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Downtown Dawgs Business Proposal

Presented to: Marv Painter

Presented by:Ricki BeaudoinJessica Mann

Shashi Anand SelvarajKara Wan

July 13, 2011

Table of Contents1.0 Executive Summary...............................................................................................................................1

1.1 Customer Value Proposition..............................................................................................................1

1.2 Critical Success Factors......................................................................................................................1

1.3 Operation Plan Overview...................................................................................................................1

1.4 Human Resources Overview..............................................................................................................1

1.5 Marketing Overview..........................................................................................................................2

1.6 Financial Overview.............................................................................................................................2

2.0 Introduction...........................................................................................................................................2

2.1 Mission..............................................................................................................................................2

2.2 Goals and Objectives.........................................................................................................................3

3.0 Industry Overview.................................................................................................................................3

3.1 Location Overview.............................................................................................................................3

3.2 Pet Industry Overview.......................................................................................................................4

3.3 PESTE Analysis...................................................................................................................................5

4.0 Operations Plan.....................................................................................................................................6

4.1 Organizational Structure....................................................................................................................6

4.2 Management Responsibilities............................................................................................................7

4.3 Hours of Operation............................................................................................................................7

4.4 Typical Business Day..........................................................................................................................8

4.5 Location.............................................................................................................................................9

4.6 Building Layout................................................................................................................................10

4.7 Permits & Licenses...........................................................................................................................12

4.8 Safety and Health Requirements.....................................................................................................13

4.9 Operating Expense...........................................................................................................................15

4.10 Capital Budget...............................................................................................................................16

4.11 Working Capital.............................................................................................................................17

5.0 Human Resources Plan........................................................................................................................19

5.1 Human Resource Strategy...............................................................................................................19

5.2 Job Descriptions...............................................................................................................................19

5.3 Training............................................................................................................................................20

5.4 Shareholders’ Agreement................................................................................................................20

5.5 Labor and Management Costs.........................................................................................................20

6.0 Marketing Plan....................................................................................................................................21

6.1 The Marketing Mix...........................................................................................................................21

6.1.1 Product.....................................................................................................................................21

6.1.2 Promotion.................................................................................................................................21

6.1.3 Price..........................................................................................................................................22

6.1.4 Place.........................................................................................................................................23

6.2 Target Market..................................................................................................................................23

6.3 Competitive Analysis........................................................................................................................24

6.4 Marketing Expense..........................................................................................................................26

6.5 SWOT Analysis.................................................................................................................................29

7.0 Financial Plan.......................................................................................................................................30

7.1 Introduction.....................................................................................................................................30

7.2 Capital Structure..............................................................................................................................30

7.3 Start-Up Costs..................................................................................................................................31

7.4 Working Capital...............................................................................................................................31

7.5 Financial Statement Projections......................................................................................................31

7.5.1 Assumptions.............................................................................................................................31

7.5.2 Balance Sheet...........................................................................................................................31

7.5.3 Income Statement....................................................................................................................32

7.5.4 Statement of Cash Flows..........................................................................................................35

7.5.5 Ratio Analysis............................................................................................................................35

7.6 Investment Analysis.........................................................................................................................36

7.6.1 Net Present Value.....................................................................................................................36

7.6.2 Internal Rate of Return.............................................................................................................36

7.6.3 External Rate of Return.............................................................................................................36

7.6.4 Payback Period.........................................................................................................................37

7.7 Sensitivity Analysis...........................................................................................................................37

8.0 Appendices..........................................................................................................................................38


1.0 Executive Summary

Downtown Dawgs is the brainchild of four hard-working university graduates who aim to be the first to open a dog day care and overnight boarding kennel in downtown Saskatoon. It is their goal to capitalize on the current excess demand in the pet care industry and translate their dream into cold hard cash. The four aspiring entrepreneurs will be contributing $140,000 comprising of 80% equity in the company and requesting of the angel investor(s), a $35,000 contribution for the remaining 20% equity.

1.1 Customer Value Proposition

There are many indirect and direct competitors in the dog day care business. However, the analysis of this business plan has revealed the main characteristics desired in dog day care and overnight boarding service. Accordingly, Downtown Dawgs will provide its busy clients’ dogs with top quality care and a playful experience at their utmost convenience.

1.2 Critical Success Factors

Downtown Dawgs’ is a volume driven business. Accordingly, the number of clients we get through the door directly affects our bottom line. Furthermore, our target clients demand convenient, high quality pet care. As such, delivering on our promise is also critical to our success and sustainability.

1.3 Operation Plan Overview

Downtown Dawgs aims to be a leader in convenience. As such Downtown Dawgs will be conveniently located in Saskatoon’s central business district on the corner of Pacific Avenue and 24th Street East. Our newly renovated location offers over 3000 square feet of combined indoor and outdoor dog recreation space designed to house a maximum capacity of seventy dogs. Downtown Dawgs’ service offerings include day care, overnight boarding, grooming, and a dog pick-up service. To establish the foundation of the business, a relatively small capital outlay is required. The main capital expenditures will include leasehold improvements to update the building to fit our needs, the purchase of seventy kennels for our overnight boarding, and the purchase of a transportation van. The business also requires very little working capital as inventory is not needed and all sales will be performed on a cash basis. Our goal is to maintain enough cash on hand to service three months of basic operating costs. The four founding members are excited to embark on this new endeavor. As such, each of the founding members will have a key role in the day to day operations of the business. Our ultimate goal is to provide top quality service and customer satisfaction and to ensure that we build a loyal base of customers who regular utilize the services offered by Downtown Dawgs.

1.4 Human Resources Overview

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Downtown Dawgs will employ several pet attendants and one dog groomer. In addition the four founding members will be actively involved in the day to day operations of the business. Pet attendants will be responsible for daily care and oversight of day care and boarding dogs, pick-up of dogs throughout the downtown area, and clean-up of indoor and outdoor dog recreation areas. The dog groomer will be responsible for all grooming activities and will assist the pet attendants when not occupied with grooming clients.

1.5 Marketing Overview

Downtown Dawgs will be targeting dog owners who live in, work in, or commute through Saskatoon’s central business district/downtown core. Although there are numerous competitors in the pet boarding and day care industry, our research has indicated that the current pet care providers cannot meet the demand. In addition, it has come to our attention that a key ingredient that is missing in the current boarding and day care providers’ operations is convenience. Most of our competitors are located in the industrial areas surrounding the city, outside the city limits. Our prime location offers the convenience factor that is currently missing. In addition to that we offer high quality care and an overall quality experience. Accordingly, our prices reflect a premium over those charged by our competitors. Downtown Dawgs’ initial marketing efforts will focus on these key features of our business. Proposed marketing initiatives include flyer distribution, sponsorship of pet focused community events, and most importantly word-of-mouth referrals.

1.6 Financial Overview

The financial performance analysis details Downtown Dawgs’ financial projections for the first five years of operation. As projected, once the ideal capacity is reached in the end of the first year, Downtown Dawgs’ will maintain a steady profit. Positive cash flows will be achieved in the second year of operations and are projected to continue indefinitely resulting in a net present value of $30,373 and an internal rate of return of 42.32%. Based on the proposed dividend declarations, the external rate of return is projected to be 23.20% and the estimated payback period of the investment is just over two years.

2.0 Introduction

Downtown Dawgs will be Saskatoon’s leading provider of convenient quality dog day care and overnight boarding. Located in the heart of Saskatoon, Downtown Dawgs boasts a superior location and extended hours designed to fit “your schedule”. Whether your dog is here for a day or here for a week, we promise it will receive the highest level of quality care and attention.

2.1 Mission

Downtown Dawgs’ mission is to provide its busy clients who work, live and/or commute through downtown Saskatoon with the most convenient dog day care and boarding service by locating in the heart of downtown Saskatoon. Also, by offering extended hours, and providing

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complementary services such as dog pick-up and grooming, Downtown Dog will ensure that it exceeds its clients’ expectations on both convenience and top-quality care.

2.2 Goals and Objectives

Short term goalsDowntown Dawgs strives to achieve the following goals within the first two years of operations:

Obtaining an 80% operating capacity during weekdays and 100% operating capacity on weekends and holidays by the end of the first year of operations

Developing a loyal customer base by providing a quality experience for guests

Long term goalsBeyond the second year of operations, Downtown Dawgs plans to achieve the following:

Providing a sustainable external return on equity of 20% through payment of annual dividends beginning in our third year of operations

Expanding our community involvement initiatives in order to develop a strong brand recognition in the Saskatoon community

Developing a rural overnight boarding kennel to expand our current capacity and offer a more enriching experience to our overnight guests

3.0 Industry Overview3.1 Location Overview

Saskatoon is the fastest growing city in Canada boasting a commercial centre and region that serves over 300,000 people with one of the most diversified economies in the country.1 As of 2010, Saskatoon’s population was at a growth rate of 2.8% compared to the average Canadian city growth rate of 1.47%.2 A 2009 survey also revealed that the Saskatchewan median total income per family is the fourth highest in Canada.3 These factors indicate that there is an overall increase in disposable income in Saskatoon. As a result residents are more willing to spend additional funds on pet care, which seems to be an increasing trend across the country. Furthermore, our research indicates that demand exceeds capacity for overnight boarding in Saskatoon. Locating Downtown Dawgs in a prime downtown location in Saskatoon would not only allow for the capturing of this excess demand but also allow for the capture of a percentage of market share from the existing competitors as seen in Figure 1.

