Coffee Distribution Business PlanThe Coffee Warehouse, Inc.

Executive Summary

1.0 Executive Summary

The Coffee Warehouse is a new business providing high-quality, full service distribution of coffee, specialty beverages and beverage-related supplies to coffee houses and espresso stands throughout the Spokane and Northern Idaho market.

The principal owners are Steve and Jennifer Smith, whose combined experience brings office management, high levels of customer service, and over 20 years in distribution and sales management. At this time we are seeking additional equity capital to compliment our own investment and are seeking to arrange a bank line for inventory and receivables financing. We have firm commitments to distribute several high-quality new age beverage products, and have verbal commitments from independent retailers throughout the Spokane and Northern Idaho market to carry our product. We plan to distribute our first products within 30-60 days of finalizing financial arrangements.

Sales projections for The Coffee Warehouse are estimated to begin at approximately $2,229,000 the first year, increasing to approximately $2,558,000 in FY2005 and approximately $2,936,000 in FY2006. Our net profit is projected at approximately $283,000 the first year, increasing to $406,000 by the end of the third year of operation.

Distinguishing characteristics of our business will be the combination of management experience, sales and distribution experience, high-quality, innovative products and exceptional customer service. In particular, what really sets up apart is that we are the ONLY full service distribution company servicing the coffee and specialty beverage industry in the Spokane/Northern Idaho market. In addition, The Coffee Warehouse has an exclusive contract to distribute a new, groundbreaking product that would enable us to gain immediate access to a majority of the potential customer base.

Highlights

 

1.1 Objectives

To open and operate a successful coffee and new age beverage

distributorship in the Spokane/Northern Idaho market, employing three to

five employees the first year.

To obtain a minimum of 100 regular customers in the Spokane/North

Idaho market the first year of operation.

Achieve first year sales of $2,000,000.

Maintain an average gross margin of 25 percent.

To produce a net profit of at least $400,000 by the end of the third year of

operation.

1.2 Mission

The Coffee Warehouse intends to become a recognized distributor of specialty beverages and beverage-related supplies and services to coffee houses and espresso stands throughout Spokane and Northern Idaho.

The Coffee Warehouse plans to develop strong relationships with key customers so we will be viewed as indispensable partners, rather than just another supplier. We will work closely with each customer to recommend product assortment unique for their retail base, appropriate stocking levels, pricing and display assortments, as well as promotional ideas and material to increase sales. The Coffee Warehouse will seek out and work with the manufacturers we represent to deliver the most innovative and exciting products possible to the customers we serve. We are not only selling product, we are selling service.

1.3 Keys to Success

Innovative quality products.

Individualized customer service - providing our customers with what they want, when and

how they want it.

Only full service distribution company in the Spokane/Northern Idaho market.

Fully integrated programs to help customers increase sales through menu development,

creative promotions, advertising, and custom marketing material.

Exclusive distribution rights to ground-breaking products not currently available in our

market.

The combined experience of the principal owners bring upper office management skills,

high levels of customer service, and over 20 years in distribution and sales management.

Company Summary

2.0 Company SummaryThe Coffee Warehouse, Inc. is a new S-corporation business located in Spokane, Washington,

and will be established based on the details of the following plan.

2.1 Company OwnershipThe Coffee Warehouse is a privately held S-Corporation owned in total by its co-founders, Steve

and Jennifer Smith.

UBI Number: XXX-XXX-XXX (removed to protect confidentiality)

2.2 Company Location & FacilitiesThe Coffee Warehouse will be located in the Spokane Valley within the Spokane Industrial

Business Park. This is a prime location to service both the Spokane and Northern Idaho market.

The facilities will include approximately 5,000 square feet of warehouse space, with an additional

1,400 square feet built out for office/retail space. We are currently negotiating lease terms on the

several available properties, and plan to have a lease signed by July 31, 2003.

2.3 Start-up SummaryStart-up expenses for the Coffee Warehouse total $16,450, and include expenses such as legal,

marketing, lease deposit, computer systems, etc. Start-up assets include $9,800 in initial cash

requirements, $18,750 in short term assets (office furniture, refrigeration equipment), and

$75,000 in starting inventory. These start-up costs will be financed through investments and

small-business loans. The details of the start-up summary are included in the following table.

