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Section

1
Team
3
Fall
2014

Business
Plan
Halo Illuminations,
LLC
Business Idea: LED Backlit Fabricated
Metal Signs
Jo
sh
Par
k
Team
Members:
Curt
Dahmer

Soph
ie
Prince

Natalie
Krewin
Rob
Macey
Paige
Marple
Josh
Narang
1

Signature

Email

Table of Contents
I. Executive Summary
3
II. Elevator Pitch
4
III. Mission Statement
4
IV. Vision Statement
4
V. Business Overview
VI. Product Description
5
VII. Competitive Advantage
5
VIII. Triple Bottom Line
6

VIX. Industry Background


6
IX. Marketing Related Information
a. Target Markets
i. Diamond Work boots
6
ii. Business Boomers
7
b. Positioning

c. Competition
7
d. Forecasting
8
e. Breakeven Analysis
8
f. Pricing Strategy

g. Packaging

h. Branding Strategy
9
i. Distribution Strategy
10
j. Promotional Strategy
10
k. Quantitative Review of Marketing
11
X. Employee Recruitment & Training
12
XI. Operations and Processes
a. Operations Strategy
13
b. Outsourcing
14
c. Inventory

14

d. Capacity

15

e. Manufacturing Process
16
XII. Quality Assurance and Recovery Plan
17
XIII. Financial Statements
a. Sensitivity Analysis
17
b. Income Statement
18

c. Retained Earnings
18
d. Financial Ratios

18

e. Balance Sheet
19
f. Statement of Cash Flows
20
XIV. Financial Notes

19

XV. Conclusion

20

XVI. Addendum

21

XVII. References
22
Executive Summary
Halo Illuminations
Josh Narang
1624 South Mojave Road, Las Vegas, NV, 89104
Phone: 703-789-0703
Fax: none
E-mail: narangvj@dukes.jmu.edu
Web Address:
www.haloillumnations.com
Industry: Sign Manufacturing
Number of Employees: 13
Bank: Wells Fargo
Future Auditor: Ernst & Young
Law Firm(s): Randolph Law Firm
Amount of Financing Sought:
$2,220,000
Current Investors:
$500,000 (22.52%) Outside

investors
$1,650,000(74.32%) Borrowed from
Wells Fargo
$70,000(3.15%) Owners: Curt
Dahmer, Josh Park, Natalie Krewin,
Paige Marple, Sophie Prince, Josh
Narang, and Rob Macey. $10,000
each.
Use of Funds: Machinery, Raw
Materials, Marketing/Sales, Office
Equipment, and Other Small Business
Operations
Business Description: Halo
Illuminations is a LLC located in Las
Vegas, Nevada that manufactures
LED-lit stainless steel business signs

and LED-lit address number signs.


Products/Services: We are selling
large characters with a brushed finish
for $254 each, large characters with a
mirror finish for $305, small letters
with a brushed finish for $83, and
small letters with a mirror finish for
$85. Unit costs are $137.71,
$171.03, $16.47, and $18.84
respectively. Our stainless steel will
come from Metals Depot and our
LEDs will come from GE. We expect
to sell 19,996 characters in Year 1,
with a split of 1,748 mirror finish
large business characters, 1,748
brushed finish large characters, 8,250
mirror finish small house characters
and 8,250 brushed finish small
characters.
Company Background: Start-up.
Management: General Manager
must have a Masters Degree and
minimum 5 years of management
experience.

Competitive Advantage: Our


business uses a differentiation
strategy using quality inputs, such as
high grade stainless steel and
reliable, durable LED lights, while
providing an aesthetic that matches
customer preferences. Customers
work with a highly skilled sales
representative to design a product
that will create a distinguishable and
reputable image for their brand.
Markets: Our first target market is
Business Boomers, which are start-up
businesses in Southwest America
interested in creating a high-end
image for themselves. Our second is
Diamond Workboots, which are
building developers in the same
region that build higher end
neighborhoods and multi-level living
complexes.
Our potential market
size is 229,798 total customers and
our growth rate is 4.4% for the
second year, and 1.6%, 1.8%, and
2.8% in subsequent years.

Distribution Channels: Products will be sold business-to-business through a


team of 3, dedicated to direct sales.
Competition: Our main local competition are the two companies Sign A Rama and
Patricks Signs.
Financial Projections (Unaudited):
2015
2016
2017
2018
2019
Revenue:
$1,124,094 $2,347,108 $2,384,662 $2,427,586 $2,495,558
EBIT:
($493,298) $214,849
$202,427
$105,872
$104,573

