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Coffee Distribution Business Plan

The Coffee Warehouse, Inc.

Executive Summary

1.0 Executive Summary

The Coffee Warehouse is a new business providing high-quality, full service


distribution of coffee, specialty beverages and beverage-related supplies to
coffee houses and espresso stands throughout the Spokane and Northern Idaho
market.

The principal owners are Steve and Jennifer Smith, whose combined experience
brings office management, high levels of customer service, and over 20 years in
distribution and sales management. At this time we are seeking additional equity
capital to compliment our own investment and are seeking to arrange a bank line
for inventory and receivables financing. We have firm commitments to distribute
several high-quality new age beverage products, and have verbal commitments
from independent retailers throughout the Spokane and Northern Idaho market to
carry our product. We plan to distribute our first products within 30-60 days of
finalizing financial arrangements.

Sales projections for The Coffee Warehouse are estimated to begin at


approximately $2,229,000 the first year, increasing to approximately $2,558,000
in FY2005 and approximately $2,936,000 in FY2006. Our net profit is projected
at approximately $283,000 the first year, increasing to $406,000 by the end of the
third year of operation.

Distinguishing characteristics of our business will be the combination of


management experience, sales and distribution experience, high-quality,
innovative products and exceptional customer service. In particular, what really
sets up apart is that we are the ONLY full service distribution company servicing
the coffee and specialty beverage industry in the Spokane/Northern Idaho
market. In addition, The Coffee Warehouse has an exclusive contract to
distribute a new, groundbreaking product that would enable us to gain immediate
access to a majority of the potential customer base.

Highlights
1.1 Objectives
• To open and operate a successful coffee and new age beverage
distributorship in the Spokane/Northern Idaho market, employing three to
five employees the first year.
• To obtain a minimum of 100 regular customers in the Spokane/North
Idaho market the first year of operation.
• Achieve first year sales of $2,000,000.
• Maintain an average gross margin of 25 percent.
• To produce a net profit of at least $400,000 by the end of the third year of
operation.

1.2 Mission

The Coffee Warehouse intends to become a recognized distributor of specialty


beverages and beverage-related supplies and services to coffee houses and
espresso stands throughout Spokane and Northern Idaho.

The Coffee Warehouse plans to develop strong relationships with key customers
so we will be viewed as indispensable partners, rather than just another supplier.
We will work closely with each customer to recommend product assortment
unique for their retail base, appropriate stocking levels, pricing and display
assortments, as well as promotional ideas and material to increase sales. The
Coffee Warehouse will seek out and work with the manufacturers we represent to
deliver the most innovative and exciting products possible to the customers we
serve. We are not only selling product, we are selling service.
1.3 Keys to Success
• Innovative quality products.
• Individualized customer service - providing our customers with what they want, when and
how they want it.
• Only full service distribution company in the Spokane/Northern Idaho market.
• Fully integrated programs to help customers increase sales through menu development,
creative promotions, advertising, and custom marketing material.
• Exclusive distribution rights to ground-breaking products not currently available in our
market.
• The combined experience of the principal owners bring upper office management skills,
high levels of customer service, and over 20 years in distribution and sales management.

Company Summary

2.0 Company Summary


The Coffee Warehouse, Inc. is a new S-corporation business located in Spokane, Washington,
and will be established based on the details of the following plan.

2.1 Company Ownership


The Coffee Warehouse is a privately held S-Corporation owned in total by its co-founders, Steve
and Jennifer Smith.
UBI Number: XXX-XXX-XXX (removed to protect confidentiality)

2.2 Company Location & Facilities


The Coffee Warehouse will be located in the Spokane Valley within the Spokane Industrial
Business Park. This is a prime location to service both the Spokane and Northern Idaho market.
The facilities will include approximately 5,000 square feet of warehouse space, with an additional
1,400 square feet built out for office/retail space. We are currently negotiating lease terms on the
several available properties, and plan to have a lease signed by July 31, 2003.

2.3 Start-up Summary


Start-up expenses for the Coffee Warehouse total $16,450, and include expenses such as legal,
marketing, lease deposit, computer systems, etc. Start-up assets include $9,800 in initial cash
requirements, $18,750 in short term assets (office furniture, refrigeration equipment), and
$75,000 in starting inventory. These start-up costs will be financed through investments and
small-business loans. The details of the start-up summary are included in the following table.
Start-up
Start-up

Requirements

Start-up Expenses
Legal Business Formation $220
Business Plan $90
Warehouse Lease Deposit $2,800
Insurance (first month) $500
Utilities (first month) $350
Research & Development $1,200
Marketing $1,200
Advertising $250
Personnel $2,060
Business/Office Supplies $1,550
Computer Systems $3,080
Phone System $650
Communication Lines $300
Trade Show/Grand Opening $2,200
Total Start-up Expenses $16,450