Figure 1 – Market Share Distribution1Obtained from: www.sreda.com. http://www.petdirections.com/canada-pet-industry. Retrieved on July 1, 20112 Statistics Canada, CANSIM. Retrieved on July 6, 20113 Statistics Canada, 2009. Retrieved on July 6, 2011

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http://www.petdirections.com/canada-pet-industry

http://www.sreda.com/


Happy Dog Acres; 60%

Paws Awhile; 30%

Others; 10%

Current Market Share Distribution

Happy Dog Acres; 48%

Paws Awhile; 25%

Others, 8%

Down-town

Dawgs, 19%

Projected Market Share Distribution

3.2 Pet Industry Overview

According to an article published in the Calgary Herald, the pet industry in Canada is booming.4 This comes as no surprise considering the fact that in 2006, Statistics Canada reported in its census results that over 55% of households have at least one pet.5 Dog ownership comprises a large portion of the pet population with an average of 1.38 dogs per household.6 The Calgary Herald article also stated that Canadians are spending increasingly larger sums of money to ensure that their pets are happy, healthy and have the best care. With pet pampering on the rise, people are spending their hard earned dollars on luxury items for their pets such as designer apparel, shoes, fancy toys, pet spas and more.7 This trend is often referred to as the premiumization or humanization of pets. Statistics Canada states that average annual spending on pets per household in Canada is $890 which is a huge increase over $377 per household spent in 2005. This translates into the pet industry in Canada generating upwards of $5 billion a year with no signs of stopping8. It also provides an amazing opportunity for entrepreneurs who passionate about starting a business in the pet industry. According to a 2008 Industry Canada

4 Toneguzzi, Mario; “Pampered Pets Push Profits”. Calgary Herald; 2006; http://classifieds.canada.com/components/print.aspx?id=076ade32-404e-4fcb-a2f8-38d5c1a5b564. Retrieved July 9, 20115 “Canada Pet Industry” February 10, 2010. Pet Directions and Team. http://www.petdirections.com/canada-pet-industry. Retrieved July 9, 20116 Perrin, Terri; “The Business of Urban Animals Survey: The facts and statistics on companion animals in Canada”. The Canadian Veterinarian Journal. January 2009. http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2603652/. Retrieved July 9, 20097 Severs, Laura; “Buying Bling for Fido Fuels Boom in Business”. Business Edge. August 24, 2007. Volume 7, Number 17. http://www.businessedge.ca/archives/article.cfm/pet-power-propels-45-billion-industry-160308 Canada Pet Industry” February 10, 2010. Pet Directions and Team. http://www.petdirections.com/canada-pet-industry. Retrieved July 9, 2011

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http://www.petdirections.com/canada-pet-industry.%20Retreived%20July%209


http://www.businessedge.ca/archives/article.cfm/pet-power-propels-45-billion-industry-16030

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2603652/



http://classifieds.canada.com/components/print.aspx?id=076ade32-404e-4fcb-a2f8-38d5c1a5b564


statistic, the average total annual revenues for small and medium-sized businesses in the pet and pet supplies stores industry were $615,600.9

3.3 PESTE Analysis

As a business operating in the downtown core of Saskatoon, external factors of the industry and the surrounding environment cannot be ignored. The following PESTE model analyzes the circumstances in which Downtown Dawgs will operate in:

Political The downtown location may experience resistance in approval for the nature of the

business proposed as barking noises may be disruptive to neighboring businesses. There is currently no government regulation in the licensing required to operate a dog

day care service, however, we would be subject to annual health inspections as is standard in boarding kennel industry.

Economic Saskatoon is booming with an influx of immigration to the province at 2.7% with an

expected increase in 80,000 job opportunities over the next 5 years.10

Saskatoon has the 3rd lowest unemployment rate in the cities of Canada at 5.5% as at June 2011.11

The July 1, 2011 tax cut announcement in the Saskatchewan Provincial budget effectively increases average weekly earnings by 5.2% to build a stronger economy.12

Social-Cultural There is an increased exposure of celebrities treating their dogs as an extension of their

family and spending lots of money on their well being. There is an increased number of commercial and residential properties located

downtown, increasing the population of our target market. There is an increasing population of “Yuppies,” young urban professionals earning above

average income with no child expenses and living either in or close to downtown.

Technological

9 Industry Canada; “SME Benchmarking Pet and Pet Supplies Stores (NAICS 45391)”. http://www.ic.gc.ca/cis-sic/cis-sic.nsf/IDE/cis-sic45391bece.html. Retrieved July 9, 2011

10 “Saskatoon Leads the Nation in Population Growth” News Release February 3, 2011 on http://www.gov.sk.ca/news . retrieved on June 6, 2011.11 “Saskatchewan’s Unemployment Rate Drops, Remains Lowest in Canada” News Release July 8, 2011 on http://www.gov.sk.ca/news. Retrieved on July 9, 201112 “Saskatchewan People Earning More and Paying Less in Taxes” News Release on June 30, 2011. Retrieved on July 3, 2011.

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http://www.ic.gc.ca/cis-sic/cis-sic.nsf/IDE/cis-sic45391bece.html.%20Retrieved%20July%209

http://www.ic.gc.ca/cis-sic/cis-sic.nsf/IDE/cis-sic45391bece.html.%20Retrieved%20July%209


Downtown Dawgs’ business model has minimal technology requirement which reduces the risk of purchasing assets that may become obsolete in the near future.

Environmental Dog manure is hazardous substance and is required to be disposed of separately due to

its harmful bacterial nature.

This PESTE analysis further supports the sustainability of our business model with the current external and environmental factors.

4.0 Operations Plan4.1 Organizational Structure

Downtown Dawgs will be incorporated to allow for the equity investments of the business partners and the angel investor. Each of the four founding members will hold 20% equity in the company. The angel investor(s) will hold the remaining 20%. A Board of Directors will be established that will consist of the four partners and the angel investor(s). See Figure 2 for organizational chart.

Figure 2 – Organizational Chart

4.2 Management Responsibilities

Downtown Dawgs will be equally managed by the four founding members. Each of the founding members brings valuable skills to the table. Jessica Mann and Ricki Beaudoin will serve as

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Board of Directors4 Founding

Members + Angel Investor(s)

ActiveManagers/Owners

Receptionist/Pet Attendant

Hourly Pet Attendants Dog Groomer


general managers. Jessica has a background in financial accounting and graduated with Distinction from the Bachelor of Commerce Program at the University of Saskatchewan in 2009. She also is a dedicated and loving pet owner. Through the ownership of her pets she has dealt with numerous boarding kennels and dog day cares in the city. She will use her perspective as a customer in this industry to help shape Downtown Dawgs into a high quality pet care facility.

Ricki Beaudoin also graduated from the University of Saskatchewan with a Bachelor of Commerce with Great Distinction. Prior to attaining her degree she worked for numerous businesses in a management roll. Her strengths lie in customer service and logistics. At Downtown Dawgs she will manage both customer and employee relationships.

Kara Wan will serve as Downtown Dawgs’ Manager of Finance. Prior to embarking on this endeavor, Kara obtained her Bachelor of Commerce from the University of Saskatchewan. Kara graduated at the top of her class which afforded her the opportunity to work at Ernst & Young LLP in Calgary. Kara’s responsibilities will include procuring financing, compiling the books and records of Downtown Dawgs, and completing the necessary tax filings.

Finally, Shashi Anand Selvaraj will manage the marketing side of the business. Graduating from Simon Fraser University with First Class Honours, Shashi’s background is in Financial accounting, however, he also has a strong background in marketing. Shashi’s outgoing and amicable personality, coupled with his strong network of contacts will be a definite asset in advertising the business and developing a strong customer base.

Aside from their management responsibilities, each of the four owners will also contribute to the business as pet attendants and reception. Their responsibilities in these roles will be the same as that of the hourly employees. For a detailed discussion of these responsibilities, please see section 5.2.

4.3 Hours of Operation

Downtown Dawgs’ business hours are as follows:

Monday - Friday 6:00am to 8:00pm Weekends and Holidays 10:00am to 7:00pm

We have extended hours to accommodate all customers so that they are able to drop off and pick up their dogs at times that are most convenient to them.

4.4 Typical Business Day

Day Care/BoardingOn a typical weekday, Downtown Dawgs will begin its operations at 6:00am. Two managers and five pet attendants will open the day care center.

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One manager, acting as a receptionist will perform the following tasks: Take the phones off answering service and check overnight messages upon arrival Greet customers that drop dogs offs and sign dogs in for day care and boarding Take calls, book day care, grooming and boarding appointments and other clerical duties

throughout the day

Two pet attendants will be responsible for managing the dogs who boarded overnight. Their responsibilities include:

Feeding the dogs Taking the dogs outside for a bathroom break Taking the dogs to their respective area of the day care

These two pet attendants will also assist with the arrival of dogs and escorting dogs to their respective day care areas. After the morning rush of drop offs, the two pet attendants responsible for overnight boarding will be responsible for cleaning the kennels. This includes laundering beds and blankets as well as washing dishes.

Two other pet attendants will supervise the dogs in their respective day care areas. Their responsibilities will include:

Monitoring the dogs Playing with the dogs Cleaning up excrement in the outdoor area Keeping drinking areas stocked with fresh water Taking dogs outside once in the morning and once in the afternoon for play time

The remaining two pet attendants will be responsible for walking to pick dogs up (in summer and good weather) or driving to pick dogs up (in winter and poor weather) within the downtown area set in Figure 3. Pick up of dogs will take place between the hours of 6:00am and 9:00am and will be scheduled at least one day in advance. Upon completion of pick up responsibilities, these two pet attendants will assist in supervision of dogs.

At the end of the day, the second shift of pet attendants will be responsible for: Assisting with the departure of dogs Feeding overnight boarding dogs Placing overnight boarding dogs in their respective kennels Cleaning and sterilizing the day care areas (inside and outside) Taking overnight boarding dogs outside prior to closing

At closing, the receptionist will be responsible for: Balancing daily cash receipts Preparing night deposit Ensuring answering service is turned on Locking up the premises for the evening

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GroomingDuring the hours of 8:00am to 5:00pm, a groomer will be available on site. Grooming will be by appointment; however, the groomer will accept walk-ins when not booked. The groomer will be responsible for:

Bathing, brushing and clipping dogs Ensuring the grooming room is clean and sanitized between clients and at the end of

each dayThe groomer will also be required to assist the pet attendants with their daily duties when not booked with grooming clients.

Weekends/HolidaysWeekends and holidays will follow the same schedule as above however, no dog pick-ups will occur and grooming services will not be offered.