Elevator Pitch
Halo Illuminations offers a modern and visually attractive way to draw
attention to house address numbers and business signs. Our company
manufactures LED illuminated stainless steel letters and numbers that are
assembled to the customers design specifications. These signs are made of
T316 stainless steel, which provides the highest level of
quality and corrosion resistance as opposed to the standard
T304 alloy (304 VS 316 Stainless, 2014). These signs will
provide home developers and businesses a stylish advantage
and modern appeal while easing the difficulty of searching for a destination
at night. The predicted amount of new businesses developing in America is
projected to increase at a rate of 4.6% annually for the next five years
(IBISWorld, 2014). Halo Illuminations takes pride in providing top-quality,
energy-efficient, and customizable products for our customers. Help us
illuminate Southwestern America with our signs.
Mission Statement
Halo Illuminations is devoted to creating elegant signs of the highest
quality to give businesses and housing developments a modern edge
through the fabrication a supreme product.
Vision Statement
Our company serves customers in Southwestern America Texas,
Nevada, California, Arizona, Colorado, Utah, and New Mexico with
stainless steel business signs and house numbers of impeccable quality. We
aim for creating an exceptional customer relations experience while earning
a steady profit. In the first five years of operations, Halo Illuminations plans
to focus on increasing market share in the Southwest. Continuous
improvements in individualized customization and quality will broaden our

market demographics into additional areas across America by year ten.


Business Overview
Halo Illuminations is based in Las Vegas, Nevada, which serves as a
central location to all seven states we are initially targeting. Our goal is
gain $500,000 from outside investors while also investing $70,000 of our
own money. We will borrow $1.65 million to cover the initial large costs of
the manufacturing equipment, facilities, and general operating and selling
costs. We are committed to providing high-end stainless steel business signs
and house numbers attached with energy-efficient LED lights. The larger
business signs (20 tall) and smaller house numbers (5 tall) will be offered
in various finishes and fonts to match customer specifications. Our
projected demand is 3,496 large letter units sold to businesses and 16,500
small number units to housing developers.
We are registered as a LLC (Limited Liability Corporation) in order to
gain investors, tax benefits, and ease of growth. Halo Illuminations is a
Business to Business (B2B) manufacturing company that sells directly to
housing developers and growing businesses. Our initial organizational
structure utilizes a total of thirteen employees, three of which are sales
representatives who work directly with customers as opposed to relying on
the internet for sales and communications. This decision ensures a high
degree of service and customer satisfaction. For our first five years, we
intend to centralize our focus in Southwestern America including California,
Colorado, Texas, Arizona, Nevada, Utah, and New Mexico, but will expand
into other regions after year 5.
Product Description

Halo Illuminations manufactures energy-efficient stainless steel


LED business signs and house address numbers in either brushed or
mirror steel finishes. Business signs are an average height of 20,
width of 18, and depth of 4.5. House numbers will be a height of 5,
a width of 4.5, and a length of 1.5. Depending on the finish, each large
letter unit will cost from $254 $305, and each small number unit will from
$83 $85. Our focus is on building an image that properly reflects our
customers desired brand. Customers have the ability to create their desired
image through the utilization of variety of steel finishes, fonts, and LED
colored backlights. The LEDs come in four colors white, red, blue, and
yellow and add a visual appeal to our product while simultaneously
making them visible at night.
Competitive Advantage

Figure 1: SWOT Analysis


Diagram

Our
companys

competitive edge is created through our high degree of service and


customer collaboration to fabricate a high-quality, visually attractive
product with premium inputs. Our customers have the opportunity to design
the font of their sign, color of the LED backlights, and finish on the stainless
steel. They work with a highly skilled sales representative to design a
product that will create a distinguishable and reputable image for their
brand. Figure 1: SWOT Analysis Diagram highlights how we will use these
competitive strengths and opportunities to overcome internal weaknesses
and external threats.
Triple Bottom Line Analysis
Social responsibility is a key value of Halo Illuminations, and we strive
to apply it to all aspects of the business, particularly employees and
customers. We provide our employees with generous benefits that equip
them with gratuity and advantages that we believe will enable them to be
productive employees and healthy members of society. In addition to these
things, our companys products improve the accessibility of buildings by
providing illuminated signage during daytime and nighttime hours, thus
allowing greater visibility.
We aim to be environmentally conscious and mindful of the waste that

10

is generated through our production process. The metal used to make our
products, stainless steel, is 100% recyclable and has a long-term life (bssa,
2007. Also, using LED light reduces energy costs by using 75% less energy
than incandescent lighting, which minimizes our companys carbon
footprint.
By investing in our product, businesses and growing developments
will increase their profitability by creating a modern and sustainable image.
Additionally, by creating and emphasizing a quality product, the clientele we
attract will enable us to create a profitable margin for our company.
Industry Background
The sign industry has a promising future with growing percentages
throughout the next five years. It is predicted to grow at an average rate of
3.0% annually in revenues (IBISWorld, 2014). The competition level and
barriers to entry are each rated as low, constituting an inviting market for
starting a business in the sign industry (IBISWorld, 2014). Halo
Illuminations has a competitive advantage by using LED technology, which
is predicted to be a leading competitive advantage in the market in the next
five years (IBISWorld, 2014). LED lights are estimated to be 90% more
efficient compared to traditional lighting by using less power (ledluxor,
2013). Although the past five years had a growth rate of only 0.6% due to
the recession, the future is looking bright (IBISWorld, 2014).
Target Markets
Diamond Work Boots: This market includes high-end developers
that build expensive, luxurious, multi-family buildings and single detached
family houses. According to multifamilyexecutive.com, thirteen of the top
twenty-five multi-family developers for 2014 are incorporated in the south
west area we intend on targeting. All twenty-five of these companies have
construction sites in Southwestern United States as well. A potential

