various social services (Facebook, Twitter, etc.), design cool stickers that people could post around Danish cities and also have a brand name printed on every poster/shop info panel enabled by our technology. We think that with use of these viral marketing approaches we will be able to create quite a lot of buzz about our company and thus minimize our end consumer marketing expenses. Distribution We will have two main levels of distribution - as our end-consumers have to have our software installed on their mobile phones we will have it available for free on our web-site, but we are a mass-usage system and need a huge consumer base, so we decided to cooperate with mobile carriers; they will preinstall our software on newly bought phones. As latest statistics show, modern consumers change mobile phones almost every 6 months, so we think that in a year-time our potential consumer base will be at least ... (have to check Danish base ... )Second level, our final product - the information services for B2B customers will be directly sold to them; mostly we will conduct meetings with our partners in our or their premises and then we will provide them with full support in the processes of implementation and adaptation to our services. Research Confirmation of demand We have conducted a small market research and prior to this some exploratory research. Latter included collecting some basic information about our markets: number of currently used mobile phones in Denmark, average life span of a mobile phone, number of large events, number of other events, number of shops, etc.Collected data (Denmark): 5 million cell phone users (CIA world factbook statistics) 1,5 year average life span of a mobile phone 50 large events 20000 other events 11 big supermarket chains (approximatelly 550 food-focused supermarkets) In the process of collecting new data we have contacted a few(6) event organizers and conducted a small face-to-face survey among potential users of the system (students of Faculty of Engineering). Results of the survey: 63% of all are interested in using the system 24% would definitely use the system Those organizers who actually responded (3) to our questionaree were all interested in using the system, but only if we would be able to sell through our system at least 400 tickets per event.Our calculation: 5 mio users first year 15-20% of all will have our system installed 24% students would definetelly use it 10% all mobile users would use it regulary Because at the beginning potential consumer base (people with installed mobile application) will be zero and at the end of year between 750000 and 1000000 and we are calculating the average for the first year, the final number is the maximum number divided by two. And we are taking the pesimistic version - 750000.75000/2*0,1=35000 transactions (first year)35000/80=437 tickets/eventAs we are able to see, we could probably satisfy our B2B customers for InfoClickPoster use-case even in the first year.We have tried to reach and talk to some supermarket marketing departments but so far we have not have any luck, because they have rejected answering to our small survey. They have not actually rejected our product, we would just need some more time to be able to contact appropriate and responsible people. So, we are not so sure about the reach of our InfoClickShop, but we are at least sure that the market segment for this use-case is broader, because almost everyone is a customer of supermarkets. Money: financial analysis Business model We will make money from three basic revenue sources: B2B InfoClickPoster customers (event organizers), B2B InfoClickShop customers (big supermarket chains) and B2B InfoClickShop ShopMaintenance (big supermarket chains). InfoClickShop ShopMaintenance is a continuous service that shops will have to pay for yearly after the initial purchase of InfoClickShop. Because InfoClickPoster is a one-time poster product, we will of course charge our customers only once. As mentioned before we will be able to widen our range of use-cases after a few years when we will reach broader acceptance and critical end-user mass and thus open some new possible revenue sources. Start-up capital First seed round (about 1200000€): as we have calculated, our time to positive frame is slightly less than 3 years. Our lowest balance point is reached in 33. month and it sums up to about 1000000 €. We assume that the actual situation will probably differ from our calculations so we suggest a reserve margin of approximately 20% of needed funds. Possible scenario in third year - Second seed round (about 600000€): we will have a possibility of staying in Denmark or expanding our company into new markets. As we have found out, we would be able decide about expansion after 2 years of working in Denmark, when everything should be established and our sales estimations could be proven right or wrong. If we would then decide to expand, we would most probably go and establish a new office in Berlin and therefore expand into German market (biggest European market, quite similar to Danish market). For this scenario we would probably not have enough funds so we would have to decide whether to try and engage even more venture investors or get some short-term credit from bank(s). As our company would be quite big by then with revenues exceeding 700000€ per year, we think that we would have good possibilities of persuading banks to loan us money, which would most probably be a better option in comparison to venture capital (losing share and power in company). In this financial analysis we will therefore always present two scenarios: scenario of staying in Denmark and scenario of expanding our business to German market. Risk and reward This is a high risk venture. Although our sales assumptions have basis in the market research we are unable to be completely sure of our calculations. But, if our calculations are correct we are able to see that our sales revenue is rising at steady high rate of about 100%, which enables us to reach positive cash flow at the end of the third year if we decide not to expand into new markets. Our fourth year estimated gross profit in this case would be around 350000€, which makes our company very profitable and thus we would be able to make a profit of our start-up capital in about 6 years. Profit and loss For details and actual figures in this part see Appendix. The financial analysis shows that in the first year we have about 650 thousand € loss. We spend a lot of money on marketing, product development and buying necessary equipment like computers, small inventory ... Moreover, we set our starting prices very low, because the main goal in this year is to gain as many end users as possible. With a huge base of end users our product will become more attractive also for the B2B customers – those who we actually obtain money from. Also our direct costs are higher in this year due to inexperienced implementors and lack of standardizations. In the second year we are able to set our prices a little higher, and also reduce direct costs with standardization of implementation process. The margin can thus be much bigger than in the first year. InfoClickPoster is almost making profit this year, and ShopMaintenance increases our revenue for a little.
