Business Plan: Zenity Tea House, LLC December 2012 Team Members: Connor Casey Richard Grepo Katsiaryna Prasad Amanda Tran Executive Summary Zenity Tea House, LLC is a small café located in Seattle, Washington and will be open for business starting January 1, 2015. We provide our customers various Chinese teas with refreshments of pastries and appetizers known as dim sum. Unlike local tea houses in Seattle, we offer our customers to experience the traditional art of Chinese tea making through tea tasting classes and seminars. They can visit us for social reasons like business meetings or networking. Due to the rise of health-related problems such as obesity, heart disease, and diabetes, people are becoming more health-conscious by finding alternative ways to be healthy. However, most people are resistant to consume healthy due to lack of knowledge. Hence, they are unable to improve their lives to maintain a healthy lifestyle. Therefore, Zenity will provide our customers with the benefits of a social environment sans the health costs. Furthermore, there are people who are passionate about learning new cultures by embracing the language, food, and social etiquette. Thus, they travel to other countries to acquire such educated knowledge. Additionally, Zenity will provide a culturally sophisticated and intellectual atmosphere for customers. We will also offer tea tasting and education classes to further this cultural aspect of Zenity. Moreover, this will allow our customers to enjoy our offered teas compared to our competitors. Zenity offers both products and services that can be used by consumers that are either health-conscious or culturally curious. Tea is one alternative product that is beneficial to one's health. Thus, customers can come and enjoy our categories of tea offered without feeling selfconscious. They could also try new types of tea that they have not tried before. Zenity also educates our customers about the cultural aspects of traditional art of Chinese tea making along with benefits of tea. By broadening our customers' understanding of tea, Zenity offers them a place to obtain knowledge in terms of health and culture. Currently, the U.S. industry market for tea has increased to 22% in the previous five years and it has reached $6.5 billion in 2011. Moreover, retail sales of tea rose 5.2% to $5.4 billion. Despite the economic recession, this growth will help open new distribution channels as consumers expand their recognition of tea's health benefits. There will be a continuance in the expansion of tearooms and tea offerings by retailers, restaurants, and coffeehouses. 1 1 http://www.foodnavigator-usa.com/Market/US-tea-market-growth-to-continue-predicts-Packaged-Facts 1 Zenity has both strengths and weaknesses as we start up. Some weaknesses we will face upon opening are our limitation of tea products, low direct sales, and unrecognized brand awareness. Our competitive advantages over our rivalry are: • Unique Experience: Customers can authentically experience the form of traditional art of Chinese tea making performed by our Tea Expert with the assistance from our Sales Associates in a tranquil and relaxing atmosphere. • Weekly Classes and Seminars: Zenity will offer tea tasting and tea education classes/seminars that our customers can participate in by paying a fee. These classes and seminars will educate our consumers on the benefits and cultural knowledge of tea. Moreover, we will gain revenue from each payment transaction made with our customers. Our customers will pay for tea either in cups or pots, Chinese pastries/appetizers (dim sum), tea tasting classes, and tea education seminars. The pricing for a cup or pot of tea will varies depending on what type of tea the consumers will order. Dim sum will have a set price based on small, medium, or large size plates. The classes and seminars will range from $15 to $30. The Zenity team will be comprised of three core members. Below are the names of each team member, their role in the organization, and highlights of any relevant skill or career experience that they each have. • Amanda Tran, Owner/General Manager: Amanda’s experience with the food and beverage industry began in 2008. She has acquired various positions in the retail, hospitality, and food/beverage industry. Thus, she has a vast knowledge about managing a business. Amanda will receive her double BA in Business Administration and International Business in December 2012 from the University of Las Vegas, Nevada. • Holly Guan, Assistant Manager: Holly has worked for the Eastside Cannery Casino & Hotel as a Marketing Coordinator. She handled several large projects in regards to marketing strategies, advertisement, and public relations. With her expertise in marketing, she will help Zenity promote itself in Seattle, Washington. Holly received her BA in Marketing from the University of Las Vegas, Nevada. • Kirstyn Else, Tea Expert: Kirstyn has 6 years of tea and coffee expertise working for Starbucks Coffee Company. She has demonstrated an expansive knowledge of different types of tea, serving technique, and the history of tea. She is also a member of the American Tea Masters Association. 2 In terms of financials, Zenity will acquire lease for a retail location in Downtown Seattle. The fixed costs for our business will be the location, equipment and technology that will be required to operate the tea house. The variable costs will consist of the purchase of tea supplies, tea products, and local produces for the creation of Chinese appetizers and pastries. It is projected that we will break even at $498,144 or $41,512 each month for the first year. The funding required for Zenity is as followed, we will seek $270,000 as an initial investment for our start-up operations. The owner, Ms. Tran, will finance $120,000 into the business and her friend, Ms. Thu Nguyen, will invest $150,000 for an expected 10% return of profit. The capital invested into the tea house will be used for initial investment in personnel, our leased location, equipment, furniture, and operating expenses. Company Description As a start-up business, Zenity will primarily serve our customers traditional Chinese tea and light refreshments. Our café's location will be in the King County, Downtown Seattle to provide a place where our customers can enjoy Chinese tea in a quiet and relaxing atmosphere. Our company's mission is to consistently provide high quality products that embody traditional Chinese culture in a unique atmosphere, so our customers can experience serenity and socially interact with family and friends. We will strive to broaden our consumers understanding of tea by promoting healthier and better living style through our products. The business structure of Zenity will be a limited liability company. Ms. Amanda Tran will be the owner/manager and hold the most voting rights of this business. Her friend, Ms. Thu Nguyen will be a LLC member with the second highest voting right. Ms. Tran will also consider adding the tea expert, Kirstyn Else and Assistant Manager, Holly Guan, as additional LLC members. Other future investors will be considered as LLC members as well in order to acquire additional financial funding for the tea house. Zenity will focus on the traditional aspect of Chinese tea-making by offering a variety of tea such as black, white, green, oolong, and pu’er. These products are core to our business, thus, we must obtain superior tea for our tea house. As for light refreshments of pastries and dim sum, we will make them from products of local producers and health-oriented grocery stores in Seattle. This will allow us to focus on providing our customers high quality products that are both healthy and organic. 