Infusions Business Plan - Revised Version - February 16 2012

Prepared by Financial Services Forum Consulting Group
College of Management
University of Massachusetts - Boston

Principal Investigator: Xingyuan Fei

Project Team Members:
Diana Kohlhagen, Pojaman Thasana-ekachit and Ying Zhao

Significant Contributor:
Yu Zhang

Project Supervisor:
Arindam Bandopadhyaya

I nfusions Where Chocolate Meets Tea

Business Name: Infusions

Address: 6988 McKinley
Sebastopol, CA 95472

Telephone: (707) 829 1181

Email: info@sonomachocolatiers.com

Sonoma Chocolatiers Business Plan

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Table of Contents

Table of Contents............................................................................................................. 2

Executive Summary ......................................................................................................... 3

General Company Description .........................................................................................5

Products and Services.......................................................................................................8

Marketing Plan ................................................................................................................10

Management and Organization .........................................................................................16

Strategy and Implementation ... ........................................................................................18

Financial Plan ...................................................................................................................23

Appendix ..........................................................................................................................35

Disclaimer ........................................................................................................................37

References ........................................................................................................................38


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Executive Summary
Mission
Sonoma Chocolatiers goal is to provide the finest dark chocolate truffles, caramels, and
other chocolate delights available with the lowest environmental impact. The goal of
Infusions Teahouse is to provide premium teas and food in a relaxed and fun atmosphere,
with the lowest environmental impact.
Objectives
1. To produce and distribute fine dark chocolates to target markets in CA, OR, & WA, and
through the Internet.
2. To operate a successful tea caf and chocolate shop in Sonoma County.
3. To have products in: high-end food markets, such as Whole Foods & Dean and
Deluccas; gourmet cheese shops; wineries and wine shops; and in high-end B&Bs and
Inns.
4. To expand Internet sales of tea and chocolate.
5. To achieve sales of $5,000,000 in 2016.
6. To maintain an average gross margin of sixty percent.
7. To produce a reasonable net profit by June of 2013.
Keys to Success
Experienced Owners: David Gambill and Susan McCarn have years of experience in
these industries.
Product Quality: Sonoma Chocolatiers sells the finest organic teas and chocolates.
Excellent Customer Service: each customer is treated as an honored guest in Infusions.
Sonoma Chocolatiers has been voted as the best chocolatier in Sonoma County for the
last three years by the North Bays largest newspaper, The Bohemian.


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Sonoma Chocolatiers has added about two new wholesale customers a week for the last
year.
Highlights
Sonoma Chocolatiers, comprising of Infusions Teahouse and Sonoma
Chocolatiers, is a start-up in the Sebastopol area of Sonoma County, California. It is
a privately held corporation, managed by its owners, David Gambill and Susan
McCarn.
Sonoma Chocolatiers offers over 100 kinds of organic teas, tea wares, and light food,
and nearly 90 flavors of dark chocolates. Sonoma Chocolatiers has three main market
segments: Internet sales, sales to local upper-middle class residents, and sales to
tourists. Infusions Teahouse also serves business people in Sonoma County as a
place to hold meetings and conduct business away from a home office.
Sonoma Chocolatiers will expand both Internet sales and in-store sales to increase our
market share. Sonoma Chocolatiers aims to expand into Whole Foods stores and
other high-end retail outlets in the next year.
Sonoma Chocolatiers has competitive advantages over other competitors due to its
organic ingredients, environmental consideration, excellent reputation, and unusual
product quality and flavors.
Sonoma Chocolatiers projects a positive net profit in the year 2013 of $20,523.31,
with steadily increasing net income for the foreseeable future. Net profit is projected
to approach $550,000 in 2016.
Sonoma Chocolatiers is seeking two long-term small business loans provided by
Slow Money investors to finance its cash flows and expand the business size. The
first loan is $75,000. The second loan is $2,000,000.


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1.0 General Company Description
Infusions Teahouse in Sebastopol, CA, offers the largest selection of organic teas and
tisanes from San Francisco to Seattle; all the teas and herbal tisanes are certified organic and
are loose-leaf tea. The teas are sold in the Teahouse or via Internet. Infusions Teahouse is
a special place to explore the ancient traditions of tea alongside new tea rituals being created
every day. It is also a place where people can relax and reconnect. Accompanying tea
serving, Infusions offers a variety of light meals inspired by various tea cultures and baked
goods prepared in house. The food is local, seasonal, and organic.

Sonoma Chocolatiers produces chocolates in the chocolate kitchen built in the Teahouse.
The chocolates are hand-made in the heart of California's wine country. Sonoma
Chocolatiers sells premium handmade dark chocolates and truffles, and other indulgences
in the Teahouse or through the Internet. It wholesales: gourmet, handmade caramels; solid,
flavored chocolate Nibbles; chocolate-coated organic almonds dusted with cinnamon or
sugar; and small chocolate bars. The goal of Sonoma Chocolatiers is to provide the finest
dark chocolates available.
1.1 Company Ownership
As a privately held corporation in the State of California, ownership of Sonoma Chocolatiers
is that David Gambill and Susan McCarn own Sonoma Chocolatiers. There are no shares in
the public market.
1.2 Financial Data Summary
Sonoma Chocolatiers is seeking long-term small business loans provided by Slow Money
investors to finance its cash flows and expand the business size. Slow Money investors are
those investors who recognize that small businesses are the lifeblood of the economy and
look for two to three percent return rate on the investment. The first loan Sonoma


