Rug Bug Corporation- Case study

What is the weakness/problem that the company is facing? How can we fix the problem?

DE TH in 1 540 PARTS CASES 5. Myocardial infarctic heart attack Yonquestes Meanie and Stroke Statistic-200 Update I'm not much of a writer Do you think my descrip American Heart A ons of the product competition, marketing, and 7. imaginis.com.dicail e forth are adulte Could it be improved easily screen mode 51 without additional outside information (my meeting * John Webster, Medical Instrumu two day Application and Design Id edition 2. The proforma income and cash flow statements P955-561 were developed from a model I found in a book 9 "Clinical Exercise Stress Testing Safety and Did flowerything out? Performance Guidelines." MA The Conti Think S150.000 is a good amount to ask forbig Sale of Australia and New Zealan enough to show we are serious about creating a 164 (1996), pp. 22-84 growing business but not large enough to scare them 10. Robert Roos, Noni vasive Detection of Coronary Artery Disease. Can the New Imaging Techniques wwwy. Are they going to want to know what I plan to Help" The Pill Sportmedicin do with every penny? What should I do if they are vol. 28, no. 1. January 2000 only willing to invest less? 11. 1998 Socioeconomic Monitoring System survey 4 really don't know what to expect from there is of nonfederal patient care physicians, cited in vestors. Thave my own idea of how much of the "Overview of the Physician Market" American company I want to give up for the $150,000, but Medical Association don't know what they would consider reasonable 12. National Venture Capital Association, February 10. Can you give me any suggestions? 2001 Mr. and Mrs. A. L. Young established the Rug Bug 13 Tid Corporation as a Delaware corporation. The sole pur 14. "Angel Investor Small Business Notes pose is to manufacture and distribute a revolutionary www.Ama businessholes.com/financing motorized wheelchair, designed for children under the age of 10. The Roy Bug motorized wheelchair will re- tail for approximately one-half the cost of any other motorized wheelchair for this age group. It will weigh CASE 12 almost 50 percent less than the Mandard motorized wheelchair. The unique design of the Rug Bags RUG BUG CORPORATION counts for the differences in the retail cost and weight of the chair. In addition, the Rug Bug has numerous A L. Young has come a long way with his latest inven safety features that are not found on other available tion, the Rug Bug, a motorized wheelchairmade espe motorized wheelchairs. These three features of cost. cially for children. His lightweight, relatively inexpen-weightand safety allow the Rug Bug to fill a special sive model has no direct competition in a field dominated niche in the market. It is an appropriate time to intro- by companies that produce scaled-down versions of duce this product in light of the current trend in the adult models that are inappropriate to the needs of chil medical field to recommend the use of motorized wheel- dren. A working prototype has been built, office space chairs for children. This recommendation of medical and manufacturing capacity contracted, and an initial professionals arises from their determination that the sales force recruited. The only element Young lacks is spatial relations and sense of movement offered by a enough capital to produce the first 300 units. A business motorized chait provide a handicapped child with sen- plan has been drawn up describing the product, its man ufacture, and the marketing plan. After several fruitless market for this product will be greatly increased due to sory experiences normal for young children. The target months seeking financing. Young wis contacted by a this philosophical