Solar Water Heater Distributor Business Plan

Executive Summary
Sun Heat is a start-up company registered offering solar home water heating systems.

The Market
The market for solar heating is huge in Southern California where they get over 245 days of sun
a year. Sun Heat has identified two distinct market segments that they will market their products
to. The first segment is the DIY segment of individuals. The second segment is people that will
utilize a skilled installer to have the system implemented at their home. The DIY segment has an
annual growth rate of 9% and 3.9 million potential customers. The professional install market
has a 8% annual growth rate and 2.7 million possible customers.

The Products
Sun Heat will sell two different versions of a solar home water heating system: a do-it-yourself
system and a unit installed by a licensed installer. Both groups are cost conscious and
environmentally aware.

Sun Heat's system can save the individual family from 70%-90% of the total amount spent on the
electricity used for heating water.

1.1 Objectives

 To become the premier manufacturer of solar based water heating systems.

 To quickly gain market penetration within the first three years.
 To develop a customer-centric organization based on cutting edge technology.

1.2 Mission

Sun Heat's mission is to become the premier solar water heater company offering the highest
quality products and customer service while saving customers money and making positive
contributions to our environment.

1.3 Keys to Success

Sun Heat has identified three keys to success that help the company grow into a mature market
leader:

 Providing cutting edge, reliable, and simple-to-install and maintain solar water heating systems.
  Broadening the market of solar heating into a mainstream energy source.
 Designing and implementing strict financial controls.

Company Summary
2.1 Company Ownership

Sun Heat has been established as a CA corporation

2.2 Start-up Summary

Sun Heat will require the following items for start up of the business:

 Computer system- the required components of this system include seven terminals, four laster
printers, one central server, broadband Internet connections, and Microsoft Office for all
computers, two ACT! licenses, and two QuickBooks Pro licenses.
 Laptop computer and LCD projector.
 Website development.
 Office furniture including desks, cabinets and chairs for seven stations.
 Waiting room furniture.
 Eight extension telephone system including a hardware-based voice mail system.
 Three large white boards.
 Sales room promotional displays.
 Fax machine and copier.
 Racks and shelving for the warehouse.
 Forklift.
Start-up Funding

Start-up Expenses to Fund $9,000

Start-up Assets to Fund $156,000

Total Funding Required $165,000

Assets

Non-cash Assets from Start-up $62,000

Cash Requirements from Start-up $94,000

Additional Cash Raised $0

Cash Balance on Starting Date $94,000

Total Assets $156,000

Liabilities and Capital

Liabilities

Current Borrowing $0

Long-term Liabilities $0

Accounts Payable (Outstanding Bills) $0

Other Current Liabilities (interest-free) $0

Total Liabilities $0

Capital

Planned Investment

Investor 1 $60,000

Investor 2 $55,000

Other $50,000

Additional Investment Requirement $0

Total Planned Investment $165,000

Loss at Start-up (Start-up Expenses) ($9,000)

Total Capital $156,000

Total Capital and Liabilities $156,000

Total Funding $165,000

Start-up

Requirements

Start-up Expenses

Legal $4,000

Stationery etc. $1,000

Brochures $1,000

Consultants $2,000

Insurance $1,000

Total Start-up Expenses $9,000

Start-up Assets

Cash Required $94,000

Other Current Assets $0

Long-term Assets $62,000

Total Assets $156,000

Total Requirements $165,000

Market Analysis Summary

Sun Heat has identified two distinct market segments for marketing their products. The first
segment is the "DIY" segment of handy individuals. The second is the "Convenience" segment
that will utilize a skilled installer to have the system installed at their home. The solar water
heating industry is reasonably diverse. There are some companies that sell kits that must be
assembled and then installed by the individual. There are other companies that only sell
professional installed systems. Some companies sell solar water heaters specifically for
swimming pools, others market their products for households.
3.1 Market Segmentation

Sun Heat has identified two market segments to target.

DIY
These people do a lot of repairs and upgrades on their home. They have lots of building and
repair skills and like to tackle projects while learning new skills. This customer segment has a
variety of motivations for do-it-yourself work. One motivation is saving money. Another is the
satisfaction of completing the project on their own. Additionally, customizing the project may be
appealing. Some demographic information of this group includes:

 Age 29-56.
 Primarily male.
 Married with at least one child at home.
 Household income ranges from $50,000-$80,000.
 73% have an undergraduate degree.
 Undertake at least one project every three months.
 Spend $250-$3000 per year on assorted projects at home stores such as Lowes or Home Depot.

