Executive contributing $15,000 ($7,500 each) in start-up
This business plan details the launch of a start-up company known as the Import Export Company (IEC). The company functions as a middleman’ in purchasing housewares from manufacturers in China and reselling the products to retail buyers in the US and Canada. The Import Export Company is primarily an independent import/export business. The products we import from China are resold to retail buyers in the US; in addition, we export the products from China directly to retail buyers in Canada. Without maintaining inventory, the company ships the product directly from China to the US and Canada.
Our product catalog focuses on housewares products that appeal to trend-minded US and Canadian consumers. Product pricing is geared toward budget-conscious consumers seeking a current look for their homes, without paying upscale prices.
In 2003, China was the third largest country trading with the US, importing and exporting a combined $127 billion in goods (US Census Bureau, 2003). As of November 2003, China exported $25.1 billion in goods to the US, up 25.8% over 2002 (US Department of Commerce).
The IEC has developed initial relationships with manufacturers and retailers. Our marketing plan targets a market of 160 retailers in the US that specialize in Home Furnishings and Housewares. The company has targeted fifty Canadian retailers that also meet our target market requirements.
The owners are contributing $15,000 ($7,500 each) in start-up capital from personal savings, in addition to a loan of $30,000 from friends and family. The loan will be repaid at 6% interest when the company becomes stable in the second year of operations. After initial start-up expenses, the company has a starting Cash Balance of $29,880.
The company is forecasting $350,500 in first year sales revenue, with a Cost of Goods projected to be 60%. Cost of Goods directly reflects our targeted 40% profit margin. We anticipate doubling our sales revenue for the first three years of operations as we develop our manufacturing and retail buyer relationships. Sales revenue increases in our second year to $701,000 and $1,402,000 in our third year.
The company projects a Net Profit of $40,665 in our first year of operations, increasing to $139,944 in the second year and $317,688 in the third year. Our Cash Flow objective in the first year is to not allow our Cash Balance to fall below $15,000 in any given month. We anticipate a Net Cash Flow of $17,103 in our first year of operations, increasing to $28,382 in our second year and $114,564 in our third year. Our projections show a Cash Balance of $46,983 in our first year, increasing to $75,365 in our second year and $189,928 in our third year.
The objectives of the Import Export Company are to:
Generate first year sales of $350,500, doubling annually for the following two years.
Establish additional strategic relationships with manufacturers and retail buyers representing retail stores in the Home Furnishings and Housewares sector.
Maintain net margins of 40%.
The IEC imports home furnishing and housewares products from Chinese manufacturers at the lowest possible price for resale to home furnishings and housewares retail stores in the United States and Canada at competitive prices to generate volume unit sales.
The IEC is primarily an independent import/export business. We will import (buy) products from manufacturers in China and resell these products to retail buyers in the US, in addition to exporting the products for resale to retail buyers in Canada.
As a start-up company, our primary business will be locating and sourcing unique housewares products that appeal to trend-minded US and Canadian consumers. Our sourcing will focus on housewares product manufacturers in China, from whom we will identify products for inclusion in our product catalog. We will market our product catalog to direct buyers for home furnishing and housewares retailers in the US and Canada, to whom we will sell the products. When product orders are obtained from retail buyers, an order will be issued to the manufacturer, who then produces and ships the product directly to the retail buyer.
The company is co-owned by two individuals who will each maintain 50% ownership of the company. The owners have extensive experience in importing goods from Asia and selling to retail buyers in the US and Canada. The company will be formed as a Limited Liability Corporation. The company will obtain local and state business licenses. Additionally, the company will apply for an Employer Identification Number from the federal government.
The company will be located in California, housed in a leased, 200 square foot furnished office space and will carry adequate business insurance. The company will not warehouse or store products, as the company will function as a ‘middleman’.
The IEC will focus primarily on importing home furnishings, housewares, and giftware products. The products will be selected for their appeal to trend-minded consumers in the US and Canada, primarily purchasers that are between 25-45 years old and concerned with current decorating trends. Products with a high value/low price position will be identified for inclusion in our product catalog. The products offered in the Import Export Company’s brochure will include:
Candles and candlestick holders
Decorative tabletop items
Although products are primarily non-branded in that they do not bear any manufacturers brand name, we will provide ‘private label’ orders of all products, allowing the buyers to place their company’s identifying marks on the products. Private labels are generally thought to be good values by the consumers.
