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Business Plan for Economic Research Company by Knowledge5

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									Business Plan For An Economic Research Company

Contact Information:
18293 Sunset Circle Ocean Beach, CA 92113 (619) 555-0065 lynnc@myisp.com

This document contains confidential information. It is disclosed to you for informational purposes only. Its contents shall remain the property of Business Plan For An Economic Research Company and shall be returned to Business Plan For An Economic Research Company when requested.

This is a business plan and does not imply an offering of securities.

Table of Contents

1. Executive Summary Business Opportunity Product/Service Description 2. Company Background Business Description Company History 3. Business Plan For An Economic Research Company

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4. Services

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5. The Industry, Competition, and Market Market Definition Primary Competitors Customer Profile 6. Marketing Plan

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7. Financial Plan Investment Plan Break-even Analysis Liquidity Plan Earnings Plan Risk Analysis 8. Conclusion

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Business Plan For An Economic Research Company

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1. Executive Summary
The information industry is one of the growing business segments in the world. The current growth rates show that there is a strong demand for companies that provide all kinds of information. Compared to other business activities, the business has low risks because of low required investments. New forms of cost cutting and optimization will help to set up a successful business. The return on information business has a growth rate of about 17% to 19% per year. A company that provides additional service activities for the customers can be sure to have a high demand and a strong competitive advantage. The goal of this start-up is the operation of an economic research companies that provides economic, market, financial and country information for business customers, universities and private customers. 1.1 Business Opportunity The research industry currently shows a strong growth marked by a higher demand, but also growing costs. The development of new business strategies and solutions seems critical for new industry players to get market shares and survive in this highly competitive industry. The choice of services, as well as the development of applications, can be one strategy in this field of business. Additionally, sound cost management is of critical importance for a solid stream of revenues. Big industry players have shown that even in a competitive market, growth rates of more than 20% can be sustained. The operation of an economic research company that offers a range of contents, services and applications is the core of this start-up. A strong focus of this business will be placed on the development of new and innovative strategies for the customers that deliver a significant value. As an add-on, a broad range of customized information will be offered, which will help utilize company and employee capacity. The range of products is selected to provide solid growth potentials. This can lead to a fast change of items and information or whole item groups, as well as services. The operation of this business requires a good knowledge of the selected fields of research, as well as a competitive service concept to increase customer satisfaction. However, it is critical that this service is offered with a strong focus on cost management. One central goal of the proposed business strategy is the development of a unique corporate identity. Such identity will create customer loyalty and help gain a competitive advantage. Therefore, it is planned that, in addition to the selection of new and interesting services, a company design is developed. For this reason, the service around the offered applications and the additional businesses is very extensive. The required investment for the proposed business is moderate compared to other companies in the industry. Labor is expected to be the main cost driver, whereas no other substantial investment in fixed assets is required. Depending upon the location, the minimum required investment amount ranges between $75,000 and $80,000 in the start-up phase, based on a 20-22% average revenue margin. This amount is well within

Business Plan For An Economic Research Company the financial requirements observed for other comparable companies. 1.2 Product/Service Description The business will operate in the information and research industry with a variety of contents, services and applications. An additional source of revenues is the sale of customized information and data for different fields. Cross selling is planned to be one of the prime strategies in this business, since all products are targeted to serve a similar need and can easily be combined. Synergy in selling product across business segments is likely to boost earning further. Net earnings are expected to be at least 2% above traditional businesses with only one or two sales segments. Figure 1.1 shows the revenue mix across segments in the start-up phase. This projection is based on the expected strategic direction, investment amount and business environment. As the core business, the information provider segment is expected to generate the largest share in revenues. The sale of developed applications is expected to be another important generator of revenues which also helps utilize invested capacity. The sale of information and data services is expected to be intensified depending upon market conditions.

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2. Company Background
The goal of this start-up is the operation of an economic research business with different services and similar offers. The focus of this business will be on the information provider segment for companies and universities which shows the highest profits. Additionally, the sale of information and software tools is planned to reach an optimal utilization of personnel and company capacity. An initial investment amount of at least $75,000 to $80,000 is required, which will allow the operation of an online business with 4 to 5 employees. Sales revenues are expected to range between $150,000 and $220,000 in the start-up phase and the operation is expected to generate profits starting in the second or third business year. 2.1 Business Description Management is expected to have a solid knowledge of the offered information services to influence the customers. The goal is to create an innovative business in which the customer experiences competent service. A well chosen and targeted selection of offerings will complement this strategy. Both aspects are core requirements to build customer loyalty. Repeat customers are expected to generate revenues of 40% and more. Although this strategy is likely to require additional investments, it is expected that revenues per customer will increase significantly and range above industry average. Furthermore, this strategy will provide a clear entrance barrier for prospective competitors. The development and promotion of a corporate identity is another central task for management. Given the homogeneity of businesses in this industry, the development of a corporate identity will markedly increase sales revenues and build a customer base. Furthermore, a corporate identity will support expanding the business to a larger international target market. 2.2 Company History In the start-up phase, the business is operated as a one-person-business. This set up carries a certain risk potential because of the high equity stake the manager bears and the personal and statutory liability assumed. However, this set-up preserves a high degree of flexibility in managerial decision making.

