Eng M 402 – Project Management & Entrepreneurship

Business Plan - Group 2

December 8th, 2010

Business Plan
Trans-Vo-Text
Instant Audio Translator

Team Members:

Mohammad Al-Amoudi
Ahmed Ali Babar
Effatsadat Faregh
Ravish Kalra
Shannon MacDonald
Scott Metrunec
 Eng M 402 – Project Management & Entrepreneurship
Business Plan - Group 2
December 8th, 2010

Table of Contents
Executive Summary.................................................................... Page 1

The Industry, the Company & its Product.................................. Page 3

Market Research and Analysis................................................... Page 5

The Economics of the Business................................................. Page 6

Marketing Plan........................................................................... Page 7

Design and Development Plans................................................. Page 8

Manufacturing and Operating Plans.......................................... Page 11

Management Team.................................................................... Page 12

Critical Risks, Problems, and Assumptions.............................. Page 14

The Financial Plan.................................................................... Page 15

Proposed Company Offerings.................................................. Page 25

References……….................................................................... Page 26

Appendix – Over-All Schedule................................................ Page A1

List of Tables
Table 1: Income statement for Systran®.................................... Page 16

Table 2: Balance sheet for Systran®......................................... Page 17

Table 3: One time - fixed assets expenses (balance sheet)...... Page 19

Table 4: Yearly expenses (of year 1 & 2) (balance sheet)....... Page 20

Table 5: Yearly expenses (proceeding years) (balance sheet).. Page 21

Table 6: Pro forma income statement........................................ Page 22

Table 7: Pro forma cash flow statement.................................... Page 22

 Eng M 402 – Project Management & Entrepreneurship
Business Plan - Group 2
December 8th, 2010

List of Figures
Figure 1: Cash flow diagram...................................................... Page 23

Figure 2: Break even analysis.................................................... Page 24

Figure 3: Rate of return analysis................................................ Page 24

 Eng M 402 – Project Management & Entrepreneurship
Business Plan - Group 2
December 8th, 2010

Executive Summary
Description of the Business Concept and the Business

Our company, Trans-Vo-Text Inc., was incorporated on September 20th, 2010. The business concept for our
business is to make communication more convenient for people who speak different languages. The existing
technologies are going to be used to develop a new device called the “Trans-Vo-Text instant audio translator,”
which will be a hand-held device that will translate between most languages, including Braille. This will help
with the ease of communication within business relationships, as well as for personal uses (i.e. vacationing to
different language-speaking areas). The audio input can be set to produce an audio output in a different
language, or a translated text file for documentation or Braille printing purposes. There are also outlets on the
device that allow for conferencing uses (i.e. multi-port input/output).

The Opportunity and Strategy

With the introduction of user- friendly search engines to the public around fifteen years ago, it has been much
easier to form relationships with people anywhere in the world. This has allowed many businesses to function
internationally. Our product has a huge advantage in this respect because many companies are still trying to
discover the most effective and efficient way to communicate with people who speak different languages, not
only time and clarity-wise, but cost-wise as well. The Trans-Vo-Text instant audio translator makes these
desires possible.

All the necessary technologies for producing this new idea are already available. That’s how the already
existing instant translators and voice-to-text convertor devices are introduced to market, separately. Thus, for
this new technology, there would not be much technological development. Instead, the main work would be to
integrate all these existing technologies into one and produce a device that can replace all those devices. In the
future, this technology can be added to land line phones and cell phones as an extra feature. This would make
the conversations between people with different languages much more convenient. Also since this technology
can convert conversations over the phone to text format, people with hearing problems can use phones as well.

The Target Market and Projection

The tourism industry is one of the target markets for this instant translator device. “Tourism has become a
popular global leisure activity. In 2008, there were over 922 million international tourist arrivals, with a growth
of 1.9% as compared to 2007. International tourism receipts grew to US$944 billion (euro 642 billion) in 2008,
corresponding to an increase in real terms of 1.8%. [The World Tourism Organization (UNWTO) forecasts that]
international tourism will continue growing at the average annual rate of 4%.” All the international institutions
and companies, academic institutions and universities can benefit from this new technology as well. Another
target market for the instant voice-text convertor/translator device is the deaf (or people with severe hearing
problems) and blind population. “In the USA Based on Available Federal Data and Published Research: About
2 to 4 of every 1,000 people in the United States are "functionally deaf," though more than half became deaf
relatively late in life; fewer than 1 out of every 1,000 people in the United States became deaf before 18 years of
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Business Plan - Group 2
December 8th, 2010

age. If people with a severe hearing impairment are included with those who are deaf, then the number is 4 to
10 times higher. That is, anywhere from 9 to 22 out of every 1,000 people have a severe hearing impairment or
are deaf. Again, at least half of these people reported their hearing loss after 64 years of age.” Once we have
established our company and built a reserve of capital, we will be able to further expand to our secondary
markets, which include educational institutions like universities (e.g. lecture theatres), government buildings,
and further expansion of our business to regions around the world.

Our initial marketing plan will center on selling to Canadian businesses that operate in foreign regions that have
a need for translation services. This market will be aggressively targeted by our outside sales team, who will go
directly to these companies and show them our prototype to encourage interest. Our product will be priced at a
level that is competitive with other similar devices on the market and allow us to generate a healthy profit. Our
device cost of $500 will allow a business to save money in the first month of purchase by eliminating the need
for translators on staff.

