The Ball Shack, Business Plan

THE BALL SHACK

BUSINESS PLAN

NOVEMBER 17, 2014

20 W. MCCONNELL DRIVE, FLAGSTAFF, ARIZONA 86011

SECTION ONE, TEAM SEVEN:

ABDULAZIZ ALAJLAN, ALEXANDER HAYES, SAMUEL KEMPH,

JUSTIN SANCHEZ, CLARE SEGAR, SAMUEL SLAGER, AND ELAINE WONG

This business plan is intended solely for informational purposes and to assist with a due diligence investigation. The

information contained herein is believed to be reliable, but the management team makes no representations or

warranties with respect to this information. The financial projections that are part of this plan represent estimates

based on extensive research and on assumptions considered reasonable. The contents of this plan are confidential

and are not to be reproduced without express written consent.

TABLE OF CONTENTS

Executive Summary ....................................................................................................................... i

Company Overview ...................................................................................................................... 1

Introduction ................................................................................................................................. 1

Mission Statement ....................................................................................................................... 1

Objectives .................................................................................................................................... 1

Business Model ........................................................................................................................... 1

Product or Service......................................................................................................................... 3

Features ....................................................................................................................................... 3

Benefits........................................................................................................................................ 4

Summary of features and benefits ............................................................................................... 4

Proprietary Rights ....................................................................................................................... 4

Stage of Development ................................................................................................................. 5

Cost Estimates ............................................................................................................................. 5

Industry Size and Growth ............................................................................................................ 6

Industry Trends ........................................................................................................................... 6

Industry Structure ........................................................................................................................ 6

Industry Key Success Factors ..................................................................................................... 6

Industry Competitive Analysis .................................................................................................... 7

Summary of Potential Market Size/Growth ................................................................................ 8

Situation Analysis and Business Strategy ................................................................................... 9

Environmental Analysis .............................................................................................................. 9

Competitor Analysis .................................................................................................................. 10

Internal Analysis ....................................................................................................................... 10

Competitive Advantages ........................................................................................................... 11

Summary of Situation Analysis and Business Strategy ............................................................ 12

Marketing Plan............................................................................................................................ 14

Customer Research .................................................................................................................... 14

Marketing Objectives ................................................................................................................ 14

Primary and Secondary Target Market ..................................................................................... 15

Product and Service Strategy .................................................................................................... 15

Identity ...................................................................................................................................... 16

Positioning ................................................................................................................................. 17

Pricing Strategy and Tactics ...................................................................................................... 17

Channel Strategy and Tactics .................................................................................................... 17

Marketing Communication Strategy and Tactics ...................................................................... 18

Sales Strategy and Tactics ......................................................................................................... 18

Cost Estimates ........................................................................................................................... 18

Summary of Potential Market Niche Size/Growth ................................................................... 19

Management and Operations Plan ............................................................................................ 20

Company Organization ............................................................................................................. 20

Management Team .................................................................................................................... 21

Operations Strategy ................................................................................................................... 21

Scope of Operations .................................................................................................................. 21

Ongoing Operations .................................................................................................................. 22

Cost Estimates ........................................................................................................................... 23

Financial Plan .............................................................................................................................. 24

Key Assumptions ...................................................................................................................... 24

Pro-forma Financial Statements ................................................................................................ 24

Revenue Model ......................................................................................................................... 25

Risks .......................................................................................................................................... 25

Offer ............................................................................................................................................. 27

Funding Needs and Source ........................................................................................................ 27

Offering and Exit Strategy ........................................................................................................ 27

Development Plan ....................................................................................................................... 29

Development Strategy ............................................................................................................... 29

References .................................................................................................................................... 31

Appendices ................................................................................................................................... 37

Page i

EXECUTIVE SUMMARY

The Ball Shack will design, manage, and maintain sports equipment rental vending machines.

People select the sports equipment they’d like to rent at the machine, slide a credit card for

payment, and then return the equipment when they’re done using it. Renters will be charged by

the hour until they either return it or until the combined rental charge equals the price of buying

the equipment plus a markup for a restock fee and non-return fee.

The rental vending machines will be manufactured through contract by Intelligent Dispensing

Solutions and will be filled with equipment contracted from Nike. The Ball Shack’s initial focus

will be on Huntington Beach, where 12.6 million people visit annually and where, based on

research, the sports equipment retail industry is most successful in the United States. The rental

vending machines will be placed in the most populated areas along the beach. Ultimately, The

Ball Shack will allow beach visitors of Huntington Beach to rent sports equipment on demand at

an affordable price.

Market research has confirmed that many beach visitors forget to bring sports equipment, can’t or

would rather not transport it, or don't own the equipment to begin with. The problem of not being

able to rent sports equipment conveniently on Huntington Beach is evident, and The Ball Shack

will solve this problem.

The Ball Shack will primarily target physically active 16-25 year-olds who visit Huntington

Beach. This demographic would be the most likely to rent sports equipment from The Ball Shack

because these people are the ones who visit Huntington Beach most and participate or enjoy

playing sports. The Ball Shack will market its convenience of location and affordable rental price

to this primary target market. Marketing campaigns will include banners placed along Huntington

Beach and brochures placed in local hotels.

The Ball Shack has few direct competitors but has many indirect competitors. The main direct

competitor is Zack's Surf Shop, located on Huntington Beach. Zack's offers sports equipment

renting at $3.00 per hour compared to The Ball Shack's competitive price of $2.00 per hour.

Zack's also has only two locations on Huntington Beach compared to The Ball Shack's expected

20 vending locations. Indirect competitors of The Ball Shack include Dick's Sporting Goods, The

Sports Authority, and Big 5 Sporting Goods. Although these indirect competitors are already

well-established and sell a greater variety of merchandise, they do not offer the option to rent

sports equipment right at the locations where people want them. For example, the closest Dick's

Sporting Goods is six miles away from Huntington Beach.

Based on its estimates, The Ball Shack plans to generate profit within the first year of operation.

Based on The Ball Shack's financial statements, the revenues for the company in the first five

years are $180,150; $187,400; $194,900; $345,500; and $359,300 respectively. Net incomes for

the company in the first five years are $3,800; $9,200; $11,900; $6,300; and $73,000 respectively.

These profits for a startup ensure stable operations.

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The Ball Shack will need $320,000 in order to begin operations. The Ball Shack’s founders plan

to collectively contribute $70,000, leaving $250,000 to be provided by investors. The capital will

be used to pay for the custom rental vending machines, the sports equipment needed to fill the

machines, maintenance and office equipment, salaries and wages, and additional reserves for

unexpected occurrences. Investors willing to contribute the $250,000 needed to start The Ball

Shack will receive 78% ownership in the company. After five years of operations, the return on

investment is estimated to be $264,600

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COMPANY OVERVIEW

INTRODUCTION

The Ball Shack will be a sports equipment rental service that will provide consumers with a ball

or other sports equipment for an hourly fee. The company will be located in Southern California

due to a dense population of active users of sports equipment (# Entertainment/Leisure, n.d). A

chart showing sport participation in the last 12 months is found in Appendix A.

The Ball Shack will be structured as an S corporation. This organization form features a formal

corporate governance structure, offers limited liability protection to shareholders, and provides

the flexibility to change to a C corporation when The Ball Shack grows. The initial board of

directors will be tasked with finalizing the organizational form to maximize the financial and tax

benefits for the shareholders.

The Ball Shack will provide sports equipment at beach locations directly to customers in a rental

vending machine. The location of the rental vending machines will solve the problem of

forgetting to bring equipment or offers an alternative to buying a new item that is not often used.

Tourists often cannot carry large sports equipment with them while traveling and locals often

forget sports equipment at home when going to the beach. The Ball Shack will have a variety of

equipment based on the location of the rental machine.

MISSION STATEMENT

Providing consumers with convenience is important to The Ball Shack. We strive to provide

quality equipment at affordable prices to beach goers.

OBJECTIVES

The Ball Shack will strive to have a rental vending machine in the majority of California by Year

5. After Year 5, The Ball Shack will expand to parks in California and throughout the U.S. to

states with increasing levels of sporting retail. For every item of sports equipment purchased, The

Ball Shack will make at least five times the original purchase price within the first three months

of purchase. The company estimates making back the price of the rental vending machine within

the first year of placement.

BUSINESS MODEL

Suppliers will supply The Ball Shack with sports equipment in return for payment. The county

allows location placement in return for a payment. The Ball Shack provides sports equipment to a

consumer; the consumer pays an hourly fee for the equipment rental. After the use of the

equipment, the consumer then returns the equipment to the rental vending machine. (See in Figure

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1 for the business model).

Figure 1- Business Model

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PRODUCT OR SERVICE

FEATURES

High Quality

The service The Ball Shack will provide is a rental vending machine which allows customers to

rent sports equipment. The sports equipment that will be in the machines includes volleyballs,

flying disks, soccer balls, footballs, and kick balls.

Style and Appearance

The Ball Shack will feature high quality equipment at a low rental cost. The Ball Shack will

contract with Nike in order to obtain quality equipment while keeping costs low through bulk

pricing. High quality equipment ensures a long, durable equipment life. The Ball Shack will be

designed to look like a beach shack but will contain technological features. The sports equipment

will be branded with Nike's logo as well as The Ball Shack logo. (See in Figure 2 for The Ball

Shack’s logo).

Figure 2- The Ball Shack logo

Service

The Ball Shack will provide quality service through interactive features on the rental vending

machine. The quality service will include phone numbers for any problems consumers may have.

The phone number will forward to the administrative assistant who will be trained to provide

quality customer service.

Efficiency

The rental vending machines are the most important feature of this business. The rental vending

machines eliminate the need for employees at the point of sale. Not using employees reduces

expenses in the long run because the rental vending machine is a onetime cost. The rental vending

machine is easy to use so renting is an easy, quick process. The time to rent a ball should take less

than one minute.

Convenience

The convenience aspect of the rental vending machines will be through location placements. The

Ball Shack will start the first five years of operations with 20 rental vending machines located in

Huntington Beach and then expand after the first three years. The machines will be located on

boardwalks and near piers where there will be a large amount of beach traffic. These locations

will provide the product needed at the point of use. The Ball Shack is also a convenient solution

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because of its rental aspect. The rental aspect eliminates the need to bring equipment to the beach.

When there is a Ball Shack is at the beach, people will know they can rent sports equipment on

site. The rental aspect also appeals to those with limited income because it does not require them

to purchase an item for a higher cost.

Sustainability

The Ball Shack’s rental vending machines are sustainable because of their use of solar panels.

Solar panels also eliminate the need for the machines to be placed near an electrical outlet, which

allows The Ball Shack to be located freely along beaches. Solar panels will eliminate monthly

electricity bills as well.

The Ball Shack has found customers would be willing to rent sports equipment had they forgotten

their equipment at home. High quality equipment reduces the need to frequently replace

equipment. The style and appearance will be used as a marketing tool to generate demand. People

will recognize The Ball Shack logo and know there is a Ball Shack nearby. High quality customer

service will turn one-time customers into repeat customers. Efficiency of The Ball Shack is

important because the goal is to allow consumers to get what they want on demand. People do not

want to wait around while at the beach and they want to enjoy their time. Convenience ties in with

efficiency; people do not want to have to leave their beach location to go buy sports equipment.

The sustainability aspect ties in with California’s mission to go green. Going green provides

convenience with flexible locations at the beach due to not relying on a power source besides

solar power.

BENEFITS

The benefits of The Ball Shack are that customers can have a good time with family and friends.

The Ball Shack encourages team play. For example, many beaches already have volleyball courts

set up, and The Ball Shack will encourage their use. The Ball Shack promotes healthy lifestyles

through physical activity.