Start-upStart-up

Requirements

Start-up ExpensesLegal Business Formation $220Business Plan $90Warehouse Lease Deposit $2,800Insurance (first month) $500Utilities (first month) $350Research & Development $1,200Marketing $1,200Advertising $250Personnel $2,060Business/Office Supplies $1,550Computer Systems $3,080Phone System $650Communication Lines $300Trade Show/Grand Opening $2,200Total Start-up Expenses $16,450

Start-up AssetsCash Required $9,800Start-up Inventory $75,000Other Current Assets $18,750Long-term Assets $0Total Assets $103,550

Total Requirements $120,000

Start-up FundingStart-up FundingStart-up Expenses to Fund $16,450Start-up Assets to Fund $103,550Total Funding Required $120,000

AssetsNon-cash Assets from Start-up $93,750Cash Requirements from Start-up $9,800Additional Cash Raised $0Cash Balance on Starting Date $9,800Total Assets $103,550

Liabilities and Capital

LiabilitiesCurrent Borrowing $95,000Long-term Liabilities $0Accounts Payable (Outstanding Bills) $0Other Current Liabilities (interest-free) $0Total Liabilities $95,000

Capital

Planned InvestmentInvestor 1 $25,000Other $0Additional Investment Requirement $0Total Planned Investment $25,000

Loss at Start-up (Start-up Expenses) ($16,450)Total Capital $8,550

Total Capital and Liabilities $103,550

Total Funding $120,000

Start-up

 

Products

3.0 ProductsThe Coffee Warehouse will provide a first-class delivery service of quality hot and cold beverage related supplies, including whole bean or ground coffee, flavor syrups, jet teas, fruit smoothies, bubble teas, concentrated milk, fresh baked goods and assorted paper supplies. Our services will include invaluable trade resources, effective promotional programs, custom-designed marketing material, informative monthly newsletters, training and product demonstrations, as well as information on the latest market trends in the coffee/specialty beverage industry.

3.1 Product & Service DescriptionPRODUCT DESCRIPTIONThe Coffee Warehouse will carry a variety of quality products that will enable us to provide full service delivery to espresso stands and coffee houses. Our underlying philosophy in selecting products is to choose lines that will bring consistent quality, competitive prices, and product satisfaction to our customers. We have personally researched and sampled each of the following products that we offer to ensure the quality we guarantee.

Lowery's Gourmet Whole Bean and Wired Willey's White Coffee

Assorted Gourmet Syrups & Coffee Toppings

Chocolate, White Chocolate and Caramel Syrups/Sauces

Oregon Chai Concentrate

Jet Cafe and Jet Tea Fruit n' Tea Freeze

Cappuccina line of product

Big Train line of product

Red Bull Energy Drinks

Good Cow Concentrated Milk with Custom Dispensing Equipment

Fresh Baked Goods

Assortment of White, Pre-printed Paper, and Clear Beverage Cups

Systems - as well as an assortment of other paper supplies

At this time, the majority of these products are only available to customers through wholesale vendors such as Cash and Carry retail outlets - therefore it is the customer's responsibility to acquire these products by their own means. The Coffee Warehouse will make these same products available through our high quality, full service delivery - bringing these products directly to their doorstep at a competitive price.

SERVICE DESCRIPTIONAn important component of our business is not just our products, but our service. In addition to our full service delivery, the following are other important service elements that we will offer to our customers:

Ideas to help our customers increase sales through menu development,

creative promotions, co-op advertising, and much more.

Custom designed marketing material such as printed banners,

promotional posters, punch cards, pre-purchased beverage cards, reader

boards, etc.

Distribute a monthly newsletter featuring the latest coffee trends, new

industry equipment, breaking trade news, promotional ideas, new creative

recipes, and upcoming events.

Samples of the latest product releases - with eye-catching point-of-sale to

advertise new items to the end consumer.

Routine equipment maintenance and training.

3.2 Competitive EdgeKEY COMPETITIVE STRENGTHSNo other wholesaler in the market offers full service delivery with the variety of product we feature. We are better positioned than our main competitors to take advantage of the increasing demands of coffee and specialty beverage supplies because we focus exclusively on high-quality distribution and customer service. In addition to the variety of products we feature, The Coffee Warehouse has exclusive distribution rights to Good Cow's concentrated milk/dispensing system. This product is not currently available in our market by any other suppliers.KEY COMPETITIVE WEAKNESSESOur primary weakness is that we are a new business competing largely against established suppliers. To significantly build sales, we must not just find new customers - we must take customers away from existing suppliers. However by offering a superior selection of supplies, new groundbreaking products to the market, and focusing on high-quality service and full service delivery, we feel will can quickly establish accounts and build strong relationships. Co-founder Jennifer Smith has had many discussions with owners of coffee and espresso businesses that confirm this opinion.

3.3 Sales LiteratureSales literature to be distributed to both current and potential customers will include brochures,

fliers, newsletters, as well as other print media such as print advertisements. Jennifer Smith is

highly skilled in graphic design and desktop publishing, and has quality design and printing

equipment to publish professional pieces at a low cost.

3.4 SourcingThe Coffee Warehouse will purchase product directly from manufacturers, as well as master

distributors. Because this eliminates the broker or "middle man," this allows us to operate on a

25-30% profit margin, while providing our customers with competitive prices.

