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Sports Equipment Retail Business Plan

Executive Summary
Keith's Sporting Goods (KSG) will be in the business of selling athletic equipment to people at every fitness
level, from aspiring college athletes to weekend warriors. With our knowledgeable staff we will provide an
environment where everyone feels comfortable coming in and asking for training advice and discussing
equipment needs.

Based in Eugene, KSG wants to be a recognized sporting goods store. An exact location has yet to be set,
but owners are avidly searching for a high foot traffic location. Ideally that location would be in central
Eugene where anyone can travel a short distance to find our store.

We fully expect to grow quickly. Many businesses start under the same assumption but due to work ethic,
desire, job enjoyment, KSG is expecting to make a profit in the early stages of its life. Sales are forecasted
to be conservative in the first month but are expected to increase by 2% each month thereafter, with a first
year growth rate of 12%. This assumption appears to be accurate given the fact that the sporting goods
wholesale industry is growing at an 11.5% annual rate.

Keith's Sporting Goods will be filed as an S Corporation where owners will be protected from various forms
of liability and tax shields. In the early stages of business, we will be primarily debt financed through a local
bank and the Small Business Association (SBA). We have forecasted the need for 60% debt, the owner and
operator will invest the rest.

Depending on the timing of financing, we expect to have the store open by January next year and to
produce strong profits by the end of that same year.

1.1 Objectives
The primary objectives for the store are:

1. Brand recognition. KSG will be a recognized sporting goods and fitness store in Eugene.
2. To be operating at a profit by the end of the first year of business.
3. Achieve a 15% growth rate in sales from years one and two, and then maintain no less than
a 11.5% growth rate thereafter.
4. Maintain a constant gross margin of 40%. If we are able to do this and keep costs fixed, sales will
be able to grow faster than total costs.

1.2 Mission
KSG strives toward building long-term relationships with our customers and employees. Working within the
community, promoting community service, and encouraging the additional education of our employees will
be constantly emphasized by store management. We feel it is extremely important to give back to the
community that supports our operations, while also maintaining an atmosphere where our employees have
the opportunity to improve as individuals.

Company Summary
KSG intends to provide customers with the quality products they need to maximize athletic performance and
accomplish their physical and mental goals. We will provide our customers with a knowledgeable staff that
enjoys working in an athletic atmosphere and helping others. We will be located in Eugene where there is a
high concentration of health conscious individuals and a devoted following to both high school and college
athletics.

2.1 Company Ownership


With the intent to operate the store I will be considered the owner of Keith's Sporting Goods. However, I will
not be the only one with a capital investment in the company. A local investor will have equal shares in the
business. The investor will receive dividends starting in year 2, until he has recouped his initial investment,
at which time the owner has reserved the option of buying out his shares.

Under these circumstances, and the fact that the investment is a relatively small undertaking, KSG will be
filed as an S Corporation. The ownership will be split up evenly between myself and the other investor, and
the rest will be debt financed.

2.2 Start-up Summary


Keith's Sporting Goods will be financed through a combination of 60% debt and 40% equity. A local bank will
provide the debt while the equity will be provided by an equal combination of owner investment and an angel
investor. A large portion of the initial investment will be spent on beginning inventory (83%), which we
forecast to be sold within the first two months. Total assets will amount to 93.4% of the initial investment.
Start-up

Requirements

Start-up Expenses
Legal $300
Operating Assets $0
Brochures $0
Consultants $0
Insurance $0
Rent $4,310
Marketing/ Advertising - Grand Opening $1,000
Renovation $1,000
Other $0
Total Start-up Expenses $6,610

Start-up Assets
Cash Required $8,489
Start-up Inventory $82,901
Other Current Assets $0
Long-term Assets $2,000
Total Assets $93,390

Total Requirements $100,000

Start-up Funding

Start-up Expenses to Fund $6,610


Start-up Assets to Fund $93,390
Total Funding Required $100,000

Assets
Non-cash Assets from Start-up $84,901
Cash Requirements from Start-up $8,489
Additional Cash Raised $0
Cash Balance on Starting Date $8,489
Total Assets $93,390
Liabilities and Capital

Liabilities
Current Borrowing $0
Long-term Liabilities $60,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $60,000

Capital

Planned Investment
Owner/Operator $20,000
Angel Investor $20,000
Additional Investment Requirement $0
Total Planned Investment $40,000

Loss at Start-up (Start-up Expenses) ($6,610)


Total Capital $33,390

Total Capital and Liabilities $93,390

Total Funding $100,000

Products
Keith's Sporting Goods will be a high quality fitness store that focuses on athletic performance and
maximization of athletic potential. In other words, KSG will be designed to supply athletes with the essential
products that are necessary for active lives.

