FIN 655 – Business Plan Le,Yi and Zhong, Huan

“Tea House” Business Plan

Le Yi; Zhong Huan

National University

FIN 655

Professor: Dr. Farhang Mossavar-Rahmani

March, 2014
FIN 655 – Business Plan Le,Yi and Zhong, Huan

Executive Summary

Tea House is determined to become a daily necessity for local tea addicts, a place to

dream of as you try to escape the daily stresses of life and just a comfortable place to meet

your friends or to read a book, all in one. With the growing demand for high-quality tea

drinks and great service, Tea House will capitalize on its proximity to the UTC west field to

build a core group of repeat customers. Tea House will offer its customers the best prepared

tea drinks in the area, as well as free books that its patrons can read to enjoy their visit.

Company Description
The company will operate a 600 square foot drink bar in UTC west field a few minutes

drive from the UCSD. The owners have secured this location through a three-year lease with

an option for extending. The company needs to provide at least $30,000 start-up funds. The

remaining capital will be obtained through Bank of America commercial loans.

Keys to success

Develop the finest product.

Exceed customer expectations.

Employ strict financial controls.

Founders

Tea House is being lead by Le,Yi and Zhong,Huan. Le has a strong educational

background and a wealth of applicable industry experience. Zhong received his Bachelor

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

degree and MBA of Business Management. Le has worked at several drink shops, and has

worked in Florida as a drink maker in Walt Disney World.

Financials

The company is expected to grow sales revenue from $200,256 in first year 2014 to

$220,782 in third. As Tea House will strive to maintain an 85.86% gross profit margin and

reasonable operating expenses, it will see net profits grow from $28,310 to $38,512 during

the same period.

Our Mission
To provide the finest tea drinks and excellent customer services in the industry.

Provide an opportunity for the average person to own a tea distribution or Tea House

business without the big capital and overhead, and market globally through the Internet.

Provide the Company’s independent distributors with a sense of “belonging” by being able to

own stock in Tea House’s public company and know they will be part of the Company’s

projected growth.

Build a legacy company that holds integrity as its foundation, because they believe that

“integrity is honoring your word”, and make a difference in the industry by offering a real

home to its distributors.

Build shareholders’ value in the Company by maintaining stability and improving

financial performance.

Give back to the community by helping the orphans and poor children of the world.

Our Vision

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

The Company's vision is to bring health and best tea drinks to the world's largest and

most popular drink, and to be recognized globally as The World's Tea House Company®.

Tea House wants to become the next Starbucks story.

Company Summary
Tea House is determined to become a daily necessity for local tea addicts, a place to dream

of as you try to escape the daily stresses of life and just a comfortable place to meet your friends

or to read a book, all in one. With the growing demand for high-quality tea drinks and great

service, Tea House will capitalize on its proximity to the UTC west field to build a core group of

repeat customers. Tea House will offer its customers the best prepared tea drinks in the area, as

well as free books that its patrons can read to enjoy their visit.

Company Ownership
Tea House is a California State Corporation. The primary stockholder and founder is

Le,Yi and Zhong,Huan.

Start-up Summary

Start-up expenses are in line with those of other Tea House chains. For example,

Starbucks spends approximately $380,000 on average to build-out a new store location. Our

costs are an estimated $14,800 and $45,250 for opening inventory and operating capital.

Future stores should cost no more than $60,050 to build out since many of the costs incurred

here will not have to be repeated later.

The Start-up requirements, below, include $45,250 of short and long-term assets.

The following equipment will be needed for the start up of the company:

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

 Two workstation computers and one central file server.

 Dishwasher.

 Refrigerator.

 Microwave.

 Assorted buckets, labels, bags, labels, and hooks.

 Blender.

 Stove.

 Sealing machine.

 Plates, cups and teapots.

 Furniture.

 Water Filter.

$70,000

$60,000 $58,640

$50,000
$50,000
$43,840
$40,000 Expenses
Assets
Investment
$30,000 Loans
Owner's Capital
$20,000
$14,800

$10,000 $8,640

$0
Start-up

Start-up Financials

Funding for the company comes from two major sources--owners' investments and bank

loans. Two major owners, Le,Yi and Zhong, Huan, have contributed $8,000 and $640

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

respectively. The remaining $50,000 needed to cover the start-up expenses and assets came

from the two bank loans--a one-year loan in the amount of $20,000 and a long-term (five

years) loan of $30,000. Both loans were secured through the Bank of America. Thus, total

start-up loss is assumed in the amount of $14,800.