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Chocolatiers is trying to obtain is $75,000 and the second is $2,000,000. Sonoma
Chocolatiers plans to pay these loans back in full within 30 years, at a 2%-3% interest rate.
Figure 1: 2010 and 2011 Financial Data

Highlights:
Both the assets and loans increased in 2011.
The loans increased to provide capital needed to expand the business.
Sales increased 17% from $210k in 2010 to $244k in 2011. At the same time,
Sonoma Chocolatiers expanded staff, increased staff wages, and was still able to cut
expenses from 101% of income to 88% of income. The relative decline in expenses
resulted from focused efforts to cut waste and lower overall expenses.
The increase in salaries has allowed Sonoma Chocolatiers to attract and retain higher-
skilled staff. The skilled staff has significantly improved customer service in the
Teahouse and enabled the Teahouse to increase our customer base. More chocolate-
making staff has allowed Sonoma Chocolatiers to expand wholesale production and
to ensure a more reliable product supply for our wholesale customers.


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Figure 2: Projected Financial Data

Highlights:
Sales are projected to increase at 24-50% from year 2012.
Gross profit is expected to be 65% of sales.
Net income is increasing over years 2012 to 2016, and expected to become positive in
2013.
Our improved staff has significantly improved the profitability of the teahouse.


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2.0 Products and Services
Sonoma Chocolatiers specializes in finest organic teas and dark chocolates. Its full traditional
teahouse experience is complemented by an assortment of loose teas, tea wares, light
meals, and premium dark chocolates. The main goal is to provide the finest premium teas and
chocolates that have the lowest environmental impact to customers in a relaxed and fun
atmosphere.
Hundred kinds of tea
Infusions Teahouse offers well over hundred organic teas, which fall into five categories:
Black, Green, White, Oolong, and Puerh. All can further be categorized as scented or
blended. All teas come from the same plant, the Camellia sinensis. Infusions Teahouse
provides instructions on the best brewing temperature and time for each of its teas.
Chocolates
Sonoma Chocolatiers offers nearly fifty flavors of dark chocolate truffles, twenty kinds of
melt-in-your-mouth caramels, and thirteen other indulgences; it comes up with new
delicacies nearly every month. These products provide unique and bold flavor combinations
that offer new ways to enjoy chocolate, such as the Gold Medal-winning Rosemary Goat
Cheese truffle and Cinnamon Rose caramel. Sonoma Chocolatiers uses only Sharffen
Berger chocolate in all products. Their unique blends provide a strong, nuanced chocolate
flavor that lasts long on the tongue, without a bitter or dry after taste. To this end, Sonoma
Chocolatiers adds only organic, local and seasonal ingredients and makes all the products
by hand.
Tea Ware
Infusions Teahouse carries a wide selection of authentic and unique tea wares. The
Teahouse tries to provide the customers with the experience of tea, as it is experienced in


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the varying tea drinking cultures. Infusions Teahouse also carries the tools to perform
the ritual of tea drinking, in its many different forms.
Food
Sonoma Chocolatiers supplies savory and sweet light food. The food menu contains a variety
of light meals inspired by different tea cultures and baked goods prepared with tea. The
Teahouse is expanding their selection of gluten-free baked goods, which are the perfect
complements to tea. The vegetarian menu is made with organic and local ingredients.
Infusions Teahouse now serves an elegant high tea on the first and second weekends of
each month. The high tea menu includes traditional tea sandwiches, unique homemade soups,
fresh-baked scones with our own lemon curd, and unexpected sweets from our kitchen. The
menu changes every month.


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3.0 The Market
The Tea Market
The American tea market is growing rapidly. The tea industry has fared better than most
other industries during the past three years and 2010 has seen a dramatic increase in tea
imports up, over an estimated ten percent from 2009 to a new record of more than 274
pounds (TeaTrends). The American consumers concern for health has already had a
dramatic effect on the Food & Beverage Industry. Spurred by studies touting teas health
effects, and increasing familiarity with Asian and South Asian cuisine and its tea customs,
American consumers have been turning towards tea as a more original, more natural
affordable luxury. In addition, the cultural connection of tea with all things civilized has
made tea knowledge, including the choice of a favorite teahouse, a mark of sophistication
among many American middle class women. Clearly old and new consumers alike have
discovered all the benefits of tea consumption and continue to propel the beverage to new
levels of popularity.
The Chocolate Market
The chocolate segment accounts for the maximum share of the overall confectionery market
in the U.S. The inherent characteristic of this segment is that it is the most impulsive food
product. The demand for premium and dark chocolate has significantly expanded in recent
years and this growth is expected to continue. Dark chocolates are gaining popularity due to
the newly perceived healthiness. Studies have shown that dark chocolate has antioxidant
properties and may provide cardiovascular benefits. Americans appreciation of the fine
flavors of premium chocolate is also growing in the way that the appreciation of fine wine
grew in the 1970s through the 1990s. This growing appreciation for chocolate is significantly
fueling the growth in the premium chocolate market.
According to Packaged Facts, U.S. chocolate retail sales increased from $14.9 billion in 2003
to $17.3 billion in 2009; dark chocolate sales increased faster than the overall chocolate