SUMMARY OF FEATURES AND BENEFITS

The Ball Shack will have features of high quality equipment, machine and equipment appeal,

effective customer service, efficiency and convenience, and sustainability. The Ball Shack will

offer the benefits of sports equipment that does not easily damage, a beautiful machine design,

happy customers, a form of using beach time, a reduction of travel time when making a purchase,

and sustainability. The features and benefits can be seen in Appendix B as a chart showing

product/service features and benefits.

PROPRIETARY RIGHTS

The utility patent will prevent competitors from copying The Ball Shack's rental vending machine

method. The Ball Shack will also gain a trademark on the logo. This trademark will prevent

others from using logos similar to The Ball Shack’s. All trademarks for The Ball Shack were filed

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in September 2014 meaning a declaration of use will not be required until September 2016. The

utility patent for the rental vending machine will be received January 2015 meaning the reissue of

the patent for the rental vending machine will not be needed until January 2035.

STAGE OF DEVELOPMENT

The Ball Shack is working with Intelligent Dispensing Solutions in perfecting the design and

features of the rental vending machine that will be used. Before opening, The Ball Shack must

contract through the city of Huntington Beach in order to obtain beachfront locations. The process

includes getting approved by the city Community Services Commission and City Council. Then a

request must be issued for a proposal for a vending company to be awarded a contract. Next the

proposal would be reviewed. After this stage “a contract would be negotiated but the usual terms

include the vendor being responsible for all costs associated with installing and maintaining the

machines” (David Dominguez, Personal Communication, October 27, 2014). The city does not

charge a set fee but takes a percentage of gross sales, which is usually 10% with annual CPI

adjustments (David Dominguez, Personal Communication, October 27, 2014).

COST ESTIMATES

The rental vending machine will have a point-of-sale system to facilitate rental of equipment.

Included in the rental vending machine features an air compressor that will be used to inflate and

deflate the sports equipment. Equipment will be used to inflate the deflated equipment when the

customer receives the product upon return the sports equipment will be deflated. The equipment

will be tracked through the use of a barcode reader in the machine. The rental vending machines

will be powered through the use of solar panels. To protect the rental vending machine design a

utility patent will be obtained. A trademark will also be obtained to protect the use of The Ball

Shack logo. The cost estimates of The Ball Shack can be found in Appendix C in the

product/service cost estimates chart. (See in Figure 3 for the design of the rental vending

machines).

Figure 3- The Ball Shack’s rental vending machines

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INDUSTRY ANALYSIS

INDUSTRY SIZE AND GROWTH

Over the past five years, the sporting goods retail industry has done well due to an increase in

health-conscious individuals’ demand for sporting goods (Turk 2014). The industry primarily

manufactures and distributes sporting goods. Sporting goods include equipment, uniforms,

footwear, and accessories (Sporting Goods Stores in the US: Market Research Report, 2014). The

industry enjoys a moderate global market and generates $150 billion in revenue per year;

however, the market in the United States makes up more than a third of this figure at $53.6 billion

(Riper, 2013). The recent rate of growth has been 3% per year (Wood, 2012).

INDUSTRY TRENDS

Technology that can measure player efficiency through data analysis has recently been introduced

in the industry. The increasing need for player data provides a new market opportunity (Riper,

2013). From the socio-cultural perspective, the industry is focused on capitalizing on fan

engagement, whether the fans view games from television or attend the live events. Engagement

enables the development of customer loyalty to a particular brand. In addition, the rising trend of

global fan support has a direct impact on industry revenues. The economic aspect of the sporting

goods industry is promising with collaboration from the media. Demographic influences,

especially age and gender, notably affect revenues (Mooradian, Matzler & Ring, 2012).

INDUSTRY STRUCTURE

Sporting goods are first produced by various manufacturers and then distributed through direct

retail stores or wholesalers. Although the market is highly fragmented, there is a high level of

communication between retail stores and manufacturing to ensure attention to changing consumer

preferences and dedication to maximizing revenues (Wood, 2014). Retail stores such as Foot

Locker have an impact in the prices charged for various brands by the manufacturers as a way of

cutting the retailers' operational costs. Buyers have an influence on what is manufactured whereas

the retailers determine the prices charged for the goods. Entering the market is difficult because

most purchases are made because of brand loyalty (Sporting Goods- Industry Facts and Trends,

n.d.). In addition, new companies have to contend with the control over the distribution channels

used by existing, established manufacturers.

INDUSTRY KEY SUCCESS FACTORS

The key success factors within the industry involve effective marketing strategies and sales

promotion (Mooradian et al., 2012). Presentation should promote impulsive purchases by

displaying products so they are easy to access, find, and view (Turk, 2014). A new entrant is

required to spend more money in marketing as a way of attracting and retaining customers

(Mooney, 2004). Contracts with large sporting good brands are important for competing in the

sporting goods market (Turk, 2014). Contracting with large sporting good brands will help

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companies by creating a well-known brand. Although large contracts with companies such as

Nike and Adidas are helpful to retailers, having local connections and making ongoing

connections with sports teams and clubs can help ensure comparative business advantages (Turk,

2014).

Economies of scope are important to customers in this market, so products should be varied with

price and quality (Turk, 2014). Location of retail stores is important based on areas with the best

weather conditions for sports equipment. Locations with ideal year-round weather boast the most

sales (Turk, 2014).

The use of technology is important to being a successful competitor in this market. Technology

for a rental machine includes POS systems, electronic data interchange, and bar coding. These

technologic improvements have resulted in larger labor productivity, better inventory control, and

reductions in paper usage for ordering products directly from the supply chain (Turk, 2014).

Superiority of products in terms of quality and durability is paramount in the industry as a way of

creating value for customer’s purchases (Mooney, 2014). In addition, effective customer relations

help in creating a positive public image for the company, which helps boost sales.

INDUSTRY COMPETITIVE ANALYSIS

The three biggest competitors in the sporting goods retail industry (in order from largest to

smallest market share) are Dicks Sporting Goods Inc., Foot Locker Inc., and The Sports Authority

Inc. (Turk, 2014).

Dicks Sporting Goods Dick’s Sporting Goods holds 15.7% of the market share and owns 566 stores in 49 states across

the United States. In the next five years, company revenue is anticipated to increase by 7.0% to

$6.8 billion (Turk, 2014).

Footlocker Footlocker contains 11.1% of the market share and operates over 3,473 retail stores. It operates

stores in North America, Puerto Rico, U.S. Virgin Islands, Guam, Europe, Australia, and New

Zealand. Footlocker’s athletic shoe line accounts for 90% of the company’s sales. Company

revenue is anticipated to grow at an annual rate of 6.3% up $4.8 billion over the next five years

(Turk, 2014).

The Sports Authority Inc.

The Sports Authority Inc. currently has a market share of 8.5%. It is regarded as one of the largest

retail stores in the United States with 450 retail stores in 45 states. Sports Authority is a privately

owned company that does not allow finical statements to be released. IBISWorld predicts the

company’s revenue is expected to increase at an annual rate of 3.7% to $3.7 billion in the next

five years (Turk, 2014).

Most other companies in the industry are family owned retail business that has a high percentage

in the industry. There is a high degree of rivalry within the industry because most of the products

are purchased based on customer loyalty. North American companies that control a larger

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percentage of the market have a direct impact on the capacity for new entrants (Sporting Good

Industry Tracks and Trends, n.d.). The sizes of the companies make it difficult for new

competitors to enter and compete on the basis of price. Dicks, Footlocker, and Sports authority

are able to keep their prices low in comparison to smaller business.

SUMMARY OF POTENTIAL MARKET SIZE/GROWTH

The summary of potential market size and growth depends on the sporting good retail industry.

Table 1 below, there is the market size in both, dollar sales, and unit sales. It also includes the

growth rate per year.

Industry Market Size- Table 1

Brief

description of

industry

Macro Market

Size in $ sale

Macro Market

size in unit sales

Growth

rate (% per

year)

Detailed Basis

for Estimate

The retail of

equipment,

uniforms,

footwear, and

accessories used

in the sporting

environment

$43.611 billion Sports equipment

65%

Clothing 20%

Footwear 10%

Exercise,

camping

equipment 5%

3% Research data

obtained from

various research

centers showing

the industry

estimates and the

analysis of

industry trends

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SITUATION ANALYSIS AND BUSINESS STRATEGY

ENVIRONMENTAL ANALYSIS

In order to be aware of the external forces that could influence the operations of The Ball Shack,

the political, economic, sociocultural, technological, and legal environments must be analyzed.

Political Environment

The political environment is stable in California. There are no unique tax policies related to

renting sports equipment through a rental vending machine. The most applicable tax is sales tax at

between 7.5% and 10% (Cole, 2012). The state/federal legislature should be supportive of The

Ball Shack because it encourages its citizens to be healthy and being healthy means lower

healthcare costs.

Economic Environment

The current bank prime loan in the United States of America, including California, is 3.25%

(Selected Interest, 2014). This may affect The Ball Shack’s ability to acquire capital. The

unemployment rate in California is 7.4%, which is less than the U.S. average (Kirkham & Hsu,

2014). The unemployment rate is important because people will use disposable income to rent

from The Ball Shack; no household income means less disposable income. Inflation is at 1.7%

(Current US Inflation Rates, 2014).

Sociocultural Environment

The number of people who travel to California each year has been increasing, including U.S.

citizens and international visitors. The total direct travel spending in 2013 was $109.6 billion, a

3.2% increase from 2012 (California Travel Impacts, 2014). As more people travel to California,

more people will make trips to the beaches. The more people there are at beaches, the more

potential The Ball Shack has to rent. In 2013, 78.6% of 227.2 million personal trips to the beaches

of California were by Californian residents themselves (2013 Domestic Travel to California,

2014). The more Californians visit the beaches, the more word-of-mouth The Ball Shack will

receive which will increase customer awareness. According to Simply Map, the state of California

is in the top percentile of people exercising on a regular basis, specifically on the beaches

(Geographic Research, Inc., 2012).

Technological Environment

Rental vending machine technology is mature. Rental vending machines are now able to rent

items (which requires taking inventory out and back in), communicate machine status to

computers, and have long term durability. No foreseeable technological changes threaten this

business opportunity. Technological changes that will present opportunities for this business

include advancements in the efficiency of rental vending machines, advancements in the

efficiency of vehicles/transportation, and advancements in solar panel technology (the power

source for Ball Shacks).

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Legal Environment

The Ball Shack will have a utility patent on the process of renting sporting goods through a rental

vending machine. Businesses similar to The Ball Shack have been sued before. Redbox, a similar

company to The Ball Shack, has been sued on several different occasions due to licensing issues.

If The Ball Shack doesn’t obtain a contract with sports equipment brands, The Ball Shack is liable

for a lawsuit for license infringement.

COMPETITOR ANALYSIS

Direct Competitors

The direct competitors for The Ball Shack would be local shops that rent bikes and other beach

equipment. These local stores are already established, but they lack the ability to serve customers

in multiple locations in a cost-effective way. Zack’s surf shop has two Huntington Beach

locations. Zack’s, like The Ball Shack, rents sports equipment. They rent their sports equipment at

$3.00. Zack’s also sells food, souvenirs, surfboards, and other beach necessities (Zack's Surf

Shop, n.d.). TeeBoxx is a company similar to The Ball Shack, but its machines only allows

purchases of flying discs and it is located in Florida (Mission, 2014). TeeBoxx will be a direct

competitor when both TeeBoxx and The Ball Shack expand into other states. Similarly, Nike’s

Joga Bonito is a rental vending machine that only sells soccer balls (10 Weird and Wonderful,

2011).