To further reduce costs, The Coffee Warehouse plans to share product shipments out of

California with distributors operating in Portland, Oregon and Tri-Cities, Washington. Other

product not being shipped directly to Spokane will be purchased and picked up in Seattle,

Washington. The Coffee Warehouse plans to send a truck to Seattle on a bi-weekly basis to pick

up product, thus cutting costs by an average of 5%.

3.5 TechnologyTo streamline the efficiency of our distribution methods, The Coffee Warehouse plans to use the

latest in cutting edge technology - not only in the warehouse - but also in the trade.

All of our drivers/sales representatives will be equiped with Thinque MSP handhelds and

software. Thinque MSP applications will reduce field expenses, decrease day's sales outstanding,

and increase worker efficiency. Features can be used in or out of the warehouse and include

managing returns and collections; adjusting item price, profit or margin; applying promotional

items to an account; streamlining orders; tracking inventory; reducing out-of-stocks; and providing

sales history reports. All information recorded in the handheld is available in real time to be

viewed by management in the office.

3.6 Future Products and Services

Within the first year of business, The Coffee Warehouse intends to open a retail/wholesale store and high-quality showroom. Products will be available for purchase by both our wholesale customers who may need product between delivery days, as well as retail consumers interested in purchasing product for their home use. We will also offer a showroom that will feature equipment, supplies, trade resources, and information on marketing services with examples of marketing and promotional material available to customers.

With the addition of the product showroom, The Coffee Warehouse will offer customers quarterly product and training demonstrations that will be presented by trained beverage experts from the industry.

The Coffee Warehouse also plans to hold semi-annual trade shows for current or potential customers. These trade shows will allow customers the opportunity to

sample products, talk to manufacturers, learn about new industry trends, review marketing material, and network with other business owners in their market.

Market Analysis Summary

4.0 Market Analysis SummaryCoffee is the second largest commodity market next to oil, and growth is expected to continue at

a strong pace for the foreseeable future. The specialty beverage industry is growing at an equally

strong pace, with sales growth in some categories projected to grow at rates of 40% per year.

This growth offers excellent opportunities for new companies to enter this market, and we are

excited about the possibilities of what The Coffee Warehouse can accomplish in the Spokane and

Northern Idaho market.

4.1 Market SegmentationThe gourmet coffee and specialty beverage industry is divided into several segments. Consumers

who enjoy these products purchase drinks at restaurants, coffee houses, sports venues, drive-

thru espresso stands, and even inside other retail establishments that might feature an

independent beverage stand.

As illustrated in the chart below, within the market surrounding Spokane, Rathdrum, Post Falls

and Coeur d'Alene, there are currently 250 drive-thru espresso stands, 18 coffee/tea houses, 52

independent inner-retail espresso stands, and approximately 10 stands in locations such as

sports venues, university campuses, and etc. These figures are not including the number of

restaurants, bars and cafes that also feature these beverages.

Market AnalysisMarket Analysis

2003 2004 2005 2006 2007Potential Customers

Growth CAGR

Drive-thru Espresso

4% 250 259 268 277 287 3.51%

Inner-Retail Espresso

4% 52 54 56 58 60 3.64%

Coffee/Tea Houses

5% 18 19 20 21 22 5.14%

Other (sports venues,

5% 10 11 12 13 14 8.78%

universities, etc)Total 3.79% 330 343 356 369 383 3.79%

Market Analysis (Pie)

 

4.2 Target Market Segment StrategyWhile the market is already sizeable, this industry continues to grow. New espresso stands open

their doors to the public on a monthly basis in our market, and it isn't uncommon to see numerous

espresso stands within a one or two mile radius. The article below, published by a national coffee

retail magazine, discusses our market's unique drive-thru espresso industry. The sales potential

in this market is unlimited.

The Coffee Warehouse initially plans to target these drive-thru espresso stands, as well as all

inner-retail espresso stands within our designated market. It is this segment that is most in need

of the services we are planning to offer. Essential needs include: quality products at competitive

prices, first class service, and strong sales support. It is most often these small owner-operated

businesses that are neglected by larger suppliers and are forced to service themselves. It is also

these smaller businesses who could most greatly benefit from marketing services, sales support,

and full service product delivery. Providing the same high-quality service, within the first six

months of operation, The Coffee Warehouse plans to expand our target into formal coffee houses

and cafes, and as business grows and stabilizes, eventually evaluate the needs of potential

customers in the restaurants and bar industry.

4.3 Market Growth

Coffee has been a growing industry for the past several years. In the gourmet/specialty coffee industry alone, the figures show an impressive rate of growth in the United States.

The new age beverage industry is growing at an equally strong pace. Sales growth in the chai tea category alone is estimated to be 50% historically, with projected growth rates of 40% per year. Energy drinks, including brands such as Red Bull - and trends such as Jet Tea - are driving the new age beverage growth, and have increased 50-fold in the past three years.

