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Indoor Playground Business Plan


KID'S WORLD

5568 Inkster Rd.Livonia, MI 48150

This plan is for a franchised indoor children's playground. The plan provides a good description of possible competitors and the methods that will be used to achieve a competitive advantage in this industry.

  • EXECUTIVE SUMMARY
  • MISSION AND STRATEGY
  • MARKET
  • COMPETITIVE ANALYSIS
  • PRICING, PROFITABILITY, AND BREAK EVEN
  • OPERATIONS
  • MANAGEMENT AND STAFFING
  • CONTINGENCY PLANNING
  • FINANCIAL PROJECTIONS

EXECUTIVE SUMMARY

Market

A market opportunity exists in the Western Detroit area to service children aged 13 and under with a supervised indoor exercise and recreation facility. Market research shows that children often do not get the required amount of exercise to maintain a healthy lifestyle. Indoor playgrounds provide an outlet for active children during inclement weather or when the temperature is too hot or cold for outdoor play. Furthermore, parents want an environment for their children to play without harsh language and an arcade atmosphere.

Proposed Business

Kid's World will provide a safe, clean, and stimulating environment for physically active children aged 13 and under to play in and explore. Kid's World's supervised, visually open play area will ensure children's safety, while challenging them to reach, think, interact, explore, and have fun. The store will require approximately 14,000 square feet, consisting of a giant 5,000 square foot play structure for children over the age of 4, a smaller play area for toddlers under the age of 4, an area with several interactive skill games, a snack bar with seating to accommodate 100 to 125 persons at a time, and a merchandise and souvenir stand. Both play areas have soft indoor playpark equipment with extensive padding and no sharp edges. Furthermore, the game area will not offer video games, pinball-type games or games with a violent theme. For family celebrations, such as birthdays and special occasions, Kid's World will offer private party rooms hosted by trained staff to provide a child everything he/she would want in a birthday - several hours of supervised fun on the play structures, cake and ice cream, prizes, food and beverage, and game tokens. Kid's World desires playtime to be as rewarding for the parents as it is for the children, as they spend time together.

Location

Kid's World will be located in a strip shopping center on the west side of Livonia. Within a twenty-five mile drive from this location, there are at least 49,000 children at or under the age of 14, living in a household with average annual income exceeding $45,000. Furthermore, the Census Bureau expects the communities of Canton, Plymouth and South Lyon to be the fastest growing regions of Wayne and Washtenaw Counties over the next decade.

Management

The business will be operated on a full-time basis by a manager, Alice Cushaw, who has had over 3 years of restaurant management experience. In addition, all member-managers will actively assist in the management of the business on a part-time basis.

Loan Request

The owners are requesting a loan to fund a portion of the start-up costs and inventory. They are also requesting a line of credit in the amount of $500,000. The owners are contributing $35,000 to the business venture and various investors are contributing another $40,000. The money will be needed in equal monthly installments commencing three months prior to opening and will be repaid in a steady manner from available operating cash flows. The loan will be entirely repaid within five years after opening with payments beginning three months after opening.

MISSION AND STRATEGY

Kid's World is a diversified destination family entertainment center combining recreation, entertainment, and restaurant facilities that creates substantial drawing power. Kid's World's basic focus is children's play and fitness for 1 to 13 year old children. At Kid's World, these activities have been packaged into a safe, clean, climate-controlled, supervised environment for children aged 13 and under to exercise and have fun while stimulating their imagination and challenging them physically. The indoor playpark is based on the premise that if you set a large number of children inside a safe, yet challenging, imaginative soft playground area, they are going to have fun. They are also going to develop basic motor skills, social skills, muscle tone, and self-confidence. Furthermore, the parents can enjoy hours of close interaction with their children in a safe, secure, and stimulating environment.

Currently, there are no other indoor children playgrounds in the Western Detroit area. In addition, there are relatively few alternatives for children's birthday parties. Kid's World will be able to immediately fill this void in the market by providing extensive recreation, entertainment, and restaurant facilities for children to play in and explore. Within 1 year, Kid's World will be known as the primary recreation facility for children aged 1 to 13 and the destination of choice for children to enjoy birthday parties with friends. Kid's World's safe, secure, and clean environment will assure parents while providing opportunities for their children to have fun in a stimulating environment.

Kid's World will base its appeal on providing a stimulating indoor environment for children to play in, while adhering to the strictest quality control standards emphasizing excellence in service, safety, security, food quality and value, sanitation, cleanliness, and creativity. Furthermore, Kid's World is dedicated to the continual development of creative themes and interactive designs that have entertainment and educational value that will ensure Kid's World's competitiveness and success in the family entertainment market years into the future.

MARKET

Background

Indoor playgrounds serve an increasing need in our society. Studies show that American children are less active and less fit than they were even five years ago, probably due to increasing time in front of television sets and high calorie-high fat diets. Studies have also shown that less active children are more likely to be overweight, and overweight children have a greater propensity to become overweight adults. As people have become more aware of the healthy aspects of their lifestyles, enrollment in adult health clubs, aerobic exercise, recreational activities, and attention to nutrition has increased dramatically. This trend will continue as parents attempt to provide a healthier lifestyle for their children. Another area of parental concern is their children's safety. Nationally, as well as locally, concern for the physical well-being of children has created a further need for a safe play environment. This concern shows no sign of diminishing.