The core products we will carry are:

• Shoes
• Apparel
• Athletic equipment

To complement these goods, we will also carry training equipment like:

• Polymeric boxes
• Medicine balls
• Health supplements
• Training literature

Market Analysis Summary


The Eugene community is very active and has a great athletic heritage. It is the location of the University of
Oregon, home to many running and hiking trails, and has a youth athletic center called Kidsports. Eugene
also happens to be a growing community that has always supported the small entrepreneurs. Taking these
factors into consideration, KSG will focus on three main groups.

• Young parents with children active in youth sports


• College students
• Active adults

These groups comprise the majority of athletes in the city, and we find them to be the ones with the
disposable income to spend on athletic apparel.

4.1 Market Segmentation

• Parents (Elementary & Middle School)


• High School Athletes
• College Students
• Middle-aged Adults (35+)

Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
Parents 17% 3,150 3,686 4,313 5,046 5,904 17.01%
High School Athletes 25% 3,600 4,500 5,625 7,031 8,789 25.00%
College Students 7% 15,000 16,050 17,174 18,376 19,662 7.00%
Middle-aged Adults 10% 50,000 55,000 60,500 66,550 73,205 10.00%
Total 10.65% 71,750 79,236 87,612 97,003 107,560 10.65%

4.2 Target Market Segment Strategy


Because there are so many different sports and levels at which to compete, there is a broad range of
markets for the company to target. At KSG, we will provide a marketplace that satisfies the needs of each
group. We will stock a variety of goods for the wide variety of our customers.

We strive to build long-term, personal relationships with our customers, in order to do this, we will need to
attract customers at young ages. Therefore, our primary target market will be parents with young children.
By building a trust relationship, we may be able to maintain a family right up through the child's college
years.

It will be important to target these groups because youth sports are growing at an incredible rate. Data has
indicated that youth sports has the highest growth rate of any segment within the athletic industry. Capturing
the market at a young age will lead to future sales when athletes spend more money on their athletic needs.

Young parents and high school students will not be the only groups that we will focus on because they also
make up the smallest population. Focusing on college students and active adults will also be key.

4.3 Competition and Buying Patterns


To an athlete who is serious about achieving particular goals, having the correct athletic equipment is
integral. Somebody who runs many miles over the course of a week needs to have shoes that not only last
over time, but also protect joints from over use. It is the same for a basketball player who needs to wear light
clothing that allows him/her to move freely. In either case, the athlete is looking for the best equipment and
is always open to try new, innovative products that might help reach peak performance.

In the sporting goods retailing many companies compete in different ways. For example, Copeland's tries to
sell products more on a cost basis using their capitol power to sell products at the lowest price. When doing
this, they sacrifice the customer service and support that many athletes are looking for.

As a smaller company we intend to provide customers the support and knowledge they need to fulfill their
goals.

Strategy and Implementation Summary


At KSG, we will use a marketing strategy of developing long-term relationships with our customers. Being
seen at various sporting events will be an integral part of getting our name out in the community. We want to
be seen as a business that cares for our customers and wants to see them accomplish all of their goals.

We want our customers to have complete trust in what our employees are saying. We want them to know all
the information about what they are buying and what is best for them. If customers have a good experiences
with what they purchase, not only will they more likely be repeat customers, but also they will tell friends
about the quality of operations at KSG.

5.1 Competitive Edge


The number one competitive edge KSG enjoys is providing customers with unparalleled service. As a
smaller operation it will be impossible to compete with Copeland's and Play it Again sports on a price
basis. Providing a group of knowledgeable employees who enjoy what they are doing is the only way that
KSG can provide the best customer service. Once this trust is built our competitive advantage can be
sustained.

The type of equipment that KSG will provide will also be a source of competitive edge. Much of the
equipment found at Keith's will not be found at larger chain stores. For example, it is tough to find polymeric
equipment. In fact the only way one can buy high-quality equipment is through catalogs. It is the same for
many types of shoes. Stores like Copeland's tend to only sell shoes that are trendy. Trendy shoes are not a
sign of high quality; they are a sign of great marketing. KSG will provide quality equipment and will be able
to educate customers on why certain equipment is better than the typical mainstream brand equipment.

5.2 Sales Strategy


Our sales strategy will be built around fully educating customers about their purchases. Many of the
activities that our store is promoting impacts the human body. It is important for the customer to be fully
aware of the repercussions of the activity and how each piece of equipment effects him/her. With that in
mind, sales people will take care of customers on a first come first serve basis. We want to build customer
relationships without discriminating other potential future customers.

Employees will be paid on an hourly wage with no commissions at the beginning of operations. After the
store has a history, a commission package based on sales and education advancement can be
implemented.