11

segmentation base is a triangular geographic area consisting of Dallas,


Houston, and Austin, Texas due to the high population and relative wealth.
These more expensive buildings being built by developers correspond
with our high quality product. There have been an increasing amount of
multi-level building permits in the Southwest. Texas has had the most rapid
increase of any state. From 2012-2014, Texas has increased its multi-family
building permits from 45,704 to 66,970 (BizMiner), which is the most of any
state in the United States within this time span.
Business Boomers: Our second target market consists of up-andcoming new businesses looking to establish themselves. These are
businesses that are still looking to capture a significant market share and
establish a quality consumer base in their area of choice. In todays market,
a companys image is a vital asset towards growth and future success.
Appearance is an order qualifier, and our signs will provide the desired first
impression businesses are aiming to achieve. With a total of 218,570 new
businesses in Southwestern United States (Reference USA), this potential
market provides a promising opportunity for our business.
Positioning
Halo Illuminations is seeking a less-competitive, smaller niche market
by focusing on differentiation. Our products are produced according to
individuals personal preference of design. Halo Illuminations process
allows the customer to customize their signs and create a unique identity
for their building development or new business.
The business signs are uniquely designed for each individual start up
business in need of a business sign that reflects their brand image most
closely. Our key differentiating attributes include a modern appeal and
efficient LED technology with minimal environmental impact. We purchase
durable, T316 stainless steel and create a flawless appearance for our
customers. The letters and number signs we produce are resistant to snow,
rain, and wind.
Searching for an unknown address in limited lighting is challenging

12

both for civilian drivers as well as emergency responders. Halo Illuminations


solves the problem by attaching the LED lighting to the back of our stainless
steel fabricated lettering and numbers. In a world where technology and
innovation are constantly evolving, our product fits right in with this trend.
Competition
Our competitors products place them in different areas on the
perceptual map (Figure 2: Product Perceptual Maps) according to the
quality of their products and degree of customization. As shown in Figure 2,
we are the leading company in providing a high-quality product, while also
maintain a degree of customization. These graphs illustrate a gap in the
market where customers are willing to pay top price for a quality-built
product while still being able to personalize their design specifications.
Forecasting
Figure 3: Market Potential

According to ReferenceUSA, the amount of new businesses in


Southwestern America (Arizona, California, Colorado, Nevada, New Mexico,
Texas, and Utah) between 2012 and 2013 are 218,570, which is our total
market potential for the Business Boomers market segment. The market
potential for Diamond Work Boots includes 11,228 building developers.
Collectively, our total market potential totals 29,798 customers, which is
shown in Figure 3: Market Potential. Our total forecasted market is 259,
which is found by multiplying our market share of 0.2% by our total potential
market of 229,798 customers. We approximated that half of our customers
will want a brushed finish and the other half a mirror finish; since we do not
have a way to accurately predict customers order preferences for our first
year, our 50% estimate will test the amount of demand. Based on our unit
sales price and forecasted unit sales for all four of our products (stainless
steel letters and numbers in brushed and mirror finish), our total forecasted

13

first year sales revenue ($2,363,132) is explained in Figure 4: First Year


Forecast. However, the first year revenue is expected to be half of the
amount of the industrys average revenue; therefore our first years revenue
is $1,181,566. Our projected industry growth percentages for the next four
years are 4.4%, 1.6%, 1.8%, and 2.8% (IBISWorld, 2014), which allow us to
calculate forecasted sales revenue upcoming years (Figure 5: Five Year
Forecasted Sales Revenue). Although Halo Illuminations only has 0.2% of the
potential market, our forecasted sales revenue ensures a successful business
with increasing growth in the future.
Our first years monthly sales forecast is found by dividing the number
of new housing developments per month by the total housing developments
per year in the Southwest (census.gov), expressed as a percentage. We then
multiplied each months percentage by our total year 1 revenues to find the
monthly forecast. To determine the monthly forecast for startup companies,
we applied a similar process, and then averaged the two forecasts together
to find an overall monthly estimate. Figure 6: Forecasted Monthly Sales
outlines these final sales calculations.
Breakeven Analysis
Figure 7: Breakeven Analysis shows our companys break-even
analysis for each variety of our product. We assessed our breakeven totals
in terms of units sold and sales dollars for our first year of revenues.
Pricing Strategy
Halo Illuminations plans on focusing on a premium pricing strategy due
to our product line. Our product line includes large business letter signs and
small address number signs and are offered in a mirrored finish or brushed. In
total our product line offers four different product base options with prices
ranging from $83.00 to $305.00. Figure 8: Unit Prices provides further details
on the pricing for each of our items. Many factors contributed to our product
prices such as our selection of raw materials, precise equipment, and skilled

