Microsoft Word - woolvest.doc
WOOL VESTS PLUS
Ms. Betty Lambchop of 10 Feet Farms, Cutchogue, NY has found a way
to productively use the fleece derived from the grass fed lamb1
operation run by her husband. In the spring of 2016 she had the
usiness plan for her new venture, Wool Vests Plus. The marketing,
production and management components are prepared. She asks you
to help her to finish the financial section of her business plan
and to answer the questions provided in Microsoft Word.
Background of the Business
Betty's husband, Bradley Lambchop, runs a full-time market-lamb
operation, which yields, as a by-product, 1000 lbs. of unprocessed
wool annually. The unprocessed fleece was sold to local wool
processing mills. However, only $600 to $700 a year, total, was
obtained from these sales. By comparison, a sweater knitted from
approximately 2 lbs. of 100% wool yarn could have been sold in a
etail outlet for prices ranging from $60 to $200, depending on
the design and quality of the product.
Betty wanted to find a more profitable use for the unprocessed
wool. Two years ago she bought a used knitting machine for sale.
Betty's previous experience with knitting enabled her to learn how
to use the machine. After twelve months of learning how to use
the machine by designing sweaters and making samples, Betty
ealized that the knitting machine could be a way to productively
utilize the wool by-product generated by her husband's business.
The knitting machine meant that she could produce sweaters quickly
and with the consistency offered by the machine she could ensure
quality control. With the knitting machine, the business could
provide a livelihood instead of merely supplementing income.
Initially, Betty anticipated operating the business on a part-time
asis. However, a major downsizing by the Computer Technologies
plant in Islandia resulted in the loss of her full-time position.
During her seven years with Computer Technologies, Betty acquired
computer and time management skills that would help her in
establishing a business. She had come to appreciate the importance
of quality control and a good reputation based on quality, fair
1 A market-lamb operation has a constant flock of adult
eeding sheep which are sheared in the spring. The profit of the
market-lamb operation comes from the sale of lambs for meat.
2
price and consistency. The loss of her own job accelerated her own
usiness.
She registered the business as a sole proprietorship. It was
operated as a home-based, production craft business in a rural
community in Suffolk County, New York. Betty anticipated working
a minimum of 50 hours per week on her business.
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The Craft Industry
When Betty investigated the craft industry, she found that its
economic performance was largely undocumented. Until recently,
craftspeople did not seem to be regarded as members of a business
sector. The data that was available had been collected by
specific studies conducted by craft associations or the
government. As the participants in such surveys provided the
financial information, most studies contained a warning that the
information might not be accurate and/or complete. Often the
participants declined to respond to questions regarding sales and
profits.
While conducting research on the craft industry, Betty made a
visit to the New York State Craft Association. An "unofficial"
estimate for 2016 of $100,000,000 of total retail sales in the
craft industry was provided. Someone at the Craft tradeshow
indicated that industry information could be found at www.bls.gov.
Betty thought someone studying finance would be best at seeking
that information.
Product Line
Wool Vests Plus would have offered both original and custom
designs in garments, fashion accessories and items for home decor.
All products are made from 100% wool. The custom product service
line will be available to individuals as well as to organizations.
Betty is a very experienced specialty sweater knitter, in all
sizes. She can customize for different holidays and occasions. If
the orders are larger and less detailed she can use a loom or the
knitting machine. She intends to hand craft the socks and
sweaters. Quality will be her top priority.
Production and Management Plan
Ideally, Betty would have prefe
ed to use the unprocessed wool
from the farm. This would have entailed sending the raw fleece to
a mill to be washed, carded and spun. Two processing mills exist
locally but neither one does custom orders. After investigating
woollen mills, she found one in Riverhead that did custom work.
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Initially, Betty would have handled all of the production and
marketing. As the business grew, she would hire employees to
assist with production and marketing.
The business initially would operate out of her family home, on
the sheep farm. During the 2016 year the room became tight,
particularly as orders increased. Therefore in the middle of the
year she expanded the operation by renting a one-room space, which
was an office and maintained inventory. It allowed the customers
to pick out their wool blends and the yarn, which she would use in
the production of sweaters and socks. Because she had the rented
space she could also sell wool to local knitters who would use it
in their crafting.
The rural setting added an air of "authenticity" to the
handcrafted character of the products and this was reflected in
the advertising.
As the farm was less than 2 miles from Greenport Ha
or and the
Shelter Island Fe
y, a main tourist traffic route, a reasonable
amount of customer traffic was attracted.
Marketing Plan
The principal market for Wool Vests Plus products would have been
an individual consumer, many of whom would have been tourists.
Betty had identified her major market segments as handcraft
purchasers, and consumers who prefer to purchase environmentally
friendly/natural products.
Selling was to be done through craft markets and direct to the
consumer through custom orders.
Betty conducted a telephone survey of retail outlets in the
Eastern Long Island area to determine if her price range was
acceptable. Of the businesses contacted, 3 expressed an interest
in buying the product and specified items for which they did not
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have a supplier. They also provided her with information on
acceptable price ranges.
The possibilities of selling through the Long Island Trade Show
and through an on-site studio/sales outlet was to be investigated.
These possibilities would likely have occu
ed in conjunction with
the addition of employees. In addition, Betty always had
aspirations of becoming a retailer, by owning a store. She
thought it would be good to have a “
ick and mortar”
establishment. She wants you to help her learn of any addition
things to consider if she were to open a shop.
Advertising and promotion utilized business cards,
ochures,
newspapers, and magazines.
Materials and work were guaranteed, providing that the care
instructions on the garment tag were properly followed. If a
sweater was found to have a significant flaw, the purchasing
customer was to be offered a refund or a new sweater. Quality
control was very important to Betty; she did not anticipate that
such refunds or replacements would be necessary.
Financing Requirements
Betty planned to purchase sales tags, business cards,
ochures,
and stationery, all of which a local printer would supply at a
cost of $675, this is her advertising expense. Also, investment
in inventory and accounts receivable would have been necessary as
collection of sales lagged production. She felt that equipment;
promotional/office supplies and inventory would constitute her
financing requirements for the first year. If her cash flow was
not adequate, a line of credit may be needed. She knew she could
get a loan at the local bank and that she would be paying interest
on the loan.
Financing Options
Betty knew because she was laid off from her job at Computer
Technologies after having worked there for years she would be
entitled to some unemployment compensation. Given that she was
earning a substantial income from Computer Technologies, given her
6
years of experience and skill she thought she could earn the
maximum unemployment weekly for the maximum number of weeks.
An equity contribution by Betty consisted of cash of $5,000, a
computer of $2,000. Equipment and furnishings were valued at
$25,000.
Betty planned to apply for a local loan from the Southold Savings
Bank for $10,000, which would have been received January 1, 2017.
This loan was for a 5-year term with interest at 9%, annually
paid monthly (60 monthly payments).
Line Items XXXXXXXXXX2018
Accounts
Payable
5,000 7,000 5,000
Accounts
Receivable
10,000 20,000 40,000
Accumulated
Depreciation
5,400 10,800
Advertising
Expense
XXXXXXXXXX
Cash 5,000 15,000 15,000
Computer XXXXXXXXXX
Cost of Goods
Sold
10,000 20,000 40,000
Depreciation
Expense
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