Bubble Tea has been a rapidly growing market in Asia, though it is relatively new to the United States. Introduced to trend setting marketings such as San Francisco and Seattle, sales have been exploding - and the craze of the "Tapioca Pearl" is expected to spread throughout America.

4.4 Industry AnalysisThe coffee and specialty beverage industry is pulverized, with hundreds of manufacturers,

brokers, suppliers and retailers. Unlike the beer/soda industry, with large companies such as

Anheuser Busch, Pepsi and Coca Cola controlling most of the market, the coffee and specialty

beverage industry does not have large national chains with market control.

In an open industry growing at such a strong rate, The Coffee Warehouse is in position to

capitalize on the customer's need for quality product, exceptional service, and an effective partner

to success.

4.5 Industry Participants

With the rate of growth in the gourmet coffee market, in addition to the recent trends in Jet Teas and other specialty beverages, the industry is comprised of many small participants, each focusing on only a few specific items or brands at a time. As the markets evolve, we expect the industry to consolidate with larger distributors representing more of a vast selection of products in each market.

Currently in our segment of the industry, there are no large national chains with market control. There are also few products that are offered with exclusive rights to one market. While this is the case with many products, The Coffee Warehouse is working with manufacturers to change that practice, and not only represent a larger variety of product than others in our industry, but also acquire exclusive rights to many of the products in our portfolio.

4.6 Distribution Patterns

The following flow chart illustrates the overall industry surrounding the distribution patterns of coffee and specialty beverages. (The Coffee Warehouse falls into the level highlighted in yellow).

Several manufacturers are represented by master distributors and/or brokers who in turn provide the product to direct distributors and other wholesale suppliers. Other manufacturers allow distributors and suppliers to purchase product direct - depending on the quantity of product being purchased. Product is then distributed or sold through cash and carry wholesale stores to retail businesses as illustrated below.

4.7 Competition & Buying PatternsWhile there are a handful of coffee and specialty beverage suppliers providing product in our

market, there is still a great deal of room for new business. Most importantly, there is room for

new business that understands the need for high-quality service and sales support - in addition to

product at competitive prices.

In this industry, customers choose their suppliers based on available product, price, and service -

though most often, it is the service that suffers most. While one supplier may offer the product at

the right price, they do not provide the level of service that the customer demands. The next

supplier may offer the right level of service, though their prices are too high. This results with the

customer purchasing most of their supplies through a cash and carry style wholesale store -

leaving the customer with no service or support.

By positioning ourselves in the market with in-demand, quality product at competitive prices, with

a consistent high level of customer service - we are confident that we will see customers and their

business continue to increase.

Sales and Marketing

5.0 Sales and MarketingThe unique aspects of our business include individual product selection, quality assurance, and

high-quality full service distribution. Our strategy is to focus 100% of our efforts on the market for

espresso supplies in the Spokane and Northern Idaho area. By focusing all of our effort and

energy on this particular area, we expect to quickly develop and maintain a leadership position.

The Coffee Warehouse's key personnel will stay in contact with our customers, and will be able to

respond to changes in this market much faster than our competitors.

The Coffee Warehouse will offer the best, most highly personalized service in the marketplace.

Being a small, owner-operated company, we intend to use this to our advantage to be absolutely

certain that every one of our customers receive excellent service. We will go out of our way to

make sure that our customers know that they truly matter to us. Sales reps and in-house

personnel who deal with customers will be carefully trained and given wide latitude for insuring

that customers are always satisfied.

5.1 Marketing StrategyOur basic marketing strategy is to work with customers on a one-to-one basis to ensure their

supply needs are being met and help develop unique marketing programs for each of them. We

intend to prioritize customer service and make it a key component of our marketing programs. We

believe that providing our customers with what they want, when and how they want it, is the key

to repeat business and positive word-of-mouth advertising. Because we want to develop close

working relationships with our customers, we want to establish accounts in as personable a way

as possible. It is for this reason that we will overwhelmingly emphasize in-person sales calls to

build accounts.

We will closely integrate all of our marketing and sales efforts to project a consistent image of our

company and a consistent positioning of our products and services. We will build this image

around our name "The Coffee Warehouse, Inc." and emphasize to customers the high-quality

service that is behind this name.

To support our marketing initiatives and product knowledge, we will attend as many area

conventions and trade shows as possible to ensure we are offering the most up-to-date market

trend information.

5.2 Promotion Strategy

Relationships are the key to success in the distribution business. Personal selling will remain our most important means of promotion. Both Steve and Jennifer Smith will lead this effort - Steve, with his skill and experience in sales and distribution, and Jennifer in customer service and relations. In addition to personal selling, The Coffee Warehouse has identified several other means of advertising and publicity.