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market. In 2011, chocolate sales are growing to $18 billion (Story of Chocolate). This growth
is attributed to the 75% of Americans who have purchased chocolate products since 2008 and
that people view chocolate as an affordable indulgence--price increases did not discourage
budget-conscious households from buying quality chocolate.
Sonoma Chocolatiers has adopted unique positioning to differentiate itself from other small
artisanal chocolatiers in the Sonoma County and other parts of the US. Their focus on
organic, artisanal, dark chocolate reflects the changing tastes and priorities of local residents
and tourists, and online consumers. All of these trends would lead Sonoma Chocolatiers to
greater success.
3.1 Market Segmentation and Size
Sonoma Chocolatiers current customers include:
Sonoma county residents who know the Teahouse as the most relaxed place to meet
and socialize.
Sonoma County and Bay area residents who are learning the reputation of Sonoma
Chocolatiers.
Western Sonoma County business people who want to work outside their office or
home.
Western Sonoma County residents who enjoy live music on weekend evenings.
Customers and retailers who buy teas and chocolates via Internet.
Wine tourists who want to add something special to their wine trips.
Almost 100 high-end retail outlets across Sonoma County, Marin County, the Santa
Cruz area, Davis, CA, and San Francisco. We have been picked up by two of the
toniest grocery markets chains in Marin County.
Western Sonoma County business people looking for a meeting space, especially
morning meetings.
Women from 35-60 for social meetings, especially in the mornings.


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More weekend music lovers through a more aggressive event planning campaign.
Locals
Sonoma County's population was estimated as 483,878 people in 2010, of which 7,379
people are living in the city of Sebastopol. Many people in Sonoma County are well
educated. Most of the current customers for the dark chocolates tend to be women, age
twenty-five or up, within the middle- to upper-income bracket. Sonoma Chocolatiers food
and tea selection and prices are upscale. From U.S. census data for local income levels, we
thus estimate that roughly two-thirds of Sonoma Countys residents have pre-existing brand
loyalties or economic constraints that would discourage them from visiting our teahouse. Our
local target market is therefore about 161,290 people.
Tourists
Sonoma County is the heart of Californias wine industry. Wine tourists tend to be educated,
high-end, and with middle to upper class incomes. Most wine tourists are looking for
something extra to add to the wine trip such as buying the finest organic chocolates. Sonoma
Chocolatiers benefits economically from tourist visits all year round, with our combination
of seasonal cultural events. There are about 7.4 million tourists a year in Sonoma County. We
estimate a potential market of at least 100,000 tourists annually for our business.
Internet Sales
Internet sale of teas and chocolates accounts for about 35% of the total sales. Internet sales
are more profitable because the marketing expenses are much lower and the buyers cover the
shipping costs. More importantly, 15% of the Internet sales revenue for the wholesale is
exempt from income taxes. Since Internet sales generate much higher profits, Sonoma
Chocolatiers is currently working on a marketing campaign that would expand their Internet
sales. As part of this campaign Sonoma Chocolatiers has redesigned its website and many
customers have commented that is very impressive. We have a social marketing campaign to
drive customers to the new website. We have redesigned a new tea website in February
2012.


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Figure 3: Market Segmentation and Size

3.2 Buying Patterns
The holiday season is the most important and profitable season for Sonoma Chocolatiers.
60%-80% of the annual chocolate sales occur around Thanksgiving, Christmas, New Year,
Valentines Day and Mothers Day. During the holiday season, seventy-five percent of
chocolate are sold to the local residents. During the rest of the year, chocolate sales are split
fifty-fifty between the local residents and tourists.
3.3 Market Segment Strategy
Sonoma Chocolatiers provides the local middle-upper-class community with a place to
socialize, where they can indulge with fine teas and organic meals, and find unique
chocolates. For tourists, Sonoma Chocolatiers can be a destination stop in their tour of the
wine country. Their customers are willing to pay the price premium in exchange for the
higher quality, great taste, and sense of prestige they receive. In fact, higher prices for some
items may encourage higher sales - these kinds of customers eagerly accept the idea that
higher prices equal higher quality, and want to buy only the best.


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Sonoma Chocolatiers aims to expand both Internet sales and in-store sales to increase our
market share. For the Internet sales, Sonoma Chocolatiers will target middle and upper class
women by designing more educational and informative websites. In the local market,
Sonoma Chocolatiers is trying to get into high-end markets that focus on organic and healthy
foods. Our target customers include:
A number of wineries in Sonoma County that have expressed interest in our product
or that we have done business with. We will approach them to carry our products in
their tasting room. Late in 2011 we picked up Korbel winery; we added three major
wineries in a week aloneBenzinger and Chateau St. Jean in the Valley of the Moon
and Viansa in Sonoma Valley. We can only market to 2-4 wineries in any valley,
depending on the size of the valley. We want one more winery in Sonoma Valley, one
more in Valley of the Moon, 2-3 in Alexandria Valley, and 3 more in Dry Creek
Valley where we already work with Kachina Vineyards. Accordingly, this marketing
strategy is well on the way.
Whole Foods stores across the Bay area and Raleys in parts of the Bay area.
Retail outlets in the highest-income town in the Healdsburg County.
High-end food and cheese outlets and renowned chocolate stores in San Francisco
and the East Bay that feature high-end chocolates. And within 2012, we will expand
our targets to high-end retail outlets.
Tea and dark chocolate lovers who like shopping through the Internet.
Middle- and upper-income West Sonoma County residents who work outside their
homes and need a place to hold 1-on-1 (or -2 or -3) business meetings.
30- to 60-year old women in Western Sonoma County.