While it is difficult to determine the size of the indoor playground industry, there are currently about 49 million children 12 years old or younger in the United States and this figure is expected to rise to 51 million by the year 2000, according to the Bureau of Census. There are approximately 26 million households with children younger than 18 years of age, who spend about $1,800 per year on family entertainment or $46 billion annually. Per-capita expenditures on children's activities are likely to rise as families with children spend a larger percentage of their income on recreation. Children aged 4-12 spent, from their own income, $6 billion in 1989, up 41% from 1984. This increase in discretionary income is coming from several factors. First, the increase in dual income families has provided for more discretionary income to be spent on children. Second, women are having children later as evidenced by the rising birth rate among women in their thirties. Third, per-capita family income is increasing and families are choosing to take wealth increases in the form of leisure. Last, grandparents are living longer and spending more on their grandchildren. Based on these demographics, industry analysts believe that there is room for about 600 store locations in primary markets throughout the United States and an additional 200-300 in secondary markets.

The Customer Need and the Target Customer

With the recent concerns over child safety on outdoor playground equipment, many schools have elected to remove their playground equipment entirely. Parents are more aware than ever before over the safety and security of their children's play areas. Consequently, a safe, supervised indoor play area will enable parents to relax while their children enjoy playing in and exploring the soft indoor playpark.

Kid's World will target children aged 13 and under within a 25 minute drive of Western Livonia, comprising about 250,000 people of which at least 49,000 are under the age of 13. Within a five-mile radius of Livonia, census information indicates there are approximately 23,000 children aged 13 and under, living in a household with an average annual income exceeding $55,000. These customers will form Kid's World's primary market base. Kid's World will also target children in the outlying regions of Oakland County.

Product Description

Kid's World is geared for children 13 years old or younger who desire an imaginative, challenging, and fun environment in which to exercise, play, and explore. For safety, children must be accompanied by an adult in order to be admitted and adults are not permitted to enter without a child. Furthermore, each person admitted to the playpark will receive a color-coded wristband identifying him/her with rest of the party. To further promote security, each person's wristband will only be removed when the entire party is present together at the exit desk. Trained staff will supervise the play areas at all times to ensure adherence to the playpark rules while assisting the children to maximize their enjoyment of the facilities.

There will be several play areas within Kid's World; the largest, a 5,000 square foot structure targeting children aged 4 and over, will be comprised of a series of colorful tubes, slides, ball baths, climbing structures, air and water trampolines, obstacle courses, ramps, and stairs. A smaller play area will cater to toddlers and consist of cushions, ramps, a small ball bin, and toys. To encourage active participation by parents, all play areas will have a visually open design with comfortable rest areas in full view of the play structures.

Kid's World will also be equipped with a smaller area of interactive games designed to promote eye and hand coordination. This area will include the "Magic Keyboard", a unique piece of musical play equipment specifically designed for Kid's World. Parents and children can also play several games of skill to win tickets redeemable for prizes. There will also be a snack bar with seating for 100 to 125 customers at a time. It will serve food and beverages that appeal to children and parents such as pizza, hot dogs, salads, sandwiches, popcorn, pop, fruit juice, cappuccino, cake, and ice cream. In addition, Kid's World will have a merchandise counter with small souvenirs emblazoned with the Kid's World logo such as T-shirts, sweaters, and hats.

Kid's World will have six private party rooms and will offer packages for birthdays and other special occasions hosted by staff members, significantly reducing the hassle and mess for parents. The design of the rooms will allow for groups as large as 30 children at a time. For family celebrations, Kid's World will offer three birthday packages for parties of 8 of more, consisting of a two hour limited time of play, birthday cake and ice cream, free game tokens, and, depending on the type of package, pizza or hot dogs, party favors for the guests, and a special gift for the birthday child.

Strategy and Approach to the Market

Kid's World will strive to appeal to value-oriented customers who desire hours of entertainment for their children at reasonable prices. Kid's World will be competitively priced at $4.95 for unlimited play which is comparable to other forms of entertainment. However, the distinguishing feature of Kid's World will be its clean, safe, secure environment for children to play in while parents can either relax or participate in their child's activities.

Advertising

Kid's World will reach its target customers through such advertising media as local newspapers, local television, and direct mail campaigns. Local television advertising has been found to be very effective in reaching the target market segment of children 13 and under, so we will focus our efforts here. The advertising and promotion campaign will be funded through operating cash flows and will build upon the close proximity of the store to the corporate location. In addition, the franchisor will assist its franchisees through regional advertising programs to obtain synergy among all franchisees within the region. Kid's World will initially promote its concept through a Grand Opening advertisement campaign employing an invitation-only free evening for local business and government leaders and their children as well as local radio coverage. The franchisor will assist in the preparation of initial advertising and scheduling of promotions.

