Business Plan - BabyHands

BabyHands

touch with love

Helping full-time mothers of low income families

Project Title: BabyHands: Baby Knitwears Tony Cheng and Joy Sun The Chinese University of Hong Kong Business Plan Proposal for the Hong Kong Social Enterprise Challenge 2008 Dec 2008 We would like to thank Prof. Kevin Au, Dr. Tim Carey and Mr. Mingles Tsoi at CUHK, Mr. Steve Koon and Mr. Raymond Yim at AIESEC Workshops, and mentors in the Mock Presentation Day for their valuable advice and support.

Baby yHand ds touch with lo ove

EExecutive Summary

1. Exe ecutive Su ummary BabyyHands is a new baby knitwear k on nline store in n Hong Kon ng that caterrs to the middle- to uppeer-class marrket. We pro ovide tailorred designs of quality knitted k blankets, beanie es, scarvves and soccks/moss stiitch shoes fo or babies agged 0-3, wh hich are currently unavvailable in th he market, to meet the aspirationss and needss of parents to find safee yet stylish baby appaarel. With in ncreasing biirth rate and d parents’ liberal spending on bab by productss in Hongg Kong, we will carry out various marketing m campaigns c a we aim to achieve a and minimum of 10% sales growth each yeear. We require a start--up capital of HK$ 700,,000 interrest-free forrgivable loan for a 4-yeear operatio on, which is projected tto breakeve en in the seco ond year.

This project is in nspired by the t motherss who knit clothes c for their t childreen on MTR, whose skillss are underu utilized in th he modern days. On th he other han nd, we notice in low-in ncome families there are full-timee housewivees who want to earn exxtra income. Thus in this projeect we will incorporate i e the social element byy hiring and training some of these e moth hers to prod duce BabyH Hands baby knitwear. Our O project can c providee alternative e income source to t these mo others, equiip them witth skills and improve th heir psychollogical well--being.

2. Vision and Mission M Becoming No. B N 1 We strive s to be the markett leader of baby b knitweear among baby knitw wear afflu uent parents. b brand Meeting the needs We understand d parents’ in ncreasing co oncerns to ffind safe, and aspiration ns of com mfortable yet stylish bab by knitwearr. Meeting their needs is our w working parrents misssion.

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Inspiration

3. Business Inspiration and Social Problems Addressed Business opportunities among working parents with babies

Hand-made knitwear is having greater demand in recent years.

Among the various knitwear products, baby knitwear is often considered as a symbol of love and warmth. Parents with dual roles often do not have time and skill to hand knit for their babies. The BabyHands knitwear can fill in this gap and serve as a kind of psychological compensation as parents can design their unique baby knitwear.

It is also a nice gift for families and friends who have babies and live abroad.

Mothers in low Full-time mothers in low income families often find it difficult to income families are leave their kids home and take up a job. Some of them were often jobless unable to work because of tradition roles, parenthood, age and lack of skills. These mothers feel bad about themselves.

Low income also restricts their children’s learning and development opportunities, which could lead to future poverty.

In every 100 students, 25 of them live in poverty.

Mothers have Although many of these mothers cannot work due to their age, underutilized skills parenthood, or insufficient technical knowledge and skills, we observe that they may have excellent skills in clothes-making and knitwear as they may have worked in garment industry before.

We are also inspired by the lovely scenes that mothers and grandmothers knitting hats or scarves on MTR for their kids.

How BabyHands Our business provides alternative home-working opportunity and could help the income source to some of these mothers, thus improving the mothers in need living standard of their families. We also hope to instill dignity and connect these mothers back to the community.

Established Our business model to engage low income groups as a way to business model improve their living is adapted from those existing business operations. For example, Oxfam UK sells fashion clothing that is sourced according to their fair trade principle in their supply chain. Rag2riches.ph is a successful social enterprise which utilizes the weaving skills of women in the poorest part of Philippines to produce high-fashion bags.

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Products

4. Products and Services Serving Mid- to High-end Markets in Hong Kong Accessories as We will produce baby blankets, scarves, beanies and socks/moss main product line stitch shoes for babies aged 0-3. These accessories are relatively easy to knit and do not suffer greatly from size issues. Production cost could be kept low and consistent. A 50g organic cotton yarn costs around HK$60 (Appendix 8), which could produce a baby scarf, a beanie or a pair of socks.