Moreover, we have our Butts-on-seats campaign, which is gearing up to get more people in
the doors of the teahouse during the day, especially in the morning. If we can get 12 more
people a day to spend $5 each, our financial health will change radically. We are also
working on a social marketing campaign to do this, with rewards for current customers to


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bring in new clients, and rewards to new people who come in for the first time. We greatly
expanded our client base by using a coupon through Social Living in the fall. Well run
another coupon through them in February and March, 2012. We have also been revamping
our food menu to add variety to appeal to more people. Our new kale-&-quinoa salad has
become very popular. Our new house-made tamales and chocolate mole sauce have gotten
many compliments. Next we are adding a vegetarian tikka masala dish to replace the
samosas we can no longer obtain.
3.4 Competition
In the gourmet teahouse industry, competition depends on quality of teas and food,
knowledgeable tea tenders, excellent customer services, and cultivation and education of a
loyal customer base.
There are a few chocolatiers in the local market. The local competition for the most part is
from one chocolatier called Wine Country Chocolates that has been established since 2000.
Their products are sold at the retail stores, online and in local wineries. Since the sales of
winery are very seasonal, we intend to get into that market in only a select number of
wineries to help fill in for slow teahouse sales during the summer tourist season. The food
market that sells the most of our chocolates is just around the corner from the home store of
Wine Country Chocolates, and we just landed Benzinger Winery as a client, which is 5
blocks from Wine Country Chocolates.
Because Sonoma Chocolatiers is rapidly taking a larger percentage of the chocolate markets,
the competition will become less of an issue as our name recognition increases.


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4.0 Management and Organization
Sonoma Chocolatiers is a small company owned and operated by husband and wife David
Gambill and Susan McCarn. David, the Chief Chocolatier, had been making chocolates for
fun for over twenty years before making them professionally. Before being a chocolatier,
David worked in international environmental policy and conservation and helped
organizations with strategic and project planning. Susan was a psychotherapist in
Washington D.C. They started Sonoma Chocolatiers in February 2008. They have extensive
experience in strategic planning and in managing diverse staff; Susan had extensive
experience with tea before taking over the teahouse. They will leverage their knowledge of
tea and of planning and management to create success for Sonoma Chocolatiers.
Sonoma Chocolatiers management style reflects the participation of the owners. Sonoma
Chocolatiers is not hierarchical, and encourages all employees to learn as much as possible
about all aspects of the business. As a family business, the company respects its community
of co-workers, and will treat all workers well.
4.1 Personnel Plan
As in every business, Sonoma Chocolatiers success depends on our employees. All our
employees make well above minimum wage and we have a bonus program to reward staff
for excellent performance. As we grow, our priority will be to increase all employee salaries.
Although the company is too small to pay health insurance for all employees, we offer group
rates for a range of supplemental insurance options, such as critical care insurance and
income protection for all employees.
Typically, Infusions Teahouse has two people working full time. In late 2011 we added a
full-time dishwasher for five days a week to improve customer service; this change has
improved sales and customer retention. During seasonal holidays such as Christmas and
Valentines, we require four teahouse workers to meet the increased demand for chocolates.
We also have two part-time staff dedicated to producing our wholesale products and an


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Assistant Chief Chocolatier/Teahouse Manager, and a part-time, highly skilled chef who
helps make chocolates and create new savory dishes. A part-time pastry/entree cook makes
all our pastries and savory entres.
The largest expense is salaries. A large part of the salary costs has been to train workers,
which is very expensive. Increasing salaries in late 2011 has greatly increased employee
retention and reduced training costs. Therefore, although sales revenues go up during the
holiday seasons, the expenses also increase accordingly.


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5.0 Strategy and Implementation
Sonoma Chocolatiers will combine local advertising with special events and targeted
promotions to introduce local residents and tourists to Infusions Teahouse, and to premium
teas and chocolates in general. Repeat sales depend on consistently high quality products and
service. Every ingredient we add to our chocolate is certified organic or grown organically.
Sonoma Chocolatiers also considers the environmental impact of their products. The packing
bags we use for chocolate covered nuts, bars, and Nibbles are made from recycled wood and
are compostable.
Sonoma Chocolatiers teas and chocolates are offered at a price premium that encourages
customers seeking high-quality goods. This not only enhances the feeling of prestige
customers get when patronizing the teahouse, but also ensures that customers will have
similar expectations of service and quality, based on their socio-economic class.
5.1 Competitive Edge
Key Competitive Strengths:
Davids lifetime of experience in fine dining and exploring new flavors in his own
cooking helps him develop unexpected and unique flavor combinations.
Davids many years of experience as a chocolate maker.
The ingredients for Sonoma Chocolatiers products are all organic.
Sonoma Chocolatiers has the best name recognition in the Sonoma County.
Sonoma Chocolatiers has products in almost all the high-end stores in the County.
Sonoma Chocolatiers is the only retailer offering such a wide array of premium
chocolates in the Sebastopol and West County area.
Sonoma Chocolatiers is committed to providing only high-quality products and services.
Competitive Weaknesses:


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Sonoma Chocolatiers primary weakness is that we are a new business competing against
established local stores and chains. To significantly build sales, Sonoma Chocolatiers must
not just find new customers we must take customers away from existing competition and
from their coffee-drinking habits. We can accomplish this only by offering a superior
selection of teas and chocolates, and focusing on high-quality service and full service
delivery.
5.2 Marketing Strategy
Sonoma Chocolatiers marketing strategy needs to accomplish two things: first, to make
potential customers aware of Sonoma Chocolatiers business and location; second, to educate
potential customers as to why Infusions is so wonderful.
The marketing budget will not exceed 2.5% of its gross annual sales. Sonoma Chocolatiers
will maintain its advertising in one magazine that said that their Chocolatier is the best in
the County. In addition, Sonoma Chocolatiers intends to advertise in the local newspaper
with the widest circulation. Within the County, some of the newspapers have the weekly
circulation of 250,000. Sonoma Chocolatiers is getting a lot of exposure by using newspapers
as media. In the future, we aim to use Facebook, Twitter and our own websites as main
marketing tools. For the tourism, we will advertise in tourist maps for the upcoming holiday
season.
For social marketing, we have started online campaigns to encourage people to come into the
teahouse and to meet at the teahouse. We are offering rewards (free pot of tea when you
bring a friend; share a pot of tea with a friend for 50% off; etc.). Were upgrading the
teahouse website and our new chocolate website is drawing attention.
We are working with packaging and a graphic designer to upgrade our packaging based on
customers responses. This will open up more high-end markets and increase our profit
margin. In addition, we intend to design small fliers for both the Teahouse and Sonoma
Chocolatiers, which are known as the most profitable marketing tool based on other small


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businesses experiences in the region. We will post them in all Tourist Centers and distribute
them to the local B&Bs, the high-end hotels, the tour group leaders and wine-country tour
buses, etc. We can print them on thick glossy stock with four-color, for $0.12 each through a
printer in the East Bay.
Two workers in Sonoma Chocolatiers are marketing our products to San Francisco markets,
in hope of adding two new markets a week through January. Our next target market is the
East Bay. The markets we are focusing on are high-end boutique grocery stores, cheese shops
and boutique chocolate shops that do not make chocolate but offer only high-end chocolates.

5.3 Industry Growth Rate Analysis
A report by market research firm IBIS World predicts that healthy eating and living trends
will drive growth for the U.S. tea industry in the years ahead (TeaTrends). As consumers
change their dietary patterns and seek healthy alternatives to soft drinks and coffee, the U.S.
market for tea sold at retail will reach $6.5 billion in 2011, up five percent over the last year
(Marketwire). The gourmet and specialty tea segments will likely be the largest beneficiaries
of these trends, because they cater specifically to fragmented consumer needs. Other growth
drivers will be the increasing variety of flavors, strengths and sweeteners, as well as
marketing messages based on various health benefits of tea consumption. This represents a
compounded annual growth rate of eleven percent for the organic tea industry (TeaTrends).
Within the chocolate category, competition is centering on gourmet and premium chocolates.
Sales of premium brands in the mass market have grown at a compound annual growth rate
of about sixteen percent, while sales of organic chocolates are growing at a thirty percent
clip, compared to three-four percent growth rates for chocolate candy overall (Packagedfact).
5.4 Sales Forecast
Sonoma Chocolatiers sells fine chocolates through our stores, Infusions Teahouse and
Sonoma Chocolatiers, at farmers markets, over the Internet, and through many boutique


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stores, wineries, gourmet food stores, caterers, restaurants and other outlets in Sonoma
County and a few towns in Northern California. Our teas are sold in the Teahouse or via
Internet and to a few wholesale customers in Sonoma County. We are growing quickly and
adding new retail outlets regularly and are always looking for new outlets. We hope to
expand the number of stores this year that sell our products in surrounding counties.
Because Sonoma Chocolatiers is a new entity, we understand that we will have to prove our
companys worth to upscale tea and chocolate buyers in order to earn their respect and
business. Our sales forecast depends on establishing a loyal customer base that visits our
Teahouse at least once every month. We expect a few committed tea drinking regulars
and chocolate lovers who will come in more than once a week. We also expect a significant
increase in Internet sales of tea and chocolate. To achieve this kind of repeat business, every
customer, whether on the first visit or their hundredth, will be treated graciously and with
superior service.
Sonoma Chocolatiers expects average annual Teahouse sales to grow at 10% and chocolate
sales to increase at 85% for the next five years, as we build name recognition in the
community, gain a larger percentage of the market share and increase the customer base
beyond Sonoma County and into the connecting counties. These assumptions are based on
the following facts. Our chocolate sales increased 33% from 2010 to 2011, and we have
already doubled sales of chocolate in January 2012 compared to January 2011. Teahouse
sales (gross income excluding wholesale chocolate sales) increased 12% from 2010 to 2011.
Most that increase was in the last third of 2011. As the economy slowly recovers and we
ramp up our marketing this year with pamphlets and social marketing, we expect teahouse
sales to go up a minimum of 15% in 2012 and wholesale chocolates to grow by about 50% in
2012. The following table gives a highlight of forecasted sales. We expect sales to
increase extensively during the holiday seasons such as Thanksgiving, Christmas, New Year,
Valentine's Day and Mother's Day.


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Table 1: Sales Forecast
Pro Forma Profit
and Loss

2012 2013 2014 2015 2016
Sales $303,594.00 $405,007.00 $587,617.00 $851,648.00 $1,288,558.00
Total Cost of Sales $106,257.90 $141,752.45 $205,665.95 $298,076.80 $450,995.30

Year 2012 2013 2014 2015 2016
Chocolate growth rate 75% 100% 100% 75% 75%
Teahouse growth 13% 10% 10% 10% 8%
Teahouse sales $224,644 $247,108 $271,819 $299,001 $321,426
Wholesale chocolate
sales $78,950 $157,899 $315,798 $552,647 $967,131
Total sales $303,594 $405,007 $587,617 $851,648 $1,288,558

Highlights:
Both sales and cost of sales are assumed to be increasing at the growth rate of 24%-50%.
Cost of sales accounts for 35% of total sales.