Location Characteristics

The nature and location of Kid World's business will support both destination and walk-in shopping. Since the majority of birthday parties are pre-planned events, the exact location of Kid's World with respect to major shopping centers is not as critical as it is in other retail businesses. However, parents shopping with their children may desire an outlet for their children in the form of indoor exercise and recreation. Once customers are aware of Kid's World's location, they will return again and again. Figures from the corporate store indicate an average return rate of seven times per child per year. Our financial forecasts conservatively project 1/3 less. The awareness of our location will develop over several months due to advertising, word of mouth, and simple observation by shoppers in the area.

Kid's World will locate in Livonia on Inkster Road in the Heights Shopping Center. This shopping center consists of two separate buildings totaling 73,480 square feet of rental space and contains both destination and walk-by businesses. The center is primarily focused on providing family related services to the local community. Within three miles of this location, census data indicates there are 9,854 children under the age of 14. Within five miles of this location, census data indicates there are 23,061 children under the age of 14. In addition, there are several elementary schools located in the proximity, a day care center directly behind the shopping center, and many other child-related businesses within a few blocks along Inkster Rd. in either direction.

To better ensure Kid's World's success, the franchisor, Kid's World, Inc., must approve the final location and subject it to their proprietary location requirements.

Unique Market Characteristics

Weekly Usage Patterns

With 60 to 65% of the costs fixed and only 35 to 40% variable, even small increases in capacity utilization can have a major impact on profitability. With a projected 60% of revenue coming from Friday through Sunday, it will be important to effectively utilize capacity on weekdays. Kid's World will provide the following services to increase customer usage during this period: group discounts to day care centers, churches, community groups, schools, etc., a frequent user card to encourage repeat customer visits, nutritious food to attract health-conscious families, and promoting birthday parties during the week.

Seasonality

The winter months are usually the strongest, and the beginning of spring and the beginning of the school year are usually the weakest periods. On a quarterly basis, Kid's World's best quarter should be the first, followed by the third, second, and fourth quarters. To manage this seasonal variation in customer demand, management will actively monitor weekly sales volume and maintain a flexible staffing arrangement.

Threat of a Fad Product

There is a risk that children may tire of the concept of indoor padded playgrounds. To keep the concept fresh, Kid's World will strive to introduce new play equipment, skill games, and/or new marketing concepts annually. In addition, the franchisor is committed to ongoing research and development in the area of child interaction and stimulation through consultation with staff child psychologists.

Safety/Liability Concerns

To reduce the potential for injuries and lawsuits, Kid's World will employ every means possible to protect children from hurting themselves on the play equipment. Kid's World will only utilize the softest and most extensively-padded equipment in the industry. Furthermore, Kid's World will employ trained staff to continuously monitor each play area and enforce the rules of the playpark. The playpark will be designed to provide parental viewing on all sides and at all times. Parents will also be encouraged to play in the equipment with their children (knee pads will be available for a nominal charge.) In addition, security wristbands will be issued to each person upon entering to ensure the child's safety and prohibit stranger abduction of children. Strict security measures will be observed at all times. Kid's World will carry a $1 million per occurrence liability insurance policy in the event of lawsuit.

COMPETITIVE ANALYSIS

Nature of Competition

Competition in the children's recreation and entertainment industry consists of a highly diverse group of children's activities, including television, libraries, YMCA's, health clubs, parks and other recreation centers, movies, the zoo, and related activities. All of these activities provide for enjoyment by both the parents and the children. However, an indoor playground offers a safe, clean indoor environment for physical activity that is specifically designed for children. It provides children with the security and the skill development opportunities that parents desire.

The indoor playground industry is relatively new. Among the existing players in the indoor playground industry, competition is fragmented. The only company with a strong national presence is Surprise Land, possessing over 250 store locations across the United States, Canada, Mexico, and Europe. A significant threat also exists from Connell Corporation, which has started an indoor playground concept of its own, Jungle Play. Although Jungle Play is still in a testing phase, Connell's has the resources and experience to expand its concept rapidly. In addition, there are numerous regional players with fewer than 10 stores across the nation, although relatively few of them are actively seeking franchisees.

Presently, there are no indoor children's playgrounds operating in the Livonia area. Within a 25 minute drive from Livonia are the following primary competitors to Kid's World:

Competitor Major Strength Major Weakness
Captain Sam's Pizza Videogames Restaurant focus
Surprise Land Large play structure Congested/chaotic
Jungle Play Name recognition
Kidville Separate toddler area

Competitive Advantage

After reviewing the characteristics and environment of each of the above competitors, we believe that Kid's World offers several advantages over the existing competitors. First, Kid's World offers the lowest admission price, charging $4.95 per child, of any establishment dedicated to providing an extensive indoor playground. Second, Kid's World encourages parents to participate in their children's recreational activities through a careful layout of the playpark which ensures high visibility of the play areas and close proximity for the parents. Third, Kid's World is the only indoor playground operator that provides such unique play equipment as the Magic Keyboard, an air mattress, and games of skill that are specifically designed to promote child development. Fourth, Kid's World goes to extra lengths to ensure the safety and security of the environment by providing such extras as CPR certification for all employees of a certain level, video monitors of the entire playpark, and strictly controlling the entrances and exits to Kid's World. Last, with the corporate Kid's World location being so close to Michigan, name recognition should be high, as many of the potential customers have already been to the existing Kid's World location.