We plan to introduce baby sweaters, jackets, cardigans and vests in future product line.

Organic cotton as We will use high quality organic cotton yarns to produce the raw materials knitwear. Organic cotton has similar advantages as wool and nylon materials, yet it is safer for babies as it does not easily cause irritation. It is also eco-friendly and preferred by parents despite it is relatively expensive.

Customization by Apart from standardized design, we will provide product parents customization for parents who want to create a unique babywear for their babies. Parents can customize the product’s color, add logo or names at additional costs.

Online platform as We will use an online platform to showcase our products and the main point of sale quality materials we use, receive local and international orders, and let customers design their own knitwear.

We will choose Yahoo! Shopping as the online platform given its brand and traffic attractiveness.

We will use Hong Kong Post to deliver online orders; the cost will be borne by customers.

Gift order service We will offer local and international gift order service. In addition to the knitwear product, a designer card will be included in each gift order.

Design with a local We will partner with local design schools and invite touch students to design baby knitwear and gift cards. We will select some best designs and create a special series as a reward for these up-and-coming designers.

Local graphic designer Siu O (http://www.oyano.com) has agreed to design cartoon characters for our babywear.

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Work by Siu O

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Market Analysis

5. Market Analysis

15

60

10

40 5

20 0

0 2003

2004

2005

2006

2007

Source: Census and Statistics Dept., Hong Kong SAR Government

Liberal spending on As having one child is common in baby products Hong Kong families, parents spend liberally on food and health, clothing, and education of their children to ensure they have got the best care. There are over 900,000 or 44% of families in Hong Kong enjoy a monthly domestic family income of over HK$20,000.

A 2006 survey revealed half of the interviewed parents in Hong Kong spent over HK$3,000 per month on baby products1. The potential for baby product market is great.

Parents concern In the baby apparel market, parents emphasize both quality and quality and design design. Interestingly, parents in Hong Kong often associated luxury brands with good quality and design2.

Limited knitwear Currently there are 6-7 established local and international chain choice in the stores in Hong Kong specializing in baby products such as market Chickeeduck, Kingcow, Mothercare and Hallmark Babies. These stores are mainly located in several large shopping malls in Tsim Sha Tsui, Causeway Bay and Tsuen Wan. They have limited choice of baby knitwear, and priced from HK$60 to $200.

Several luxury brands such as Burberrys, Dior, and Versace also sell baby apparel in Hong Kong. There are second-hand markets for baby apparel of such brands.

Psychological Some working parents do not have time to take care of their needs of parents babies, they compensate by providing the best food, clothes and education to their babies. They also want to show off their love or social status to others through the dressing of babies as reflected by the popularity of luxury branded babywear.

1

“75%父母：增免稅額會再生育”, retrieved from http://paper.wenweipo.com/2006/03/15/ HK0603150063.htm on 20 Dec 2008.

2 Prendergast, G., & Wong, C. (2003). Parental influence on the purchase of luxury brands of infant apparel: An exploratory study in Hong Kong. Journal of Consumer Marketing, 20, 157-169.

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Birth Rate

Booming birth rate Birth rate in Hong Kong has opens a huge slightly increased (Figure 1); potential market there were over 200,000 infants born over the past four years.

No. of Births ('000)

Figure 1: Births in Hong Kong 80

BabyHands touch with love

SWOT Analysis

6. SWOT Analysis Our OPPORTUNITY Babywear products in the market often are of standardized designs. Parents nowadays want more stylish options, especially those affluent parents. They also care about the product safety and quality. On the otherhand, knitwear is getting popular in recent years which can be a niche market. Î We offer both standard and customized baby knitwear to capture the high-end market.

Our THREAT Competition is keen. Î Branding of BabyHands and providing unique product and services are therefore important to stand out from the competitors.

Demand for baby knitwear is seasonal. Î We can promote our products overseas (e.g. Australia and Europe) in off-seasons.

Our STRENGTHS BabyHands allows parents to design their own baby knitwear which offers a wider product choices compared with standardized designs available in chain stores. This is fun and it satisfies parents’ emotional needs.

Our WEAKNESSES BabyHands is a new brand which requires a lot of resources in promotion. In addition, as our products are hand-knitted, it will be challenging to scale up our production when needed. Î We need to carefully plan and monitor manpower and inventory to meet market demands.