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6.0 Financial Plan
Sonoma Chocolatiers financial plan is based on a sound industry analysis and thorough
research into similar businesses. Our top financial priorities in the next five years are: paying
long-term loan interests, paying employees fairly, covering expenses on time, and generating
a modest profit. We anticipate steadily increasing profits and net income as Sonoma
Chocolatiers becomes well known and establishes a loyal clientele.
We anticipate a sales increase of roughly 24%-50% annually for the next five years.
Marketing expenses are budgeted approximately at 2.5% of total sales.
6.1 Important Assumptions
There are some non-financial assumptions guiding our forecasts. We assume:
No other teahouses opening in the Sebastopol area in the next year.
A continued gradual increase in the population and socio-economic class of Sonoma
County.
Continued tourist interest in our area.
Increasing consumer interest in tea, chocolate, and other healthy foods.
Premium chocolates will continue to symbolize luxury and romance as gift choices.
We are able to continue to expand our wholesale distribution network.
6.2 General growth rates assumptions
Sales growth rate is 24% - 50%.
Operating expenses growth rate is 5%.
Other expenses growth rate is zero.
Balance sheet accounts growth rate is 15%.
Gross profit is 65% of sales.
Weighted Average Cost of Capital is 7.2%.


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6.3 Break-even Analysis
The break-even analysis is based on the projected cost and price structure for the year 2013.
As Sonoma Chocolatiers grows, the fixed costs will grow in proportion to the number of
employees.
Table 2: Break-even Analysis

Break-even Analysis

Yearly Revenue Break-even $404,550

Assumptions:
Average Percent Variable Cost 40%
2013 Fixed Cost $242,730

Figure 4: Break-even Analysis

Highlights:
Based on the numbers above, the net profit will equal zero when sales reach $404,550, which
is break-even point. The net income is negative when sales are below $404,550. The net
profit will become positive as sales increase above $404,550.


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25
6.4 Projected Profit and Loss
The following table shows Sonoma Chocolatiers profit and loss projections for the next five
years. Sonoma Chocolatiers will become profitable in the year 2013, with net profits
continuing to rise as sales increase. Sales and marketing expenses include the costs of all
advertisements and promotions.
Figure 5: Net Annual Profit

Highlights:
Net income keeps increasing every year, and becomes positive during 2013.
Based on the overall performance, the companys profit trend would become gradually
better because of its excellent product.


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26
Figure 6: Gross Annual Profit

Highlights:
Gross profit is increasing every year, with 24%-50% growth rate.


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27
Table 3: Profit and Loss Projection
Pro Forma Profit and
Loss

2012 2013 2014 2015 2016
Sales $303,594.00 $405,007.00 $587,617.00 $851,648.00 $1,288,558.00
Total Cost of Sales $106,257.90 $141,752.45 $205,665.95 $298,076.80 $450,995.30

Gross Margin $197,336.10 $263,254.55 $381,951.05 $553,571.20 $837,562.70

Expenses
General &
Administrative $21,615.31 $22,696.07 $23,830.88 $25,022.42 $26,273.54
Chocolate supplies $350.00 $371.00 $393.26 $416.86 $441.87
Marketing $7,589.85 $10,125.18 $14,690.45 $21,291.20 $32,213.95
Operating $14,418.66 $15,139.60 $15,896.58 $16,691.40 $17,525.97
Wages & Salaries $149,283.20 $156,747.36 $164,584.73 $172,813.96 $181,454.66
Employee benefits $12,381.68 $13,000.77 $13,650.81 $14,333.35 $15,050.01
Occupancy costs $22,512.59 $23,638.22 $24,820.13 $26,061.13 $27,364.19

Total Operating
Expenses $228,151.29 $239,558.86 $251,536.80 $264,113.64 $277,319.32

Operating profit ($30,815.19) $23,695.69 $130,414.25 $289,457.56 $560,243.38
Other expenses $3,172.38 $3,172.38 $3,172.38 $3,172.38 $3,026.37

Net Profit ($33,987.57) $20,523.31 $127,241.87 $286,285.18 $557,217.01
Net Profit/Sales -11.20% 5.07% 21.65% 33.62% 43.24%


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28
6.5 Projected Balance Sheet
Assumptions used to project balance sheet are based on economic cycle activity, regional
industry strength, and future cash flow possibilities.
Table 4: Balance Sheet Projection
Pro Forma Balance
Sheet

2012 2013 2014 2015 2016
Assets

Current Assets
Cash ($13,645.24) ($15,692.03) ($18,045.84) ($20,752.71) ($23,865.62)
Inventory $21,850.00 $25,127.50 $28,896.63 $33,231.12 $38,215.79
Other Current Assets $27,057.45 $31,116.07 $35,783.48 $41,151.00 $47,323.65
Total Current Assets $35,262.21 $40,551.54 $46,634.27 $53,629.41 $61,673.82

Total Fixed Assets $133,260.34 $153,249.40 $176,236.80 $202,672.33 $233,073.17

Total Intangible
Assets $116,792.62 $134,311.51 $154,458.24 $177,626.98 $204,271.02
Total Assets $285,315.17 $328,112.45 $377,329.32 $433,928.71 $499,018.02