Analysis of Competitors

The following section briefly discusses each competitor's market position, strategy, and unique operating characteristics.

Captain Sam's

Captain Sam's primary focus is on an extensive array of video games, mini-rides, interactive skill games, a puppet show, and food. Although it has a small playpark area for toddlers, Captain Sam's is primarily dedicated to food service and games. Consequently, it serves as a destination business for pre-planned visits, centered around its food service for family outings and birthday parties. It is an open layout with more windows than other children's entertainment centers and has the atmosphere of a large noisy cafeteria. It charges no entry fee, but maintains high prices for its pizza, ice cream, and beverages. Catering more to parents, the Ypsilanti location allows smoking and serves alcoholic beverages along with pizza, hot dogs, and nachos. It does not instill a sense of security for the parents, nor does it provide the challenging and stimulating environment that children desire.

Surprise Land

With over 250 fun centers in operation as of April 1994, Surprise Land is the largest operator of indoor playgrounds for children. The company was founded in 1990 and began its early growth through franchising. In 1993, Reeves Entertainment acquired 20.1% of Surprise Land's shares with an option to purchase additional shares up to a 51% interest in the company. In order to sustain market leadership and pre-empt competitive threats, Surprise Land has adopted an aggressive expansion campaign with the goal of securing what they feel are the best locations across the country. Specifically, Surprise Land plans on opening 90-100 domestic fun centers a year and franchisees are expected to open another 100 in 1994, the majority of which will be opened by Reeves Entertainment. At this rate, they will have an estimated 360-400 stores by the end of this year and 600 by 1996. This rapid expansion is evidence of the acceptance of this concept by both children and adults. To complete this aggressive plan, Surprise Land has adopted a regional organizational structure and invested in systems to operate and maintain a chain with hundreds of stores in many markets.

In October, 1993, Surprise Land entered the Detroit market by opening its first store location in Warren (east side of Detroit), followed by additional locations in Taylor (downriver area), Plymouth (western suburb), Farmington Hills (northern suburb). Surprise Land has future plans for an additional locations in the metro-Detroit area, including Troy, Novi, and Ann Arbor. In addition, Surprise Land is planning to locate in such outstate areas as Flint, Lansing, Traverse City and Saginaw.

Surprise Land is similar in concept to Kid's World in that it provides a controlled environment for children to play in and explore with their parents. It consists of the Menster-Zone, a 3,000 to 4,000 square foot play area for children aged 4 to 12, the Tiny-Zone, a smaller play area for toddlers, an area of interactive skill games, five or six party rooms, and a snack bar serving foods such as pizza, hot dogs, popcorn, and ice cream. In addition, Surprise Land provides a quiet room for parents who wish to let their children enjoy the play areas unattended.

The primary difference between Surprise Land and Kid's World is the emphasis on a safe, clean, secure atmosphere as well as the level of encouraged interaction between child and parent. While Surprise Land promotes the safety and security aspects of its play areas, it's easier for children to leave the premises unnoticed and it allows adults to tour the facilities unescorted. Furthermore, the snack bar seating is usually located in the center of the play space, leading to sticky floors, congested walkways, and visible food wrappers next to trash dispensers in every interior corner of the playpark. The play structure at Surprise Land is contained in a smaller area than Kid's World and is typically placed in a corner of the facility. This can lead to heavy congestion in the play area during peak hours, a restriction of airflow throughout the playpark, and a general lack of incentive for parents to interact with their children. Kid's World's play structure is located in the center of the room with benches provided on the walls surrounding the structure, promoting visibility at all times by the parents and staff monitors and encouraging parent/child interaction.

Jungle Play

A subsidiary of Connell Corporation, Jungle Play started in 1991 and has since grown to approximately 40 locations nationwide. Connell's plans for Jungle Play include a steady but cautious introduction of new stores located primarily in major market areas. In the Detroit area, Jungle Play outlets are located in Southfield, Dearborn Heights, and Redford Township. Connell's usually builds free-standing structures on land located adjacent to major shopping malls. Therefore, it is likely that Jungle Play may be looking at the available real estate on the exterior of Novi Mall for future expansion. If Jungle Play were to locate in Novi they could represent formidable competition for Kid's World. However, the strong demographics of this area suggest that it could support 3 or more children's indoor play facilities.

Jungle Play is similar in concept to Kid's World and Surprise Land in that it provides a safe, secure, clean, and stimulating environment for children to play in. Jungle Play is somewhat larger in size than Kid's World. Unlike Surprise Land, Jungle Play's play structure is designed to promote parent/child interaction. Jungle Play is particularly adept at providing birthday services by including such extras as a name board to alert all customers of the day's birthday children, a cart for transporting birthday gifts, and extremely friendly and courteous staff. Jungle Play obtains additional business by giving discounts during non-peak hours, allowing groups to rent the facility after-hours, and promoting such activities as overnight lock-ins, fund raisers, and school fieldtrips.

