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Martha Designs

Introduction

Martha Designs is a home based business started by Martha Millwork in 1970s. Currently,

Martha Designs is thinking of expanding its operations.

Clothing manufacturing is a competitive industry with high mark-ups. There are well-

established brands available in market. There is a lot of buyer power and stiff competition from

garments manufactured in Asian countries due to their low raw material and labor costs.

However, clothing consumers are willing to pay higher prices for premium quality products.

Martha Designs produce high quality products to high-end segment in the clothing consumer

market.

Presently, Martha Designs manufactures high quality and fashionable coats for men and

women. These coats are made from canvas, denim, and from Hudson’s Bay and Pendleton

wool blankets. Current Martha Design’s effort is limited to fashion shows, displays at events,

some newspaper advertising, and a brochure. Each year Martha attends several fashion shows

in Alberta, Montana, North Dakota, and Saskatchewan. Current advertising is limited to

increase general awareness of the Martha brand.

The proposed business plan outlines the details of expanding Martha Design to increase Martha

Design’s overall sales revenue, marketing activities, operational capabilities and financial

outcomes.

Mission and objectives for Martha Designs

In order to focus organizational efforts to achieve their set objectives, the organization need

clear mission statement and objectives. For this end, a mission statement was prepared for

Martha Designs to achieve its overall objectives.

Mission Statement:

“The main target of business would be customer satisfaction - to provide highest possible

quality to buyers at the lowest possible costs. Martha’s Designs manufacturing philosophy is

the belief that it takes only one mistake to ruin company’s years of hard-work and reputation.”

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Proposed Name: Miyo Fashions

A new brand name was created for Martha Designs. Miyo Fashions. Miyo is a Cree word which

means good, well, beautiful and valuable. It is our view that this new name is unique and would

not create any confusion in the market with other existing Martha names. We incorporated

fashions instead of designs, as Martha’s current operation includes both design and production

of high end coats.

Marketing Plan

Past performance

Martha’s Designs had its roots as a home based hobby in the 1970s. It has grown into what

could be described as a successful cottage industry. The Company’s annual sales are currently

$30,000 while net profit is $5,000 (16.7% of gross sales). Martha designs and sells a unique line

of women’s and men’s coats. They are currently selling for between 300 and 600 dollars. Her

sales have been attained primarily from Alberta, Saskatchewan, and North Dakota; however

additional sales have been made across North America and Europe. Marketing efforts up until

now have consisted of fashion shows, displays at specific events, and local newspapers. Martha

organizes annual fashion shows in Alberta, Saskatchewan, North Dakota, and Montana to

generate awareness and interest in her products. She also attends and displays product at

several exhibitions, rodeos, and athletic events.

The Current Market

The clothing industry is characterized as quite labour intensive, but also requires few highly

trained skills. The industry is also not capital intensive, and therefore, most countries are

involved in the industry to some extent. The Canadian apparel industry was impacted

significantly by the removal of protectionist policies including country specific import quotas.

These restrictive policies have been removed through FTA, NAFTA, and GATT. Research by the

Government of Canada found that although the industry was initially impacted, it has adapted

and rebounded. While imports have increased, Canadian exports and total shipments are also

increasing.

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According to Statistics Canada, Canadians spend approximately 5.0% of their disposable income

on clothing. It is a large industry in Canada accounting for manufacturing shipments of 6.9

billion in 1997, a 4.4% increase over 1996 with women’s apparel accounting for 35% of the

market ($2.4 billion 1998). Men’s clothing is the second largest sector. These trends have

continued through to 2008. Statistics Canada reports that from 1994 to 2004 the after tax

income of Canadian families, two people and more, increased by 13.65%. The western cities

such as Vancouver, Calgary, Edmonton and Saskatoon have experienced above average

increases in levels of affluence. From January of 2005 to November of 2007 retail sales from

Canadian clothing and accessory stores increased from $1.77 billion per month to $2.10 billion

per month. (Stats Canada)

The majority of the Canadian manufacturers (approx 2000) are small with less than 50

employees and the majority of the manufacturing (60%) is located in Quebec. The majority of

the design houses are located in Toronto. Manitoba and British Columbia also have a small

clothing manufacturing sector. The largest export markets for Canadian clothing exports are

United States, Germany, United Kingdom, Japan and Russia. The Canadian clothing retail

industry is made up what can be classed as major brand name retailers and independents.