Liabilities and Equity 2012 2013 2014 2015 2016

Current Liabilities
Accounts Payable $8,945.77 $10,287.63 $11,830.78 $13,605.40 $15,646.21
Credit Cards $7,055.22 $8,113.50 $9,330.52 $10,730.10 $12,339.62
Other Current
Liabilities ($62,882.47) ($72,314.84) ($83,162.07) ($95,636.38) ($109,981.84)
Total Current
Liabilities ($46,881.49) ($53,913.71) ($62,000.77) ($71,300.88) ($81,996.01)

Long-term Liabilities $307,006.96 $353,058.00 $406,016.70 $466,919.20 $536,957.08
Accumulated
Amortization $17,045.30 $19,602.10 $22,542.41 $25,923.77 $29,812.34
Total Liabilities $277,170.77 $318,746.38 $366,558.34 $421,542.09 $484,773.41

Owner/shareholder
equity $403,820.69 $464,393.80 $534,052.87 $614,160.80 $706,284.92
Retained Earnings ($395,676.29) ($455,027.73) ($523,281.89) ($601,774.18) ($692,040.31)
Total Equity $8,144.40 $9,366.06 $10,770.97 $12,386.62 $14,244.61
Total Liabilities and
Equity $285,315.17 $328,112.45 $377,329.32 $433,928.71 $499,018.02


Page 29
6.6 Projected Cash Flow
Sonoma Chocolatiers projected cash flow is outlined in the following tables.
Table 5: Free Cash Flow Projection

Actual Projected
2010 2011 2012E 2013E 2014E 2015E 2016E
Total Revenue $208,410.31 $244,041.52 $303,594.00 $405,007.00 $587,617.00 $851,648.00 $1,288,558.00
Cost of Sales $75,554.80 $95,243.38 $106,257.90 $141,752.45 $205,665.95 $298,076.80 $450,995.30

Gross Profit $132,855.51 $148,798.14 $197,336.10 $263,254.55 $381,951.05 $553,571.20 $837,562.70

G&A Expense $21,082.08 $20,391.80 $21,615.31 $22,696.07 $23,830.88 $25,022.42 $26,273.54

Other Expenses (Income) $8,482.39 $3,172.38 $3,172.38 $3,172.38 $3,172.38 $3,172.38 $3,026.37

EBIT (On Income Statement) ($77,826.48) ($67,658.38) ($33,987.57) $20,523.31 $127,241.87 $286,285.18 $557,217.01

EBIT excluding "Other" ($69,344.09) ($64,486.00) ($30,815.19) $23,695.69 $130,414.25 $289,457.56 $560,243.38

Taxes ($20,803.23) ($19,345.80) ($9,244.56) $7,108.71 $39,124.28 $86,837.27 $168,073.01

NOPAT ($48,540.86) ($45,140.20) ($21,570.63) $16,586.98 $91,289.98 $202,620.29 $392,170.37

Amortization $14,822.00 $25,409.14 $24,287.52 $32,400.56 $41,133.19 $59,615.36 $77,313.48
Deprecation $18,563.00 $31,822.29 $45,539.10 $60,751.05 $88,142.55 $127,747.20 $193,283.70
Net Capital Investment $2,784.45 $4,773.34 $6,830.87 $9,112.66 $13,221.38 $19,162.08 $28,992.56
Change Net Working Capital $1,983.45 $2,200.18 $3,903.75 $6,319.29 $8,743.73 $13,826.01

Free Cash Flow ($17,940.31) $5,334.44 $39,224.94 $96,722.18 $201,025.04 $362,077.04 $619,948.98


Page 30

Table 6: Discount Cash Flow

Actual Projected
2010 2011 2012E 2013E 2014E 2015E 2016E
EBIT ($77,826.48) ($67,658.38) ($33,987.57) $20,523.31 $127,241.87 $286,285.18 $557,217.01
EBITDA ($44,441.48) ($10,426.95) $35,839.05 $113,674.92 $256,517.61 $473,647.74 $827,814.19
NOPAT ($48,540.86) ($45,140.20) ($21,570.63) $16,586.98 $91,289.98 $202,620.29 $392,170.37
Plus: Depreciation & Amortization 33,385.00 57,231.43 69,826.62 93,151.61 129,275.74 187,362.56 270,597.18
Less: CapEX 21,347 36,596 52,370 69,864 101,364 146,909 222,276
Less: Net Working Capital 1,983.45 2,200.18 3,903.75 6,319.29 8,743.73 13,826.01
Unlevered Free Cash Flow ($36,503.31) ($26,487.85) ($6,314.16) $35,971.13 $112,882.49 $234,329.84 $426,665.28
0.9442

WACC 0.072

NPV of Unlevered Free Cash Flow $595,860.36

Terminal Value Undiscounted TV Discounted TV
Perpetuity Growth (in FCF) after
2016 3.00% $10,463,458.10 $7,390,967.84

Implied Enterprise Value $7,986,828.20


Page 31
6.7 Business Ratios
Business ratios for the next five years are shown below.
Table 7: Financial Ratios

2010 2011 2012 2013 2014 2015 2016
Return on Assets (ROA)
-0.38 -0.17 -0.12 0.06 0.34 0.66 1.12
Return on owner's equity
-6.19 -9.55 -4.17 2.19 11.81 23.11 39.12
Profit margin
-0.37 -0.28 -0.11 0.05 0.22 0.34 0.43
Assets turnover ratio
1.02 0.63 1.06 1.23 1.56 1.96 2.58
Accounts receivable turnover ratio
43.37 17.45 18.42 21.37 26.96 33.97 44.70
Inventory turnover ratio
3.98 2.92 4.86 5.64 7.12 8.97 11.80

Figure 7: Return on Assets

Return on assets is expected to be increasing and positive over year 2013 to 2016.


