Queensland University of Technology QUT Business School School of Accountancy AYB 339 Accountancy Capstone Business Plan Semester 2, 2021 Legal (and Trading) Name: Toy Warehouse Pty Ltd ABN: Your group to apply for ACN: Your group to apply for TFN: Your group to apply for PAYG Withholding: Your group to apply for Prepared for: Christie Allen and Grace Knight Business Address: Registered Office: 11 Elland Road c/- Group Name Carindale, QLD, 4152 Level 3, 339 River Parade Phone: (07) 3398 1714 Brisbane, Qld, 4000. Facsimile: (07) 3398 1715 Phone: (07) 3399 3399 Postal Address: as above E-mail address: [email protected] 1.0 Executive Summary Toy Warehouse Pty Ltd is a new toy, book and gaming retail store that will operate in the Brisbane suburb of Carindale. Carindale is an affluent east-Brisbane suburb. The suburb’s position and thriving retail sector has promoted a recent surge in population and supported new residential developments. Carindale residents enjoy extensive community facilities including Westfield Carindale shopping centre and a bus interchange. The area also contains a cinema complex, restaurants, street cafes as well as various sporting facilities including Carina Leagues Club and the Pacific Golf Club. Carindale is located only nine kilometres south-east from the centre of Brisbane city. This region covers the suburbs of Carina, Carina Heights, Camp Hill, Cannon Hill, Mt Gravatt East, Mansfield, Carindale, Belmont, Chandler, Gumdale, Wakerly and Tingalpa. Of importance to this new business is the rapidly growing percentage of young families and professionals moving to the area. The store will stock products aimed at two primary target groups: children under the age of 10 and people (such as young professionals) who enjoy interactive gaming entertainment. Gaming has become increasingly popular in recent years through Nintendo Wii and 3DS; Xbox One and 360; and PlayStation 4, and the business intends to capitalise on this popularity. There are already some existing toy stores and book stores in the region, but none of which stock the range of planned products. Given the intended differentiation of their store and the increasing population growth, the owners of this business would like to capitalise on their experience and consider the opening of their store in the area could prove to be quite lucrative and profitable. The Vision and Mission Statements of Toy Warehouse Pty Ltd are as follows: Vision: To be the first choice toy, book and gaming store by customers in the Carindale region by offering a great range of safe products, easy to shop environment and excellent customer service. Mission: To deliver an excellent shopping experience for customers. Professional market researchers are currently undertaking a full marketing plan. The preliminary information is as follows: Commencement date of the business will be 1 August 2020.The company is expecting a net profit of approximately $45,863 after the first 11 months of trading (ie. by 30 June 2021). The company aims to make a pre-tax net profit of approximately $85,877 by 30 June 2022 and $102,088 in 2023. 2.0 Business Profile 2.1 The Business Concept The business concept is to open a toy, gaming and book retail store that will operate in Carindale. It will also offer additional services such as organising and hosting children’s parties and running themed events for children. The business opportunity is to take advantage of growth of young families and professionals in the area. 2.2 Market Analysis and Outlook Carindale is a family-friendly suburb, surrounded by numerous shops, restaurants and retail stores including Carindale Shopping Centre. Carindale is located approximately nine kilometres east from the centre of Brisbane City. The most recent set of ABS statistics providing a snapshot of people living in Carindale (postcode of 4152) published in 2016 can be downloaded at: https://quickstats.censusdata.abs.gov.au/census_services/getproduct/census/2016/quickstat/303011051?opendocument In the 2016 Australian Census, a total of 15,740 people lived in Carindale. The average person was 42 years of age (5 years below the Australian average of 37), and they had an average weekly gross income of $773 per week. The median weekly household income is $2,124, compared to the Queensland average of $1,402. In general, people in Carindale work in a professional occupation (30.0%), followed by clerical & administrative workers (16.0%), managers (15.8%) and sales workers (11%). The average family in Carindale consists of 1.9 people, with 52.8% of couples having children, compared to the Queensland average of 42.5%. In terms of employment, 57.9% of people in Carindale were in full-time employment. Of all occupied private dwellings, 82.6% were either owned outright or owned with a mortgage and 14.9% were being rented (compared to the Queensland averages of 62.2% and 34.2% respectively. According to https://www.realestate.com.au/neighbourhoods/carindale-4152-qld, the average house price in Carindale in June 2021 is $991,000 and the average unit price is $520,000. When it comes to renting, the Carindale, the median house rental price per week is $645 which makes renting more expensive than Queensland’s average of $425. In the case of units, the Carindale median unit rental price per week is $480 which makes renting more expensive than Queensland’s average of $395. Figure 1: Map of Carindale 2.3 Primary Target Markets The toy store will specialise in two primary target groups: toys and books for children under the age of 12; and gaming products for people who enjoy interactive gaming entertainment using Nintendo Wii and 3DS; Xbox One and 360; and PlayStation 4. 2.4 Competition There is one major competitor in Brisbane which is Mr Toys Toyworld, which has a store opposite Carindale Shopping Centre. Some competition also exists from the major department stores including David Jones, Myer, Target and K-Mart. There are other small local competitors including Kidstuff and Games World, which are both located within Carindale Shopping Centre. 2.5 Statistics Relating to the Toy Industry in Australia Given the product and service focus of the store and the demographics of the area, it is considered that opening up this toy, book and gaming store could prove to be quite lucrative and profitable. IBISWorld (March 2021) reported the following statistics involving the Australian toy and game retailing industry: Industry revenue declined at an annualised 4.0% over the five years through 2020-21, to $850.8 million. The exit of Toys “R” Us from the industry significantly skewed the industry’s performance over the past five years.The average profit margin of the industry over the five years through 2020-21 was 2.9%. Due to increased competition, the profit margins have been declining by an annualised 1.6% over the past five years.The number of toy retailers in Australia was 1,299 at 30 March 2021;These businesses employ around 5,932 people around Australia;The industry is characterised by low market share concentration, with the top four players accounting for less than 40% of industry revenue in 2020-21. More than half of all enterprises in 2020-21 are small-sized, non-employing operators. IBISWorld provides the following key statistics snapshot of the toy industry: 2.5.1 Major Players in the Toy Industry The Toy and Game Retailing industry is largely fragmented in nature. Following the demise of Toys “R” Us (Australia), the industry comprises only one major player. The remaining industry players are small-sized businesses that primarily operate a single shop-front and service the needs of their local community. These retailers operate in direct competition with the industry’s major companies, and external players such as department stores and online-only players. Associated Retailers Limited (18.2%) is a retail group that owns several trading brands including Toyworld, Shoex, SportsPower, Sportscene, Mensland, Compleat Angler and Camping World. The company operates in the industry through its Toyworld brand. Toyworld is a specialist toy retailer with about 120 stores in Australia and 25 stores in New Zealand as at February 2021. Toyworld stores are locally owned and operated and sell a range of products such as action figures, dolls, puzzles, bikes, educational and S.T.E.M products and outdoor toys. The company also operates an online site that offers a range of products available in-store. Associated Retailers Limited’s industry-related revenue from Toyworld is expected to decline at an annualised 5.9% over the five years through 2025-26, to $155.0 million. This represents an underperformance of the overall industry over the same period. Revenue has declined due to falling store numbers, volatile consumer sentiment and declining discretionary incomes over the past five years. Furthermore, rising competition across the industry has reduced company profitability over the period. Toys “R” Us (Australia) Pty Ltd exited the industry in 2018. The company operated as a toy retailer with 44 stores across Australia. The company was owned by US-based Toys “R” Us Holdings Inc. and was administered from its head