Independents tend to be much smaller in terms of staff and sales and are generally individually

owned. The following tables list the number of independents, currently operating and selling

exclusively women’s and men’s clothing, in a select number of western Canadian cities

(Table 1). Additional tables indicate total population numbers in the cities (Table 2), provinces

(Table 3), states in the United States of America (Table 4) and counties (Table 5) considered for

Martha’s potential market.

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City Number of Independents

Regina 15

Saskatoon 18

Winnipeg 22

Edmonton 48

Calgary 57

Kelowna 28

Vancouve

r

78

Victoria 32

Table 1: City and number of independents in each selected Western Canadian cities

Table 2: City and approximate populations in each city as of 2006; Source Stat Can

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City Population

Regina 199,000

Saskatoon 235,800

Winnipeg 706,900

Edmonton 1,034,900

Calgary 1,079,310

Kelowna 165,221

Vancouver 2,208300

Victoria 334,700

Martha Designs

Table 3: Canadian Provinces and approximate populations as of 2006; Source Stat Can

)

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Province Population

BC 3,072,900

AB 2,463,900

SK 958,600

MB 998,100

ON 8,877,400

QB 5,364,300

NB 525,700

NS 651,100

City State City Pop State Pop

Billings MT 129,352 975,816

Missoula MT 95,800

Bismarck ND 94,700 635,867

Grand Forks ND 97,500

Minneapolis MN 2,968,806 5,197,621

Denver CO 2,359,994 4,861,515

Sioux Falls SD 143,396 775,933

Martha Designs

Table 4: Selected mid-west northern cities and states with population in the United States of

America; Source US Census 2007

Table 5: Selected Western European countries and populations; Source CIA WORLD Fact Book

2007

Current Canadian market conditions could be characterized as a competitive industry; a global

industry with lowering of barriers. This Canadian industry is characterized by small firms with

rising exports and import demand, and a domestic population of increasing disposal income.

Research has shown that the level of disposable income in the US has historically been higher

than that of Canada. The US consumer may have lost some buying power due to the

unfavorable (for US citizens) exchange rates; however, the US consumers still retains greater

disposable income than that of the Canadian consumer. The US also remains Canada’s largest

trading partner.

The Competition

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International State Population

Germany 82,400,996

United Kingdom 60,776,238

Netherlands 16,570,613

Martha Designs

In the clothing industry global competition is intense. China has the lead for total export value,

followed by the European Union and Hong Kong. Chinese clothing imports make up 60% of the

total clothing imports into Canada. Despite the long delivery distance, they have significant a

competitive advantage in terms of labor costs. Chinese respond quickly to fashion trends and

consistently produce a wide array of high volume clothing products at very competitive prices.

They are not, to any extent, in the specialty or high end Canadian markets for men or women’s

clothing.

The US and Europe as well as Canadian manufactures’ are the major suppliers of the more

upscale Canadian clothing markets. The US is Canada’s largest trading partner, and under

NAFTA clothing articles do not face import duties. The Americans are very efficient

manufactures and the similarity of the Canadian and American markets simplifies marketing for

them. They market the same lines that sell well in the US, and do not design and market

specialty lines for the Canadian markets. Europe traditionally has been the source of upscale

clothing for men as well as women. Imports from the UK, France, and Italy are most often

found on the racks in upper end stores. They are high quality, cutting edge fashion and

expensive. The EU has significantly higher labour costs than the US, Canada and China. The US

and EU are the traditional export markets for Canadian clothing. The Euro is much stronger

than the Canadian dollar therefore Canadian products, with the diminished barriers to trade,

are competitively priced relative to European products.

There is also competition from the retailers offering domestically manufactured products for

the Canadian market. The Canadian apparel manufacturing sector has been slower in taking

full advantage of the available technologies. This created labour costs to remain higher as most

of the Canadian manufacturing structure was composed of small firms, and do not have the

ability to take advantage of economies of scale.

From a pure cost perspective China is the strongest competitor in the general clothing market.

However, Martha is not competing in the general clothing market. She is narrowly focused on

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an area not specifically targeted by the Chinese. The US and Europeans likewise compete in

areas outside of Martha’s focus: the European in more high end expensive areas and the US in

more generic mass marketed areas.

Martha can not compete against the imports in terms of price; however she has the advantage

in the uniqueness of her product. A significant threat comes for our own Canadian

manufactures. They know the home market and are small enough to respond to a new

entrant’s initiative. However, the majority of Canadian manufacturing is focused on the export

market and the majority of Canadian manufacturing is concentrated in Quebec; far removed

from western Canada and Grenfel Saskatchewan. She will, however, experience direct

competition for Hudson Bay blanket coats from the HBC Signature Line. Martha has the

advantage of knowing her product, knowing her western customers, and has low cost per unit

of production inherent in her location and production arrangements.