Indirect Competitors

The indirect competitors would be Dicks, Foot Locker, Sport Authority, and Big 5. These are

large, established organizations that have reached economies of scale. These are indirect

competitors because people could go to these stores to purchase sports equipment instead of

renting from The Ball Shack. The main threat from these competitors is their extensive inventory

and the ability to purchase such inventory. However, these department stores are usually restricted

to power centers (or strip centers) and malls, making their locations inconvenient for those who

are already at a beach and have a sudden need or desire for sports equipment.

Future

The future competitors will be companies such as Dicks, Foot Locker, Sport Authority, and Big 5.

These companies could implement sports equipment renting. They could also create express

stores placed on beaches that rent equipment. For more details on comparing with competition,

see Appendix D for the competition comparative analysis chart.

INTERNAL ANALYSIS

Business Resources

The Ball Shack will be located directly on the beaches of Southern California. Southern

California has a very high physical exercise/activity rate because of its climate and large number

of beaches. By being located on the beaches, The Ball Shack will be convenient for consumers,

making The Ball Shack an easy option for customer sporting goods needs.

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The employees of The Ball Shack will be friendly and willing and able to build relationships with

both investors as well as consumers. This ability will make the employees of The Ball Shack an

invaluable resource to the company.

A utility patent will protect The Ball Shack’s machine concept.

Business Capabilities

The Ball Shack has a unique distribution method for its products: it allows consumers to rent

sports equipment as opposed to buying it. Renting is cheaper than purchasing, so this unique

method allows The Ball Shack to keep prices low.

Barriers to Entry for New Entrants

The Ball Shack will acquire a utility patent for the machine that distributes the equipment. The

patent will make it difficult for other companies to enter the market because they must develop a

new distribution method other than a machine similar to The Ball Shack's.

The Ball Shack will strive to have agreements with all beaches that grants exclusive rights to

renting equipment at those locations. These agreements will keep other renting model entrants

away from areas The Ball Shack is already operating in.

COMPETITIVE ADVANTAGES

Utility Patent

The Ball Shack’s main competitive advantage is a utility patent. The utility patent will protect the

process of renting sports equipment through rental vending machines. This process will eliminate

competitors using the same process for 20 years from the date of the patent filing. Because the

utility patent only lasts for 20 years, this advantage is not sustainable.

Low Cost

The Ball Shack’s price will allow working-class consumers and people who do not wish to buy

sports equipment to have access to sports equipment. With The Ball Shack’s cost model for

volleyballs, soccer balls, kickball, flying disks, and footballs, it would take approximately 20

hours of use to equal the price of the equipment. The low pricing strategy is sustainable because

The Ball Shack uses a rental business model and renting is cheaper than purchasing.

Placement

The Ball Shack will have a home base in California and will its focus on locations along the

Southern California coast. This location is an advantage because it offers year-round ideal

weather along with a high number of health conscious individuals. These factors are the ultimate

conditions for product placement and is sustainable in the long term unless California experiences

a sudden, permanent change in climate (which is unlikely). Being first-to-market, The Ball Shack

will solidify the brand and process before competitors have the legal ability to create similar

products; in addition, being first-to-market will allow The Ball Shack to establish a customer base

while also allowing time to perfect the process. The branding strategy is not sustainable because

of perceived future direct competitors.

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SUMMARY OF SITUATION ANALYSIS AND BUSINESS STRATEGY

Many strategies can be developed based on The Ball Shack’s strengths and weaknesses and five

specific strategies will be pursued. First, contracting with companies will be easier due to being

the first entrants in the market and having less competition. Second, The Ball Shack will be able

to negotiate with companies to buy in bulk at a discount, making the cost per sporting goods

cheaper. This cost reduction will increase profit. Third, The Ball Shack will obtain prime

locations on beachfronts and boardwalks to best access beach goers. Fourth, having a utility

patent will prevent competitors from entering the market with processes similar to The Ball

Shack. The patent will allow The Ball Shack have significant time to penetrate the market. Lastly,

The Ball Shack will target California travelers who wish to use sporting goods but cannot

transport large equipment.

By matching weaknesses to opportunities, four strategies can be pursued. Contracts will be

pursued with companies such as Nike and Wilson to not only ensure low price but also high

quality. Better brands will allow The Ball Shack to purchase higher quality balls for less. Higher

quality sports equipment will allow The Ball Shack to use equipment for longer periods of time,

making it a better investment in the long run. Contracting with companies will also prevent

licensing lawsuits from the manufacturers. The Ball Shack wants to avoid violating brand use

without permission because stealing intellectual property is unethical and potential lawsuits are

expensive. To counter the costs of rental vending machines it will be important to have effective

marketing strategies

A key success factor for this industry is having high brand recognition in the area the company is

located. With this in mind, The Ball Shack will sponsor local sports teams (Turk, 2014). Once

The Ball Shack is established in California, the goal is to expand into other states in the United

States. This expansion will increase revenue.

By comparing strengths to threats, the most important strategy is having a utility patent to prevent

direct competitors from competing too closely with The Ball Shack. Convenient locations is a

prioritized strategy because if other companies such as Dick’s or Big 5 decide to start renting

sports equipment, convenient locations would be what gives The Ball Shack an advantage.

Expansion will also be necessary in order to obtain as many convenient locations as possible.

With The Ball Shack’s low-cost rental fees, more people will be able to use the equipment they

enjoy without the high cost of having to purchase it. This strategy is an advantage that other

companies have left unexplored. With being first-to-market, direct competition is low. However,

in order to be first to the market requires quick market entry. Production of the rental vending

machines and contracts must be established before The Ball Shack can start renting out

equipment. Lastly, even if stricter beach regulations were implemented, the strategy for The Ball

Shack will continue to be a convenience. The Ball Shack, if not permitted proximity to the beach

on sidewalks or near other rental vending machines, would be moved to either a boardwalk

location or near parking for the beach.

By matching threats to weaknesses, The Ball Shack has three additional strategies. First, rental

vending machines have a high capital cost. In order to break-even on the capital cost, the strategy

will be to offer low prices so a larger number of people will be able to afford the rental fee for

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sports equipment. With more people renting, there will be an increase in sales. Another issue with

rental vending machines is that they have a limited capacity, but The Ball Shack rental machines

will be made to be flexible so the quantities of each sporting good can be changed. If long-term

unfavorable weather plagued California, the machines could easily be moved due to the relatively

small size and mobility of the rental vending machine. This feature also allows The Ball Shack to

move machines at the CEO’s discretion. A weakness of The Ball Shack is the quality

management. Managing the quality is difficult because balls can be popped or become lopsided.

The Ball Shack will develop and experiment with ways to monitor equipment quality through

technology and customer reviews. This experimentation will occur before direct competitors are

able to enter the market giving The Ball Shack the benefit of time to gain a strong advantage over

competitors. (See Appendix E for the complete SWOT analysis chart).

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MARKETING PLAN

CUSTOMER RESEARCH

Customers recognize they have a need for a service like The Ball Shack. Through research The

Ball Shack discovered 84.1% of the people surveyed have forgotten to bring sports equipment to

the beach. See appendix F for the market research summary. This service would allow those

people to rent sports equipment on site and on demand. This statistic means that out of 227.2

million personal trips to the beaches of California in 2013 (California Statistics & Trends, 2014).

191.1 million people forget to bring equipment to the beach, offering a true opportunity for The

Ball Shack.

Customers want features such as environmentally conscious materials, quality equipment, and a

mobile application. Environmentally conscious materials includes using solar power technology,

using sustainable materials, and creating compact machines that minimize land requirements.

Quality equipment includes offering professional-standard sports equipment for rental.

Customers are willing to pay up to $4.00 per unit rental (72.5%) for one to three hours (53.7%),

while 61.9% of people said they stay at the beach for one to three hours. (See Appendix F for the

marketing survey).

Some people would not use the service because they have their own equipment. Most of these

people, however, are serious athletes who own their own special equipment because they must

constantly practice. Therefore, The Ball Shack will focus more on the average, recreational sports

players due to them not usually owning their own equipment and would be more willing to rent.

Customers overwhelmingly understood the benefits of this service compared to the services

offered by our competitors. (See Appendix F for the marketing survey). The competition of The

Ball Shack is retail stores where one can buy their own equipment. However, these stores are

usually far away from beaches with the closest retailer being miles away from the beach, and not

everyone wishes to purchase a product sometimes they just want to try something new.

MARKETING OBJECTIVES

The marketing objectives of The Ball Shack will focus on creating awareness through advertising

outlets and satisfying customer needs. To create awareness of The Ball Shack, advertising will be

a key strategy. Advertisements will be done through local advertising such flyers near The Ball

Shack locations, sponsoring sports teams and beach events such as the U.S. Open of Surfing,

updating the volleyball courts with The Ball Shack’s logos, and banners in nearby cities. From the

company’s advertising, The Ball Shack expects a $2.00 return for $1.00 spent on advertising.

Comparing revenues to the advertising expenses will provide a rough estimate of how successful

the advertisements were. The Ball Shack will review the success of advertising every quarter to

ensure profitability and success while evaluating if the strategies are meeting return expectations.

If the advertising campaign proves to be unsuccessful, The Ball Shack will try other modes of

advertising.

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The Ball Shack will focus on meeting customer needs by offering products in a convenient

location, which counters the large retailers’ methods. By being a rental machine company, The

Ball Shack is able to obtain 20 prime locations, which are ideal for what customers need. To

measure success of this objective, The Ball Shack plans to survey its customers in order to

evaluate convenience in location and quality. The surveys will occur when a new machine is

placed in a location

PRIMARY AND SECONDARY TARGET MARKET

The Ball Shack’s target market are people aged 16 through 25 who live near beaches in Southern

California. The target segment enjoys being active in outdoor settings. The breakdown of outdoor

activities shows Caucasians make up 71% of participants, while the age group of 18-24 makes up

36%. This demographic matches 16% of total outdoor participants who reside in the Pacific

census region (Outdoor Recreation Participation Report, 2013).

The secondary market consists of families traveling to the beaches in Southern California. The

people who travel to California are predominantly male (59%) and earn over $75k, and 36% have

children living with them (California Tourism Research Report on Australian Travelers and

California, 2007). With these statistics in mind, the focus is on families because adults over 35 are

not likely to rent sport equipment for themselves because that demographic is generally less

physically active. The 36% with children traveling is the secondary market The Ball Shack is

attaining. International tourism to Southern California comes mainly from Mexico, Canada, and

China (Overseas and Mexican Visitors to California, 2014). Domestic travelers originate from

Arizona, Nevada, Washington, and Oregon. Inland Californian residents travel to the beach

locations in Southern California as well, making up 78% domestic travels to Southern California

(California Statistics & Trends, 2014).

Industry research done by The Ball Shack has determined there is not yet an established market

for renting sports equipment. According to survey 84.1% claim they have forgotten sports

equipment when going to the beach, and 69.2% of the respondents would rent a ball from The

Ball Shack if they forgot their equipment. Renting from The Ball Shack would be an impulse buy

because most people have forgotten equipment to bring to the beach (See Appendix F for market

research summary).

PRODUCT AND SERVICE STRATEGY

Based on customer interviews, people like the idea of a RedBox-like rental system for sports

equipment. A potential customer said she finds RedBox easy to use with convenient payment

methods (Survey Respondent, Coconino High School, personal communication, September 21,

2014). The Ball Shack plans resemble the design and process of RedBox so customers will be

familiar with using the system. According to the data of The Ball Shack's survey, the suggested

products with the highest request include volleyballs, footballs, and flying disks (see Appendix F

for market research summary)

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The Ball Shack will be different from the competition in that no other major competitors are

renting sports equipment on site. Sports equipment can be expensive to buy, so The Ball Shack

offers a substitute to buying costly equipment. Most companies place a high focus on selling

equipment in large stores, whereas The Ball Shack focuses on renting a smaller selection of

sporting goods at the locations where consumers want to use them.