Start-up Assets
Cash Required $9,800
Start-up Inventory $75,000
Other Current Assets $18,750
Long-term Assets $0
Total Assets $103,550

Total Requirements $120,000

Start-up Funding
Start-up Funding
Start-up Expenses to Fund $16,450
Start-up Assets to Fund $103,550
Total Funding Required $120,000

Assets
Non-cash Assets from Start-up $93,750
Cash Requirements from Start-up $9,800
Additional Cash Raised $0
Cash Balance on Starting Date $9,800
Total Assets $103,550
Liabilities and Capital

Liabilities
Current Borrowing $95,000
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $95,000

Capital

Planned Investment
Investor 1 $25,000
Other $0
Additional Investment Requirement $0
Total Planned Investment $25,000

Loss at Start-up (Start-up Expenses) ($16,450)


Total Capital $8,550

Total Capital and Liabilities $103,550

Total Funding $120,000

Start-up

Products
3.0 Products
The Coffee Warehouse will provide a first-class delivery service of quality hot and
cold beverage related supplies, including whole bean or ground coffee, flavor
syrups, jet teas, fruit smoothies, bubble teas, concentrated milk, fresh baked
goods and assorted paper supplies. Our services will include invaluable trade
resources, effective promotional programs, custom-designed marketing material,
informative monthly newsletters, training and product demonstrations, as well as
information on the latest market trends in the coffee/specialty beverage industry.

3.1 Product & Service Description


PRODUCT DESCRIPTION
The Coffee Warehouse will carry a variety of quality products that will enable us
to provide full service delivery to espresso stands and coffee houses. Our
underlying philosophy in selecting products is to choose lines that will bring
consistent quality, competitive prices, and product satisfaction to our customers.
We have personally researched and sampled each of the following products that
we offer to ensure the quality we guarantee.
• Lowery's Gourmet Whole Bean and Wired Willey's White Coffee
• Assorted Gourmet Syrups & Coffee Toppings
• Chocolate, White Chocolate and Caramel Syrups/Sauces
• Oregon Chai Concentrate
• Jet Cafe and Jet Tea Fruit n' Tea Freeze
• Cappuccina line of product
• Big Train line of product
• Red Bull Energy Drinks
• Good Cow Concentrated Milk with Custom Dispensing Equipment
• Fresh Baked Goods
• Assortment of White, Pre-printed Paper, and Clear Beverage Cups
Systems - as well as an assortment of other paper supplies

At this time, the majority of these products are only available to customers
through wholesale vendors such as Cash and Carry retail outlets - therefore it is
the customer's responsibility to acquire these products by their own means. The
Coffee Warehouse will make these same products available through our high
quality, full service delivery - bringing these products directly to their doorstep at
a competitive price.
SERVICE DESCRIPTION
An important component of our business is not just our products, but our service.
In addition to our full service delivery, the following are other important service
elements that we will offer to our customers:
• Ideas to help our customers increase sales through menu development,
creative promotions, co-op advertising, and much more.
• Custom designed marketing material such as printed banners,
promotional posters, punch cards, pre-purchased beverage cards, reader
boards, etc.
• Distribute a monthly newsletter featuring the latest coffee trends, new
industry equipment, breaking trade news, promotional ideas, new creative
recipes, and upcoming events.
• Samples of the latest product releases - with eye-catching point-of-sale to
advertise new items to the end consumer.
• Routine equipment maintenance and training.

3.2 Competitive Edge


KEY COMPETITIVE STRENGTHS
No other wholesaler in the market offers full service delivery with the variety of
product we feature. We are better positioned than our main competitors to take
advantage of the increasing demands of coffee and specialty beverage supplies
because we focus exclusively on high-quality distribution and customer service.
In addition to the variety of products we feature, The Coffee Warehouse has
exclusive distribution rights to Good Cow's concentrated milk/dispensing system.
This product is not currently available in our market by any other suppliers.
KEY COMPETITIVE WEAKNESSES
Our primary weakness is that we are a new business competing largely against
established suppliers. To significantly build sales, we must not just find new
customers - we must take customers away from existing suppliers. However by
offering a superior selection of supplies, new groundbreaking products to the
market, and focusing on high-quality service and full service delivery, we feel will
can quickly establish accounts and build strong relationships. Co-founder
Jennifer Smith has had many discussions with owners of coffee and espresso
businesses that confirm this opinion.

3.3 Sales Literature


Sales literature to be distributed to both current and potential customers will include brochures,
fliers, newsletters, as well as other print media such as print advertisements. Jennifer Smith is
highly skilled in graphic design and desktop publishing, and has quality design and printing
equipment to publish professional pieces at a low cost.