Product / Service

Martha Millwork designs and sells a line of women’s and men’s coats. She specializes in

designing and creating high quality and fashionable coats made from canvas, denim, and

Hudson Bay Company (HBC) and Pendleton wool blankets – all natural fiber materials. Her

designs are unique and constantly modified and renewed on an ongoing basis. She often uses

trims of her own design to differentiate her product further. Her products are constructed of

high quality materials and crafted to high quality standards. The result is a line of coats that is

unique, comfortable, sophisticated, original and modern. Her coats are selling for between

$300 and $600. In her words the product is a blend of fashion, function and also very

importantly, tradition.

The durable high quality Pendleton Blanket of Pendleton Oregon utilizes authentic aboriginal

designs and symbolizes, like the HBC blanket, a unique period in American / Native history. The

Hudson Bay Company point blanket is a unique part of Canadian history that is recognizable by

Canadians and around the world.

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The line includes: HBC Blanket coats Wool

Pendleton Blanket coats Wool

Other western motif/style overcoats Wool

Western unique designer casual Denim

Western unique designer casual Canvas

Martha’s vision is be a niche player, to create a unique high quality clothing product that

embellishes the spirit and image of western Canada and US, while aspiring to deliver the best

value in this niche market to the Canadian and International customer. The line is entirely

designed and made in Canada, and is envisioned to be urban western wear. The line has

western flair yet is sophisticated enough to appeal to the urbanite, the rural dweller, and

anyone with an appreciation for western Canadian and American history. The product is original

and modern, yet tugs at the spirit of not only the HBC history but also of the western Canadian

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http://www.indiantraders.com/store/Pendleton-Throws.html

http://www.indiantraders.com/store/PendletonBlankets.html

Martha Designs

and American heritage in general. The product will occupy a niche market: an urban western

style market that is currently not well served by the conventional western wear designers. Her

products fill a need that allows the customer to feel well dressed yet maintain a distinctive

western heritage image. It is Martha’s intention that each coat represents a particular value for

each customer. A value that is inherent in:

o The authentic design

o The originality

o The relative exclusivity

o The high quality construction

o The high quality material

o The all natural fiber construction (wool and cotton)

o The Made in Canada aspect – proudly Canadian

o The western flair and sophistication

o The piece of Canadian and American history

As part of Martha’s marketing strategy, each HBC and Pendleton blanket coat sold shall have an

attached informational card. The card shall explain the creation of the coat, the significance and

history of the design and construction materials, along with a history of Miyo Fashions. The HBC

and Pendleton coats shall state that they are partially constructed from their respective

blankets. The card will also state that the coat is constructed of all natural fibers and every

effort has been made to minimize the environmental impact incurred during the construction

and packaging of this product. Each of these coats shall also have, in addition to the standard

sewn-in tag, a tag that states that the design/style combination is a limited production article.

This tag shall list a serial number and a number indicating the full number of this particular

design that was created. The higher end canvas and denim coats shall also be serialized.

The Customers and Target Market

Martha has already done market research in some respects. She has been crafting and selling

coats since the 1970s. She had $30,000 in sales in the past year. Sales have primarily come

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from Alberta, Saskatchewan, North Dakota, and Montana, and increasingly from other areas of

Canada and Europe. Her customers include people of the middle and upper middle class who

live in a climate that requires the product, who value exclusivity and originality, and have an

appreciation for historical culture. Initially, these customers shall be from Western Canada

followed by the northern US States, Ontario, and finally targeted countries in Europe.

These customers have the required purchasing power and place value on attaining a high

quality, original, relatively exclusive product. The perception of value emanates from either the

customer’s identification (in the case of the HBC and Pendleton coats) with the historical

significance, or on the fact that the product is a western designed, Canadian made, quality

product, or from a combination of all. The demand for product is linked to the heritage design

attributes and general modern western motif. The product is not temporary fad, as the style is

based on a long lasting image and cultural identification that is continually being updated.

Demand of course will be greater where there is a need for heavy outerwear; however the

denim and canvas coats are suitable for milder climates.

Preliminary international market research indicates that particular parts of Europe have an

affinity for early Canadian and US/Native culture. Some countries such a Germany are well

versed in North American history. The UK of course has a historical connection with the HBC.

The Netherlands also has a special connection with Canada stemming from past events. We

believe that these particular circumstances taken together with the relative levels of affluence

are advantageous for penetration into Europe at later stages of our business plan. We also

envision slight modifications for the European market including changes in cut, sizing and

labeling. For the US market the Pendleton coats are expected to be the sales leader.