change. In order to establish the com group of investors who had seen a summary of his pro pany, the Rug Bug Corporation will need $150,000 posal. Feeling that this might be his only chance. Young This will finance the production of the molds for various has contacted you for advice on how to present his plan parts, the manufacture of 200 unit (of which 190 will He has sent you the following copy of his business plan be sold), and initial marketing efforts. In addition, the and a list of questions. What recommendations would company will use the funds for product liability insur you muke ance, legal foes, and continued research and developmen. CASE NO CORPOREON 541 my tepel Though built where come il ywny, The computerized when the fut the Rug Bugis more similar to aby popular MARKETING COMPONENT Marlet and competion Accending The New Times de US for medical PION OF THE BUSINESS Corporation is primarily a watatu The inventor's initial research led to the de ribut company in the start up plase of prototype Marketing Tech shows Be the only vacuum-molded. We welchair with unique safety features de The Owners of the Rug Bug Corporary coperty. The Meie company will be successful becerdings haber MUTH CUS, reasonable retail cafety red which they weight, and visual appeal, The use of me chairs by the target age group has been limited Roons. First, the current contamos wheelchairs ranges from $3,000 to $20,000. 1 ricult to justify such an investment for a child's growth is typically rapid, therefore the time the chair can be utilized, The Rug has exceeded 25th young W real for SI.SO. This is a significance Marie of bout 10 perces per you. When al especially for a chair that offers additional account for 1 percent of the market. The Wheel such as safety control. The second limitation Mobile Markut Reports According to the Medical and Health Marketplace Guide, weddwide of the medical community's view that muscle use of Pury concern in a handicapped child's de wheelchair venue exceeded I willion in 1995 pent. They have recently shifted away from that US market accounts for roughly all of these with many professionals now emphasizing the The wheelchair market is composed of standard. lightweight, ultralight, power, and scooters of movement areas that the motorized chait valent of spatial skills, spatial relations, and ents. There are approximately 1.3 million wheel chair users in the United States and the number is Increasing at a rate of percent per year Medical and Healthcare Marketplace Guide). Motorized DESCRIPTION OF THE PRODUCT and ultralight wheelchairs are the dynamic segment of the market of mobility aids. The Rug Bag is a vacuum-molded, plastic-body wheel According to the U.S. Cew Burean, there are air powered by a rechargeable battery. The 25 pound more than 45 million children under the age of dair has the following safety features as standard 15 with disabilities in this country. In the 6-14 age group alone there are more than 70.000 children who use wheelchairs. This figure does to reflect 1. A pressure-sensitive bumper strip surrounding the any other potential users in this age bracket, such vehicle allows the unit to move away from any as the muscular dystrophy population obstruction it might encounter. The market has changed significantly for the last 2 Dual front antennae extend upward to prevent the two decades. Specific federal regulations and the in chuir from moving under low objects, such as a coffee table 1. In the case of a confrontation with an uneven surface. al electric eye located under the front of the chair will deactivate power in that direction. The power remains operative in other directions, allowing the occupant to move away from the potential hazard A handheld remote control unit enables