4.5 Location

Downtown Dawgs will be conveniently located in Saskatoon’s central business district on the corner of Pacific Avenue and 24th Street East. Not only will this location allow us to serve the residents of the central business district, City Park, and Riversdale, but it also provides easy, convenient access to those residents of Saskatoon who commute daily to or via the downtown core. On top of that, our centrally located dog day care will easily facilitate picking up dogs who reside in our service area (Figure 3).

Figure 3 – Pick-Up Location

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Our chosen location on Pacific Avenue and 24th Street is currently zoned as a re-investment district (RA1). The city of Saskatoon has zoned this district as such in order to promote re-investment in the older core and core industrial areas. As such, the current zoning is receptive to all types of business and residential uses with an aim at rehabilitating the area. In light of the cities goals, we have chosen to locate in bottom two floors of an existing structure (which includes a 2,000 sq foot back lot) and to refurbish the structure and land to meet our needs.

4.6 Building Layout

Our building offers two spacious indoor levels and a large fenced in grassy area just off the main level. Located on the main level are the front office, grooming room and indoor dog play areas. We have segmented our dogs into two large indoor play areas. One area is dedicated to large breed dogs and one area is dedicated to small and medium breed dogs. This division allows each dog to socialize with dogs of similar size and breed. The indoor dog play areas are located at the back of the main floor to allow for easy access to the outdoor play areas. Each outdoor play area is equipped with a swimming pool, agility equipment and a watering station. The indoor dog play areas are equipped with toys and balls, numerous dog beds and a watering station. Located on the second level are the overnight boarding kennels, the laundry room and the storage area. A detailed floor plan is shown in Figure 4.

Figure 4 – Floor Plan

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Figure 4 – Floor Plan continued

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4.7 Permits & Licenses

The following is a list of permits and licenses required to get Downtown Dawgs up and running:

Commercial Building Permit The city of Saskatoon requires that a commercial building permit be obtained for any construction, renovation, alteration, relocation, demolition and repair of any commercial building. A building permit can be obtained at a cost of $5.75 for every $1,000 of construction/renovation costs. We have estimated that leasehold improvements will cost approximately $20,000; accordingly our business permit will cost approximately $115.

Commercial Business LicenseIn order to operate a business in a district zoned for commercial use (RA1 equals commercial use), we will need to register our business with the City of Saskatoon. The registration fee is $95 with subsequent annual renewals costing $70.

Dog Day Care License

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At the present time, there are no provincial licensure requirements related to opening and running a dog day care. The license requirements fall under the dog boarding jurisdiction (kennels) and as such, Downtown Dawgs will be subject to inspections by the health department and other local agencies such as the SPCA on an annual basis. Annual inspections help insure that proper sanitation methods are followed so as to prevent the spread of infectious diseases between animals. The inspectors will also be verifying that up to date vaccination records are kept on hand for all animals using the facility and that proper care is taken in the handling and disposal of solid waste.

4.8 Safety and Health Requirements

In order to ensure a safe and healthy environment for all our overnight residents and day care dogs, Downtown Dawgs will enforce the following health and safety requirements:

Current standard vaccinations including rabies, DAPP (Distemper and Parvovirus) and bordatella (kennel cough) are mandatory for all dogs coming to Downtown Dawgs. All dogs must have proof of vaccination from their veterinarian, including when vaccinations were given and when they expire, prior to entering our facility. This information will be obtained via an application form upon registration. A copy of the registration form can be seen in Figure 5.

We also highly recommend that all dogs are on a flea, tick and lice prevention program such as Advantage, Revolution, or Frontline. All dogs must be kept on a leash in our parking facility and lobby area. In addition all dogs must wear a leash and a name tag at all times. Studded or spiked collars are not allowed as the pose a safety risk to our staff and other dogs. All dogs six months and older must be spayed or neutered prior to entering our facility; no exceptions allowed.

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Figure 5 – Application Form

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4.9 Operating Expense

Building LeaseWe will be leasing the premises discussed above with a lease term of five years (two subsequent renewal options of five years each). The indoor space consists of 1,800 sq. feet on the main level and 1,500 sq. feet on the second floor. Leasing costs have been estimated at $20/sq. ft. for the indoor space which translates to $66,000 year ($5,500/month). The outdoor space which is 2,000 sq. ft. can be leased for $12,000 ($1,000/month).

UtilitiesUtilities consist of natural gas, energy, water, garbage disposal, telephone and internet. Utility usage will be normal with the exception of water, which will be higher than average due to the nature of the business (drinking water, dog grooming, dog play pools, and laundering bedding/towels) and garbage disposal (including disposal of solid waste which is a hazardous material and requires special disposal measurements).

A breakdown of the utilities is as follows:SaskEnergy $1,800/year ($150/month)SaskPower $1,800/year ($150/month)City of Saskatoon (water/garbage disposal) $3,600/year ($300/month)Waste Disposal (hazardous) $6,000/year ($500/month)Telephone/internet $1,440/year ($120/month)

Security MonitoringDue to the nature of our business, we house dogs 24 hours a day, 7 days a week, and 365 days a year. However, between the hours of 8:00pm and 6:00am there are no staff members present. Accordingly, it is important that we have safeguards in place to ensure the safety of the animals. As such we will install a state of the art, video surveillance system and burglary and theft alarm. This system will be monitored 24 hours a day by a local security firm. The cost of security monitoring is estimated at $2,100 year.

Repairs & MaintenanceWe anticipate that repairs and maintenance expense will be relatively low as the building and grounds will be fully renovated prior to our grand opening. In addition, we have limited equipment, mainly consisting of dog grooming equipment and office furniture. We anticipate that the bulk of repairs and maintenance will come in the form of upkeep of the grounds and outdoor dog enclosure. Accordingly, we have estimated that annual maintenance costs will total approximately $5,000/year. Initial landscaping to convert the existing parking lot to a suitable grassy play area for the dogs will cost approximately $15,000.

Office Expenses

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Office expenses will include general office supplies such as stationery, printer ink and filing supplies. Accordingly we estimate that office supplies will cost approximately $2,000/year. An additional $300 a year will be spent on updating the accounting software used for the business.

Grooming SuppliesGrooming supplies such as dog shampoo and conditioner, “furfume”, and flea and tick treatment will be consumed on a daily basis. We estimate that these supplies will cost approximately $12,000/year.

InsuranceIn order to ensure the long-term viability of our business, it is important that we protect ourselves from loss/damages due to theft or natural causes. In addition we will need third party liability insurance to cover ourselves against legal retaliation should an employee be injured on the job (regular injury, dog-bite, etc.). Finally, we need to ensure that we are covered in the unfortunate event that a dog should become injured or pass away while under our care. Accordingly, insurance is extremely important. To cover for the above instances we have estimated that our annual insurance will cost $18,000.

4.10 Capital Budget

Prior to commencing operations, Downtown Dawgs will need to purchase numerous capital assets. Although the capital requirements in this industry are quite low compared to other industries, the initial capital outlay will still be onerous. Accordingly, it is important that these costs are carefully budgeted out as part of our business plan. A detailed listing of Downtown Dawgs’ capital purchase requirements can be found in Appendix I: Capital Budget and Amortization. The following describes the major areas of capital expenditures that we are anticipating.

Leasehold Improvements – BuildingLeasehold improvements will consist of substantial building upgrades to get the building set-up to house the activities of a dog day care and kennel. Improvements include new flooring on the interior of the building, construction of a wall between the reception/grooming area and the indoor play area, dividing of the indoor play area with indoor fencing, and developing outdoor access (dog doors). Leasehold improvement costs are estimated to be approximately $20,000 with a useful life of ten years based on the building lease term plus one renewal option.

Office Furniture and Equipment The next large area of capital spending is for the office and front reception portion of our operations. Capital purchases in this area consist of a front reception desk, an office desk, two office chairs, filing cabinets, two laptop computers and chairs and tables for the reception area. These costs total approximately $4,500 as detailed in Appendix I: Capital Budget and Amortization. We will also be purchasing a table, chairs, fridge, and microwave for the lunch room costing just over $2,000 in total. In addition, we will also need to purchase an awning for the front entrance of our business that displays our company name. We have contacted various

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sign smiths in the city and have decided to purchase our awning from Pelican Signs (on Alberta Avenue) at a cost of $5,450.

Other Furniture and Equipment Purchasing kennels for overnight boarding will be another significant cash outlay required at start up. Our projected capacity is to be able to house 70 dogs. Accordingly, we will need to purchase 70 kennels. We have located a supplier, DogKennels.com that can provide us with 70 large kennels at a price of $375 per kennel, for a total outlay of $26,250. We will also need to purchase and erect fencing in our outdoor play area at a cost of approximately $8,750. Other capital purchases in this area include various play structures and equipment for the indoor and outdoor play areas including agility equipment, paddling pools and toys. These dog entertainment items will cost $2,500. These items will have a short useful life due the fact that they will get high usage. Accordingly these items will need to be replaced approximately every 3- 5 years. The final expenditure in this category relates to rugs and linens, including dog beds and towels. We estimate that these items will cost approximately $7,500. Like the play items, we anticipate that these items will need to be replaced approximately every 3-5 years.

Grooming EquipmentThe grooming area will require purchase of the equipment and tools necessary to perform basic grooming services. A professional grooming station will be purchased that includes a pet tub, steps, grooming table, and pet drier among other things. This complete package can be purchased for $6,500. We will also be purchasing an industrial washing machine and clothes dryer. This will allow us to clean the dog bedding and linen, as well as the towels from the grooming station, in house. The cost of these appliances is $5,000. Other capital purchases in this area will include the purchase of clippers, scissors, brushes, and combs for a total cost of $1,800. These items will be replaced as required. Grooming supplies such as shampoo, and flea and tick treatment will be re-stocked as needed. The cost of these items has been included in operating expenses.

TransportationPart of our business model is to increase convenience to our clients by offering a dog pick-up service in the Central Business District and area. In warmer weather we will pick up the dogs on foot. However, in inclement weather we will use a van to pick up the animals. The van will cost us $34,805. In addition, transportation kennels will need to be installed in the van. We have initially budgeted for installation of ten kennels in the van. Transportation kennels cost approximately $200 per kennel for a total cost of $2,000. Should we need to increase pick-up capacity, the van has space to install an additional ten kennels. The van will also serve as a useful tool for advertising as we plan to have the company’s logo and contact numbers painted on the sides of the vehicle.