For sourcing imported products, the company has developed strategic relationships with several manufacturers in China. The company will focus its sourcing efforts during the first year in identifying additional manufacturers and products for inclusion in the company catalog. Sourcing goals for the next 12-months include:
Developing ten new strategic relationships with manufacturers in China
Identifying 20-30 new products for inclusion in the company catalog
We will obtain sourcing contacts by establishing communications with manufacturers and sending email, letters, and faxes to companies identified as potential resources. We will request personal meetings with representatives of the manufacturing companies and travel to China to meet one-on-one with the companies. These resources will be identified through:
Import/Export industry publications
International Chamber of Commerce
Import/Export industry trade shows
Internet research for housewares manufacturers in China
World Trade Centers
US Department of Commerce
Additionally, the company has developed strategic relationships with freight forwarders and customs brokers to manage the logistics of all orders.
The company will incorporate technology advances for logistics, order management, and online publishing to help automate the order and delivery process.
The company will continuously update its product catalog to include the most current home furnishings trends, remaining focused on small, high-volume products within the home furnishings sector. Products that have fallen out of fashion will be removed from the catalog unless they consistently receive buyer orders.
Market Analysis Summary
The IEC trades in the international import and export industry. The import/export industry in 2003 represented $1061 billion of goods imported into the US, an increase of 8.4% over 2002. US exports totaled $928 billion, reflecting a 3.9% increase over 2002 (US Department of Commerce).
The company focuses on two areas:
Import: The IEC imports consumer house wares products from China for resell to US retail buyers. In 2003, China was the third largest country with which the US trades, importing and exporting a combined $127 billion in goods (US Census Bureau, 2003). As of November 2003, China exported $25.1 billion in goods to the US, up 25.8% over 2002 (US Department of Commerce).
Export: The IEC exports consumer house wares products from manufacturers in China to retailers in Canada. In 2003, Canada was the largest country with which the US trades, importing and exporting a combined $292 billion in goods (US Census Bureau, 2003). As of November 2003, US exports to Canada totaled $156 billion, up 4.9% over 2002 (US Department of Commerce).
For import/export assistance, the company will utilize the consulting services of the following agencies:
The Small Business Administration’s (SBA) Office of International Trade
The US Department of Commerce International Trade Administration
The Export-Import Bank of the United States
The International Chamber of Commerce
The World Trade Centers
The Market Analysis chart indicates that these two sectors, assuming continued steady growth rates, will reach a combined market of $251 billion by 2008, with a Compound Average Growth Rate (CAGR) of 8.58%.
Table: Market Analysis
Imported Goods from China to US26%$25,100,000,000$31,575,800,000$39,722,356,40025.80%
Exported Goods from US to Canada5%$156,000,000,000$163,644,000,000$171,662,556,0004.90%
The Import Export Company’s customer groups are primarily large retail chain stores that offer Home Furnishings and Housewares at low to moderate pricing. According to Dun and Bradstreet, in 2004 the Home Furnishings sector represents a $546 million industry with 347 major participants. Conservative estimates forecast an annual growth rate of 2% in the US. Manufacturing order sizes have steadily declined as the industry reacted to the worldwide recession of recent years. Large retail chains have grown through mergers and acquisitions, while buyers have increased their buying power through consolidation.
The Canadian market saw retail sales in the Household Furnishings sector rise from $292 million in 2002 to $322 million in 2003, an increase of 10%. Conservative estimates forecast an annual growth rate of 2% in Canada.
Target retail companies are identified as Home Furnishings ; Housewares Retailers. These companies primarily retail household furniture, kitchenware, tableware, collectibles, and other consumer products for the home. A list of representative target companies includes:
Bed Bath ; Beyond Inc.
Toys ”R” Us, Inc.
Sears, Roebuck and Co.
The May Department Stores Company
Pier 1 Imports, Inc.
Jennifer Convertibles, Inc.
Polo Ralph Lauren Corporation
Circuit City Stores, Inc.
American Greetings Corporation
Newell Rubbermaid Inc.
S.C. Johnson ; Son, Inc.
L.L. Bean, Inc.
Lands’ End, Inc.
Martha Stewart Living Omnimedia Inc.
The Yankee Candle Company, Inc.
Sears, Roebuck and Co.
Federated Department Stores, Inc.
The May Department Stores Company
J. C. Penney Company, Inc.
The TJX Companies, Inc.
J. C. Penney Corporation, Inc.
Marks and Spencer Group p.l.c.