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Marketing Strategies

7. Marketing and Sales Strategies BRANDING: We will brand BabyHands as “Touch with Love”, a caring and stylish brand with high quality products and services throughout our marketing campaigns.

PRICING: We will target middle- to upper-class market. A skimming pricing strategy will be used. Basic design items will be charged from $480 to $880 (Appendix 1). Additional charges will be applied to custom-built ones.

DISTRIBUTION: As Hong Kong parents are receptive to online shopping, we will mainly conduct our business via online platform to maintain lower overheads and reach wider markets outside Hong Kong.

PROMOTION: Product Each product will be packaged with a tag and a story card. packaging - A tag with a BabyHands logo will be attached to the product. The name of the knitter will also be printed on the tag as a recognition.

-

A story card detailing the social objectives and story behind BabyHands will be used to promote our brand as social enterprise.

Advertising We will advertise in popular parent online forums (e.g. www.babykingdom.com) and parenting magazines (e.g. Pregnancy 孕媽媽, OURS 媽媽寶寶) to create brand awareness among active parents.

We will invite newspapers and magazines to interview our mothers to increase brand exposure.

We will put BabyHands leaflets in private hospitals and baby clinics to reach our target customers.

Special We will partner with established department stores to sell an exclusive knitwear series knitwear series to build initial market awareness and customer base.

Design To emphasize our uniqueness as a provider for custom-built baby handcompetition knitwear, we will regularly organize clothing design competition to energize our brand as well as to get good designs. We will also invite local designers and celebrities to have their own signature design.

Training We will organize parents and knitting trainings to promote our brand and workshops demonstrate our social responsibility.

Overseas We will also work with Trade Development Council to promote our brand promotion overseas.

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Operation and Management

8. Operations Recruitment and We will work with a local non-government organization (NGO) to Training recruit and train mothers from a particular district (e.g. Tin Shui Wai, Sham Shui Po). We require a minimum of 10 knitters at the start of the business. Training will be carried out monthly for new and existing mothers (Appendix 2).

Working areas Mothers will work together in a community centre of the NGO, or they can decide to work at home. Finished products will be collected at the community centre per week and sent to BabyHands office. Products will then be checked quality, washed, tagged and packaged.

Mothers will receive $80 - $120 for each finished knitwear of acceptable quality. They will be paid at the end of each month.

9. Management Team Partnership with a A local NGO who recruits mothers and co-manages the operation.

Local NGO BabyHands will share 3% of sales profit with the NGO as gratitude.

Management and Two founders of BabyHands who will manage the operation, Operation finance, marketing campaigns, orders and shipment.

Product Design An experienced product designer will be hired full-time to design the product and knitting patterns.

Training and An experienced knitter will be hired full-time to deliver training Quality Control and responsible for quality control of the products.

Advisors Experienced managers in the garment industry and social enterprise will be invited to advice on business operation.

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Financial Summary

10. Financial Summary We require an interest-free forgivable loan of HK$700,000 for the set up and operation of BabyHands. We project a healthy cash flow and a breakeven in Year 2.

High profit margin We will price our products from $480 to $880. We expect our profit margin ranging from 58% to 74%. (Appendix 1) Minimum 10% growth We expect a sales growth of 10%, 15% and 20% for the rate per year second, third and fourth year of operation respectively.

HK$700,000 forgivable loan needed, with repayment within 4 years

We require an interest-free forgivable loan of HK$700,000 to start and operate BabyHands for the first four years.

Repayment of loan will be in the form of monthly installment of HK$20,000 starting from Year 2 until the end of Year 4.

(Appendix 3).

Breakeven at Year 2 We project a breakeven at Year 2, though we expect a net loss at Year 1. (Appendix 5).

End of Proposal

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Appendix

Appendix page 1.

Production Cost Structure

10

2.

Production Manpower

10

3.

Projected Cash Flow Summary

10

4.

Projected Cash Flow and Non-Cash Flow Information

11

5.

Projected Profit and Loss

14

6.

Projected Balance Sheet

14

7.

Projected Events in the First Year

15

8.

