Section 1

Team 6
Fall 2016
Business Plan

FloodSafe
MightyBag Product Manufacturer

Team Members: Emails: Signatures:

Amanda Bologna Bolognam@dukes.jmu.edu ____________________________

Param Ektare Ektareps@dukes.jmu.edu ____________________________

Kaity Hoffman Hoffmakn@dukes.jmu.edu ____________________________

Jake Medvene Medvenjj@dukes.jmu.edu ____________________________

Kyle Rhodes Rhodeskr@dukes.jmu.edu ____________________________

Matthew Streck Streckme@dukes.jmu.edu ____________________________

Table Of Contents
Page 2 Executive Summary

Pages 3 & 4 Narrative

Page 5 Organizational Chart

Page 6 Employee Costs Chart: Salaries,

Benefits, Taxes & Totals

Page 7 Market Segmentation Analysis / Target

Market Selection

Page 8 Market Quantification

Page 9 Positioning/Competitive Analysis

Page 10 Marketing Mix

Page 11 Flow Chart

Page 12 Quality

Page 13 & 14 Inventory, Suppliers & Distribution

Page 15 Capacity & Resources

Page 16 Income Statement

Page 17, 18 & 19 Income Statement Notes

Page 20 Balance Sheet

Page 21 & 22 Balance Sheet Notes

Page 23 Cash Flow Statement

Page 24 Cash Flow Statement Notes

Page 25 Financial Ratios & Analysis

Page 26 & 27 Financial Ratios & Analysis Notes

Page 28, 29, 30 & 31 Bibliography

Page 32 Team Bios

Executive Summary
[FloodSafe]
[Jake Medvene]
[6923 Paris St., Houston, TX, 77021]
Phone: [703-540-5098]
E-mail: [medvenejj@dukes.jmu.edu]

Management: Product selling price: Small bag $125, Large Bag

General Manager, Manager of Operations, Manager
of Marketing, Manager of Finance
Industry: 314910 Textile and Canvas Bag
Number of Employees:
Year 1: 25
Year 5: 147
Amount of Financing Sought: $500,000
Investment Sources:
2 angel investors investing $250,000 each &
$150,000 from family, friends, and our own
investments.
$150,000 from the Engineering for Natural Hazards
grant.
Use of Funds: Purchasing equipment and materials,
employee wages, warehouse and product
development, and marketing and sales.
$175
Business Description: FloodSafe is a limited
liability company that manufactures and sells
waterproof bags that protect furniture and valuables
against water damage.
Products/Services: MightyBag is a vinyl-coated
polyester bag with waterproof zippers and suction
cups to enclose and protect valuables from flooding
events. They come in 2 sizes: small and large to fit a
variety of items.
Competitive Advantage: Our competitive
advantage is that we differentiate our product from
competing products by providing full and unique
protection to household valuables that no other bag
or textile product can provide. MightyBag
accomplishes this by fully enclosing our bags with a
waterproof zipper and securing the bag to the floor
using heavy-duty, waterproof suction cups to prevent
the loss of thousands of dollars in water damage.
Markets: Our primary target is households with
children and our secondary segment is households
without children.

Distribution Channels: Our sources of distribution will be our website and Target, Home Depot, and Lowes
retail stores reached through wholesalers. We are also going to send our sales representatives to trade shows.

Competition: Our company’s direct competition are products such as tarps or plastic wrap that can be covered
around furniture to minimize water damage. The indirect competition is the moving of the furniture to storage
areas, insurance coverage, and simply doing nothing to protect your furniture.

Financial Projections (Unaudited):

2017 2018 2019 2020 2021
Revenue: $2,125 $16,860 $29,700 $45,900 $74,100
EBIT: $(12) $1,322 $2,299 $3,927 $9,222
(revenue & EBIT in thousands)

Elevator Pitch: Could you imagine losing all of your irreplaceable personal possessions in a matter of

seconds? This is a reality to millions of people in the United States. As seen in the most recent natural

disaster, Hurricane Matthew, even with protective measures in place the amount of damage cost billions

of dollars (Isidore, 2016). To provide consumers with an easy-to-use and reliable solution to protect more

items, we developed the MightyBag, to be used as the primary defense against floods. Our revolutionary

product can be stored under furniture and quickly zipped up around items in time sensitive situations.

Customers will find assurance knowing their belongings are protected from water damage resulting in

high sales and a sustainable market share.