The Ball Shack will enhance the equipment through partnerships with Nike. Through this

partnership, higher quality sports equipment can be provided while not compromising profits. The

Ball Shack will enhance the value to customers by giving them easy access to quality equipment.

The Ball Shack will provide customer service through a call line that will direct customers to

specific question areas, an online chat feature, and a webpage with frequently asked questions.

The Ball Shack will have representatives to take calls and answer questions and address customer

concerns. Customer service of The Ball Shack will resemble the look of the closest related

company in the rental vending machine market: Redbox (Contact Us, 2013). Customer service

will include dealing with problems concerning sports equipment quality and necessary refunds.

Customer service representatives will not be outsourced as The Ball Shack demands providing

excellent customer service.

Training of Ball Shack employees will vary. For entry level employees, training will consist of

knowing how to check for quality in balls, restock machines, and learn how to use The Ball Shack

POS system. For customer service representatives, training will consist of problem solving amd

phone etiquette workshops. Training will not be necessary for computer technicians; computer

technicians will be hired based on the skill level needed to perform computer programming.

The Ball Shack plans to start with a focus on beaches. With evidence of profitability, The Ball

Shack will expand to other beaches in California after the first three years of operation. Once

expanded, these new rental machines will offer different products depending on what amenities

are offered at the given beach.

IDENTITY

The Ball Shack will be a low cost alternative to purchasing new sports equipment when going to

the beach. The Ball Shack will be the first company of its kind, using a business model based on

renting sports equipment as opposed to buying it. The Ball Shack will have a relaxed and fun

atmosphere to help differentiate it from its competitors: large sporting goods stores. The Ball

Shack will promote its relaxed feel by placing the rental machines directly on the beach. The Ball

Shack is named as such because a shack alludes to a laid-back and beach-like atmosphere.

The Ball Shack rental machines will be styled as a beach shack using colors commonly associated

with the beach such as light blues, tans, and yellows. The balls will come deflated in a clear box

to show the items that can be rented.

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POSITIONING

The Ball Shack is a sports equipment rental company in the U.S. sporting goods industry. The

Ball Shack is an innovative, convenient method of getting high quality, on-the-go equipment for

use at beaches. This is different from The Ball Shack’s competition because the larger retailers do

not offer the option to rent sports equipment.

PRICING STRATEGY AND TACTICS

The Ball Shack will use an every-day-low-pricing. This strategy will be used because The Ball

Shack is a rental company so the prices must be low enough so the target market of beachgoers

think renting an item from The Ball Shack is a cheaper alternative to buying the product from a

competitor. The sporting goods market is a fairly elastic market with an elasticity of -.83. The

elasticity means keeping the prices low will encourage customers to use The Ball Shack as

opposed to other higher priced companies.

The strategy will not change over time. The Ball Shack will strive to have a high volume of

rentals at a low price to keep people renting. As stated above, if The Ball Shack raised the prices

the customers would purchase the products from The Ball Shack’s competitors as opposed to

renting them.

The Ball Shack will purchase high quality equipment from Nike. The high quality is needed to

have long lasting equipment. The Ball Shack will pay $6.00 for a flying disc and rent the product

for $2.00 an hour. The Ball Shack will pay $16.00 for a soccer ball and rent the product out for

two dollars an hour. The Ball Shack will pay $20.00 for a football and rent the ball for $2.00 an

hour. The Ball Shack will pay $20.00 for a volleyball and rent the product to consumers for $2.00

an hour.

The Ball Shack’s pricing strategy is different than its competitions. The Ball Shack’s direct

competitor is Zack’s Surf Shop. Zack’s Surf Shop rents their equipment for $3.00 an hour versus

to The Ball Shack’s $2.00 an hour (Joe Bennett, personal communication, October 13, 2014).

Even if the indirect competitors offer products at low prices, The Ball Shack will still be able to

offer its products at a lower price because The Ball Shack is a rental company.

According to market research done by The Ball Shack, consumers are willing to pay one to three

dollars per hour to rent the sports equipment (See Appendix F for market research summary).

CHANNEL STRATEGY AND TACTICS

The Ball Shack will rent sports equipment directly to the consumer using the rental machines, and

Nike products as an exclusive supplier. Using Nike will ensure quality of the equipment. To be

able to get the equipment to the consumer, The Ball Shack will have to purchase custom rental

vending machines. The custom rental vending machine will have solar panels, air

inflator/deflator, touch screen point-of-sale system, and engraved barcodes on the equipment that

identify the individual pieces of equipment.

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Potential channel partners will include companies such as Nike. The Ball Shack will use Nike’s

products, so there could be a chance Nike would advertise The Ball Shack on its website. Nike

outsources the products and then sells to retailers such as Dick’s Sporting Goods, Sports

Authority, and Big 5.

MARKETING COMMUNICATION STRATEGY AND TACTICS

To attract the target market, The Ball Shack will place brochures at hotels and online brochures

on the Huntington Beach website. The Ball Shack will place brochures at hotels and downtown

locations. The Ball Shack will sponsor local youth sports teams as a means of promoting the

healthy lifestyle The Ball Shack stands for. Consumers will have the option to sign up for emails

and text messages to receive promotional codes. When The Ball Shack expands after Year 3, The

Ball Shack will still place advertisements at local hotels, beaches, and on the Huntington Beach

website. Another strategy will be placing The Ball Shack’s logo on the equipment so people

passing by will know where the equipment came from. The people passing by will want the

equipment from The Ball Shack.

SALES STRATEGY AND TACTICS

The job of the CEO will be to contact state/city governments to place Ball Shack rental vending

machines on the beaches and eventually parks. Rentals/sales of sports equipment will be fulfilled

through the specialized The Ball Shack rental vending machines. Customers will have to know

about the machines and have a need for sports equipment in order for a sale to be made. The sport

equipment rentals/sales will be processed through a credit card reader and touchscreen point-of-

sale system.

The Ball Shack will generate leads by advertising in hotels with brochures, through the use of

banners, and through little league sponsorship. In California, the government will be persuaded to

allow The Ball Shack to place rental vending machines on Huntington Beach because it will

promote fitness and health.

The Ball Shack will support the sales efforts by contracting with companies to maintain the rental

vending machines. The Ball Shack will receive the rental vending machines from Intelligent

Dispensing Solutions. The Ball Shack will promote high quality and maximum inventory of the

machines. Most rentals/sales will be done during the summer, so advertising will only be

purchased during the beaches' most popular months (March through August). The machines will

be places in the off season as well. During the off season, the revenue would not be as high as the

seasonal due to the lack of visitors to Huntington Beach.

COST ESTIMATES

Cost estimates include salaries and wages, as well as inventory, infrastructure, warranties, legal,

and maintenance costs. Some of these costs are certain, like salaries and wages and rent; on the

other hand, some are uncertain, especially maintenance. These costs are estimated based on the

most-likely scenario (not adjusted for best-case or worst-case scenarios). (See Appendix G for

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marketing cost estimates).

SUMMARY OF POTENTIAL MARKET NICHE SIZE/GROWTH

The market niche size is the sports equipment market. Table 2 explains how The Ball Shack will

be positioned in the sporting goods equipment sales market.

Market Niche Size - Table 2

Brief

description

of the

market

niche

Niche

Size in $

sales

Niche

Size in

unit

sales

Growth

Rate (%

per

year)

Detailed Basis for Estimate

(B2C) Sports

equipment

Market

$43.6

Billion

218

Million

3% The Ball Shack’s niche market is sporting goods equipment

sales. The estimate for unit sales is drawn from the average

price of a ball from sporting goods retailers being about

$20.00. The Ball Shack will be focusing on Huntington

Beach for the first five years.

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MANAGEMENT AND OPERATIONS PLAN

COMPANY ORGANIZATION

The Ball Shack will be organized in a simple manner. A Chief Executive Officer will manage the

company. This officer will be in charge of one secretary and one maintenance worker. The

maintenance worker will be in charge of restocking rental vending machines and ensuring that all

rental equipment is undamaged. The secretary will be in charge of customer service and technical

support. The Ball Shack has an effective structure with a uniform chain of command, with clear

channels of communication throughout the company, and efficient use of company resources.

The Ball Shack will have a board of directors. This board will consist of Alexander Hayes, the

Ball Shack CEO, major investors, and shareholders. The role of the board of directors will be to

give direction to the CEO. All major company decisions will be decided by majority rule. If the

CEO resigns or is no longer fit for duty, the board will be responsible for finding and hiring a new

CEO. (See Figure 4 below for organizational chart)

Figure 4- Organizational Chart

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MANAGEMENT TEAM

Chief Executive Officer

The CEO, Alexander Hayes, will be in charge of supervising the company. His duties and

responsibilities will include forming and implementing company strategies, contracting with

sports equipment manufacturers, contracting with rental vending machine manufacturers,

overseeing financials, and communicating with the board of directors. Mr. Hayes has exceptional

marketing and leadership skills and has customer service experience. His understanding of

conceptual design is a quality The Ball Shack needs to be successful. Compensation starts at an

annual salary of $40,000. This salary was derived from the size of the startup and duties required

of the position. Mr. Hayes is not proficient in the field of accounting, this non-proficiency leaves

a gap in the management team. This gap will be filled through an outsourced accounting firm (See

Appendix H for resume).

OPERATIONS STRATEGY

The Ball Shack customers will rent the equipment using the touch screen point-of-sale (POS)

system. After the customer gets the ball, they will inflate it using the air compressor conveniently

located on the side of the machine. When the customer is ready to return the ball, they will place

the ball into the return slot. Once the item is returned they will be prompted with an option to

receive an online receipt via email. Sending of the receipts will be done through cellular 3G

connections. Cellular connections will also provide weekly updates on damaged inventory.

The Ball Shack employees will add value for the consumers. Rental vending machines will have

weekly maintenance provided by the maintenance employee. Customer service provided by the

secretary will ensure The Ball Shack consumers will be satisfied with the service given.

The Ball Shack will provide quality equipment at a low rental price at convenient locations. With

The Ball Shack offering quality equipment, and convenient locations and being first to the

market, competitors will be wary about entering the market. Due to low rental price, The Ball

Shack will keep the equipment affordable for leisure sports players. The Ball Shack will only

accept credit and debit cards as forms of payment.

SCOPE OF OPERATIONS

The Ball Shack will provide customer service and fully stocked, clean rental vending machines.

Fully stocked rental vending machines at The Ball Shack means 50 items in each machine. The

company will outsource accounting as well as rental vending machine technical repairs. These

repairs include mechanical and technical errors associated with the POS system. Outsourcing will

be used because no one in the company has experience in accounting and there will not be enough

repairs to justify hiring a full-time employee for technical maintenance. The Ball Shack will

purchase all equipment for the machines as opposed to manufacturing the equipment. Purchasing

the equipment instead of manufacturing it will ensure low cost, as the company will not need a

facility to manufacture the equipment. The machine cost will include the cost of processing credit

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cards.

ONGOING OPERATIONS

The Ball Shack has agreements with Intelligent Dispensing Solutions. The Ball Shack will pay

$8,000 per custom rental vending machine (Chip Wittern, Personal Communication, October 27,

2014). The Ball Shack will form contracts with Nike for the equipment placed within the

machines. The Ball Shack will pay a wholesale price for equipment once the contracts are

finalized.