The Coffee Warehouse will send news releases to local media and press, as well as trade magazines to try to get product and company feature coverage in front of the eyes of our customers - as well as the end consumer. We will also produce a few generic press releases about the products we are distributing for our customers to use toward publicity coverage for their businesses in local publications such as the Spokesman, The Inlander and Local Planet.

Third, we shall have a monthly newsletter for current of potential customers. This newsletter will highlight new and current trends in the industry, upcoming conventions and trade shows, offer promotions and special deals, as well as provide new recipes, fun tips and other information that can be used in their business. We will also highlight not just our products, but also display ideas and success stories of other business in the industry. As a more straight forward advertising effort, The Coffee Warehouse will feature an advertisement in the Yellow Pages, frequent ads in the Spokesman Review, the Inlander, and the Local Planet, as well as participation in networking, local trade shows, and personal word-of-mouth advertising.

5.3 Distribution StrategyTo begin, The Coffee Warehouse will operate two delivery trucks with a third vehicle for special

deliveries between scheduled delivery days. Deliveries will be made Monday through Friday, and

will be strategically routed to minimize travel time and fuel costs - while maximizing production.

On average, we will service 20-30 accounts per day, with deliveries to each account twice a

week. As the number of accounts increase, the need for additional delivery trucks will continue to

be evaluated. With each additional delivery truck, routes will be restructured to maintain

maximum efficiency.

5.4 Sales Strategy

Distribution sales are dependent on repeat business, therefore the sales strategy for The Coffee Warehouse is based on personal, consistent sales contact, with a

high emphasis on customer service and relations. Because we are a new distributor, we understand that we will have to prove our worth to our customers in order to earn their respect and business. Both of the owners, Steve and Jennifer, will make personal calls on potential customers to review our product line and services, give general information on our company, and discuss how we feel we can help them succeed in their business.

The Coffee Warehouse will begin operations with two full-time delivery/sales representatives, who will be responsible for providing full service and delivery to current customers, but also make sales calls for potential new business. This delivery/sales representatives will receive a base salary, with commission on qualified sales, as well as bonuses for new acquired business. Customers will be scheduled for a pre-arranged delivery day once or twice a week, depending on the quantity and timeline of product needed. Product orders can be placed in a number of ways to help facilitate the process:

Phoned Orders: Customers can easily phone orders into our office, up

until 2:30 p.m. of the afternoon prior to their scheduled delivery day.

Faxed Orders: Customers can fax in a completed product order sheet,

with the same deadline as phoned orders.

Tel-Sell: Customers may choose to have a representative from the office

call them the day prior to their scheduled delivery to check product

quantities and assist them in placing their order.

We understand the hectic schedule of a small business, so if a customer fails to call or fax their weekly order, they will receive a courtesy call from our office to verify that an order is not needed.

5.5 Sales ForecastAs indicated in the table, our sales are forecasted to increase rapidly, with an annual growth rate

of approximately 30%.

Sales ForecastSales Forecast

FY 2004 FY 2005 FY 2006SalesEspresso Syrups $415,362 $477,666 $549,316Chocolate & Caramel Sauces

$275,852 $311,713 $352,235

Specialty Beverage $176,660 $203,158 $233,632

MixesEnergy Drinks $44,372 $51,028 $58,683Concentrated Milk $113,816 $130,889 $150,523Paper Supplies $1,185,285 $1,363,078 $1,567,540Marketing $18,305 $21,051 $24,208Total Sales $2,229,652 $2,558,584 $2,936,137

Direct Cost of Sales FY 2004 FY 2005 FY 2006Espresso Syrups $345,347 $397,149 $456,722Chocolate & Caramel Sauces

$244,798 $276,622 $312,583

Specialty Beverage Mixes

$134,440 $154,606 $177,797

Energy Drinks $36,542 $42,023 $48,327Concentrated Milk $97,919 $112,607 $129,498Paper Supplies $888,964 $1,022,308 $1,175,655Marketing $6,540 $7,521 $8,649Subtotal Direct Cost of Sales

$1,754,550 $2,012,837 $2,309,230

Sales Monthly

 

Sales by Year

 

5.6 Milestones

The following table and chart are the important milestones for The Coffee

Warehouse. 

