Electronics Repair Shop Business Plan

Tucson is a start-up business located in the West end of Tucson Arizona. The company specializes in the repair and sales of home electronics, specifically home entertainment electronics, including TV, DVDs VCRs and CD players.

We will target people who place great importance in their entertainment equipment and own higher-end electronics, where repairing them would be more cost effective than replacing them. Many low end VCRs for example, are priced so low, people find it more cost effective and convenient to purchase a new product than to get the existing one repaired.

The company is owned and managed by James Munroe, a retired Navy Commander with a degree in electrical engineering from the University of Texas-Austin. He is a certified electronics technician with various brand companies. He will also employ his son to help with running and growing the business.

1.1 Objectives

Tucson Electronics (TE) is a growth-oriented business. Its ten year goal is to become a regional leader in TV/VCR/home stereo repair, with shops in the Tucson and Phoenix area. With this in mind, the objectives over the next three years for Tucson Electronics are the following:

• Achieve steady growth in sales revenues by year three.
• Achieve local market share (in the Tucson area) of approximately 20% by year five.
• Expand product line to include authorized satellite service installation and new home entertainment electronics sales.

1.2 Mission

The mission of Tucson Electronics is to provide high quality, convenient and comprehensive TV/DVD/VCR and home electronics repair at a low cost. The most important aspect of our business is trust. It is the goal of our firm to have 100% customer satisfaction in regards to quality, friendliness and time to completion, and discover new ways to exceed the expectations of our customers while doing so at the lowest possible cost.

1.3 Keys to Success

In the TV/VCR repair industry a company builds its client base one customer at a time and mostly through established marketing practices (ads, billboards, etc.). With this in mind, the keys to success for Tucson Electronics are:

• High-quality work.
• Attention to professional appearances at all times.
• Knowledgeable technicians that are friendly, customer oriented, and will take the time to explain to customers the intricate nature of our business and our work.
• Maintaining a highly aggressive managerial oversight on costs to provide our services at the lowest price.

Tucson Electronics is envisioned to be the low cost leader in TV/DVD/VCR and home stereo repair for the Tucson area that will also be able to eventually provide satellite TV installation/servicing and new electronics sales, making it the local leader in comprehensive electronic sales/services.

The company will be a sole proprietorship registered in the state of Arizona and owned by Mr. James Munroe. The firm will have facilities on 530 W. Prince Ave. The initial facilities will contain a sales area, repair room in the back of the shop, office space and storage for parts and equipment.

The company is seeking a loan in order to finance the start of operations for the company. The owners will be putting up additional capital of their own as equity.

2.1 Start-up Summary

The data obtained for the start-up table comes from research done in the Tucson area with other small electronics shops who have started their own business, in addition to Mr. Munroe’s previous experience within the industry. Inflation has been taken into account between the estimates of these fellow business owners (and when they started) and the current prices for expensed items. Much of the equipment to go into the facilities such as tools, are currently owned by Mr. Munroe.

Tucson Electronics offers a wide range of services as outlined in the detailed sections below. It is ultimately the goal of the company to offer a one-stop facility for all home entertainment needs, including both sales and servicing. In this way the company can offer greater perceived value for the customer than many other shops which only offer sales or services.

The industry is highly competitive with suppliers having a great deal of power in setting and negotiating the prices of their products and services to repair shops. In addition, because the customers see the service as undifferentiated and a “commodity” with little value separation between competitors, buyer power is also very high. Finally, the barriers to entry are moderately low, and the large number of competitors in this field, including substitutes (such as do-it-yourself work) mean that the pricing for such services is very competitive. The only way to have an advantage in this industry is a low cost leadership principal applied aggressively or to create higher switching costs through the building of strong business-to-customer ties. It is the aim of Tucson Electronics to create a competitive advantage through both the low cost strategy and by offering greater value through its broader product and service line.

Tucson Electronics will initially have only one factory trained and certified technician in the person of Mr. Munroe. As the company grows and expands, Mr. Munroe will hire trained and certified technicians who are able to prove they have superior customer awareness and interaction. It is the company’s professional people who will fulfill the firm’s contracts and goals. The largest part of the company’s expenses will be in labor costs.