Cost of Organic Cotton Yarn

15

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Appendix

Appendix 1. Production Cost Structure Cost Per item unit (HK$) Yarn Production 1 (balls) Pricing Labour Packaging Cost2

Product

A

(a) (b) (c) (d)

Blanket Beanie/Hat Scarf Socks/Stitch Shoes Cost of a Set

4 1 1 1 6

B

880 580 480 480 2,420

C

D

E

120 80 80 80

10 10 10 10

370 150 150 150 820

Profit Margin F

510 430 330 330 1,600

58% 74% 69% 69%

(a+b+c+d)

Note 1. The cost of a yarn ball is HK$ 60.

Note 2. Production Cost = (A) x $60 + (C) + (D) Note 3. Customization will be additionally charged from $50 to $200 depending on requirement.

Appendix 2. Production Manpower: Minimum Knitters Required Per Month Production Product Time (days) (a) Blanket 2 (b) Beanie/Hat 1 (c) Scarf 1 (d) Socks/Stitch Shoe 1 Minimum Monthly Manpower

40 4 2 2 2 10

Monthly Production (Unit) 1 50 60 70 5 6 7 2.5 3 3.5 2.5 3 3.5 2.5 3 3.5 12.5 15 17.5

(person)

Note 1: Each knitter works for 20 days per month.

Appendix 3. Projected Cash Flow Summary Healthy cash flow with capital repay installment from Year 2 to Year 4.

Injected Capital 2 Cash Position (Beginning of the year) Cash Revenue and Account Receivab 3 4 Total Cash Available (2+3)

Year 1 700 700 424 1,124

At the end of Year 2 Year 3 114 71 1,343 1,525 1,457 1,596

Year 4 52 1,815 1,867

Cash Paid Out Loan Principle Installment Payment Cash Position (End of Year) (4-5-6)

(1,009) 114

(1,146) (240) 71

(1,448) (220) 199

Cash Flow

HK$ ('000) 1

5 6 7

(1,304) (240) 52

(figures rounded up to the nearest thousand)

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Appendix

Appendix 4. Projected Cash Flow and Non-Cash Flow Information (figures rounded up to the nearest thousand) Year 1

8 148 148

9 50 48 99

10 10 97 107

11 17 145 162

12 71 133 205

YEAR TOTAL 424 -

33 40 1 5 25 1 1 1 1 108

33 40 1 5 15 1 1 1 1 98

33 40 1 5 5 1 1 1 1 1 89

33 40 1 5 5 1 1 1 2 1 90

33 40 1 5 5 1 1 1 3 1 91

33 40 1 5 5 1 1 1 3 1 90

328 480 12 5 60 70 7 12 15 8 12 1,009

256

148

50

10

17

71

114

-

98 -

48 48 115 1

97 145 115 3

145 290 98 6

133 375 86 7

109 387 82 8

97 339 82 7

97 303 82 6

726 -

40 40 80

80 40 120

120 40 20 140

140 40 40 140

140 40 60 120

120 40 55 105

105 40 45 100

100 40 40 100

100 40 40 100

400 300

3 95 97 192

4 82 109 191

5 81 109 190

End of Month 6 7 80 79 109 109 189 188

8 75 109 184

9 71 109 180

10 63 121 184

11 69 145 215

12 100 121 221

YEAR TOTAL 1,343 -

33 40 1 5 5 1 1 1 2 1 20 110

33 40 1 5 5 1 1 1 2 1 20 110

33 40 1 5 5 1 1 1 2 1 20 110

33 40 1 5 5 1 1 1 2 1 20 110

33 40 1 5 5 1 1 1 2 1 20 110

33 40 1 5 8 1 1 1 2 1 20 113

33 40 1 5 8 1 1 1 2 1 20 113

37 40 1 5 8 1 1 1 2 1 20 117

37 40 1 5 5 1 1 1 2 1 20 114

37 40 1 5 5 1 1 1 3 1 20 115

37 40 1 5 5 1 1 1 2 1 36 20 150

410 480 12 5 60 69 12 12 12 27 12 36 240 1,386

108

95

82

81

80

79

75

71

63

69

100

71

-

NON-CASH FLOW INFORMATION, HK$ ('000) (n) Sales Volume 109 1 303 (o) Accounts Receivable 78 (p) Inventory on Hand (cost) 5 (q) Accounts Payable to NGO 6