Start-up Requirement
Start-up Assets
Starting Inventory $3,590
Cash $28,000
Long-term assets
Dishwasher $2,100
Refrigerator $3,000
Microwave $200
Blender $200
Casher $250
Stove $400
Sealing machine $1,500
Plates, cups and teapots $1,500
Furniture $3,000
Water Filter $100
Total long-term assets $12,250
Total Start-up Assets $43,840
Start-up Expense
Advertising $1,000
Licenses and permits $300
Expensed Supplies(napkins, PET cups, etc) $1,000
Insurance $500
Leasehold improvement $10,000
Unanticipated expenses $2,000
Total Start-up Expense $14,800
Total Requirements $58,640

Company Locations and Facilities

Tea House drink shop will be located on the ground floor of the UTC, 4545 La Jolla

Village Drive, Suite E-25, San Diego, CA. The company has secured a three-year lease of the

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

vacant 600 square feet premises. The lease contract has an option of renewal for three years

at a fixed rate that Tea House will execute depending on the financial strength of its business.

The floor plan will include a 100 square feet back office and a 500 square feet tea drink

bar, which will include a seating area with 3 tables, a drink bar, storage area and a bathroom.

The space in the drink area will be approximately distributed the following way--330 square

feet (i.e., 55% of the total) for the seating area, 150 square feet (25%) for the production area,

and the remaining 120 square feet (20%) for the customer service area.

This property is located in a commercial area within a few minutes drive from the UCSD

campus on the corner of a major thoroughfare connecting I-805 with the busy downtown

commercial area. The commercially zoned premises have the necessary water and electricity

hookups and will require only minor remodeling to accommodate the espresso bar, bathroom

and storage area. The drink area’s open and clean interior design with modern wooden decor

will convey the quality of the served beverages and snacks, and will be in-line with the

establishment's positioning as an eclectic place where people can relax and enjoy their cup of

tea. The clear window displays, through which passerby will be able to see customers

enjoying their beverages, and outside electric signs will be aimed to grab the attention of the

customer traffic.

Product
Tea House will offer its customers the best tasting tea drinks in the area by using high-

quality ingredients and strictly following preparation guidelines. The store layout, menu

listings and marketing activities will be focused on maximizing the sales of higher margin tea

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drinks. Tea House will also offer it’s customers pastries, small sandwiches. For the customer

who prefers to prepare its tea at home, Tea House will also be selling tea leafs. There are free

books and magazines that customers can read inside the drink bar.

Bubble Tea

Bubble tea, also known as pearl milk tea or boba milk tea, is a Taiwanese tea-based drink

invented in a tea shop in Taichung, Taiwan, during the 1980s. The term "bubble" is an

Anglicized imitative form derived from the Chinese bōbà meaning "large breasts," slang for

the large, chewy tapioca balls commonly added to the drink.

Hong Kong Milk Tea

Kong-style milk tea is a kind of drink originated in Hong Kong, which is made from

black tea and milk (usually evaporated milk or condensed milk). It is usually part of lunch in

Hong Kong tea culture. Although originating from Hong Kong, it is also frequently found

overseas in restaurants serving Hong Kong cuisine and Hong Kong-style western cuisine.

Thai Tea

Thai tea (also known as Thai iced tea) or "cha-yen" ("cold tea") in Thailand, is a drink

made from strongly brewed Ceylon tea. However, due to Ceylon tea's high price, plain black

tea with added food coloring is commonly used. Other ingredients may include added orange

blossom water, star anise, crushed tamarind seed or red and yellow food coloring, and some

other spices as well.

Red Tea

Black tea is a type of tea that is more oxidized than oolong, green and white teas. All

four types are made from leaves of the shrub (or small tree) Camellia Black tea is generally

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

stronger in flavor than the less oxidized teas. Two principal varieties of the species are used –

the small-leaved Chinese variety plant, used for most other types of teas, and the large-leaved

Assamese plant, which was traditionally mainly used for black tea, although in recent years

some green and white have been produced.

Green Tea

Green tea has been shown to improve blood flow and lower cholesterol. A 2013 review

of many studies found green tea helped prevent a range of heart-related issues, from high

blood pressure to congestive heart failure.