Product Description: The small bags are 4’ x 4’ x 4’ and hold small to medium sized valuables such as

family pictures, chairs, and side tables. The large bags are 6.5’ x 4’ x 4’ and hold larger valuables such as

couches, bookshelves, and china cabinets. MightyBag will be made of waterproof, vinyl-coated polyester

built to withstand submersion for long periods of time. We obtained these measures by looking at

standard furniture sizes (“Griggs”, 2001). The bags include a protective zipper preventing any water from

penetrating the bag. Suction cups welded to the bag will have the ability to hold up to thirty pounds per

square inch and be secured to the floor so items don’t get moved or lost. The product can also be

compressed and flattened for easy storage.

Competitive Advantage: Our competitive advantage is that we provide customers with a safer and

more time efficient way to protect household items from water damage compared to the average tarp or

storage unit. Our product utilizes a specialized zipper, durable exterior, and quick accessibility to add

value and differentiate our product.

Value Proposition: MightyBag protects household items from water during flooding and natural

disasters. It will save people money that would otherwise be spent on replacing water-damaged items.

This product also saves time that could be used to move home items to a safe location or file an

insurance claim. Together this gives the consumer the confidence in their investment and peace of mind

that their valuables will be kept safe.

Business Strategy: Our company, FloodSafe, will utilize a niche strategy to provide a differentiated

product to customers who need a reliable and easy-to-use means of protection from floods. We will

develop a revenue stream through website sales, as well as retail sales in various furniture and

convenience stores in our target region. Our marketing campaign will gain customers based on a need for

protection against floods and hurricanes. Our operational processes will remain as manual as possible

without sacrificing profitability, in order to provide jobs and discretionary income to the surrounding

community.
Business Location: Our business will be located in Houston, Texas. We chose to manufacture and

distribute our product out of a factory in Texas because the state has no workers compensation or

income tax, along with the highest rate of insurance claims on flood damage. This will cut extra employee

costs and place us in close proximity to a major part of our consumer base. Numerous retail distribution

centers are also located close to Houston, which will minimize shipping and delivery costs.

Outsourcing: We will outsource the manufacturing of our retail box packaging; manufactured by the

Liberty Carton Company. This will avoid extra resources used to hire additional manufacturers, package

designers, and purchasing additional machinery to make the boxes. Outsourcing gives us access to

experts in the retail box industry to get the right product for a reasonable cost. We are also outsourcing

our website creation and maintenance to Shopify Inc. The utilization of this company reduces the costs

that would be consumed by in-house technology teams. We are also outsourcing search engine

optimization to WebFX, to acquire more expertise at a lower cost.

Exhibit 1: Organizational Chart

● Our Research and Designer will observe the changing environment to research and implement
new technology, materials, and designs to improve the quality of our product.
● After Year Five of operations, we plan to either convert our General Manager to CEO and the
respective managers to Chief positions or hire new upper management depending on
performance.
● During Year Three, we will increase our assembly line workers to 48 and our inspection workers
to 15. All of our employees are full time employees at the end of Year Two.

Exhibit 2: Employee Costs Chart: Salaries, Benefits and Taxes

Exhibit 3: Market Segmentation/Target Market Selection

Segment Segment Size Growth Segment Description Priority Justification for Targeting
Name Projection of Level For
Segment Targeting

Our first segment includes This target is our top priority

couples and single mothers,
or fathers, who live with at
15,140,222 least one child. They are
households located in Texas, Florida,
(“Population Alabama, South Carolina,
Households Information .13% growth in Louisiana, Kentucky,
With Kids and Statistics each year (Census, Washington, Illinois, and
From Every 2016) Oklahoma because these
City, State and states have a high flood risk
County in the (FloodSmart, 2016). The
US”, 2015) age of the owner(s) of the
home, apartment, or condo
is (are) between 25 and 60
years old. They will have a
combined household salary
in the upper 25 percentile of
income in their respective
states.
because there is more of an
emotional aspect and
1 sentimental appeal to their
belongings as well as their
kids items. The emotional
attachment drives the target
to keep their items safe and
purchase our product. This
group will also buy more
bags because they have more
belongings in their homes
(“The Psychology of Stuff
and Things”, 2013).