Martha’s marketing plan includes a phased expansion approach with each step providing the

resources for the next. As the Company has limited capital and experience, Martha plans an

orderly movement into markets and marketing strategies, thereby gaining experience, contacts,

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and cash flow to better control risks for the next step. The market segments and target

populations have been identified in previous section and are as follows:

Men and women between the ages of 25 and 65 residing in the western Canadian

provinces, the northern US states, and eventually Europe.

Martha will have low production levels initially and low capital reserves. These facts dictate a

phased expansion strategy starting with her home province Saskatchewan, where she has

already built contacts and sales. This would be followed by Manitoba. Competition is likely to

be more manageable in these provinces, and they would provide a base of experience, contacts

and sales revenue for further expansion west. Next, will be an ordered expansion into Alberta,

BC, the Northern US states, Ontario, and Europe. The greatest potential for revenue should

come from Alberta and the US states. Market appeal for the product is expected to be lower in

BC and Ontario.

The product positioning has been reiterated throughout this plan. Martha is offering a niche

market product differentiated by high value, exclusivity, cultural connections and its unique,

continually updated blend of traditional and contemporary style. Martha’s Designs will be a

niche player and not compete against the large domestic manufacturers or the large importers.

She will face some competition from the HBC Signature series and some US manufacturers

offering Pendleton coats. Her low cost production as well as innovation styling and design

strategy will compensate for the anticipated competition.

Sales and Profit Objectives

1. Maintain an overall 40% gross profit margin

2. Attain a 20% return on equity

3. 300,000 of gross revenue by year 3

Pricing Policy

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Martha intends to follow a flexible pricing policy. She will use a market-based premium

approach given the differentiated nature of her product. However, she also realizes that until a

greater market demand is generated and she has established distribution channels, she will

need to be flexible. She may have to operate initially on a more cost-based approach while in

the demand building stage. At some point she will begin the transfer to a more market based

approach as customers begin to perceive the value in her product offering. However, it must be

noted that once she sells to retailers, she has lost price setting capability - the retailer will sell

for what the market will bear.

Promotion

In order to move from a hobby / cottage industry with $30,000 per year in sales to a

commercial operation promotion is essential. Martha’s promotional objectives include:

o build brand awarenesso educate and develop interest in the lineo build marketing and sales networkso increase direct saleso establish independent store saleso establish internet sales

The promotional strategy will be mixed approach using a variety of methods as the proposed

phased expansion takes place. The program shall be dynamic, flexible, and modified on the

basis of feedback, as revenues allow for, and new areas are penetrated. The program may

compose a mixture of the following media and methods:

Personal

Attendance of fashion shows

Displays at special events such as cultural fairs, exhibitions, stampedes,

Displays at trade shows

Direct selling to independent stores

Paper media

Local newspaper advertizing

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Targeted magazines such as Up, Western Fashion, Western Living

Brochures

Business cards

Internet

Creation of Miyo Fashions web site

Internet Directory Listings

Internet linkages from Directories

Canadian Fashion Federation Listing

Canadian Apparel Foundation Listing

The promotional activities will take place on three fronts:

1. Direct selling consisting of what Martha has already been doing but also using a

sample line to direct sell to the independent retailers.

2. Internet selling. A major initiative will be through use of the internet. Initially

Martha’s web site will be for advertizing and awareness with capability to email

or phone for orders. Later it will be linked to various Fashion Directories, be

search engineered, and have the capability for on-line purchases.

3. Using agents to sell her line into retailers. This is expected to be used in the later

stages of expansion, but efforts may be made at early stages to engage agents

for use on a more regional level.

The marketing plan will follow outline below:

Year 1

Promotional initiative to enter and penetrate the following markets:

Saskatchewan and Manitoba - concentrating on the major cities

Develop a web site to offer online sales by email and phone-in ordering

Increase personal selling through attendance, shows and direct selling to retailers

Year 2

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Enter the Edmonton, Calgary, Kelowna and Vancouver markets

Further develop web site through directory listings and linkages.

Develop on-line ordering and payment system

Begin using sales with agents to increase penetration of independent stores

Year 3

Build on the sales already occurring in the US states by using an agent to sell to retailers

Enter Ontario, and Montreal

Year 4

Engage STEP to facilitate sales into Europe

Develop the web language options to include Dutch and German

Additional initiatives into Europe - see below

Market penetration in Europe:

Martha may not have a lot of free cash to hire an agent in Europe. However, Europe is a very

attractive option for Martha. The world today is flat. The internet has made the world a global

village and this gives her cheaper options for the initial stages.