an adult to take over control of the chair from the occupant Avable speed control is built into the unit which is beyond reach of the occupant. As the ability of help strengthen. uipment: troduction of pars-Olympies have focused attention on the improvements in wheelchairs and the needs of disabled people. Other market trends include the use of two or more wheelchairs by patients, and a steady demand for new designs, interest in a range of colors and styles to choose from, and design improvements based on new materials Medical and Healthcare Marketplace Guide) There are several major players in the wheeled mobility market. A dominant participantis Sunrise Others include Orthokinetics, Everest & Jennings, 542 PART 6 CASES Guardian, Theradyne, and lovacare Sonne hupio Ind indicating markups and retum per square foot neered a new marketing strategy reaching customers selling space required, will be developed for use is directly Competitive dimensions include new tech- the company direct sales effort nologies, use of new materials, wheelchair weight and maneuverability parameters. The current level LOCATION OF THE BUSINESS of prices for moned wheelchairs is in the range The office section of the Rug Hug will be located at from $3.00 to $20,000 per unit with an average Bicycle on East Street, Tulsa, Oklahoma. The model weight of about 20-30 pounds plastic body will be manufactured, and the producten 2. tribution. Since there are distinct and different Biod, at the Inter Ocean Oil Company, located at 2 methods for purchasing wheelchair, Rag Hug will Mohawk Boulevad. Tulsa, Oklahoma. The Rug Bogee establish two different distribution system. A direct poration will not be charged for usage of either facility system, initially employing individual connected although it will pay for utilities and telephones at both with the company, will call on hospitals, the Veter ans Administration, Shriners, and other organiza MANAGEMENT/OPERATIONS tions connected with the core and development of handicapped children of the initial 200 products, Inventor Al Young will serve as the president of Rug 190 will be sold in these outlets in order to generate Bug Corporation. In addition, Young will concentrate les without paying retail markups. This will also on the research and development section of operatie give the product good exposure Manufacturers rep. Mr. Young's past experience with electronics and.com resentatives will make direct sales for subsequent puters fits well with the needs of the company, His abil. production runs. A 15 percent commission on the ity to transform a concept into a viable product is shown selling price will be paid on all direct sales. After through the prototype that Rug Bug currently has in the initial 190 units have been sold (with 10 units existence being kept for demonstration purposes), the com Wayne Dunn and Dwaine Farrill will continue to op pany will add a retail distribution system. Several erate in the marketing component of the company. Their retail outlets will be itsed in each of the major mar extensive knowledge of and profound belief in the prod kets, including drugstores, bicycle shops and medical uct make both Dunn and Farrill ideal people to initially supply stores, Drugstorex account for a significant market it on a commissioned basis share of wheelchair sales and are an important out Linda Bryant will initially serve as the unpaid com let for the company, Bicycle shops, while noxusu- troller of the company. Ms. Bryant will serve as single ally a source for the purchase of wheelchairs, are an signatory on the banking account and prepare and mon important outlet, as they will provide any service itor monthly financial reports. She has served as a cash needed in addition to