Households without kids Households without kids

consists of no more than tend to have fewer items of
5,684,168 two people living together. sentimental value yet more
households This also includes people 2 items with a high purchase
(“Population who live alone. These value. This segment will need
Households Information 0.28% growth in people are between the ages less protective bags but still
Without and Statistics each year (Census, of 25 and 60 and live in generate sales due to the
Kids From Every 2016) Texas, Florida, Alabama, extra income they can spend
City, State and South Carolina, Louisiana, with the money not spent on
County in the Kentucky, Washington, children.
US”, 2015) Illinois, and Oklahoma
(FloodSmart, 2016). The
household salary is in the
upper 25 percentile of
income in their respective
states.

Exhibit 4: Marketing Quantification

Our market potential is calculated by multiplying the number of customers in our market, by the
number of bags they would purchase a year, by the price of each sized bag. The number of bags
purchased was based off of a five-year span where households with kids were projected to buy 4 large
bags and 8 small bags, while households without children were projected to buy 2 large bags and 4 small
bags. These purchasing numbers were based on our knowledge of the target market.

Our market growth projections are based off of the Textile and Canvas Bag Industry’s projected
growth. Although the industry’s growth in sales from the past five years is negative, it is incrementally
increasing and will continue to do so in 2017 to 2021 (Industry, 2015). We calculated market share by
dividing our projected revenue by the Textile and Canvas Bag Industry's projected revenue. Moderate
and extreme flooding events are projected to increase by 6-10% each year, which, along with the
industry’s increasing growth rate, supports our growing market share (Long Range Weather, 2010).
To find our annual forecasted sales we projected that our potential customers will buy the highest
in the months of June through November and lowest January through April due to the seasonality of
hurricanes (Atlantic, 2016). Specifically each month’s units sold is a percent of the total yearly sales, based
on a proxy company, Thule, who sells canvas bags for car roof tops. (Financial Data, 2015) January 1st,
2018 we will begin selling in retail stores and increase our advertising efforts, which will increase our Year
2 sales, explaining why January through May monthly sales are higher than in the 2017 months even with
the seasonality.

Exhibit 5: Positioning/Competitive Analysis

Positioning: Our positioning strategy is for FloodSafe to be the safest and most time efficient method
to protect furniture and belongings. Our innovative and durable design uses the best materials to allow
our high quality product to ensure your valuables are safe from Mother Nature.
Perceptual Map:

Least Time

Nothi

Tar Mighty
Not

Dependa
ble
Take

She
Frie

Uhaul

Insura
Most Time

Competitive Analysis: Our competitors are based on the alternative actions that our potential
customers could take to protect their belongings instead of using our product. Similar businesses to ours
have yet to be created and there is not a directly related industry to assess in comparison other than the
textile and canvas bag industry.
MightyBag is the least time consuming option and the most dependable solution other than
taking items with you or putting them in a storage unit. Relying on insurance companies results in a great
deal of uncertainty regarding coverage and they are also the most time consuming option. It could take
anywhere from a couple weeks to a couple of months to hear about the results of an insurance claim and
the possible payout included (“Frequently Asked Questions about Property Damage Insurance Claims in
Texas”, 2016).

Exhibit 6: Marketing Mix

Pricing: Floodsafe will be selling both the small and large MightyBag using a price skimming strategy.
This is aimed to increase our revenue early on to cover our development costs. Since people are spending
anywhere from $600 to $2,000 on furniture itself, we wanted to make our bags relatively inexpensive to
customers for such a valuable solution. Our wholesale price allows both wholesalers and retailers to
makeup the price of our bags.

Distribution: In Year One, we are only selling directly to customers through our website. In addition to
our website after the first year, we will start selling to Target, Home Depot, and Lowes through
wholesalers. We start out with two Sales Representatives because we don’t intend to sell to retailers until
Year Two. In 2019 we double our sales force to accommodate for the increase in sales and distribution
locations. After Year Five we plan to sell to Insurance companies to increase profits.
Promotional Strategy: In 2017 we are advertising through regional editions of Good Housekeeping and
Southern Living magazines. Both ads will run once during that year. In the years following 2017, we will
be advertising through a single circulation ad in Good Housekeeping and Better Homes and Gardens,
and two ads a year in Southern Living magazine. All ads are one-page, 4 color ads. To obtain recognition
faster we will outsource search engine optimization services to a company called WebFX, which is
accounted for in our Other Promo Expense.
The brand personality for MightyBag is to be reliable and secure. We aim to promote our brand
and brand personality through public disaster relief programs and serve our community by donating 3%
of September’s sales to disaster relief programs of our choosing, reflected in our Sales Promo Expense.
September is National Preparedness Month and by helping our community, customers will be able to
directly connect FloodSafe to the cause of flood prevention and relief efforts. (FEMA, 2016) FloodSafe
promises to offer customers with the safest and most time efficient solution to prevent flood damage and
promises to uphold a high standard of quality in our MightyBags.