In the third year is our user base even bigger, which attracts more customers, and thus our sales have to rise. We are still operating only in Denmark, because this does not require extra costs. Due to high sales, we have reached breakeven point also for posters this year. Shops are still making loss, but if the trend continues, we will be able to make the profit also with shops next year. However, after three years around 240 shops would use our system. If we consider that in Denmark there is around 2000 shops from big shopping chains (those are the most interesting customers), we can see that the market is probably becoming too small for our future appetites. That’s why we have created also another scenario.
In this scenario we are entering the German market after the second year. The new market requires expanded marketing costs and new equipment. We are also not able to increase our prices due to lack of end users in German market. Thus, we would probably set different prices for each market (in the financial report we have only stated averages for both markets together). All mentioned are the reasons for about 520 thousand € loss in this year. Cash flow For details and graphs in this part see Appendix. We estimated our revenue and costs for each month in the next three years. On the graph in Appendix also profit for each month is calculated. All liabilities for buying our system have to be compensated at least 60 days after implementation. According to our revenue, we will have to pay VAT quarterly. Based on monthly cash flow, we have also calculated the cumulative of profit – balance. The lowest point in the graph gives us the amount of money we will actually need. In the 1. scenario this number is about 1 million €. On the other hand, in case of 2. scenario, we haven’t reached the bottom point in these three years. What-ifs If energy and rental costs rises for exceptional 15% per annum, the alteration of costs in whole three years would be marginal (only about 9000 €). If sales are shifted for three months, this means that we would be able to reach the profit in the beginning of the 4th year. However we wouldn't need additional money, because in the first years we are using damping prices and this shift would even reduce the loss. If the real sales are 20% lower than our forecast predicts, we still have profit in 3. year (9700 €). The lower point of our balance would be about 1100000 €. If the real sales are 26% lower than our forecasts predicts, the lower point of our balance exceeds 1200000 €, what is our eager amount in the first seed round. Summary All values in financial analysis are predictions. We can divide them in two groups. Wages and prices for office equipment are altering really slowly, thus we can estimate them very precisely. Also marketing costs belong to this group, because they depend on us and we are able to control them. Energy and rental costs are changing swifter, but still do not fluctuate much. The most rapid change could be around 20% per year. We have also assumed that all the services will be paid entirely and in time (2 months). To avoid problems regarding this prediction we will acquire 20% more funds (first seed round) than our calculations suggest. References http://www.thebestbusinessplan.com/ http://www.europaeische-rechtsformen.de/europaeische_rechtsformen/daenische_ApS.html http://int.dkpto.dk/business-services/how-to-file/file-for-a-patent.aspx http://www.fdim.dk/ http://www.indexmundi.com/denmark/telephones_mobile_cellular.html Appendix Three-year forecast 1. year - The year of developement PostersShopsPrice:10005000Sales amount:8040Planned direct costs (hours):50180Wages per hour (€):2020Planned direct costs of services (servers):50200VAT outputs:15179,5400001. quarter:1230,773076,922. quarter:3076,927692,313. quarter:4102,5612307,74. quarter:6769,2316923,1VAT inputs:87501. quarter:87502. quarter:03. quarter:04. quarter:0VAT due:12054,534375Planned variable general manufacturing costs: Energy (variable part):0,10,12Maintenance (variable part):0,50,8Planned fixed general manufacturing costs: Supervision:2000Amortization:4000Energy (fixed part):3000Maintenance (fixed part):1000Wages (development):294000Planned general costs (purchasing, sales, administration): General marketing costs:100000Wages:210000Rental costs:18000Amortization:3000Sales calculation:80000200000VAT due:12054,534375Calculation of direct work:80000144000Calculation of direct services:40008000General manufacturing costs:68487244537Calculation of purchasing, sales and administration costs:71956,5259043Profit:-156498-489956Total profit:-646453,48722. year - The year of breakthrough PostersShops maintenanceShopsPrice:120020005000Sales amount:2003590 Planned direct costs (hours):3010100Wages per hour (€):202020Planned direct costs of services (servers):50200200 VAT outputs:47905,314000900001. quarter:8804,731076,92307719704,12. quarter:10934,92692,307692215683. quarter:13065,14307,692308234324. quarter:15100,65923,07692325295,9VAT