Kidville

Kidville opened its first and only location this past March in Garden City and has since expressed interest in franchising its concept. Similar in size and appearance to Surprise Land, Kidville offers a multi-level play-park complete with treeforts and slides for children over 4 and a separate play area for children under the age of 4. It is similar in concept to Surprise Land, Jungle Play, and Kid's World, but it does not represent a formidable threat since it has not yet decided to expand via franchising or additional corporate locations.

PRICING, PROFITABILITY, AND BREAK EVEN

Kid's World will derive its sales revenues from admissions, games of skill, restaurant/snack bar operations, birthday party packages, and gift shop and souvenir sales. A detailed description of each component of revenue is provided below.

Admissions/Games

Admission fees will be $4.95 per child (ages 1-17) which includes unlimited play in all of the play areas. Adults will be admitted free of charge and encouraged to play in the play areas with their children. This price compares favorably to other forms of family entertainment such as movies where both adults and children must pay admission. The goal of Kid's World is for a visit to the playpark to become a regular family event. Reflecting this goal, a frequent user card will enable a customer to receive discounts off future admissions to Kid's World after a specified number of paid admissions to the playpark. Statistics from the corporate location show the average child returning seven times per year. In addition, Kid's World will offer group discounts for groups of 12 or more at $3.95 per person to encourage day care centers, youth group activities, and summer camps to visit the playpark. For larger groups of 30 or more children, Kid's World offers a special package at $5.00 per child that includes unlimited play in the playpark, two game tokens per child, a slice of pizza or a hot dog, and a beverage.

Snack Bar

The 125 person capacity snack bar will offer food products that appeal to both children and parents alike. It will offer traditional children's favorites such as pizza, hot dogs, and popcorn as shown below on a sample menu:

Traditional Pizza
10" Small Pizza with 1 Item $4.99
14" Large Pizza with 1 Item $7.99
Pan Pizza
18" by 12" Pan Pizza with 1 Item $9.99
Specials
#1:2 Small 10" Pizzas with 1 Item and 2 Large Beverages $10.99
#2: 1 18" by 12" Party Pan Pizza with 1 Item and 2 Large Beverages $11.49
#3: 2 Large 14" Pizzas with 1 Item and 4 Large Beverages $16.99
Salads
Garden Salad $2.50
Chef Salad $3.00
Miscellaneous
Hot Dogs $1.30
Popcorn $0.50
Chips $0.70
Ice Cream Bars $0.70
Beverages
Pepsi Products, Root Beer, Fruit Punch, Lemonade, Milk, Juice, Coffee, Cappuccino

Birthday Party Packages

For family celebrations Kid Kingdom will offer three birthday packages for parties of 8 of more, consisting of a two hour limited time of play, birthday cake and ice cream, free game tokens, and, depending on the type of package, pizza or hot dogs and a special gift for the birthday child. The three birthday packages offered include the following:

έ Regal Celebration$7.95 per childThree game tokens per childInvitations/BalloonsNine-inch double layer cakePop/punchIce cream

έ Supreme Celebration$8.95 per childThree game tokens per childInvitations/BalloonsHalf-sheet cakePop/punchIce creamPizza or hot dogsSpecial Kid Kingdom gift for the birthday child

"Supreme "Theme" Celebration$10.95-$12.95 per childIncludes all items in Supreme Celebration, plus:Special theme gifts for all children in the partyCustom decorated half-sheet cake

Gift Shop/Souvenirs

The gift shop will contain various souvenir merchandise available for sale such as T-shirts, hats, sweaters, and wristbands with the Kid Kingdom logo. The gift shop will also provide various prizes and gifts for children to redeem with tickets received from completing the games of skill.

Projected Revenue Breakdown
Source Revenue % of Total
Admissions 279,002 28%
Games 225,456 23%
Snack Bar 300,608 30%
Birthday Parties 131,240 14%
Gifts/Souvenirs 39,455 4%
Misc. 10,800 1%
Total Revenue $986,561or $82,213/month 100%

Break-Even Analysis

Projected fixed costs for an average month include the following:

Rent 8,750
Utilities 2,083
Insurance 1,400
Maintenance 2,060
Taxes 1,458
Depreciation 6,700
Advertising 3,335
Interest 1,000
Salaries 24,133
Total Fixed Costs $50,919

Hence, at a projected gross margin of 78% (contribution margin of 83% less franchise fees of 5% of sales) monthly break-even volume is:

$50,919/.78 = $65,281 or 4,340 visits per month

Per the attached financial projections, break-even is projected to be achieved at a monthly revenue level of $65,281. Given our revenue forecasts of $82,213 per month, it appears that we will be able to exceed break-even revenue levels at significantly less volume. Competitive assessment suggests that indoor playgrounds of comparable size and scope typically exceed the break-even monthly sales level within the first month after opening.

OPERATIONS

Hours of Operation

Initially, store operating hours will be from 10 AM to 9 PM Monday through Thursday, 10 AM to 10 PM Friday and Saturday, and 12 PM to 6 PM on Sunday.