3 As we open Zenity, one of our goals is to be one of the top Chinese tea houses in the Seattle area. By accomplishing this goal, we will focus on satisfying our customers by providing outstanding customer service. Our services consist of listening and acting on customers' feedback while exceeding their expectations. By providing a place of tranquility, our service is beneficial for our customers because it allows them to calm their soul while enjoying our products. Based on this goal, Zenity’s main customers will be men and women in Seattle who are interested in learning about traditional Chinese tea making. Hence, their curiosity about this art brings them to us among other tea houses in Seattle. We offer them an opportunity to learn and appreciate the art of traditional tea making in a place of serenity, which is the value we provide to our customers. Another value is being able to help them to continue living a healthy lifestyle through the benefits of tea which will be discussed. Furthermore, each customer will experience the tea-making process that is not known to the general public, making us unique. This experience will serve as our competitive advantage. Our service also includes educating the customers about the benefits of tea by offering tea tasting, similar to wine tasting, and one-on-one education classes or group seminars. Thus, we will educate and develop our customers' understanding of tea making. We will also teach them how tea can enhance their lifestyles which are all benefits of our products. During the tea-making process, customers will pick the type of tea they're interested in. Our tea expert or an employee will measure the amount of tea needed for the number of people served. Each tea requires different water temperature and different amount of water. Once the water is poured into the teapot, the brewing time is also measured to bring out the flavor of the tea. The tea is then served to each customer. As courtesy of The Chinese Tea Shop, refer to Appendix A for the various teas Zenity will offer. All refreshments offered by Zenity will be created in-house to cut unnecessary expenses. Thus, Ms. Amanda Tran will learn how to create these refreshments by consulting dim sum chefs in Seattle and Vancouver, B.C. Once she is qualified to make these pastries and Chinese appetizers, she will teach our employees to assist her with this business operation. However, a dim sum chef will be considered for the future as Zenity becomes profitable. Moreover, these refreshments will be offered to our customers to cleanse their palate during the tea classes and seminars. Customers can also purchase the refreshments with their pot of tea if they do not take part in these classes. 4 A second goal of Zenity is to participate as a community-oriented business to acquire a customer base in our first year of operation. Zenity’s managers and employees will attend various non-profitable organizations and community activities to gain brand awareness. These organizations will consist of local shelters, orphanages, and hunger relief centers. Community activities would consist of walkathons/marathons, city cleanup, or support of local organizations. Currently, we are establishing relationships with suppliers and building a customer base to be able to bring our products and service to market. Once we have the products from our suppliers and interested customers, we will be able to open the business within a year from startup. Moreover, we will be limited in our tea products offered in the beginning. This is due to learning about and catering our products to our customers' preferences. During the first operating year, we will have negative profitability due to advertisement costs of promoting our business and the management of our cash flow. Additionally, to start the business, we will obtain all required permits and licenses, including health inspection, license for business operation, signed legal agreements, etc. Overall, our main risks are obtaining customers, establishing our name in Seattle, and meeting financial ends. Target Market Zenity will have a niche market focusing on five specific target markets. As stated, our customers visit Zenity because they are interested in traditional Chinese tea making and want to learn this art. Thus, they will prefer our business compared to other tea houses that do not offer this service. Moreover, our target markets in accordance of importance to what percentage we will focus our market efforts on are: tea connoisseurs (35%), business professionals (25%), customers of Asian ethnicity (20%), upper-middle to high class socialites (10%), and culture passionate lovers, i.e. those who are passionate to learn about new culture (5%), see Appendix B. Presently, there 200 or more places in Greater Seattle that serve both coffee and tea. However, about 20 of them are tearooms in particular. 2 Furthermore, Seattle has grown 23% between 2000 and 2011 with a “more racially diverse [population] than that of the city, county and nation as a whole.” 3 Also, about 14% of Seattle’s population is Asian Americans. 4 Thus, Seattle is a credible location since this specific market is assumed to be knowledgeable about tea and its health quality. 2 http://www.citylivingseattle.com/main.asp?SectionID=28&SubSectionID=173&ArticleID=88904 http://downtownseattle.com/files/file/SOD2012_EconReport.pdf 4 http://www.seattle.gov/dpd/Research/Population_Demographics/Overview/default.asp 3 5 Moreover, due to increasing popularity of tea because of health reasons, our consumers are switching from drinking coffee or soft drinks to tea. 5 Hence, there is an increase demand for healthier beverages like tea. This current trend of consuming healthy to maintain a better lifestyle has increased over the past years. Thus, as an antioxidant, tea is beneficial to one's health. Furthermore, by offering tea, we are also aiding our customers to find alternative beverages to coffee, soft drinks, or energy drinks. We are educating our consumers about tea to help them manage a healthier lifestyle. With this incentive, they will be motivated to purchase our tea products over our competitors. Additionally, our customers purchase our products not only because of our exceptional customer service, but also for two other reasons. First, they want to learn about the traditional art of Chinese tea making for cultural learning. By acquiring this new knowledge, they are able to become more culturally in tune with the Chinese culture. Second, they want to live a better life by improving their health consumption. Thus, they make the switch to drinking tea as one way to maintain healthier lifestyles. Industry, Competition and Strategic Positioning Zenity will compete in a growing Coffee and Snack Shop industry, which is popular in the Food and Beverage Sector. This industry consists of establishments that serve snacks and nonalcoholic beverages, such as cookies, donuts, bagels, tea, coffee, juices, smoothies, and sodas. 