10


Exhibit 7: Flow Chart

Major Quality Step:

Quality Step What is measured? How often? How will you ensure quality?

Q1 Are bags cut to correct size? Every bag Making sure all the sides are the
correct dimensions

Q2 Durability, suction cups and zippers Every bag Put it through testing to make sure
welded properly, no water gets it’s waterproof and bags function
through properly

Q3 Repaired bag up to standards Every repaired bag Once repaired, we will make sure
the bags are waterproof, durable,
and correct measurements

Critical Failure Points:

Failure Point Description How will you prevent failure? Recover if failure occurs?

F1 Bag cut to incorrect Use table with measurements to pull If big bag, use to make smaller
measurement polyester in order to cut correct size bag, if smaller bag then dispose
and employees are properly trained of materials
to use machines

F2 Zipper welded incorrectly Make sure employees are properly Dispose of the zipper and
trained to use machine reweld new zipper

F3 Hole for suction cups cut in Employees are properly trained to Scrap the tarp and remake the
incorrect spot or too big use industrial hole puncher and have product if holes damaged tarp
spots to line up bags for exact hole too much
locations

F4 Suction Cup welded improperly Make sure employees are properly Dispose of suction cups and
trained to use welder reweld

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Exhibit 8: Quality

Indicate the Dimensions of Why is this dimension important, given your industry Identify the Quality Step(s) on the
Quality on which you will & target market? Process Flow Chart to which this
focus. corresponds.

Durability Our product is about withstanding the impact of water Final Product Inspection
and other objects to protect the items inside. It must be
durable enough to withstand multiple uses and forces of
impact through the entire flood or natural disaster.

Reliability It must be reliable enough so during the flood or storm Final Product Inspection
customers trust their valuables are safe no matter what. If
it is not reliable then no customer would trust it enough
to buy it to protect their items.

Conformance It is important because the bags must be cut to the exact After cutting materials
size stated that way when customers buy it to cover Final Product Inspection
certain products they are fully covered. If the large bag is
cut half a foot shorter than stated, it may not cover their
couch like it should. This would cause our product to be
useless to them and customers would complain.

Perceived Quality
Our perceived quality is that our product can withstand Final Product Inspection
floodwater. So, if during the storm the quality fails, then
no one would trust the quality of MightyBags to protect
their items. We want them to see our bags perform as
expected so they tell friends and for the next storm they
also buy our products.

Describe any additional Proactive Quality Assurance Plans. Include a recovery plan should a customer receive poor
quality goods.

If the materials we receive from our suppliers are in any way not up to our standards then we will immediately contact them to
either send the correct materials we ordered, refund our order, or cut ties and find a new supplier. This would occur if the
materials were damaged in any way, not the correct size, or not what we ordered. If a customer was to receive poor quality goods,
then we would offer to reship them a new product as soon as possible and offer a claim for damage recovery, should their
valuables be damaged during use.

If you will utilize a quality/process improvement methodology, indicate which:

NA x TQM Six Sigma ISO Benchmarking
Other (specify what):

Total Quality Management methodology is the best way to improve our quality. TQM is the best improvement method because it
focuses on customer satisfaction, employee involvement, and continuous improvement. Our customers have to be satisfied with
our product or else they will not trust it to protect their valuables and not buy MightBags. This approach allows us to find out
exactly what our customers want and can satisfy their need. We want our employees to be constantly involved in suggesting
improvements to our process to make it easier on them and to speed up the production process. Lastly, we feel this approach
makes it easier to keep track of the results of our process and what needs to be improved upon. Our top management will always
be involved in the process to make sure everything's running smoothly and correctly.