The Ball Shack forecasts a total of 500 rental hours per day from the 20 rental machines placed on

Huntington Beach. The Ball Shack estimates this rental forecast will be based on forecasted sales

183 days out of the year. These estimates account for peak months being March through

September with lingering sales throughout the rest of the year. The Ball Shack plans to provide

457,000 rental hours to consumers over the next five years.

The Ball Shack will require office space near Huntington Beach for the CEO and secretary. The

Ball Shack will rent an 887 square foot office located at 2900 Bistol Street Costa Mesa, California

92626 (Lee & Associates, 2014). This location was selected because Costa Mesa has a lower real

estate cost than Huntington Beach. Excess space in the office will be used for storage of extra

equipment for the machines.

The Ball Shack will purchase a company van for $5,600 to be used by the maintenance worker.

Both the CEO and the secretary of The Ball Shack will have company computers at the office;

these computers will cost $860 each. The Ball Shack lease will its office for $873 a month. The

rental vending machines purchased by The Ball Shack cost $160,000 for 20 machines. Sports

equipment for the machines will cost $17,832.

The Ball Shack will have an equipment expense (as opposed to inventory) so the company will

not have an inventory ordering system. Extra sports equipment will be kept at The Ball Shack

office. The Ball Shack will employ two types of workers: a maintenance worker and a secretary.

The maintenance worker and secretary will help The Ball Shack in achieving customer

satisfaction. (See Appendix I for operational flow chart)

The maintenance worker will be in charge of monitoring the status of each rental machine. Their

duties and responsibilities will include visiting each rental machine at least once per week,

cleaning and stocking the rental machines, and checking the quality of sports equipment. All

restocking and quality checks will be done on site. They will be responsible for reporting repair

needs. The skills required for this position are the ability to maintain rental machine equipment

quality and stocking. The employee will be trained by the CEO and hired a month prior to open.

Compensation starts at minimum wage.

The secretary will be in charge of managing the office. Their duties and responsibilities will

include answering phone calls, emails, and mail and forwarding them to the CEO when necessary.

Skills required by the secretary position include superior customer service and streamlining office

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operations. Compensation will start at minimum wage with 40-hour workweeks. The CEO, prior

to open will provide training in customer service.

COST ESTIMATES

Cost estimates include salaries and wages, as well as inventory, infrastructure, warranties, legal,

and maintenance costs. Some of these costs are certain, like salaries and wages and rent; on the

other hand, some are uncertain, especially maintenance. These costs are estimated based on the

most-likely scenario (not adjusted for best-case or worst-case scenarios). (See Appendix J for

management and operation costs).

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FINANCIAL PLAN

KEY ASSUMPTIONS

The Ball Shack’s rental revenue estimate comes from 1% of the 12.6 million people that visit

Huntington Beach each year. It is $2 per hour to rent equipment with an average of 2.5 people

renting per hour over a 10 hour day. The beach population has increased each year by 1% over the

past five years. Revenue will also be generated from non-return penalty fees ($30 flat rate for the

first year, includes ball cost)

The gross margin will change over time due to inflation. The inflation increases by an average of

3% each year so The Ball Shack’s prices will increase modestly at the CEO’s discretion.

The Ball Shack will have one administrative expense. The CEO will handle the marketing and

managing of the business, with an annual wage of $40,000.The Ball Shack will outsource a part-

time accountant to handle accounting for The Ball Shack.

Salaries and wages expenses come from the two other employees of The Ball shack. The

maintenance employee is responsible for the rental machine maintenance and sports equipment

upkeep. The secretary is responsible for customer service and assisting the CEO. Each employee

will be paid $20,000 a year.

The Ball Shack’s employment tax rate is 20% (Laws, Regulations & Annotations, 2014). The

standard rate is based on 20% of each check being taken out for taxes.

The Ball Shack assumes 12.5% of people per year will not return their rented sports equipment.

Based on this assumption, 12.5% not returning sports equipment at a $30 fee will generate $3,750

in the first year.

The capital expenditures amount to $16,400. The truck costs $5,600, and 20 renting machines at

$8,000 each totals to $160,000. The rental vending machines are major assets to The Ball Shack.

The depreciation for the truck is $560 per year for 10 years and $11,428 per year for 14 years for

the renting machines.

PRO-FORMA FINANCIAL STATEMENTS

Income Statements

The income statement is broken down annually for the first five years, monthly for the first year,

and quarterly for the second year. The first five years, The Ball Shack will be earning positive

income. By breaking down the first year, it is obvious The Ball Shack revenue is seasonal with

peak revenue months occurring during June, July, and August.

Balance Sheet

The Ball Shack plans to replace the equipment in each machine once a year, this expense will be

constant for the first five years. Once expansion happens after Year 5, equipment replacement

expenses will increase. Keeping back-up inventory is essential to replenish unreturned or

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damaged sports equipment (see Appendix L for pro-forma balance sheets).

Cash Budgets

The breakdown of the annually, monthly, and quarterly cash budgets show accurate

representations of what each month money will be used towards. The Ball Shack will need

$125,727 to cover costs incurred during pre-opening and Year 1(see Appendix M1-M3 for pro-

forma statements).

REVENUE MODEL

The revenue model for Year 1 to 5 represents the revenue that The Ball Shack will earn. Revenue

comes from rental fees and from non-return fees (Appendix J3).

RISKS

Size of Market

The Ball Shack will fall in the retail sports equipment market. The sporting goods retail market is

a $44 billion industry (Turk, 2014). As such The Ball Shack will be a very small player compared

to the other companies already in the retail sports equipment market. The company will not have

any customer loyalty while competitors of The Ball Shack do. The Ball Shack plans to mitigate

this risk by targeting the niche of sporting good users who go to Huntington Beach so that the

company is not competing against large retailers across the entire market.

Competitor Response

The Ball Shack is unsure of the response from competitors upon its entry into the market. This is

because most of the competitors are indirect competitors. Hostility from competitors is expected

as The Ball Shack plans to take customers from both large sports equipment retail stores and

smaller, specialized beach side shops that sell sports equipment. The Ball Shack plans to begin

operations by targeting the niche market of sporting goods users in Huntington Beach. Targeting

this niche will help reduce risk as the company is not trying to take customers from competitors

nationwide. Not taking customers from competitors nationwide means fewer retailers will be

upset about The Ball Shack entering their market.

The Price Customers are Willing to Pay

The Ball Shack found when Redbox increased prices for the first time in eight years, customers

were outraged (Redbox Price Change, 2014). The Ball Shack will have similar responses with

changing prices if prices stay the same for too long. To minimize this risk The Ball Shack will

condition customers to annually price changes.

Strategic Partnership Risk

The business plan is based on The Ball Shack having contracts with Nike. If The Ball Shack

cannot secure the Nike contract, The Ball Shack will find another source of quality equipment. To

minimize this risk The Ball will negotiate with other high quality sports equipment companies as

exclusive suppliers.

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Quality Level

Quality management is an important factor because The Ball Shack is providing a service in

which quality can be easily compromised if not managed properly. To minimize the risk of

customers receiving damaged equipment, The Ball Shack will use high quality equipment made

by suppliers such as Nike. Using high quality equipment with a recognizable brand will help The

Ball Shack with quality management as well as add value for customers.

Ability to Perform/Deliver

The risk associated with performance and delivery is the rental vending machine not properly

working. The rental vending machine is technologically complex in nature with many moving

components. To mitigate performance risks, The Ball Shack will work closely with suppliers to

ensure the ideal specifications are being used.

Government Approval

California legislature should be in favor of allowing The Ball Shack to operate on its beaches. The

Ball Shack promotes physical activity, which supports health, and governments want their

citizens to be healthy. In addition, The Ball Shack will provide tax revenue for California, which

will help the government generate additional revenue (through a system that requires rental

vending machines to pay royalties based on net income). The only foreseeable governmental

drawback is land space use. However, The Ball Shack rental vending machines will be designed

to be as compact as possible. The rental vending machines are going to be placed near existing

rental vending machines, so the impact on land space will be minimal. In addition, The Ball

Shack’s mission to increase wellness outweighs the drawback of land use.

Regulations and Laws

According to California’s Regulation 1574, all operators of rental vending machines that dispense

tangible personal property must obtain a vending license from the state. The regulation also states

all rental vending machine operators that own machines that dispense tangible personal property

must pay all applicable sales tax and the price of items are assumed to include the cost of the sales

tax. All rental vending machine operators within the state of California are required to affix a

form to their machines stating the name and address, as well as the permit number held by the

operator, meaning The Ball Shack will need to obtain a vending license from the state of

California. The non-returned price of the items in The Ball Shack must include the cost of the

6.5% California sales tax (Laws, Regulations & Annotations, 2014).

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OFFER

FUNDING NEEDS AND SOURCE

The seven founders of The Ball Shack will be contributing a total of $70,000 while $250,000

must be raised through outside investors to total the $320,000 needed to start. With an outside

investment of $250,000, The Ball Shack is willing to offer investors 78% ownership in The Ball

Shack. This total investment will cover all assets required before opening, all startup expenses,

and some excess cash for any early losses.

OFFERING AND EXIT STRATEGY

Ownership

The Ball Shack’s seven founders will each own 3.13% of the company, a combined ownership of

22%. The other 78% of the company will be owned by the investors.

Valuation

The Ball Shack has an estimated value at the end of Year 5 of $339,190. This was determined

using the DCF Business-Valuation Excel Sheet, which can be referenced in figure 5 below. If an

investor with 78% ownership were to cash out at the end of Year 5, they can expect to receive

$264,568.

Figure 5- DCF Business- Valuation Excel Sheet

Disbursements

The Ball Shack will not pay disbursements within the first five years of operations. The money

will instead be reinvested into the company for expansion. All positive profits earned by The Ball

Shack will be reinvested into buying new machines and equipment to expand the company after

Year 3 to Santa Monica, then expand again after Year 5 to Venice Beach.

Return

The return on investment that investors can expect will depend on the time they decide to exit the

business. The initial investment made by investors will be $250,000. At the end of Year 5 The

Ball Shack is worth $339,190, this number is before the cost of the assets that the company holds

have been added in. When the price of the rental machines has been added to the value of the

DCF

Valuaton

by year

Disbursement

Multiple (ROI)

Investment Multiple

(ROI)

Cash on Cash

Return %

DCF +cash

Valuation by

Year

Year 1 (97,402)$ -1.00 -0.84 -100.0% 50,733$

Year 2 12,329$ -1.00 -0.43 -100.0% 181,587$

Year 3 6,405$ -1.00 -0.89 -100.0% 33,965$

Year 4 (9,593)$ -1.00 -0.66 -100.0% 108,187$

Year 5 124,429$ -1.00 0.06 -100.0% 339,190$

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company The Ball Shack is worth $659,190. If investors were to exit at the end of year 5 their

shares in The Ball Shack will be worth $514,168. If investors sell at the end of Year 5 they will

receive a return on investment of 49%.

Exit Strategy

Investors in The Ball Shack can sell their ownership at any time to other companies or interested

individuals. It is most beneficial to investors to sell their shares at the end of Year 5. By doing so

investors will maximize their return on investment. By selling at the end of Year 5 investors will

receive $514,168. Diminishing returns do not occur until after Year 5.

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DEVELOPMENT PLAN

DEVELOPMENT STRATEGY

Product and Process Development

With the design of the rental vending machine completed, The Ball Shack will place an order

on October 8, 2015 for the rental vending machines. Through personal contact with Intelligent

Dispensing Solutions, the machines will take about three months to build and will be delivered

by December 24, 2015. The Ball Shack will repeat this process by placing an order on October 8,

2018 for the rental vending machines. The machines will be delivered by December 24, 2019.