office in Regents Park, Sydney. In September 2017, the company’s US-based parent company sought bankruptcy protection. The protection was to address the company’s significant debt burden and to better position the company against competition from online retailers and discounters. At the time, management noted that Toys “R” Us stores in Australia would continue to operate as normal during the bankruptcy protection. In May 2018, Toys “R” Us (Australia) entered voluntary administration, with administrators seeking a buyer for the company. However, by June 2018, administrators announced that Toys “R” Us (Australia) would be wound up and stores closed, affecting 700 people. All stores were subsequently closed by early August 2018. Kidstuff (4.0%) operates as an upmarket toy and game retailer. Its product range includes unique toy brands across several categories such as art and craft, construction, doll houses, figures, playsets, educational toys, games, puzzles and wooden toys. Established in 1969, Kidstuff launched its first store in Paddington, Sydney, with store numbers growing slowly over the next few decades. Amid the COVID-19 outbreak, Kidstuff announced in late March 2020 the temporary closure of its 58 store network. Despite the store closures, the company continued to operate its online site. In mid-April 2020, the company reopened its stores with modified hours and preventative measures in place, including limits on customer numbers in stores and enhanced cleaning procedures. University Co-operative Bookshop Limited (6.8%) operates in this industry through its Australian Geographic business. Australian Geographic retails science and nature-themed toy and game products through 65 stores nationwide. Its product range includes construction and craft kits, puzzles, books and gadgets. Stores also stock other items not included as part of the industry, like globes, binoculars, telescopes, drones and souvenirs. In addition to its store network, Australian Geographic operates an online site, which stocks over 1,200 products. However, in 2019, the company exited the industry. The company filed for voluntary administration in November 2019, with debts of $15 million. Despite attempts to find a buyer, University Co-operative Bookshop announced in January 2020 that its 63 Curious Planet businesses across Australia would be wound up and closed. 2.6 Markets and Products Products sold by the Toy and Game Retailing industry can be broadly segmented into traditional toys and games, electronic toys and games, and hobby equipment and supplies. Each segment’s share of industry revenue has changed over the past five years due to the popularity of electronic products. Despite increasing demand for interactive toys, traditional goods have continued to dominate the market. Traditional toys and games (53%) – the traditional toy and games segment comprises dolls, trucks, puzzles and board games. Despite dominating the industry over the past five years, this segment has declined as a share of industry revenue over the period. Demand for traditional toys and games has been largely hindered by the continued popularity of electronic and interactive products, which improve the appeal of educational toys by making them more tech-savvy. Electronic toys and games (45%) – the electronic toys segment comprises a range of products including miniature remote-controlled vehicles and other interactive products. These toys are typically technologically enhanced versions of traditional toys. Electronic toys and games have increased as a share of industry revenue over the past five years due to advances in product design and technology. Hobby Equipment and supplies (2%) – this is the smallest industry segment, and includes model cars, boats and planes. The hobby toys segment has changed only slightly as a share of industry revenue over the past five years. Figure 2: Breakdown of Products and Services in 2021 2.7 Markets Segmentation Consumers are regarded as the largest market for industry operators. Spending on toy and game products is driven by several factors including the number of children in each family unit, the need to purchase toys and games as gifts for extended family and friends and trends in real household discretionary income. The major markets for the industry can be segmented in terms of expenditure on toys and games by each household income quintile. 2.8 Industry Outlook Toy and game retailers have faced tough trading conditions over the past five years. Intense competition from external players, particularly department stores and online-only retailers, has forced industry operators to cut into profit margins to remain competitive. As a result, industry profit has declined over the period. While solid demand for electronic and interactive toys has provided revenue opportunities for operators, intense internal and external competition has limited industry revenue. The tough trading environment has significantly increased price competition in the industry, putting downward pressure on profit margins over the period. The exit of Toys “R” Us from the industry has also significantly skewed the industry’s performance over the past five years. The retail market for toy and game products has been volatile over the past five years. Instability in global markets and uncertainty in the domestic economy have weakened the retail market. Declining discretionary incomes and volatile consumer sentiment have reduced the spending power of consumers over the period. Industry operators have also faced mounting pressure from online retailers, auction websites and department stores, as they typically offer lower prices and a wider product range. Industry revenue is expected to increase by 3.3% in the current year. The COVID-19 outbreak is anticipated to continue fuelling demand for toy and game products to keep active and busy during the pandemic. However, logistical delays and reduced manufacturing activity in China will likely hinder industry revenue growth in the current year. Industry revenue is projected to grow at an annualised 1.5% over the five years through 2025-26, to $917.5 million. Retail trading conditions are forecast to improve over the period, helping industry operators. Anticipated growth in discretionary income, an increase in the proportion of Australians aged 14 and younger, and a return to positive consumer sentiment are anticipated to further support the industry. Consumer demand for the latest tech toys and the growing popularity of STEM toys will also likely support industry revenue growth. However, rising competition from external players is forecast to limit retail spending on toys and games. Industry retailers are anticipated to respond by diversifying their operations, reviewing their product ranges, focusing on niche markets and emphasising customer service over the next five years. 2.9 Key Success Factors IBISWorld identifies 250 key success factors for a business. The six most important for this industry are: (a) Proximity to key markets Operators benefit from being located in high traffic areas in regions with a large enough market for industry products to support a toy store. (b) Having a wide and expanding product range Operators that offer an extensive range of products can meet the needs of a broad selection of shoppers. (c) Ability to control stock on hand Operators require sufficient stock on hand to meet consumer demand. This is particularly important in the lead-up to key selling periods such as Christmas. (d) Production of goods currently favoured by the market Retailers must stock products that meet current consumer preferences. Products need to be competitively priced and perceived as being good value for money. (e) Having a good technical knowledge of the product Industry sales staff should have retail experience and be able to assist customers with their purchases. (f) Attractive product presentation Product displays in industry stores should be attractive and entice consumers to browse in-store. 2.10 Barriers to Entry The industry has medium barriers to entry and the trend is steady. Industry competition is medium, which may deter new players from entering the industry. Operators compete based on price and product range, with items significantly discounted during key selling periods and demand for products increasing in the lead-up to Christmas. Prospective operators also face competition from external players such as department stores, which sell toy and game products and seek a share of the market. New entrants may also be hindered by the industry’s mature life cycle. Its well-defined product market and established operator base may make it difficult for new players to establish themselves and build a rapport with consumers. However, barriers will be weaker for players seeking to trade as specialist operators due to their niche product range and specialisation. The industry exhibits low capital intensity, with daily operations being manual in nature. Outside of the initial capital investment required to purchase or establish a new business, other capital costs include expenditure on fixtures and fittings and computerised point of sale (POS) systems, all of which may be depreciated over their useful life. The low rate of industry technological change may also entice new players into the market. 