12


Exhibit 9: Inventory, Suppliers & Distribution Suppliers

Item(s) Supplier Name Reason for Supplier Lead Frequency of System of Mode(s) of
and Location selecting supplier Time replenishment Management Transportation

Vinyl Coated Seattle Textile Affordable 14 days 11 days First In, First Highway
Polyester Company (Seattle, prices, they Out
Washington, US.) cover shipping
costs, and ability
to supply in very
large quantities

Waterproof Seattle Fabric Material fits the 14 days 11 days First In, First Highway
Zipper (Seattle, design idea we Out
Washington, US.) have, ability to
supply large
quantities, and
price falls within
our budget

Suction Cups Anver Specific product 28 days 25 days First In, First Highway
Corporation that meets our Out
(Hudson, needs and ability
Massachusetts, to supply in large
US.) quantities

Inventory
Finished goods Frequency of Average level of Average level of Amount of
produced shipping Finished goods Finished goods safety stock
finished goods inventory on site inventory on site on site
(per hour) Small bag Large bag

At the end of Year 1 20 small, 20 large Bi-weekly 500 388 444

At the end of Year 2 60 small, 40 large Bi-weekly 5000 3333 4167

At the end of Year 3 110 small, 60 large Bi-weekly 9167 5000 7083

At the end of Year 4 170 small, 80 large Bi-weekly 14167 6667 10417

At the end of Year 5 360 small, 130 large Bi-weekly 21667 10833 16250

13


What is the lifespan of your finished x NA Depends on usage

goods inventory?

How will you manage perishability of x NA Lifespan outlast any holding period
Finished Goods Inventory?

Distribution

Transporter Reasons Frequency Pickup/Dropoff

Adams Warehouse and Delivery Do rush delivery, product Weekly

insurance, deliver nationwide,
located in Houston

World Trade Distribution BBB A+ rating, cost effective, Weekly

handle complicated and high
load freight

14


Exhibit 10: Capacity & Resources

Demand Hours of Capacity Small Capacity Big Utilization

(per hour) Operation Bags Bags (%)
(per hour) (per hour)
At the end of Year 7 9am-5pm 20 20 18%
1 Monday-Friday
At the end of Year 87 9am-5pm 60 40 87%
2 Monday-Friday
At the end of Year 159 9am-5pm 110 60 93%
3 Monday-Friday
At the end of Year 240 9am-5pm 170 80 96%
4 Monday-Friday
At the end of Year 375 9am-5pm 360 130 77%
5 Monday-Friday

Bottleneck Brief description of bottleneck How will you manage the bottleneck identified on your
Process Map to ensure you can appropriately serve or
supply your customers?

B1 Welding Suction Cups Every year we are going to increase the number of
machines we have for our production in order to
increase our bottleneck to meet the rising demand.

Additional resources (beyond your bottleneck) must be appropriately allocated to support operations. Identify which
resources have a significant impact on your capacity at start up and describe why these are appropriate amounts of
resources to start up your organization.

Our primary concern will be making sure we have extra polyester material and extra zippers on hand to account for any
extreme increase in demand or any errors that occur in our product. The polyester and zippers are both non-perishable and
will be able to used for future use even when bought in bulk and kept as safety stock.

Describe all/any adjustments you will make as resource requirements vary with time. Be specific regarding which key
resources will be adjusted, when and how. If you will make multiple adjustments, explain each adjustment.

Our company predicts the most significant demand to be between June and November. During these months we will need
our materials on hand to be higher than other months increased the demand is more than expected. We are going to
increase the amount of vinyl coated polyester stored, zippers, and suction cups. We have backup suppliers for each of our
materials incase any of our current suppliers cannot meet our demand.

How will you Our products will vary based on the months populated by flooding. The main months for hurricanes
manage and floods are June-November. Our sales those months will be the greatest and in the months
seasonality? before so people can prepare before flood season. They will also be greatest during those months
for people about to be hit by floods preparing for the storm.

15


Exhibit 11a: Income Statement

16


Exhibit 11b: Income Statement Notes

● Our company’s gross profit at the end of 2017 reflects the Engineering for Natural Hazards grant

that our company successfully qualified for from the National Science Foundation for new

technology to help mitigate the impact of natural disasters (“Engineering for Natural Hazards”,

2016).

● Revenue in Year One reflects only direct sales made from our Sales Representatives through

trade exhibitions and marketing campaigns executed with the help of our Advertising Agent, and

website sales. Year Two through Five Revenues increase exponentially due to contracts made

with major furniture retailers like Ashley Furniture, IKEA, Rooms to Go, and eventually

Insurance companies. Our numbers are modeled similar to our proxy company, Thule, combined

with our expected market share gain each year due to our differentiated product that fits a need

that has yet to be satisfied by any product on the market to this point.