Sources of Inputs

Vendor Item
ParkPlay, Inc. Playpark equipment/toddler equipment
Simmons, Inc. Playpark equipment
Nisco, Inc. Gaming equipment
Liveball, Inc. Gaming equipment
Springwall, Inc. Gaming equipment
Lyons & Associates Magic Keyboard
Okemos Food Equipment Co. Restaurant equipment, furniture, party rooms
Symtec Restaurant supplies (includes pizza ingredients)
Best Cola Soft drinks, punches, juices
Livewire Computers Computer software package
TNB Computer hardware

Costs

Projected Initial Investment
Equipment 397,000
Leasehold Improvements 30,000
Lease—first month's rent 8,750
Lease—security deposit 8,750
Insurance (6 mos.) 7,500
Legal/accounting fees 2,000
Licenses and permits 1,500
Training 2,500
Architect 3,500
Uniforms 1,500
Misc. (unanticipated) 14,000
Subtotal $475,000
Franchise fee 30,000
Inventory 7,500
Working Capital 50,000
Total Initial Investment $564,500

Description of Cost Items

Rent

We have identified a prospective rental location of 14,000 square feet and have negotiated a ten-year lease with one ten-year optional extension. The rental payment schedule is as follows:

Years 1 & 2: $7.50/sq.ft. Year 3: $8.00/sq.ft.
Years 4 & 5: $8.50/sq.ft. Years 6 & 7: $9.00/sq.ft.
Year 8: $9.50/sq.ft. Years 9 & 10: $10.00/sq.ft.

The terms of this lease call for a one month's rent security deposit. Per agreement with the prospective landlord, our first ninety days of occupancy will be free of rent. We anticipate the first thirty days of that period will be devoted to equipment set-up and staff training, hence we estimate approximately sixty days after opening as the date the first rental payment will be due. The lease does not contain a percentage rent clause based on achievement of certain sales levels.

Leasehold Improvements

The majority of leasehold improvements will be completed by the landlord prior to our occupancy. These include painted outer walls, carpeted and/or tiled flooring, acoustical tile drop ceiling with recessed flourescent lighting, two restrooms, and a manager's office. Items we have budgeted for include: party room construction (estimated by landlord at $10,000), signage - an exterior facade sign, an interior neon sign, and an exterior sign for the shopping center's pylon sign [estimated at $15,000), front entry desk and counter-tops (estimated by franchisor at $9,000), and wall decorations, decorative lighting, party room decoration, storage room shelving and lockers, workshop/game repair room, and miscellaneous items (total budget of $11,000).

Fixtures and Equipment

In addition to the leasehold improvements, we have budgeted $50,000 for restaurant fixtures and furnishings. These include pizza ovens, refrigeration units, beverage dispensers, sinks, countertops, tables and bench seats, and storage shelving. The two most significant equipment expenditures are the main playpark structure (including the toddler play structure) and the various games of skill. The total cost of the playpark structure has been budgeted at $220,000 and depends on many factors, including its overall size, configuration, and complexity. The franchisor has developed several playpark layouts to accomodate the unique characteristics of our rental space. Preliminary estimates from two indoor playground manufacturers have been in the range of $175,000 - $200,000 for the entire playpark structure. Typically, 50% of the total purchase price is due upon ordering the equipment and the remaining 50% is due upon shipment. Lead-time for playpark equipment has been estimated at 7-8 weeks. The total cost of the games of skill has been budgeted at $75,000. The franchisor has developed an extensive list of pre-approved games of skill to select from, most individual games priced between $2,000 and $5,000 each. Most game equipment companies also require 50% down when ordering and the remaining 50% upon shipment with an estimated lead-time of 4-6 weeks. We have also budgeted $15,000 for computer hardware, $5,000 for the franchisor's software programs, and $5,000 for miscellaneous office equipment, such as a copy machine, fax machine, public address system, and telephones.

Depreciable Total and Method

The depreciable costs listed above are summarized as follows:

Depreciable Cost Cost Length
Play Equipment 220,000 5 years
Restaurant Equipment 50,000 7 years
Leasehold Improvements 30,000 31 ½ years
Office/Computer Equipment 27,000 5 years
Games 75,000 7 years
Furniture/Signs/Misc. 25.000 7 years
$427,000

These capital expenditures will be depreciated using the Modified Accelerated Costs Recovery System (MACRS) over various lengths depending on the useful lifes of the assets as mentioned above.

Utilities

Utilities include electricity, gas, and water/sewer. Our estimates of electricity, gas, and water/sewer costs (based on franchisor estimates and contact with Detroit Edison, MichCon, and the City water department), suggest annual utilities will cost approximately $25,000.

Insurance

Kids World will carry extensive insurance policies protecting it in the event of lawsuit. The insurance policies carried include: $1,000,000 per incident premises liability insurance covering bodily injury, property damage, and non-owned autos; $1,000,000 product liability insurance coverage; 100% replacement coverage on building contents and leasehold improvements; three month business interruption insurance, and worker's compensation insurance as required by law. These insurance policies have been estimated at $15,000 on an annual basis.

Inventory

Inventory will consist of redemption items, game tokens, tickets, identification bracelets, paper products, food ingredients, restaurant supplies, and gift shop sale items. The budgeted initial investment in inventory is $7,500 based on franchisor estimates.