Intellectual Property

The utility patent will prevent competitors from copying our rental vending machine method. The

Ball Shack will also gain a trademark for the logo. This trademark will prevent others from using

logos similar to The Ball Shack logo. All trademarks for The Ball Shack will be filed in January

2015 meaning a declaration of use will not be required until January 2017. The utility patent will

be received January 2015 meaning the reissue of the patent for the rental vending machine will

not be needed until January 2035

Marketing Strategies

By December 2015, The Ball Shack will order and place advertisement such as posters,

brochures, and flyers around the Huntington Beach area. Once The Ball Shack is open for

business on January 1, 2016, flyers will be handed out to local businesses and consumers. Gaining

approval for placement of the rental vending machines will be achieved by October 7, 2015.

Agreements with Key Customers, Distributers, and Suppliers

The Ball Shack will contract with Nike for the sports equipment to be placed in the rental vending

machines. Negotiations will start in November 2015 and end with the signing of a contract in

December 2015. With supplying through Nike, the sports equipment will be manufactured with

their logo, our logo, and a barcode. This process will keep costs low

Construction and Equipment Installation

During the pre-opening process, The Ball Shack will begin renting office space by October 2015.

The specific office in mind is a ten-minute drive from Huntington Beach and is located in Costa

Mesa. In the last week of December 2015, The Ball Shack will purchase the company truck. After

The Ball Shack receives the vending machines, employees will stock and install the rental

vending machines at the approved locations. Installations and quality checks will be completed

before January 1, 2016.

After Year 3, The Ball Shack will buy 20 new machines along with the equipment needed for the

machines for the expansion to Santa Monica. At the end of Year 3 a truck will be purchased for

the use of the maintenance employee to maintain the Santa Monica machines. After The Ball

Shack receives the vending machines for Santa Monica, employees will stock and install the

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rental vending machines at the approved locations. Installations and quality checks will be

completed before January 1, 2019.

Key Hires

The Ball Shack will hire an administrative assistant by October 2015 and a Huntington Beach

maintenance worker by December 2015. These hire dates will allow for plenty of training time of

employees, as well as pre-opening operations. The Ball Shack does not want to pay employees

before they are needed. By not hiring employees until there is work that is required for them to do

The Ball Shack will reduce pre-opening expenses. The Ball Shack will hire a Santa Monica

maintenance worker at the end of Year 3. This maintenance worker will be trained by the

Huntington Beach maintenance worker and will responsible for maintaining the new machines

that will be placed in Santa Monica at the end of Year 3.

Funding

The Ball Shack intends to have funding from investors by October 2015. The founders of The

Ball Shack will contribute $10,000 each before opening. The investment will be used for

purchasing the assets (including vending machines, sports equipment, and a van) to successfully

start The Ball Shack. An outside investment of $320,000 will be necessary prior to opening.

Funding from cash flows will pay for an expansion to Santa Monica after Year 3.

Major Equipment Purchases

The Ball Shack will place vending machine orders October 2015 and sports equipment orders in

December 2015. Once a contract with Nike is established, The Ball Shack will order new sports

equipment every January after Year 1. Equipment needed to stock 20 vending machines as well as

equipment that will be used for equipment replacement will be ordered. Equipment will arrive by

the end of December 2015.

(See Appendix O1 for pre-opening development timeline)

(See Appendix O2 for post-opening development timeline)

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APPENDICES

Appendix A- Sports Participants in the Last 12 Months

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Appendix B- Product/Service Features and Benefits

Product/Service Features and Benefits

Features Target Consumer Description Benefit(s)

High quality

Any renter of The

Ball Shack

Durable sports

equipment

Sports equipment

does not easily

damage with use

Style and

appearance

Everyone that attends

Huntington Beach

Attractive machine

design and sports

equipment branding

The Ball Shack will

not be an eye sore to

the beautiful

Huntington Beach

Service

Any renter of The

Ball Shack

Outstanding customer

service

Happy customers

Efficiency On the go consumers Quick and easy rental

method

Utilize beach time

Convenience

On the go consumers Beach front locations,

rental aspect, low

price

Travel time is small

and little time

required in purchase

decision due to low

price

Sustainability

Customers who care

about going green

Solar panels Feel a sense of pride

in contribution to a

green lifestyle

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Appendix C- Product/Service Cost Estimates

Product/Service Cost Estimates

Cost

Description

Cost ($) Cost timing Detailed Basis for Estimate

Solar panels $355 per machine One time The rental vending machine

based on features will require a

300-watt solar panel Suntech

STP300 24/VD 300 Watt Solar

Panel / USA,2014)

Rental

vending

machine cost

$7000 One time Includes the price of the all the

features needed for rental of

sports equipment (Chip Wittern,

Personal Communication,

October 27, 2014).

Cost to gain

patent

$699 patent drawings and

attorney consultation

$2,400 prepare and file

for patent (some

government fees may also

apply).

One time, possible

renewal will be

needed because utility

patents last 20 years

This is a patent package that

includes many features to assure

gaining a patent (Utility Patent

Pricing, n.d.) and (Sherman, A.,

& McDermott, 1999).

Cost to gain

trademark

$325 for government fees

$189 for legal fees

One time This is a trademark package that

includes many features to assure

gaining a trademark including

legal fees and help (Cost to

Trademark, n.d.).

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Appendix D- Competition Comparative Analysis

Competition Comparative Analysis

Success

Factor

The Ball

Shack

Dick’s

Sporting

Goods

(Team Sports,

2014)

Zack’s Surf

Shop

(Zack's Surf

Shop, n.d)

Sport Authority

(Teams Sport

Equipment, 2014)

Big 5

(Team Sports,

n.d.)

Quality This company

will only

provide high

quality

equipment

Has a high to

low quality and

range of

equipment

Does not have a

range of equipment

Has a high to low

quality and a range of

equipment

Has a high to low

quality and range

of equipment

Location This company

will be located

in Southern

California and

directly on the

beaches.

This company is

nationwide

This company only

has two locations on

Huntington Beach

This company is

mainly located in the

Southwest

The company is

mainly located in

the West

Price Range The price range

for renting is

$2.00 per hour

$5.49 baseball

to a $159.99

soccer ball

The price range for

renting is $3.00

$2.99 baseball to a

$139.99 football

$2.39 tennis ball to

a $30.00 soccer

ball

Channels of

Distribution

Rental directly

from the

machine

Buying online or

in-store

Buying in-store Buying online or in-

store

Buying online or

in-store

Company

Size

Very limited;

starting

company

The company

takes up 15.7%

of the market

share

Very limited The company takes up

8.5% of the market

share

Big 5 is included

with the other

category which

takes up 65% of

the market share

Operations Outsource to

maintenance

crew

Main expenses

are POS, cash

registers, and

computer

scanning

technology

Main expenses are

food since they are

also a restaurant.

Main expenses are

POS, cash registers,

and computer scanning

technology

Main expenses are

POS, cash

registers, and

computer scanning

technology

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Appendix E- SWOT Analysis

SWOT Matrix

The Ball Shack offers

the convenience of being

able to rent sports

equipment from local

beaches.

Strengths

1. First to the market

2. Low price/price control

3. Convenient

4. The Ball Shack utility

patent

Weaknesses

1. Expensive to buy rental

vending machines

2. Liable for a lawsuit over

brand use (ex: using Nike

balls without a contract

with Nike)

3. Hard to manage quality of

equipment after return of

rentals

4. Capacity limited to

machine size

Opportunities

A. Potential contracts

with product brands

(such as Nike and

Wilson)

B. Sponsor local sport

teams

C. Beach front

locations

D. California has the

largest number of

people who exercise

regularly

E. National expansion

opportunities

F. Increased travel to

California in the past

year

S and O

1A. The Ball Shack

will contract with

suppliers easier due to

little direct competition

2A. With contracts we

will negotiate discounts

with suppliers

3C. Beach front

locations will help us

provide convenience,

with being close to

where the customer

would use the

equipment

4E. The utility patent

will allow The Ball

Shack to expand with

little competition

3F. Travelers cannot

carry large sporting

goods equipment with

them while traveling,

W and O

3A. Potential contracts

can help increase

quality of sports

equipment, making it

easier to maintain

quality longer

2A. Get a contract

with brands so The

Ball Shack is not

liable for lawsuits

1B. Rental vending

machines are

expensive to buy but

with effective

marketing techniques,

sales will increase

1E. Expansion

opportunities would

help even out the

rental vending

machines cost

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The Ball Shack will

supply

Threats

A. Indirect competitors

renting sports

equipment

B. Direct competitors

entering the market

C. Unemployment

continues to rise in

California

D. Unfavorable long

term weather trends

E. Stricter regulations

or laws on beaches

S and T

3A.If stores such as

Dick’s started renting

equipment, The Ball

Shack’s convenient

locations would counter

this competition. The Ball

Shack would offer more

locations if this situation

were to arise.

4A.Having a utility patent

will prohibit direct

competitors competing

too closely with The Ball

Shack.

2B. The Ball Shack

allows people with limited

income to have access to

sports equipment.

1C. Being first to the

market means The Ball

Shack faces a small

amount of direct

competition

3E. Convenience is a

critical aspect to The Ball

Shack but if stricter

regulations prevented Ball

Shacks from be located on

the beach, Ball Shacks

could be moved to street

side locations

W and T

1B. Rental vending

machines are expensive

to buy and

unemployment is rising

in California can be

combated by offering

low rental prices, in

order to gain more sales.

4D. Limited capacity

and unfavorable long

term weather trend can

be strategized by having

rental vending machines

that can easily be moved

according to weather.

The Ball Shack

experimenting early on

how to best manage

quality can combat the

issue of managing

quality and direct

competitors.

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Appendix F- Survey

1. How many days in the month do you spend time at the beach

2. How much would you rent this product for?

$5.01-$6.00 7.1%

$4.01-$5.00 21.4%

Count Response

1 0

1 0 i'm a nerd

8 1

1 12

2 15

5 2

1 25

6 3

2 4

3 5

1 6

1 78

1 8

1 Daily at the beach

1 One to Three

$3.01-$4.00 71.4%

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$3.01-$4.00 71.4% 30

$4.01-$5.00 21.4%

9

$5.01-$6.00 7.1%

3

Total 42

3. Would you want the option to buy the ball or just rent?

Buying the ball 9.3%

Just renting 18.6%

Both 72.1%

Buying the ball 9.3% 4

Just renting 18.6%

8

Both 72.1%

31

Total 43

4. How long do you usually spend at the beach

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More than six hours 4.6%

Less than one hour 13.6%

More than three to five hours 18.2%

More than one to three hours 63.6%

Less than one hour 13.6% 6

More than one to three hours 63.6%

28

More than three to five hours 18.2%

8

More than six hours 4.6%

2

Total 44

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5. How long would you rent the item for?

For a day 11.6% Less than an hour 11.6%

Between more than six to seven hours 4.7%

Between more than three to six hours 16.3%

Between more than one to three hours 55.8%

Less than an hour 11.6% 5

Between more than one to three hours 55.8%

24

Between more than three to six hours 16.3%

7

Between more than six to seven hours 4.7% 2

For a day 11.6%

5

Total 43

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6. What kind of sporting goods would you be interested in having in the machine?