sales. Companyatithorized management officer at The Fourth National Bank of service outlets will be established in each market Tulsa for over two years and is currently its director of for ease of repair, an aspect the consumer should business development appreciate. Retail margins will be 30 percent off the established retail selling price of S1,850 FINANCIAL INFORMATION 3. Price. The company will sell the product to the re- To ramp up, the Rug Bug Corporation needs $150.000 tailer for $1.295, the retailer will mark up the prod. The funds will be used to develop the molds for various uct 30 percent, resulting in a selling price of 1.850 parts, manufacture 200 units of which 190 will be for the wheelchair. This price will position the prod sold), start the initial marketing effort, and pay em uct fawxably against competition and allow for sig. ployee salaries, product liability insurance, legal fees nificant growth in market share as well as profit and other expenses of the organization (see Exhibit) 4. Promotion. Quality hrochures describing the prod- The company will achieve significant sales and profits uct and its characteristics will be developed and dis starting in the first year, as indicated in the various pro tributed as point-of-purchase sale materials in the forma income statement se Exhibits 1 to 3). The pro retail outlets as well as in all hospitals, clinics, and forma income cash flow statements (Exhibits 4 to 6) and other organizations working with handicapped chil balance sheets (Exhibits 7 to 9 further indicate the dren. In addition, sales material, including a price tremendous growth and profit potential 28 29 in sor EXHIBIT 1 Mo. 1 Mo. 2 U 0 THE RUG BUG CORPORATION Pro Forma Income Statement First Year, by Month Mo. 3 Mo. 4 Mo. 5 Mo. 6 Mo. 7 MoB Mo: 9 Mo. 10 Mo. 11 Mo. 12 Total 0 $37,000 $55,500 $55,500 574.000 574.000 $74,000 $74.000 $92,500 592,500 5629.000 0 8,720 13,080 13,080 17,440 17,440 17.440 17.440 21.800 21.800 101209 0 5,550 8,325 8,325 11.100 11,100 11,100 11.100 13.875 13.875 54350 0522.730 $34,095 534,095 $45,460 545.450 $45.460 $45,460 55625 $56,825 386,010 0 D olo o 0 D Sales Less: Cost of goods sold Commission Gross profit Operating expenses President salary Secretary salary Employee insurance Product liability insurance Research and development Advertising printing Travel expenses Organisation expenses Total operating expenses Profit oss before tax Tanes $ 2.000 0 42 417 625 350 53,913 0.933) 0 53,931 0 1,850 436 15 D 0 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2.000 594,000 D 0 1,167 1,167 1,167 1.167 167 1.17 42 42 42 42 42 42 SO 370 5$5 555 740 740 740 925 125 1,850 2.775 2,775 2.700 700 2.700 3,700 4625 4625 1.450 417 417 417 417 417 417 417 417 117 417 12 625 625 25 625 25 25 625 5 850 550 850 850 250 aso SO 330 SO $ 3.933 $2.933 5 6.153 5 7.253 S 8.410 3540 2.540 540 540 550 F 1,933) (1933) 16,577 25.832 B.10 300 1920 RUNT 601 10,712 10.265 100 SR 509339.946 516.00 31.3 121.552 58 259 2 BEL 0 0 20 30 90 1,30 1,050 1,650 LEN 1650 1.850 1.250 UN 436 4 36 436 4 0 1 13 15 15 15 15 IS 15 15 40 30 40 40 40 10.am Net profit class Quantity sold Price DL-OM-MAGF cost Commission percent Tax rate 0 40 Barwary begin Player ERS 544 PART 6 CASES EXHIBIT 2 Qtr 4 001 THE RUG BUG CORPORATION Pre Forma Income Statement Second Year by Quarter Otr2 Ora 5555.000 51.110.000 52.220,000 194250 3500 562.750 5749.250 51500 52.002.750 130.800 261,600 523.200 65.400 10.00 196.200 812:50 166.500 333.000 29,113 58.275 87,413 5440,663 $631,325 $1,662,938 $3.330.000 777,000 $4,107,000 784.800 261,600 499,500 116.550 $2,444,550 Total 57.215.000 1.342.500 59,157,500 1,700,400 654,000 1.062.250 291,375 55,429.415 5 $ $ 7,200 3,500 7,200 3.500 $ 28,800 14,000 25.000 Sales-Direct Sales-feta