4.11 Working Capital

Cash on Hand

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Due to the nature of the business, Downtown Dawgs will have cash on hand at all times. In addition, we would like to keep enough cash in a liquid bank account to cover approximately three months of operating expenses. Figure 6 breaks down our ideal level of liquid cash.

Figure 6 – Ideal Liquid Cash Levels

Operating Expenses Per Month Three Month TotalBuilding Lease $6,500/month $19,500

Utilities $1,220/month $3,660

Insurance $1,500/month $4,500

Other $2,000/month $6,000

Total Cash on Hand $33,660

Accounts ReceivableDowntown Dawgs will operate on a COD basis. Accordingly, our client’s will be required to either pay for their services in advance by purchasing a 20-day pass, or they will have to pay for the days services (day-care, grooming, boarding) at the end of the day when they come to pick-up their pet. As such, Downtown Dawgs will not carry an accounts receivable balance.

InventoryAs Downtown Dawgs is a service business, not a retail business, we will not have any inventory requirements. The only items that will be kept on hand include approximately one month’s supply of pet grooming products (shampoo, conditioner, and flea/tick treatment) and dog kibble. These items will be expensed when purchased and included as operating expenses.

Accounts PayableWe plan to pay the majority of expenses on a cash basis as they are incurred. However we do anticipate that reoccurring bills, such as utilities will be paid monthly. Accordingly the balance in accounts payable at the end of any given months will consist of the month’s costs for utilities including SaskEnergy, Sasktel and other similar type expenses.

Deferred RevenueAs we will be selling day care and kennel 20-day passes we will always carry a deferred or unearned revenue balance. We anticipate that at the end of every month, approximately half of the days on issued passes will have yet to be redeemed. Thus the average deferred revenue balance will be approximately $24,000.

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5.0 Human Resources Plan5.1 Human Resource Strategy

Downtown Dawgs prides itself on providing a quality experience for each dog in its care. Employees of Downtown Dawgs will be instrumental in providing that quality experience and thus we are looking to employ caring, compassionate people with a passion for dogs.

5.2 Job Descriptions

ManagersThe four founding members will act as managers in the daily operations of the business during the start up phase. They will be responsible for daily oversight of staff members as well as the following duties:

Preparation of staff schedule Conflict resolution among staff members Attend to customer complaints Approval of all expenditures Recruitment and termination of employees

In addition to the above, managers will perform the duties of pet attendant and reception as needed.

Pet AttendantPet attendants must be dog lovers and will be required to monitor the dogs throughout their stay at Downtown Dawgs. In addition they will have the following duties:

Pick-up of dogs in specified downtown locations Feeding and watering of overnight dogs Daily cleaning of dog rooms, kennels, outdoor areas and common areas Assisting with drop off and pick up of dogs

ReceptionistThe receptionist position will be filled by a manager during the start up phase of Downtown Dawgs. As the business progresses, this position may be filled at a later date with outside personnel. The duties of the receptionist are:

Greeting clients and their dogs upon arrival Answering and directing telephone calls Booking dog stays via the telephone Receiving payment from clients Assisting with drop off and pick up of dogs Processing incoming and outgoing mail

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Posting of accounts payable into accounting software Other clerical duties as required

Dog GroomerThe dog groomer position will require a candidate that loves dogs, has dog grooming experience and has obtained certification in dog grooming. The dog groomer will have the following duties:

Shampoo, comb, and blow dry dogs Clip and trim dogs hair Cut dogs nails Daily cleaning of dog grooming station

5.3 Training

All pet attendants will receive two days of in-house training upon commencement of their employment with Downtown Dawgs. The training will provide information on policies and procedures at Downtown Dawgs as well as dog behavior. The following dog behavior topics will be covered:

Canine play Learning Social behavior Aggression

The training course will ensure that all pet attendants are adequately trained in dog behavior should any issues arise during the course of an average day at Downtown Dawgs.

5.4 Shareholders’ Agreement

A shareholders’ agreement will be drawn up by a lawyer prior to the commencement of Downtown Dawgs. The shareholders’ agreement will outline the shareholders’ responsibilities in the daily operations of the business and how the disposition of shares will occur should anything happen to any of the shareholders such as death, disability or shareholder dispute.

5.5 Labor and Management Costs

Weekday staff will include four management personnel (which will be the four owners), ten pet attendants and one dog groomer. There will be a morning shift including five of the pet attendants and two managers. This shift starts at 6:00am and ending times vary throughout the early afternoon. The afternoon shift includes two managers and five pet attendants. Afternoon shift start and end times vary. The dog groomer’s hours will be from 8:00am to 5:00pm each weekday. Weekend staff will be reduced to four pet attendants and one manager on-call in case of emergencies.

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Managers will be paid a salary of $30,000 per year. Pet attendants and the dog groomer will be paid an hourly wage of $10 and $13 respectively. As pet attendants and the dog groomer are entry level jobs, no health benefits will be provided. However, an annual three weeks of paid vacation is included. Wage rates will increase annually by 2% and the business’ contributions to Employment Insurance, Canada Pension Plan and Workers’ Compensation Board will be 9.23% of total wages paid.

6.0 Marketing Plan6.1 The Marketing Mix 6.1.1 Product

Downtown Dawgs will offer a full-service dog day care as well as overnight boarding for all sizes and breeds of dogs. Downtown Dawgs will provide an exceptional environment for these dogs to exercise and socialize. We have over 3,000 sq. feet of indoor and outdoor space that is professionally designed to ensure that your dog gets the ultimate experience. Features include plush day beds for resting and relaxing, challenging obstacle courses, refreshing pools, and exciting toys to ensure that the dogs receive the exercise and activity needed to remain healthy and alert. In addition the dogs will receive the highest level of care and supervision from the highly trained staff. Downtown Dawgs will be open Monday to Friday from 6:00am to 8:00pm and weekends and holidays from 10:00am to 7:00pm to conveniently fit our customers’ busy schedules. In addition to these core services, Downtown Dawgs will also offer basic grooming as well a dog pick-up service. Note that the dog pick-up service will be available at an additional charge to those living in our service area as previously shown in Figure 3.

6.1.2 Promotion

Downtown Dawgs target market consists of people who live and/or work in Saskatoon’s Central Business District. As such our initial marketing efforts will be focused on residents of the key neighbourhoods in the city center including the central business district, City Park and Riversdale. One of our key marketing efforts will be to distribute our grand opening flyers to residents in this area. According to the City of Saskatoon neighbourhood profiles, there are 1,885 households in the central business district, 2,755 households in City Park, and 795 households in Riversdale. In addition we plan on dsitributing posters in many of the larger office buildings in the area.

In addition, we will promote Downtown Dawgs’ services through involvement in community activities that are animal friendly such as “Pets in the Park”. “Pets in the Park” is a one day event held every July in Kiwanis Memorial Park. Downtown Dawgs will also undertake a large radio blitz campaign in the first few months of operation to begin building brand awareness and recognition. Refer to section 6.4 for a more detailed discussion on the marketing costs.

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As we recognize that the best form of advertising will come in the form of word-of-mouth promotion, we plan on offering services of the utmost quality that will allow our services to speak for themselves. We are confident that word of our exemplary service and high quality care will quickly translate into referral business.

6.1.3 Price

Downtown Dawgs key differentiating factor is the convenience of our chosen location. Accordingly our prices reflect a location premium over our direct competitors. Our base day care rate is $25 per day and overnight boarding is $30 per day. However, customer loyalty is extremely important to us as we operate a volume driven business. Accordingly we feel it is necessary to offer our service to high use customers at a discount. As such 20-day passes can be purchased for day-care and overnight boarding at a deep discount, resulting in effective rate pricing of $20 per day and $24 per day respectively. We will also offer a discount to multi-dog families. A full schedule of our service offerings and prices can be found in Figure 7.

Figure 7 – Price List

Product Offering/PricesDay Care

First Dog $ 25 Additional Dogs $ 21 20-Day Pass $ 400 20-Day Pass Additional Dog $ 340

Average Day Care Price $ 20.75 Morning Pick-Up

First Dog $ 3 Additional Dogs $ 2 Average Pick-Up Price $ 2.50

Overnight Boarding

First Dog $ 30 Additional Dogs $ 25 20-Day Pass $ 480 20-Day Pass Additional Dog $ 400

Average Overnight Boarding Price $ 24.75

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Grooming Brush and Bath

Small Dogs $ 40 Medium Dogs $ 50 Large Dogs $ 60

Average Brush and Bath Price $ 50.00

Cut, Brush and Bath Small Dogs $ 50 Medium Dogs $ 60 Large Dogs $ 70

Average Cut, Brush and Bath Price $ 60.00 Average $ 55.00

Nail Trim $ 17.00

6.1.4 Place

Downtown Dawgs will be conveniently located in Saskatoon’s central business district on the corner of Pacific Avenue and 24th Street East. Not only will this location allow us to serve the residents of the central business district, City Park, Riversdale, and area but it also provides easy, convenient access to those residents of Saskatoon who commute to work in the downtown core. Downtown Dawgs is just two blocks away from the Idyllwild Freeway and 25th

Street, both of which boast high commuter traffic. On top of that, our centrally located dog day care will easily facilitate picking up dogs who reside in our service area. We believe that our prime location affords us a distinct advantage over our competitors. Refer to section 6.3 for a discussion on how most of our competitors are located in residential areas such as the Sutherland industrial area or on the outskirts of the city.

6.2 Target Market

Downtown Dawgs’ target markets are dog owners who want their dogs taken care of during the times they work and leave town. Our dog day care service with complementary pick up and grooming service are targeted to those who:

1. Work downtown and can conveniently drop off and pick up their dogs without detour2. Live downtown and would like to maximize their time in the morning by utilizing our

pick up service within stated boundaries3. Drive through downtown to get to work and can drop off/pick up their pet on the way

to/from work

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On the other hand, our overnight boarding kennels is targeted towards those that leave town for the night, weekends, and holidays and would like their dogs to get socializing opportunity.