2.11 Vision, Mission and Values The Vision and Mission Statements of Toy Warehouse Pty Ltd are: Vision: To be the first choice toy, book and gaming store by customers in the Carindale region by offering a great range of safe products, easy to shop environment and excellent customer service. Mission: To deliver an excellent shopping experience for customers. Values: The values of the business are as follows: To treat customers as guestsTo deliver affordable, safe, high quality merchandise To create an easy to shop, interactive and impactful store environmentProvide helpful, friendly and knowledgeable customer service 2.12 SWOT Analysis STRENGTHS Christie and Grace have both worked in the toy industry for many years and boast considerable experience having worked in both managerial and retail positions for a number of toy stores (both large and small) in Australia and abroadKey supplier contacts$360,000 available cashFinancial backer, a professional colleague of theirs, Jon English, has agreed to lend them $240,000 for 5 years at an agreed fixed interest rate of 5% per annum. In addition, Jon will take a 10% interest in the companyIndustry expertise, drive, motivation and business acumen necessary to implement their business idea WEAKNESSES $360,000 is not enough to start this business. An additional $240,000 needs to be borrowed from an “outside” party.High start-up costsNo existing clients OPPORTUNITIES Limited competition, especially considering the intended products and services available at the storeThe store will be in the heart of a growing regionGreat location (on the main road)Target market is suited to the business THREATS Highly seasonal business with peak demand leading to Christmas Advising clients on toy selection is a “personal” business – it will take time for clients to refer other clientsCompetition and change in demands by childrenThe other toy stores may cut their prices or increase their range of products 3.0 Marketing Plan 3.1 Estimated Market Share and Sales The toy store will have walk-in trade, local trade and business trade including daycare centres and preschools. After twelve months of operation, it is anticipated that the business will capture at least half of the possible total market in sales of toys, books and gaming products in Carindale. It is planned that the website will be further developed from an initial information only site in Year 1 to incorporate a ‘shopping cart’ to allow internet sales in Year 2. 3.2 Marketing Strategy Professional market researchers are currently undertaking a full marketing plan. The major components of the marketing strategy are as follows: (a) Products and Services The following products will be offered to customers: Toys for children under 12 years of ageBooks for children under 12 years of ageInteractive gaming products The following services will be provided to customers: Children’s partiesGift WrappingThemed Events and Book ReadingPersonalised toy and book selection service Within the store, there will be areas for children’s interactive play with regularly changing displays of brand name toys. Suppliers are prepared to provide samples free of charge for these ‘play pits’. The aim is to actively engage the children to encourage purchase of additional items. There will also be a book and craft corner established for reading and craft activities to promote these products also. (b) Price The prices for all the above products will be competitively priced and stocked or readily sourced. Children’s parties will be set at package rates to attract new customers and vary depending on numbers, food and beverage options chosen and toy bags selected as gifts and prizes. Gift wrapping will be offered as an optional charged service, varying upon the number and size of the item/s. Charges will also be made for special themed events and book reading. A personalised toy and book selection service will be offered to attract time-poor families. These clients will be able to provide the age and interests of their children and for a fee, a personalised list will be developed, incorporating the latest releases and award-winning toys and books. This service will be charged at an hourly rate of $60 per hour and can also incorporate delivery to a home or business address. The store will offer customers the ability to pay with cash, EFTPOS, credit card (including AMEX) and will extend credit to selected customers after appropriate credit checks have been completed. The company’s terms of payment are strictly nett 14 days. (c) Promotion Being a new store, Christie and Grace intend to embark on extensive advertising. This will occur through the development of a company website, extensive online advertising, local radio advertising and local mail box drops to Carindale residents, schools, pre-schools and daycares. A large neon sign will be purchased and placed outside the toy store and advertisements (and discount vouchers) will be given to local store owners and nearby shops and restaurants. An opening party is planned the night before the opening of the store with invitations being sent to local store owners, suppliers and residents and their children. Lucky door prizes will be also be handed out. (d) Place The store will be located at: 11 Elland Road Carindale, QLD, 4152. Phone: (07) 3398 1714 Facsimile: (07) 3398 1715 E-mail address: [email protected] The fit-out requirements and plant and equipment needed are outlined in Section 6.2 and Section 6.3 respectively in this business plan. The toy store will be open 7 days a week. 4.0 Operational Plan 4.1 Measures of Success The anticipated commencement date of the business will be 1 August 2020. The company is expecting to derive a pre-tax net profit of approximately $45,863 after the first 11 months of trading (ie. by 30 June 2021). This is after paying a Director’s salary of $60,000 to the two directors. Secondly, the company aims to make a pre-tax net profit of approximately $85,877 by 30 June 2022 after paying a Director’s salary of $80,000 to the two directors. Finally, the company aims to make a pre-tax net profit of approximately $102,088 by 30 June 2023 after paying a Director’s salary of $100,000 to the two Directors. Note: The abovementioned projected profits are based on pre-tax earnings and take into account estimated depreciation on plant and equipment at prescribed ATO depreciation rates in Taxation Ruling TR 2020/3. 4.2 Financial Ratios The following financial ratios will be carefully monitored during the year and formally reported upon at the end of each financial year: ** based on the interest component in respect of the shareholders loans. 4.3 Balanced Scorecard Financial: Customer: Processes: Learning & Growth: 5.0 Human Resources Plan 5.1 The Team Christie and Grace have worked in the toy industry for many years and boast considerable experience having worked in both managerial and retail positions for a number of toy stores (both large and small) in Australia and abroad. Christie and Grace will be the two active shareholders of the company. Both have been appointed Directors. Jon, the third shareholder and financial backer, has no plans to actively involve himself in the business. The company consists of two divisions: Retail store which stocks toys, books and gaming products.Other services where several charged services will be offered including children’s parties, themed events, gift wrapping and a personalised toy and book selection service) An organisation chart is diagrammatically presented below: + = Extra retail staff members in the retail store will be employed on a full-time and casual basis. Casual staff will also be employed in the other services division as required. A total of five staff (including the two directors) will be therefore be employed by the business. 5.2 Salaries and PAYG Withholding Tax It is estimated that the two directors will be paid gross salaries totalling $60,000 for the 11 months from 1 August 2020 to 30 June 2021. Christie and Grace will receive a salary of $30,000 each during this period. From 1 July 2021, their salaries will increase to $40,000 each per annum ($80,000 in total salaries) and $50,000 each per annum from 1 July 2022. For the 11 months from 1 August 2020 to 30 June 2021, the full-time retail assistant will be paid a salary of $42,000. The two casual staff will be paid wages of $20,000 per annum each (total of $40,000). Hence, total estimated wages to be paid in the 2021 financial year comes to $142,000. Estimated PAYG withholding tax to be deducted from gross salaries and wages paid to the five employees in 2021 is estimated to be approximately $28,200. The company will use single touch payroll (STP) to electronically report pay information to their employees and the Australian Taxation Office (ATO) each pay period. At year-end, all pay information relating to the 2021 income year will be electronically reconciled and submitted to the ATO via STP reporting. 