MilestonesMilestones

Milestone Start Date End Date Budget ManagerDepartmentMarket/Trade Research 3/15/2003 5/15/2003 $150 SDS / JLS MarketingLogo Design/Marketing 4/15/2003 5/15/2003 $1,300 JLS MarketingComplete Business Plan 4/15/2003 5/30/2003 $90 JLS MarketingProduct/Pricing Comparison 4/15/2003 5/15/2003 $150 SDS / JLS MarketingFinalize Potential Client List 5/1/2003 5/15/2003 $0 JLS MarketingLicensing/Incorporation 5/15/2003 6/15/2003 $200 JLS MarketingSecure Product Line 5/15/2003 6/15/2003 $0 JLS MarketingResearch/Secure Financing 5/15/2003 7/15/2003 $0 SDS / JLS MarketingWarehouse Selection/Buildout 5/15/2003 6/15/2003 $0 SDS / JLS MarketingLeasehold Improvements 7/1/2003 8/1/2003 $5,000 SDS / JLS WebDelivery Vehicle Selection 6/1/2003 6/15/2003 $0 SDS WebDevelop Routing 6/15/2003 7/15/2003 $100 SDSDepartmentHire Delivery/Sales Personnel 7/1/2003 7/15/2003 $100 SDSDepartmentOffice Equipment/Computer/Supplies

7/1/2003 8/1/2003 $5,000 JLSDepartment

Order Beginning Inventory 7/10/2003 7/20/2003 $20,000 SDS / JLSDepartmentPress Releases/Advertising 7/1/2003 8/1/2003 $250 JLSDepartmentOrganize Grand Opening Trade Show

8/1/2003 8/10/2003 $3,000 JLSDepartment

Totals $35,340

Milestones

 

Management Summary

6.0 Management SummaryThe Coffee Warehouse will be owned and operated by its founders, initially working with a small employee base that will cover sales and delivery. Management and personnel plans are covered in more detail in the topics to follow.

6.1 Organizational Structure

The Coffee Warehouse will be managed by the two founding partners, whose individual areas of expertise cover many of the functional aspects of the business.

The organizational structure is very simple. Steve Smith will be responsible for the routing, distribution management and delivery systems. Jennifer Smith will be responsible for customer service, accounting, shipping and the general administration of the business. Together they will be responsible for product selection and sales and marketing.

The support staff at the office and warehouse, as well as the delivery personnel will report to Jennifer. Because Steve will be spending a majority of his time in

the trade, Jennifer will be able to support any day-to-day needs that the personnel may have. However even when Steve is out of the office, he will be in constant contact via computer or phone.

The goal of The Coffee Warehouse is to have a team of committed associates who empower each other so that the customer's expectations can be exceeded. Our goal is to offer career opportunities, advancement opportunities and a level of income and benefits that is competitive within the region and job classification. It is our long-term goal to be the preferred employer within our niche of the beverage distribution industry.

6.2 Management TeamSteven D. SmithSteve has a long history of experience in sales and distribution management, specifically in the beverage industry. As the sales and distribution manager for the largest beverage distributorship in the state, he currently manages ten sales representatives and twenty four merchandisers. During this time as sales manager, he has helped increase market share from 25 to 40%.

Over the last twenty years, Steve has successfully built and maintained rapport with buyers in the city's largest key accounts, and has strategically routed sales, merchandising and truck routes throughout the city.

Steve has many industry contacts and an in-depth knowledge of the market.

Jennifer L. SmithJennifer recently operated as general manager for a local business and directed a staff of thirteen, overseeing the accounting practices, human resource issues, and day-to-day operations of the company. Prior to this position, Jennifer has held a variety of other inside business management and operations positions.

Jennifer's strengths and skills include strong management, excellent public relations, high levels of organization, extensive computer knowledge - including desktop publishing and graphic layout - and extensive presentation and reporting skills.

6.3 Personnel PlanPERSONNEL - GENERALInitially we expect to be able to handle business needs with Steve and Jennifer, one administrative assistant, and two product delivery/sales personnel. As

business continues to grow, we intend to hire additional employees one at a time and pay premium, over market labor rates to attract and retain quality help.

Not only will we train our employees to deliver excellent service, we will give them the flexibility to respond creatively to client requests. In addition, we will continually monitor our clients' level of satisfaction with our service through surveys and other convenient feedback opportunities.

To ensure our personnel are meeting our expectations, we will hold a minimum of quarterly meetings with all employees so that results can be reviewed and future plans can be discussed. At least twice a year, a refresher course will be required on product knowledge and how to exceed our customer's expectations.

SALES AND DELIVERYIn order to deliver high quality, personalized service we will carefully select all employees - with extra attention given to sales reps and delivery personnel who will deal directly with customers. We will carefully review references not just from past employers or manufacturers, but also from retailers whom these sales reps have served. We will also make sure that each employee understands our way of delivering quality service to each customer. We will have immediate back-up support available by phone from our office for more difficult service issues. We will also give employees enough latitude so that they can respond immediately to almost any customer request or complaint - which in this industry usually means granting immediate credit for damaged merchandise, and adding additional merchandise to an order.