Due to the premium charged in comparison to our competitors, our primary target customers are those who value the convenience of our location, being the only downtown dog day care and overnight boarding kennel. Our primary target market is the labor force over the age of 24 who have the discretionary income available to treat their dogs to our services.

6.3 Competitive Analysis

Downtown Dawgs is in competition with dog day cares, overnight boarding kennels and dog grooming salons. An analysis of our direct competition based on type of services, location, hours of operation, socializing opportunities, price, capacity and complementary services is contained in Figure 8.

Figure 8 – Competitive Analysis

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The analysis above shows a number of direct competitors within Saskatoon and surrounding areas. Based on the analysis of our competitors, Downtown Dawgs’ competitive advantage lies in our hours of operation and location. Compared to our competitors, we have longer hours of operations to accommodate for our target market of the working professionals who work longer hours or have functions to attend. Our location in the downtown core business district

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further enhances the convenience factor to serve our customers and enables us to penetrate the market successfully. Happy Dog Acres and Paws Awhile Pet Hotel are two businesses we view as direct competitors as they provide similar services in the city. In Figure 9, the main characteristics that defines each competitor is rated on a customer satisfaction scale of 1 to 5 with 5 reflecting the best in the eyes of the customer; this provides a visual presentation to show that the main characteristics our target customers value: convenience, quality care, and dog experience, exceed those of our direct competitors.

Figure 9 – Customer Satisfaction Chart

Price

Convenien

ce

Quality

Care

Dog Exp

erien

ce

Complemen

tary S

ervice

s0

1

2

3

4

5

6

Differentiation Chart

Downtown DawgsHappy Dog AcresPaws Awhile

Key Success Factors

Cust

omer

Sati

sfac

tion

6.4 Marketing Expense

Consistent with the strategy of successful businesses, word-of-mouth referrals will be the primary source of advertising. However, in order to develop a loyal customer base that will refer Downtown Dawgs to friends and family, the company will undertake several promotional initiatives.

During the first couple of years of operations, there will be a strong focus of promoting the business to residents living in the downtown core. As Downtown Dawgs’ differentiation factor is the convenience it offers to those living and/or working downtown, targeting that market will be key to the success of the business. Accordingly, flyers and brochures highlighting the services offered (daycare, boarding, pick-up, grooming) and open-house days (first Sunday of each month from January to May of the first year) will be printed and distributed to all residential and major commercial buildings in the downtown core. The distribution will take the form of

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posting the flyers on centralized bulletin boards in the buildings and leaving brochures at the front desk/reception/concierge areas of the building. Refer to Figure 10 for sample of the flyer to be printed. Over the first five years of operations, it is projected that over $3,200 will be spent on printing flyers and brochures which will be designed in-house.

Figure 10 – Sample Flyer

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Two other forms of advertising that are relatively easy to organize while reaching a wide audience are newspaper and radio advertisements. In the first year, the radio advertisements will be on two popular and widely heard (at home, at work and during commuting) radio stations, C95 and News talk 650. During the second year, advertising will only be on C95, the more popular of the two. Over the first couple of years, the radio campaigns which will be spread out during the year are expected to cost $10,000. Note that after the second year, when ideal capacity has been reached, Downtown Dawgs will rely on referrals and other more cost effective promotional methods.

With regard to the newspaper, simply due to the high cost, a half-page advertisement will be bought at a cost of $1,714 in the Saskatoon Sun during the first year. It is expected that this advertisement along with those on the radio will not only reach those living and working in the downtown core but also those living outside the downtown core but commute via downtown and find Downtown Dawgs a convenient location to drop-off their dogs.

As a means of establishing, increasing and eventually maintaining Downtown Dawgs’ presence in the community, particularly the pet community, the business will be a sponsor of the annual “Pets in the Park” event. This community event has a mission of “fostering co-operation between local animal welfare organizations, related public and private sector businesses, individuals and organizations with the goal of building a better community for animals and people of Saskatoon,” and is in concert with Downtown Dawgs’ goal of being involved in the community. By aligning with this annual event at a cost of $1,000 a year, the sponsorship package includes amongst other things, a booth at the annual trade show and mention of Downtown Dawgs on the event’s website and promotional materials. It is expected that through this sponsorship, Downtown Dawgs will be able to reach an audience already involved in the local pet community.

Another form of advertising will be the purchase and distribution of small, Downtown Dawgs’ branded giveaway items such as pens, magnets and dog-tags. It is expected that these promotional items will cost an average of $1,000 a year. Figure 11 presents an example of the magnet and dog tags that will be given away as promotional materials.

Figure 10 – Sample Promotional Materials

Magnet Dog Tag

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With regard to the operations of the business, all staff will be required to wear a tee-shirt with the Downtown Dawgs’ logo and contact information embossed on it which will serve as a relatively cheap advertising mechanism when staff walk around downtown to pick-up the dogs in the morning. As well, the cargo van that will be used for transporting the dogs during the winter months will have decals on the side of it promoting the business. Lastly, a few banners and posters will be designed in-house and printed for showcase at community events and on the booth during Pets in the Park.

Refer to Appendix II: Advertising Budget for a detailed breakdown of the various forms of advertising, their associated costs and the years in which the promotional activities will be undertaken. Considering the Downtown Dawgs will be a brand new business with no prior history, year one will see a marketing blitz costing just over $11,000, then decreasing to about $7,000 in 2013 and then averaging $2,700 in subsequent years. It is strongly believed that these promotional efforts will establish, increase and maintain Downtown Dawgs’ presence in the marketplace.

6.5 SWOT Analysis

A SWOT analysis has been prepared below as the success of our business is impacted by the opportunities and threats in our environment setting as well as our internal strengths and weaknesses compared to our competitors.

Strengths Location – easily accessible to all who live and work in the Saskatoon central business

district Hours of operation – open early and close late to ensure that all customers can access

our services Pick up service – convenient service for the busy professional living within Saskatoon’s

downtown core Staff training – our staff receive training on dog behavior in order to provide a quality

experience for each dog during their stay at Downtown Dawgs Complementary service – grooming service is provided onsite with discounts for day

care and overnight customers

Weaknesses Capacity – our capacity is similar or lower than our competitors two major competitors Price – higher prices due to our premium services may not be embraced by all dog

owners Hours of operation – operating hours make it difficult and costly to staff our facility Lack of customers – as a new startup we do not have an established customer base yet

Opportunities

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Saskatoon economy – fastest growing city in Canada despite an economic slowdown throughout the country leading to more disposable income per family

Social trends – social trends towards dog ownership are highly influenced by Hollywood where stars are treating their dogs as members of the family

Awareness – awareness of animal cruelty in the forefront due to TV shows such as Dogtown and media coverage on animal cruelty cases throughout the province of Saskatchewan

Demand – high demand for dog daycare and long-term care facilities as competitors are turning dogs away during busy seasons

Location – lack of dog day care and overnight boarding service in downtown Saskatoon

Threats Low barriers to entry – low cost and regulation to enter this line of business Regulations - potential regulations with criteria for the facilities Established competition – a number of competitors are established in the market place

in Saskatoon

The SWOT analysis above reveals that there are currently many opportunities in Saskatoon for this line of business. Furthermore, the areas of our strength are those that are higher valued by our target market such as convenience and hours of operation.

7.0 Financial Plan7.1 Introduction

The following financial performance analysis details Downtown Dawgs first five years of financial projections. It is strongly believed that the five-year analysis will provide investors with a sound comprehension of the expected financial health of the company and the information needed for their investment decision. As projected, once the ideal capacity is reached by the end of the first year, the business will maintain a steady profit going forward. Also included in assessing the financial health of Downtown Dawgs are the assessments of common performance ratios as well as a sensitivity analysis of different possible outcomes.

7.2 Capital Structure

Primarily due to the personal financial history of the four existing founders of the company and the tight credit market, Downtown Dawgs will be structured as 100% equity. It is believed that this structure maximizes the benefits for each shareholder as the business grows and generates a net cash inflow that does not have to be distributed to debt holders. The composition will be for five investors (four existing who will be active in the operations of the company as mangers plus one angel investor) to own 20% each. The total equity investment will consist of the four founders contributing $35,000 each and the angel investor $35,000 for a total investment of

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$175,000. This amount will provide for the start-ups costs and some operating expenses at the start of the business.

7.3 Start-Up Costs

As aforementioned in the operating section, the start-up costs consist mainly of depreciable capital assets that are needed to commence operations. Appendix I: Capital Budget and Amortization details the type of costs such as leasehold improvements, furniture and a vehicle that will be necessary for the business as well as other associated costs totaling $129,050. Additional start-up costs will also include advertising and operating expenses, such as the first month’s rent and damage deposit for the leased building, as well as landscaping costs for the conversion of the parking lot to a dog play area.

7.4 Working Capital

Due to the nature of the business, it will operate primarily on a cash-basis, whereby customers pay immediately for a service or pre-pay in advance as described above, eliminating the existence of accounts receivable. As purchases from suppliers for miscellaneous dog-related supplies and repairs and maintenance will be paid for upon purchase, accounts payable will only consists of the utilities expenses which are normally calculated and due in the month following actual usage. Moreover, working capital is limited because the business does not require the ownership of inventory, and the payment of rent will occur on the first of each month with salaries/wages on the fifteenth and the last day of each month.

7.5 Financial Statement Projections7.5.1 Assumptions

InflationAn inflation rate of 2% has been applied to the annual revenues and expenses of the business.

Corporate Tax RateConsidering Downtown Dawgs will be owned by Canadian shareholders and utilize 100% of its assets to generate Canadian active business income, it is assumed that it will qualify for the Small Business Deduction which exempts the first $500,000 of taxable income from the normal corporate tax rate. Accordingly, with the business based in the province of Saskatchewan, a combined federal and provincial corporate tax rate of 15.5% has been employed in the financial projections.

