Rug Bug Corporation

Topics: Expense, Cash flow, Revenue Pages: 23 (5985 words) Published: June 16, 2013
Case 3C

RUG BUG CORPORATION
A. L. Young has come a long way with his latest invention, the Rug Bug, a motorized wheelchair made especially for children. His lightweight, relatively inexpensive model has no direct competition in a field dominated by companies that produce scaled-down versions of adult models that are inappropriate to the needs of children. A working prototype has been built, office space and manufacturing capacity contracted, and an initial sales force recruited. The only element Young lacks is enough capital to produce the first 200 units. A business plan has been drawn up describing the product, its manufacture, and the marketing plan. After several fruitless months seeking financing, Young was contacted by a group of investors who had seen a summary of his proposal. Feeling that this might be his only chance, Young has contacted you for advice on how to present his plan. He has sent you the following copy of his business plan and a list of questions. What recommendations would you make? Young's questions: 1. I'm not much of a writer: Do you think my descriptions of the product, competition, marketing, and so forth, are adequate? Could it be improved easily without additional outside information (my meeting is in two days!)? The pro forma income and cash flow statements were developed from a model I found in a book. Did I leave anything out? I think $150,000 is a good amount to ask for-big enough to show we are serious about creating a growing business but not large enough to scare them away. Are they going to want to know what I plan to do with every penny? What should I do if they are only willing to invest less? I really don't know what to expect from these investors. I have my own idea of how much of the company I want to give up for the $150,000, but I don't know what they would consider reasonable. Can you give me any suggestions? Mr. and Mrs. A. L. Young established the Rug Bug Corporation as a Delaware corporation. The sole purpose is to manufacture and distribute a revolutionary motorized wheelchair, designed for children under the age of 10. The Rug Bug motorized wheelchair will retail for approximately one-half the cost of any other motorized wheelchair for this age group. It will weigh almost 50 percent less than the standard motorized wheelchair. The unique design of the Rug Bug accounts for the differences in the retail cost and weight of the chair. In addition, the Rug Bug has numerous safety features that are not found on other available motorized wheelchairs. These three features of cost, weight, and safety allow the Rug Bug to fill a special niche in the market. It is an appropriate time to introduce this product in light of the current trend in the medical field to recommend the use of motorized wheelchairs for children. This recommendation of medical professionals arises from their determination that the spatial relations and sense of movement offered by a motorized chair provide a handicapped child with sensory experiences normal for young children. The target market for this product will be greatly increased due to this philosophical change. In order to establish the company, the Rug Bug Corporation will need $150,000. This will finance the production of the molds for various parts, the manufacture of 200 units (of which 190 will be sold), and initial marketing efforts. In addition, the company will use the funds for product liability insurance, legal fees, and continued research and development. DESCRIPTION OF THE BUSINESS The Rug Bug Corporation is primarily a manufacturing and distribution company in the start-up phase of operation. The inventor's initial research led to the development of a prototype. Marketing research shows the Rug Bug to be the only vacuum-molded, plastic, motorized wheelchair with unique safety features currently available. The owners of the Rug Bug Corporation believe the company will be successful because of low production costs, reasonable retail costs,...
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