● Our Year One’s cost of good sold is made up of a combination of the wages of our hourly

manufacturing workers, materials purchased for production, and all fixed costs associated with

the production process. These numbers are proportionate to the total number of units sold each

year.

● Salaries and Wages reflect a combination of our salaried and hourly wage workers. This number

grows exponentially due to our commitment to manual processes, to provide jobs and income to

the surrounding community.

● The payroll taxes reflect FICA, Social Security, FUTA, and SUTA taxes of all employees

● We only pay employee benefits to our salaried workers in Year One, due to the fact that our

hourly workers only work part time to match our 30% production rate in the first year. Year

Two, we ramp up to 100% production to match large demand increase, and hourly workers

become full time and receive standard benefits.

17


● Our commissions expense encompasses the 2.5% commission paid to both our Marketing

Manager and Sales Representative for all direct sales. In Years Two through Five, the number is

weighted based on our projected portion of direct sales (30% in Year Two, 20% in Year Three

through Five), combined with the commission percentage, which increases to 3% at the end of

Year Three.

● Depreciation expense covers a 7 Years MACRS Table (“Figuring Depreciation under MACRS”,

2016) on all equipment that we purchase. In Year Three the expense increases significantly

because we buy a larger warehouse and add the straight-line depreciation to our total depreciation

expense.

● Rent Expense covers two 1500 square foot warehouses that we will rent out and operate in, until

Year Two when we purchase a larger warehouse and move out.

● Our Travel, Meals, and Entertainment Expense covers a predicted increase in travel for meetings

with retail representatives to acquire supplier contracts

● Website expense accounts for our $79.99 per month (plus tax) expense to Shopify.com, to

provide an easy-to-use website building platform with maintenance services as well. This website

builder will allow us to create our point-of-sales site that provides for the main portion of sales in

Year One, and a lesser but consistent portion of revenue in the following years

● Taxes & Licenses expense encompasses our initial Business License expense of $802.94 in Year

One, as well as the Texas sales tax of 6.25% (“Sales and Use Tax”, 2016)

● Our Office Expense is highest in Year One because we our investing the most in that year to

purchase all of the standard equipment needed to function in a business office (Computers,

Routers, Fax/Printer). The following years only cover the additional expense of office materials

that comes with new hires and the constant replenishing of supplies (paper, ink, etc.). There is a

18


small jump in Year Three that reflects the cost associated with moving to the newly purchased

warehouse and adding necessary materials for the move.

● Our company’s retained earnings at the end of our 2017 period dipped into the negatives due to

our start-up expenses (material purchase, marketing campaign, and new hire wages) being very

high and our sales revenue being low with lower demand..

● All of the numbers after Year One are adjusted for inflation using an average 1.6% yearly increase

in inflation found through research on past inflation trends (“United States Inflation Rate”,

2016).

● Operational Cash Flow decreases in Year Four due to a decrease in prices, leading to less revenue

in comparison to our steadily growing costs.

● Free Cash Flows are negative in Years Two through Five because of a large positive change in

Net Working Operating Capital throughout those years, this problem will be address later

● We begin paying dividends to shareholders in Year Two because our Net Income surpasses $1

million

● Our Internal Rate of Revenue is over 100% because our margins are very high due to our simple

processes and efficient use of resources

19


Exhibit 12a: Balance Sheet

20


Exhibit 12b: Balance Sheet Notes

● The inception date cash balance reflects the compilation of $150,000 of investment from the

founders as well as our network of family and friends, and $500,000 worth of investment from

two angel investors in exchange for 20% equity in our company.

● Our Accounts Receivables reflect a standard 45-day receivables policy that our company will

enforce for all credit sales.

● Inventory reflects the retail value of inventory that is left over or kept for security stock at the

end of the year, based on the bottleneck rate of our production processes combined with the

utilization of our manufacturing. Our company has a goal of keeping a standard of 2000 units of

small bags and big bags for a total of 4000 units on hand for safety stock. In Year Three, our

required machine acquisitions raise our bottleneck rate above the required production rate which

causes an increase in inventory for that year, but in Year Four we are able to bring the level back

to our standard number of 4000 units.

● Seeing that our process is highly manual, we require a large number that grows each year, of

relatively low cost machines; this leads to consistent investment in machinery and equipment each

year.

● Our Land Account increases in Year Two to reflect the purchase of a 32,536 square foot

warehouse to accommodate our increase in required space for new machines, more employees,

and larger material storage space.