Initially, she should approach the Saskatchewan Trade and Export Partnership (STEP). The STEP

possesses contacts with the embassies/consulates of Canada, all over the world. This initial

contact with STEP would allow Martha to receive contact information (phone and e-mail) of

high-end garment stores in Amsterdam, Rotterdam, Paris, Frankfurt, Hamburg, Munich,

Geneva, Stockholm, Oslo, Helsinki, Copenhagen, Luxemburg, Brussels, Vienna. Approximately

$400 STEP membership will provide this information. She also has the option of having her

product payments insured by the Saskatchewan Economic Development Corporation (SEDC).

She should first focus on countries that have a lot of tourists coming from all over the world

(“Made in Canada” tag carries a lot of goodwill and positive image in mind of consumers from

all over the world). She should avoid cities that have a very powerful presence of their own in

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terms of fashion and garment design (ex- London and Milan). The cheaper and cost-effective

initial strategy that we are proposing does not allow her to focus on all the European cities at

the same time.

Martha should approach the International Students Offices at the University of Saskatchewan

and at the University of Regina. From here, she can easily get access to the contact information

for the different countries’ student associations. Then, she should target student groups who

travel to their home countries via Europe. Almost all of the flights to Asia and Africa have

stopovers in Europe. Martha should focus on certain countries’ students (for example, students

from India). These travelers, when they travel back to their home countries, are allowed one

free stop-over by the airlines. The key is that the student should take the flight with airlines of

a country to have a stopover in that country. For example, if they want a free stopover (even

for a large number of days) in Germany, they should board a Lufthansa flight. Martha can offer

three days’ living expenses (approx. $ 100/day – incl. boarding and lodging) if the student is

willing to carry a sample of finished coats and coat construction materials.

Before we finalize a student (after informally interviewing a few of them), we should already

have had done the process of contacting the stores in certain European cities. We mean, send

them electronically the pictures (taken for many angles), specifications, product descriptions,

etc. So, the role of the student is just to take the sample(s) and show them to the store

managers.

Alternatively, Martha may make use of agents to facilitate European expansion. Currently she is

selling into Europe and expects to continue these sales. However, she is also cognizant of the

many changes that may develop over time. In four years, she will begin concentrating on

Europe and at that time determine the best strategy or strategies to utilize.

Channels of Distribution

As stated in the previous sections, Martha will sell her product using three methods which

entail two distribution systems: She will direct sell to independent retailers, on a one to one

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basis as a result of personal marketing, and through the internet. She will also at some point

engage the use of agents to sell to retailers. The use of agents involves a trade off. They will

impact Martha’s revenues; however the potential for market penetration is much greater.

Direct one to one sales interest through attendance of events is also costly, however necessary

at least in the early stages to build market awareness. The most efficient method is through the

internet. It has the potential to reach numerous customers at very little cost.

The Opportunity

Martha is selling into a market, which in the early stages of operation, encompasses all of

western Canada and the northern US States. Total population for this area is listed in Tables 1

to 4. The European market increases this number substantially. The number of stores per

region was determined based on population of the cities and province/state is listed in Table 6.

Table 6: Number of stores in each region with in Canada and the United States of America (Toronto and Montreal cities were put in as one region)

The coat line is unique, differentiated and of high value. She is a low cost producer selling into a

large market area. However, Martha’s niche product and will not have general widespread

appeal. It is expected demand will be greatest in the west for reasons already mentioned, but

her product should also have some demand in the east as well as Europe. Also, Canada has a

global reputation as a technologically well developed country that produces high quality

exports. Based on these and previously mentioned reasons, we come up with gross revenue

projects for year 2008 to 2013, and are shown in Table 7.

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Region Number of Stores

Western Canada (MB, SK, AB, BC) 7.5

Northern US States (ND, SD, CO, MN, MT) 12.5

Sub total 20.0

add Toronto and Montreal 6.0

Total 26.0

Martha Designs

Year 2008 2009 2010 2012 2013

Quantity of sales 250 271 295 321 349

Gross Revenue 108,769 149,924 204,924 262,822 325,393Table 7: Quantity of sales and gross revenue projections for year 2008 to 2013 A detailed marketing plan budget is shown below.