3.4 Sourcing
The Coffee Warehouse will purchase product directly from manufacturers, as well as master
distributors. Because this eliminates the broker or "middle man," this allows us to operate on a
25-30% profit margin, while providing our customers with competitive prices.
To further reduce costs, The Coffee Warehouse plans to share product shipments out of
California with distributors operating in Portland, Oregon and Tri-Cities, Washington. Other
product not being shipped directly to Spokane will be purchased and picked up in Seattle,
Washington. The Coffee Warehouse plans to send a truck to Seattle on a bi-weekly basis to pick
up product, thus cutting costs by an average of 5%.

3.5 Technology
To streamline the efficiency of our distribution methods, The Coffee Warehouse plans to use the
latest in cutting edge technology - not only in the warehouse - but also in the trade.
All of our drivers/sales representatives will be equiped with Thinque MSP handhelds and
software. Thinque MSP applications will reduce field expenses, decrease day's sales
outstanding, and increase worker efficiency. Features can be used in or out of the warehouse and
include managing returns and collections; adjusting item price, profit or margin; applying
promotional items to an account; streamlining orders; tracking inventory; reducing out-of-stocks;
and providing sales history reports. All information recorded in the handheld is available in real
time to be viewed by management in the office.

3.6 Future Products and Services

Within the first year of business, The Coffee Warehouse intends to open a
retail/wholesale store and high-quality showroom. Products will be available for
purchase by both our wholesale customers who may need product between
delivery days, as well as retail consumers interested in purchasing product for
their home use. We will also offer a showroom that will feature equipment,
supplies, trade resources, and information on marketing services with examples
of marketing and promotional material available to customers.

With the addition of the product showroom, The Coffee Warehouse will offer
customers quarterly product and training demonstrations that will be presented
by trained beverage experts from the industry.

The Coffee Warehouse also plans to hold semi-annual trade shows for current or
potential customers. These trade shows will allow customers the opportunity to
sample products, talk to manufacturers, learn about new industry trends, review
marketing material, and network with other business owners in their market.

Market Analysis Summary

4.0 Market Analysis Summary


Coffee is the second largest commodity market next to oil, and growth is expected to continue at
a strong pace for the foreseeable future. The specialty beverage industry is growing at an equally
strong pace, with sales growth in some categories projected to grow at rates of 40% per year.
This growth offers excellent opportunities for new companies to enter this market, and we are
excited about the possibilities of what The Coffee Warehouse can accomplish in the Spokane and
Northern Idaho market.

4.1 Market Segmentation


The gourmet coffee and specialty beverage industry is divided into several segments. Consumers
who enjoy these products purchase drinks at restaurants, coffee houses, sports venues, drive-
thru espresso stands, and even inside other retail establishments that might feature an
independent beverage stand.
As illustrated in the chart below, within the market surrounding Spokane, Rathdrum, Post Falls
and Coeur d'Alene, there are currently 250 drive-thru espresso stands, 18 coffee/tea houses, 52
independent inner-retail espresso stands, and approximately 10 stands in locations such as
sports venues, university campuses, and etc. These figures are not including the number of
restaurants, bars and cafes that also feature these beverages.

Market Analysis
Market Analysis
2003 2004 2005 2006 2007
Potential
Growth CAGR
Customers
Drive-thru
4% 250 259 268 277 287 3.51%
Espresso
Inner-Retail
4% 52 54 56 58 60 3.64%
Espresso
Coffee/Tea
5% 18 19 20 21 22 5.14%
Houses
Other 5% 10 11 12 13 14 8.78%
(sports
venues,
universities,
etc)
Total 3.79% 330 343 356 369 383 3.79%

Market Analysis (Pie)

4.2 Target Market Segment Strategy


While the market is already sizeable, this industry continues to grow. New espresso stands open
their doors to the public on a monthly basis in our market, and it isn't uncommon to see numerous
espresso stands within a one or two mile radius. The article below, published by a national coffee
retail magazine, discusses our market's unique drive-thru espresso industry. The sales potential
in this market is unlimited.
The Coffee Warehouse initially plans to target these drive-thru espresso stands, as well as all
inner-retail espresso stands within our designated market. It is this segment that is most in need
of the services we are planning to offer. Essential needs include: quality products at competitive
prices, first class service, and strong sales support. It is most often these small owner-operated
businesses that are neglected by larger suppliers and are forced to service themselves. It is also
these smaller businesses who could most greatly benefit from marketing services, sales support,
and full service product delivery. Providing the same high-quality service, within the first six
months of operation, The Coffee Warehouse plans to expand our target into formal coffee houses
and cafes, and as business grows and stabilizes, eventually evaluate the needs of potential
customers in the restaurants and bar industry.
4.3 Market Growth

Coffee has been a growing industry for the past several years. In the
gourmet/specialty coffee industry alone, the figures show an impressive rate of
growth in the United States.