Total sales Less Cost of goods sold-Direct Cost of goods sold-Retail Commission Direct Commission Retail Gross profit Operating experies President salary Secretary salary Vp-Finance salary Employee insurance Product ability insurance Hesearch and development Advertising printing Travel expenses Accounting services Depreciation --Computer system Bad debit expense Total operating expenses Pratit Boss) before tax Taves Net profit fosil Quantity sold-Direct Quantity sold Retail PriceDirect Price--Retail Manufacturing cost Commission percent Taxat 125 14.985 74,925 2,500 1,875 2.500 250 7.200 3,500 12,500 125 28,028 140,138 2,500 1,875 2,500 250 125 7,493 37,463 2.500 1,875 2,500 250 5,828 5 68.733 371,930 148,772 $223,158 300 150 1,850 1,295 500 91.57 457,875 10,000 7.500 10,000 1,000 58,275 $ 704 525 4,724,950 1,889,90 $2,834970 3,900 1,500 11,655 $ 119,515 761.810 304,724 $ 457,086 600 300 1.850 1,295 436 15 40 5 7.200 3,500 12.500 125 41,070 205,390 2.500 1.875 2.500 250 23,310 $ 300,180 2,144,370 B57,748 $1,286,622 1.800 600 1,850 1,295 436 15 40 17,483 5 216,098 1,446,840 572,736 $ 868,104 1.200 450 1,850 29 436 15 15 40 40 May in of+D thepinoy be with other (seperti CASE 12 RUB CORPORATION SAS IT 3 Qu1 53,700,000 1,554000 55,254,000 THE RUG WUG CORPORATION Proforma Income Third Yearty at 2006/2001 2 15.550.600 2,331,000 $7.881,000 4 Total in-hect Retail Der 700.000 2.100 $10.500.000 5.250.000 35 000 113.135.000 125,400.000 107.000 136,778.000 M As of goods sold Direct Cost of goods sold-Retal Commission-Direct Comission--Retau $872,000 523.200 555,000 233 100 $3,070,700 $1,300,000 784,800 832.500 349.650 $4,606,050 $ 1,744.000 1.545.400 1,110,000 166.200 $ 6,141.00 $ 2.180,000 1,308,000 1,387,500 589.750 $ 7,676,750 56.104,000 3,562.400 3,885.000 1.631.100 121.454,900 w profit $ perating expenses President salary Secretary salary VP Finance salary Employee insurance $ 8,640 3,500 15.000 125 52,540 262,700 3,125 1,875 2,500 250 46,620 $ 386,875 2,673,825 8,640 3,500 15,000 125 78,810 394,050 3,125 1.875 2.500 250 Product liability insurance Research and development Advertising printing Travel expenses Accounting services Depreciation-Computer system Bad debt expense Total operating expenses Profit doss) before tax Taxes Net profit (loss) Quantity sold-Direct Quantity sold - Retail 5 2.640 3.500 15,000 125 105.080 525,400 3,125 1.875 2,500 250 93.240 $ 758,735 5,382,665 2,153,066 $ 3,229,599 $ 8,640 $ 3.500 15.000 125 131.350 656,750 2,125 1.75 2.500 250 116,550 $ 979,665 6,737,085 2.694,834 $ 4042 251 5.000 34.540 14,000 50,000 500 367,780 1,836.900 12.500 7,500 10,000 1,000 326,340 $ 2,673,080 18,821,820 2.528.728 511243,042 14.000 8.400 1,069.530 $1,604.295 2,000 69.930 $ 577,805 4,023,245 1,611 298 $2,416,447 3,000 1,800 1,850 3.000 1,850 1,295 1.200 1.850 1.295 PriceDirect Price-Retail Manufacturing cost 436 4000 2.400 1.950 1,295 436 30 15 40 1,295 436 30 15 30 436 30 15 40 15 40 Discount per Commission Tarate 40 566 EXHIBIT 4 THE RUG BUG CORPORATION Pro Forma Cash Flow Statement First Year, by Month Mo.4 Mo. 5 Mo. 6 Mo. 7 Mo. 1 Mo. 2 Mo. 3 Me 8 Mos Mo. 10 Mo. 11 Mo. 12 0 $75,000 $75,000 $75,000 $75,000 0 $37.000 555.500 $ 55,500 574,000 5 74.000 $74.000 74.000 592,500 592.500 0 0 $37,000 $55.500 555.500 574.000 $ 74,000 574.000 74.000 $12,500 592,500 5 2,000 $ 2.000 $2,000 $2,000 $2,000 $2,000 52.000 52.000 52.000 52.000 0 O 1.167 1,167 1,167 1,167 1.167 1.167 0 Cash receipts Sales Others Total cash receipts Cash disbursements Salaries President Secretary Employee insurance Product liability insurance Research and development Advertising Travel expenses Organization feet Commission Inventory Total distrament 250 1.850 2,775 2.775 3.700 3,700 1,700 2.700 4,825 4625 $ 2,000 $2.000 0 0 100 150 6.290 