109 315 74 6

109 327 70 6

109 327 66 6

109 327 62 6

109 327 57 6

121 339 49 7

145 375 33 7

121 387 29 8

109 375 29 7

109 339 29 7

109 327 29 6

1,367

95 40 45 90

90 40 45 85

85 40 45 80

80 40 45 75

75 40 45 70

70 40 50 60

60 40 60 40

40 45 50 35

35 45 45 35

35 45 45 35

35 45 45 35

CASH-FLOW INFORMATION, HK$ ('000) Note 1. CASH ON HAND [Beginning of month] 2. CASH RECEIPTS 1 3. TOTAL CASH AVAILABLE (1+2)

End of Month 6 7 349 256 349 256

1 700 700

2 647 647

3 599 599

4 518 518

5 437 437

40 1 5 5 1 1 53

40 1 5 1 1 48

33 40 1 5 1 1 81

33 40 1 5 1 1 81

33 40 1 5 1 8 1 89

33 40 1 5 10 1 1 1 1 93

647

599

518

437

349

NON-CASH FLOW INFORMATION, HK$ ('000) (n) Sales Volume 1 (o) Accounts Receivable 8 (p) Inventory on Hand (cost) 5 (q) Accounts Payable to NGO

-

-

33 -

66 -

INVENTORY PER SET (Unit) (r) Opening Inventory [Beginning of Month] (s) Per Set Production (t) Inventory Sold (u) CLOSING INVENTORY (r+s-t)

-

-

40 40

CASH-FLOW INFORMATION, HK$ ('000) Note 1. CASH ON HAND [Beginning of month] 2. CASH RECEIPTS 1 3. TOTAL CASH AVAILABLE (1+2)

1 114 109 223

2 108 97 205

(a) Production Cost (b) Salary of Full-time Staff (c) Training (d) Equipment and Tools (e) Rent (f) Marketing and Promotion (g) Delivery, and Travel (h) Telephone, Electricty, Utility (i) Website (Setup/Maintenance) (j) Proceeds Sharing with NGO (k) Miscellaneous (l) Profit Tax (m) Loan Principle Installment Payment 4. TOTAL CASH PAID OUT [Total (a) to (m)]

33 40 1 5 5 5 1 1 1 2 1 20 115

(a) Production Cost (b) Salary of Full-time Staff (c) Training (d) Equipment and Tools (e) Rent (f) Marketing and Promotion (g) Delivery, and Travel (h) Telephone, Electricty, Utility (i) Website (Setup/Maintenance) (j) Proceeds Sharing with NGO (k) Miscellaneous (l) Profit Tax (m) Loan Principle Installment Payment 4. TOTAL CASH PAID OUT [Total (a) to (m)]

2 3

4

5 6 7

5. CASH POSITION (3-4)

9

Year 2

2 3

4

5 6 7

5. CASH POSITION (3-4)

INVENTORY PER SET (Unit) (r) Opening Inventory [Beginning of Month] (s) Per Set Production (t) Inventory Sold (u) CLOSING INVENTORY (r+s-t)

8

100 40 45 95

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500 565

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Appendix

Appendix 4. Projected Cash Flow and Non-Cash Flow Information (cont’d) (figures rounded up to the nearest thousand) Year 3

End of Month 6 7 24 22 121 121 145 143

CASH-FLOW INFORMATION, HK$ ('000) Note 1. CASH ON HAND [Beginning of month] 2. CASH RECEIPTS 1 3. TOTAL CASH AVAILABLE (1+2)

1 71 109 180

2 61 109 170

3 56 109 165

4 46 109 155

5 37 109 146

8 14 133 147

9 17 133 150

10 20 145 165

11 38 169 208

12 80 157 238

(a) Production Cost (b) Salary of Full-time Staff (c) Training (d) Equipment and Tools (e) Rent (f) Marketing and Promotion (g) Delivery, and Travel (h) Telephone, Electricty, Utility (i) Website (Setup/Maintenance) (j) Proceeds Sharing with NGO (k) Miscellaneous (l) Profit Tax (m) Loan Principle Installment Payment 4. TOTAL CASH PAID OUT [Total (a) to (m)]