The new age beverage industry is growing at an equally strong pace. Sales
growth in the chai tea category alone is estimated to be 50% historically, with
projected growth rates of 40% per year. Energy drinks, including brands such as
Red Bull - and trends such as Jet Tea - are driving the new age beverage
growth, and have increased 50-fold in the past three years.
Bubble Tea has been a rapidly growing market in Asia, though it is relatively new
to the United States. Introduced to trend setting marketings such as San
Francisco and Seattle, sales have been exploding - and the craze of the "Tapioca
Pearl" is expected to spread throughout America.

4.4 Industry Analysis


The coffee and specialty beverage industry is pulverized, with hundreds of manufacturers,
brokers, suppliers and retailers. Unlike the beer/soda industry, with large companies such as
Anheuser Busch, Pepsi and Coca Cola controlling most of the market, the coffee and specialty
beverage industry does not have large national chains with market control.
In an open industry growing at such a strong rate, The Coffee Warehouse is in position to
capitalize on the customer's need for quality product, exceptional service, and an effective partner
to success.

4.5 Industry Participants

With the rate of growth in the gourmet coffee market, in addition to the recent
trends in Jet Teas and other specialty beverages, the industry is comprised of
many small participants, each focusing on only a few specific items or brands at
a time. As the markets evolve, we expect the industry to consolidate with larger
distributors representing more of a vast selection of products in each market.
Currently in our segment of the industry, there are no large national chains with
market control. There are also few products that are offered with exclusive rights
to one market. While this is the case with many products, The Coffee Warehouse
is working with manufacturers to change that practice, and not only represent a
larger variety of product than others in our industry, but also acquire exclusive
rights to many of the products in our portfolio.

4.6 Distribution Patterns

The following flow chart illustrates the overall industry surrounding the distribution
patterns of coffee and specialty beverages. (The Coffee Warehouse falls into the
level highlighted in yellow).

Several manufacturers are represented by master distributors and/or brokers


who in turn provide the product to direct distributors and other wholesale
suppliers. Other manufacturers allow distributors and suppliers to purchase
product direct - depending on the quantity of product being purchased. Product is
then distributed or sold through cash and carry wholesale stores to retail
businesses as illustrated below.

4.7 Competition & Buying Patterns


While there are a handful of coffee and specialty beverage suppliers providing product in our
market, there is still a great deal of room for new business. Most importantly, there is room for
new business that understands the need for high-quality service and sales support - in addition to
product at competitive prices.
In this industry, customers choose their suppliers based on available product, price, and service -
though most often, it is the service that suffers most. While one supplier may offer the product at
the right price, they do not provide the level of service that the customer demands. The next
supplier may offer the right level of service, though their prices are too high. This results with the
customer purchasing most of their supplies through a cash and carry style wholesale store -
leaving the customer with no service or support.
By positioning ourselves in the market with in-demand, quality product at competitive prices, with
a consistent high level of customer service - we are confident that we will see customers and their
business continue to increase.

Sales and Marketing

5.0 Sales and Marketing


The unique aspects of our business include individual product selection, quality assurance, and
high-quality full service distribution. Our strategy is to focus 100% of our efforts on the market for
espresso supplies in the Spokane and Northern Idaho area. By focusing all of our effort and
energy on this particular area, we expect to quickly develop and maintain a leadership position.
The Coffee Warehouse's key personnel will stay in contact with our customers, and will be able to
respond to changes in this market much faster than our competitors.
The Coffee Warehouse will offer the best, most highly personalized service in the marketplace.
Being a small, owner-operated company, we intend to use this to our advantage to be absolutely
certain that every one of our customers receive excellent service. We will go out of our way to
make sure that our customers know that they truly matter to us. Sales reps and in-house
personnel who deal with customers will be carefully trained and given wide latitude for insuring
that customers are always satisfied.

5.1 Marketing Strategy


Our basic marketing strategy is to work with customers on a one-to-one basis to ensure their
supply needs are being met and help develop unique marketing programs for each of them. We
intend to prioritize customer service and make it a key component of our marketing programs. We
believe that providing our customers with what they want, when and how they want it, is the key
to repeat business and positive word-of-mouth advertising. Because we want to develop close
working relationships with our customers, we want to establish accounts in as personable a way
as possible. It is for this reason that we will overwhelmingly emphasize in-person sales calls to
build accounts.
We will closely integrate all of our marketing and sales efforts to project a consistent image of our
company and a consistent positioning of our products and services. We will build this image
around our name "The Coffee Warehouse, Inc." and emphasize to customers the high-quality
service that is behind this name.
To support our marketing initiatives and product knowledge, we will attend as many area
conventions and trade shows as possible to ensure we are offering the most up-to-date market
trend information.
5.2 Promotion Strategy

Relationships are the key to success in the distribution business. Personal selling
will remain our most important means of promotion. Both Steve and Jennifer
Smith will lead this effort - Steve, with his skill and experience in sales and
distribution, and Jennifer in customer service and relations. In addition to
personal selling, The Coffee Warehouse has identified several other means of
advertising and publicity.