Market Channels
Sun Heat will be be sold through several channels:

 DIY Retailers: This channel purchases Sun Heat products in quantity and then resells them to
individuals to install.
 Professional Installers: This channel is comprised of approved Sun Heat installers.

Market Analysis
 Year 1 Year 2 Year 3 Year 4 Year 5

Potential Customers Growth CAGR

DIY 9% 3,968,987 4,326,196 4,715,554 5,139,954 5,602,550 9.00%

Convenience 8% 2,789,254 3,012,394 3,253,386 3,513,657 3,794,750 8.00%

Total 8.59% 6,758,241 7,338,590 7,968,940 8,653,611 9,397,300 8.59%

3.2 Target Market Segment Strategy

Sun Heat has decided to concentrate on these two market segments for several reasons. One
reason is the lack of high quality products currently available to the DIY crowd. Another is the
sheer size of the do-it-yourself market. This segment participates within the $23 billion DIY
home improvement market and within the last six years has grown at double digit rates
largely fueled by the Internet making information available to assist do-it-yourselfers in
completing home improvement projects. The increase in size and activity within the available
market makes it particularly attractive.

The new wave of environmentalism provides another reason of targeting these two market
segments. More and more people want to reduce their negative impact on the environment and
solar hot water heating is an easy and economical way to do it.

3.3 Industry Analysis

The industry is composed of many different manufacturers of solar water heating components
and systems. Some companies operate serving the industrial market, others serve the residential
market. There are several companies that make components they sell to different assemblers.
There are other companies that make all the components for their systems in-house. Some solar
heating systems are complex using computers to make adjustments such as the angle of the
collectors based on the sun's position. Others systems are quite basic. It is interesting to note that
almost no one competes within different markets, each company has chosen a different niche and
sticks with that one alone. To be noted in section 5.1 is part of Sun Heat's competitive edge,
serving two markets. This makes perfect sense since the products for the two markets are quite
similar.
Financial Plan

The following sections will outline important financial information.

5.1 Important Assumptions

The following table details important Financial Assumptions.

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 30.00% 30.00% 30.00%

Other 0 0 0
5.2 Break-even Analysis

The Break-even Analysis indicates what will be needed in monthly revenue to reach the break-
even point.

Break-even Analysis

Monthly Revenue Break-even $29,872

Assumptions:

Average Percent Variable Cost 45%

Estimated Monthly Fixed Cost $16,430

5.3 Projected Profit and Loss

The following table will indicate Projected Profit and Loss.

Pro Forma Profit and Loss

Year 1 Year 2 Year 3

Sales $240,309 $403,967 $523,389

Direct Cost of Sales $108,139 $181,785 $235,525

Other Costs of Goods $0 $0 $0

Total Cost of Sales $108,139 $181,785 $235,525

Gross Margin $132,170 $222,182 $287,864

Gross Margin % 55.00% 55.00% 55.00%

Expenses

Payroll $118,400 $141,600 $151,600

Sales and Marketing and Other Expenses $5,400 $5,400 $5,400

Depreciation $12,396 $1,033 $1,033

Rent $24,000 $25,000 $26,000

Utilities $9,000 $750 $750

Insurance $7,800 $7,800 $7,800

Payroll Taxes $17,760 $21,240 $22,740

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

Total Operating Expenses $197,156 $205,223 $217,723

Profit Before Interest and Taxes ($64,986) $16,959 $70,141

EBITDA ($52,590) $17,992 $71,174

Interest Expense $0 $0 $0

Taxes Incurred $0 $5,088 $21,042

Net Profit ($64,986) $11,871 $49,099

Net Profit/Sales -27.04% 2.94% 9.38%

5.4 Projected Cash Flow

The following chart and table will indicate Projected Cash Flow.
Pro Forma Cash Flow

Year 1 Year 2 Year 3

Cash Received

Cash from Operations

Cash Sales $60,077 $100,992 $130,847

Cash from Receivables $136,262 $273,031 $370,691

Subtotal Cash from Operations $196,340 $374,022 $501,538

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 $196,340 $374,022 $501,538

Expenditures Year 1 Year 2 Year 3

Expenditures from Operations

Cash Spending $118,400 $141,600 $151,600

Bill Payments $155,929 $247,529 $315,723

Subtotal Spent on Operations $274,329 $389,129 $467,323

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 $0 $0 $0

Purchase Other Current Assets $0 $0 $0

Purchase Long-term Assets $0 $0 $0

Dividends $0 $0 $0

Subtotal Cash Spent $274,329 $389,129 $467,323

Net Cash Flow ($77,989) ($15,107) $34,215

Cash Balance $16,011 $904 $35,119

5.5 Projected Balance Sheet

The following table will indicate the Projected Balance Sheet.