Page 32
Figure 8: Return on Equity

Return on equity is expected to be increasing and positive through year 2013 and 2016.
Figure 9: Profit Margin

Profit margin is expected to be increasing and become positive through year 2013 and 2016.


Page 33
Figure 10: Assets Turnover Ratio

From year 2011, assets turnover ratio turns on an increasing trend.
Figure 11: Accounts Receivable Turnover Ratio

Accounts receivable turnover ratio is increasing over years 2011 to 2016.


Page 34

Figure 12: Inventory Turnover Ratio

Inventory turnover ratio turns on an increasing trend over years 2011 to 2016.


Page 35

Appendix
Project Team Member Bios
Arindam Bandopadhyaya
Dr. Arindam Bandopadhyaya received his PhD in Economics and Finance from Indiana University,
Bloomington. He is currently the Chair and Professor of Finance in the Accounting and Finance
Department at UMASS-Boston. A two-time recipient of the Deans Award for Distinguished Research,
Dr. Bandopadhyaya has published in journals like the Journal of International Money and Finance,
Journal of Empirical Finance, Journal of Banking and Finance, and Review of Economics and Statistics.
Dr. Bandopadhyaya teaches courses in the areas of corporate finance, international finance, managerial
economics and portfolio management. He has received coveted teaching awards in the College of
Management, including two-times the Professor of the Year Award and the Betty Diener Award for
Teaching Excellence. He was the College of Management nominee for the Chancellors Award for
Distinguished Teaching several times in recent years.

Dr. Bandopadhyaya is also the Director of the College of Managements Financial Services Forum (FSF),
which is a source of current information and commentary on the health and critical issues facing the
financial services industry. The FSF produces a semi-annual report, has a working paper series, hosts
speakers from the industry, and has created and publishes every month an index that measures investment
sentiment in financial markets.
Xingyuan Fei
Xingyuan Fei has been a graduate student in the MSA program at UMass Boston since Fall 2010. Earlier,
she received her BS in Education, Beijing Broadcasting Institute, Beijing, China. After graduation,
Xingyuan passed the National Judicial Examination and became a lawyer in China. Her objective is to
develop the professional knowledge about business and accounting which is required in the competitive
world today.


Page 36
Diana Kohlhagen
Diana Kohlhagen received her Bachelor in Business Administration (concentration in Finance) in May
2010. She is currently pursuing both her MBA and her Master of Science in Finance at the University of
Massachusetts, Boston. Diana will graduate in May 2012. Her goal is to become a CFO or to pursue a
career in investments.
Pojaman Thasana-ekachitPojaman Thasana-ekachit received her BS in Economics with a minor in
Finance, from Thammasat University in Bangkok, Thailand. After graduating, Pojaman worked as an
office assistant at Thasanavej Hospital. Currently she is pursuing her MBA degree at UMass Boston,
which will help her develop the professional knowledge and leadership that is required in the current
competitive business environment. Her research interests include Corporate Financial Policy and
Governance, Financial Markets and Institutions, and International Finance.
Ying Zhao
Ying Zhao received her BS in Business Administration, with a concentration in Accounting from
California State University. She is currently pursuing her MSA degree at UMass Boston. Her career
pursuit is to practice accounting in a public accounting firm.
Yu Zhang
Yu Zhang received her Bachelor of Management (concentration in Financial Management) in June 2011,
from Central University of Finance and Economics in Beijing, China. Currently, she is pursuing her MSF
at the University of Massachusetts, Boston. Her research interests include Corporate Finance, International
Finance, and the implications of accounting information for firms future performance.


Page 37

Disclaimer
The financial projections that appear in this Business Plan are estimated revenues, expenses, and cash
flow, which are based on research, market movement and the assumptions discussed throughout this
Business Plan. The assumptions disclosed herein are those that management believes are significant to the
projections. They represent the best estimate of the owners and our knowledge and beliefs, and are also
based on actual operations from previous years. The Company's expected revenues, expenses, and cash
flow for the projected periods are subject to the Company's ability to develop sales and production levels
at the price and costs estimated by management. Accordingly, these projections reflect management's
estimates as of February 2012 and its expected course of action if such sales and production levels are
attained at the anticipated price and costs.


Page 38
References
Marketwire, Tea Market Thrives Despite Tough Economy, December 05, 2011.
http://www.marketwire.com/press-release/tea-market-thrives-despite-tough-economy-1594664.htm
TeaTrends, US retail tea industry reaches $6.5 billion in sales, December 2011.
http://www.teatrends.com/article.html?category=Industry
Packagedfact, The U.S. Market for Chocolate, February 2005.
http://www.packagedfacts.com/sitemap/product.asp?productid=1037709;
Story of Chocolate, Profile of the U.S. Chocolate Industry, August, 2011.
http://thestoryofchocolate.com/About/content.cfm?ItemNumber=3623
Infusions Teahouse, http://www.infusionsteashop.com
Sonoma Chocolatiers, http://www.sonomachocolatiers.com
Information provided by interview between David Gambill and Financial Services Forum Consulting
Group

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