Working Capital

Based on franchisor estimates, Kid's World will require $50,000 of available cash, line of credit, or other liquid reserves to cover operating expenses for wages, utilities, rent, and similar expenses.

Business Organization

The business will be organized as a partnership under the name of Kid's World. Thomas Jones and Alice Cushaw will serve as Registered Agents.

MANAGEMENT AND STAFFING

Staffing Plan

Monday-Thursday Friday Saturday Sunday
Employee 10AM-6PM/5-9PM 10AM-6PM/6-10PM 10AM-6PM/5-10PM 12-6PM
Mgr-owner as needed 1 as needed 1 1 1 1
Mgr-employee 1 1 1 1
Ass't Mgr 1 1 1 1 1 1 1
Party Coord 1 1 1 1 1 1 1
Restaurant Staff 2 2 2 4 4 4 4
Play Monitors 2 2 2 3 3 3 3
Front Desk 1 2 2 2 3 3 3
Misc. 0 0 0 1 1 1 1
Total 8 9 9 13 15 14 15

CONTINGENCY PLANNING

In the event Kid's World's acceptance is slower than anticipated, expenses can be reduced as follows:

Certain games and planned playpark additions can be leased, reducing up-front cash expenditures by $20,000 - $50,000.

The Secretary position can be eliminated and its job responsibilities performed by the two Assistant Managers. This can reduce salary expenditures by $20,000 annually.

Since the majority of Kid's World's employees are part-time and only scheduled to work up to two weeks in advance, the employment level can quickly and easily be adjusted to operating conditions.

Management fees can be reduced or eliminated entirely, as the member-managers do not depend on the business as their main source of income. This can reduce expenditures by up to 5.0% of sales, or up to $50,000.

These savings can significantly reduce operating expenses in the event of unforseen circumstances, lowering the break-even volume of the store.

FINANCIAL PROJECTIONS

Projected Revenue Buildup

Market Size
Region Miles from store Population aged 0-13 Avg household income
A 5 23,061 $55,000
B 10 38,869 $52,748
C 25 49,121 $45,861
Projected Market Penetration
Miles fromstore Marketpenetration No. of initialvisits Percentagereturning No. of return trips(7× per child)
0-5 30% 6,918 67% 32,447
5-10 25% 3,952 67% 18,535
10-25 15% 1,538 50% 5,382
Total 12,408 56,364

Projected Revenues by Source

Revenues Percent of Revenues
Admissions
Number of visits per year 56364
Average admission revenue per visitor $4.95
Total admission revenue $279,002 28%
Games
Number of visits per year 56,364
Average game revenue per visitor $4.00
Total game revenue $225,456 23%
Food
Number of visits (children) per year 56,364
Average number of children per parent 3
Percentage of total visitors purchasing food 80%
Total number of visitors purchasing food 60,122
Average food revenue per visitor $5.00
Total food revenue $300,608 30%
Birthday Parties
Regal Celebration Package
Number of parties per year 800
Average number of children per party 12
Average revenue per party $95.40
Total Regal Celebration revenues $76,320
Supreme Celebration Package
Number of parties per year 400
Average number of children per party 10
Average revenue per party $89.50
Total Supreme Celebration revenues $35,800
Supreme Theme Celebration Package
Number of parties per year 200
Average number of children per party 8
Average revenue per party $95.60
Total Supreme Theme revenues $19,120
Total party revenue $131,240 13%
Gift/Souvenier Shop
Number of visits per year 56,364
Percentage of visitors purchasing souveniers 5%
Average souvenier revenue per visitor $14.00
Total gift/souvenier revenue $39,455 4%
Special Events, Sleep Overs, etc.
Number of events per year 36
Average number of children per event 30
Average revenue per visitor $10.00
Total special events revenue $10,800 1%
Total Projected Annual Revenues $986,561 100%

Projected Start-up Costs

Leasehold improvements $30,000
Lease: first month's rent (two months free) $8,750
Square footage 14,000
Cost/sq.ft. $7.50
Lease: security deposit $8,750
Equipment
Play structure $220,000
Games $75,000
Furniture and fixtures $10,000
Restaurant equipment $50,000
Signs $15,000
Computer hardware $15,000
Computer software $5,000
Telephone system $2,000
Misc. office equipment $5,000
Total Equipment $397,000
Other start-up costs
Franchise fee $30,000
Insurance (6 mos.) $7,500
Licenses and permits $1,500
Training costs $2,500
Architect $3,500
Legal and accounting fees $2,000
Uniforms $1,500
Inventory $7,500
Working Capital $50,000
Misc. (unanticipated costs) $14,000
Total Initial Investment $564,500

Projected Salary and Wage Expense

Full-time employees
Number Annual Salary Total
Manager 1 $32,000 $32,000
Assistant Managers 2 $20,000 $40,000
Secretary 1 $20,000 $20,000
Total fall-time 4 $92,000
Part-time employees
Number AverageRate/hr Average Hrs/wk Total
Restaurant workers 12 $5.00 20 $62,400
Monitors 12 $5.00 20 $62,400
Front desk 10 $5.00 20 $52,000
Misc. 4 $5.00 20 $20,800
Total part-time 34 $197,600
Total 38 $289,600