Fruit Tea

Dried fruit pieces, including peaches are artfully blended with peach flavors to produce a

beautiful ruby red drink that is loaded with peach flavor, but no caffeine. A rich flavorful

"tea" that can be prepared hot or iced! As beautiful to look at as it is delicious to drink.

Loosing tea in 30 to 40 cups of tea with a blend of rose hips, hibiscus, dried fruit and natural

flavorings.

Price

The following chart is the price strategy for Tea House products. Consider the top sale

product will be bubble tea and Hong-Kong milk tea; we make their price attractive.

Material cost per cup ($) Price

12oz 16oz
Bubble Tea 0.73 $2.99 $3.25
Hong Kong Milk Tea 0.55 $2.99 $3.25
Thai Tea 0.22 $3.50
Black Tea 0.31 $3.00
Green Tea 0.28 $3.50
Fruit Tea 0.42 $4.00

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

Start-up Inventory
The table below shows that inventory situation of the company, that inventory will

support the Tea House to work more than 1 month even without the refill of raw materials.

Starting Inventory 　
　 Price Unit Total
Flavor Powder $10/lb 80lbs $800
Black Tea $48/lb 20lbs $960
Green Tea $44/lb 10lbs $440
Thai Tea $34/lb 10lbs $340
300
Milk $3.5/gallon $1,050
gallon
Total 　 　 $3,590

Market Analysis Summary

California tea consumption has shown steady growth, with tea drinks having the

strongest growth. Tea drinkers in the eastern Pacific Ocean are among the most demanding

ones. They like well tasted gourmet tea drinks and demand great service. San Diego, CA,

with its multinational background, has a large group of Asian immigrations. Which is a great

place for coffee establishments. Tea House will strive to build a loyal customer base by

offering a great tasting tea drinks in a relaxing environment of its located in UTC west field

and near the UCSD.

The chart and table below outline the total market potential (in number of customers) of tea

drinkers in San Diego, CA.

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Customer Classification

15%

Student
Teenager
23% 53% Office worker
Other

9%

Growth Predict

Year 1 Year 2 Year 3 Year 4 Year 5

Potential Growth CAGR

Customers

Students 5% 31,800 33,390 35,059 36,813 38,653 5%

Teenagers 5% 5,400 5,670 5,954 6,251 6,563 5%

Office 5% 13,800 14,490 15,215 15,975 16,774 5%

workers

Other 5% 9,000 9,450 9,922 10,419 10,940 5%

Total 5% 60,000 63,000 66,150 69,458 72,930 5%

Target Market Segment Strategy

Tea House will chase the customers who want to get their daily cup of tea drinks in a

relaxing atmosphere. Such customers vary in age, although our location close to the

University campus means that most of our clientele will be college students and faculty. Our

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

market research shows that these are discerning customers that gravitate towards better

tasting milk-tea. Furthermore, a lot of college students consider Tea House to be a convenient

studying or meeting location, where they can read or meet with peers without the necessity to

pay cover charges. For us, this will provide a unique possibility for building a loyal client

base. They can enjoy the free WIFI in the Tea House, and they can relax in a light music

atmosphere.

Target Market

Adults

Tea House primary target market is men and women aged 25 to 40. They account for

almost 35 percent of its total business. Tea House appeal to this consumer age group through

hip, contemporary design that is consistent in its advertising and decor, and working to keep

its products current as status symbols. This target audience grows at a rate of 3 percent

annually.

Young Adults

Young adults aged 16 to 24, total 55 percent of Tea House sales. Tea House positions

itself as a place college students can hang out, study, write term papers and meet people. Tea

House appeal to this consumer directly through introducing technology as soon as it comes

available, focusing on social networking and actively cultivating a “cool” image. The young

adult audience grows 4.6 percent each year.

Market Needs

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Tea House operates in the Tea and Specialty Drink category segment of the tea industry.

In the United States, the tea segment is the second largest segment of the tea industry and has

demonstrated steady growth over a long period of time. According to The NPD Group, Inc.,

which prepares and disseminates CREST® data, tea sales have grown at an annual rate of 3%

over the past 10 years, totaling approximately $5 billion for the 12-month period ended

December 2012 and are projected to increase at an annual rate of 3% between 2012 and 2016.