6 Due to a struggling economy, the spike of unemployment, and changing consumer tastes toward healthier eating options, the industry experienced a major recession in 2009. Consumers spent less money on eating out and buying high-priced coffee drinks. Also, people have become more health-conscious and are aware of obesity, weight gain, high cholesterol, high blood pressure and other health issues. However, Coffee and Snack Shop industry is expected to grow over the next five years, with revenue increases of 3.6% in 2013 to a total of $28.8 billion. The industry revenue will boost by 4% annually and will reach $33.9 billion by 2017. Compare to the projected 2.5%-2.9% GDP increase, the industry has great potential. 7 The most important trends over the next five years will be consumers’ health awareness and improvement in industry profitability as a result of increased sales volume. First, as consumers become more health-conscious, businesses are 5 http://clients.ibisworld.com/industryus/default.aspx?indid=1973 http://clients.ibisworld.com/industryus/default.aspx?indid=1973 7 http://clients.ibisworld.com/industryus/industryoutlook.aspx?indid=1973 6 6 responding by expanding their menu and promoting healthier food and beverage options. Second, as the economy picks up, businesses will experience increase in sales volume which in turn will have a positive effect on the industry profitability. Competition will likely to be intense over the next five years. Industry main players are Starbucks Coffee Company and Dunkin’ Donuts. Although Starbucks is the leader, with a market share of 35.6%, it is known for being a global coffee company and coffee house chain that offers the highest quality Arabica coffee. Dunkin’ Donuts has a market share of 29.5% as an international doughnut and coffee retailer. It is famous for its variety of doughnuts and wide range of bakery products. Market share of 34.9% belongs to other businesses in the industry, including tea houses. 8 Despite Starbucks and Dunkin’ Donuts being the leaders in the industry, they are not our main competitors. Instead, we will directly compete with local tea houses in Seattle, such as Floating Leaves Tea, Teahouse Kuan Yin, Vital T Leaf, and Miro Tea. Moreover, Vital T Leaf is located in Downtown, Seattle, and the location helps them to attract more target customers through high foot traffic; refer to Appendix C. They represent a relaxed tea rooms/tea shops that offer a wide variety of brewed tea, including teas from India, Sri Lanka, Japan, Taiwan and China, and sell numerous tea wares. Their main focus is to sell tea to the general public and retailers while offering either occasional tea tasting sessions or prior to purchase tea tasting. Another example; Teahouse Kuan Yin offers only twice a month tea tasting while Vital T Leaf offers complimentary tea tasting before making a purchase. Unfortunately, some of the tea houses force customers to purchase tea in a bulk of ¼ lb. with prices for some teas up to $320/lb. Also, most of the tea houses have no waiter service and offer a heavy food menu with samosas curry and cakes, which can overwhelm the process of tea drinking. For details, refer to Table 1. 8 http://clients.ibisworld.com/industryus/ataglance.aspx?indid=1973 7 Table 1: Analysis of Competition Strengths Weaknesses Floating Leaves Tea Tea from Taiwan, Japan and China; Small selection of tea and tea sells tea through its website; free ware; PayPal is the only online form of payment; closed on shipping for purchases over $80; sells tea ware; tea tasting three days a Mondays and Tuesdays. week. Wide selection of tea; also sell to wholesalers and retailers; gift certificates available; have its own blog and Facebook account; offer organic selection of tea. Teahouse Kuan Yin Tea tasting only twice a month; “no sell phone” policy; lack of individual tea tasting sessions; offer heavy food such as cakes, samosas, and curry. 10 Positioning It is “a Seattle-based tea importer and retailer with a passion for Taiwanese, Japanese and Chinese tea, tea ware, and tea culture.” 9 It is a relaxed tea room that offers a wide variety of loose leaf tea from Asia to its customers and wholesalers. Vital Tea Leaf Located in Downtown, Seattle which Tea is expensive (up to It is a tea shop with a mini bar, helps them attract more target $320/lb.); minimum of ¼ lb. of where customers can taste tea customers; high quality and wide tea purchase is necessary; no before making a purchase. variety (300 kinds) of tea; sells tea sitting area, except for a mini ware; complimentary tea tasting bar. prior to a purchase. Open long hours, 7 days a week; indoor and outdoor seating; offers gluten-free food; tea is served in a tea pot with a candle underneath to stay warm. Miro Tea No waiter service; gets noisy It is a tea house that offers when crowded; limited seating; many delightful teas and light lack of tea tasting sessions. food, such as crepes, salads and pastries. Zenity Tea House, LLC Unique, authentic experience of the Limit in tea products offered It is a tea house that focuses on art of Chinese tea making; wide upon opening (because of still specialize art of Chinese tea variety of teas; light snacks; great developing relationship with making, while offering customer service; weekly tea tasting suppliers); limit in direct sales excellent customer service, sessions; bi-weekly educational one- upon opening (don’t want tranquil atmosphere, proper tea on-one classes or group seminars; people to take tea home without brewing, tea health and sharing having a tea expert present daily. proper knowledge of tea the knowledge of tea benefits. making). 9 http://www.floatingleaves.com/ http://www.teahousekuanyin.com/info.html 10 8 Zenity will differentiate itself from our rivals by sharing our love of tea with consumers together with offering unique, authentic art experience of Chinese tea making, and delivering excellent customer service. Not everybody knows that there are specific ways of brewing each type of tea. Moreover, tea should not been drunk with a heavy meal, instead light snacks are more appropriate to clean one’s palate. The customers will observe a form of art that is slowly diminishing today, making the experience more memorable. Each customer at Zenity will have an opportunity to experience the tea making process not known to the general public by visiting our tea house, participating in weekly tea tasting sessions or taking our bi-weekly tea education classes. While tea tasting will help our customers develop their palate for appreciating fine teas, tea education classes will broaden one’s understanding of best tea brewing, and help learn that tea isn’t just tea but it can enhance one’s lifestyle. Finally, a vibrant social atmosphere, warm and cozy environment, carefully chosen colors of the surroundings will make consumers’ experience more memorable and enjoyable. Among the main risks related to this positioning are establishing our name in Seattle while competing with local tea houses, attracting first customers, and scrambling for market share to ensure Zenity can maintain profitability. Moreover, two main tea substitutes, coffee and energy drinks, are extremely popular in American culture, with 9.39 pounds of coffee consumption versus 0.90 pounds of tea consumption per person in 2011. 11 However, tea’s popularity is ever-increasing due to its health benefits, and tea consumption is expected to rise 0.63% annually. 