3.1 Product and Service Description

Tucson Electronics provides a wide range of home entertainment repair services. These include:

• Repair and cleaning of  home and car stereos and CB radios.
• Repair and cleaning of TVs.
• Repair and cleaning of VCRs and DVDs.
• Sale of used TVs, stereos, VCRs and DVDs.
• Free estimates on repair jobs.
• Authorized warranty servicing on all major brands of home entertainment systems.
• House calls and free pickup and delivery.

Future products and services that Tucson Electronics will prepare to institute include TV/VCR/DVD rental, satellite TV installation and servicing, sales of new TVs, DVDs, VCRs and stereos, and repair/sale of microwave ovens. Mr. Munroe is also investigating the possibility of offering a new product line of home entertainment cabinets at some future date.

3.2 Sourcing

Tucson Electronics will be obtaining most of its parts through established dealers and directly through the manufacturers of the relevant electronics. As part of the company’s low cost strategy, the company will seek to purchase parts in large quantities whenever possible to take advantage of volume discounts. In addition, the company will aggressively seek to procure its parts from local suppliers in order to start forming close relations with such companies. It is the ultimate aim of Tucson Electronics to form strategic partnerships with such companies in order to lower overall costs of parts.

A large part of Tucson Electronics enhanced services will be free pickup and delivery of electronics to a person’s home. Mr. Munroe’s cousin, Mr. Thomas Porter, owns Caesar Courier Services, a local company providing pickup and delivery services. Mr. Porter has agreed to provide these services to Tucson Electronics’ clients at discounted prices to Mr. Munroe.

3.3 Technology

The technological revolution in computers has enhanced our abilities to diagnose and repair our clients home electronics. Tucson Electronics will remain on the cutting edge by instituting the use of computer diagnostic equipment in its shop. The company will continue to seek new ways to provide a better service through technology.

3.4 Competitive Comparison

The electronics repair industry is highly competitive. Each company within this field has high labor costs, low margins, and a high intensity of competition.

Suppliers have a great deal of power in setting and negotiating the prices of their products and services to repair shops. This is due to the fact that the suppliers who absorb the greatest amounts of cash from repair shops are large electronic manufacturing companies such as Panasonic, Emerson, Toshiba, etc. These companies are more consolidated than the repair industry, have deeper pockets, an almost limitless number of substitute customers, and finally they are the single most important supplier to the electronic repair industry. Therefore, these companies can set whatever price they wish to. Furthermore, labor is the single most important expense in this industry, and salaries for such individuals are well known and not very flexible.

 In addition, because the customers see the service as undifferentiated and a “commodity” with little value separation between competitors (if they offer a suitable level of quality) buyer power is also very high. Additionally, the costs of our services are not cheap, and buyers are willing to search for the most favorable combination of price and acceptable service.

 The barriers to entry and exit are moderately low in this industry. Switching costs are virtually non-existent and the costs to entry and exist the market are low. The large number of competitors in this field including substitutes mean that pricing for such services are very competitive. The only way to have an advantage in this industry is a low cost leadership principal applied aggressively to all aspects of the business or to build up customer relations to a point where the switching costs are raised.

Based on this analysis, Tucson Electronics will pursue a low cost leadership strategy as its primary competitive advantage. Furthermore, the company will simultaneously build up its product and service line to take advantage of the limited opportunity to create higher switching costs through enhanced value creation and to spread out costs.

3.5 Future Products and Services

Future products and services that Tucson Electronics will prepare to institute include TV/VCR/DVD rental, satellite TV installation and servicing, sales of new TVs, DVDs VCRs and stereos, and repair/sale of microwave ovens. Mr. Munroe is also investigating the possibility of offering a new product line of home entertainment cabinets at some future date.

Tucson Electronics will start implementing these new products or services in the following time periods:

• Repair/sale of microwave ovens (3rd Qtr 2004).
• Satellite TV installation and servicing (3rd Qtr 2005).
• TV/VCR/DVD rental (2nd Qtr 2006).
• Sales of new TVs/DVDs/VCRs (4th Qtr 2006).