Industry Analysis

According to the statistic from website statista, the statistic displays the wholesale tea value

in the United States in 2012 and 2013, by market segment. The foodservice segment captured

wholesale sales of about 1.12 billion USD in 2012. The total wholesale value in the US tea

industry amounted to about 9.8 billion USD in that year. The growth of the tea industry over this

period of time is even more impressive on a pound basis with ~ 170 million pounds imported

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

during 1990 compared to the nearly 277 million pounds imported in full year 2012. This

represents a 2.5% compound annual growth rate. This real growth of the tea industry in the USA

is even more impressive with the last three year rolling average for tea imported into the USA

growing more than 4%.

Size of the industry

The Ready-To-Drink (RTD) Tea Production industry produces tea beverages that are

packaged and ready for consumption. According to IBIS World Industry Analyst Jocelyn

Phillips, “Robust product development and the expansion of these new product lines into new

markets have driven revenue industry growth in the past five years.” Though a discretionary

good, RTD tea was perceived as an affordable luxury during the recession and as such, did not

suffer much from macroeconomic pressures on demand. Accordingly, industry revenue is

expected to increase an annualized 6.1% over the five e years to 2014, including a 3.3% jump in

2014 to $5.3 billion. Average industry profit margins also remained high during this period,

particularly as tea prices plummeted to an all-time low in 2013.

Environment Scan
Retail sales are driven by the economic environment, a robust economy correlates to an

increase in consumers' disposable income, increasing sales and allowing retailers to sell more

valuable goods, such as high-end tea products. On the other hand, a sluggish economy decreases

consumer confidence and can cause people to spend less, leading to declining sales and forcing

retailers to lower prices. Economic and governmental factors often overlap in areas such as

corporate taxation, import and export laws, and inflation, which can decrease consumer

purchasing power.

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

Tea industry influenced by the macro environment strongly, when macro economy getting

better, people will have more money and have more confidence on the income, so that they will

pay more on the tea drinks to improve the quality of life. On the other hand, if macro economy

going down, they just want to save money and won’t buy things that are not necessary for their

livings. Now, the economy of U.S is getting better and better, we have the reason to believe

people will spend more on the consumptions.

Clear statement of the opportunities and threats

Opportunities

To extend supplier network. Have a better supplier network will make the profit steady

and easily in control.

Expansion to emerging economies. There are great opportunities for tea rooms in

emerging markets in Asian countries.

New product. We introduce some foreign tea products in the Tea House to attract people

from different countries.

Threats

Rising prices of tea-leafs and dairy products. Tea drinks have a strict quality level.

Different level of tea-leafs will make the totally different taste of tea drinks. High-level

tea-leafs cost more and make the tea drink price much higher than other drinks.

Increasing competition from restaurant, supermarkets.

Cultural and Political issues in foreign countries, Most Americans get use to the

traditional coffee drinks, people in Asia like tea drinks more.

Competition of the industry

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

There are almost 50 tea rooms in San Diego only. which sell various forms of tea products.

These products range from traditional tea products to ready to go tea products, even McDonald

has the ice tea. Not only these national brands sell tea products, all have some independent

owned tea rooms in San Diego and in California. “Tea House” should focus shopping mall area,

in these environments, its competition will include other brands of tea rooms, so that need the

experienced manager to handle this. “Tea House” will compete with them for locations and

customers.

Tea Station is a strong competitor to “Tea House”, but Tea Station’s tea product’s price is

so high than any other tea rooms in San Diego. That disadvantage will help “Tea House” to

catch the customer want to drink the tea or milk tea at a less price.

Competition strengths and weaknesses

Strengths
“Tea House” provided the less expensive products than other competitors; customers can

easily switch to lower price alternative during the time.

High standard of health drink will help “Tea House” differentiate from other high

calories drinks.

Smart location choice will avoid some strong competition during the opening time and

accumulate the valuable customers.

International based store can attract customers with different needs.

Weaknesses

“Tea House” has less recognizable brand in the specialty tea business.

Large numbers of competitors, there are 50 tearooms in San Diego produce different

taste of milk tea or tea products to service all the customers who like tea drinks in San Diego.

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Difficult of international communication and translation, milk tea and Thai tea have the

different name in different countries. It’s hard for people from different country to have the

same understanding of each tea products.

Product price high than the popular coffee drinks and not popular as coffee in United States.

Strategy and Implementation Plan

Sales Strategy

Tea House employees will handle the sales transactions. To speed up the customer

service, at least one employee will be servicing clients--while one employee will be preparing

the customer's order, the other one will be taking care of the sales transaction. All sales data

logged on the computerized point-of-sale terminal will be later analyzed for marketing

purposes.