12 Thus, we plan to be a profitable business with a small market share of 2-3%. With a new trend towards healthier lifestyle, Zenity will be focusing on gaining insights into our customer’s values through surveys, growing relationships with current customers through social media, and attracting new customers through local advertising and promotions. By locating our tea house in a high-profile location, Downtown Seattle, with easy access and parking for customer convenience, we will be able to better introduce our products to the target market. Focusing on current trends such as marketing to baby boomers with their huge buying power can also help us to gain projected market share. Moreover, cost control with minimal waste and improved service is crucial in this low margin industry as it can help differentiate one tea house from another. 11 12 http://clients1.ibisworld.com/reports/us/bed/default.aspx?entid=4670 http://clients.ibisworld.com/bed/default.aspx?bedid=4671 9 After Zenity gains success with its main target market, we expect our market share to increase as we discover potential secondary market of wholesalers and/or retailers who are interested in selling our tea. One way to make it possible is setting up an account with a potential wholesaler/retailer for online orders and giving them the ability to purchase tea over our website. Marketing Plan and Sales Strategy Our first main strategy is to teach our customers that tea is a healthy alternative to coffee and help them learn the process of traditional tea making so they can enjoy it at home as well. There are a few studies done on the subject and it has been found that tea has many beneficial properties. Some of these properties could be inhibiting the growth of new fat cells, help with losing weight, decreasing the chances of cancer, preventing and slowing the progression of Type 1 Diabetes, and tea is full of antioxidants.13 Unfortunately, not many consumers are aware of it. Thus, our first job is to get the message out to our potential customers that tea is good for them. Second, the service and unique experience that Zenity offers will attempt to soothe the mind and soul of our consumers. With our quiet, relaxed, serene atmosphere, Zenity will be a place to relax, enjoy, and experience rather than waiting for a barista to shout customers’ names and a drink order. In the end, our message to the customer is “Tea is great for the body. Come experience it with us where you can relax and soothe the soul as well as learn the sophisticated art form of traditional Chinese tea making.” Unfortunately, as there are a lot of coffee shops and baristas in Seattle, communicating our message to potential customers will be the most difficult endeavor for our business. With the limited resources at our disposal upon opening, we will be using hands on approach. First, Zenity will have a website that offers comprehensive information regarding tea, its health benefits, and the history of the art form of Chinese tea making. The site will be informative, simple, and easy to navigate. The second step would be to retain the services of a local SEO Solutions Company (Vetta SEO or EWS Seattle). 14 SEO Solutions Company can increase our web presence through organic optimization, blogging, and other means. Zenity would also offer to come to a radio station, like KJAQ 95.7, an adult contemporary station in the Seattle area, put on a demonstration of tea making, serve tea, and offer coupons and discounts to the listeners in return for air time and commercial spots. Through 13 14 http://www.webmd.com/diet/features/tea-types-and-their-health-benefits http://clients.ibisworld.com/bed/default.aspx?bedid=4671 10 the radios, we would also hold a promotional contest. The promotion would be to sign up on our site, or “register” for a chance to have Zenity come to one’s place of business and serve tea. Finally, we will use Groupon, deal of the day recommendation service, to promote our tea house upon opening in order to attract new customers. Although Groupon earns a commission of 50% of the coupon sell price, it promises a certain number of sales per day. 15 Not only will all this increase brand awareness, but it will also encourage people to try our tea, while giving us a chance to showcase our unique brand of customer service, and allow us to obtain valuable customer feedback. Our outsourced sales team will essentially be comprised of one sales manager and a Director of Sales and Business Development. As we utilize SAP data mining software for data analysis, our sales/marketing team will use a close loop system. We want to show our customers that we are receptive to their feedback from the outset. Also, should we choose to implement the software later, it will cost more and inputting all historical data will take more time and money. The Director will be in charge of interpreting the information gleaned from the data mining to improve and implement sales and marketing strategies. Not only will he/she use data on sales, costs, flavor popularity, but also customer feedback. Starting off, the Director and the sales manager will have to meet weekly in order to reevaluate their objectives. As time progresses, these objectives will have to be reassessed to ascertain whether they are achievable because setting unreachable goals for sales team members generally leads to low morale and high turnover. Operations and Technology The first important key to success is finding where Zenity Tea House will reside, and how big the location will be. Downtown Seattle is our intended location for two reasons. First, it is “one of the most walkable neighborhoods in the country,” and this makes downtown’s businesses highly accessible. Second, the city supports business growth by offering great opportunities for start-up companies. 16 Our hours of operations are 7 days a week; Monday to Saturday, we will be open from 10 am to 10pm and Sunday, we will be open from 11am to 7 pm. Zenity will prospectively reside in the Sidney-Belltown building, which is located on the 4th and Vine Street, 0.7 miles North-West of Downtown. Our address is 2514 4th Avenue, 15 16 www.groupon.com/faq http://downtownseattle.com/DoBusinessDowntown/BusinessIncentives 11 Seattle, WA 98121. It is surrounded by residential and commercial facilities which are beneficial for our business. Moreover, it has a strong presence of business professionals and customers of Asian ethnicity, which compose approximately half of our target market and justifies our decision for this location. The facility for the tea house is 1,320 square feet with a lounge area that will fit twenty to twenty-five guests comfortably. Approximately 900 square feet will be allocated to the main lounge area with shelves filled with a variety of tea products. An estimate of 420 square feet will consist of a small office and a stockroom. The facility will be leased for four years to lower our initial start-up cost. However, this does not eliminate the possibility of owning a location, which is a goal after we establish our reputation in Seattle. Additionally, Zenity’s non-recurring costs are tied to the start-up cost of the company. Costs, such as computer systems, interior design and water boilers, are a small portion of our assumed $95,000 budget for initial investment. The cost of leased location is listed at $26.00 per square foot per year. The cost of necessary tea ware is $30.95 each, and we need 15 of them. 17 Also, three 5 gallons water boilers needed would cost us about $849. 