7.5.2 Balance Sheet

Refer to Appendix III: Statement of Financial Position for the projected statement of financial position as at December 31st of the years 2012 – 2016.

Current Assets

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The only current asset on the statement of financial position will be cash which is derived entirely from revenues and needed for the daily operations of the business. Furthermore, as the business grows, dividends will be paid to the shareholders on an annual basis and excess cash will be invested in GICs and other short-term/liquid investments to generate nominal interest. As aforementioned, there will be no accounts receivable, prepaid expenses or inventory.

Non-Current AssetsThe non-current asset balance consists of the capital assets needed for the operations as outlined in Appendix I: Capital Budget and Amortization. The associated accumulated depreciation for each asset is based on the capital cost allowance rates specified by the Income Tax Act. In Year 4, there will be a replenishment of certain capital assets, namely dog-related grooming and other supplies.

Current LiabilitiesThe current liabilities balance constitutes accounts payable, income taxes payable and deferred revenues. Accounts payable relates entirely to the previous month’s utilities expenses and income taxes payable relates to the prior year’s income taxes owing and normally paid in the following year. Deferred revenues arise from the prepaid packages offered to customers for daycare and boarding services as described above. The balance at the end of each year is calculated as 50% of December’s revenues using the logic that they make good Christmas gifts for friends and relatives with dogs who will then redeem their passes in the following January.

Shareholders’ EquityAs per the norm with most private companies, the equity balance consists of the $175,000 share capital contributed by the shareholders and retained earnings in the company. Note that there will be negative retained earnings (deficit) in the first year of operations, but this will change and grow starting in Year 2.

7.5.3 Income Statement

Refer to Appendix IV: Statement of Comprehensive Income for the projected statement of comprehensive income for the years-ended December 31st 2012 - 2016.

RevenuesThere are four main sources of revenues: daycare, pick-ups, boarding and grooming. Boarding constitutes the bulk of the revenues as can be seen in Appendix V: Revenue Summary. Refer to Appendix V(i): Revenue Breakdown Year 1 for a detailed breakdown of the revenues in 2012 and Appendix V(ii): Revenue Breakdown Years 2-5 for the subsequent years. It is noteworthy to mention that for the purposes of the revenue projections, an average revenue was calculated for each category of service based on the different payment options (i.e. pay immediately or prepaid pass) as shown in Figure 7 – Price List above.

Day Care

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With a maximum capacity of seventy dogs including daycare and overnight boarding, it is modestly projected that during the first year of operations, capacity will begin at 20% and will increase gradually to 80% by September and remain at that level through December and the following years. In addition to capacity, based on the time of year and number of public holidays/long-weekends during each month, the percentages of weekday boarding and day care dogs have also been factored into the projections. With regard to daycare, this percentage is expected to range from a low of 30% of capacity during the peak summer holiday months of July and August to a high of 65% during the winter and fall months. The percentage composition between the daycare and boarding services is expected to remain consistent in subsequent years. On average, the daycare service is expected to generate 25% of the total revenues earned.

Pick-UpsPick-Up services are only offered during the weekday and only for the day care dogs. It has been assumed that throughout the year, 50% of all daycare clients will require their dogs to be picked-up. While the pick-up service only constitutes an average of 2% of all revenues, it is a major component of the convenience factor of Downtown Dawgs and as such is a service that has to be offered to the clients of Downtown Dawgs.

BoardingThe boarding service is the primary source of revenues generating an average of 52% of total revenues. Similar to the daycare service, in year one, a capacity of between 20% to 80% is assumed with the boarding percentage during the weekday ranging from a low of 35% during the winter months to a high of 70% during the summer holiday months of July and August. For weekend boarding, during year one capacity is expected to range from a low of 40% to a high of 100% during the summer months that are common vacation times.

Considering the lucrative nature of the boarding service and the fact that during the weekend, clients have to pay a minimum of two days for boarding services; the projections in the first year assume that for the first few months, 15% of the weekend revenues will be generated by daycare dogs. Beginning in June, it is assumed that boarding services will occupy 100% of capacity and that it remains as such for the rest of the year and going forward.

GroomingThe provision of grooming services augments the convenience factor of Downtown Dawgs and constitutes an average of 21% of total revenues. Offered only during the weekdays, there will be a maximum capacity of eight dogs (average of one dog per hour during the groomer’s shift) with the capacity starting at a low of 30% during January of 2012 to a high of 100% by the end of the year and from 2013 onwards. Nail trims, another complementary grooming service offered, has an expected number of daily subscribers ranging from six to ten during the first year based on the time of year and capacity constraints with the other more lucrative grooming services given priority for the groomer’s time. During subsequent years, it is assumed that there will be a daily average of six subscribers for nail trims.

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Expenses

PayrollNot surprisingly, payroll is the greatest component (over 70%) of total expenses as can be seen in Appendix VI: Expense Summary. Refer to Appendix VI(i): Payroll Costs for the detailed breakdown of the scheduling requirements and the payroll costs calculations. While the wages for the owner/managers and the groomer was simple to determine, the pet care workers’ wages directly correlate to the number of dogs being served. Accordingly, the detailed calculation of payroll costs is factors in the variables of operating capacity and the number of weekdays and weekends per month. Note that overtime payments have not been calculated as the four owners/managers are expected to cover any staff shortfalls as a means maintaining payroll costs at an acceptable level.

The payroll costs also include the mandatory employer contributions to Employment Insurance, Canada Pension Plan and Saskatchewan Worker’s Compensation Board as a percentage of total wages paid.

AdvertisingRefer to Appendix II: Advertising Budget for a detailed listing of the various forms of advertising that will be undertaken to promote Downtown Dawgs and the timing. The greatest costs of these promotional activities are that of the newspaper and radio advertisements. While these expensive advertisements will not occur past the second year of operations, other forms of advertising such as the annual sponsorship of Pets In the Park and the printing of flyers and brochures will be necessary. Advertising expenses are expected to constitute an average of 1% of total expenses and 2% of revenues starting in year 3.

DepreciationDepreciation expense is based on the capital cost allowance rates listed in the Income Tax Act and has been calculated in the capital budget schedule in Appendix I: Capital Budget and Amortization. On average, depreciation is about 3% of total expenses and is reflective of the cost of the capital used to generate revenues.

OperatingRefer to Appendix VI(ii): Operating Expense for a listing of the types and amount of the operating expenses expected to be incurred by Downtown Dawgs. It constitutes around 24%-25% of total expenses and primary consists of the monthly property rental fees ($6,500 a month). Also included in operating expenses are the monthly utilities ($1,220), insurance ($1,500), security monitoring ($175), repairs and maintenance ($417), miscellaneous office supplies/expenses ($192) as well as minor grooming supplies ($1000). These expenses have been projected to remain consistent throughout the years except for in year one where a $15,000 landscaping charge has been assessed to convert the building’s parking lot into a dog play-area.

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7.5.4 Statement of Cash Flows

Refer to Appendix VII: Statement of Cash Flows for the statement of cash flows for the years-ended December 31, 2012 – 2016. Consistent with expectations and as seen with most start-up businesses, there is a net loss position in year one (cash flows from operations is negative). This is primarily due to the fact that sustainable capacity is not reached until the fall months in the first year. As can be seen in the referenced appendix, starting in 2013, the business will be generating over $100,000 in cash flows from operations.

Based on these projections and the sustainable annual cash flows, the business will pay dividends starting in 2013 of $70,000 and that will increase by$15,000 each year until 2016 to shareholders based on their controlling interest. As the declaration of dividends is discretionary upon excess cash in the company after covering operating expenses and capital expenditures, as well as positive earnings, it is assumed that the company can afford a declaration and payment of a dividend of at least $100,000 beyond 2016.

Overall, the cash flow projections give comfort to the fact that Downtown Dawgs will generate sufficient cash flows to sustain operations well into the future beyond the first five years.

7.5.5 Ratio Analysis

Appendix VIII: Ratio Analysis is a compilation of liquidity, investment utilization and profitability ratios that give an insight into the financial position of Downtown Dawgs over the next five years. As expected, the ratios reveal a poor performance in the first year which is expected due to the significant cash outlay for the start-up for the business.

With regard to the liquidity ratio which reveals a company’s ability to cover its short-term obligations of which Downtown Dawgs has minimal, it is expected to average well over 4.1 over the next five years. This is largely due to the significant amount of cash in the company that is retained each year and results in a huge margin of safety to cover the current liabilities of the company.

The investment utilization ratios (asset turnover and capital asset turnover) exhibit the ability of the company to use its investment in assets to generate revenues. As can be seen in the appendix, the asset turnover declines each year due to the increasing asset balance consisting primarily of retained cash. In reference to the capital asset turnover, there is a steady increase (average over the next five years is 8.88) in the ratio due to the increasing revenues year after year and the effect of accumulated depreciation on the total capital asset balance.

Lastly, the profitability ratios indicate the company’s ability to generate earnings (net income after income taxes) during the year. The fact that these ratios are above zero (with the exception of the first year which is expected due to the net loss position) is a sign that Downtown Dawgs will be generating sustainable positive return for on its assets and equity

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investment. Considering the relatively low margin in the business which is indicative of the nature of the industry, it is reasonable that for these ratios to be less than one.

7.6 Investment Analysis

The investment analysis identifies the viability of the business to the equity investors by means of calculating the net present value and the internal and external rates of return. In general, the higher the values, the better the value of the decision to invest. Prior to assessing the results of these calculations, it should be noted that a rate of return of 35% has been assumed. Even though the average rate of return for a small business is 20-25%, a rate of 35% was chosen to compensate for the fact that Downtown Dawgs is a new business with no proven sales/earnings. Refer to Appendix IX: Investment Analysis for the presentation of the investment analysis.

7.6.1 Net Present Value

Net present value is simply the difference of the sum of the present value of future cash inflows and sum of the present value of future cash outflows and thus a positive value indicates that there is a net positive return on the investment. In other words, if the net present value is zero, it would mean that the investment in the business yields exactly the rate of return required by the investor. As can be seen in the appendix, based on the 35% rate of return, the net present value is $30,373. This means that the shareholders of Downtown Dawgs will receive a return on their investment greater than the required 35%, and should invest in Downtown Dawgs if presented with another investment option yielding a net present value lower than $30,373. Note that a terminal value was added in 2016 as a proxy for future cash flows based on the required rate of return of 35%.