Pro Forma Balance Sheet

Year 1 Year 2 Year 3

Assets

Current Assets

Cash $16,011 $904 $35,119

Accounts Receivable $43,969 $73,914 $95,765

Other Current Assets $0 $0 $0

Total Current Assets $59,980 $74,818 $130,883

Long-term Assets

Long-term Assets $62,000 $62,000 $62,000

Accumulated Depreciation $12,396 $13,429 $14,462

Total Long-term Assets $49,604 $48,571 $47,538

Total Assets $109,584 $123,389 $178,421

Liabilities and Capital Year 1 Year 2 Year 3

Current Liabilities

Accounts Payable $18,570 $20,504 $26,438

Current Borrowing $0 $0 $0

Other Current Liabilities $0 $0 $0

Subtotal Current Liabilities $18,570 $20,504 $26,438

Long-term Liabilities $0 $0 $0

Total Liabilities $18,570 $20,504 $26,438

Paid-in Capital $165,000 $165,000 $165,000

Retained Earnings ($9,000) ($73,986) ($62,115)

Earnings ($64,986) $11,871 $49,099

Total Capital $91,014 $102,885 $151,984

Total Liabilities and Capital $109,584 $123,389 $178,421

Net Worth $91,014 $102,885 $151,984

5.6 Business Ratios

The following table details important Business Ratios specific to Sun Heat as well as industry
ratios for the Other Electric Power Generation industry.
Ratio Analysis

Year 1 Year 2 Year 3 Industry Profile

ales Growth 0.00% 68.10% 29.56% 10.72%

Percent of Total Assets

Accounts Receivable 40.12% 59.90% 53.67% 10.41%

Other Current Assets 0.00% 0.00% 0.00% 40.72%

Total Current Assets 54.73% 60.64% 73.36% 51.79%

Long-term Assets 45.27% 39.36% 26.64% 48.21%

Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities 16.95% 16.62% 14.82% 12.65%

Long-term Liabilities 0.00% 0.00% 0.00% 40.12%

Total Liabilities 16.95% 16.62% 14.82% 52.77%

Net Worth 83.05% 83.38% 85.18% 47.23%

Percent of Sales

Sales 100.00% 100.00% 100.00% 100.00%

Gross Margin 55.00% 55.00% 55.00% 47.48%

Selling, General & Administrative Expenses 82.04% 52.06% 45.62% 13.69%

Advertising Expenses 0.00% 0.00% 0.00% 0.03%

Profit Before Interest and Taxes -27.04% 4.20% 13.40% 9.26%

Main Ratios

Current 3.23 3.65 4.95 2.10

Quick 3.23 3.65 4.95 1.69

Total Debt to Total Assets 16.95% 16.62% 14.82% 60.03%

Pre-tax Return on Net Worth -71.40% 16.48% 46.15% 7.72%

Pre-tax Return on Assets -59.30% 13.74% 39.31% 19.31%

Additional Ratios Year 1 Year 2 Year 3

Net Profit Margin -27.04% 2.94% 9.38% n.a

Return on Equity -71.40% 11.54% 32.31% n.a

Activity Ratios

Accounts Receivable Turnover 4.10 4.10 4.10 n.a

Collection Days 56 71 79 n.a

Accounts Payable Turnover 9.40 12.17 12.17 n.a

Payment Days 27 29 27 n.a

Total Asset Turnover 2.19 3.27 2.93 n.a

Debt Ratios

Debt to Net Worth 0.20 0.20 0.17 n.a

Current Liab. to Liab. 1.00 1.00 1.00 n.a

Liquidity Ratios

Net Working Capital $41,410 $54,314 $104,446 n.a

Interest Coverage 0.00 0.00 0.00 n.a

Additional Ratios

Assets to Sales 0.46 0.31 0.34 n.a

Current Debt/Total Assets 17% 17% 15% n.a

Acid Test 0.86 0.04 1.33 n.a

Sales/Net Worth 2.64 3.93 3.44 n.a

Dividend Payout 0.00 0.00 0.00 n.a