Count Response

1 1/2/2009

1 An assortment of balls and beach items (think shovels, pails, etc.)

1 Balls, Frisbees, tubes, and towels

1 Basketball, football, volleyball

1 Boomerangs, balls of all types, sand castle equipment

1 Foot balls, soccer balls, volley balls

1 Football Baseball Volkyball Frisbee

1 Footballs

1 Footballs, volleyballs, beachball!

1 Frisbee Soccer ball Kick ball

1 Kick ball. Soccer ball. Volley ball.

1 Kickball. Tennis ball. Volleyball.

1 Smithy for simple fortune really?

1 Soccer Ball, Frisbee, Basketball

1 Soccer Balls, Foot Balls, Volley balls

1 Soccer ball, volleyball, beach ball maybe, football

1 Soccer balls, frisbees, basketballs

1 Soccerballs Volleyballs Frisbee's Tennisballs

1 Sunscreen, Frisbees

1 Swim goggles, kayak, floaties

1 Volley ball----basket ball----frisbee

1 Volleyball, basketball, soccer ball, football, tennis balls, Frisbee

1 Volleyball, fins, handplanes, paddleball, and fin leashes.

1 Volleyball, soccer ball, badminton

1 awesome good love it for

1 baseball gloves baseballs

of 77

6. Do you ever forget to bring any equipment to the beach

No 15.9%

Yes 84.1%

Yes 84.1% 37

No 15.9%

7

Total 44

8. If you forgot the equipment, would you turn around to get it if you knew you can rent the equipment at the beach?

Yes 31.7%

No 68.3%

of 77

Yes 31.7% 13

No 68.3%

28

Total 41

11. How big is your group when going to the beach?

Count Response

3 0

2 10

1 15

3 2

3 3

12 4

6 5

5 6

1 8

2 9

of 77 19-26 years old 55.8%

10-18 years old 16.3%

12. Do you own your own sports equipment

No 22.7%

Yes 77.3%

Yes 77.3% 34

No 22.7%

10

Total 44

13. What is your age group?

36 and older 16.3%

26-35 years old 11.6%

of 77

10-18 years old 16.3% 7

19-25 years old 55.8%

24

26-35 years old 11.6%

5

36 and older 16.3%

7

Total 43

of 77

Appendix G- Product/Service Cost Estimates Table

Product/ Service Cost Estimates

Cost description Cost ($) Cost timing Detailed Basis for Estimates

Email Survey $450.00 One time before

making further

decisions on best

locations

With the use of an application service

provider 1,000 survey responses at .45

cents will cost $450.00 (Pricing for Basic

ASP Model, 2008).

Nike Free One time To apply to be a Nike retailer an

application form must be filled. This

application form is free to submit. If the

application is denied it is required to wait

a year before reapplying (How to

become a Nike Retailer, 2014).

Banners nearby

locations

$89.44 Annually This price is based on the cost for five

large outdoor banners each at the cost of

$39.49 with an added cost for five 15

ounces vinyl adhesive cans at $9.99

(Copy and Print, 2014). Being a local

company, The Ball Shack will develop a

branding with businesses would want the

banners to be there.

Sponsor a little

league team

$500.00 Annually On jersey sponsorship for the season,

this includes an outfield banner, website

sponsorship of the little league and

recognition at the opening day ceremony

(Sponsor & Fundraising, 2014).

Brochures $292.36 Annually This is for 8.5” x 11” size tri fold

brochures with a quantity of 2,000

brochures. The brochures will showcase

the different equipment offered as well

as convenience factors of the locations.

The brochures will be placed in hotels

located near The Ball Shack locations

(Brochure Printing, 2014).

of 77

Website $3,000.00 One Time Through the use of a student website

designer, The Ball Shack will be able to

cut the cost of a website. The factors the

website will need include graphics, copy,

public features, ecommerce,

administration features, SEO, and a

social media aspect (Web Design Price

Calculator, 2014).

California beach

placement fees

10% of

annual

profit

Annually For placing machines on Huntington

Beach, the city requires The Beach

Shack to pay 10% of the annually profit.

Buying

volleyball net

with The Ball

Shack’s logo

$27,250 One Time The Ball Shack will place The Ball

Shack branded volleyball nets to all 50

volleyball courts in Huntington Beach

and Santa Monica. (Volleyball Nets and

Indoor/Outdoor Volleyball Equipment,

2014).

of 77

Appendix H- (CEO) Alexander Hayes’ Resume

of 77

Appendix I- Operations Flow Chart

of 77

Appendix J- Management and Operations Cost Estimates

Management and Operations Cost Estimates

Cost

description

Cost ($) Cost timing Detailed Basis for Estimate

CEO Salary $40,000 Annually This estimate is based on the duties the CEO

will be required to do on a daily basis. This

includes financials, day-to-day operations,

marketing, and some customer service.

Secretary

$10

Hourly

Minimum wage in California is expected to

rise to $10 dollars in 2015. This wage will

include customer service duties and assisting

the CEO in daily operations. This employee

will be part time.

Maintenance $10 Hourly This wage is for a maintenance and inspection

employee. This employee will be responsible

for machine cleanliness as well as stocking.

Boxes and Ball

Inventory

$17,832

One time This cost is based on the ball costs for 20

rental vending machines including 50 sports

equipment items per machine. This price also

includes the cost to box our equipment (Our

Accessory Box, 2014).

Machines $200,000 One time This cost is based on the estimated cost of the

rental vending machines. The machine cost is

priced at $10,000 at 20 machines.

Computers $860 One time These two laptops are for the CEO and the

secretary for office use, one computer

individually priced at $430 (Inspiron 15 3000

Series, 2014).

Truck/Van $5,600 Every five

years

This is based on the van cost with all the

features needed for machine maintenance. The

van will primarily be used for transporting

inventory to and from The Ball Shack office to

the locations of The Ball Shack (2003 GMC

Savanna 2500 Cargo Van- $5600, 2014).

of 77

Office

Equipment

$239.96 One time Two desks at $79.99 as well as two chairs at $39.99.

The CEO and the secretary will use the office

equipment (FINGAL Swivel chair – IKEA, 2014) and

(MICKE Desk with integrated storage, 2014)

Rent $879.00 Monthly This cost is based on rent per month of an 887

square foot office space. This office space will

be the office of the CEO and secretary as well

the location to which inventory will be shipped

before being stocked in Ball Shack locations

(Lee & Associates).

Rental

Insurance

$14.00

Monthly

This estimate is based on the items that will be

in The Ball Shack office space. This includes

computers, furniture, as well as extra sports

equipment that are stored in the office (Renters

Insurance Coverage Calculator, 2014).

Car Insurance $49.00 Monthly This is a monthly fee for full coverage of The

Ball Shack van (Kevin Moshe, personal

communication, October 19,2014)

Placement Fee 10% of

annually

profit

Annually For placing machines on Huntington Beach,

the city requires The Beach Shack to pay 10%

of the annually profit.

Warranty

$5000

Annually

The warranty cost is based on the need replace

half the equipment in every machine which

amounts to $500. The Ball Shack will be

compensating the consumers for one hour of

rental. Assuming one hour for half of the

equipment in 20 machines.

Machine

Repair

$10,000 Annually Ten thousand dollars will be allotted for Rental

vending machine repairs throughout one year.

Law suits

$1,200,000

One time

This cost is based on a case in which Redbox

was sued for 1.2 million dollars for not being

visually impaired compatible (Bucher, 2014).

Utility Patent $3,120 One time for

filing and

issue

Continuous

for patent

maintenance

The utility patent pricing includes a filing fee,

an issue fee, and a maintenance fee (Bellis,

2014).

of 77

Rental vending

machine

technical repair

$5,000

Continuous

This price includes the cost to outsource hiring

a technical maintenance worker to repair rental

vending machines as well to repair technical

errors associated with the POS systems.

Accounting

Cost

$1,500 Annually This price includes all costs associated with

bookkeeping with unlimited transactions, as

well as financial statements (Pricing, 2011).

of 77

Appendix K1- Year 1 Income Statement

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of 77

Appendix K2- Year 2 Quarterly Income Statement

Year 2 Quarterly Income Statement Quarter 1 Quarter 2 Quarter 3 Quarter 4

Revenue

Rental Revenue 23,028$ 48,058$ 91,969$ 20,453$

Non Return Revenue 485 1,012 1,936 431

Total Revenue 23,513$ 49,070$ 93,905$ 20,884$

Equipment Expense 2,238$ 4,670$ 8,937$ 1,988$

Management Salary 5,170 10,790 20,648 4,592

Other Wages 5,170 10,790 20,648 4,592

Payroll Taxes 2,068 4,316 8,259 1,837

Rent 1,354 2,826 5,408 1,203

Insurance 189 189 189 189

Utilities 93 194 372 83

Depreciation 1,504 3,140 6,008 1,336

Fuel 1,651 3,446 6,595 1,467

Machine Expense 3,862.50 3,862.50 3,862.50 3,862.50

Marketing Expense 227.06 227.06 227.06 227.06

Contracted Services 840 1,753 3,355 746

Total Expenses 22,239$ 46,412$ 88,819$ 19,753$

Operating Income 1,274$ 2,658$ 5,086$ 1,131$

Interest

Income before tax 1,146$ 2,392$ 4,578$ 1,018$

of 77

Appendix K3- Five Year Income Statement

Five Year Income Statement Year 1 Year 2 Year 3 Year 4 Year 5 Total

Revenue

Rental Revenue $176,400 $183,509 $190,904 $337,260 $350,852 $1,238,926

Non Return Revenue $3,750 $3,863 $3,978 $8,195 $8,441 $28,228

Total Revenue $180,150 $187,371 $194,883 $345,456 $359,293 $1,267,153

Equipment Expense $17,832 $17,832 $17,832 $35,664 $35,664 $124,824

Management Salary $40,000 $41,200 $42,436 $43,709 $45,020 $212,365

Other Wages $40,000 $41,200 $42,436 $63,709 $65,620 $252,965

Payroll Taxes $16,000 $16,480 $16,974 $21,484 $22,128 $93,066

Rent $10,476 $10,790 $11,114 $11,447 $11,791 $55,619

Insurance $756 $779 $802 $1,345 $1,345 $5,027

Utilities $720 $742 $764 $787 $810 $3,823

Depreciation $11,989 $11,989 $11,989 $23,977 $23,977 $83,920

Fuel $12,775 $13,158 $13,553 $27,919 $28,757 $96,162

Machine Expense $15,000 $15,450 $15,914 $32,782 $33,765 $112,911

Marketing Expenses $31,132 $908 $936 $1,927 $1,985 $36,888

Contracted Services $6,500 $6,695 $6,896 $7,103 $7,316 $34,509

Total Expenses $203,179 $177,223 $181,645 $271,853 $278,179 $1,112,079

Operating Income -$23,029 $10,149 $13,238 $73,603 $81,114 $155,075

City Comission Expense -$2,303 $1,015 $1,324 $7,360 $8,111 $15,507

Income before tax -$20,726 $9,134 $11,914 $66,243 $73,003 $139,567

of 77

Appendix J1- Demand

Attendance at Huntington Beach

Per year 12,600,000 365 days

Purchase Rate

126000 purchasers

12,600,000 attendee base

Demand Growth

Year 1

Year 2 1%

Year 3 1%

Year 4 1%

Year 5 1%

Fair Share: 70%

City Comission Expense 10%

of 77

Appendix J2- Non-Return Revenue

Non Return Revenue Breakdown Year One Year Two Year Three Year Four Year Five

Non Return % 12.50% 12.50% 12.50% 12.50% 12.50%

Total Balls 1000 1000 1000 1000 1000

Total Balls Not returned Yearly 125 125 125 125 125

Penalty Fee (Ball Cost included) 30.00 30.90 31.83 32.78 33.77

Yearly Non return Revenue 3,750.00$ 3,862.50$ 3,978.38$ 4,097.73$ 4,220.66$

of 77

Appendix J3- Demand Estimation

Demand Estimation Year 1 Year 2 Year 3 Year 4 Year 5

Huntington Beach

Attendees 12,600,000 12,726,000 12,853,260 12,981,793 13,111,611

Santa Monica Beach

Attendees 9064000 9154640

Growth from prior year 1% 1% 1% 1%

% of attendees who rent

balls 1.0% 1.0% 1.0% 1.0% 1.0%

Total Demand for ball

rental 126,000 127,260 128,533 220,458 222,663

Proportion of Demand

Captured 70% 70% 70% 70% 70%

Annual Demand Huntington

Beach 88,200 89,082 89,973 154,321 155,864

Per Day 242 244 247 423 427

Web Sales 0.1 0.101 0 0 0

Total Sales 88,200 89,082 89,973 154,321 155,864

High: 50% of rentals

Football 22050.025

Volleyball 22050.025

Medium: 40% of rentals

Frisbee 17,640

Soccerball 17640.02

Low: 10% of rentals

Basketball 8820.01

of 77

Appendix J4- Daily Beach Visitors

Monday Tuesday Wednesday Thursday Friday Saturday Sunday

Percent of People that visit the beach broken down daily 0.10 0.08 0.09 0.10 0.15 0.27 0.21