The number of personnel to be employed depends on the structural complexity of the operations and the desired size. Figure 2.1 shows a break up of costs in the industry. It is expected that the target employee earns a monthly salary of $4,500 to $6,000 based on 42 hours per week. The sales and service area requires 1 to 2 employees on average. Due to illness and vacation times, in the long run an average of 4 permanent employees will be required after the start-up phase. With increasing sales and better utilization of employee work time, revenue margins will increase and thus costs per employee will decrease on average. With revenues ranging around $500,000, capacity utilization is expected to be

Business Plan For An Economic Research Company around 85%. During the start-up phase, a single person will attend to all necessary management task, coordinate employees and provide strategic direction to the developing business. Accounting, administrative and machine maintenance will be outsourced to an external partner, since those tasks can typically be provided at better rates externally. Sourcing and marketing will require one employee.

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Finding the optimal location for a business is one of the success factors in the short and long run. This is also important for virtual businesses because taxes, employees and additional costs are crucial for all businesses. The following analysis is based on 10 businesses in the industry. Since a small company is recruiting its customers typically from the home country and later from a worldwide area, a national location is considered as the core market. For the planned location, the following factors are regarded as relevant: The taxes and other administration costs are low. Administrative costs are expected to be comparably small given the expected revenues. The possibility to recruit additional personnel is favorable. It is easy to find appropriate employees. Because of the favorable growth perspectives in the chosen market and growing investment activities, we expect to realize yearly growth rates in revenues of 10-15% given a 4% economic growth rate.

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3. Business Plan For An Economic Research Company
One of the key elements of a successful business in the information industry is the selection of contents and information that are currently as profitable as possible. One key element of a product presentation to the customers is to minimize the costs and to increase the profit. The fees of the offered service have to be compensated by the results. The following contents show the highest demand and the best profitability: economic information country information company information The specific selection of services and applications offered will be monitored constantly and vary according to business needs. The development of a comprehensive database will be one key element of a successful business. The information service will only have an advantage for the customer if the project will be supported by a theoretical basis with the newest information. Therefore a database should cover the following contents: Information about the entire content of the research archive Statistical information Information that is based on the analysis of the information content

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4. Services
Additional service offerings independent from the core information business provide other fields of business. The available competence will be used for further business activities that will generate additional revenues. While this is not a core business segment, this concept has growth potential because the demand for services is rising. Initially, the investment in inventory, technical equipment and personnel capacity of this segment is limited. Particularly, the supply of complex consulting offerings with a higher priced range will require extensive service. This strategy will help utilize the capacity in personnel since it allows for an optimal coordination of employees. All employees will be trained to cover all aspects of individual services for the customer. Therefore, it is necessary to have a high knowledge about the offered consulting outputs. This concept is adaptive to changes in customer demand.

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5. The Industry, Competition, and Market
A careful analysis of the market and competitive forces in this industry is a key element in assessing the business potential of our project. This analysis will provide marketing and sales data that are indispensable to develop the business potential optimally. The main competitors are comparably-sized internet information and research companies in the international environment with a similar selection of products and services. Since the planned project is of national scope, the competitive analysis will only have to focus on the local market. The market and competition analysis will be based on the entire US market. 5.1 Market Definition Figure 5.1 shows average growth figures in revenues of typical information and economic research providers during the past 10 years. Despite slowing global economic growth in general, and in the internet and service industry in particular, a lot of companies have experienced constant growth rates of more than 15% to 20% since 1999. For 2004, a growth of 19% is expected with a strong development in the third and last quarter. Despite slowing economic growth and decreasing customer demand, the information industry underwent a relatively favorable development. New and innovative business concepts in the sector still show high growth potentials, while growth rates of traditional businesses in that industry were below average. The significant growth of new business concepts is primarily due to sharp cost control and more efficient business strategies that accounted for higher revenue and earning figures. According to industry estimates, 30% of such innovative businesses gained from cross-selling activities between their business segments. Sinking prices of input products and service costs have allowed the industry to partially compensate for slowing demand. Savings in input costs were also due to decreased labor costs. However, starting in 2005, this trend is expected to reverse and growth rates will pick up markedly, despite the uncertainty in the development of input prices and worldwide economic developments.