KSG will carry a relatively low amount of inventory and have frequent order repurchases in an attempt to
maintain inventory levels and storage costs. Finally, all sales will be in cash to prevent the problems brought
along by late accounts receivable payments.

5.2.1 Sales Forecast


The primary products at KSG will include athletic shoes and apparel. We will also sell equipment,
supplements, and health literature, but we forecast shoes and apparel to drive sales. We expect strong
growth in the first year due to intense marketing and exposure in the Eugene market. Forecasted sales are
expected to increase by 2% from month to month in the first year and then grow at the industry average of
11.50% per year.
Sales Forecast
Year 1 Year 2 Year 3
Sales
Shoes $193,134 $201,245 $209,697
Apparel $241,418 $251,557 $261,619
Total Sales $434,552 $452,802 $471,316

Direct Cost of Sales Year 1 Year 2 Year 3


Shoes $115,880 $120,747 $125,818
Apparel $144,851 $150,934 $156,971
Subtotal Direct Cost of Sales $260,731 $271,681 $282,790

Management Summary
The owner of KSG will also be the operator and decision maker. The philosophy behind the workforce will be
one of total customer satisfaction and education. Since many customers are not aware of the many
repercussions brought on by athletics, employees will be encouraged to continually gain new knowledge and
insight.

6.1 Personnel Plan


Keith's Sporting Goods will begin operations with a relatively small work crew with the intention to grow as
the business grows. The owner/operator will have a base salary of $3,000/mo and that will be a fixed
expense.

We plan on starting with one full time employee who will be the store manager. The manager will work
closely with the owner. During slow hours, they will work closely implementing new strategies and making
store changes. The manager will work 40 hours per week, and will have the weekends off. The manager's
salary, below, includes benefits (paid sick time, holidays, and insurance coverage).

The owner will work the weekend with the other employees. Aside from the owner and manager, KSG will
need an estimated 51 man-hours over the course of the week. There is no estimated number of employees
needed; we just need to fill the extra 51 hours. Employees will make $8/hr, and will be looked upon as
an integral part of the operation.

Personnel Plan
Year 1 Year 2 Year 3
Owner Operator $36,000 $36,000 $40,000
Manager $43,200 $45,000 $46,000
Employees $22,032 $24,000 $25,000
Total People 5 6 6

Total Payroll $101,232 $105,000 $111,000

Financial Plan
Keith's Sporting Goods will regularly monitor all financial statements because they have a direct correlation
with the health of our business. We have forecasted into the future with a steady but moderate growth rate
where sales will grow by 2% every month. All sales will be in cash leading to positive cash flows whenever
asset acquisition is maintained. Profits will be reinvested into the business in hopes of future product and
store expansions. If no appropriate investment opportunities present themselves excess cash will be placed
into the market through a respected financial consultant.

7.1 Important Assumptions


Key assumptions:

• Growth rate of 2% per month


• Daily sales: shoes six per day @ $80 each, and apparel 24 items/day @ $25 each
• Growth will be steady throughout the year.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Break-even Analysis


The following table and chart show our break-even point.
Break-even Analysis

Monthly Revenue Break-even $32,540

Assumptions:
Average Percent Variable Cost 60%
Estimated Monthly Fixed Cost $13,016

7.3 Projected Profit and Loss


Due to working with low overhead, we predict early profits in the life of our business. Depending on the
accuracy of our forecasts, we will adjust the amounts spent on marketing and other long-term assets that will
add value to our business.
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $434,552 $452,802 $471,316
Direct Cost of Sales $260,731 $271,681 $282,790
Other $0 $0 $0
Total Cost of Sales $260,731 $271,681 $282,790

Gross Margin $173,821 $181,121 $188,526


Gross Margin % 40.00% 40.00% 40.00%

Expenses
Payroll $101,232 $105,000 $111,000
Sales and Marketing and Other Expenses $21,600 $21,600 $21,600
Depreciation $0 $0 $0
Utilities $9,600 $9,600 $9,600
Rent $23,760 $23,760 $23,760
Payroll Taxes $0 $0 $0
Other $0 $0 $0

Total Operating Expenses $156,192 $159,960 $165,960


Profit Before Interest and Taxes $17,629 $21,161 $22,566
EBITDA $17,629 $21,161 $22,566
Interest Expense $5,350 $4,200 $3,000
Taxes Incurred $3,042 $4,240 $4,973

Net Profit $9,236 $12,721 $14,593


Net Profit/Sales 2.13% 2.81% 3.10%

7.4 Projected Cash Flow


As a retailer, we do not sell on credit, but all of our invetory purchases are made on account. Our net cash
outflows are largely a result of repaying the initial loan.