PersonnelPersonnel Plan

FY 2004 FY 2005 FY 2006Jennifer Smith $30,000 $35,000 $40,000Sales/Delivery (Salary)

$20,400 $21,500 $22,500

Sales/Delivery (Commission)

$4,237 $4,500 $4,500

Delivery/Warehouse Personnel

$20,400 $21,500 $22,500

Administration $18,720 $19,500 $21,000Total People 4 4 4

Total Payroll $93,757 $102,000 $110,500

Financial Plan

7.0 Financial PlanThe Coffee Warehouse projects the gross margin to be at approximately 20-25 percent. Sales

projections for FY2004 are at $2,229,652 increasing to $2,558,584 in FY2005 and $2,936,137 in

FY2006. Cash-flow analysis, balance sheet, business ratio, break-even analysis, and other

financial details are shown in the appendix.

7.1 Important AssumptionsGeneral assumptions for this plan are on the following table.

General AssumptionsGeneral Assumptions

FY 2004 FY 2005 FY 2006Plan Month 1 2 3Current Interest Rate 8.00% 8.00% 8.00%Long-term Interest Rate

8.00% 8.00% 8.00%

Tax Rate 25.42% 25.00% 25.42%Other 0 0 0

7.2 Break-even AnalysisThe following table and chart illustrate our break-even analysis. With our fixed costs estimate of

approximately $15,000 per month, operating on average at a 25% profit margin, we will need to

sell 67,666 units to break-even in a month. Fixed costs include our warehouse lease, vehicle

leases, utilities, insurance, payroll, and an estimation of other running costs.

Break-even AnalysisBreak-even Analysis

Monthly Revenue Break-even $75,055

Assumptions:Average Percent Variable Cost 79%Estimated Monthly Fixed Cost $15,993

Break-even Analysis

 

7.3 Projected Profit and LossThe following table and charts show the projected profit and loss. Monthly projections are

included in the appendix.

Profit and LossPro Forma Profit and Loss

FY 2004 FY 2005 FY 2006Total Income $2,229,652 $2,558,584 $2,936,137Cost of Goods Sold $1,754,550 $2,012,837 $2,309,230

Gross Profit $475,102 $545,747 $626,907Gross Profit % 21.31% 21.33% 21.35%

ExpensesPayroll $93,757 $102,000 $110,500Other $0 $0 $0Depreciation $0 $0 $0Rent $33,096 $34,260 $35,460Utilities and Phone $7,200 $7,500 $7,800Insurance $6,000 $6,300 $6,500Payroll Burden $14,064 $15,300 $16,575Leased Equipment (Delivery Vehicles)

$12,000 $12,600 $13,200

Leased Equipment (Warehouse)

$3,000 $3,000 $3,000

Leased Equipment (Other)

$2,400 $2,400 $2,400

Fuel (delivery) $12,000 $12,500 $13,000Advertising / Promotion

$3,600 $3,600 $3,600

Professional Services $2,400 $2,200 $2,600Miscellaneous (office supplies, etc)

$2,400 $2,700 $3,000

------------ ------------ ------------Total Expense $191,917 $204,360 $217,635

Profit Before Interest and Taxes

$283,186 $341,387 $409,272

EBITDA $283,186 $341,387 $409,272

Other IncomeInterest Income $0 $0 $0Other Income Account Name

$0 $0 $0

Total Other Income $0 $0 $0

Other ExpenseAccount Name $0 $0 $0Other Expense Account Name

$0 $0 $0

Total Other Expense $0 $0 $0

Net Other Income $0 $0 $0Net Profit $283,186 $341,387 $409,272Net Profit/Sales 12.70% 13.34% 13.94%

Profit Monthly

 

Profit Yearly

 

Gross Margin Monthly

 

7.4 Projected Cash FlowThe following table shows cash flow for the three years, and the chart illustrates monthly cash

flow in the first year. Monthly cash flow projections are included in the appendix.

Cash FlowPro Forma Cash Flow

FY 2004 FY 2005 FY 2006

Cash Received

Cash from OperationsCash Sales $2,229,652 $2,558,584 $2,936,137Subtotal Cash from Operations

$2,229,652 $2,558,584 $2,936,137

Additional Cash ReceivedNon Operating (Other) Income

$0 $0 $0

Sales Tax, VAT, HST/GST Received

$0 $0 $0

New Current Borrowing

$0 $0 $0

New Other Liabilities (interest-free)

$0 $0 $0

New Long-term Liabilities

$0 $0 $0

Sales of Other Current Assets

$0 $0 $0

Sales of Long-term Assets

$0 $0 $0

New Investment Received

$0 $0 $0

Subtotal Cash Received

$2,229,652 $2,558,584 $2,936,137

Expenditures FY 2004 FY 2005 FY 2006

Expenditures from OperationsCash Spending $93,757 $102,000 $110,500Bill Payments $1,767,890 $2,357,759 $2,451,482Subtotal Spent on Operations