The Coffee Warehouse will send news releases to local media and press, as well
as trade magazines to try to get product and company feature coverage in front
of the eyes of our customers - as well as the end consumer. We will also produce
a few generic press releases about the products we are distributing for our
customers to use toward publicity coverage for their businesses in local
publications such as the Spokesman, The Inlander and Local Planet.

Third, we shall have a monthly newsletter for current of potential customers. This
newsletter will highlight new and current trends in the industry, upcoming
conventions and trade shows, offer promotions and special deals, as well as
provide new recipes, fun tips and other information that can be used in their
business. We will also highlight not just our products, but also display ideas and
success stories of other business in the industry. As a more straight forward
advertising effort, The Coffee Warehouse will feature an advertisement in the
Yellow Pages, frequent ads in the Spokesman Review, the Inlander, and the
Local Planet, as well as participation in networking, local trade shows, and
personal word-of-mouth advertising.

5.3 Distribution Strategy


To begin, The Coffee Warehouse will operate two delivery trucks with a third vehicle for special
deliveries between scheduled delivery days. Deliveries will be made Monday through Friday, and
will be strategically routed to minimize travel time and fuel costs - while maximizing production.
On average, we will service 20-30 accounts per day, with deliveries to each account twice a
week. As the number of accounts increase, the need for additional delivery trucks will continue to
be evaluated. With each additional delivery truck, routes will be restructured to maintain
maximum efficiency.

5.4 Sales Strategy

Distribution sales are dependent on repeat business, therefore the sales strategy
for The Coffee Warehouse is based on personal, consistent sales contact, with a
high emphasis on customer service and relations. Because we are a new
distributor, we understand that we will have to prove our worth to our customers
in order to earn their respect and business. Both of the owners, Steve and
Jennifer, will make personal calls on potential customers to review our product
line and services, give general information on our company, and discuss how we
feel we can help them succeed in their business.

The Coffee Warehouse will begin operations with two full-time delivery/sales
representatives, who will be responsible for providing full service and delivery to
current customers, but also make sales calls for potential new business. This
delivery/sales representatives will receive a base salary, with commission on
qualified sales, as well as bonuses for new acquired business. Customers will be
scheduled for a pre-arranged delivery day once or twice a week, depending on
the quantity and timeline of product needed. Product orders can be placed in a
number of ways to help facilitate the process:

• Phoned Orders: Customers can easily phone orders into our office, up
until 2:30 p.m. of the afternoon prior to their scheduled delivery day.
• Faxed Orders: Customers can fax in a completed product order sheet,
with the same deadline as phoned orders.
• Tel-Sell: Customers may choose to have a representative from the office
call them the day prior to their scheduled delivery to check product
quantities and assist them in placing their order.

We understand the hectic schedule of a small business, so if a customer fails to


call or fax their weekly order, they will receive a courtesy call from our office to
verify that an order is not needed.

5.5 Sales Forecast


As indicated in the table, our sales are forecasted to increase rapidly, with an annual growth rate
of approximately 30%.

Sales Forecast
Sales Forecast
FY 2004 FY 2005 FY 2006
Sales
Espresso Syrups $415,362 $477,666 $549,316
Chocolate & Caramel
$275,852 $311,713 $352,235
Sauces
Specialty Beverage $176,660 $203,158 $233,632
Mixes
Energy Drinks $44,372 $51,028 $58,683
Concentrated Milk $113,816 $130,889 $150,523
Paper Supplies $1,185,285 $1,363,078 $1,567,540
Marketing $18,305 $21,051 $24,208
Total Sales $2,229,652 $2,558,584 $2,936,137

Direct Cost of Sales FY 2004 FY 2005 FY 2006


Espresso Syrups $345,347 $397,149 $456,722
Chocolate & Caramel
$244,798 $276,622 $312,583
Sauces
Specialty Beverage
$134,440 $154,606 $177,797
Mixes
Energy Drinks $36,542 $42,023 $48,327
Concentrated Milk $97,919 $112,607 $129,498
Paper Supplies $888,964 $1,022,308 $1,175,655
Marketing $6,540 $7,521 $8,649
Subtotal Direct Cost
$1,754,550 $2,012,837 $2,309,230
of Sales

Sales Monthly

Sales by Year
5.6 Milestones
The following table and chart are the important milestones for The Coffee
Warehouse.
Milestones
Milestones