37 40 1 5 5 5 1 1 1 2 1 20 119

37 40 1 5 5 1 1 1 2 1 20 114

41 40 1 5 5 1 1 1 2 1 20 118

41 40 1 5 5 1 1 1 2 1 20 118

45 40 1 5 5 1 1 1 2 1 20 122

45 40 1 5 5 1 1 1 2 1 20 123

49 40 1 5 8 1 1 1 2 1 20 130

49 40 1 5 8 1 1 1 3 1 20 130

49 40 1 5 8 1 1 1 3 1 20 130

49 40 1 5 5 1 1 1 3 1 20 127

49 40 1 5 5 1 1 1 3 1 20 128

49 40 1 5 5 1 1 1 3 1 59 20 186

61

56

46

37

24

22

14

17

20

38

80

52

NON-CASH FLOW INFORMATION, HK$ ('000) (n) Sales Volume 109 1 (o) Accounts Receivable 327 29 (p) Inventory on Hand (cost) 5 (q) Accounts Payable to NGO 6

109 327 29 6

121 339 29 7

121 351 29 7

133 375 29 7

133 387 29 8

145 411 29 8

169 448 21 9

157 472 16 9

133 460 21 9

121 411 29 8

121 375 37 7

35 45 45 35

35 45 45 35

35 50 50 35

35 50 50 35

35 55 55 35

35 55 55 35

35 60 60 35

35 60 70 25

25 60 65 20

20 60 55 25

25 60 50 35

35 60 50 45

CASH-FLOW INFORMATION, HK$ ('000) Note 1. CASH ON HAND [Beginning of month] 2. CASH RECEIPTS 1 3. TOTAL CASH AVAILABLE (1+2)

1 52 133 185

2 53 121 174

3 47 121 168

4 38 145 183

5 52 145 197

End of Month 6 7 66 80 145 145 211 225

8 87 145 232

9 93 157 251

10 112 169 282

11 150 206 356

12 223 182 405

(a) Production Cost (b) Salary of Full-time Staff (c) Training (d) Equipment and Tools (e) Rent (f) Marketing and Promotion (g) Delivery, and Travel (h) Telephone, Electricty, Utility (i) Website (Setup/Maintenance) (j) Proceeds Sharing with NGO (k) Miscellaneous (l) Profit Tax (m) Loan Principle Installment Payment 4. TOTAL CASH PAID OUT [Total (a) to (m)]

49 40 1 5 5 5 1 1 1 3 1 20 132

49 40 1 5 5 1 1 1 2 1 20 127

53 40 1 5 5 1 1 1 2 1 20 131

53 40 1 5 5 1 1 1 3 1 20 131

53 40 1 5 5 1 1 1 3 1 20 131

53 40 1 5 5 1 1 1 3 1 20 131

57 40 1 5 8 1 1 1 3 1 20 138

57 40 1 5 8 1 1 1 3 1 20 138

57 40 1 5 8 1 1 1 3 1 20 139

53 40 1 5 5 1 1 1 3 1 20 132

53 40 1 5 5 1 1 1 4 1 20 132

53 40 1 5 5 1 1 1 4 1 94 206

53

47

38

52

66

80

87

93

112

150

223

199

NON-CASH FLOW INFORMATION, HK$ ('000) (n) Sales Volume 145 1 387 (o) Accounts Receivable 37 (p) Inventory on Hand (cost) 5 (q) Accounts Payable to NGO 8

145 411 37 8

145 436 41 9

145 436 45 9

145 436 49 9

157 448 49 9

169 472 49 9

206 532 37 11

182 557 33 11

157 545 33 11

145 484 37 10

145 448 41 9

45 60 60 45

45 65 60 50

50 65 60 55

55 65 60 60

60 65 65 60

60 70 70 60

60 70 85 45

45 70 75 40

40 65 65 40

40 65 60 45

45 65 60 50

2 3

4

5 6 7

5. CASH POSITION (3-4)

INVENTORY PER SET (Unit) (r) Opening Inventory [Beginning of Month] (s) Per Set Production (t) Inventory Sold (u) CLOSING INVENTORY (r+s-t)

1,525 541 480 12 5 60 69 12 12 12 30 12 59 240 1,544

1,573

8

Year 4

2 3

4

5 6 7

5. CASH POSITION (3-4)

INVENTORY PER SET (Unit) (r) Opening Inventory [Beginning of Month] (s) Per Set Production (t) Inventory Sold (u) CLOSING INVENTORY (r+s-t)

YEAR TOTAL

660 650

YEAR TOTAL 1,815 644 480 12 5 60 69 12 12 12 36 12 94 220 1,668

1,888

8

45 60 60 45

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785 780

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Appendix

Appendix 4. Projected Cash Flow and Non-Cash Flow Information (cont’d) Notes 1. As we sell BabyHands products mainly through internet, and occasionally work with department store, we expect to receive the sales payment from banks and department store 90 days later. The cash receipt shown on the cash flow is account receivable, which is calculated by the formula: Inventory sold three months ago (row t) x $ 2,420 2. Production cost is the multiple of the cost (HKD 820) and production unit (row s) of a set of product.