14

labor.
In addition to the different product sizes and finishes, we also offer a selection
of red, blue, white, and yellow LED lights. Substitutes that could potentially interest
our customers include billboards, digital signs, non-back lit signs, and ordinary
address number signs. Although this is a lengthy list, our products will be chosen
from our selected target market customers not only because of our high quality
inputs, but also because of our unique emphasis on collaboration with the customer
to create the design.
Packaging
We package our stainless steel letters and numbers in average packages
of eight and seven hundred and fifty respectively. We based these numbers off of
our forecasted sales. Our letters and numbers will receive individual care by
being wrapped per unit with bubble wrap then placed into wooden crates to
ensure stability during transit. By shipping these units in larger quantities we
become more efficient with our prices and delivery.
9: Dimensions
of
FigureFigure
9: Dimensions
of Packages
Packages demonstrates the size of our wooden crates that we will need to ship
our business letters and address numbers.
Widt

Lengt

Heig

Business Letters

h
19.0

h
21.0

ht
16.0

Branding

(Packages 8)
Address Numbers

Strategy

30.0

48.0

30.0

(Packages of 750)

Halo Illuminations has the promotional objective to generate brand image.


Our goal is to become the first brand name to come to the minds of building
developers and beginning business owners. Our slogan, Radiate Excellence
will help our customers to recognize our brand. We plan to achieve our
promotional objective and raise awareness through multiple advertising
methods. Further exposure to our product will create a worthy reputation of
high functionality and performance with durability and consistent consumer
satisfaction. We aim to elicit a consumer response from developers and business
owners of exceeding their expectations with every order. Finally, our ultimate
goal is for our consumers to instinctively relate us with the success and joy of

15

their projects and to use us in the future and tell others about our product. Halo
Illuminations brand promise to our customers is providing them with signs that
illuminate their business name or address number with emphasis on a
prestigious, individual design, and consistent high quality in every order.
Distribution Strategy
Halo Illuminations is a push channel strategy because we have sales
representatives who inform startup businesses and building developers about
our product. Our representatives create a direct connection between customers
and our company by communicating directly with customers through a variety of
selling materials. This direct channel is very beneficial in minimalizing conflict of
customer dissatisfaction or errors. The quality assurance section provides
further detail regarding the benefits of immediate and direct feedback.
Promotional Strategy
Promotional tools that will be utilized are as follows: Advertising
(magazine ads in Small Business Opportunities and Fast Company
Magazine), personal selling (sales representatives), public relations
(Facebook, Twitter, company website), and direct marketing
(catalogs/AdWords).
Our sales representatives will be our main form of promotion.
Through face-to-face meetings, our sales representatives will travel to the
varying businesses and cliental (housing developers and new businesses)
providing professional insight, information, and product promotion to those
businesses who are unaware of Halo Illuminations. We plan on sending two
of our three sales representatives to the triangular, geographic region of
Houston, Dallas, and Austin, Texas because of its high market potential
(high volume of new housing developments being built). Sales
representatives will be equipped with a catalog showing all the available
features and their corresponding prices. Sales representatives will also be
traveling to various trade shows specific to our products industry to
promote Halo Illuminations.

16

We chose to have a company-managed sales force because they will


have a better understanding of the product and the production process.
They can be used both onsite at our factory location as well as with
surrounding and distant clients and high market potential areas. This makes
managing these employees easier because they will be on the same
platform as the rest of the employees having had the same exact training
and being in-tune with the company strategy and customs. Their
compensation will be salary based. With being paid $55,000 a year this
should provide plenty of motivation to promote our business. Details on
expansion and raises are detailed in the (Figure 13: Employee Wages and
Benefits).
Next, we will spread awareness of our company through Google
AdWords consisting of LED signs, metal signs, sign manufacturer,
Las Vegas signs, and stainless steel signs. We hope to gain 5% local
market share each year from these Google AdWords. Finally, magazine ads
will be utilized in Small Business Opportunities (full page four color ad
circulating 3 out of the 12 months) and Fast Company Magazine (1/3 page
ad four color in 10 different issues) helping to target Business Boomers.
The second objective is sparking interest for our brand through our
companys value in being environmentally friendly. Halo Illuminations uses
a highly recyclable metal (Stainless Steel 316 Alloy). The International
Stainless Steel Federation States that 90% of the end-of-life stainless steel
is recyclable into new stainless steel without loss of quality. Minimalizing
our environmental footprint is a highly sought out trait by many different
businesses today. The materials we use is the most efficient for the product
we manufacture and such points will be made vivid through social media
(Twitter and Facebook) and on our Website.
Our final objective in our promotional strategy is execute an
exceptional trial purchase to establish a standard of quality that will
encourage repeat buyers and entice new customers. All the above strategies
unify towards durable, environmentally-friendly products. With the