The capital investment needed for such expansion will primarily come from the company’s accumulated operating cash account. It is anticipated that some of these product/service expansions that require significant inventory, such as new sales, may require additional cash inflow such as loans. The company will be preparing proposals for various lending institutions in anticipation of this need.

Presently the product that is really driving the electronics repair market is computers. While Tucson Electronics is not currently positioned to take advantage of this situation, it is the long-term goal of Tucson electronics to incorporate computer repair services within the company. Once the firm is able to generate enough cash to retain the services of a computer repair technician, the company will evaluate the viability of such a move. It is anticipated that this service will be offered sometime after 1st Qtr 2007.

There are approximately 332,500 households in the greater Tucson area, which includes suburbs such as Green Valley, Ina, and South Tucson. Virtually all of these households have TVs, VCRs, etc. Tucson Electronics segments its market into product categories that reflect the estimated number of each electronic device currently being used in the greater Tucson area, since each of these devices may fail at any time and require our services. In addition the growth rate of each product emplaced in the home is based on the current sales growth of each product. Presently, the fastest growing product, in terms of sales, is the DVD player. It is anticipated that the DVD will replace the VCR within the next three to five years as movie rental stores replace their existing VHS movies with DVD. The largest segment is the home and car stereo segment, since usually a household has more than one of these systems. The company will be focusing on servicing all of these systems, and not focusing on one over the other.

4.1 Market Segmentation

Tucson Electronics has segmented the households in the Tucson area as follows:

• Couples with children.
• Couples without children (including Baby Boomers).
• Retired people.
• Students living in multi-unit housing.
• Single people living alone.
• Single people living with roommates.

Tucson will target the following segments.

Middle class couples without children. This group will tend to have a higher disposable income since they have two incomes but do not have the expense of children. They prioritize socializing and spend a fair amount of time entertaining in their home and in the homes of their friends. For this reason they will spend more on their electronic equipment.

Single men living alone or with roommates. This group is not the largest segment for us, but potentially one of the most profitable, since single men tend to prioritize their home entertainment equipment. They will spend a greater percentage of their income on high-quality TV and stereo equipment.

Baby boomers. Baby boomers are reaching the age where their children have left home and they have more disposable income than when their children were young and living at home. They are more tech savvy than the generation before them and appreciate the good things in life. They like to spend time in their homes, now that the children are out of the house.

4.1.1 Market Trends

The market demand for electronics repair has been relatively stable over the past decade. With the advent of DVD players, the market is seeing more highly trained technicians needed. As technology progresses, long-term planners within this market expect to see new opportunities for electronics repair quickly arise. Such devices as cellular telephones, PDAs and other new electronics may have a role to play in the people who have a broad vision in this field.

4.2 Service Business Analysis

Much of the electronics repair industry analysis is contained in the competitive comparison section. However, the key points are that the industry is highly competitive and that most firms have little power to affect the forces that influence them or to affect the price levels that the market determines. In essence, Tucson Electronics operates in a purely competitive environment where the demand curve is horizontal. In other words the company is free to service electronics at maximum capacity without effecting the price or demand for its services. With this type of environment, and with customers seeing such services as a “commodity” the only strategy open to companies in this field is the low cost leadership approach.

Tucson Electronics is fortunate in that Janet Munroe, Mr. Munroe’s wife works in cost analysis for Wal-Mart, one of the country’s best low cost companies. Mrs. Munroe has agreed to furnish cost analysis services to Tucson Electronics for free.

The low cost leadership strategy will not be simple to achieve. Realistically speaking, because of the fragmented nature of the industry, Tucson Electronics will only seek a low cost leadership in the Tucson region for the first seven to ten years of operations. In order to capture this position and achieve its benefits of high market share and profitability, the company is expected to have higher start-up costs and lower profits within the first few years as the company invests in better and more efficient facilities and equipment than most competitors and engages in aggressive pricing to capture market share. The company will rigorously evaluate every aspect of the company to improve efficiency and lower costs. Mrs. Munroe is preparing an analysis of the company’s value chain and cost drivers to identify where costs can be lowered and which aspects of the business Mr. Munroe must focus on. It is expected that management will expend a great deal of energy in cost management and the reduction of things such as marginal customer accounts and marketing expenses. Once in operation, management will concentrate on developing established procedures that will create the most effective service experience. Finally, as part of this low cost leadership strategy, the company plans to vertically integrate to include original sales and broad services that will spread costs and serve all major customer types so as to build volume.