Milestone Start Date End Date Budget ManagerDepartment


Market/Trade Research 3/15/2003 5/15/2003 $150 SDS / JLS Marketing
Logo Design/Marketing 4/15/2003 5/15/2003 $1,300 JLS Marketing
Complete Business Plan 4/15/2003 5/30/2003 $90 JLS Marketing
Product/Pricing Comparison 4/15/2003 5/15/2003 $150 SDS / JLS Marketing
Finalize Potential Client List 5/1/2003 5/15/2003 $0 JLS Marketing
Licensing/Incorporation 5/15/2003 6/15/2003 $200 JLS Marketing
Secure Product Line 5/15/2003 6/15/2003 $0 JLS Marketing
Research/Secure Financing 5/15/2003 7/15/2003 $0 SDS / JLS Marketing
Warehouse Selection/Buildout 5/15/2003 6/15/2003 $0 SDS / JLS Marketing
Leasehold Improvements 7/1/2003 8/1/2003 $5,000 SDS / JLS Web
Delivery Vehicle Selection 6/1/2003 6/15/2003 $0 SDS Web
Develop Routing 6/15/2003 7/15/2003 $100 SDSDepartment
Hire Delivery/Sales Personnel 7/1/2003 7/15/2003 $100 SDSDepartment
Office
7/1/2003 8/1/2003 $5,000 JLSDepartment
Equipment/Computer/Supplies
Order Beginning Inventory 7/10/2003 7/20/2003 $20,000 SDS / JLSDepartment
Press Releases/Advertising 7/1/2003 8/1/2003 $250 JLSDepartment
Organize Grand Opening
8/1/2003 8/10/2003 $3,000 JLSDepartment
Trade Show
Totals $35,340

Milestones
Management Summary

6.0 Management Summary


The Coffee Warehouse will be owned and operated by its founders, initially
working with a small employee base that will cover sales and delivery.
Management and personnel plans are covered in more detail in the topics to
follow.

6.1 Organizational Structure

The Coffee Warehouse will be managed by the two founding partners, whose
individual areas of expertise cover many of the functional aspects of the
business.

The organizational structure is very simple. Steve Smith will be responsible for
the routing, distribution management and delivery systems. Jennifer Smith will be
responsible for customer service, accounting, shipping and the general
administration of the business. Together they will be responsible for product
selection and sales and marketing.

The support staff at the office and warehouse, as well as the delivery personnel
will report to Jennifer. Because Steve will be spending a majority of his time in
the trade, Jennifer will be able to support any day-to-day needs that the
personnel may have. However even when Steve is out of the office, he will be in
constant contact via computer or phone.

The goal of The Coffee Warehouse is to have a team of committed associates


who empower each other so that the customer's expectations can be exceeded.
Our goal is to offer career opportunities, advancement opportunities and a level
of income and benefits that is competitive within the region and job classification.
It is our long-term goal to be the preferred employer within our niche of the
beverage distribution industry.

6.2 Management Team


Steven D. Smith
Steve has a long history of experience in sales and distribution management,
specifically in the beverage industry. As the sales and distribution manager for
the largest beverage distributorship in the state, he currently manages ten sales
representatives and twenty four merchandisers. During this time as sales
manager, he has helped increase market share from 25 to 40%.

Over the last twenty years, Steve has successfully built and maintained rapport
with buyers in the city's largest key accounts, and has strategically routed sales,
merchandising and truck routes throughout the city.

Steve has many industry contacts and an in-depth knowledge of the market.

Jennifer L. Smith
Jennifer recently operated as general manager for a local business and directed
a staff of thirteen, overseeing the accounting practices, human resource issues,
and day-to-day operations of the company. Prior to this position, Jennifer has
held a variety of other inside business management and operations positions.

Jennifer's strengths and skills include strong management, excellent public


relations, high levels of organization, extensive computer knowledge - including
desktop publishing and graphic layout - and extensive presentation and reporting
skills.

6.3 Personnel Plan


PERSONNEL - GENERAL
Initially we expect to be able to handle business needs with Steve and Jennifer,
one administrative assistant, and two product delivery/sales personnel. As
business continues to grow, we intend to hire additional employees one at a time
and pay premium, over market labor rates to attract and retain quality help.

Not only will we train our employees to deliver excellent service, we will give
them the flexibility to respond creatively to client requests. In addition, we will
continually monitor our clients' level of satisfaction with our service through
surveys and other convenient feedback opportunities.

To ensure our personnel are meeting our expectations, we will hold a minimum
of quarterly meetings with all employees so that results can be reviewed and
future plans can be discussed. At least twice a year, a refresher course will be
required on product knowledge and how to exceed our customer's expectations.

SALES AND DELIVERY


In order to deliver high quality, personalized service we will carefully select all
employees - with extra attention given to sales reps and delivery personnel who
will deal directly with customers. We will carefully review references not just from
past employers or manufacturers, but also from retailers whom these sales reps
have served. We will also make sure that each employee understands our way of
delivering quality service to each customer. We will have immediate back-up
support available by phone from our office for more difficult service issues. We
will also give employees enough latitude so that they can respond immediately to
almost any customer request or complaint - which in this industry usually means
granting immediate credit for damaged merchandise, and adding additional
merchandise to an order.