7.6.2 Internal Rate of Return

The internal rate of return of any investment is the rate at which the net present value is zero so that presented with the net cash flows that the company generates from operations, it reveals the actual rate of the investment. Based on the projected cash flows, the internal rate of return is 42.32%. That is, the value of the $30,373 net present value to the shareholders is a rate of return of 7.32% above the required 35%. Consistent with the net present value analysis, unless presented with another investment option yielding a rate of return greater than 42.32%, the investment in Downtown Dawgs will be lucrative.

7.6.3 External Rate of Return

The external rate of return is a calculation of the investors’ yield on their investment solely based on the earnings distributed to them in the form of dividends. Per the calculation in the appendix assuming a declaration and payment of dividends starting in 2014 at $70,000 and then increasing to $100,000 by the fifth year, the external rate of return is 23.20%. As the declaration and payment of dividends is discretionary each year depending on the cash needs of the company, the higher the dividends declared the higher the external rate of return will be.

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Note that for the sake of being prudent, the terminal value of the dividends was based on a future declaration of $100,000 without any growth.

7.6.4 Payback Period

The payback period simply calculates the length of time required for the shareholders to recoup their investment. Based on the calculation of the cumulative cash flows, the payback period is expected to be 2.82 years (approximately two years and nine months) which is better than the average for a small business which can typically be at least five years.

7.7 Sensitivity Analysis

While it is strongly believed that Downtown Dawgs will achieve its ideal capacity as described above, Appendix X: Best-Case Scenario and Appendix XI: Worst-Case Scenario present a best-case and worst-scenario, respectively, should capacity deviate from expectation.

Under the best-case scenario, in which maximum capacity is achieved within the first few months of the commencement of operations, operating cash flows is positive in the first year and average over $200,000 subsequent to that. The best-case scenario includes an adjustment for the payroll expenses which increases in concert with the capacity increase while other operating expenses are deemed to be consistent with the ideal scenario. The net present value of the investment is over $253,000 yielding an internal rate of return of 94.14%. Based on the declaration of annual dividends, the external rate of return is 51.72% and payback period is just over one year.

On the other hand, under the worst-case scenario in which capacity is at the maximum of 50%, it results in an annual net cash outflow position. Similar to the best-case scenario, the worst-case includes an adjustment for the payroll expenses while other operating expenses are deemed to be consistent with the ideal scenario. This results in a net present value of negative $420,344 and an indeterminable internal rate of return as there will simply be a loss of the investment. With a net cash outflow position, the company will not be able to afford the declaration and payment of dividends and as a result, there will be no external rate of return.

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8.0 Appendices

Appendix I: Capital Budget and Amortization

Total Cost Lease Term Annual CCAProperty - Leasehold Improvements

Building Upgrades (ex: partitioning interior, outdoor access, flooring) 20,000 10 2,000

Website 2,000 3 667

Quantity Unit Price Total Cost CCA Class CCA RateFurniture (Office)

Office Desk 1 575 575 8 20%Front Desk 1 750 750 8 20%Office Chairs 2 175 350 8 20%Coffee Tables (reception) 2 150 300 8 20%Chairs (reception) 4 110 440 8 20%Computer 2 650 1,300 50 55%Printer 1 230 230 8 20%Filing Cabinets 2 400 400 8 20%Awning 1 5,450 5,450 8 20%

Furniture (Lunch Room)Refrigerator 1 1,500 1,500 8 20%Microwave 1 120 120 8 20%Table 1 250 250 8 20%Chairs 4 70 280 8 20%

Furniture/Supplies (Dogs)Kennels 70 375 26,250 8 20%Play Structure/Obstacle Course Multiple 2,500 2,500 8 20%Rugs/Linen/Dog Beds Multiple 7,500 7,500 8 20%Fencing - 8,750 8,750 6 10%

GroomingDog Salon Package* 1 6,500 6,500 8 20%Industrial Washer 1 2,500 2,500 8 20%Industrial Dryer 1 2,500 2,500 8 20%Grooming Supplies Multiple 1,800 1,800 8 20%

Transportation VanVan 1 34,805 34,805 10.1 30%Kennels 10 200 2,000 8 20%

Total Capital Expenditure 129,050 *includes pet tub, step table, cages, dryer, etc.

Capital Budget

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Appendix I: Capital Budget and Amortization continued

2012 2013 2014 2015 2016Class 6: Fencing 10%Opening Balance - 8,313 7,481 6,733 6,060 Net Additions 8,750 - - - - CCA Expense 438 831 748 673 606 Ending Balance 8,313 7,481 6,733 6,060 5,454

Class 8: Furniture/Supplies 20%Opening Balance - 55,976 44,780 35,824 27,729 Net Additions 62,195 - - 9,300 - CCA Expense 6,220 11,195 8,956 8,095 5,546 Ending Balance 55,976 44,780 35,824 27,729 22,184

Class 10.1: Vehicle 30%Opening Balance - 29,584 20,709 14,496 10,147 Net Additions 34,805 - - - - CCA Expense 5,221 8,875 6,213 4,349 3,044 Ending Balance 29,584 20,709 14,496 10,147 7,103

Class 50: Computer 55%Opening Balance - 943 424 191 86 Net Additions 1,300 - - - - CCA Expense 358 518 233 105 47 Ending Balance 943 424 191 86 39

Property - Leasehold Improvements 2,000 2,000 2,000 2,000 2,000 Website 667 667 667

Total CCA Expense 14,902 24,087 18,817 15,222 11,243

Capital Cost Allowance Schedule

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Appendix II: Advertising Budget

Year 1 Year 2 Year 3 Year 4 Year 5Tee-Shirts $6/tee-shirt 180 180 *white with one colour imprint (logo)*ordering 30 per batch

Brochures printing 500 flyers at $0.80/each (double-sided) 400 400 400 400 400 *designed in-house*one-page folded in three, coloured

Flyers printing 500 flyers at $0.49/each 245 245 245 245 245 *designed in-house*one-page, coloured

Business Cards per 250 50 50 50 50 50 *designed in-house*coloured

Newspaper Ad (grand opening - half page)*The Saskatoon Sun: $1.68 * 1020 lines 1,714

Radio Ad*C95 4,000 4,000 *Newstalk 650 2,000

Pets in the Park Sponsorship 1,000 1,000 1,000 1,000 1,000 *includes booth at trade show*includes online ad linking to our site for a year*includes listing on brochures/promotional items*includes name mention on stage at park event*includes ability to showcase small items at ticket booth at park event

Signs and Banners 650 *designed in-house, coloured*for trade shows when setting up booths *to advertise at community events when sponsoring*decals for side of van

Promotional Materials*magnets, pens, dog tags, etc. 1,000 1,000 1,000 1,000 1,000

Total Advertising Expense 11,239 6,695 2,875 2,695 2,695 Inflation Factor 1.0000 1.0200 1.0404 1.0612 1.0824

Inflation Adjusted Advertising Expense 11,239 6,829 2,991 2,860 2,917

Advertising Budget Years 1 - 5

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Appendix III: Statement of Financial Position

2012 2013 2014 2015 2016Current Assets

Cash and Cash Equivalents 36,826 145,806 198,351 220,074 237,772

Non-Current AssetsCapital Assets 129,050 129,050 129,050 138,350 138,350 Accumulated Amortization (14,902) (38,989) (57,805) (73,027) (84,271)

Total Assets 150,974 235,867 269,596 285,396 291,851

Current LiabilitiesAccounts Payable 1,220 1,244 1,269 1,295 1,321 Income Taxes Payable - 7,903 17,226 18,215 19,244 Deferred Revenue 23,186 23,649 24,122 24,605 25,097

Total Liabilities 24,406 32,797 42,617 44,115 45,661

Shareholders' EquityShare Capital 175,000 175,000 175,000 175,000 175,000 Retained Earnings (48,432) 28,070 51,978 66,281 71,190

Total Shareholders' Equity 126,568 203,070 226,978 241,281 246,190

Total Liabilities and Shareholders' Equity 150,974 235,867 269,596 285,396 291,851

Statement of Financial Position

Appendix IV: Statement of Comprehensive Income

2012 2013 2014 2015 2016

Revenues 474,070 660,018 673,219 686,683 700,417

ExpensesPayroll 349,313 394,994 402,894 410,952 419,171 Advertising 11,239 6,829 2,991 2,860 2,917 Operating 147,048 134,689 137,383 140,130 142,933

Earnings Before Depreciation and Taxes (33,530) 123,506 129,950 132,741 135,395

Depreciation (CCA) 14,902 24,087 18,817 15,222 11,243 Net Income (Loss) Before Taxes (48,432) 99,419 111,134 117,518 124,152

Income Taxes @ 15.50% - 15,410 17,226 18,215 19,244 Recovery of Prior Year Loss Carryforward - (7,507) - - -

Net Income (Loss) (48,432) 76,502 93,908 99,303 104,908

Opening Retained Earnings - (48,432) 28,070 51,978 66,281 Add: Net Income (48,432) 76,502 93,908 99,303 104,908 Deduct: Dividends - - 70,000 85,000 100,000 Closing Retained Earnings (48,432) 28,070 51,978 66,281 71,190

Statement of Comprehensive Income and Retained Earnings Forecast

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Appendix V: Revenue Summary

2012 2013 2014 2015 2016

Daycare 120,288 164,900 164,900 164,900 164,900 Pick-Ups 6,890 9,880 9,880 9,880 9,880 Boarding 262,499 338,877 338,877 338,877 338,877 Grooming 107,579 133,874 133,874 133,874 133,874

Total Annual Revenues 497,255 647,531 647,531 647,531 647,531 Inflation Factor 1.0000 1.0200 1.0404 1.0612 1.0824