5.3 Key Responsibilities Christie will take on the role of general manager for the retail store while Grace will focus on promotions, inventory purchasing and other services offered by the business. The retail assistants will be primarily responsible for assisting the customer with choosing appropriate toys, books and gaming products as well as stocking the shelves and display cabinets. They will also take bookings for children’s parties and themed events. Christie and Grace also intend hiring a casual bookkeeper one day per week to attend to the appropriate bookkeeping functions and to lodge the company’s quarterly Business Activity Statements (BAS) with the ATO. The bookkeeper will also liaise with the company’s external accountant. 5.4 Legal Structure and Ownership Toy Warehouse Pty Ltd will be incorporated as an Australian proprietary company. Christie Allen and Grace Knight will be appointed as the two Directors of the company. Christie will be appointed as the company secretary (for ASIC purposes) and the public officer (for ATO purposes). Christie and Grace will each hold 45% of the issued share capital of the company. The remaining 10% of the issued share capital of the company will be held by Jon English, a previous business associate of Christie and Grace, who will act as the primary financial backer. Jon seeks no active role in the business and will not be appointed as a Director of the company. Only ordinary shares will be issued (no preference shares or “A” class or “B” class shares etc). All shares issued in the company will be fully paid and all beneficially owned by each person. Christie will sign all relevant forms on behalf of the company. The company will adopt the replaceable rules contained in the Corporations Act (2001). Within the next few months, it is anticipated that the company will create a website, being http://www.toywarehouse.com.au. The company will be required to register for the GST as its annual turnover is expected to exceed $75,000 per annum. The company intends using the cash attribution basis for the GST and adopting quarterly GST tax periods. The company will not be importing any products directly into Australia. Instead, they will acquire toys, games and books from Australian wholesalers and distributors. Information pertaining to the two directors and shareholders is as follows: Christie Jessica Allen: Born: 11 August 1982 Place of Birth: Sydney, NSW. Residential Address: 9 McDermott Parade Camp Hill, QLD, 4152. Phone/Facsimile: (07) 3378 1813 Email: [email protected] TFN: 489 117 230 Grace Louise Knight: Born: 9 March 1980 Place of Birth: Brisbane, QLD. Residential Address: 11 Lancaster Avenue Indooroopilly, QLD, 4068. Phone/Facsimile: (07) 3398 0556 Email: [email protected] TFN: 490 770 421 Jon Mark English: Born: 10 January 1977 Place of Birth: Brisbane, QLD. Residential Address: 282 Rode Road Chermside, QLD, 4032. Phone/Facsimile: (07) 3348 0786 Email: [email protected] TFN: 470 188 226 Note: Once the company is incorporated, it will open up a bank account with The Bank of Australia. At this point, it will provide its bank account details (including the BSB and account number) to the Australian Taxation Office. 5.0 Financial Plan 5.1 Financial Forecasts and Analysis Christie and Grace will invest $180,000 each of their own money to set up Toy Warehouse Pty Ltd (total of $360,000). The estimated costs to fit out the store in Carindale, acquire plant and equipment, purchase the necessary stock and maintain an appropriate level of cash in their bank account is in the vicinity of $600,000. Instead of borrowing the remaining $240,000 from a financial institution, a professional colleague of theirs, Jon English, has agreed to lend them the necessary $240,000 for 5 years at an agreed fixed interest rate of 5% per annum. The set-up costs and the operating budget for the first three years are shown in Items 6.2 and 6.3 below. All amounts shown in Table 6.3 are GST-exclusive, as Toy Warehouse Pty Ltd is registered for the GST. 6.2 Set-up Costs GST ExclusiveGSTGST InclusiveOpening party (31 July 2020)2,0002002,200Lucky door prizes50050550 Total:$2,500$250$2,750 GST ExclusiveGSTGST InclusiveFit-out (see next page for detailed breakdown)$100,000$10,000$110,000 GST ExclusiveGSTGST InclusiveCash registers$8,000$800$8,800Computer equipment (including printer)$14,000$1,400$15,400Plant and equipment$26,000$2,600$28,600Furniture & fittings (shelving etc)$20,000$2,000$22,000MYOB AccountRight and other retail-based computer software$12,000$1,200$13,200Total Assets (Tangible & Intangible)$80,000$8,000$88,000 GST ExclusiveGSTGST InclusiveInventory$180,000$18,000$198,000 The total cost to set up the business comes to $398,750 (GST-inclusive). The remaining $201,250 cash will be kept in the bank account to meet operating expenses (such as advertising, insurance, rent, salaries and wages etc). Location: The company will sign a three-year lease to rent commercial premises at 11 Elland Road, Carindale for $5,000 per month (GST-exclusive) with a 2% annual increase to take effect on 1 August each year. There is an option in the lease agreement to renew the lease for an additional three years. Fit-Out: The premises require the following fit-out: Floor coverings;Ducted air-conditioning; andLighting and shelving. The total estimated cost of the fit-out is $110,000 (GST-inclusive). Based on preliminary discussions with the landlord, it might be possible that the landlord will provide Christie and Grace with a lease incentive to move into the premises. Details of the lease incentive are not known at this stage, however, it may take the form of a cash payment, a rent-free period or even contributing to the cost of the fit-out. Equipment: As detailed above, the total estimated cost of acquiring all of the items of plant and equipment described above is $88,000 (GST-inclusive). Opening Party: An opening party is planned the night before the official opening of the store with invitations being sent to local store owners and selected members of the public and key suppliers. Once the business is established, it is expected that a significant amount of new customers will be generated from word-of-mouth referrals and walk-ins. The opening party is planned for the evening of 31 July 2020. The store is scheduled to open to the public on 1 August 2020. The estimated cost of the opening party and lucky door prizes is estimated to be approximately $2,750 (GST-inclusive). Inventory: Stock includes toys, books and gaming products. It is estimated that approximately $198,000 (GST-inclusive) worth of stock will need to be acquired. The company will adopt the perpetual inventory management system. Stock will be electronically tagged when bought and sold and will be managed by a retail industry-based computer program. An annual stocktake will be conducted at 30 June each year. Stock will be valued using the weighted average cost inventory valuation method. The perpetual inventory system will also be managed by MYOB AccountRight. Figure 3: Financial Benchmarks – All Industries v Toy Industry taken from IBISWorld (March 2021) Key Statistics and Financial Ratios for the Toy Industry taken from IBISWorld (March 2021) 6.3 Operating Budget (all figures shown below are GST-exclusive) Year 1 *Year 2Year 3Toy Sales580,000719,200819,888Less Cost of Goods Sold327,874396,728444,335Gross Profit252,126322,472375,553Gaming Sales112,600129,490139,849Less Cost of Goods Sold69,53179,26584,813Gross Profit43,07050,22555,036Book Sales26,80029,48031,249Less Cost of Goods Sold13,73215,10616,012Gross Profit13,06814,37415,237Other Revenue Children’s Parties18,00023,40025,740Gift Wrapping1,0001,2001,440Themed Events & Book Reading35,00042,35044,891Personalised Toy & Book Selection Service4,5006,3006,489Total Other Revenue58,50073,25078,560Total Revenue 777,900 951,420 1,069,546Less Total Cost of Goods Sold 411,137 491,098 545,160Gross Profit 366,763 460,322 524,386 Less: Operating Expenses Accountancy and bookkeeping fees4,2005,0405,443Advertising15,00017,25018,113Bank fees1,2001,3801,449Computer expenses5,6006,7207,392Credit card fees1,8002,0702,174Depreciation expense **18,00023,40028,080Electricity8,2009,84010,824Entertainment (Christmas party)600700800Insurance7,2007,8008,000Interest expense (5%)11,01012,11110,294Legal Expenses (including establishment costs)3,5001,0002,000Opening party & lucky door prizes2,50000Packaging and wrapping6,4007,4247,721Printing, stationery and postage3,2003,5203,661Rent ($5,000 x 11 months) 2% increase p.a.55,00056,10057,222Repairs and maintenance1,8002,6004,000Salaries and wages – Directors60,00080,000100,000Salaries and wages – Other staff82,00094,000106,000Staff amenities (tea, coffee, biscuits etc) 9001,0001,200Superannuation @ 9.5%13,49016,53019,570Telephone and internet charges3,3003,9604,356Other costs16,00022,00024,000Total Operating Expenses320,900374,445422,298 Estimated Net Profit Before Income Tax $45,863 $85,877 $102,088 * Year 1 is only for the 11 months from 1 August 2020 to 30 June 2021. ** Depreciation is normally not included in an operating budget, but has been included in the above budget for the purposes of completeness. Examples of Toys, Games and Books to be Sold