0 0 2,500 1.500 3.750 2,250 STOO 3,060 0 0 17,421 26.131 $37,161 $35,091 37,839 39.909 37,839 77,748 0 1,000 1.500 2,010 0 43,552 $50,342 (50,342) 27,406 5,550 8,125 8,325 11,100 11.100 11,100 11.100 10,900 10,900 21,800 21,800 5 28.867 $ 28,867 539,767 533,767 45,133 45,133 34.233 34.233 183.772 228.905 263.138 297.171 13,875 12.875 65.400 65,400 $ 87,067 3 87,067 5433 5,433 302,804 301237 $ 9,400 513.100 514.267 27,600 42.400 41,233 55,006 97,406 138,639 150 150 Net cash flow Cumulative cash flow Inventory calculation (units produced 50 SO 25 100 40 60 EXHIBIT 5 CASE 12 RUG BUO CORPORATION 547 THE RUG BUG CORPORATION Pro Forma Cash Flow Statement Second Year, by Quarter 2005/2006 Qtr 1 Cash receipts Qtr 2 Otr3 Qtr 4 Total $674,325 $1,423,575 $2,672,325 33.976,595 58.746,800 5674,325 $1,423,575 52.672,325 $3,976,575 58,746,800 $ 7.2005 7,200 $ 500 Sales Others Total cash receipts Cash disbursements Salaries President Secretary VP_Finance Employee insurance Product liability insurance Research and development Advertising Travel expenses Accounting services Commissions Inventory Taxes Computer system Total cash disbursements Net cash flow Cumulative cash flow Units produced Unit cost 7.2005 3.500 7.2005 28.800 3,500 3,500 3,500 14,000 0 0 12,500 12,500 25,000 125 125 125 125 91,575 91.575 37,463 74,925 140,138 205,350 457,875 2,500 2,500 2.500 2.500 10,000 1,875 1,875 1.875 1.875 7.500 2,500 2,500 2,500 2,500 10,000 101,149 213,536 400,849 596,486 1,312,020 327,000 610,400 937,400 1,308,000 3,182,800 122,040 122,040 5,000 5,000 $701,927 $ 916,561 51,508,586 $2,140,036 $5,267,110 (27,602) 507,014 1,163,739 1,836,539 3,479,690 479,412 1,643.151 3,479,690 3,000 7,300 750 $436 5436 (27,602) 1,400 2 150 $436 $436 EXHIBITS THE RUGBUG CORPORATION Proforma Cash Flow Statement Third Year by Quarter Out Otr2 Otr Otr 4 Total $12.872,300 535,906.342 $10.245.100 57617300 151704 512.872.300 535.905 340 510,245,300 $7.618.300 35.170.442 $ $ Cash receipt Sales Others Total cash receipts Cashbursements Salaries President Secretary VP Finance Employee insurance Product liability insurance Research and development Advertising Travel expenses Accounting services Commissions Inventory Taxes Total cash disbursements Net cash flow Cumulative cash flow Units produced Unit cost 8.640 2.500 15.000 125 52,540 262,700 2,500 1875 2.500 775,566 1,831,200 1.917.890 54.873,836 29,605 296605 4,200 $436 $ 8.640 2500 15.000 125 78,810 NOSO 2.500 1,875 2.500 1,142,745 2.520.000 $ 2600 2.500 15,000 125 105,080 525,400 2.500 1.575 2.500 1536,795 3,313,600 8,640 3,500 15,000 125 131,350 556,750 2.500 1,875 2,500 1.930,845 3,749.600 34.50 14.000 50,000 500 367,780 1.838.500 10,000 7,500 10,000 5.385.951 11,423,200 1,917,590 521,070,081 14.836.260 $4,178,545 3,438,755 3.736.360 5.800 5436 $ 5,515,015 4.730,285 3.466,645 7,600 $436 $ 6,502,685 6,369,615 14,836,260 8,600 $436 26,200 EXHIBIT 7 THE RUG BUG CORPORATION Pro Forma Balance Sheet As of End of Year 1 Cash 5171,261 135.225 O 5306, 486 Inventory Accounts receivable Total set Comment payable Taxes payable Ietained earnings Common stock 122,040 34445 150.000 5306455 548 CASE 12 RUO BUO CORPORATION 549 EXHIBIT 8 THE RUG BUG CORPORATION Pro Forma Balance Sheet As of End of Year 2 Cash Computer system Inventory Accounts receivable Total assets Commissions payable Taxes payable Retained earnings Common stock $2,076,535 4.000 1,017.145 259,000 54.156,680 38.850 1,917,690 2,088.990 150,000 54,156,680 EXHIBIT 9 THE RUG BUG CORPORATION Pro Forma Balance Sheet As of End of Year 3 Cash Computer Inventory Accounts receivable Total assets Commissions payable Taxes payable Retained earnings Contributed capital 511,495,496 3,000 1,541,938 1,259,000 $14,299,434 188,850 7,663,664 6,485,770 150,000 $14.299.434