inputs:01. quarter:02. quarter:03. quarter:04. quarter:0VAT due:47905,31400090000 Planned variable general manufacturing costs: Energy (variable part):0,10,050,12Maintenance (variable part):0,50,030,8Planned fixed general manufacturing costs: Supervision:2000Amortization:4000Energy (fixed part):3000Maintenance (fixed part):1000Wages (development):84000Planned general costs (purchasing, sales, administration): General marketing costs:100000Wages:210000Rental costs:18000Amortization:3000Sales calculation:24000070000450000VAT due:47905,31400090000Calculation of direct work:1200007000180000Calculation of direct services:10000700018000General manufacturing costs:23742,96742,28571475422,9Calculation of purchasing, sales and administration costs:70928,623642,85714236429Profit:-3257711614,85714-149851Total profit:-170813,32543. year (1. scenario) - The year of profit PostersShops maintenanceShopsPrice:130020005600Sales amount:45087150Planned direct costs (hours):3010100Wages per hour (€):202020Planned direct costs of services (servers):50200200VAT outputs:117000348001680001. quarter:19880,291317150,29585830865,725992. quarter:26126,763778183,43195338288,575333. quarter:32373,236239216,56804745711,424674. quarter:38619,7086910249,7041453134,27401VAT inputs:01. quarter:02. quarter:03. quarter:04. quarter:0VAT due:11700034800168000Planned variable general manufacturing costs: Energy (variable part):0,10,050,12Maintenance (variable part):0,50,030,8Planned fixed general manufacturing costs: Supervision:2000Amortization:4000Energy (fixed part):3000Maintenance (fixed part):1000Wages (development):84000 Planned general costs (purchasing, sales, administration): General marketing costs:100000Wages:252000Rental costs:18000Amortization:3000Sales calculation:585000174000840000VAT due:11700034800168000Calculation of direct work:27000017400300000Calculation of direct services:225001740030000General manufacturing costs:28242,857146783,88571480942,85714Calculation of purchasing, sales and administration costs:79928,5714326642,85714266428,5714Profit:67328,5714370973,25714-5371,428571Total profit:132930,4Net profit:99697,83. year (2. scenario) - The year of expansion PostersShops maintenanceShopsPrice:110020005000Sales amount:50087200 Planned direct costs (hours):3010100Wages per hour (€):202020Planned direct costs of services (servers):50200200 VAT outputs:110000348002000001. quarter:19341,829777150,29585833327,264452. quarter:24780,609928183,43195344442,421483. quarter:30219,390089216,56804755557,578524. quarter:35658,1702310249,7041466672,73555VAT inputs:70001. quarter:70002. quarter:03. quarter:04. quarter:0VAT due:103383,742934416,25709200000 Planned variable general manufacturing costs: Energy (variable part):0,10,050,12Maintenance (variable part):0,50,030,8Planned fixed general manufacturing costs: Supervision:4000Amortization:8000Energy (fixed part):6000Maintenance (fixed part):2000Wages (development):210000 Planned general costs (purchasing, sales, administration): General marketing costs:300000Wages:504000Rental costs:40000Amortization:6000Sales calculation:5500001740001000000VAT due:103383,742934416,25709200000Calculation of direct work:30000017400400000Calculation of direct services:250001740040000General manufacturing costs:58285,7142916498,17143182685,7143Calculation of purchasing, sales and administration costs:182142,857160714,28571607142,8571Profit:-118812,31427571,28577-429828,5714Total profit:-521069,6 3171825847725Cash flow -334010403225Three-year forecast Monthly and cumulative cash flow Balance sheet 1st year2nd year3rd year3rd year #2FIXED ASSETSCost27900,0023715,0020157,7520157,75 Depreciation4185,003557,253023,663023,66 Book value23715,0020157,7517134,0917134,09CURRENT ASSETSDebtors82564,10157357,00348180,32385039,30 CURRENT LIABILITIESOther creditors23692,3146319,53102003,69112580,61 NET CURRENT ASSETS 58871,79111037,48246176,63272458,69NET ASSETS 82586,79131195,23263310,72289592,77CAPITAL AND RESERVESShare capital1200000,00553546,51382733,19382733,19 Reserves-646453,49-170813,3399697,80-521069,60 553546,51382733,19482430,99-138336,41 Sensitivity analysis Break-even point and time to positive
year: High general costs
Posters: Impossible to reach breakeven point with any number of sales, because our direct costs are too high (due to inexperienced employees and unstandardized implementation process) and prices are too low (due to little user base).
Shops: In this case it is possible to reach the breakeven point, but the sales have to be extraordinary high. The reasons is the same as in the case of posters.
Posters: We will probably not reach break-even point; even though our margin is much higher because of higher price and experience of our implementation team.
Shops maintenance: We reach break-even point. Here we do not have a lot of direct costs.
Shops: We will probably not reach break-even point due to still quite high direct and general costs. On the other hand we are expanding our consumer base and also benefiting from shop maintenance in future years.