18 Totals and additional cost can be seen in Appendix E. Zenity’s sales and marketing will be outsourced to Creative Media Alliance, which is a Seattle based advertising and marketing agency. It is a small business that has partnered with a lot of great talent. They have an exceptional portfolio and are aligned with other local businesses that target similar market as we do (for example, the Pacific Northwest Ballet (affluent and cultured people) and the Seattle Chamber of Commerce (business people). Also, they will do a free business/market analysis for us before taking us on as their client. As for our suppliers, we plan to purchase our tea from China, Taiwan, and Hong Kong, via Vancouver B.C. in Canada as a long term objective. Due to the low tariffs cost between Canada and the United States (because of the World Customs Organization), Vancouver B.C is an optimal solution to the supplies and equipment for the tea house. However, we will start off by using Unilever Food Solutions, the world’s largest tea supplier, because they have created an economy of scale with prices that are hard to match. When starting, we will need to take advantage of their lower prices. 17 18 http://www.yishanteashop.com/Full_Teasets_Gifts/ http://www.coffeeespressopro.com/bunn-h5m-automatic-hot-water-machine-commercial-dispenser.html 12 As Zenity builds our client base and brand awareness, we will develop an exclusive relationship with a few smaller local suppliers, such as Yishan Teashop, Lam Kie Yuen Tea Co, and Seattle’s Best Tea, and because of our volume, they might become more flexible to our demand. These three suppliers will acquire their products from China, Taiwan, and Hong Kong. Therefore, this will help provide consistency in regards to quality and taste of our products. Yishan Teashop will supply most of our teas and tea ware and will deliver our products in one transition. The supplier appeals to Zenity because of the variety, taste, quality and cost saving when we buy large quantities of products. Yishan Teashop gives discounts on unit prices when buying an excess of 500g and charges nothing for shipping and handling. Building a positive relationship with this distributor will be of importance to us. Lam Kie Yuen Tea Co. provides exclusive Chinese tea of great quality. Although it is more expensive compared to other suppliers, we will use it mainly for buying unique teas. Also, the proximity of the tea supplier is optimal for us because the cost saving for shipping will be allocated to other important operations and our tea expert can visit the supplier to taste and test teas before buying them. Refer to Appendix D for a sample ordering catalogue of this supplier. Finally, Seattle’s Best Tea distributes their tea both online and in their stores. Their proximity to our location makes them ideal for when we need to replenish inventory the next day. However, with their limited supply of tea, we will not be acquiring a lot of our tea products from them. Thus, they will serve as a contingency plan when the other two distributors cannot supply us with products when needed. In terms of technology, Zenity will use computerized software called QuickBooks that helps businesses perform accounting, bookkeeping, and financial reports. This software is crucial because it helps simplify time-consuming functions and allow additional time to manage important aspects of Zenity such as the store operations and employees. Moreover, this computerized software will be held responsible by Ms. Tran, our general manager, in terms of these accounting and financial operations. Moreover, the implementation of a perpetual inventory system such as WASP Inventory Control Software will be necessary to ensure that the business operates in an organized manner. The inventory control is a vital aspect of the business, hence, this proper inventory database will be obtained to minimize cost and to maximize accuracy. The database will let the general 13 manager and tea expert refer back to previous inventory points for current and future references based on the quality and freshness of the tea we offer. Management and Organization Zenity will be a three-tiered organization comprised of a staff of six. The Executive Level will be held by the owner, Ms. Tran, who will also act as the general manager. The Management Level will consist of the assistant manager and the tea expert. The Operational Level is comprised of two full-time sales associates and one part-time sales associate. Management and organizational structure is broken down as follows. The owner/general manager, Ms. Tran, will have most of the responsibilities including creating a tranquil atmosphere in the tea house by carefully choosing the colors and décor of the surrounding. She will also implement all strategic planning and oversee the financial and accounting report of Zenity. The accounting will consist of payroll, accounts payable, and accounts receivable. Moreover, Ms. Tran will be in charge of marketing through advertisement and upholding our store’s visual standards. She is willing to go without pay for the first year; however, her capability to do so will end after the second year. The assistant manager, Holly Guan, will assist the owner/general manager by overseeing Zenity’s organization, managing our human resource, and creating marketing strategies. She will handle most of the public relations aspect of the business especially involving communityoriented events and giving back to society. Ms. Guan will also help manage the store’s operation along with the general manager. Salary for this position will be $25,000 a year without benefits. However, she will be earning a 10% share of the business when we become profitable. The tea expert, Kirstyn Else, has demonstrated an expansive knowledge of Chinese tea. She has 6 years of coffee and tea expertise. Not only she knows the various flavors of tea, but also brands (quality/cost), serving technique, and the history of the Chinese tea making tradition. Her responsibility will be to inspect quality and freshness of the acquired goods, and oversee inventory and supply chain of Zenity by using our inventory database to maintain the flow of our tea products and supplies. She will travel to our suppliers to find the best and highest quality of tea while keeping positive relationships. Salary for this position will also be $25,000 a year without benefits. Moreover, Ms. Else will become an LLC member and will be expected to receive 10% of the profits made at Zenity. 14 Finally, sales associates will be in charge of basic tea house functions such as maintaining the cash register, stocking shelves, maintaining the cleanliness of the tea house, and delivering great customer service. They will be trained to learn the proper tea etiquette and process of tea making by the tea expert. While there are plans for future growth, during the first year of operation the staffing structure of Zenity will remain static. They will be paid $10 hourly without benefits for 30 hours per week work schedule. Additionally, both management and personnel will get raises at 1% per year. These raises and benefits will have to be added or considered at a later date, but currently the business cannot afford it due to start-up and financial difficulties with finding capital funds. Financials and Exit Plan Sources and Uses of Funds There are multiple and significant up-front funds required to be invested in the business, such as owner’s capital contribution and Ms. Nguyen’s (Ms. Tran’s friend) investment of $150,000 into the business. Ms. Nguyen will receive 10% of profit for her investment into Zenity and she will hold 15% of shareholders’ voting rights. Table 2: Sources of Funds Owner’s Capital Contribution (Ms. Tran) $120,000 Investor’s Money (Ms. Nguyen) $150,000 Total Initial Investment $270,000 From the $270,000 initial investment, about $95,000 will be used to hire employees, acquire a leased