Queensland University of Technology QUT Business School School of Accountancy AYB 339 Accountancy Capstone Business Plan Semester 2, 2021 Legal (and Trading) Name: Toy Warehouse Pty Ltd ABN: Your group to apply for ACN: Your group to apply for TFN: Your group to apply for PAYG Withholding: Your group to apply for Prepared for: Christie Allen and Grace Knight Business Address: Registered Office: 11 Elland Road c/- Group Name Carindale, QLD, 4152 Level 3, 339 River Parade Phone: (07) 3398 1714 Brisbane, Qld, 4000. Facsimile: (07) 3398 1715 Phone: (07) 3399 3399 Postal Address: as above E-mail address: [email protected] 1.0 Executive Summary Toy Warehouse Pty Ltd is a new toy, book and gaming retail store that will operate in the Brisbane suburb of Carindale. Carindale is an affluent east-Brisbane suburb. The suburb’s position and thriving retail sector has promoted a recent surge in population and supported new residential developments. Carindale residents enjoy extensive community facilities including Westfield Carindale shopping centre and a bus interchange. The area also contains a cinema complex, restaurants, street cafes as well as various sporting facilities including Carina Leagues Club and the Pacific Golf Club. Carindale is located only nine kilometres south-east from the centre of Brisbane city. This region covers the suburbs of Carina, Carina Heights, Camp Hill, Cannon Hill, Mt Gravatt East, Mansfield, Carindale, Belmont, Chandler, Gumdale, Wakerly and Tingalpa. Of importance to this new business is the rapidly growing percentage of young families and professionals moving to the area. The store will stock products aimed at two primary target groups: children under the age of 10 and people (such as young professionals) who enjoy interactive gaming entertainment. Gaming has become increasingly popular in recent years through Nintendo Wii and 3DS; Xbox One and 360; and PlayStation 4, and the business intends to capitalise on this popularity. There are already some existing toy stores and book stores in the region, but none of which stock the range of planned products. Given the intended differentiation of their store and the increasing population growth, the owners of this business would like to capitalise on their experience and consider the opening of their store in the area could prove to be quite lucrative and profitable. The Vision and Mission Statements of Toy Warehouse Pty Ltd are as follows: Vision: To be the first choice toy, book and gaming store by customers in the Carindale region by offering a great range of safe products, easy to shop environment and excellent customer service. Mission: To deliver an excellent shopping experience for customers. Professional market researchers are currently undertaking a full marketing plan. The preliminary information is as follows: Commencement date of the business will be 1 August 2020.The company is expecting a net profit of approximately $45,863 after the first 11 months of trading (ie. by 30 June 2021). The company aims to make a pre-tax net profit of approximately $85,877 by 30 June 2022 and $102,088 in 2023. 2.0 Business Profile 2.1 The Business Concept The business concept is to open a toy, gaming and book retail store that will operate in Carindale. It will also offer additional services such as organising and hosting children’s parties and running themed events for children. The business opportunity is to take advantage of growth of young families and professionals in the area. 2.2 Market Analysis and Outlook Carindale is a family-friendly suburb, surrounded by numerous shops, restaurants and retail stores including Carindale Shopping Centre. Carindale is located approximately nine kilometres east from the centre of Brisbane City. The most recent set of ABS statistics providing a snapshot of people living in Carindale (postcode of 4152) published in 2016 can be downloaded at: https://quickstats.censusdata.abs.gov.au/census_services/getproduct/census/2016/quickstat/303011051?opendocument In the 2016 Australian Census, a total of 15,740 people lived in Carindale. The average person was 42 years of age (5 years below the Australian average of 37), and they had an average weekly gross income of $773 per week. The median weekly household income is $2,124, compared to the Queensland average of $1,402. In general, people in Carindale work in a professional occupation (30.0%), followed by clerical & administrative workers (16.0%), managers (15.8%) and sales workers (11%). The average family in Carindale consists of 1.9 people, with 52.8% of couples having children, compared to the Queensland average of 42.5%. In terms of employment, 57.9% of people in Carindale were in full-time employment. Of all occupied private dwellings, 82.6% were either owned outright or owned with a mortgage and 14.9% were being rented (compared to the Queensland averages of 62.2% and 34.2% respectively. According to https://www.realestate.com.au/neighbourhoods/carindale-4152-qld, the average house price in Carindale in June 2021 is $991,000 and the average unit price is $520,000. When it comes to renting, the Carindale, the median house rental price per week is $645 which makes renting more expensive than Queensland’s average of $425. In the case of units, the Carindale median unit rental price per week is $480 which makes renting more expensive than Queensland’s average of $395. Figure 1: Map of Carindale 2.3 Primary Target Markets The toy store will specialise in two primary target groups: toys and books for children under the age of 12; and gaming products for people who enjoy interactive gaming entertainment using Nintendo Wii and 3DS; Xbox One and 360; and PlayStation 4. 2.4 Competition There is one major competitor in Brisbane which is Mr Toys Toyworld, which has a store opposite Carindale Shopping Centre. Some competition also exists from the major department stores including David Jones, Myer, Target and K-Mart. There are other small local competitors including Kidstuff and Games World, which are both located within Carindale Shopping Centre. 2.5 Statistics Relating to the Toy Industry in Australia Given the product and service focus of the store and the demographics of the area, it is considered that opening up this toy, book and gaming store could prove to be quite lucrative and profitable. IBISWorld (March 2021) reported the following statistics involving the Australian toy and game retailing industry: Industry revenue declined at an annualised 4.0% over the five years through 2020-21, to $850.8 million. The exit of Toys “R” Us from the industry significantly skewed the industry’s performance over the past five years.The average profit margin of the industry over the five years through 2020-21 was 2.9%. Due to increased competition, the profit margins have been declining by an annualised 1.6% over the past five years.The number of toy retailers in Australia was 1,299 at 30 March 2021;These businesses employ around 5,932 people around Australia;The industry is characterised by low market share concentration, with the top four players accounting for less than 40% of industry revenue in 2020-21. More than half of all enterprises in 2020-21 are small-sized, non-employing operators. IBISWorld provides the following key statistics snapshot of the toy industry: 2.5.1 Major Players in the Toy Industry The Toy and Game Retailing industry is largely fragmented in nature. Following the demise of Toys “R” Us (Australia), the industry comprises only one major player. The remaining industry players are small-sized businesses that primarily operate a single shop-front and service the needs of their local community. These retailers operate in direct competition with the industry’s major companies, and external players such as department stores and online-only players. Associated Retailers Limited (18.2%) is a retail group that owns several trading brands including Toyworld, Shoex, SportsPower, Sportscene, Mensland, Compleat Angler and Camping World. The company operates in the industry through its Toyworld brand. Toyworld is a specialist toy retailer with about 120 stores in Australia and 25 stores in New Zealand as at February 2021. Toyworld stores are locally owned and operated and sell a range of products such as action figures, dolls, puzzles, bikes, educational and S.T.E.M products and outdoor toys. The company also operates an online site that offers a range of products available in-store. Associated Retailers Limited’s industry-related revenue from Toyworld is expected to decline at an annualised 5.9% over the five years through 2025-26, to $155.0 million. This represents an underperformance of the overall industry over the same period. Revenue has declined due to falling store numbers, volatile consumer sentiment and declining discretionary incomes over the past five years. Furthermore, rising competition across the industry has reduced company profitability over the period. Toys “R” Us (Australia) Pty Ltd exited the industry in 2018. The company operated as a toy retailer with 44 stores across Australia. The company was owned by US-based Toys “R” Us Holdings Inc. and was administered from its head