Monthly in Million Percentage times people

Months Monthly in Millions Monday=10% Tuesday=8% Wednesday=9% Thursday=10% Friday=15% Saturday=27% Sunday=21%

January 510,678 51,068 40,854 4,596 4,085 689 1,103 145

February 412,471 41,247 32,998 3,712 3,300 557 891 117

March 657,989 65,799 52,639 5,922 5,264 888 1,421 187

April 736,555 73,655 58,924 6,629 5,892 994 1,591 209

May 923,149 92,315 73,852 8,308 7,385 1,246 1,994 262

June 1,640,062 164,006 131,205 14,761 13,120 2,214 3,543 465

July 2,759,626 275,963 220,770 24,837 22,077 3,725 5,961 782

August 2,356,976 235,698 188,558 21,213 18,856 3,182 5,091 668

September 1,198,129 119,813 95,850 10,783 9,585 1,617 2,588 340

October 530,320 53,032 42,426 4,773 4,243 716 1,145 150

November 441,933 44,193 35,355 3,977 3,535 597 955 125

December 432,112 43,211 34,569 3,889 3,457 583 933 123

Yearly Huntington Beach Attendance 12,600,000 1,260,000 1,008,000 113,400 100,800 17,010 27,216 3,572

Total attendance Southern California Beaches yearly 128,300,000

total number of people that go to the beach 2,529,998 5,565,996

of 77

Appendix K1- Five Year Expenses

Five Year Expenses Year 1 Year 2 Year 3 Year 4 Year 5

Expenses:

Annual Price Level Change 3% 3% 3% 3%

Variable Cost Per Ball $16.40 $16.89 $17.40 $17.92 $18.46

Management Salary $40,000.00 $41,200.00 $42,436.00 $43,709.08 $45,020.35

Other Wages $40,000.00 $41,200.00 $42,436.00 $43,709.08 $45,020.35

Payroll Taxes $16,000.00 $16,480.00 $16,974.40 $17,483.63 $18,008.14

Rent $10,476.00 $10,790.28 $11,113.99 $11,447.41 $11,790.83

Insurance $756.00 $778.68 $802.04 $826.10 $850.88

Utilities $720.00 $741.60 $763.85 $786.76 $810.37

Depreciation $11,988.57 $12,348.23 $12,718.68 $13,100.24 $13,493.24

Fuel $12,775.00 $13,158.25 $13,553.00 $13,959.59 $14,378.38

Machine Expense $15,000.00 $15,450.00 $15,913.50 $16,390.91 $16,882.63

Marketing Expenses $31,131.80 $908.25 $935.50 $963.57 $992.47

Contracted Services $6,500.00 $6,695.00 $6,895.85 $7,102.73 $7,315.81

of 77

Appendix K2- Long-Term Assets

Investments Data

Long Term:

Truck 5,600

Rental Machines 160,000

Current Assets

Cash 70,000

Inventory 0

Total 235,600

of 77

Appendix K3- Long-Term Asset Depreciation

Depreciation After Year 3 Useful Life Depreciation

Truck 10 560

Rental Machines 14 11429

Total 11989

of 77

Appendix K4- Funding Sources

Funding Sources

Secured Loan (8%, 5 yrs)] 0

The Ball Shack Investment 70,000

Venture Capital 250,000

Total 320,000

of 77

Appendix K5- Other Expenses

Other Expenses Data

Payroll Tax Rate 20%

Pre-opening Exp. 10,000

of 77

Appendix L- Five Year Balance Sheet

Five Year Balance Sheet End of Year 1 End of Year 2 End of Year 3 End of Year 4 End of Year 5

Assets:

Cash 123,610$ 144,733$ 3,035$ 93,255$ 190,235$

Equipment 165,600 165,600 331,200 331,200 331,200

Less Accumulated Deprec. 11,989 23,977 35,966 59,943 83,920

Net Long-term Assets 153,611 141,623 295,234 271,257 247,280

Total Assets 277,222 286,355 298,270 364,512 437,515

Liabilities:

Equity:

Equity Investments 320,000 320,000 320,000 320,000 320,000

Retained Earnings (42,778) (33,645) (21,730) 44,512 117,515

Total Liab. And OE 277,222$ 286,355$ 298,270$ 364,512$ 437,515$

of 77

Appendix M1- Five Year Cash Budget

Five Year Cash Budget Year 1 Year 2 Year 3 Year 4 Year 5

Beginning Balance 132,348$ 123,610$ 144,733$ 3,035$ 93,255$

Cash Receipts

Sales 176,400$ 183,509$ 190,904$ 337,260$ 350,852$

Non Return Revenue 3,750 3,863 3,978 8,195 8,441

Total Receipts 180,150$ 187,371$ 194,883$ 345,456$ 359,293$

Cash Available 312,498$ 310,982$ 339,615$ 348,491$ 452,549$

Cash Payments

Management Salary 40,000$ 41,200$ 42,436$ 43,709$ 45,020$

Other Wages 40,000 41,200 42,436 63,709 65,620

Payroll Taxes 16,000 16,480 16,974 21,484 22,128

Equipment Expense 17,832 17,832 17,832 35,664 35,664

Rent 10,476 10,790 11,114 11,447 11,791

Insurance 756 779 802 1,345 1,345

Utilities 720 742 764 787 810

Fuel 12,775 13,158 13,553 27,919 28,757

Machine Expense 15,000 15,450 15,914 32,782 33,765

Marketing Expense 31,132 908 936 1,927 1,985

Contracted Services 6,500 6,695 6,896 7,103 7,316

City Commision Expense (2,303) 1,015 1,324 7,360 8,111

Total Payments 188,888$ 166,249$ 170,980$ 255,236$ 262,313$

Expansion Investment 165,600$

Ending Balance 123,610$ 144,733$ 3,035$ 93,255$ 190,235$

of 77

Appendix M2- Year 1 Monthly Cash Budget

Year One Monthly Cash Budget January February March April May June July August September October November December

Beginning Balance 132,348$ 129,047$ 124,342$ 123,148$ 123,076$ 125,673$ 138,520$ 167,374$ 190,471$ 196,999$ 193,979$ 189,695$

Cash Receipts

Sales 7,149$ 5,775$ 9,212$ 10,312$ 12,924$ 22,961$ 38,635$ 32,998$ 16,774$ 7,424$ 6,187$ 6,050$

Non Return Revenue 151.99 122.76 195.83 219.21 274.75 488.11 821.32 701.48 356.59 157.83 131.53 128.60

Total Receipts 7,301$ 5,897$ 9,408$ 10,531$ 13,199$ 23,449$ 39,456$ 33,699$ 17,130$ 7,582$ 6,319$ 6,178$

Cash Available 139,649$ 134,945$ 133,750$ 133,679$ 136,275$ 149,122$ 177,976$ 201,073$ 207,601$ 204,581$ 200,297$ 195,873$

Cash Payments

Management Salary 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$

Other Wages 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333

Payroll Taxes 1,333 1,333 1,333 1,333 1,333 1,333 1,333 1,333 1,333 1,333 1,333 1,333

Rent 873 873 873 873 873 873 873 873 873 873 873 873

Insurance 63 63 63 63 63 63 63 63 63 63 63 63

Utilities 60 60 60 60 60 60 60 60 60 60 60 60

Fuel 1,065 1,065 1,065 1,065 1,065 1,065 1,065 1,065 1,065 1,065 1,065 1,065

Contracted Services 542 542 542 542 542 542 542 542 542 542 542 542

Total Payments 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$

Ending Balance 129,047$ 124,342$ 123,148$ 123,076$ 125,673$ 138,520$ 167,374$ 190,471$ 196,999$ 193,979$ 189,695$ 185,271$

Year One Monthly Cash Budget January February March April May June July August September October November December

Beginning Balance 132,348$ 129,047$ 124,342$ 123,148$ 123,076$ 125,673$ 138,520$ 167,374$ 190,471$ 196,999$ 193,979$ 189,695$

Cash Receipts

Sales 7,149$ 5,775$ 9,212$ 10,312$ 12,924$ 22,961$ 38,635$ 32,998$ 16,774$ 7,424$ 6,187$ 6,050$

Non Return Revenue 151.99 122.76 195.83 219.21 274.75 488.11 821.32 701.48 356.59 157.83 131.53 128.60

Total Receipts 7,301$ 5,897$ 9,408$ 10,531$ 13,199$ 23,449$ 39,456$ 33,699$ 17,130$ 7,582$ 6,319$ 6,178$

Cash Available 139,649$ 134,945$ 133,750$ 133,679$ 136,275$ 149,122$ 177,976$ 201,073$ 207,601$ 204,581$ 200,297$ 195,873$

Cash Payments

Management Salary 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$ 3,333$

Other Wages 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333

Payroll Taxes 1,333 1,333 1,333 1,333 1,333 1,333 1,333 1,333 1,333 1,333 1,333 1,333

Rent 873 873 873 873 873 873 873 873 873 873 873 873

Insurance 63 63 63 63 63 63 63 63 63 63 63 63

Utilities 60 60 60 60 60 60 60 60 60 60 60 60

Fuel 1,065 1,065 1,065 1,065 1,065 1,065 1,065 1,065 1,065 1,065 1,065 1,065

Contracted Services 542 542 542 542 542 542 542 542 542 542 542 542

Total Payments 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$ 10,602$

Ending Balance 129,047$ 124,342$ 123,148$ 123,076$ 125,673$ 138,520$ 167,374$ 190,471$ 196,999$ 193,979$ 189,695$ 185,271$

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Appendix M3- Year 2 Quarterly Cash Budget

Year Two Quarterly Cash Budget Quarter One Quarter Two Quarter Three Quarter Four

Beginning Balance 123,610$ 114,362$ 130,671$ 191,815$

Cash Receipts

Sales 23,028$ 48,058$ 91,969$ 20,453$

Non Return Revenue 485 1,012 1,936 431

Total Receipts 23,513$ 49,070$ 93,905$ 20,884$

Cash Available 147,123$ 163,432$ 224,576$ 212,699$

Cash Payments

Management Salary 10,300$ 10,300$ 10,300$ 10,300$

Other Wages 10,300 10,300 10,300 10,300

Payroll Taxes 4,120 4,120 4,120 4,120

Rent 2,698 2,698 2,698 2,698

Insurance 195 195 195 195

Utilities 185 185 185 185

Fuel 3,290 3,290 3,290 3,290

Contracted Services 1,674 1,674 1,674 1,674

Total Payments 32,761$ 32,761$ 32,761$ 32,761$

Ending Balance 114,362$ 130,671$ 191,815$ 179,938$

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Appendix N1- Pre-Opening Timeline

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Appendix N2- Post-Opening Timeline

The Ball Shack, Business Plan

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