Pro Forma Cash Flow


Year 1 Year 2 Year 3
Cash Received

Cash from Operations


Cash Sales $434,552 $452,802 $471,316
Subtotal Cash from Operations $434,552 $452,802 $471,316

Additional Cash Received


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 $434,552 $452,802 $471,316

Expenditures Year 1 Year 2 Year 3

Expenditures from Operations


Cash Spending $101,232 $105,000 $111,000
Bill Payments $238,435 $337,901 $345,980
Subtotal Spent on Operations $339,667 $442,901 $456,980
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $12,000 $12,000 $12,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $10,000 $10,000
Subtotal Cash Spent $351,667 $464,901 $478,980

Net Cash Flow $82,885 ($12,099) ($7,664)


Cash Balance $91,374 $79,275 $71,611

7.5 Projected Balance Sheet


Among the importance of monitoring liabilities and assets, cash will be of particular importance to our
organization. We will monitor this section of the Balance Sheet constantly. Without cash we will be unable to
react to market changes or survive through tough economic cycles. Our net worth will improve as we grow
and pay off the initial loan.

Pro Forma Balance Sheet


Year 1 Year 2 Year 3
Assets

Current Assets
Cash $91,374 $79,275 $71,611
Inventory $26,588 $27,705 $28,838
Other Current Assets $0 $0 $0
Total Current Assets $117,962 $106,980 $100,449

Long-term Assets
Long-term Assets $2,000 $2,000 $2,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $2,000 $2,000 $2,000
Total Assets $119,962 $108,980 $102,449

Liabilities and Capital Year 1 Year 2 Year 3

Current Liabilities
Accounts Payable $29,335 $27,633 $28,509
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $29,335 $27,633 $28,509

Long-term Liabilities $48,000 $36,000 $24,000


Total Liabilities $77,335 $63,633 $52,509

Paid-in Capital $40,000 $40,000 $40,000


Retained Earnings ($6,610) ($7,374) ($4,653)
Earnings $9,236 $12,721 $14,593
Total Capital $42,626 $45,347 $49,940
Total Liabilities and Capital $119,962 $108,980 $102,449

Net Worth $42,626 $45,347 $49,940


7.6 Business Ratios
The table below contains important business ratios from the sporting goods shops industry (5491), as
determined by the Standard Industry Classification (SIC) Index.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 4.20% 4.09% 4.20%

Percent of Total Assets


Inventory 22.16% 25.42% 28.15% 40.20%
Other Current Assets 0.00% 0.00% 0.00% 24.30%
Total Current Assets 98.33% 98.16% 98.05% 81.10%
Long-term Assets 1.67% 1.84% 1.95% 18.90%
Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities 24.45% 25.36% 27.83% 44.70%


Long-term Liabilities 40.01% 33.03% 23.43% 13.00%
Total Liabilities 64.47% 58.39% 51.25% 57.70%
Net Worth 35.53% 41.61% 48.75% 42.30%

Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 40.00% 40.00% 40.00% 31.80%
Selling, General & Administrative Expenses 33.60% 22.50% 21.21% 19.00%
Advertising Expenses 1.66% 0.85% 0.77% 1.90%
Profit Before Interest and Taxes 4.06% 4.67% 4.79% 1.40%

Main Ratios
Current 4.02 3.87 3.52 1.97
Quick 3.11 2.87 2.51 0.75
Total Debt to Total Assets 64.47% 58.39% 51.25% 57.70%
Pre-tax Return on Net Worth 28.81% 37.40% 39.18% 3.40%
Pre-tax Return on Assets 10.24% 15.56% 19.10% 8.20%

Additional Ratios Year 1 Year 2 Year 3


Net Profit Margin 2.13% 2.81% 3.10% n.a
Return on Equity 21.67% 28.05% 29.22% n.a

Activity Ratios
Inventory Turnover 8.89 10.01 10.00 n.a
Accounts Payable Turnover 9.13 12.17 12.17 n.a
Payment Days 27 31 30 n.a
Total Asset Turnover 3.62 4.15 4.60 n.a

Debt Ratios
Debt to Net Worth 1.81 1.40 1.05 n.a
Current Liab. to Liab. 0.38 0.43 0.54 n.a

Liquidity Ratios
Net Working Capital $88,626 $79,347 $71,940 n.a
Interest Coverage 3.30 5.04 7.52 n.a

Additional Ratios
Assets to Sales 0.28 0.24 0.22 n.a
Current Debt/Total Assets 24% 25% 28% n.a
Acid Test 3.11 2.87 2.51 n.a
Sales/Net Worth 10.19 9.99 9.44 n.a
Dividend Payout 0.00 0.79 0.69 n.a