office in Regents Park, Sydney. In September 2017, the company’s US-based parent company sought bankruptcy protection. The protection was to address the company’s significant debt burden and to better position the company against competition from online retailers and discounters. At the time, management noted that Toys “R” Us stores in Australia would continue to operate as normal during the bankruptcy protection. In May 2018, Toys “R” Us (Australia) entered voluntary administration, with administrators seeking a buyer for the company. However, by June 2018, administrators announced that Toys “R” Us (Australia) would be wound up and stores closed, affecting 700 people. All stores were subsequently closed by early August 2018. Kidstuff (4.0%) operates as an upmarket toy and game retailer. Its product range includes unique toy brands across several categories such as art and craft, construction, doll houses, figures, playsets, educational toys, games, puzzles and wooden toys. Established in 1969, Kidstuff launched its first store in Paddington, Sydney, with store numbers growing slowly over the next few decades. Amid the COVID-19 outbreak, Kidstuff announced in late March 2020 the temporary closure of its 58 store network. Despite the store closures, the company continued to operate its online site. In mid-April 2020, the company reopened its stores with modified hours and preventative measures in place, including limits on customer numbers in stores and enhanced cleaning procedures. University Co-operative Bookshop Limited (6.8%) operates in this industry through its Australian Geographic business. Australian Geographic retails science and nature-themed toy and game products through 65 stores nationwide. Its product range includes construction and craft kits, puzzles, books and gadgets. Stores also stock other items not included as part of the industry, like globes, binoculars, telescopes, drones and souvenirs. In addition to its store network, Australian Geographic operates an online site, which stocks over 1,200 products. However, in 2019, the company exited the industry. The company filed for voluntary administration in November 2019, with debts of $15 million. Despite attempts to find a buyer, University Co-operative Bookshop announced in January 2020 that its 63 Curious Planet businesses across Australia would be wound up and closed. 2.6 Markets and Products Products sold by the Toy and Game Retailing industry can be broadly segmented into traditional toys and games, electronic toys and games, and hobby equipment and supplies. Each segment’s share of industry revenue has changed over the past five years due to the popularity of electronic products. Despite increasing demand for interactive toys, traditional goods have continued to dominate the market. Traditional toys and games (53%) – the traditional toy and games segment comprises dolls, trucks, puzzles and board games. Despite dominating the industry over the past five years, this segment has declined as a share of industry revenue over the period. Demand for traditional toys and games has been largely hindered by the continued popularity of electronic and interactive products, which improve the appeal of educational toys by making them more tech-savvy. Electronic toys and games (45%) – the electronic toys segment comprises a range of products including miniature remote-controlled vehicles and other interactive products. These toys are typically technologically enhanced versions of traditional toys. Electronic toys and games have increased as a share of industry revenue over the past five years due to advances in product design and technology. Hobby Equipment and supplies (2%) – this is the smallest industry segment, and includes model cars, boats and planes. The hobby toys segment has changed only slightly as a share of industry revenue over the past five years. Figure 2: Breakdown of Products and Services in 2021 2.7 Markets Segmentation Consumers are regarded as the largest market for industry operators. Spending on toy and game products is driven by several factors including the number of children in each family unit, the need to purchase toys and games as gifts for extended family and friends and trends in real household discretionary income. The major markets for the industry can be segmented in terms of expenditure on toys and games by each household income quintile. 2.8 Industry Outlook Toy and game retailers have faced tough trading conditions over the past five years. Intense competition from external players, particularly department stores and online-only retailers, has forced industry operators to cut into profit margins to remain competitive. As a result, industry profit has declined over the period. While solid demand for electronic and interactive toys has provided revenue opportunities for operators, intense internal and external competition has limited industry revenue. The tough trading environment has significantly increased price competition in the industry, putting downward pressure on profit margins over the period. The exit of Toys “R” Us from the industry has also significantly skewed the industry’s performance over the past five years. The retail market for toy and game products has been volatile over the past five years. Instability in global markets and uncertainty in the domestic economy have weakened the retail market. Declining discretionary incomes and volatile consumer sentiment have reduced the spending power of consumers over the period. Industry operators have also faced mounting pressure from online retailers, auction websites and department stores, as they typically offer lower prices and a wider product range. Industry revenue is expected to increase by 3.3% in the current year. The COVID-19 outbreak is anticipated to continue fuelling demand for toy and game products to keep active and busy during the pandemic. However, logistical delays and reduced manufacturing activity in China will likely hinder industry revenue growth in the current year. Industry revenue is projected to grow at an annualised 1.5% over the five years through 2025-26, to $917.5 million. Retail trading conditions are forecast to improve over the period, helping industry operators. Anticipated growth in discretionary income, an increase in the proportion of Australians aged 14 and younger, and a return to positive consumer sentiment are anticipated to further support the industry. Consumer demand for the latest tech toys and the growing popularity of STEM toys will also likely support industry revenue growth. However, rising competition from external players is forecast to limit retail spending on toys and games. Industry retailers are anticipated to respond by diversifying their operations, reviewing their product ranges, focusing on niche markets and emphasising customer service over the next five years. 2.9 Key Success Factors IBISWorld identifies 250 key success factors for a business. The six most important for this industry are: (a) Proximity to key markets Operators benefit from being located in high traffic areas in regions with a large enough market for industry products to support a toy store. (b) Having a wide and expanding product range Operators that offer an extensive range of products can meet the needs of a broad selection of shoppers. (c) Ability to control stock on hand Operators require sufficient stock on hand to meet consumer demand. This is particularly important in the lead-up to key selling periods such as Christmas. (d) Production of goods currently favoured by the market Retailers must stock products that meet current consumer preferences. Products need to be competitively priced and perceived as being good value for money. (e) Having a good technical knowledge of the product Industry sales staff should have retail experience and be able to assist customers with their purchases. (f) Attractive product presentation Product displays in industry stores should be attractive and entice consumers to browse in-store. 2.10 Barriers to Entry The industry has medium barriers to entry and the trend is steady. Industry competition is medium, which may deter new players from entering the industry. Operators compete based on price and product range, with items significantly discounted during key selling periods and demand for products increasing in the lead-up to Christmas. Prospective operators also face competition from external players such as department stores, which sell toy and game products and seek a share of the market. New entrants may also be hindered by the industry’s mature life cycle. Its well-defined product market and established operator base may make it difficult for new players to establish themselves and build a rapport with consumers. However, barriers will be weaker for players seeking to trade as specialist operators due to their niche product range and specialisation. The industry exhibits low capital intensity, with daily operations being manual in nature. Outside of the initial capital investment required to purchase or establish a new business, other capital costs include expenditure on fixtures and fittings and computerised point of sale (POS) systems, all of which may be depreciated over their useful life. The low rate of industry technological change may also entice new players into the market. 