Personnel
Personnel Plan
FY 2004 FY 2005 FY 2006
Jennifer Smith $30,000 $35,000 $40,000
Sales/Delivery
$20,400 $21,500 $22,500
(Salary)
Sales/Delivery
$4,237 $4,500 $4,500
(Commission)
Delivery/Warehouse
$20,400 $21,500 $22,500
Personnel
Administration $18,720 $19,500 $21,000
Total People 4 4 4

Total Payroll $93,757 $102,000 $110,500


Financial Plan

7.0 Financial Plan


The Coffee Warehouse projects the gross margin to be at approximately 20-25 percent. Sales
projections for FY2004 are at $2,229,652 increasing to $2,558,584 in FY2005 and $2,936,137 in
FY2006. Cash-flow analysis, balance sheet, business ratio, break-even analysis, and other
financial details are shown in the appendix.

7.1 Important Assumptions


General assumptions for this plan are on the following table.

General Assumptions
General Assumptions
FY 2004 FY 2005 FY 2006
Plan Month 1 2 3
Current Interest Rate 8.00% 8.00% 8.00%
Long-term Interest
8.00% 8.00% 8.00%
Rate
Tax Rate 25.42% 25.00% 25.42%
Other 0 0 0

7.2 Break-even Analysis


The following table and chart illustrate our break-even analysis. With our fixed costs estimate of
approximately $15,000 per month, operating on average at a 25% profit margin, we will need to
sell 67,666 units to break-even in a month. Fixed costs include our warehouse lease, vehicle
leases, utilities, insurance, payroll, and an estimation of other running costs.

Break-even Analysis
Break-even Analysis

Monthly Revenue Break-even $75,055

Assumptions:
Average Percent Variable Cost 79%
Estimated Monthly Fixed Cost $15,993

Break-even Analysis
7.3 Projected Profit and Loss
The following table and charts show the projected profit and loss. Monthly projections are
included in the appendix.

Profit and Loss


Pro Forma Profit and Loss
FY 2004 FY 2005 FY 2006
Total Income $2,229,652 $2,558,584 $2,936,137
Cost of Goods Sold $1,754,550 $2,012,837 $2,309,230

Gross Profit $475,102 $545,747 $626,907


Gross Profit % 21.31% 21.33% 21.35%

Expenses
Payroll $93,757 $102,000 $110,500
Other $0 $0 $0
Depreciation $0 $0 $0
Rent $33,096 $34,260 $35,460
Utilities and Phone $7,200 $7,500 $7,800
Insurance $6,000 $6,300 $6,500
Payroll Burden $14,064 $15,300 $16,575
Leased Equipment
$12,000 $12,600 $13,200
(Delivery Vehicles)
Leased Equipment
$3,000 $3,000 $3,000
(Warehouse)
Leased Equipment
$2,400 $2,400 $2,400
(Other)
Fuel (delivery) $12,000 $12,500 $13,000
Advertising /
$3,600 $3,600 $3,600
Promotion
Professional Services $2,400 $2,200 $2,600
Miscellaneous (office
$2,400 $2,700 $3,000
supplies, etc)
------------ ------------ ------------
Total Expense $191,917 $204,360 $217,635

Profit Before Interest


$283,186 $341,387 $409,272
and Taxes
EBITDA $283,186 $341,387 $409,272

Other Income
Interest Income $0 $0 $0
Other Income
$0 $0 $0
Account Name
Total Other Income $0 $0 $0

Other Expense
Account Name $0 $0 $0
Other Expense
$0 $0 $0
Account Name
Total Other Expense $0 $0 $0

Net Other Income $0 $0 $0


Net Profit $283,186 $341,387 $409,272
Net Profit/Sales 12.70% 13.34% 13.94%

Profit Monthly

Profit Yearly
Gross Margin Monthly

7.4 Projected Cash Flow


The following table shows cash flow for the three years, and the chart illustrates monthly cash
flow in the first year. Monthly cash flow projections are included in the appendix.

Cash Flow
Pro Forma Cash Flow
FY 2004 FY 2005 FY 2006
Cash Received

Cash from Operations


Cash Sales $2,229,652 $2,558,584 $2,936,137
Subtotal Cash from
$2,229,652 $2,558,584 $2,936,137
Operations

Additional Cash
Received
Non Operating
$0 $0 $0
(Other) Income
Sales Tax, VAT,
$0 $0 $0
HST/GST Received
New Current
$0 $0 $0
Borrowing
New Other Liabilities
$0 $0 $0
(interest-free)
New Long-term
$0 $0 $0
Liabilities
Sales of Other
$0 $0 $0
Current Assets
Sales of Long-term
$0 $0 $0
Assets
New Investment
$0 $0 $0
Received
Subtotal Cash
$2,229,652 $2,558,584 $2,936,137
Received

Expenditures FY 2004 FY 2005 FY 2006

Expenditures from
Operations
Cash Spending $93,757 $102,000 $110,500
Bill Payments $1,767,890 $2,357,759 $2,451,482
Subtotal Spent on
$1,861,647 $2,459,759 $2,561,982
Operations