Sales Forecast

Drink costs are assumed at 15% for tea beverages. Proximity to the University campus

will dictate certain sales seasonality with revenues slightly decreasing during the school

vacation periods.

The chart and table below outline our projected sales forecast for the product

classification.

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Monthly Sales

700; 14%
Bubble Tea
1300; 26%
Hong Kong Milk Tea
800; 16% Thai Tea
Black Tea

500; 10% Green Tea

1100; 22%
Fruit Tea

600; 12%

The table below show the growth predict in five years.

Growth Predict

Year 1 Year 2 Year 3 Year 4 Year 5

Potential Growth CAGR

Customers

Students 5% 31,800 33,390 35,059 36,813 38,653 5%

Teenagers 5% 5,400 5,670 5,954 6,251 6,563 5%

Office 5% 13,800 14,490 15,215 15,975 16,774 5%

workers

Other 5% 9,000 9,450 9,922 10,419 10,940 5%

Total 5% 60,000 63,000 66,150 69,458 72,930 5%

Sales Promotion
Tea House reward program allows members to earn a free drink after every 10 purchases at

Tea House.

VIP card can enjoy a 10% off on drinks.

Management Summary

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Staffing Requirements
The Company will hire a team of employees to operate the Tea House. The staffing

requirements are a function of sales volume.

The total staffing requirement for Tea House is as follows:

1 Manager

2 Employees per kiosk

Tea House will be operated by 1 salaried manager with support of 2 hourly employees that

will be 36 hours per week. In addition, the Tea House will hire hourly labor (“Team

Member” positions) as noted on the labor schedule in section 8.2. The hourly labor will have

a minimum of 15 full time positions of 36 hours per week.

Summary of Positions Working Hours and

Position Title Position Type Position
one positions working
Manager Salaried Manager 40+ hours per 6 day
week
Variable (Each of 2 full
time positions of 36
Team Member Hourly Labor hours per week may be
filled by one or more
employees)

Timetable for Hiring

The Company expects to open the 5 kiosks in 2015 with a crew of 5 managers and

sufficient hourly employees to fill 8-10 team member positions of 36 hours per week. While

the kiosk will experience turnover during the first 2 years, and the number of employees

filling team member positions will vary, the overall number of positions will not change.

Employee Management

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The Company is the sole and exclusive employer of its employees with the sole right to

hire, discipline, discharge and establishes wages, hours, benefits, employment policies, and

other terms and conditions of employment for its employees without consultation with or

approval by Tea House. As a company, Tea House, Inc. provides a 20 hours management

training program that covers all aspects of operating and managing a tearoom. It also makes

employees training materials available to franchisees.

The table below shows the employee’s salary and growth.

Personnel Plan

Year 1 Year 2 Year 3

Manager $26,000 $26,780(increase 3%) $27,583(increase 3%)

Employees $23,000 $23,690(increase 3%) $25,358(increase 3%)

Total people 3 3 3

Total payroll $72,000 $74,160 $78,299

Financial Plan
Tea House will capitalize on the strong demand for high-quality gourmet coffee. The

owners have provided the company with sufficient start-up capital. With successful

management aimed at establishing and growing a loyal customer base, the company will see

its net worth doubling in two years. Tea House will maintain a healthy 65% gross margin,

which combined with reasonable operating expenses, will provide enough cash to finance

further growth.

Cash Flow

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As the chart and table below present, the company will maintain a healthy cash flow

position, which will allow for timely debt servicing and funds available for future

development. The chart below shows the first year cash flow of the company.

100,000
90,000
80,000
70,000
60,000
50,000
Net Cash Flow
40,000
Cash Balance
30,000
20,000
10,000
0
1 2 3 4 5 6 7 8 9 0 1 2
th th th th th th th th th th 1 th 1 th 1
on on on on on on on on on n n n
M M M M M M M M M Mo Mo Mo

Income Statement Analysis

As the chart and table below present, the company will maintain a growth sale that will

allow for funds available for further Implement.

