Business Plan

Executive Optical, Inc.

For any query involving the contents of this business plan, please feel free to consult Zhanika Marie O. Carbonell, concurrently Financial Manager and Corporate Counsel at Executive Optical, Inc., at zhani_18@yahoo.com.

Executive Optical, Inc. Business Plan

Executive Summary
A leader in todays vision care industry in the Philippines, Executive Optical, Inc. was founded in 1968 and now has a total of more than 75 branches in key cities nationwide. Executive Optical, Inc. is primarily engaged in the business of selling frames, sunglasses, lenses, contact lenses, solutions and other allied products. As to its services, Executive Optical offers examination of visual function and determination of visual errors, eye diseases and base curve measurement of the cornea and prescription. Color Blindness Test is also one of the services being offered by the company.

According to its financial statements as of 2012, Executive Optical, Inc. has an equity capital of 271,214,641.02 pesos and a debt capital of 71,714,070.28 pesos. It has a Debt-to-Equity Ratio of 0.26 indicating that majority of its financing comes from equity. With regard to equity, the total amount of authorized capital stock of the corporation is 3,000,000 shares, all of which are common shares with a par value of 100 pesos per share. As of April 29, 2013, Executive Optical, Inc. has a total subscribed capital of 1,600,000 shares and a total paid-up capital of 1,600,000 shares. As of December 31, 2012, Executive Optical, Inc. has not issued new shares and the capital stock remained the same at 160,000,000 pesos. This is expected because Executive Optical is a family corporation. There was however a notable growth in the companys Retained Earnings in the year 2012 from 82,072,555.93 pesos at the beginning of the year to 111,214,641.02 pesos at year end.1

Based on Lito Paolo Martins submitted Executive Summary of Executive Optical, Inc.

Executive Optical, Inc. Business Plan

Business Plan: General Overview

Executive Optical, Inc. is a well-recognized brand due to its marketing and advertising efforts. Its products can readily be seen on billboards and on the internet. However, there are still many strong competitors in the vision care industry that may pose as a threat to the corporation some of which are Ideal Vision Optical, Sarabia Optical, Acebedo Optical, Sabater Pascual Optical, The Optical Shop, Inc. and George Optical. The goal is increase the market share of Executive Optical, Inc. and decreasing that of its competitors by the addition of its branches and its exclusive distributorship of foreign brands. Strengthening brand awareness through more marketing efforts would also help in increasing market share.

The company would also like to enhance the quality of its services by the purchase of new assets and upgrading as well as increasing its current equipment such as auto refractometers, slit lamps or biomicroscopes, retinoscopes and opthalmoscopes. To do this, Executive Optical would need a substantial amount of P100 Million. The investors, however, are assured through this business plan that their time and resources would not be put to waste. Provided herein is a detailed financial model which would hopefully convince the investor that Executive Optical will be able to not only put the money in good use but to be able to repay the loan on time as well.

Overall, the structuring of the additional capital of the company would consist of 30% equity and 70% debt. To some this may seem risky, as this would necessarily increase the debt to equity ratio of the corporation but rest assured that the additional leverage would not position the corporation in such a way that it would be too burdened with debt that it would no longer turn a profit. Quite the opposite would be the effect because as this business plan is structured, the additional acquisition of debt and its use would multiply the amount of profit the corporation would be making and the additional equity would also cushion any strain that the said additional debt may have on Executive Optical.

Executive Optical, Inc. Business Plan

Target

Investors:

Exclusive

Distributors,

Financial

Institutions and Private Equity Firms

The company intends to convince these target investors to lend money in order to finance the company expansion. In this business plan, we are inviting only external investment. Investors may choose among the investment vehicles provided herein whether it be a debt vehicle or an equity vehicle. We shall be offering three (3) debt vehicles and one (1) equity vehicle from which investors can choose.

We have chosen to offer these investment vehicles particularly to exclusive distributors because of their interest in the sales performance of our corporation. With their added help, we can ensure the return of their investment and the increased sales of their products as well.

Since there is a need for outside capital and the fact that Executive Optical has been a going concern since 1968, thus it can be said that it has a proven business model, private equity firms would be ideal investors. They can choose to fund us by private equity or even by debt.

With regard to financial institutions such as banks, we aim to be able to secure loans that would make up the 70% debt of our additional capital structure.

Executive Optical, Inc. Business Plan

Debt Structure (Php 70 Million)

Secured by the Assets of the Company 30 Million
The amount loaned herein will be used for the purchase of new equipment to be used in the newly set up branches of Executive Optical as well as to replace the outdated equipment in the already existing branches of the company located around the Philippines. This asset-based financing will be in the form of a term loan, the maturity date of which and the amount would be tailored to match the fixed assets of the company. Since it is secured, an interest rate of about 12% per annum would be enough. The additional equipment to be bought are the following: auto refractometers, slit lamps or biomicroscopes, retinoscopes and opthalmoscopes. We are predicting that this will increase the sale of services by 30%.

