Pricing, Profitability, and Break Even
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.