Management Fee Schedule

Net Income before Management Fee Management Fee as% of Sales
$0 $50,000 0.0%
$50,000 $100,000 2.0%
$100,000 $150,000 4.0%
$150,000 + 5.0%

Projected Capital Contributions by Source

Amount Percentage
Equity
Contribution of Owners $200,000
Contribution of Investors $200,000
Total Equity $400,000 70.9%
Debt
Bank Loan - 5 yr. term $114,500
Line of Credit $50,000
Total Debt $164,500 29.1%
Total Initial Investment $564,500
Debt-Equity Ratio: 41.1%
Proforma Income Statement - by year
Year 1 Year 2 Year 3 Year 4 Year 5 Assumptions
Net Sales $986,561 $1,035,889 $1,087,683 $1,142,067 $1,199,171 5.0% sales growth
Cost of goods sold 137,033 143,885 151,079 158,633 166,565 13.9% of sales
Gross Profit $849,527 $892,004 $936,604 $983,434 $1,032,606
Operating Expenses
Rent 87,500 105,000 112,000 119,000 119,000 per lease
Utilities 25,000 25,750 26,523 27,318 28,138 3.0% inflation
Repairs and maintenance 20,833 22,660 23,340 24,040 24,761 3.0% inflation
General taxes 17,500 21,630 22,279 22,947 23,636 3.0% inflation
Telephone expense 10,000 10,300 10,609 10,927 11,255 3.0% inflation
Salaries and wages 289,600 298,288 307,237 316,454 325,947 3.0% wage growth
Insurance - general 17,333 18,334 18,884 19,451 20,034 3.0% inflation
Insurance - health 1,800 1,800 1,800 1,800 1,800 manager only
Permits and licenses 1,500 0 0 0 0 one-time expense
Bank service charge 1,424 1,424 1,424 1,424 1,424 ongoing
Legal and accounting 8,000 4,000 4,000 4,000 4,000 ongoing
Depreciation 85,400 85,400 95,400 95,400 109,400 SL 5 yrs
Amortization 3,000 3,000 3,000 3,000 3,000 amort 10 yrs
Office expense 9,866 10,359 10,877 11,421 11,992 1.0% of sales
Supplies 58,207 61,117 64,173 67,382 70,751 5.9% of sales
Franchise fees 49,328 51,794 54,384 57,103 59,959 5.0% of sales
Training 2,500 2,500 2,500 2,500 2,500 ongoing
Security and alarm expense 280 280 280 280 280 ongoing
Bad checks 1,000 1,000 1,000 1,000 1,000 $1,000 allowance
Payroll taxes 28,960 29,829 30,724 31,645 32,595 10.0% of salary
Sales tax expense 20,404 21,424 22,495 23,620 24,801 food sales
Operating supplies 19,731 20,718 21,754 22,841 23,983 2.0% of sales
Advertising 39,731 40,718 41,754 42,841 43,983 2.0% of sales + regional
Entertainment, promotion and meals 400 0 0 0 0 one-time expense
Michigan single business tax 392 392 392 392 392 provision
Interest expense 7,312 8,214 6,309 4,225 1,946 9.0% interest rate
Management fees 0 0 21,754 22,841 23,983 per schedule
Total Operating Expense $807,001 $845,931 $904,890 $933,853 $970,560
Net Income $42,526 $46,073 $31,714 $49,581 $62,046

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Proforma Balance Sheet - by year
Opening Year l Year 2 Year 3 Year 4 Year 5 Assumes
Current Assets
Cash $50,000 $154,577 $206,196 $301,580 $342,784 $478,224
Prepaid insurance 0 0 0 0 0 0
Prepaid taxes 0 0 0 0 0 0
Inventories 7,500 7,500 7,500 7,500 7,500 7,500
Other 0 0 0 0 0 0
Total current assets 57,500 162,077 213,6% 309,080 350,284 485,724
Property, Plant and Equipment
Furniture and fixtures 10,000 10,000 10,000 10,000 15,000 15,000
Playground equipment 220,000 220,000 260,000 260,000 290,000 290,000
Games 75,000 75,000 85,000 85,000 95,000 95,000
Leasehold improvements 30,000 30,000 30,000 30,000 50,000 50,000
Office equipment 7,000 7,000 7,000 7,000 7,000 7,000
Signs 15,000 15,000 15,000 15,000 15,000 15,000
Computer equipment 20,000 20,000 20,000 20,000 20,000 20,000
Kitchen equipment 50,000 50,000 50,000 50,000 55,000 55,000
Total PPE 427,000 427,000 477,000 477,000 547,000 547,000
Less: Accumulated Depreciation 0 85,400 170,800 266,200 361,600 471,000 SL Depr
Total Property, Plant and Equipment 427,000 341,600 306,200 210,800 185,400 76,000
Other Assets
Franchise cost - net 30,000 27,000 24,000 21,000 18,000 15,000 10-yr amort
Total Assets $514,500 $530,677 $543,896 $540,880 $553,684 $576,724
Current Liabilities
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