Equipment
Auto Refractometer

Image

Price/Quotes from Vendors

US $12,923.00 or around Php 576,000.00

Operating or Financial Benefit

Provide because accuracy lessening regard better of and any to error service improved stable thus with diagnosing

measurements

eyesight problems. Biomicroscope US $1,999.00 or around Php 89,000.00 Used in eye check ups. Used to diagnose diseases of the eye. Important because it is used in the services of the company.

Executive Optical, Inc. Business Plan

Retinoscope

$649.44 or around Php 30,000.00

Optometrists

use

retinoscopes as a form of objective refraction test. The instruments are used to illuminate the internal eye and to observe and measure the rays of light as they are reflected by the retina. It is used in order to obtain an accurate refraction for the patient.

Opthalmoscope

$198.95 or around Php 9,000.00

Instrument ophthalmoscopy.

used

in

Ophthalmoscopy is a test that allows a doctor to see inside the back of the eye (called the fundus) and other structures magnifying using a instrument

(ophthalmoscope) and a light source. It is done as part of an eye exam and may be done as part of a routine physical exam.

*Prices are gathered from the most recent price lists available from the respective manufacturers or dealers.

Unsecured High Yield Debt 15 Million

Since the company has a long history of loan compliance and a relatively strong balance sheet, we are offering a debt vehicle in the form of an unsecured loan. Because they are unsecured the interest rate will be higher. It will be at about 17%. This debt will be used to make capital expenditures in the form of new branches set up in key locations around Metro Manila. It shall also be used to fund an even more aggressive marketing and advertising campaign to strengthen brand awareness. We are predicting that this will increase sales by 15%.

Executive Optical, Inc. Business Plan

Revolving Credit Line 25 Million

The maximum amount of the revolving credit line would be Php 25 Million but the variable amounts that can be actually drawn down by the borrower can be determined quarterly by reference to a certain level of our inventory and accounts receivable, which will serve as our borrowing base. The percentages of our borrowing base will be as follows: Accounts Receivable 60 %, Inventory 40%. The interest rate will be pegged at 9%. These funds will be used for any expenses that the company might need which includes regulation, documentation and the like. It is predicted that this will improve gross sales by 10%.

Debt Structure

36%

43%

Secured by the Assets of the Company Unsecured High Yield Debt Revolving Credit Line

21%

Executive Optical, Inc. Business Plan

Equity (Php 30 Million)

As stated earlier, the total amount of authorized capital stock of the corporation is 3,000,000 shares, all of which are common shares with a par value of 100 pesos per share. As of April 29, 2013, Executive Optical, Inc. has a total subscribed capital of 1,600,000 shares and a total paid-up capital of 1,600,000 shares. As of December 31, 2012, Executive Optical, Inc. has not issued new shares and the capital stock remained the same at 160,000,000 pesos. In order to raise additional equity in the amount of Php 30 Million, Executive Optical will increase its authorized capital stock. This may seem a big amount, which is why we would also be offering preferred shares in order to reach our Php 30 Million goal. Preferred shares will be issued with a par value of 200 pesos per share whereas common shares will continue to be offered at the same par value. One hundred thousand (100,000) preferred shares should be issued while an additional one hundred thousand (100,000) common shares shall be issued as well.

Equity
6%

Common Shares

Preferred Shares 94%

Executive Optical, Inc. Business Plan

Financial Forecasts
It will be assumed that the needed additional capital of Php 100 Million will be acquired in the next three years. There is also an assumption that subsequent liabilities will be incurred by the company to continually finance its growth. It is projected that the gross sales will increase by 10-30% based on the several debt equity vehicles. It is predicted that gross sales will increase by 10% due to the revolving credit line. The unsecured high yield debt is expected to increase gross sales by 15%. Lastly, the debt secured by the assets of the company is projected to increase sales by 30%. The overall profitability of the company will dramatically increase when the new capital is released.

Sales Growth Chart

6 Gross Sales by 100M 5 4 3 2 1 0 2011 2012 Year 2013 2014 Secured Debt Unsecured Loan Revolving Credit Line

Because of the additional capital injected into the capital structure of Executive Optical, its leverage ratio would necessarily change. Taking into account the additional 100 Million capital in the form of 70M debt and 30M equity, the following table shows the debt-to-equity ratio of the corporation from 2011-2014.

Executive Optical, Inc. Business Plan

10

Change in Capital Structure of Executive Optical, Inc. 2011 266,622,193.30 1.10 2012 71,714,070.28 0.26 2013 2014 141,714,070.28 141,714,070.28 0.47 0.47

Debt Equity Debt-toEquity Ratio

242,072,558.93 271,234,641.02 301,234,641.02 301,324,641.02

As can be gleaned from above, the debt-equity-ratio has been increased from 0.26 to 0.47 which shows that Executive Optical is now more leveraged as compared to 2012. However, this ratio is still low enough to ensure that the additional debt taken on by the corporation is not big enough to put it in a risky position. It can be said that the additional debt has been indirectly offset by the additional equity as well.