Inventory Control Software Business Plan

Royal’s Software has embarked on an ambitious plan to create a new software product, Royal’s Inventory Basic–a scalable inventory software product. The new product is scheduled to be released in May and will be sold by Pursuit Solutions.

Pursuit Solutions, a $50 million company hardware integration reseller, will distribute Royal’s Inventory Basic to over 1,100 Valued Added Resellers (VARs). The product will sell for $2,499. Royal’s Software will receive $1,250 on each unit sold. It is projected that Pursuit Solutions will sell 250 units by month six. It is projected that Royal’s Software will gross $313,000 from sales the first year.

A critical component of software sales will be tech support and product modifications. Royal’s Software projects $63,200 in product modification by the end of six months.

In addition, Royal’s Software has entered into a business agreement with Pursuit Solutions and Johnson and Roe (CPA firm) to create a MAS 90 portable data collection interface that will be sold to accounting firms. The software product has been in development over the past ten months.

John Royal and Dan Whiteaker have been an integral part of the product development. MAS 90 is not a packaged product, rather it is bundled with software customization services ($2,000-$3,000) that will be performed by Royal’s Software. This software product will sell for $2,500.

Royal’s Software will receive 1/3 of gross sales ($833). It is projected that Royal’s Software will gross $500,500 by May of next year from product sales and customization services.

The two co-owners of Royal’s Software, John Royal and Dan Whiteaker, will each invest $50,000. In addition, the company will obtain a $100,000 short-term loan.

1.1 Objectives

The objectives of Royal’s Software are as follows:

• Establish the company as a leader in inventory software products.
• Increase sales by 20% each year.
• Develop one new inventory product per year.

1.2 Mission

The mission of Royal’s Software is to create inexpensive inventory software that will be scalable, so customer modification can be easily added.

1.3 Keys to Success

The ability to produce products on time and on budget, that meet the user’s needs and specifications.

Royal’s Software creates scalable inventory software products that can be customized to meet customer’s needs. Royal’s Software is unique in that it sells a product that can be used in any inventory environment. The engineers can then add enhancement to the product that will tailor the product features to the customer’s specific needs.

2.1 Company Ownership

Royal’s Software is owned by John Royal and Dan Whiteaker. The company will be set up as a C Corporation. It is expected that this form of incorporation will allow room for growth and an exit strategy of selling the business in five to seven years.

• John Royal has ten years of experience as an application software developer for Rogue Wave Software. John was the Lead Developer for New Products for the last four years. He was the principal designer of Rogue Wave’s Ace Software Suite.

• Dan Whiteaker has seven years of programming experience with Rogue Wave Software. Dan assisted the Ace Software Suite Development Group. He lead the Customer Modifications Group for the past two years.

2.2 Start-up Summary

The following is the start-up summary for Royal’s Software. As is typical for software companies the largest portion of start-up funds will go towards product development.

Royal’s Software products and services include the following:

• Royal’s Inventory Basic.
• MAS 90 portable data collection interface.
• Custom Modification Royal’s Inventory Basic.

In addition to selling software, the company will provide extensive customization services to meet the unique needs of its business customers.

Software products for inventory management are a $1 billion dollar industry. The lions share of the sales are with the largest companies with billions of dollars of inventory. This is where there is the greatest competition between inventory software products.

This category of the industry also faces competition from the enterprise resource planning software vendors. At the low end, with small and emerging businesses, there is very little competition.

Usually, the smaller businesses will spend no more than $5,000 on an inventory solution which will include software and hardware. Royal’s Software believes this a tremendous opportunity for a software product with a $2,500 price tag.

Another opportunity area is the growing demand for software interfaces that improve the portability of data. The interface improves the ability of businesses to move data between systems. In an age where new management products are introduced each year, a company’s ability to move its data quickly and efficiently is becoming essential to a successful business.

MAS 90 portable data collection interface is designed to be used by accounting firms to improve the portability of data the firms stores for customers.

4.1 Market Segmentation

Royal’s Software is targeting small- and medium-sized businesses. Specifically it will focus on these two target groups:

• Smaller businesses that will spend no more than $5,000 on an inventory solution, including software and hardware.
• Accounting firms demanding MAS 90 portable data collection interface.

During the first two months of operation, the company will focus on completing and testing beta copies of Royal’s Inventory Basic and the MAS 90 portable data collection interface. Sales will begin in May and grow steadily for the next 10 months.

5.1 Sales Strategy

Royal’s Software will not do any direct selling, instead it will work closely with Pursuit Solutions’ VARs to sell and service Royal’s Inventory Basic. The two owners have existing relationships with a number of VARs through their existing positions, and since this product is unique in its price range, it is not expected that it will be difficult to find VARs to represent it.

MAS 90 customers will be developed by the CPA firm, Johnson and Roe. It is projected that the MAS 90 product will have over a 100 customers by June of 2003. A large number of small- to medium-sized businesses use MAS 90 in their dealings with Johnson and Roe, and it is expected that sales will be healthy through this channel.

5.1.1 Sales Forecast

The following is the sales forecast for the next three years.

Sales Forecast
	Year 1	Year 2	Year 3
Sales
MAS-90	$194,000	$230,000	$280,000
Royal’s Inventory Basic	$179,000	$220,000	$270,000
Custom Consultation/Adptation	$151,000	$200,000	$230,000
Total Sales	$524,000	$650,000	$780,000
Direct Cost of Sales	Year 1	Year 2	Year 3
MAS-90	$5,820	$6,900	$8,400
Royal’s Inventory Basic	$5,370	$6,600	$8,100
Custom Consultation/Adptation	$0	$0	$0
Subtotal Direct Cost of Sales	$11,190	$13,500	$16,500

The current staff of Royal’s Software are the two co-owners of the company. The owners have been working on developing the product on their own time over the past year, are beta testing the product and now feel that they are only a couple of months away from having a final product. It is envisioned that Royal’s will need to ramp up significantly as sales take off and they are pulled away from product development and support in order to run the company. Three new hires are planned in March to meet the anticipated demands of software sales. The following positions will be filled:

• Application Engineer (1)
• Support Engineer (1)
• Technical Support Staff (1)

To keep fixed costs to a minium and to keep existing technical staff committed to the development of new products, much of the customization will be done by outside consultants. This expense is illustrated in the profit and loss table.

In addition, we will not have large sales and marketing costs, because VARS will take on this role on our behalf, and their large commissions shall reflect this.

The following is the financial plan for Royal’s Software. The plan includes:

• Break-even point;
• Projected profit and loss;
• Projected cash flow;
• Projected balance sheet.

7.1 Break-even Analysis

The estimated monthly fixed cost and monthly break-even point are shown below.

7.2 Projected Profit and Loss

The following table and charts highlight the projected profit and loss for the next three years.

7.3 Projected Cash Flow

The following table and chart highlight the projected cash flow for the next three years.

7.4 Projected Balance Sheet

The following table highlights the projected balance sheet for the next three years.

7.5 Business Ratios

Industry profile ratios based on the Standard Industrial Classification (SIC) code 7372, Prepackaged Software, are shown for comparison.