Marketing Expenses 2008 2009 2010 2011 2012 2013Samples $0 691 708 2,177 2,231 2,287 Vehicle expenses $200 200 205 210 215 221 Gas expenses $200 200 205 210 215 221 Telephone $100 100 102 205 310 418 Website development $2,500 2,500 Website maintenance $500 $500 513 525 538 Trade Shows $4,000 4,000 4,100 4,203 4,308 4,415 Travel to stores $4,000 4,000 4,100 4,203 4,308 4,415 Sales/Marketing Agent 2,760 2,970 3,132 Displays $200 300 Brochures $300 300 308 315 323 331 Business Cards $100 100 105 113 Web directory listings $1,200 - 1,200 1,230 1,261 1,292 Data Base Marketing $0Fashion shows $2,000 2,000 2,050 2,101 2,154 2,208 Business Organization Memberships $500 500 513 525 538 552 Magazine Add placements $3,000 3,000 3,075 3,152 3,231 3,311

Total Marketing expense 17,591 17,065 22,208 22,590 23,454

Summary

A SWOT analysis (strengths, weaknesses, opportunities and threats) revealing the following

strengths and weaknesses of Martha’s Designs as well as the external threats and opportunities

faced by the business.

Strengths Martha has a cost advantage in that at this stage she has very little fixed costs. The town of Wolseley has initiated a plan to offer sewing services to Martha in a newly

established plant Low staff requirements. Trained labor available Demonstrated demand for product over a wide geographic area. Multiple distribution channels Flexibility of design changes to maintain relative exclusivity Unique product

Weaknesses Low quantity of sales Competition for the HBC Signature series and others

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Narrow product line Little capital Little experience in running a commercial enterprise Location of manufacturing not ideal Difficulty and cost of limited production runs to maintain image Marketing over a large geographic area

Opportunities Expand and increase product line Opening of dedicated Miyo Fashions stores in major centers

Threats

Failure to generate sufficient cash for the expansion program

Competition response – entrant of a new direct competitors

Millwood Designs from a marketing perspective has a unique product with a demonstrated

demand. The Company faces challenges in terms of limited capital and experience, but

Martha’s mitigating strategy of controlled stepped expansion and reliance on individual and

institutional experts when needed may compensate for these limitations. The orderly, when-

you-can-afford-it approach, also offers an exit strategy or opportunities to modify the strategy

at various critical points.

Operations Plan

Operational organization

Ms. Martha Millwork will be owner and manager. Martha will directly supervise Wolseley

operations. The town of Grenfel will manage the operations, while Martha will provide

specifications, process requirements and details on final quality of finished coats (Figure 1).

Martha will reserve the right to refuse payments for works produced below specifications. A

part/full time assistant will order raw materials, cut fabrics, delivery of cut materials, and does

the quality inspections of finished coats.

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Figure 1: An organizational plan for both operations in Wolseley and Grenfel

Work flow operations

Matha’s work flow operations involve several steps. Those can be devided in to two parts. One

part involves ordering of fabric materials (as specified by Martha), cut according to the design

and send the cut pieces to the Woslely and Grenfel operations. The other part involves

receiving finished coats from the two operations, quality inspection and shipping to stores and

customers. Also, uncut/cut fabric and finished product inventory management is part of the

operations. Martha will have her assistant trained to manage most of these operations. A

schematic representation of the steps involving in operation activities are shown in Figure 2.

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Figure 2: Steps ordering fabric materials to selling and distribution in a operational flow chart.

Operational Space and Design

About 600 square foot (double car garage) space from existing Martha’s property space will be

utilized to centrally manage Martha’s operations. One quarter of this space is allocated as an

office, another quarters of total space for design and cloth cutting area, and the rest to store

ordered raw materials and finished inventory. An exterior view of the Martha’s central

operational facility is shown in Figure 3 and a detailed floor plan is presented in Figure 4.

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Figure 3: An exterior view of Martha’s existing property; this property will house all central

operational activities proposed in the business plan

Figure 4: A detailed floor plan of Martha’s central operational facility (the lengths are not on

scale).

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Human Resources:

For HR, Martha will have one part time staff for the first two years. Then this position will be

converted to a full time position in year three. Martha will need this extra person mainly to help

in operational activities described in the operations plan, while Martha herself will be heavily

involved in general management and marketing functions. It is anticipated that sales will be

expanded during the year 2 and 3. A full time position is justified to accommodate the

increased work loads with increased market expansions.

The part/full time employee’s needed skills will be in fabric cutting, computer, and inventory

management, and shipping and receiving capabilities. She/he would be given a short training in

processing internet orders and in quality control. Since the internet orders are not going to be

that much of significant activity during first two years, it is expected this employee can assist in

general administration functions. The wage would be $26,000 in the year one of employment

with normal rate of increase in the subsequent years.