4.2.1 Competition and Buying Patterns

Customers traditionally purchase services in this industry because of effective advertising and reputation. The customers wish to be reassured that they will receive prompt and reliable service and have an understanding service representative will listen to their problems and seek to solve them in a fast and professional manner. Therefore image during the entire service experience is crucial to maintain word-of-mouth marketing and keep a low curn rate. Currently the largest problem that faces small firms is product/service awareness. By the use of effective and widespread advertising, Tucson Electronics expects to be able to capitalize on the weakness of the the “mom and pop” outfits style of passive promotion (such as Yellow Page ads) and to leverage greater product awareness into higher market share. There is no seasonality to this industry although there is some slight increase in servicing sales during the Christmas season.

4.2.2 Business Participants

As stated before, the electronic repair industry is highly fragmented. In fact, there are so many small providers that any company in this industry is facing a purely competitive environment. Approximately 23,700 electronic repair firms exist in the country today. Firms within this field range in sizes from the “mom and pop” outfits such as Dave’s Electronics and Kachina Repair  in downtown Tucson to regional companies like Magnolia Hi-Fi and the national chains such as Circuit City. Not all of these firms are purely repair outfits. In fact all of the larger firms make the majority of their revenue in original sales. It is these companies that have the largest market share and have the opportunity to compete by differentiating on customer service or product/service range.

As stated before, Tucson Electronics will seek a low cost leadership approach in the local Tucson region first. Its goals are not to directly compete with the larger companies who could effectively out compete Tucson Electronics. Instead, the company will seek to outprice the local “mom and pop” outfits and acquire their market share in order to then compete with the regional firms. There are eight such “mom & pop” firms that will be Tucson Electronics’ main competitors in its first few years of operation. They are:

• Dave’s Electronics.
• Kachina Repair.
• Cactus Repair and Appliance.
• Miller TV.
• Robb’s Repair.
• Sam the TV Man.
• Teletron Service Co.
• Ferndale TV Shoppe.

The following sections outline Tucson Electronic’s strategy and implementation summary.

5.1 Marketing Strategy

The company has a strong program of marketing its services that include the following:

1. Flyers.
2. Direct mailers.
3. Discounts.
4. Newspaper ads.
5. Yellow Pages.
6. Referrals through other local businesses.
7. Radio ads.
8. Billboards.
9. Web banners on local information sites.

The company’s aim is to overcome the traditional small firm’s passive form of advertising and promotion by sending our message to the customer, instead of having the customer look for a firm when they need our services. The share development graph below shows how the company plans to build market share through service awareness, value creation, competitive price, availability, and attractive service experience, all leading to the purchasing of our services. The numbers given in the graph give the estimated percentages of those customers who respond favorably to each marketing step. These numbers multiplied together give us an estimated aggregate market share of approximately 16%. The company expects to achieve this by year four.

5.1.1 Pricing Strategy

Tucson Electronics exists in a purely competitive environment where each firm must be a price taker. In other words, the firm has no ability to affect the market price of its services, regardless of how many TVs/DVDs or VCRs it repairs. In this case, therefore, marginal revenue (the revenue incurred by producing or servicing one more unit) is equal to the price charged. Furthermore, because the demand curve is essentially horizontal, Tucson Electronics can service electronics at total capacity without effecting the price.

What all of this means for the company is that the we must seek to charge our clients at the market price (or lower). Research has shown that the average price is approximately $75 per electronic device. As long as marginal costs do not exceed revenues, the company’s method to maximize short-run profits is to service the various electronic devices at maximum capacity. This means that Tucson Electronics can expect an long-term ROA of approximately 14%.

5.1.2 Promotion Strategy

The company’s promotion strategy will take the form of flyers, direct mailers, price discounts, billboards, radio ads and advertisements in newspapers and yellow pages. TE expects to spend a large amount on marketing in the first two years in order to build up product awareness and service value in the minds of our customers.