Additional Cash
Spent
Non Operating
$0 $0 $0
(Other) Expense
Sales Tax, VAT,
$0 $0 $0
HST/GST Paid Out
Principal Repayment
$24,000 $24,000 $24,000
of Current Borrowing
Other Liabilities $0 $0 $0
Principal Repayment
Long-term Liabilities
$0 $0 $0
Principal Repayment
Purchase Other
$0 $0 $0
Current Assets
Purchase Long-term
$0 $0 $0
Assets
Dividends $0 $0 $0
Subtotal Cash Spent $1,885,647 $2,483,759 $2,585,982

Net Cash Flow $344,005 $74,824 $350,155


Cash Balance $353,805 $428,630 $778,785

Cash

7.5 Projected Balance Sheet


The projected balance sheet is shown in the following table, with monthly projections in the
appendix.

Balance Sheet
Pro Forma Balance Sheet
FY 2004 FY 2005 FY 2006
Assets

Current Assets
Cash $353,805 $428,630 $778,785
Inventory $358,198 $410,929 $471,438
Other Current Assets $18,750 $18,750 $18,750
Total Current Assets $730,754 $858,308 $1,268,973
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated
$0 $0 $0
Depreciation
Total Long-term
$0 $0 $0
Assets
Total Assets $730,754 $858,308 $1,268,973

Liabilities and Capital FY 2004 FY 2005 FY 2006

Current Liabilities
Accounts Payable $368,018 $178,186 $203,579
Current Borrowing $71,000 $47,000 $23,000
Other Current
$0 $0 $0
Liabilities
Subtotal Current
$439,018 $225,186 $226,579
Liabilities

Long-term Liabilities $0 $0 $0
Total Liabilities $439,018 $225,186 $226,579

Paid-in Capital $25,000 $25,000 $25,000


Retained Earnings ($16,450) $266,736 $608,122
Earnings $283,186 $341,387 $409,272
Total Capital $291,736 $633,122 $1,042,394
Total Liabilities and
$730,754 $858,308 $1,268,973
Capital

Net Worth $291,736 $633,122 $1,042,394

7.6 Business Ratios


The table shows projected business ratios.

Ratios
Ratio Analysis
FY 2004 FY 2005 FY 2006 Industry Profile
Sales Growth 0.00% 14.75% 14.76% 0.00%

Percent of Total
Assets
Inventory 49.02% 47.88% 37.15% 0.00%
Other Current
2.57% 2.18% 1.48% 100.00%
Assets
Total Current
100.00% 100.00% 100.00% 100.00%
Assets
Long-term Assets 0.00% 0.00% 0.00% 0.00%
Total Assets 100.00% 100.00% 100.00% 100.00%

Current
60.08% 26.24% 17.86% 0.00%
Liabilities
Long-term
0.00% 0.00% 0.00% 0.00%
Liabilities
Total Liabilities 60.08% 26.24% 17.86% 0.00%
Net Worth 39.92% 73.76% 82.14% 100.00%

Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 21.31% 21.33% 21.35% 0.00%
Selling, General
& Administrative 8.61% 8.17% 7.51% 0.00%
Expenses
Advertising
0.00% 0.00% 0.00% 0.00%
Expenses
Profit Before
Interest and 12.70% 13.34% 13.94% 0.00%
Taxes

Main Ratios
Current 1.66 3.81 5.60 0.00
Quick 0.85 1.99 3.52 0.00
Total Debt to
60.08% 26.24% 17.86% 0.00%
Total Assets
Pre-tax Return on
97.07% 53.92% 39.26% 0.00%
Net Worth
Pre-tax Return on
38.75% 39.77% 32.25% 0.00%
Assets

Additional Ratios FY 2004 FY 2005 FY 2006


Net Profit Margin 12.70% 13.34% 13.94% n.a
Return on Equity 97.07% 53.92% 39.26% n.a

Activity Ratios
Inventory
10.91 5.23 5.23 n.a
Turnover
Accounts Payable
5.80 12.17 12.17 n.a
Turnover
Payment Days 27 46 28 n.a
Total Asset
3.05 2.98 2.31 n.a
Turnover

Debt Ratios
Debt to Net
1.50 0.36 0.22 n.a
Worth
Current Liab. to
1.00 1.00 1.00 n.a
Liab.

Liquidity Ratios
Net Working
$291,736 $633,122 $1,042,394 n.a
Capital
Interest Coverage 0.00 0.00 0.00 n.a

Additional Ratios
Assets to Sales 0.33 0.34 0.43 n.a
Current
60% 26% 18% n.a
Debt/Total Assets
Acid Test 0.85 1.99 3.52 n.a
Sales/Net Worth 7.64 4.04 2.82 n.a
Dividend Payout 0.00 0.00 0.00 n.a