location, pay for advertisement expenses, and establish the business. With these funds, we will also test our products during a pre-opening event before our first day of grand opening. This will allow us to observe the operations of our products and service in terms of our customers’ preferences (see Appendix E for uses of funds). Financial Projections All financial information related to Zenity is estimated two years in the future starting January 1, 2015. Hence, we assumed the numbers are based on this data: Variable Costs: Tea: $15 average per pot (selling 100 pots per day at 1% growth over time) Tea Classes: $15/person (120 people per month at 0.5% growth) 15 Tea Tastings: $30/person (80 people attending per month at 2% growth) Dim Sum and Pastries: $12 average per serving (Estimated 60% consumers buying tea would also purchase appetizers) Fixed Costs: The retail space we will lease will be an average of $25 to $26/sq. ft. each year as our rental cost. Our equipment will also be a part of our fixed cost. Please refer to Appendix E in regards to Further Financial Assumptions for all required equipment. We will also hire a marketing team and an outside accountant for our yearly business tax returns. Both the marketing team and accountant will be paid about $500 per year. Summary of the Financial Statements Zenity’s financials are based two years in the future; thus, we will start making net profit of $420 in the first quarter of year 2015. Our gross sales and gross profit increases gradually during the first year of operation and throughout the next five years, leaving Zenity with $11,448 of net profit at the end of the first operating year (2015) and $148,048 by 2019. Moreover, Zenity is competing in a low margin industry, thus, the net profit is just a small part of our gross sales, refer to the chart below. 5-Year Financials At-a-Glance $1,000,000 $900,000 $800,000 $700,000 Gross Sales $600,000 Gross Profit $500,000 Net Profit $400,000 $300,000 $200,000 $148,048 $100,000 $11,448 $37,251 $67,237 $104,320 $0 2015 2016 2017 16 2018 2019 In the first year of operation, Zenity will earn profit by selling our goods and service as our best-case scenario assumptions for our cash flow projections. We will have a healthy cash flow because cash provided for operations is more than sufficient to cover cash used for investing (for example, total cash from sales in 2015 is $530,616 versus total cash from financing is $151,571). Moreover, we might face financial crisis if we do not sell enough products to meet our budget for the each month of business. Thus, if these projections of cash flow continue to grow over the next five operating years, then our profitability will be promising. The gradual increase of cash will provide us with an ending cash balance of $261,249 in 2015 and $983,470 in 2019 (see Cash-Flow Projection in Appendix E). This will allow Zenity to have enough cash on hands to pay necessary business operation expenses such as rent, advertisement, and maintenance. Furthermore, there should not be any cash flow problems since there is little seasonality for our business. Also, Zenity will be acquiring profitable sales in a quick manner and will not be selling on credit. Additionally, based on our cash flow projections, we calculated the value of cash flows below to estimate the worth of our business. Thus, Zenity will be valued at approximately $1,362,997 if we operate for six years, starting January 2015. Discounted Cash Flow Year Failure Sideways Successful Weighted PV Factor Average (1/1+r)t) $ 132,366 0.800 $ 149,556 0.640 $ 192,941 0.512 $ 296,950 0.410 $ 458,953 0.328 TV=WAE5* (1+g)/(r-g) $ 2,409,502 0.328 1 $ 52,250 $ 87,083 $ 261,249 2 $ 59,035 $ 98,392 $ 295,177 3 $ $137,815 $ 413,445 4 $ $212,107 $ 636,322 5 $ $327,823 $ 983,470 Terminal value calculation 6 Total Net Present Value Assumptions: 0.2 weight for failure 0.5 weight for sideways 0.3 weight for success 25% = r, Discount Rate 5% = g, Growth Rate in period of constant Growth 17 $ $ $ $ $ Present Value 105,893 95,716 98,786 121,750 150,536 $ 790,316 $ 1,362,997 Moreover, our pro forma balance sheet indicates in the first year of operation that current assets are greater that current liabilities by a comfortable margin, which is very attractive to potential investors. For example, in the first operating year (2015), our projected current assets are $383,885 while current liabilities equal to $41,316. Therefore, our total net worth is $342,569 in 2015 (see Appendix E: Balance Sheet). Finally, Zenity will need to reach an average of $498,144 in gross sales annually in order to break even. As the income statement indicates, we should be making $530,616 and $606,098 in gross sales in years 2015 and 2016 respectively (see Appendix E: Break-Even Analysis). Therefore, the breakeven point should be reached within the first year of operation. Exit Strategy Zenity’s LLC members will have several methods to exit their investment in the business. However, the most reasonable strategy is for the departing LLC member(s) to sell their provisions to current LLC member(s) or a person interest in becoming a member. Moreover, if Zenity were to become extremely successful, then we would look into franchising the business to investors who are interested in the traditional art of Chinese tea making. Thus, this will be another method that will allow investors to exit the business more easily. Furthermore, if Ms. Tran wants to keep the business within family and friends, then she can open a second location to enhance the profitability of Zenity in Seattle. 18 APPENDICES Appendix A: Types of Traditional Chinese Tea 19 19 http://www.thechineseteashop.com/gong-fu-cha.html Appendix B: In-Depth Description of Target Markets Each target market below cannot be really quantified in size and trends according to U.S. dollars of the market they represent. However, below are description and current information of each target market which Zenity spends our market efforts on. Tea Connoisseurs: In a Seattle Times article, Ms. Rosanna Xia states that there is “a new generation of connoisseurs of Chinese tea is emerging.” She explains how these new generation is “trying to teach themselves about a culture they were not born into, learning Chinese and traveling to southern China's ancient tea mountains, where they hunt for the best tea ware and perfectly aged pu'er, some centuries old.” 20 Business Professionals: Currently, Seattle is one of the best cities for young adults and professionals according to Forbes (May, 2010) and The Business Journals (2011). Moreover, Seattle is also “one of seven largest U.S. business centers for software/technology” (OrigoTerra LLC, April 2010). In Seattle, downtown consists about 75% of the city’s government job with 57% of the city’s services sector. From the Puget Sound Business Journal of Lists, Downtown Seattle is also home to the world’s most well-known companies such as Amazon.com, Starbucks Corporation, and Nordstrom, Inc. 21 Asian Ethnicity: In the 2010 U.S. Census, this ethnicity group is the second largest group in regards to race residing in Seattle, Washington. The group currently has an estimate 13.8% share of the basic population. 22 Seattle has various organizations such as the National Association of Asian American Professionals (NAAAP) or the Asian Pacific Islander Community Leadership Foundation (ACLF) in support of the Asian-American community. The city also has a Chinatown-International District that caters to this population. Upper-Middle to High Class Socialites: Presently, the annual income of downtown households in Seattle for these socialites averages $200,000 and up. They make about 4.06% of the total Downtown Seattle households, 3.18% for $200,000-$499,999 and .88% for $5000, 000 and more. These studies were conducted by the Nielsen Company. 