2.11 Vision, Mission and Values The Vision and Mission Statements of Toy Warehouse Pty Ltd are: Vision: To be the first choice toy, book and gaming store by customers in the Carindale region by offering a great range of safe products, easy to shop environment and excellent customer service. Mission: To deliver an excellent shopping experience for customers. Values: The values of the business are as follows: To treat customers as guestsTo deliver affordable, safe, high quality merchandise To create an easy to shop, interactive and impactful store environmentProvide helpful, friendly and knowledgeable customer service 2.12 SWOT Analysis STRENGTHS Christie and Grace have both worked in the toy industry for many years and boast considerable experience having worked in both managerial and retail positions for a number of toy stores (both large and small) in Australia and abroadKey supplier contacts$360,000 available cashFinancial backer, a professional colleague of theirs, Jon English, has agreed to lend them $240,000 for 5 years at an agreed fixed interest rate of 5% per annum. In addition, Jon will take a 10% interest in the companyIndustry expertise, drive, motivation and business acumen necessary to implement their business idea WEAKNESSES $360,000 is not enough to start this business. An additional $240,000 needs to be borrowed from an “outside” party.High start-up costsNo existing clients OPPORTUNITIES Limited competition, especially considering the intended products and services available at the storeThe store will be in the heart of a growing regionGreat location (on the main road)Target market is suited to the business THREATS Highly seasonal business with peak demand leading to Christmas Advising clients on toy selection is a “personal” business – it will take time for clients to refer other clientsCompetition and change in demands by childrenThe other toy stores may cut their prices or increase their range of products 3.0 Marketing Plan 3.1 Estimated Market Share and Sales The toy store will have walk-in trade, local trade and business trade including daycare centres and preschools. After twelve months of operation, it is anticipated that the business will capture at least half of the possible total market in sales of toys, books and gaming products in Carindale. It is planned that the website will be further developed from an initial information only site in Year 1 to incorporate a ‘shopping cart’ to allow internet sales in Year 2. 3.2 Marketing Strategy Professional market researchers are currently undertaking a full marketing plan. The major components of the marketing strategy are as follows: (a) Products and Services The following products will be offered to customers: Toys for children under 12 years of ageBooks for children under 12 years of ageInteractive gaming products The following services will be provided to customers: Children’s partiesGift WrappingThemed Events and Book ReadingPersonalised toy and book selection service Within the store, there will be areas for children’s interactive play with regularly changing displays of brand name toys. Suppliers are prepared to provide samples free of charge for these ‘play pits’. The aim is to actively engage the children to encourage purchase of additional items. There will also be a book and craft corner established for reading and craft activities to promote these products also. (b) Price The prices for all the above products will be competitively priced and stocked or readily sourced. Children’s parties will be set at package rates to attract new customers and vary depending on numbers, food and beverage options chosen and toy bags selected as gifts and prizes. Gift wrapping will be offered as an optional charged service, varying upon the number and size of the item/s. Charges will also be made for special themed events and book reading. A personalised toy and book selection service will be offered to attract time-poor families. These clients will be able to provide the age and interests of their children and for a fee, a personalised list will be developed, incorporating the latest releases and award-winning toys and books. This service will be charged at an hourly rate of $60 per hour and can also incorporate delivery to a home or business address. The store will offer customers the ability to pay with cash, EFTPOS, credit card (including AMEX) and will extend credit to selected customers after appropriate credit checks have been completed. The company’s terms of payment are strictly nett 14 days. (c) Promotion Being a new store, Christie and Grace intend to embark on extensive advertising. This will occur through the development of a company website, extensive online advertising, local radio advertising and local mail box drops to Carindale residents, schools, pre-schools and daycares. A large neon sign will be purchased and placed outside the toy store and advertisements (and discount vouchers) will be given to local store owners and nearby shops and restaurants. An opening party is planned the night before the opening of the store with invitations being sent to local store owners, suppliers and residents and their children. Lucky door prizes will be also be handed out. (d) Place The store will be located at: 11 Elland Road Carindale, QLD, 4152. Phone: (07) 3398 1714 Facsimile: (07) 3398 1715 E-mail address: [email protected] The fit-out requirements and plant and equipment needed are outlined in Section 6.2 and Section 6.3 respectively in this business plan. The toy store will be open 7 days a week. 4.0 Operational Plan 4.1 Measures of Success The anticipated commencement date of the business will be 1 August 2020. The company is expecting to derive a pre-tax net profit of approximately $45,863 after the first 11 months of trading (ie. by 30 June 2021). This is after paying a Director’s salary of $60,000 to the two directors. Secondly, the company aims to make a pre-tax net profit of approximately $85,877 by 30 June 2022 after paying a Director’s salary of $80,000 to the two directors. Finally, the company aims to make a pre-tax net profit of approximately $102,088 by 30 June 2023 after paying a Director’s salary of $100,000 to the two Directors. Note: The abovementioned projected profits are based on pre-tax earnings and take into account estimated depreciation on plant and equipment at prescribed ATO depreciation rates in Taxation Ruling TR 2020/3. 4.2 Financial Ratios The following financial ratios will be carefully monitored during the year and formally reported upon at the end of each financial year: ** based on the interest component in respect of the shareholders loans. 4.3 Balanced Scorecard Financial: Customer: Processes: Learning & Growth: 5.0 Human Resources Plan 5.1 The Team Christie and Grace have worked in the toy industry for many years and boast considerable experience having worked in both managerial and retail positions for a number of toy stores (both large and small) in Australia and abroad. Christie and Grace will be the two active shareholders of the company. Both have been appointed Directors. Jon, the third shareholder and financial backer, has no plans to actively involve himself in the business. The company consists of two divisions: Retail store which stocks toys, books and gaming products.Other services where several charged services will be offered including children’s parties, themed events, gift wrapping and a personalised toy and book selection service) An organisation chart is diagrammatically presented below: + = Extra retail staff members in the retail store will be employed on a full-time and casual basis. Casual staff will also be employed in the other services division as required. A total of five staff (including the two directors) will be therefore be employed by the business. 5.2 Salaries and PAYG Withholding Tax It is estimated that the two directors will be paid gross salaries totalling $60,000 for the 11 months from 1 August 2020 to 30 June 2021. Christie and Grace will receive a salary of $30,000 each during this period. From 1 July 2021, their salaries will increase to $40,000 each per annum ($80,000 in total salaries) and $50,000 each per annum from 1 July 2022. For the 11 months from 1 August 2020 to 30 June 2021, the full-time retail assistant will be paid a salary of $42,000. The two casual staff will be paid wages of $20,000 per annum each (total of $40,000). Hence, total estimated wages to be paid in the 2021 financial year comes to $142,000. Estimated PAYG withholding tax to be deducted from gross salaries and wages paid to the five employees in 2021 is estimated to be approximately $28,200. The company will use single touch payroll (STP) to electronically report pay information to their employees and the Australian Taxation Office (ATO) each pay period. At year-end, all pay information relating to the 2021 income year will be electronically reconciled and submitted to the ATO via STP reporting. 