Over half of the companies represented have participated in the sector for over twenty years, suggesting that these companies have existing supplier relationships and may be difficult to gain access to buyers. Additionally, the top ten companies in the sector are responsible for over 25% of all revenue, also suggesting that the top tier companies may be difficult to penetrate. For these reasons, the Import Export Company will target the mid-tier companies in the sector. These companies are identified as having less than $9 million in annual sales or have been in business for less than 10 years. This provides a target market of 160 retailers in the US that specialize in home furnishings and housewares.
Approximately forty of the target companies are located in the Southwest region of the US (California, Arizona, Nevada, and Utah). Because of the large number of target companies in proximity to the Import Export Company’s headquarters in California, along with access to shipping ports in San Francisco, Long Beach, and San Diego, the company will focus its initial sales efforts in that region.
The company has targeted fifty Canadian retailers that meet our target market. The Import Export Company will develop relationships with buyers for these retail targets, exporting product directly from China to these companies.
The IEC faces competition from three fronts:
The main competition is from other housewares importers. Competing importers are constantly seeking out new products to showcase to US buyers. These importers have access to the same overseas manufacturers, visit the same product conventions, and market their catalogs to the same company’s that are targeted by the Import Export Company. To overcome this competitive threat, we will offer the most current trend-setting products at prices that do not exceed a 40% margin. Additionally, we will source products as requested by buyers.
The next level of competition comes from manufacturer’s representatives. These individuals sell products on behalf of manufacturers, generally for a commission structure. Manufacturer’s representatives call on our targeted buyers and can offer below-market pricing. The manufacturer’s representatives are limited to selling their manufacturer’s products. To overcome this competitive threat, we will build a constantly updated product catalog offering a greater range of products to buyers.
The third level of competition comes from in-house buyers at our target customer companies. As with independent importers, in-house buyers have access to the same overseas manufacturers and visit the same product conventions. To overcome this competitive threat, we will offer the most current trend-setting products at prices that do not exceed a 40% margin and we will present our constantly updated product catalog to buyers several times each year. Additionally, we will source products as requested by buyers.
Strategy and Implementation Summary
The Import Export Company’s goal is to develop a network of manufacturers that design and manufacturer stylish, low-cost housewares that appeal to decision-makers at our targeted retail housewares companies in the US and Canada.
Consumers have become more price-conscious in reaction to the recent economic downturn. As reflected in recent retail industry statistics, consumers have less discretionary income for decorative items and are unwilling to pay high-end prices to decorate their homes. Rather, consumers have flocked to lower-priced retailers that offer housewares and home furnishings that reflect current trends. The Import Export Company selects products for inclusion in the product catalog by virtue of their low price/high value position. The product line will be generally focused toward budget-conscious consumers seeking a current look for their homes, without paying upscale prices. The company will remain focused on small, high-volume products within the home furnishings sector.
To stay competitive requires that the company update its product catalog on an annual basis, reflecting current decorating trends. Products that are poor sellers or that have fallen out of fashion will be removed from the catalog.
The company’s primary marketing targets consist of housewares retail buyers in the US and Canada. The company has established relationships with buyers and decision-makers at the headquarters level of several home furnishings retail companies. We will reach additional customers by contacting retail buyers at each target company and requesting face-to-face meetings. Our primary objective is to develop relationships with buyers and decision-makers in the US and Canada, with a goal of adding at least ten relationships every year. It is only through the cultivation of personal relationships with buyers that we will achieve our sales objectives.
We will identify retail buyers in the US and Canada through:
Subscribing to housewares industry publications for the US and Canada
Attending housewares industry trade shows
Researching housewares retail buyers in the US and Canada on the Internet
The products offered by the Import Export Company will be unique in capturing current decorating trends. The products provide an affordable alternative to high-end, expensive home furnishings and housewares. They look high-end, but are moderately priced to appeal to lower-end consumers. To achieve our profit objectives, we will use a 40% margin, pricing our products 40% above the factory price.
We will source products from manufacturers in China. When a product is selected for inclusion in our company catalog, the manufacturer will provide a pro forma invoice noting the per unit selling price. This price will be the basis for setting our retail price, which will be the unit wholesale price (including shipping and import costs) plus a 40% markup, which will be the retail selling price.
We will present our product catalog, with retail pricing, to direct retail buyers in the US and Canada, from whom we will obtain product orders. When product orders are obtained from retail buyers, we will place an order with the manufacturer. Terms of the order will include use of a Letter of Credit, issued from our bank. A Letter of Credit provides the manufacturer with payment in full from our bank, paid when the complete order reaches the destination dock (CIF). This method allows us to avoid paying upfront manufacturing fees when we place orders.
