Wireless World

Budget Proposal For 2013-2018

BUSN-278 Amber Emelander Fall 2013 Professor Corrigan DeVry University

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Table of Contents
Section
1.0 2.0

Title
Executive summary Sales Forecast

Subsection

Title

Page Number
3 3

2.1 2.2 3.0 4.0 Capital Expenditure Budget Investment Analysis 4.1 4.2 4.3 4.4 5.0 Pro Forma Financial Statements

Sales Forecast Methods and Assumptions

3 4 4-5 6

Cash flows NPV Analysis Rate of Return Calculations Payback Period Calculations

6 6 6-7 7

7 5.1 5.2 6.0 Works Cited Pro Forma Income Statement Pro-Forma Cash flow Statement 7-8 8-9 10

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1.0 Executive Summary

Wireless World is a wireless device store located in The Mall at Millenia in Orlando, Florida. Shoppers come to Wireless World to find the latest in the line of smart phones, eBook readers, laptop computers, iPads, and other wireless devices. Wireless World also specializes in providing unique wireless devises that are difficult to find anywhere else. Wireless World caters to the technology hungry students and adults of a high-end mall that want to keep up with the newest and most popular tech-devices that make their lives easier. Customers shop at Wireless world for the great customer service, knowledgeable staff, as well as the vast array of devices. The budget for Wireless World shows how the business will use its funds to grow and prosper. Wireless Worlds goal is to begin gaining a profit in year 2, and continue to have a growth in net come every year following. As the budget will show Wireless World will have a net cash flow of $131,696 and grow at a good pace for the following 3 years. Wireless World will make the bulk of its sales from Cell Phones and eBook Readers. As Wireless World grows and begins gaining a customer base the amount of units sold each year grow very rapidly with a gain of 300 cell phone units and a gain of 180 eBook Reader units per year. The capital expenditures for year one are $34,400. The startup costs for the first month are $18,567. The owner will be using personal funds of $30,000 and a small business loan of $70,000 to cover the business expenses until Wireless World gains an income. The owners personal funds cover $20,000 in opening inventory and a $10,000 contingency fund. According to the cash inflows and outflows the accounting rate of return is 50.4%. Net present value is $166,867. Internal rate of return is 42.5% and Wireless Worlds profitability index is 2.67. The estimated payback period for Wireless World is 2.33 meaning that we will gain a profit in March of year 2. The pro forma financials show that Wireless World would have a negative net income of $82,477 in year one and negative $1,962 in year 2 and not being brings in a positive net income until year three. This was unacceptable. The only way to avoid having negative net income in year 1 and 2 was to get a small business loan of $70,000. Now the pro forma cash flow, including the business loan, shows Wireless World with gain in net income for year 1, 2 and growing each following year as stated previously.

2.0 Sales Forecast

The sales forecast covers the price in sales of the two most sold products in the store; smart phones and eBook readers. 2.1 Sales Forecast Below is the expected sales forecast for Wireless World for the next 5 years. Sales start out low as the business is just beginning. Sales rise at a steady flow over the years as the business begins to grow a customer base, advertising begins, and word of mouth spreads. Year 1 Year 2 Year 3 Year 4 Year 5 Sales 342,000 423,000 504,000 585,000 666,000

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2.2 Methods and Assumptions The sales forecast amounts are a calculation of sales per year for Wireless Worlds sale of smart phones and eBook readers over the course of the next 5 years. Smart phone sales begin in year one at 100 units sold per month for a total of 1200 units sold in the first year. Each year as Wireless World becomes more popular and gains a customer base the sales in smart phones grow at a steady pace of 25 units more per month per year. (Bizquest, 2013) The eBook reader is the second most demanded device Wireless World sells after the large volume of smart phones. Sales begin in year one at 70 units per month for a total of 840 units sold. In each following year a steady flow of 15 units per month per year increase as the business grows. New smart phones range in price from $100-250 per unit. The average cost being $180 per unit. New eBook readers range in price from $69-250 with an average cost being $150 per unit. (Pricegrabber, 2013)

3.0 Capital Expenditure Budget

The capital expenditures budget lists all of the necessary capital items needed for the startup of Wireless World. Computers and desks are needed for the manager and assistant manager to deal with daily business needs as well as payroll. The renovation of the facility is expected to cost $25,000. A variety of display cases are needed to display inventory throughout the store, along with attached security holder for loss prevention (Palay display, 2013). Two of the display cases come with register stands to hold the cash registers for customer service and sales (Staples, 2013). Finally the fixtures and lighting, which include store lighting, display lighting, miscellaneous store fixtures, as well as the store front sign are included in the fixtures/lighting line of the budget.