5.3 Key Responsibilities Christie will take on the role of general manager for the retail store while Grace will focus on promotions, inventory purchasing and other services offered by the business. The retail assistants will be primarily responsible for assisting the customer with choosing appropriate toys, books and gaming products as well as stocking the shelves and display cabinets. They will also take bookings for children’s parties and themed events. Christie and Grace also intend hiring a casual bookkeeper one day per week to attend to the appropriate bookkeeping functions and to lodge the company’s quarterly Business Activity Statements (BAS) with the ATO. The bookkeeper will also liaise with the company’s external accountant. 5.4 Legal Structure and Ownership Toy Warehouse Pty Ltd will be incorporated as an Australian proprietary company. Christie Allen and Grace Knight will be appointed as the two Directors of the company. Christie will be appointed as the company secretary (for ASIC purposes) and the public officer (for ATO purposes). Christie and Grace will each hold 45% of the issued share capital of the company. The remaining 10% of the issued share capital of the company will be held by Jon English, a previous business associate of Christie and Grace, who will act as the primary financial backer. Jon seeks no active role in the business and will not be appointed as a Director of the company. Only ordinary shares will be issued (no preference shares or “A” class or “B” class shares etc). All shares issued in the company will be fully paid and all beneficially owned by each person. Christie will sign all relevant forms on behalf of the company. The company will adopt the replaceable rules contained in the Corporations Act (2001). Within the next few months, it is anticipated that the company will create a website, being http://www.toywarehouse.com.au. The company will be required to register for the GST as its annual turnover is expected to exceed $75,000 per annum. The company intends using the cash attribution basis for the GST and adopting quarterly GST tax periods. The company will not be importing any products directly into Australia. Instead, they will acquire toys, games and books from Australian wholesalers and distributors. Information pertaining to the two directors and shareholders is as follows: Christie Jessica Allen: Born: 11 August 1982 Place of Birth: Sydney, NSW. Residential Address: 9 McDermott Parade Camp Hill, QLD, 4152. Phone/Facsimile: (07) 3378 1813 Email: [email protected] TFN: 489 117 230 Grace Louise Knight: Born: 9 March 1980 Place of Birth: Brisbane, QLD. Residential Address: 11 Lancaster Avenue Indooroopilly, QLD, 4068. Phone/Facsimile: (07) 3398 0556 Email: [email protected] TFN: 490 770 421 Jon Mark English: Born: 10 January 1977 Place of Birth: Brisbane, QLD. Residential Address: 282 Rode Road Chermside, QLD, 4032. Phone/Facsimile: (07) 3348 0786 Email: [email protected] TFN: 470 188 226 Note: Once the company is incorporated, it will open up a bank account with The Bank of Australia. At this point, it will provide its bank account details (including the BSB and account number) to the Australian Taxation Office. 5.0 Financial Plan 5.1 Financial Forecasts and Analysis Christie and Grace will invest $180,000 each of their own money to set up Toy Warehouse Pty Ltd (total of $360,000). The estimated costs to fit out the store in Carindale, acquire plant and equipment, purchase the necessary stock and maintain an appropriate level of cash in their bank account is in the vicinity of $600,000. Instead of borrowing the remaining $240,000 from a financial institution, a professional colleague of theirs, Jon English, has agreed to lend them the necessary $240,000 for 5 years at an agreed fixed interest rate of 5% per annum. The set-up costs and the operating budget for the first three years are shown in Items 6.2 and 6.3 below. All amounts shown in Table 6.3 are GST-exclusive, as Toy Warehouse Pty Ltd is registered for the GST. 6.2 Set-up Costs GST ExclusiveGSTGST InclusiveOpening party (31 July 2020)2,0002002,200Lucky door prizes50050550 Total:$2,500$250$2,750 GST ExclusiveGSTGST InclusiveFit-out (see next page for detailed breakdown)$100,000$10,000$110,000 GST ExclusiveGSTGST InclusiveCash registers$8,000$800$8,800Computer equipment (including printer)$14,000$1,400$15,400Plant and equipment$26,000$2,600$28,600Furniture & fittings (shelving etc)$20,000$2,000$22,000MYOB AccountRight and other retail-based computer software$12,000$1,200$13,200Total Assets (Tangible & Intangible)$80,000$8,000$88,000 GST ExclusiveGSTGST InclusiveInventory$180,000$18,000$198,000 The total cost to set up the business comes to $398,750 (GST-inclusive). The remaining $201,250 cash will be kept in the bank account to meet operating expenses (such as advertising, insurance, rent, salaries and wages etc). Location: The company will sign a three-year lease to rent commercial premises at 11 Elland Road, Carindale for $5,000 per month (GST-exclusive) with a 2% annual increase to take effect on 1 August each year. There is an option in the lease agreement to renew the lease for an additional three years. Fit-Out: The premises require the following fit-out: Floor coverings;Ducted air-conditioning; andLighting and shelving. The total estimated cost of the fit-out is $110,000 (GST-inclusive). Based on preliminary discussions with the landlord, it might be possible that the landlord will provide Christie and Grace with a lease incentive to move into the premises. Details of the lease incentive are not known at this stage, however, it may take the form of a cash payment, a rent-free period or even contributing to the cost of the fit-out. Equipment: As detailed above, the total estimated cost of acquiring all of the items of plant and equipment described above is $88,000 (GST-inclusive). Opening Party: An opening party is planned the night before the official opening of the store with invitations being sent to local store owners and selected members of the public and key suppliers. Once the business is established, it is expected that a significant amount of new customers will be generated from word-of-mouth referrals and walk-ins. The opening party is planned for the evening of 31 July 2020. The store is scheduled to open to the public on 1 August 2020. The estimated cost of the opening party and lucky door prizes is estimated to be approximately $2,750 (GST-inclusive). Inventory: Stock includes toys, books and gaming products. It is estimated that approximately $198,000 (GST-inclusive) worth of stock will need to be acquired. The company will adopt the perpetual inventory management system. Stock will be electronically tagged when bought and sold and will be managed by a retail industry-based computer program. An annual stocktake will be conducted at 30 June each year. Stock will be valued using the weighted average cost inventory valuation method. The perpetual inventory system will also be managed by MYOB AccountRight. Figure 3: Financial Benchmarks – All Industries v Toy Industry taken from IBISWorld (March 2021) Key Statistics and Financial Ratios for the Toy Industry taken from IBISWorld (March 2021) 6.3 Operating Budget (all figures shown below are GST-exclusive) Year 1 *Year 2Year 3Toy Sales580,000719,200819,888Less Cost of Goods Sold327,874396,728444,335Gross Profit252,126322,472375,553Gaming Sales112,600129,490139,849Less Cost of Goods Sold69,53179,26584,813Gross Profit43,07050,22555,036Book Sales26,80029,48031,249Less Cost of Goods Sold13,73215,10616,012Gross Profit13,06814,37415,237Other Revenue Children’s Parties18,00023,40025,740Gift Wrapping1,0001,2001,440Themed Events & Book Reading35,00042,35044,891Personalised Toy & Book Selection Service4,5006,3006,489Total Other Revenue58,50073,25078,560Total Revenue 777,900 951,420 1,069,546Less Total Cost of Goods Sold 411,137 491,098 545,160Gross Profit 366,763 460,322 524,386 Less: Operating Expenses Accountancy and bookkeeping fees4,2005,0405,443Advertising15,00017,25018,113Bank fees1,2001,3801,449Computer expenses5,6006,7207,392Credit card fees1,8002,0702,174Depreciation expense **18,00023,40028,080Electricity8,2009,84010,824Entertainment (Christmas party)600700800Insurance7,2007,8008,000Interest expense (5%)11,01012,11110,294Legal Expenses (including establishment costs)3,5001,0002,000Opening party & lucky door prizes2,50000Packaging and wrapping6,4007,4247,721Printing, stationery and postage3,2003,5203,661Rent ($5,000 x 11 months) 2% increase p.a.55,00056,10057,222Repairs and maintenance1,8002,6004,000Salaries and wages – Directors60,00080,000100,000Salaries and wages – Other staff82,00094,000106,000Staff amenities (tea, coffee, biscuits etc) 9001,0001,200Superannuation @ 9.5%13,49016,53019,570Telephone and internet charges3,3003,9604,356Other costs16,00022,00024,000Total Operating Expenses320,900374,445422,298 Estimated Net Profit Before Income Tax $45,863 $85,877 $102,088 * Year 1 is only for the 11 months from 1 August 2020 to 30 June 2021. ** Depreciation is normally not included in an operating budget, but has been included in the above budget for the purposes of completeness. Examples of Toys, Games and Books to be Sold