We will use a freight forwarding company to process all orders. The freight forwarder is responsible for scheduling the logistics of intermodal (truck, rail, ocean, air) transportation for the order, including securing maritime insurance and ensuring the order is seen through customs.
For each order we will attempt to negotiate terms that include CIF (Cost, Insurance, and Freight) with delivery and Letter of Credit payment at the US destination port, rather than FOB (Free On Board) at the manufacturers shipping port in China. Using this method allows us to avoid paying for the shipment when it leaves the dock in China and waiting the subsequent four weeks for the product to arrive in the US port. During this time our working capital would be tied up while the ship is in transit to the US. We do not warehouse or carry inventory for any products. The order is shipped directly to the retail buyer’s specified warehouse.
Correspondingly, we will attempt to negotiate favorable terms with the retail buyers. The retailers will be invoiced for immediate payment when the shipment arrives at the US shipping port. Using these credit terms will provide for minimal collection days outstanding for paying our manufacturer’s invoice and receiving our client’s payment.
The Import Export Company functions as a ‘middleman’ between manufacturers and retailers. The following diagram illustrates our position:
Manufacturer ; Import/Export Company (‘middleman’) ; Retail Buyer
Product pricing is geared toward budget-conscious consumers seeking a current look for their homes, without paying upscale prices. As a reaction to the recent worldwide recession, consumers have become more price-conscious. As reflected in recent retail industry statistics, consumers have less discretionary income for decorative items and are unwilling to pay high-end prices to decorate their homes. Rather, consumers have flocked to lower-priced retailers that offer housewares and home furnishings that reflect current trends.
Products placed in the Import Export Company’s catalog of products will be chosen to fit this model. Each product will be sourced to provide a 40% profit margin, with volume orders expected to provide adequate revenue for the company’s ongoing success. Our initial pricing forecasts suggest that a 40% margin allows us to competitively price our products.
After identifying products that meet our criteria, we will request an initial Request For Quotation (RFQ) from the manufacturer. The manufacturer will respond with a pro forma invoice with the following information:
Price per unit in US dollars (including shipping, packing, and insurance)
Product specifications for weight and dimensions
The following are import costs for the example order:
CIF (landed cost)$5,000
Brokerage Clearance and Reforwarding$30
Letter of Credit (.25%)$5
Total Landed $5,095
or $5.10 per unit
Our targeted markup to retailers is 40% above the wholesale price paid to the manufacturer. For example, if we purchase a product for $5.10 per unit landed cost (including all shipping and insurance costs) from the manufacturer, we would then sell that product to a retail buyer for $7.14, resulting in a net profit of $2.04 per unit.
$5.10 + 40% = $7.14
The Import Export Company will focus on volume sales orders of at least 1,000 units per retailer order. In this example, an order of 1,000 units at a net profit of $2.04 per unit would result in a profit of $2,040 for the company.
$2.04 x 1,000 = $2,040
We believe that the most important element of promoting our company is in cultivating and maintaining personal relationships with product manufacturers and retail buyers. We will identify and establish relationships with at least ten manufacturers in our first year. We will negotiate with each manufacturer for the lowest price for each product, along with favorable terms including Letters of Credit. From these negotiations, we will determine an acceptable profit margin and unit pricing for retail buyers in the US and Canada. An electronic catalog will be created, with product descriptions, photos, retail unit pricing, volume price discounts, and credit terms for presentation to retail buyers.
All products will be listed in an electronic product brochure/catalog, maintained in electronic file format. The brochure can be easily updated using off-the-shelf publishing software, operated by the company staff on laptop computers. Product pictures will be generated at the manufacturer’s facilities by company staff through the use of photo cell phones. The catalog is easily updated and accessed on the company’s website, and can be emailed to customers for immediate review. We will present our catalog in-person and via email to retail decision-makers.
The company will also maintain a state-of-the-art website that showcases our current product catalog. The website will provide for online ordering and order-tracking to streamline the logistics process. To reach our sales goals, we will follow the following marketing plan:
Make contact with all targeted retail companies in the first three months of operations by sending letters of introduction by fax, email, and direct mail. The information provided to the retail buyers will include our product catalog in both electronic and print format.
Follow up with each retail buyer at least three times.