5.2 Primary Competitors The competitive environment is primarily determined by the choice of item groups, but

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also the regional location. But, regardless of the selection of items, high mark-ups are not feasible in the long run since this will attract competitors who compete away any rents. With a high density of businesses in one location, businesses with the highest marginal cost will be driven out of the market. Such locations will yield a return of 12-14% on average. This is the expected equilibrium return in a saturated market. To further analyze the competitive environment, it is necessary to define the players in that environment. A firm that generates $300,000 to $1,000,000 in revenues and employs 5 to 10 people should regard a firm with revenues and personnel 3 times this figures as a viable competitor. On the product and service side, businesses with a comparable selection of offers are regarded as competing in the same market segment. Figure 5.4 shows the size of businesses in this market segment, which also includes different products and services that will be sold worldwide. The numbers are based on average revenues of companies that run their business more than five years.

5.3 Customer Profile The specialized way of distribution and offerings are primarily targeting companies and financially strong individuals. A possible segmentation to identify different customer groups is by segmentation of different lines of business. If private persons are considered, then a segmentation by net income can be useful. Figure 5.2 shows the demand for research information services from different lines of business. Numbers are based on averages per company of a particular group multiplied by the number of companies in the respective group. This gives total demand share per group. As can be seen, companies in the industry segment, like car manufacturers, have a high demand for economic research information. Also, other industries, like telecommunication, banks, consulting companies and information technology, have a growing demand. Figure 5.3 shows revenues by yearly income of private persons. The figure shows revenues generated per income group. Numbers are based on the average income per customer and the number of customers per income group. As can be seen, customers in the middle income bracket generate the highest revenues. High frequented low income groups, such as students, generate relatively low revenue streams. The demand comes

Business Plan For An Economic Research Company especially from financial consulting.

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6. Marketing Plan
In the start-up phase, it is a central task of the marketing concept to establish name recognition and a unique trade mark. Later on, the strategy will primarily be targeted to gain new customers and create customer loyalty of repeat customers. Several marketing and sales promotion strategies are available in the information and research industry. Figure 6.1 shows different marketing elements and their use in marketing strategies, as well as their estimated potential success factor. The figure can serve as a direction for the planning of a marketing and sales promotion strategy. The numbers are based on typical businesses in the internet industry. As can be seen, printed advertisements targets a large potential customer group, but at a relatively high cost. Printed advertisements in international newspapers and magazines are regarded as very beneficial in the start-up phase to attract a large group of potential customers and draw attention to the range of articles offered. 49% of businesses in the information industry use printed advertisements and about 60% of this group regard this as the most beneficial form of marketing. Sales promotion strategies have temporary effects only. They are used at business openings primarily and offer special discounts. 49% of businesses use sales promotion strategies frequently and 81% of the users responded that this instrument is successful. Marketing alliances with other online businesses to generate cost savings and increase efficiency are used rarely. Such strategies include mutual use of marketing and web promotion events and joint promotion arrangements. Only 45% of businesses have used these elements and 55% of these regard this instrument as beneficial. Web and e-mail marketing is used frequently in the internet industry, although this would be a relatively inexpensive additional effort. Direct mailings are a very efficient strategy that sends mailing to selected customers or business groups. Since spreading costs of such mailings are very low, this marketing element provides a useful tool for special offer promotions. The use of marketing and sales promotions proceeds as follows: as a broad base to attract new customers, the strategy will include a combination of printed advertisements and special offers with opening discounts. Furthermore, a group of customers will be selected for direct mailings. This strategy is expected to continue for 3-4 months, after which the effort will turn towards creating customer loyalty for regular customers. This strategy is supplemented by a regular marketing strategy and direct mailings to regular customers. A marketing alliance and online advertisements will also come to use.