17

combination of an unlimited warranty for all products and top-notch


training for our sales representatives, customer satisfaction is guaranteed.
The catalogs and examples of previous projects the sales representatives
have at their disposal will give credibility to our capability, ensuring
customers we will meet specifications and exceed their expectations.
Quantitative Review of Marketing
Our marketing mix makes up 7.16% of our overall expenses for year 1. This
small percentage shows that since we are a direct model, we are able to
focus are promotional energy very specifically to our target markets. The
sales representatives are the direct
intermediaries allowing Halo

Figure 11:
Organizati
onal Chart

Illuminations to utilize a very


important and powerful marketing
tool with ease while keeping costs
low. This is the key to ensuring true
profitability within our company
where today, marketing departments
are now accounting for up to 60% of
total revenue for a business. We
estimate our marketing mix to be

right around this figure for the same reasoning that are direct model has
the capability to be extremely effective with the small amount of tools
utilized.
Employment Recruitment and Training
According to Figure 11: Organizational Chart, Halo Illuminations will
be employing 13 full time employees at the end of year 2. Our main source
of finding appropriate applicants will be job links such as Monster.com,
LinkedIn, and CareerBuilding.com. Figure 12: Job Description and
Qualifications lists the job obligations we

Figure 12: Job Description and


Qualifications

expect each employee to perform, and the qualifications required to be


considered a candidate to complete these obligations.

18

Figure 13: Employee Wages


and Benefits

Figure 13: Employee Wages and Benefits details the salaries, payroll
deductions, and included benefits package provided to each employee.
Standard benefits include a family-coverage health insurance plan costing
approximately $11,500 towards which employees are expected to contribute
3% of their salary, $250 additional paid life insurance, 3 weeks paid leave
(including 10 days of holidays, vacation, and sick/personal leave), $500
education reimbursement, and a Simple IRA retirement plan (United States
Department of Labor). Employees will also receive a 5% pay increase each
year. We believe these benefits will effectively motivate employees to reach
and develop company goals.
Formal, extensive orientation and training programs will be
mandatory for all new hires and overseen by management executives. Sales
representatives and purchasing agents will be required to learn all phases
of production and distribution of the product in addition to on-the-job
interactive training. Workers directly involved in the manufacturing process
will receive detailed instruction and on-the-job training regarding all
procedures, functions, and programming associated with operating the
equipment. Paid training sessions will be completed in the first two weeks of

19

employment. Employees will also receive a company handbook detailing


manufacturing processes, health and safety procedures, machinery
operations, employee conduct, and company policies.
As sales increase each year of operation, an additional sales
representative will be hired in year 4 to accommodate for increased
customers and demand. In later years as we continue to expand, we will
need to hire more representatives, production workers, and purchase more
machinery to handle the required levels of production. Our labor costs
continuously increase each year due to inflation, cost-of-living, and our 5%
yearly wage increase. This equates to a 4% increase in labor costs on
average each year, except in year four when we add an additional sales
representative, which creates a 13% increase in labor costs.
Operations Strategy
Halo Illuminations is based in Nevada: its status as a tax-haven state
and its central location to all seven states we are initially catering to. The
latter reason allows us a greater response time in regards to customer
orders, thus creating higher satisfaction. This also enables us to create a
closer relationship with our customers and deliver a consistent standard of
quality customer service.
Our business uses a differentiation strategy using quality inputs, such
as high grade stainless steel and reliable, durable LED lights, while
providing an aesthetic that matches customer preferences. We utilize only
American-produced inputs to make our products, emphasizing support for
our economy and strength of exports. All manufacturing is done in-house,
ensuring that quality control can be consistent and that any issues in
operations can be contained on site. Our process consistently maintains
failure and quality inspection points throughout production, ensuring that
each step in the process delivers the standard of quality our company takes
pride in.
The cohesive production structure we have created allows us to
handle varying degrees of production at varying rates and speeds. To