Schedule personal face-to-face meetings at the retail buyer’s office to establish a relationship and present our product catalog in-person, along with samples of the most popular products.
Visit major industry events. Annual product conventions generally lead to the discovery of new products and new buyer leads. We will access buyer’s directories distributed at each event:
International Housewares Show (March)
New York International Gift Fair (January)
Hong Kong Gifts and Housewares Fair (April)
The company will maintain a budget for advertising, which will include:
Print advertisements in industry publications.
Catalog costs for printing and electronic formats.
Travel budgets to support calling on each targeted retail buyer.
We believe that our most important alliances are those we forge with our bank, our manufacturers, and our retail buyers. Cultivation of personal relationships with decision-makers within these organizations will position our company to meet our growth goals.
The company’s goal for the first year of operations is to place initial orders from thirty retail buyers. The average initial order is expected to generate revenue of $7,500 per order. We expect to write our first orders in our second month of operations. We assume a six-week lag from the day an order is written to when we receive payment. From these assumptions, we are forecasting initial orders in our first year of sales as:
30 x $7,500 = $225,000 initial order profit
We expect half of these orders to result in reorders beginning in the second half of the year, resulting in the following assumption:
15 x $7,500 = $125,500 Reorder Profit
From these assumptions, we are projecting initial first year sales revenue of $350,500. Our sales and marketing goals identify doubling our retail orders through our third year, resulting in sales of $701,000 in our second year and $1,402,000 in our third year.
The following Sales Forecast represents our first three years of Sales and Cost of Sales. Direct Cost of Sales is tabulated as 60% of the product sales value, in correlation to our 40% margin. A detail of our first twelve months of sales is provided in the appendix of the business plan.
Table: Sales Forecast
Direct Cost of Sales
Subtotal Direct Cost of Sales$210,300$420,600$841,200
The company is founded by two individuals who have over ten years of combined experience importing products from Asia and selling to retail buyers in the US and Canada. Additional management expertise will be provided by import/export consultants, a corporate attorney, and an accountant specializing in import and retail.
The company is organized by focusing on the three major areas of sourcing, marketing, and administration. The two owners will divide responsibilities between sourcing and marketing. Administration will be handled by an administrative assistant who will manage the office while the two owners spend the majority of their time on the road, cultivating the company’s relationships with manufacturers and retail buyers.
Owner #1 is well-versed in negotiating in China and will be responsible for identifying and developing relationships with housewares manufacturers in China. He will additionally be responsible for overseeing the logistics of each order.
Owner #2 will be responsible for developing relationships with retail buyers in the US and Canada. A large percentage of her time will be spent making in-person sales calls and traveling to industry trade events.
The following table outlines the company’s personnel objectives. Initially, only the company’s administrative assistant will be considered an employee. Both owners will take a distribution of the profits rather than drawing a salary. The owners anticipate taking dividends of $11,000 each in the first year, increasing to $40,000 each in the second year and $100,000 each in the third year. Additional staff will be added in subsequent years, determined by the company’s cash flow and personnel requirements.
As a start-up company, we anticipate growth through favorable financing options and cash flow. All sales contracts will be written to minimize our risk by negotiating for favorable credit terms, including Letters of Credit. All transactions will be in US dollars to avoid any foreign exchange risk.
The company assumes a 45-day collection period for all billables, reflecting the time required to manufacturer and ship the products to the US. The Import Export Company expects to utilize financing to cover these collection periods. Financing will also allow the company to avoid unnecessary risk and increase working capital. For the purpose of estimating our cash flow, we are forecasting 50% of our sales will be on credit.
We will consult with our accountant to ascertain a specific tax rate. For the purpose of estimating, we have set our tax rate at 20%. We do not forecast collecting sales tax, as our purchases are for resale and not subject to sales or use taxes.
We will work closely with our bank, which was selected because of its import and export programs. Initially, we will pursue secured financing options, with the bank advancing funds by using the goods we import as collateral. If we default on our secure financing obligations, the bank takes title of our shipped goods. As we are a start-up company, we will not qualify for unsecured financing until we have established a positive credit record with our bank.
We may pursue a revolving line of credit through the Small Business Administration’s Special Purpose loan programs for exporters, which would allow us to receive pre-export financing through the U.S. Export Import Bank. We may also pursue factoring options. As a start-up, we are primarily focused on maintaining a positive cash flow position. For this reason, a factor that buys receivables with a cash advance in exchange for a 5% fee may be a viable option. We feel that our target profit margin of 40% provides leeway to work with factors.