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7. Financial Plan
A sound financial plan is the key factor for the success of a business start-up. Investors and banks will base their funding decision on the information given in this plan. Besides a plan of the financial needs, this plan must insure that the business is always liquid and ultimately profitable. Since the sales and earnings projections in the business plan are based on expectations, the financial plan has to be revised and refined on a constant basis so that discrepancies can be uncovered and solved instantly. The inputs for this financial plan are based on 22 businesses of different size and market segments in the research and information industry, which serve as a group of comparable firms, as well as own estimates based on the planned business environment. Revenue estimates are conservative and expense projections include a cushion for unforeseen contingencies. The initial capital requirement is estimated to be $75,000 to $80,000. The sales margin is expected to be 17-20%, whereby each business segment contributes differently to sales and earnings. The classical information content segment will, of all segments, have an average contribution to sales in relative terms (14%), but given the high sales volume, the largest in absolute terms. Revenues from content sales can be differentiated into those from low priced single contents to comprehensive database and document access. The sale of advertising places is expected to generate a 12% to 15% sales margin, while the margin from sales of services is expected to be closer to 10%. Figure 7.1 shows the source of revenues by segment during the start-up phase. Depending on the initial investment sum, cost and revenue estimates vary. Figure 7.2 shows the expected relationship of cost and revenues. As can be seen, the relationship is not linear everywhere, but costs decrease relative to sales at an initial investment of $75,000. This effect is due to the better utilization of capacities in personnel at rising revenues at constant cost. If capacity is fully utilized, additional personnel must be recruited. At an investment sum of $100,000, administrative costs are expected to return to a linear relationship of sales. At sales levels between $1,000,000 to $2,000,000, costs increase by the factor 1.85. The cost revenue relationship is important, not only during the start-up phase, but also for planned further expansion. Often such expansion strategies are based on this relationship. Other industries are able to generate cost savings of 30-50% during expansion periods, while for the information industry this factor is close to 15%. At a specific size, this relationship reverses because administrative costs rise sharply. This affects small businesses between 10 and 20 employees most severely. The details of the financial plan are laid out in more detail as follows: Section 7.1 gives an investments schedule. This includes all investments necessary during the start-up phase. Section 7.2 gives a break-even analysis that shows revenues at the break-even point. Every additional sales revenue adds to profit and vice versa. Section 7.3 gives a liquidity plan. This plan is based on current cost and revenue estimates

Business Plan For An Economic Research Company from Section 7.2. Liquidity must always be positive.

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Section 7.4 contains a long-term profit projection for the first 4 years of business. The projection shows the critical amount of revenues at which the business is profitable and how profit develops over time. Section 7.5 provides a risk analysis. The risk analysis contains critical factors that may impact the financial numbers presented in this plan.

7.1 Investment Plan The investment plan comprises primary capital needs for the foundation and operation of an economic research portal with different products and services for sale. The plan also includes initial marketing and sales promotion expenses. The figures are based on a business with 3-5 employees and expected revenues of

Business Plan For An Economic Research Company $350,000 in year 2-3.

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7.2 Break-even Analysis The break-even analysis shows how earnings rise as a function of sales. The break-even point is the point at which revenues from sales cover total costs (fix costs and costs rising with sales). This analysis is important for the development of the liquidity plan. If the break-even point is not achieved, in the long run the business loses liquidity and may become insolvent. This requires that a critical amount of revenues must be generated. At a sale revenue of $200,000 and given fixed costs, the business will generate a profit. Fixed costs are estimated at $90,000 to $100,000 and variable costs at $100,000. At a realizable revenue of $500,000, after 2-3 years profits will rise to $125,000 pre-tax. This represents an earnings margin of 25% pre-tax and 14% after-tax. These estimates

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are realistic in this market segment. Increasing sales volume will increase pre-tax earnings margins, but this development reverses when administrative costs begin to rise sharply. Up to a sales volume of $1,000,000, earnings margins rise to 27.5%, after which the margin decreases to constant 25.5%. Figure 7.3 shows at which critical sales volume the business generates a profit. This serves as a base for a pricing strategy. Additionally, the graph shows the amount of sales at which a marketing campaign can be run profitably.

7.3 Liquidity Plan The liquidity plan shows the amount of finances necessary to assure permanent liquidity of the business. The plan is based on 4 representative months of a typical business with 3 to 5 employees and annual sales of $300,000. Revenue estimates are drawn from a standard normal distribution.

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7.4 Earnings Plan The earnings plan shows the results from ordinary operations. The plan is based on the first 4 years of business. Revenue estimates are drawn from a normal distribution with an estimated growth rate of 20 to 30%. Figure 7.4 shows profit over time.

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7.5 Risk Analysis The risk analysis considers critical factors that may lead to a failure of the business concept. Such factors can involve failures during the implementation phase, as well as during operations. Such potential factors are ordered according to the probability at which they can arise. Shown is the key factor that led to the failure only. Data are drawn from questionnaires of 17 businesses in the internet content and research industry with comparable product offerings and revenue- and cost structures that operate than more than 3 years with positive earnings, as well as analyses of different research institutes. 1. Technological problems: This is the most frequent reason that leads to business failure. If it is not possible to set up a system that works without fundamental problems, it can happen that the initial investment is too low and a liquidity problem occurs. Therefore, a comprehensive technical plan that contains all details and experienced employees are necessary in the development phase. About 25% of the companies are not able to run their business because of technological problems.