5.2 Competitive Edge

Tucson Electronics’ competitive edge lies in its ability to provide quality and fast electronic repair at lower cost than any local small competitor. This positioning of the company provides protection against the power of suppliers by creating more flexibility to cope with increasing costs. In addition, this approach will provide returns even during economic downturns and when other unforeseen problems arise.

Since the electronic repair industry is, operationally, a job-shop environment, it is somewhat difficult to estimate sales. For job-shops, each individual product or service is tailored or unique to that job, and is only initiated once an order is made. However, the sales forecast reflect the professional opinion of Mr. Munroe in how many sales he will make.

The sales forecast is based on the estimated number of electronics the company could service that are currently emplaced in the homes in Tucson. This is conservatively estimated at about two million units. From that number it is assumed that approximately 3% of all those will fail in any year. These two numbers multiplied together give us yearly market demand for our services. With an aggressive promotional strategy, a 10% market share is assumed by year three and multiplied by the estimated market demand. This is then multiplied by the estimated price per unit to arrive at the yearly sales figure assumed for year three (once the company’s marketing efforts have paid off). This number is then decreased by a logical amount to estimate the first two years of revenue.

Mr. James Munroe is a retired Navy Commander with a degree in electrical engineering from the University of Texas-Austin. During his naval career, Mr. Munroe gained extensive experience in project management, engineering, and electronics systems. During his leisure time, Mr. Munroe sought to expand his experiences in electronics by becoming a certified electronics technician with various brand companies. Mr. Munroe is now seeking to leverage this experience into a growth-oriented business that will be able to eventually compete with the largest firms in the industry.

Mr. Munroe will also be employing the services of his son Samuel, who desires to eventually take over the business. Samuel Munroe has been attending a local trade school and is expected to graduate with a degree in electronics in the summer of 2002.

7.1 Personnel Plan

Tucson Electronics’ initial staffing will consist of Mr. Munroe, his son, and two part-time technician trainees. Accounting, bookkeeping, and marketing consulting services will be outsourced. The company’s intermediate goal is to have four full-time, fully trained technicians at the original facility, plus a full-time office manager. However, management has decided to await future developments before determining the best time to bring on such personnel.

The following sections outline the financial plan for Tucson Electronics.

8.1 Break-even Analysis

The company’s break-even analysis is based on an average company’s running costs within this industry, including payroll, and its fixed costs for such things as rent, utilities, etc. As Tucson Electronics operates as a job-shop, with each task a unique, customized service, it is difficult to estimate revenue per unit and variable costs. The reader must understand that there is a high degree of variance within these estimates.

The reader will also note that the company is not expected to reach its break-even point until the last three months of sales of the first year.

8.2 Projected Profit and Loss

The following table and charts are the projected profit and loss for Tucson Electronics.

8.3 Projected Cash Flow

The following chart and table is the projected cash flow for Tucson Electronics.

8.4 Projected Balance Sheet

The following table is the projected balance sheet for Tucson Electronics.

8.5 Business Ratios

The Business ratios give an overall idea of how profitable, and at what risk level, Tucson Electronics will operate at. The ratio table gives both time series analysis and cross-sectional analysis by including industry average ratios. Industry Profile ratios are based on Standard Industrial Classification (SIC) code 7622, Radio and Television Repair. As can be seen from the comparison between industry standards and Tucson Electronics own ratios, there are some differences. Most of these are due to the fact that there is a very large variance in assets, liabilities, financing, and net income between companies in this industry due to the vast differences in company size. The reader will also note that there is a fair amount of variability between the various years. This is due to the fact that the company is expected to grow quickly and have a large variance in profitability from year to year at first.

Overall the company’s projections show a company that faces the usual risks of companies in this industry and one that will be profitable in the long-run. The company shows that it has higher advertising and start-up costs than other competitors, however management has deliberately overstated costs and minimized profits in order to create a “safe” or “buffer” zone in case of hard times or other unforeseeable problems. Pre-tax return on net worth and pre-tax return on assets appears to be very high, especially within the first two years, however again this is due to the fact that the company will be facing highly variable revenue and costs over the first few years.