23 With Zenity being located in Downtown Seattle with luxury brand name boutiques, we will attract this target market to enjoy a pot of tea before or after their shopping spree. Culture Passionate Lovers: As a city filled with culture and passion, there is bound to be people who thrive on both. Thus, Zenity Tea House will focus on customers who have an interest in the traditional art of Chinese tea making. These customers are curious in learning about different culture then what they raised. Moreover, they are similar to our customers who are tea connoisseurs because they are passionate in investing their time in a new culture. Hence, we will use this to our advantage in providing a unique atmosphere for them. 20 http://seattletimes.com/text/2017355651.html http://downtownseattle.com/files/file/SOD2012_EconReport.pdf 22 http://www.seattle.gov/dpd/cms/groups/pan/@pan/documents/web_informational/dpds019189.pdf 23 http://downtownseattle.com/files/file/SOD2012_EconReport.pdf 21 Appendix C: Seattle’s Chinese Tea Houses Competition 24 Floating Leaves Tea Miro Tea Teahouse Kuan Yin Zenity Tea House, LLC Vital T Leaf, LLC Based on the map above, we speculate that Downtown Seattle is a viable location for Zenity Tea House. Most of our competitors are located 10-15 miles from each other. Therefore, if Zenity focuses on our competitive advantages while providing solutions to our customers’ problems, then we will become profitable. Moreover, we are located near two major universities. This helps Zenity attract two of our target markets, culture passionate lovers and students of Asian ethnicity. Furthermore, we anticipate to outbeat our competitons to achieve one of our goals as the top and number one Chinese tea house in Seattle, Washington. Hence, this location will benefit Zenity in obtaining our goals and gain brand awareness. 24 http://maps.google.com/maps?hl=en&tab=wl Appendix D: Sample of Lam Kie Yuen Tea Co., LTD Ordering Catalog 25 Tel: (852) 2543 7154 Fax: (852) 2851 0015 E-mail: [email protected] Website: www.lkytea.com MAIL ORDER FORM Name (姓名) : Email (電郵): Telephone Number (聯絡電話) : Fax Number (傳真) : Delivery Address (送貨地址) : I would like to order the below item(s) and please charge my credit card: 貨名 Item 單位 Unit 單價 Unit Price 數量 Quantity 金額 Amount 綠茶 (Green Tea) 極品碧螺春 Crown Grade Bi Luo Chun 100g HK$250.00 HK$- 西湖雨前龍井 West Lake Yue Chin Lung Ching 150g HK$80.00 HK$- 超級明前龍井 Supreme Ming Chin Lung Ching 100g HK$600.00 HK$- 獅峰明前龍井 Shifeng Ming Chin Lung Ching 250g HK$550.00 HK$- 銀針白毫 Silver Needle Pekoe 100g HK$140.00 HK$- 有機牡丹王 Organic White Peony 100g HK$60.00 HK$- 極品白牡丹 White Peony Supreme 150g HK$70.00 HK$- 高級白牡丹 Super Fine White Peony 300g HK$100.00 HK$- 名產黃金桂 Golden Oolong 100g HK$50.00 HK$- 人參烏龍 Ginseng Oolong 100g HK$60.00 HK$- 桂花烏龍 Osmanthus Oolong 100g HK$60.00 HK$- 春香鐵觀音 Spring Tieguanyin 100g HK$70.00 HK$- 白茶 (White Tea) 青茶 (Oolong Tea) 25 http://www.lkytea.com/member/16372/eshop/mailorderform.pdf Appendix E: Financial Statements and Assumptions Income Statement Income Statements 2015 2016 2017 2018 2019 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter TOTAL 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter TOTAL $125,754 $0 $3,772 $121,980 $130,237 $0 $3,907 $126,330 $134,893 $0 $4,047 $130,847 $139,732 $0 $4,192 $135,540 $530,616 $0 $15,918 $514,697 $144,543 $0 $4,336 $140,207 $149,094 $0 $4,473 $144,620 $153,799 $0 $4,614 $149,185 $158,662 $0 $4,760 $153,903 $606,098 $0 $18,183 $587,915 $693,466 $0 $20,804 $672,662 $800,993 $0 $24,030 $776,963 $926,810 $0 $27,804 $899,005 (Cost of Goods) $62,877 $65,119 $67,447 $69,865 $265,308 $72,272 $74,546 $76,900 $79,331 $303,049 $346,733 $400,496 $463,405 GROSS PROFIT $59,104 $61,212 $63,400 $65,673 $249,389 $67,935 $70,074 $72,285 $74,572 $284,866 $325,929 $376,467 $435,600 $23,301 $0 $3,495 $125 $3,450 $11,563 $0 $450 $789 $9,000 $150 $6,000 $150 $60 $0 $0 $0 $58,532 $573 $153 $420 $23,301 $0 $3,495 $125 $3,450 $11,563 $0 $450 $789 $9,000 $150 $6,000 $150 $60 $0 $0 $0 $58,532 $2,679 $670 $2,010 $23,301 $0 $3,495 $125 $3,450 $11,563 $0 $450 $789 $9,000 $150 $6,000 $150 $60 $0 $0 $0 $58,532 $4,869 $1,217 $3,652 $23,301 $0 $3,495 $125 $3,450 $11,563 $0 $450 $789 $9,000 $150 $6,000 $150 $60 $0 $0 $0 $58,532 $7,143 $1,786 $5,358 $93,204 $0 $13,980 $500 $13,800 $46,250 $0 $1,800 $3,156 $36,000 $600 $24,000 $600 $240 $0 $0 $0 $234,126 $15,264 $3,816 $11,448 $23,533 $0 $3,530 $125 $3,450 $11,563 $0 $450 $789 $9,000 $150 $6,000 $150 $60 $0 $0 $0 $58,800 $9,135 $2,285 $6,852 $23,533 $0 $3,530 $125 $3,450 $11,563 $0 $450 $789 $9,000 $150 $6,000 $150 $60 $0 $0 $0 $58,800 $11,275 $2,818 $8,456 $23,533 $0 $3,530 $125 $3,450 $11,563 $0 $450 $789 $9,000 $150 $6,000 $150 $60 $0 $0 $0 $58,800 $13,486 $3,371 $10,114 $23,533 $0 $3,530 $125 $3,450 $11,563 $0 $450 $789 $9,000 $150 $6,000 $150 $60 $0 $0 $0 $58,800 $15,772 $3,943 $11,829 $94,132 $0 $14,120 $500 $13,800 $46,250 $0 $1,800 $3,156 $36,000 $600 $24,000 $600 $240 $0 $0 $0 $235,198 $49,668 $12,417 $37,251 $95,073 $0 $14,261 $500 $13,800 $46,250 $0 $1,800 $3,156 $36,000 $600 $24,000 $600 $240 $0 $0 $0 $236,280 $89,649 $22,412 $67,237 $96,024 $0 $14,404 $500 $13,800 $46,250 $0 $1,800 $3,156 $36,000 $600 $24,000 $600 $240 $0 $0 $0 $237,373 $139,093 $34,773 $104,320 $96,984 $0 $14,548 $500 $13,800 $46,250 $0 $1,800 $2,881 $36,000 $600 $24,000 $600 $240 $0 $0 $0 $238,203 $197,398 $49,349 $148,048 INCOME Gross Sales (Commissions) (Returns and allowances) Net Sales . EXPENSES - General and Administrative Salaries and wages Employee benefits Payroll taxes Professional services Marketing and advertising Rent Equipment rental Maintenance Depreciation Insurance Telephone service Utilities Office supplies Postage and shipping Travel Entertainment Interest on loans TOTAL EXPENSES Net income before taxes Provision for taxes on income NET PROFIT Cash-Flow Projection Cash Flow 2015 2016 2017 2018 2019 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter TOTAL 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter TOTAL Cash Sales $125,754 $130,237 $134,893 $139,732 $530,616 $144,543 $149,094 $153,798 $158,662 $606,098 $693,466 $800,993 $926,810 Collections $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $125,754 $130,237 $134,893 $139,732 $530,616 $144,543 $149,094 $153,798 $158,662 $606,098 $693,466 $800,993 $926,810 Interest Income $315 $361 $415 $480 $1,571 $505 $513 $530 $557 $2,105 $2,778 $4,179 $7,515 Loan Proceeds $37,500 $37,500 $37,500 $37,500 $150,000 $0 $0 $0 $0 $0 $0 $0 $0 Equity Capital Investments $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $37,815 $37,861 $37,915 $37,980 $151,571 $505 $513 $530 $557 $2,105 $2,778 $4,179 $7,515 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $163,569 $168,098 $172,808 $177,712 $682,187 $145,047 $149,607 $154,328 $159,220 $608,203 $696,244 $805,172 $934,324 Inventory $69,450 $69,450 $69,450 $69,450 $277,800 $69,450 $69,450 $69,450 $69,450 $277,800 $277,800 $277,800 $277,800 Operating Expenses $57,743 $57,743 $57,743 $57,743 $230,970 $58,011 $58,010 $58,010 $58,010 $232,042 $233,124 $234,217 $235,322 Commissions/Returns & Allowances $3,772 $3,907 $4,047 $4,192 $15,918 $4,336 $4,473 $4,614 $4,760 $18,183 $20,804 $24,030 $27,804 Capital Purchases $11,563 $11,563 $11,563 $11,563 $46,250 $11,563 $11,563 $11,563 $11,563 $46,250 $46,248 $46,248 $46,250 Loan Payments $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Income Tax Payments $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Investor Dividend Payments $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Owner's Draw $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $142,528 $142,662 $142,802 $142,947 $570,938 $143,496 $143,637 $143,783 $574,274 $577,977 $582,295 $587,176 NET CASH FLOW $21,041 $25,436 $30,008 $34,764 $111,249 $1,688 $6,111 $10,692 $15,437 $33,928 $118,268 $222,877 $347,148 Opening Cash Balance $163,547 $187,499 $215,963 $249,121 $261,891 $266,510 $275,657 $289,494 Cash Receipts $55,017 $56,547 $58,138 $59,794 $48,848 $50,385 $51,978 $53,627 Cash Disbursements $47,524 $47,569 $47,616 $47,665 $47,801 $47,847 $47,895 $47,944 $171,041 $196,477 $226,485 $261,249 $262,937 $269,048 $279,740 $295,177 $295,177 $413,445 $636,322 $983,470 CASH RECEIPTS Income from Sales Total Cash from Sales Income from Financing Total Cash from Financing Other Cash Receipts TOTAL CASH RECEIPTS CASH DISBURSEMENTS TOTAL CASH DISBURSEMENTS ENDING CASH BALANCE $261,249 $143,359 Balance Sheet Balance Sheet Balance Sheet Zenity Tea House, LLC 2016 Zenity Tea House, LLC 2015 ASSETS Current Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Land Facilities Equipment Computers & Telecommunications (Less Accumulated Depreciation) Total Fixed Assets Other Assets TOTAL ASSETS LIABILITIES Current Liabilities Short-Term Notes Payable Income Taxes Due Other Current Liabilities Total Current Liabilities Long-Term Liabilities Long-Term Notes Payable Other Long-Term Liabilities Total Long-Term Liabilities NET WORTH Paid-In Capital Retained Earnings Total Net Worth TOTAL LIABILITIES AND NET WORTH ASSETS Current Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets $261,249 $0 $12,492 $0 $273,741 Fixed Assets Land Facilities Equipment Computers & Telecommunications (Less Accumulated Depreciation) Total Fixed Assets Other Assets TOTAL ASSETS $46,250 $0 $57,000 $10,050 $3,156 $110,144 $0 $383,885 $37,500 $3,816 $0 $41,316 $0 $0 $0 $150,000 $192,569 LIABILITIES Current Liabilities Short-Term Notes Payable Income Taxes Due Other Current Liabilities Total Current Liabilities $383,885 $282,420 $46,250 $0 $57,000 $10,050 $6,312 $106,988 $0 $389,408 $0 $16,233 $0 $16,233 Long-Term Liabilities Long-Term Notes Payable Other Long-Term Liabilities Total Long-Term Liabilities $0 $0 NET WORTH Paid-In Capital Retained Earnings Total Net Worth $150,000 $223,176 TOTAL LIABILITIES AND NET WORTH $342,569 $295,177 $0 -$12,757 $0 $0 $373,176 $389,408 Balance Sheet Balance Sheet Zenity Tea House, LLC 2017 ASSETS Current Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Land Facilities Equipment Computers & Telecommunications (Less Accumulated Depreciation) Total Fixed Assets Other Assets TOTAL ASSETS LIABILITIES Current Liabilities Short-Term Notes Payable Income Taxes Due Other Current Liabilities Total Current Liabilities Long-Term Liabilities Long-Term Notes Payable Other Long-Term Liabilities Total Long-Term Liabilities Zenity Tea House, LLC 2018 ASSETS Current Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets $413,445 $0 -$81,690 $0 $331,755 $46,250 $0 $57,000 $10,050 $9,468 $103,832 $0 $435,587 $38,645 LIABILITIES Current Liabilities Short-Term Notes Payable Income Taxes Due Other Current Liabilities Total Current Liabilities $0 Long-Term Liabilities Long-Term Notes Payable Other Long-Term Liabilities Total Long-Term Liabilities $0 $38,645 $0 $0 $0 NET WORTH Paid-In Capital $150,000 Retained Earnings $246,942 Total Net Worth TOTAL LIABILITIES AND NET WORTH Fixed Assets Land Facilities Equipment Computers & Telecommunications (Less Accumulated Depreciation) Total Fixed Assets Other Assets TOTAL ASSETS $396,942 $435,587 NET WORTH Paid-In Capital Retained Earnings Total Net Worth TOTAL LIABILITIES AND NET WORTH $636,322 $0 -$204,386 $0 $431,935 $46,250 $0 $57,000 $10,050 $12,624 $100,676 $0 $532,611 $0 $73,418 $0 $73,418 $0 $0 $0 $150,000 $309,193 $459,193 $532,611 Break-Even Analysis Balance Sheet Zenity Tea House, LLC 2019 ASSETS Current Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets Break-even Estimates $983,470 $0 -$389,991 $0 Year 1 (2015-2016) Monthly Average $41,512 $593,479 Year 2 (2016-2017) Fixed Assets Land Facilities Equipment Computers & Telecommunications (Less Accumulated Depreciation) Total Fixed Assets Other Assets TOTAL ASSETS LIABILITIES Current Liabilities Short-Term Notes Payable Income Taxes Due Other Current Liabilities Total Current Liabilities Long-Term Liabilities Long-Term Notes Payable Other Long-Term Liabilities Total Long-Term Liabilities NET WORTH Paid-In Capital Retained Earnings Total Net Worth TOTAL LIABILITIES AND NET WORTH Monthly Average $46,250 $0 $57,000 $10,050 $15,505 $41,702 Year 3 (2017-2018) Quarterly Average $97,795 $0 $125,681 Year 4 (2018-2019) $691,274 Quarterly Average $126,262 Year 5 (2019-2020) $0 $122,768 $0 Annual Average $122,768 $0 $0 $0 $150,000 $418,506 $568,506 $691,274 $506,814 Further Financial Assumptions The figures on the financial worksheet are based on the following assumptions: Personnel/Management: Zenity consists of six staff (one General Manager, one Assistant Manager, one Tea Expert, and three Sales Associates). The staff size will remain constant during the first few years of operations. Once we establish breakeven point and remain profitable, the staff size will increase to two tea experts and five sales associates. Key Expenses: ONE TIME START-UP COSTS Lease Location ($25/sq. ft./year) Tea Tables (10) Tea Equipment (15) Water Boilers (3) Silverware Advertisement Interior Design Computer Systems ESTIMATED TOTAL ESTIMATED COST $37,500.00 $2,000.00 $750.00 $3,000.00 $1,500.00 $2,000.00 $40,000.00 $8,000.00 $95,000.00 COMPUTER SYSTEMS 2 PC’s with the latest version of Microsoft Office QuickBooks Point of Sale Basic Plus QuickBooks Pro Wasp Inventory Control Software/Hardware Touch Screen POS Terminal ESTIMATED TOTAL ESTIMATED COST $2,250.00 $1,700.00 $250.00 $2,200.00 $1,600.00 $8,000.00 Financing: Currently, Zenity does not have any financing debt or loans that are projected to be added or retired since it is a start-up business. Hence, our acquirement of $230,000 as loans from families/friends does not apply in this matter. However, once we do receive this capital, then interest rate will be projected for it in our finances. Expansion: Zenity will currently remain the only location in Seattle, Washington. With profitability, we will open a second tea house if our present financial capitals allow us to expand. We will also consider franchising if the option is attractive in the future. However, for the time being, we will offer our customers additional service by packaging our products for purchase for their own personal usage or gifts to family and friends. We will also expand our product line to include more variety of tea to cater to different preferences of our customers. Therefore, there will be some direct costs of equipment, furniture, inventory, and advertisement. Also, the tea house will include additional operating costs of hiring a second tea expert and two sales associates to aid in our future operations. Additionally, if Zenity obtains more business than we have projected, then we will increase our prices to drive away business. This allows us to maintain an atmosphere of tranquility and relaxation as part of our mission and vision statement.
© Copyright 2018