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2. Insufficient demand: This is another important reason that leads to business failure. This includes permanently low demand, as well as a temporary collapse in demand. Often demand estimates were too optimistic at the outset. Such failures might also come from external shocks instead of operating deficiencies. 16% of businesses with insufficient demand go bankrupt. 50% of these businesses report that once demand slacked, they did not react accordingly, because they believed that this phenomenon was only temporary. Since the expected frequency of customers during the start-up phase is still low, a critical success factor is to focus promotional effort so as to generate customer loyalty early on, which will help minimize the effects of demand fluctuations. This is also important for the future development of the business. 3. Personnel and capacity utilization: Often personnel capacity cannot be adjusted easily when demand slows down. Currently, information businesses have a capacity utilization rate of personnel of 72% to 75%, i.e. 75% of employee working hours can be directly credited to sales. At small businesses this value is often lower, which means that 30% of working hours arise without generating any further revenue. 15% of such businesses go bankrupt for this reason. 4. Behavior of Competition: Due to low entry barriers, other companies, like consulting companies or publishing firms, can enter the market at low cost. Approximately 14% of insolvent businesses were driven out of the market by that competition. A better service concept, innovative ideas with new technologies, a comprehensive offer and concentration on core businesses are easy means for an entrant to gain a competitive edge. 5. Liquidity constraints: Another frequent reasons for bankruptcy is insufficient liquidity. In that case, it is possible that all liquid funds are used to cover losses or that liquidity needs were planned too tight. To be able to flexibly react to changing liquidity needs, it is important that sufficient funds be planned, even during the start-up phase. Thus, 5-10% of the investment sum should be held as liquidity reserve permanently. 13% of insolvent businesses reported liquidity as the reason for bankruptcy. 6. Over-indebtedness: Many business are run on a small equity base. The majority of investments are funded by debt. If the business becomes unprofitable, debt obligations cannot be covered. Little more over 9% of insolvent firms reported over-indebtedness as the reason for going bankrupt. It is therefore important that a share of earnings is retained for debt service. 7. Macroeconomic Conditions: In a cyclical downturn, revenue expectations may not come in according to expectation. Although this factor does not affect the business in itself, it does have an impact on profitability, liquidity and leverage. Costs remain constant during such periods, but revenues typically decrease which affects overall profitability. 8% of all insolvent businesses report that they went bankrupt due to macroeconomic conditions, although the relevant indicators of the business looked healthy.

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Figure 7.5 shows the relative importance of each factor for businesses that went bankrupt. The numbers are based on the most relevant reason that triggered bankruptcy, but not the reason responsible for bankruptcy. External factors that changed the competitive environment and changing macroeconomic conditions were the most important reasons relative to internal factors.

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8. Conclusion
The information business with different research products and additional service elements is a growing business that shows a positive dynamic between 15% to 20% for the next few years. The competition in this field of business shows a low, but growing, development. New companies in this business can be sure to have a high demand with a high sales margin. The relatively modest investment requirements and running costs compared to other businesses provide a favorable argument, since external funds from banks becomes more difficult given that the risk aversion to finance such ventures has risen. A company with specific knowledge and innovative ideas has good chances to move into profitable market niches and run a successful business. Market conditions change constantly as do customer demands. This is the chance for businesses with innovative ideas and new offerings to secure a dependable customer basis. Service and support tools are critical factors that can earn a competitive edge. This is also true for new trends in the internet industry to better control costs and increase efficiency. For a successful operation of an economic research company, five factors are critical and central for the business strategy: A platform with different sales channels and a substantial number of products and services is the core element to find enough customers. Therefore, it is necessary to build a network with other companies and specialists that deliver the content. New technologies with a fast access to the data and information, new security and billing services and a comprehensive search and index engine are required to satisfy the demand of the customers. The utilization of personnel capacity is critical for the long-term profitability, because of changing margins and the constraints to flexibly reduce personnel. Therefore, the additional selling of service elements, like the development of customized products, is a further segment of the business that is integrated in the sale of the whole business process. This is especially relevant for large customers with high revenues. A critical factor in the research industry is quality management. Better quality of products and services at lower cost increases customer satisfaction. Deficiencies in service quality can lower demand, while good service quality can help create customer loyalty. Cost management is a critical success factor for businesses in industries where margins are low. Computer aided planning for the store is an integral part of cost management.

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