$1,861,647 $2,459,759 $2,561,982

Additional Cash SpentNon Operating (Other) Expense

$0 $0 $0

Sales Tax, VAT, HST/GST Paid Out

$0 $0 $0

Principal Repayment of Current Borrowing

$24,000 $24,000 $24,000

Other Liabilities $0 $0 $0

Principal RepaymentLong-term Liabilities Principal Repayment

$0 $0 $0

Purchase Other Current Assets

$0 $0 $0

Purchase Long-term Assets

$0 $0 $0

Dividends $0 $0 $0Subtotal Cash Spent $1,885,647 $2,483,759 $2,585,982

Net Cash Flow $344,005 $74,824 $350,155Cash Balance $353,805 $428,630 $778,785

Cash

 

7.5 Projected Balance SheetThe projected balance sheet is shown in the following table, with monthly projections in the

appendix.

Balance SheetPro Forma Balance Sheet

FY 2004 FY 2005 FY 2006Assets

Current AssetsCash $353,805 $428,630 $778,785Inventory $358,198 $410,929 $471,438Other Current Assets $18,750 $18,750 $18,750Total Current Assets $730,754 $858,308 $1,268,973

Long-term AssetsLong-term Assets $0 $0 $0Accumulated Depreciation

$0 $0 $0

Total Long-term Assets

$0 $0 $0

Total Assets $730,754 $858,308 $1,268,973

Liabilities and Capital FY 2004 FY 2005 FY 2006

Current LiabilitiesAccounts Payable $368,018 $178,186 $203,579Current Borrowing $71,000 $47,000 $23,000Other Current Liabilities

$0 $0 $0

Subtotal Current Liabilities

$439,018 $225,186 $226,579

Long-term Liabilities $0 $0 $0Total Liabilities $439,018 $225,186 $226,579

Paid-in Capital $25,000 $25,000 $25,000Retained Earnings ($16,450) $266,736 $608,122Earnings $283,186 $341,387 $409,272Total Capital $291,736 $633,122 $1,042,394Total Liabilities and Capital

$730,754 $858,308 $1,268,973

Net Worth $291,736 $633,122 $1,042,394

7.6 Business RatiosThe table shows projected business ratios.

RatiosRatio Analysis

FY 2004 FY 2005 FY 2006 Industry ProfileSales Growth 0.00% 14.75% 14.76% 0.00%

Percent of Total AssetsInventory 49.02% 47.88% 37.15% 0.00%Other Current Assets

2.57% 2.18% 1.48% 100.00%

Total Current Assets

100.00% 100.00% 100.00% 100.00%

Long-term Assets 0.00% 0.00% 0.00% 0.00%Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities

60.08% 26.24% 17.86% 0.00%

Long-term Liabilities

0.00% 0.00% 0.00% 0.00%

Total Liabilities 60.08% 26.24% 17.86% 0.00%Net Worth 39.92% 73.76% 82.14% 100.00%

Percent of SalesSales 100.00% 100.00% 100.00% 100.00%Gross Margin 21.31% 21.33% 21.35% 0.00%Selling, General & Administrative Expenses

8.61% 8.17% 7.51% 0.00%

Advertising Expenses

0.00% 0.00% 0.00% 0.00%

Profit Before Interest and Taxes

12.70% 13.34% 13.94% 0.00%

Main RatiosCurrent 1.66 3.81 5.60 0.00Quick 0.85 1.99 3.52 0.00Total Debt to Total Assets

60.08% 26.24% 17.86% 0.00%

Pre-tax Return on Net Worth

97.07% 53.92% 39.26% 0.00%

Pre-tax Return on Assets

38.75% 39.77% 32.25% 0.00%

Additional Ratios FY 2004 FY 2005 FY 2006Net Profit Margin 12.70% 13.34% 13.94% n.aReturn on Equity 97.07% 53.92% 39.26% n.a

Activity RatiosInventory Turnover

10.91 5.23 5.23 n.a

Accounts Payable Turnover

5.80 12.17 12.17 n.a

Payment Days 27 46 28 n.aTotal Asset Turnover

3.05 2.98 2.31 n.a

Debt Ratios

Debt to Net Worth

1.50 0.36 0.22 n.a

Current Liab. to Liab.

1.00 1.00 1.00 n.a

Liquidity RatiosNet Working Capital

$291,736 $633,122 $1,042,394 n.a

Interest Coverage 0.00 0.00 0.00 n.a

Additional RatiosAssets to Sales 0.33 0.34 0.43 n.aCurrent Debt/Total Assets

60% 26% 18% n.a

Acid Test 0.85 1.99 3.52 n.aSales/Net Worth 7.64 4.04 2.82 n.aDividend Payout 0.00 0.00 0.00 n.a