Along with this full-time employee, the company would use services of international students

travelling to Asia/Africa via one of the targeted 14 European cities. This person would be paid a

total $500/per trip as an allowance to make 4-5 days stopover in Europe and show the product

samples to store owners in Europe.

For manufacturing – the company would use the contracting services of the town of Wolseley.

However, in the year one, Martha would do mostly designing and part of fabric cutting.

A schematic diagram is shown in Figure 5 for human resource managements

Figure 5: Martha’s organizational chart for human resource management.

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Owner/Director:Martha Millwork

Manufacturing Staff,Wolseley:per piece

Part/Full-Time Assistant

(1)

Part-Time Seamstresses:

(2)

Martha Designs

Job Descriptions:

Owner/Director:

Martha will have the responsibility in all areas of her business. Initially, she would be

responsible for maintaining status quo in her manufacturing process. However, it is expected

that Martha will have increase her marketing efforts to distribute her products in to the market

place.

Manufacturing: One of the strengths of Martha Design’s is her ability to create

different designs. Therefore, it is expected that she continue to do this activity.

However, after establishing presence of Martha products in few cities, she should hire

an assistant (it is suggested during the year one) to help in functions described

previously.

Cutter/Support: This person will do the cutting the raw material for sewing. However,

with basic training, she/he would be responsible for checking the quality of stitching done

by the staff at the Wolseley facility. This person would also be trained to process online

orders, inventory management and shipping/receiving.

Part-Time Sales Staff: Starting from year 4, Martha would hire students from international

students unions of different Asian and African countries at the University of Regina and

University of Saskatchewan. Each selected student would target one European city at a

time and they would be provided with an allowance of $500 for 4-5 days stay in a particular

European city. This would be the only cost as they are allowed free stop-over by the airlines

they choose to travel to their home country. These students would carry Martha samples

to the already shortlisted and contacted high end stores in that particular European city.

Contracted Manufacturing Staff: Martha’s Design would use the manufacturing facilities

offered by the town of Wolseley.

Part-Time Seamstresses: The business association with these two part-time staff should be

continued.

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Martha Designs

Financials:

To meet the required initial capital, a total of $120,000 of financing will be required. Due to

projected earnings, bank financing is not an option. Martha may take re-mortgage of her

existing house for 80,000 and add her and her partner’s personal savings of 40,000. The Bank

has taken a collateral position in Martha’s house, which was mortgage free (Table 8).

Capital Requirements:

Table 8: debt and equity financing for Martha Designs

Summary of Projected Income Statement

Table 9 provides a summary of the key values in Income Statement over the 5 year period.

Year 2008 2009 2010 2011 2012

Revenue 108,769 149,924 204,453 262,822 325,393

Net Income (20,520) (4,525) (6,796) 12,250 31,093

The net income is not projected to be positive until year four when sales revenues have

increased to the extent so as to cover costs. The major costs include salaries and marketing.

Promotional costs are relatively high in the first few years ranging from 16% of gross revenue in

2008 to 7% in 2012. The decision was taken to pay Martha a wage of 35,000 per year rather

than have her take dividends out of the Company. This decision, although based in good

business practices, does put the Company in a negative earnings position for the first three

years.

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Form Amount ($)

Debt 0

Equity 120,000

Total 120,000

Martha Designs

Summary of Projected Balance SheetBalance Sheet December 31 2008 2009 2010 2011 2012Current Assets:

Cash 101,140 98,303 92,168 101,829 120,911 Accounts Receivable - - - - - Total Inventories - - - - - Total Current Assets 101,140 98,303 92,168 101,829 120,911

Captial Assets:Plant and Equipment 3,750 3,750 4,750 4,750 5,150 Accumulated C.C.A (1,660) (3,348) (3,928) (4,879) (5,789) Net Plant and Equipment 2,090 402 822 (129) (639)

Total Assets 103,230 98,705 92,989 101,701 120,273

LiabiltiesCurrent Liabilities:

Accounts Payable - - - - -

Noncurrent LiabilitiesLong Term Debt - - 1,080 1,166 1,692 Total Liabilities - - 1,080 1,166 1,692

Shareholders' EquityOwners Equity 123,750 123,750 123,750 123,750 123,750 Retained earnings (20,520) (25,045) (31,841) (23,216) (5,169) Total Shareholder Equity 103,230 98,705 91,909 100,534 118,581