● Accounts Payable reflects the ordering of raw materials in advance to supply our warehouse with

raw materials required for production at the beginning of the next production year.

● Employees are paid on a bi-monthly basis, causing a variety of accrued salaries per year

depending on where the end of the year falls in the payment cycle.

21


● Our company has a low number of Liabilities due to our company’s strategy of funding solely

through equity, not debt

● Common Stock encompasses the equity in the company given to our angel investors and family

and friends network who provide the $650,000 for our company start-up.

22


Exhibit 13a: Cash Flow Statement

23


Exhibit 13b: Cash Flow Statement Notes

● Our inventory cash flow is geared to keep a safety stock of at least 2,000 units of each product,

once we reach this level, no cash flow is expended to increase inventory. However, at the end of

Year Three, the bottleneck rate of our expanded processes leads to a 10,000 unit increase in

inventory, which accounts for the larger cash expenditure on inventory in that year. The

following year, the inventory rate is permitted to reduce back down to 2,000 units, and the 10,000

unit surplus is sold for straight profits, which leads to the positive cash inflow from inventory.

● Dividends begin to be paid out in Year 3, with a declared 5% of profits being distributed amongst

our initial investors

● Year Two Cash Flows are significantly lower than other years because of our large investment in

land that year, combined with the change in Inventory.

24


Exhibit 14: Financial Ratios & Analysis

25


Exhibit 14b: Financial Ratios & Analysis Notes

● Our company’s Current and Quick Ratios are higher than industry average because our

company pays off accounts payable in a shorter period than the industry average therefore we

have a lower accounts payable and current liabilities reported than the standards.

● Operating Cycle is below industry average in Year Five because our simple, low cost processes

require less capital to maintain production

● Our Debt-to-Equity ratio starts off very high because our equity levels are low to start off, to

cover start-up costs. The number decreases very quickly because our equity increase at a much

higher rate than liabilities because all liabilities are current, while equity compounds as revenue

and retained earnings increases.

● We have no Times Interest Earned Ratio because our company does not operate with interest-

bearing debt

● Inventory Turnover grows as Cost of Goods Sold increases and Inventory remains at a standard

level (following company policy), except for Year Three where there is an increase in inventory,

and a respective decrease in Inventory Turnover.

● Fixed Asset Turnover is much higher than our industry standards mainly due to the fact that we

use simple, low cost machines in our manual processes strategy. There is a significant decrease in

this ratio in Year Three when we buy our new warehouse, but otherwise, our sales revenue grows

at a much more exponential rate than our low-cost, simple machinery.

● Our Profitability margins decrease initially as a result of our price skimming strategy, but after our

prices stabilize, revenue increases and profitability margins also.

● The profitability margins are also very high due to the fact that we have a highly differentiated

product in an untapped market. Our efficient and cost effective production process allows us to

capitalize on the demand for our product, while keeping costs low and maximizing margins..

26


● Our Equity Multiplier is 1 because we are entirely equity based, with no interest-bearing debt.

● Total Asset Turnover is much higher than industry average because we are able to generate much

higher sales with much lower total asset costs.

● Our Return on Equity is at a relatively high 40% compared to the industry average of 18%

because our company operates with much higher profit margins than industry standards, leading

to higher net income, which raises ROE.

27


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My name is Param Ektare I am a Finance major from the Northern Virginia Area. I
graduated from Chantilly High School. I will be a junior this fall at James Madison
University and plan to graduate in 2018. I enjoy playing soccer.

My name is Kaity Hoffman, and I am a Junior Marketing major. I am from

Berkeley Heights, New Jersey and I will be graduating in the Spring of 2018.

My name is Matthew Streck and I am a Computer Information Systems major

at James Madison University. I am from Wilmington, Delaware and will be
graduating with a B.B.A. degree in the spring of 2018.

My name is Amanda Bologna and I am an International Business major from

Virginia Beach, VA. I transferred from USC- Aiken and currently play on the
JMU Women’s Volleyball team.

My name is Kyle Rhodes and I am a Junior from Chantilly, Virginia. I am a

Business Management major with a minor in Criminal Justice. I will be
graduating from James Madison University in Spring 2018.

My name is Jake Medvene I am a Junior from Herndon, Virginia. I am a

Finance and French double major with a minor in Business French. I will
be graduating from James Madison University in Spring 2018.

32