497,255 660,482 673,692 687,165 700,909 Less: Deferred Revenues* 23,186 23,649 24,122 24,605 25,097

Add: Deferred Revenues Recognized^ - 23,186 23,649 24,122 24,605 Inflation Adjusted Revenues 474,070 660,018 673,219 686,683 700,417

*assumed to be half of December's Daycare and Boarding revenues (inflation adjusted)^deferred revenue from prior year added in January of current year (inflation adjusted)

2012 2013 2014 2015 2016

Daycare 24% 25% 25% 25% 25%Pick-Ups 1% 2% 2% 2% 2%Boarding 53% 52% 52% 52% 52%Grooming 22% 21% 21% 21% 21%

Total Annual Revenues 100% 100% 100% 100% 100%

Summary of Revenues ($)

Summary of Revenues (%)

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Appendix V(i): Revenue Breakdown Year 1

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Appendix V(ii): Revenue Breakdown Years 2-5

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Appendix VI: Expense Summary

2012 2013 2014 2015 2016

Payroll 349,313 394,994 402,894 410,952 419,171 Advertising 11,239 6,829 2,991 2,860 2,917 Depreciation (CCA) 14,902 24,087 18,817 15,222 11,243 Operating 147,048 134,689 137,383 140,130 142,933

Total Annual Expenses 522,502 560,599 562,085 569,164 576,265

2012 2013 2014 2015 2016

Payroll 67% 70% 72% 72% 73%Advertising 2% 1% 1% 1% 1%Depreciation (CCA) 3% 4% 3% 3% 2%Operating 28% 24% 24% 25% 25%

Total Annual Expenses 100% 100% 100% 100% 100%

Summary of Expenses ($)

Summary of Expenses (%)

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Appendix VI(i): Payroll Costs

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Appendix VI(i): Payroll Costs continued

2012 2013 2014 2015 2016Owner Manager 120,000 120,000 120,000 120,000 120,000 Groomer 27,040 27,040 27,040 27,040 27,040 Pet Care Attendant 172,750 207,480 207,480 207,480 207,480

Total 319,790 354,520 354,520 354,520 354,520 Employer Contributions

Employment Insurance 7,745 8,586 8,586 8,586 8,586 Canada Pension Plan 15,830 17,549 17,549 17,549 17,549 Worker's Compensation Board 5,948 6,594 6,594 6,594 6,594

Total 29,523 32,729 32,729 32,729 32,729 Total Payroll Expense 349,313 387,249 387,249 387,249 387,249

Inflation Factor 1.0000 1.0200 1.0404 1.0612 1.0824Inflation Adjusted Payroll Expense 349,313 394,994 402,894 410,952 419,171

Payroll Expense ($) - Ideal

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Appendix VI(ii): Operating Expense

12 monthsOperating Expenses Monthly Yearly

Building Lease 6,500 78,000

UtilitiesSask Energy 150 1,800 Sask Power 150 1,800 SaskTel 120 1,440 City of Saskatoon 300 3,600 Waste Disposal 500 6,000

Insurance 1,500 18,000 Security Monitoring/Alarm 175 2,100 Repairs and Maintenance 417 5,004 Office Expenses/Supplies 192 2,304 Grooming Supplies 1,000 12,000

Total Recurring Expenses 11,004 132,048

Landscaping *converting parking lot to dog play area, Year 1 15,000

Year 1 Year 2 Year 3 Year 4 Year 5Total Recurring Operating Expenses 132,048 132,048 132,048 132,048 132,048

Landscaping 15,000 - - - - Total Operating Expense 147,048 132,048 132,048 132,048 132,048

Inflation Factor 1.0000 1.0200 1.0404 1.0612 1.0824Inflation Adjusted Operating Expense 147,048 134,689 137,383 140,130 142,933

Operating Expense Schedule

Appendix VII: Statement of Cash Flows

2012 2013 2014 2015 2016Operating Activities

Net Income (48,432) 76,502 93,908 99,303 104,908 Add: Depreciation Expense 14,902 24,087 18,817 15,222 11,243 Changes in Working Capital

Accounts Payable 1,220 24 25 25 26 Income Taxes Payable - 7,903 9,323 990 1,028 Deferred Revenue 23,186 464 473 482 492

Cash Flow from Operating Activities (9,124) 108,980 122,545 116,023 117,698

Investing ActivitiesCapital Asset Purchases (129,050) - - (9,300) -

Cash Flow from Investing Activities (129,050) - - (9,300) -

Financing ActivitiesEquity Investment

Owner Manager 140,000 - - - - Angel Investor 35,000 - - - -

Dividends Declared - - (70,000) (85,000) (100,000) Cash Flow from Financing Activities 175,000 - (70,000) (85,000) (100,000)

Net Cash Flow 36,826 108,980 52,545 21,723 17,698 Opening Cash Balance - 36,826 145,806 198,351 220,074 Closing Cash Balance 36,826 145,806 198,351 220,074 237,772

Statement of Cash Flows

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Appendix VIII: Ratio Analysis

2012 2013 2014 2015 2016Liquidity Ratio

Current Ratio 1.51 4.45 4.65 4.99 5.21

Investment Utilization RatiosAsset Turnover 3.14 2.80 2.50 2.41 2.40Capital Asset Turnover 4.15 7.33 9.45 10.51 12.95

Solvency RatiosDebt-to-Equity - - - - -

Profitability RatiosNet Profit Margin (0.10) 0.12 0.14 0.14 0.15 Return on Assets (0.32) 0.32 0.35 0.35 0.36 Return on Equity (0.38) 0.38 0.41 0.41 0.43

Ratio Analysis

Appendix IX: Investment Analysis

2012 2013 2014 2015 2016

Net Income (Loss) Before Taxes (48,432) 99,419 111,134 117,518 124,152 Add: Depreciation 14,902 24,087 18,817 15,222 11,243 Deduct: Capital Expenditure - - - (9,300) - Deduct: Income Taxes - (15,410) (17,226) (18,215) (19,244) Add: Recovery of Prior Year Loss Carryforward - 7,507 - - - Add: Terminal Value - - - - 331,862

Free Cash Flows (175,000) (33,530) 115,603 112,725 105,225 448,014

Equity Investment (175,000) Required Return on Equity 35.00%

Net Present Value on Equity $30,373Internal Rate of Return 42.32%

Payback (175,000) (208,530) (92,927) 19,798 125,023 573,037 Number of Years 2.82

Dividends (175,000) - - 70,000 85,000 285,714 External Rate of Return 23.20%

Net Present Value and Rate of Return Analysis

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Appendix X: Best-Case Scenario

2012 2013 2014 2015 2016

Revenues 647,690 776,406 791,934 807,772 823,928


Earnings Before Depreciation and Taxes 102,154 239,893 248,666 253,830 258,907

Depreciation (CCA) 14,902 24,087 18,817 15,222 11,243 Net Income (Loss) Before Taxes 87,252 215,807 229,849 238,608 247,663

Income Taxes @ 15.50% 13,524 33,450 35,627 36,984 38,388 Net Income (Loss) 73,728 182,357 194,222 201,624 209,275

Opening Retained Earnings - 43,728 126,085 170,307 171,931 Add: Net Income 73,728 182,357 194,222 201,624 209,275 Deduct: Dividends 30,000 100,000 150,000 200,000 250,000 Closing Retained Earnings 43,728 126,085 170,307 171,931 131,206

2012 2013 2014 2015 2016

Net Income (Loss) Before Taxes 87,252 215,807 229,849 238,608 247,663 Add: Depreciation 14,902 24,087 18,817 15,222 11,243 Deduct: Capital Expenditure - - - (9,300) - Deduct: Income Taxes (13,524) (33,450) (35,627) (36,984) (38,388) Add: Recovery of Prior Year Loss Carryforward - - - - - Add: Terminal Value - - - - 630,054

Free Cash Flows (175,000) 88,630 206,443 213,039 207,546 850,572


Net Present Value on Equity $253,844Internal Rate of Return 94.14%

Payback (175,000) (86,370) 120,073 333,112 540,658 1,391,230 Number of Years 1.42

Dividends (175,000) 30,000 100,000 150,000 200,000 250,000 External Rate of Return 51.72%

Statement of Comprehensive Income and Retained Earnings - Best Case Forecast

Net Present Value and Rate of Return Analysis - Best Case Scenario

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Appendix XI: Worst-Case Scenario

2012 2013 2014 2015 2016

Revenues 224,858 405,380 413,488 421,758 430,193


Earnings Before Depreciation and Taxes (239,269) (100,051) (98,078) (99,848) (101,845)

Depreciation (CCA) 14,902 24,087 18,817 15,222 11,243 Net Income (Loss) Before Taxes (254,171) (124,138) (116,895) (115,070) (113,089)

Income Taxes @ 15.50% - - - - - Net Income (Loss) (254,171) (124,138) (116,895) (115,070) (113,089)

Opening Retained Earnings - (254,171) (378,309) (495,203) (610,274) Add: Net Income (254,171) (124,138) (116,895) (115,070) (113,089) Deduct: Dividends - - - - - Closing Retained Earnings (254,171) (378,309) (495,203) (610,274) (723,362)

2012 2013 2014 2015 2016

Net Income (Loss) Before Taxes (254,171) (124,138) (116,895) (115,070) (113,089) Add: Depreciation 14,902 24,087 18,817 15,222 11,243 Deduct: Capital Expenditure - - - (9,300) - Deduct: Income Taxes - - - - - Add: Recovery of Prior Year Loss Carryforward - - - - - Add: Terminal Value - - - - (290,987)

Free Cash Flows (175,000) (239,269) (100,051) (98,078) (109,148) (392,832)


Net Present Value on Equity ($420,344)Internal Rate of Return #NUM! *Loss of investment

Payback (175,000) (414,269) (514,320) (612,398) (721,546) (1,114,378) Number of Years - *Loss of investment

Dividends (175,000) - - - - - External Rate of Return #NUM! *Loss of investment

Statement of Comprehensive Income and Retained Earnings - Worst Case Forecast

Net Present Value and Rate of Return Analysis - Worst Case Scenario

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