Total Liabilities and 103,230 98,705 92,989 101,701 120,273 Shareholder's Equity

6.5 Risk Analysis / Sensitivity Analysis

MarginsFor the Year ended December 31 2008 2009 2010 2011 2012Income Before Taxes +10% Margin (15,947) 1,788 1,705 25,630 50,835 Income Before Taxes Base (20,520) (4,525) (6,796) 14,670 37,237 Income Before Taxes -10% Margin (25,093) (10,837) (15,297) 3,711 23,640

1 2 3 4 5

-30000-20000-10000

0100002000030000400005000060000

For the Year ended December 31Income Before Taxes +10% MarginIncome Before Taxes BaseIncome Before Taxes -10% Margin

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Martha Designs

Growth RatesFor the Year ended December 31 2008 2009 2010 2011 2012Income Before Taxes Base GR+10% -20520 -4217 -6084 15910 39158Income Before Taxes Base GR -20520 -4525 -6796 14670 37237Income Before Taxes Base GR -10% -20520 -4832 -7500 13458 35380

1 2 3 4 5

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

For the Year ended December 31Income Before Taxes Base GR+10%Income Before Taxes Base GRIncome Before Taxes Base GR -10%

% SalesIncome Before Taxes +10% sales (16,425) 1,024 953 24,353 48,758 Income Before Taxes - Base (20,520) (4,525) (6,796) 14,670 37,237 Income Before Taxes -10% sales (24,434) (9,878) (14,331) 5,212 25,958

1 2 3 4 5

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

60000

Income Before Taxes +10% salesIncome Before Taxes - BaseIncome Before Taxes -10% sales

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Martha Designs

Critical Variables

There are two main critical variables for the company. These would be quantity of sales, both

direct and store sales, and the mark-up related to sales price. Growth rates had a negligible

effect upon our profit results.

Dividend Policy

As Martha is the sole owner and she is drawing a salary from the Company, it is not planned at

this time to offer a dividend over the projected 5 year period. The retained earning shall remain

in the Company for finance purposes. The policy will be revisited at the end of the five year

period.

Economic Forecasts

The five year projection has been made using an inflation rate of 2.5%. This rate has been used

to derive all dependent variables. This estimate has been based on the historical data available

for the Canadian situation.

Ratio Analysis

2008 2009 2010 2011 2012

Profitability Ratios

Gross Profit Margin 38.7% 39.1% 39.4% 39.6% 39.7%

Net Profit Margin -18.9% -3.0% -3.3% 4.7% 9.6%

Return on Total Assets -19.9% -4.6% -7.3% 11.6% 22.7%

Return on Equity -19.9% -4.6% -7.4% 11.8% 23.0%

The gross profit margin is maintained at approximately 40% throughout the 5 years. The

almost identical ROA as compared to the ROE is reflective of the Company’s lack of debt and

lack of operating assets. A 23% return on equity for a Company without any leverage is quite

respectable; however this does not occur until year four. Research indicates that many small

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Martha Designs

clothing manufacturing firms operate at net profit margins between 3% and 8%: Martha is a t

4.7% in 2011, increasing to 9.6 in 2012.

Note: The leverage ratios were not included because without debt financing, the Company is

not leveraged.

Likewise the liquidity ratios (current ratio) were not a useful measure because the

company does not have accounts payable.

Break-Even Analysis

1 2 3 4 50

50000

100000

150000

200000

250000

300000

350000

Year ended Dec 31BE Sales RevenueActual sales Revenue

Summary of Financials

Total Sales Revenue 108,769 149,924 204,453 262,822 325,393 Cost of Goods Sold 66,698 91,258 123,822 158,708 196,140 Gross Margin 42,071 58,666 80,631 104,114 129,253 Average Gross Profit Margin 39% 39% 39% 40% 40%Operating and Marketing ExpensesNet Income(Loss) (20,520) (4,525) (6,796) 12,250 31,093 Cash end of year 101,140 98,303 92,168 105,454 137,583

The business plan analysis has determined that Martha can have marginally viable business

with specific conditions and expectations understood. The business, under the forecasted sales

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Martha Designs

revenue, will not generate positive net income until year four. Conservative estimates were

used for the quantity of sales. An increase in sales may be possible through increased

promotion; however, the promotional expenditure level is already at 16% of gross revenue in

year one and 11% in year two.

The financial model has demonstrated that Martha can expect positive net income in year four

while paying herself a wage of 35,000 per year. Martha’s wage in effect was at 5000 per year in

the cottage industry stage; under this model she could be earning 35,000 per year and

potentially taking dividends in year four.

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