Year 1 Year 2 Year 3

Sales $200,256 $210,269 $220,782
Cost of goods $28,308 $29,723 $31,210
Gross Profit $171,948 $180,545 $189,573
Gross Margin 85.86% 85.86% 85.86%
Expenses
Payroll $72,000 $72,000 $72,000
Marketing/Promotion $5,000 $5,000 $5,000
Depreciation $1,225 $1,225 $1,225
Rent $16,200 $17,200 $18,200
Utilities $9,000 $9,360 $9,641

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Disposable supplies $4,000 $4,200 $4,410

Insurance $5,000 $5,000 $5,000
Total Operating Expenses $112,425 $113,985 $115,476
Profit Before Interest and Taxes $59,523 $66,560 $74,097
Intersts expense $19,080 $19,080 $19,080
Taxes(30%) $12,133 $14,244 $16,505
Net income $28,310 $33,236 $38,512
Net Profit Margin 14.14% 15.81% 17.44%

Balance Sheet Analysis

As the chart and table below present, the company will maintain a healthy balance sheet

position, which will indicate that the company can gain profit and have an excellent growth in

the industry.

Projected Balance Sheet

Year 1 Year 2 Year 3
Current Assets
Cash $95,875 $130,137 $169,574
Inventory $3,000 $3,200 $3,500
Total Current Assets $98,875 $133,337 $173,074
Long-term Assets
Long-term Assets $12,250 $12,250 $12,250
Accumulated Depreciation $1,225 $2,450 $3,675
Total Long-term Assets $11,025 $9,800 $8,575
Total Assets $109,900 $143,137 $181,649

Current Liabilities
Accounts Payable $52,947 $69,569 $87,750
Current Borrowing $- $- $-
Total Current Liabilities $52,947 $69,569 $87,750
Long-term Liabilities $34,803 $18,181 $-
Total Liabilities $87,750 $87,750 $87,750
Equity
Paid-in Capital $8,640 $8,640 $8,640
Retained Earnings $(14,800) $13,510 $46,747
Earnings $28,310 $33,236 $38,512

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Total Equity $22,150 $55,387 $93,899

Total Liabilities and Equity $109,900 $143,137 $181,649

Cash Flow Statement

As the chart and table below present, the company will maintain a healthy cash flow

position, which will allow for timely debt servicing and funds available for future

development.

Year 1 Year 2 Year 3

Cash flows from operating activities
Cash Sales $200,256 $210,269 $220,782
Cost of goods $(28,308) $(29,723) $(31,210)
Operating Expenses $(112,425) $(113,985) $(115,476)
Interest paid $(19,080) $(19,080) $(19,080)
Taxes $(12,133) $(14,244) $(16,505)
Purchase of long-term assets $(12,250) $- $-
Chages in inventory $590 $(200) $(300)
Depreciation $1,225 $1,225 $1,225
Net cash flows from operating activities $17,875 $34,261 $39,437
Cash flows from financing activities
Long-term debts $50,000 $- $-
Net cash flows from financing activities $50,000 $- $-
Net cash flows $67,875 $34,261 $39,437
Cash Balance $95,875 $130,137 $169,574

Break Even Analysis

The break even sales for Tea House is 38,735 cups per/year, our first year sales

estimation is 60,000 cups, and we can gain profit above beyond the break-even point.

Fixed costs Variable Costs

Payroll $72,000 Cost of goods $28,308
Marketing/Promotion $5,000 Disposable supplies $4,000
Depreciation $1,225 Total Variable Costs $32,308
Rent $16,200 Sales $200,256

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Insurance $5,000 Unit Sales 60,000

Utilities $9,000 Variable Costs per unit $0.54
Total Fixed Costs $108,425 Sales per unit $3.34
38,735cups/yea
Break even units
r

Risk Management

Commodity price risk

The price of raw material is directly related to the profit. Unexpected price change can

reduce the profit margin. A future contract will protect the business against this kind of risk.

Supply chain disruptions risk

Supply delivery can be interrupted by many factors, such as adverse weather, infrastructure

issues or a supplier’s poor performance. Knowing the likelihood of occurrence and the

magnitude of impact for every potential event that could materially disrupt the operations can

help to avoid this risk.

Equipment risk

The daily operation of this business is highly rely on the equipment. The breakdowns of

equipment will cause losses or even force the business closed for a period. Equipment

breakdown insurance covers the cost of mechanical breakdowns, damage caused by power

surges and operator error. Business interruption insurance covers any income lost because of

equipment failure.

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FIN 655 – Business Plan Le,Yi and Zhong, Huan

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market-segment

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