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Listed above are the other startup costs for Wireless World. The cost for a business license in Florida is on line 1. The yearly salary for the manager will be $33,280 (Indeed, 2013) and the yearly salary for the assistant manager will be $24,960 (Glassdoor, 2013). The managers one month salary combined is shown in line 2. Also included are the wages for five employees with an expected 40 hour work week earning the Florida minimum wage of $7.79. (U.S. Department of labor, 2013) Their one month combined wages are shown on line 3. Beginning advertising will start with an advisement in Orlando, Floridas weekly newspaper Orlando Times. The weekly amount for a black and white space is $15 a week (Gaebler Ventures, 2012). Line 4 is the monthly advertising cost for this newspaper. Line 5 is the monthly rent for a store size of 3,500 sq. feet at a rent cost of $15 per sq. foot of space. Lines 6-8 show the average cost of 1 month of utility costs, along with minor business supplies and other small tools needed for daily store operation. Line 9 is the cost of 1 year of prepaid business insurance. Line 10 is the monthly cost of health and other benefits for the manager and assistant manager. Health and benefits are 20% of the managers salaries, $6,656 for the manager and $4992 for the assistant manager per year. Finally, listed under the current assets are the opening inventories of $20,000 as well as a contingency fund of $10,000 for emergencies, extra expenses, and any other unforeseen costs.

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4.0 Investment Analysis

4.1 Cashflows

Net cash flow is Wireless Worlds cash amount coming in minus the cost of the liabilities in this case being the annual depreciation. To calculate the cash flows for years 1-5 first I multiply each years annual sales by my 10% in sales. I then subtract that amount from the negative value of my initial investment in year 0; adding step one and two together give me the net operating cash flow for each year. The net operating cash flows for years 1-5 of Wireless World are shown on the bottom line of the above excel screen shot. 4.2 NPV Analysis

Net present value is the difference between the present value and the amount of the initial investment. To calculate NPV we take the negative amount of Wireless Worlds initial investment add the annual cash inflow multiplied by the present value of an annuity of $1, then add the present value of salvage value multiplied by the present value of $1. Wireless Worlds NPV is $88,319. 4.3 Rate of Return The accounting rate of return shows the profitability of capital expenditures for Wireless World. To calculate the ARR we subtract the cash inflows per year by the depreciation of the capital expenditures, we then divide that amount by the initial investment. Wireless Worlds ARR is 29.3%

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The internal rate of return shows the expected return earned on a project or in this case the earnings if Wireless World for the first 5 years. To calculate IRR we divide the capital investment by the annual cash inflows for each year. Wireless Worlds IRR is 25.2%

4.4 Payback Period Wireless Worlds will recover the cost of its initial investment in March of the second year of operations.

5.0 Pro-Forma Financial Statements

The following section includes the Income Statement and Cash Flow Statement for Wireless world for the first 5 years of operation. 5.1 Pro-Forma Income Statement After calculating the Revenue, Cost of Sales, Expenses, and Operating Costs the Pro-Forma income statement shows that Wireless World will take a loss of $82,477 in the first year and a loss of $1,962 in the second year due to startup costs. However in year 3 there will a net income of $63,648 and the net income greatly increases for the following years.

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5.2 Pro-Forma Cash Flow Statement Including a loan in the amount of $50,000 at the startup of the business greatly affected the net cash flows from what I found in the Pro Forma Income Statement. Instead of being in the negative for the two years, $-82,477 in year one, Wireless World was in good standing with a net cash flow of over $135,000 in year one.

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6.0 Works Cited

Bizquest. (2013). Cell phones dealer in Fort Lauderdale Florida. Retrieved from http://www.bizquest.com/buy-a-business-for-sale/cell-phones-dealer-in-fort-lauderdaleflorida/1140230.html Gaebler Ventures. (2012). Orlando times newspaper advertising costs. Retrieved from http://www.gaebler.com/Orlando Times-FL-Newspaper-Advertising-Costs 8912 Glassdoor. (2013). Assistant business manager salaries. Retrieved from http://www.glassdoor.com/Salaries/assistant-business-manager-salarySRCH_KO0,26.htm Indeed. (2013). Business manager salary. Retrieved from http://www.indeed.com/salary/Business-Manager.html Miracle, B. (2009, March 02). Sba lending. Retrieved from http://www.floridatrend.com/article/6016/sba-lending Palay display. (2013). Palay display store fixtures. Retrieved from http://www.palaydisplay.com/ Pricegrabber.com. (2013). Kindle electronics. Retrieved from http://www.pricegrabber.com/electronics/tablets-e-readers kindle/p-5908/ Staples. (2013). Cash registers. Retrieved from http://www.staples.com/CashRegisters/cat_CL140563 U.S. Department of labor. (2013). Wage and hour division. Retrieved from http://www.dol.gov/whd/minwage/america.htm