20

accommodate for these variations, we have chosen to invest in multiple


units of all manufacturing equipment. Machine operators and welders work
together as a unit to create an efficient flow of production while ensuring
each product receives the attention and detail required to reach the quality
goals of the project. We selected our facility based on our desire to have all
aspects of our business in one location. This includes our production floor,
warehouse storage, and offices. The goal of this setup is to keep the
movement of our system and production procedures as smooth and
consistent as possible with increased levels of communication to reduce any
discrepancies or internal failures.
Outsourcing
In order to operate more effectively, we will outsource accounting,
transportation and shipping of products and materials, and janitorial
services for general maintenance and upkeep of our manufacturing facility.
Maintenance and repairs for equipment, both routine and non-routine, will
also be outsourced as needed. Our expertise is aimed towards
manufacturing and delivering consistent products and service. By
outsourcing these things, our company can reduce failures by focusing our
efforts and resources towards maintaining these quality and service
standards.
Our accountant will establish a bookkeeping system, record payroll,
and provide end of year tax filing services, financial statements, and budget
reports. We will budget $7500 towards this expense with a 2% increase
each year. Outsourcing product transportation and shipping will keep our
expenses lower by eliminating the cost of buying our own shipping truck.
Expenses for outsourcing janitorial services are expected to be
approximately $23,846.
Inventory
Or final product requires two inputs: stainless steel and LED light
fixtures. For our LEDs, who seleted General Electrics Tetra MAX LEDs,
which have a long 50,000-hour life and features OptiLens, a patented GE

21

technology that maximizes LED performance by capturing otherwise wasted


light and redirecting it towards the illuminated surface as well as requiring
46% fewer modules per letter/number while maintaining light uniformity
(Tetra PowerMAX). General Electric can ship from the same city as our
business, which provides us the advantage of a short lead time and quick
delivery, and allows us greater flexibility to adjust order quantities as
needed.
Metals Depot, a Kentucky steel distributor, will supply our selected
alloy of stainless steel, type 316 alloy, which provides the highest level of
quality and corrosion resistance as opposed to the standard type 304 alloy.
While T304 stainless steel is versatile and serves most applications, it will
tarnish over time. T316 stainless steel contains an added 2% molybdenum
component that provides a much higher degree of resistance to corrosion
and harsh elements (AJ Manufacturing). We order our initial first year order
quantity of steel sheets in bulk (2000 total sheets) to ensure we have the
startup inventory and safety stock we need to handle our initial demand
forecast and any variance. We plan to reorder during the first quarter in
year 4 with an approximate safety stock of 20% of our original order
quantity. Our new order quantity will be 1000 sheets of stainless steel,
which allows us to take advantage of an EOQ with discounts order model in
addition to receiving free shipping.
Capacity
In order to accommodate for varying levels of production depending
on order quantities and the number of ongoing projects, we have chosen to
invest in multiple units of each type of production machinery. This also
allows us to alternate machines and have backups to reduce wear and tear,
and run maintenance tests, repairs, and software updates when necessary
while still continuing production. Having multiple machines also enables us
to operate at full capacity in situations of large quantity orders. Figure 14:
Equipment Capacities shows the necessary production equipment, the
design and/or effective capacities if applicable, and the costs for each

22

machine.
Figure 14: Equipment Capacities

The effective capacity of our water-jet cutters takes into account


approximately 8.3% of
downtime due to the
Figure 15: Metal

requirement of the steel sheets to be loaded one at

a timeSheet
into the
machine. Our Accu-bend metal bending machines bend the
Capacities
returns of our steel faces, and operate at a rate of 12 inches of metal per
second. We have four welding tools to

Figure 16: Water-Jet Required Maintenance.

weld together the letter/number faces


with their respective returns, and four
burnishing tools which buff units
smooth so that virtually no grain is
visible. The approximate yield of
letter/number faces cut from each type
of stainless steel sheet using our water-jet cutters is detailed in Figure 15:
Metal Sheet Capacities.
The water-jet cutting machines will require periodic scheduled
maintenance for various parts to ensure the machines can operate
efficiently without any failures. The useful life, repair time, and cost per
part for each component is shown in Figure 16: Water-Jet Required
Maintenance.
Manufacturing Process
Our business focuses on utilizing a make-to-order strategy that works

23

closely with the customer to ensure a high quality assurance. Halo


Illuminations desires to provide our customer with satisfaction and
confidence in our product. To achieve this, our sales representatives
collaborate closely with the customer before the manufacturing of the order
begins to inform, educate, and design the ideal image for their business or
development. Once the specifications of the project have been decided
upon, customers will pay a 50% down payment and production will begin
immediately once this payment is received. Figure 18: Process Flowchart
Figure 18: Process
Flowchart