3. We will hire 4 full-time staff (two founders, product designer, training and quality control) who will be paid monthly HK$ 9,500 and HK$ 500 employer contributed Mandatory Provident Fund. Total payroll will be HK$ 40,000 per month.

4. We will regularly promote our brand and product on internet and in parenting magazines.

We will also partner with department stores to sell exclusive BabyHands products at 7th to 9th month of each year, which in the period we will allocate extra budget for marketing and advertising.

5. We will share 3% of gross sales profit with our partnered NGO. The amount will be paid once we have received our account receivable, i.e. 90 days after sales.

6. Profit Tax in Hong Kong is 17.5% for incorporated organizations.

7. Loan Principle Installment Payment will start at beginning of Year 2 until 11th Month of Year 4. Installment is HK$ 20,000, interest-free.

8. Inventory on hand is the total production cost of closing inventory (row u).

9. Inventory per set includes a blanket, a beanie, a scarf and a pair of socks/moss stitch shoes.

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Appendix

Appendix 5. Projected Profit and Loss Assumptions 1 Sales Growth Rate Expected Sales (Unit per Product Set) 2 3 Production (Unit per Product Set)

Year 1

Profit and Loss HK$ ('000) Total Revenue Cost of Good Sold GROSS PROFIT [4-5]

4 5 6

OPERATING EXPENSES Salary of Full-time Staff Training Equipment and Tools Rent Marketing and Promotion Delivery, and Travel Telephone, Electricty, Utility Website (Setup/Maintenance) Proceeds Sharing with NGO Miscellaneous TOTAL OPERATING EXPENSES

7 8 9 10 11 12 13 14 15 16 17

300 400

Year 2 10% 565 500

Year 3 15% 650 660

Year 4 20% 780 785

Year 1

Year 2

Year 3

Year 4

726 (246) 480

1367 (463) 904

1573 (533) 1040

1888 (640) 1248

480 12 5 60 70 7 12 15 14 12 687

480 12 5 60 69 12 12 12 27 12 701

480 12 5 60 69 12 12 12 31 12 705

480 12 5 60 69 12 12 12 37 12 711

(207) 0 (207)

203 36 167

335 59 276

537 94 443

[Total (7) to (16)]

Profit (Loss) before Tax [6-17] Profit Tax (@17.5%) NET PROFIT (LOSS) [18-19]

18 19 20

(figures rounded up to the nearest thousand)

Appendix 6. Projected Balance Sheet Balance Sheet

HK$ ('000)

Year 1

as at 31 Dec Year 2 Year 3

Year 4

Assets Cash Accounts Receivable Inventory Total Current Assets (1+2+3) Total Fixed Assets TOTAL ASSETS (4+5)

1 2 3 4 5 6

114 303 82 499 499

71 327 29 426 426

52 375 37 464 464

199 448 41 688 688

Liabilities and Owner's Equity Accounts Payable Long-Term Liabilities Total Liabilities (7+8)

7 8 9

6 -

6 -

6

7 -

6

9 -

7

9

Owner's investment Retained earnings Total owner's equity (10+11)

10 11 12

700 (207) 493

460 (40) 420

220 236 456

679 679

TOTAL LIABILITIES AND OWNER'S EQUITY (9+12)

13

499

426

464

688

(figures rounded up to the nearest thousand)

Hong Kong Social Enterprise Challenge 2008

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Baby yHand ds touch with lo ove

Appendix A

Append dix 7. Projjected Evvents in th he First Ye ear Iniitial Recruitm ment, Training g, Prroduct Design n, Sourcing

mth

1

2

3

4

Online Sales starrts, m Promotio Platform on Campaigns

5

6

7

8

9

10

11

1 12

Production n, Contact De epartment Stores, Promottion Strategie es

Append dix 8. Cosst of Organic Cotton Yarn

(so ource: http:///www.yarn.com)

End d of Append dix

Hong Kong Social Enterprise E C Challenge 2 2008

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