details the specific steps, procedures, and failure and quality checkpoints

24

required to complete the manufacturing process up to the point of final


payment, packaging, and shipment of the order.
The attention to detail our manufacturing process requires is an
essential element of our business and operations strategy. We only use
inputs of the highest quality, and each unit is assembled and inspected
individually by skilled production workers. Our production pace is slow;
however, our products are made with care, thus creating the high quality
that we strive for and guarantee. We minimize failures by having multiple
quality inspection points throughout the production process and allowing
the customer to inspect/confirm the quality of the order themselves before
final payment is made to guarantee satisfaction.
Quality Assurance and Recovery Plan
As a business founded in principles of quality, consistency, and
service, Halo Illuminations strives to apply this vision to all aspects of our
business. We accomplish this through providing consistent collaboration
with the customer, utilizing high-quality inputs and materials, implementing
quality checkpoints, and receiving customer approval of the final product
result before shipment.
We take proactive quality measures to reduce internal failures and
maintain consistent production quality. Firstly, sales representatives provide
customers with an exceptional sales experience by collaborating with them
directly using samples, diagrams, and extensive design programs to create
a unique product concept. Each individual product is inspected three times
during production, and final products are tested to ensure that they work
properly and match customer specifications. Our production manager is
present in the facility through the entire process and will make sure that
inspections are being conducted as required. Failure points are also
reduced through preventative measures such as programming design
specifications using an order template, and receiving approval from
supervision at critical points before the next process step is begun.
To decrease external failures and maintain a high level of customer

25

satisfaction, Halo Illuminations reactive quality assurance guarantees an


unlimited warranty to all customers. In the event that failure does occur or
a customer is dissatisfied with their order, we allow the customer to ship
back the faulty products free of charge and will reproduce the specific
product, correcting any flaws or issues presented by the customer. Also,
after a customers final product is shipped, we follow up by contacting them
Figure 19: Sensitivity Analysis
directly to receive their opinions and feedback
on the purchased order. Open-ended comment
review are also available on our website.
Finances
To start up Halo Illuminations, LLC, we will borrow an SBA loan of
$1,650,000 from Wells Fargo, $70,000 from business owners and $500,000
from outside investors. Our investors will see net income increase
dramatically from Year 1 to Year 3, however due to the fact that our
revenues are not increasing as fast as expenses are, we have a decrease in
net income from Year 3 to Year 4 and again in Year 5. Our revenues are
higher than the industry average because our products require higher
product cost and thus demand a higher unit-selling price. Due to the fact
that our initial costs to start up are extremely high, our NPV after 5 years is
$-472,890, our IRR is -28% and MIRR is -11%. We calculated the NPV, IRR,
MIRR and payback period for the best-case scenario, a 10% increase in
revenue and worst-case scenario, a 10% decrease in revenue.

26

Financial Notes
1.

Halo Illuminations is a limited liability company, thus the company will be taxed at the owners tax level.

2.

Long-Term Debt: A loan for $1,630,000 for a 16 year loan and 6% interest rate.

3.

Sales Revenues and Cost of Goods Sold: Halo Illuminations offers four different products for consumers.
Sales price per Small Mirror Polish Character is $81. Cost of Goods Sold are the direct labor which is $5.69
per hour worked and direct materials which is $18.84 per unit produced. Sales price per Small Brushed Polish
Character is $79. Cost of Goods Sold are the direct labor, $5.74 per hour worked and direct materials which is
$16.47 per unit produced. The sales price per business mirror polished character is $289. COGS include a
direct labor cost of $7.10 per hour worked and a direct materials cost of $171.03 per unit produced. The sales
price of a business brushed character is $242 and the COGS includes direct labor cost of $7.14 per hour
worked and direct material cost of $137.71 per unit produced. In the first year we expect to sell 19,996 units
with a split of 1,748 mirror polished business characters, 1748 brush polished business characters, 8250
mirror polished house characters and 8250 brush polished house characters (BizMiner, 2014). In the next five
year the letter sign industry will grow at annual industry growth rates of 4.4% from 2015 to 2016, 1.6% from
2016-2017, 1.8% from 2017-2018 and 2.8% from 2018-2019 (IBISWorld, 2014).

27

4.

Selling General & Administrative Expenses: Rent for our office portion of the property is $21,757
annually (Loopnet, 2014). Our computers bought in the first year cost $1740 along with the desks which costs
$300, office supplies cost $200 every year and our start up LLC fees are $425.

5.

Salaries Wages & Benefits: See the Employee Wages and Benefits table. In addition to this employee wages
are increasing 5% every year (Bureau of Labor Statistics, 2014).

6.

Depreciation: Straight line depreciation, Depreciation for equipment, Waterjet cutting machines costs
$140,000, salvage value of $28,000 and an average useful life of 10 years, (140,000-28,000)/10= $11,200 per
machine (2 machines) (Williams, 2014). Bending machine costs $39,800, average salvage value of $2,000,
useful life of 12 years, (39,800-2000)/12= $3150 per machine (2 machines) (Computerized Cutters, 2011).
Welders cost $358, salvage value of $50 and useful life of 5, (358-50)/5= $61.60 per year (4 machines) (Villa,
2014). Burnishing machine cost $710, salvage value of $50 and a useful life of 6 years, (710-50)/6= $110 per
machine, (4 machines) (Metabo, 2013). Computers cost, $250, Salvage value $30 and useful life of 5 years,
(250-30)/5= $44 per machine (2 machines) (Dell Customer Service, 2014). Gloves and masks cost $137, with
a salvage value of $10 and useful life of 7 years, (137-10)/7 = $18.1 (4 of each). Air compressors cost $800

28

with a salvage value of $75, with a useful life of 8 years, (800-75)/8=$90.6 there are two of these. Office
equipment depreciates at a rate of 835 per year.
7.

Rent Expense: 40,896 SF at $0.39/SF/Month, annual expense = $160,332, ($0.39/SF/Month*40,896 SF*12


months) (Loopnet, 2014).

8.

Office Supplies Expense: Includes miscellaneous items such as paper, pens, printer ink, etc. It will increase
2% each year because of inflation and growth of company.

9.

Utilities Expense: 2% is an average utilities expense for companies (IBISWorld, 2014). Increase by 2% each
year b/c of expansion/inflation.

10. Interest Expense: The bank loan we have is $1,630,000 with an interest expense of 6% ($1,630,000*0.06) =
$98,700. Pay off $101, 875of the loan each year. Year 2 ($1,528,125*.06) = $91,800. Same for years 3-5.
11. Taxes: See corporate income tax rate schedule and apply the taxes to Earnings Before Taxes (EBT).
12. Dividends: 50% Net income is paid out to shareholders in order to keep our cash levels lower.
13. Accounts Receivable: On average it takes 5 days to collect on account, therefore the revenue from the last 5
days at the end of the year will not be collected until the following year.
14. Inventory: Using the FIFO method to keep record of inventory in stock
15. Production Equipment: Includes 2 Water Jet cutting machines($280,000), 2 air compressors($1,600), 2
bending machines($79,600), 4 burnishing tools($2,840), 4 welders($1,432), 8 tables($3,416), 8 pairs of
gloves($768), 8 masks($328), and 3 manufacturing computers($750).
16. Wages & Salaries Payable: Pay employees every two weeks, with this we have 2 accrued weeks in
December, leaving $32,368 left to owe (2/52)*841,566= $32,368
17. Accounts Payable: Purchase $1,755,522 of materials on account, pay for 11/12 months, have a remaining
balance of $146,294, paid off yearly
18. Taxes Payable: Taxes Owed
19. Current Maturities of Long Term Debt: Principal payment of the loan, $1,600,000 over 16 years =
$100,000 per year.
20. Investors Contribution Stock: $500,000 is contributed by investors
21. Owners Contribution Stock: $70,000 is contributed in total by owners, $10,0000 per owner
22. Insurance Expense: According to BizMiner (2013), the non-health insurance expense was 0.8% of the
revenues, and each year the average inflation rate grows by 2%. Year 1: $9571, (.8%*$1,181,566) = $9571,
Year 2: $19,984, (1.7%*$2,467,110), Year 3: $20,303, (1.7%*$2,506,584) = $20,303, Year 4: $20,669,
(1.7%*$2,551,702) = $20,669, Year 5: $21,248, (1.7%*$2,623,150) = $21,248.
23. Audit Service Expense: According to BizMiner (June 2014) the average audit cost in Las Vegas, Nevada is
0.6% of revenues, Year 1: $7500, (0.6%*$1,181566) = $7500, Year 2: $7,650, (0.6%*$2,467,110) = $7,650,
Year 3: $7,803, (0.7%*$2,506,584) = $7,803, Year 4: $7,959, (0.7%*$2,551,702) = $7,959, Year 5: $8,118,
(0.7%*$2,623,150) = $8,118.
24. Internet & Phone Expense: Got quote from Megalink representative, increasing by 2% each year because
of inflation.
25. General Note: Our net income drops in years 4 and 5 because our expenses our growing faster than our
revenues at that point. This will change in the coming years however, because we will gain more market
share and our revenues will increase at a rate faster than our expenses.

29

26. Marketing Expense: Reference table 10. The sales representatives salaries are not included because they
are already included in salaries expense
27. Credit Card Expense: Take 2% of accounts receivable from each year. For year 1, 740,113*.02=14,803.
Same process each year.

Conclusion
Halo Illuminations intends to be a formidable entrant into the sign industry in
the Southwest. Our signs are made of high quality ordering exclusively from
American suppliers including T315 stainless steel.
Regardless of what product customers choose, our products will always exceed
average signs. We follow a premium pricing strategy and utilize recyclable or
environmentally friendly inputs in order to deliver on our commitment to our
triple bottom line. We at Halo Illuminations ask that you help us light up Las
Vegas and the rest of the American Southwest
Figure 2:
with the finest LED signs and letters, and to
Perceptual Maps
always remember to live by our slogan: Radiate
excellence.
Figure 6: Forecasted Sales Revenue

Figure 5: Figure
Five-Year
Forecasted
10: Expenses
of Marketing Actions
Sales Revenue
Figure 5: Five Year Sales

Figure 7:
Breakeven

Figure 8: Unit Prices

30

Figure 6: Forecasted Monthly Sales

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