The Competitive Advantages

At the moment, we have two current competitors, HKTDC and ECTACO® that manufacture and sell devices
capable of speech translation to several languages. These products offered are at a higher price point than our
product ($529 to $599), and do not offer the range of features our device will incorporate. The competing
products are able to sustain a small market share since they are both smaller items sold by larger businesses.
Our company will be able to focus more on research and development and the service we can provide to our
customers. Because of this, our product will have a competitive advantage as soon as it launches.

The Economic, Profitability, Harvest Potential

The gross margin in year one is -$227,100 which is focused on R&D, testing and patenting, followed by -
$1,000 and $388,300 in the third year when revenue exceed the costs. The life of the system is suggested to be
25 years, since we suspect a continuous demand for the product there is no plausible reason why the demand
will reduce as communication will always pose a difficulty indifferent countries or provinces, even
technological outbreaks will not compete with its advancement but rather will improve the accuracy of
translation and the size of the product. Competition will increase but with patents and R&D ongoing it will be
easy to dominate a huge share of the market without difficulty. The peak of profits ($5M or about 60% with
taxes) occurs when the product gains its reputation internationally by government and international
organizations. The unit breakeven time is estimated to take 2 years and 3 quarters hence by the 3rd quarter of
2012, the cash breakeven occurs at about the same time as the book break even. We suspect 30% growth
potential and 5-15% improvement in the learning curve hence value of sales and reduction in costs beyond the
third year.

The Offering

An initial investment of $227,100 per year is required for the first and second year of business. As the business
progresses, the investment will be increased to $301,700 per year to improve the quality of the business by
increasing marketing funds. Each of the six members of the management team will provide 10% initial
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Business Plan - Group 2
December 8th, 2010

investment i.e. $22,710. The rest of the 40% initial investment which make a total of $90,840 will be provided
by angel investors. The profit from the first year of sales (second year of business) will be invested back into the
business to increase the business quality and to decrease the payback. Angel investors will hold a share of 40%
in the company for first five years of business. A yearly 15% rate of return will be set to attract the investors.
The primary priority of Trans-Vo-Text Inc. in the first five years of business will be to reduce payback to zero.
Therefore all the profit will be invested back in to the business to return any financial holdings.

The Industry, the Company, and its Product

The Industry

““Communication – the human connection – is the key to personal and career success.”
~ Paul J. Meyer ~

Thanks to the efficiency of modern technology, it is possible to easily form business relationships with people
and companies from different countries. There is one major setback to these relationships if not dealt with
correctly: lack of or miscommunication. It is common practice to hire translators for these purposes but this
approach can be extremely costly if used over long periods. Our company has devised a new innovative product
that will make communication between these parties easy, efficient, and flexible.

The initial market that will be targeted by our translation device will be Canadian companies that have business
in any foreign-speaking country worldwide. We will also market our product to the tourism industry. This
market is incredibly large, with 922 million international tourist arrivals, and an annual growth rate of 4% per
year. Once we have established our company and built a reserve of capital, we will be able to further expand to
our secondary markets, which include educational institutions like universities (e.g. lecture theatres),
government buildings, and further expansion of our business to regions around the world.

Our competitors in this industry who have already developed hand-held translation devices are HKTDC and
ECTACO®. As well, language translation software has been created by companies such as SYSTRAN®, SDL,
babylon®, and PROMT®.

The Company & the Concept

Trans-Vo-Text Inc. has considered a hand-held device that will translate between most languages, including
Braille, for the ease of communication within business relationships, as well as for personal uses (i.e.
vacationing to different language-speaking areas). The audio input can be set to produce an audio output in a
different language, or a translated text file for documentation or Braille printing purposes. There are also outlets
on the device that allow for conferencing uses (i.e. multi-port inputs).

Trans-Vo-Text Inc. was incorporated on September 20th, 2010. Development tasks were distributed between
members of the company with preset deadlines for progress and milestones. Our team effort has proven both
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effective and efficient in all aspects of creating a strategy that, in the end, will successfully disclose this product
into the mainstream market.

The Product

Through research, it has been determined that there are other ways of achieving translation: There are internet
applets, but they are found to be very unreliable, and may be the cause of improper translation, leading to
miscommunication. There are companies that will translate documents for up to hundreds of dollars with every
new inquiry. The issues with both these processes are that the passages must be in text format before it can be
translated and the later can be quite costly. There are also hand-held translation devices available but they are
solely for the purposes of audio to audio translation with no documentation possibilities. They have a minimal
range of languages and do not consist of any elements that would allow use at events such as board meetings,
where there is a larger collaboration of people as opposed to just two people communicating between each
other.

The concept of this product is the following: Person A speaks into the device in language A. The device
registers the information by way of speech recognition software and converts it to the desired Language B. The
device will then, depending on its setting, (1) play the passage in Language B on a speaker that is attached to
the device, or (2) store the information for use with computer software or a Braille printing device for the
visually impaired. All translations are able to happen almost instantly, with the only wait time being the internal
processing of the system, which will most likely be no longer than a fraction of a second.

This device holds many positive aspects: The user will only have to pay a one-time fee to purchase the product,
instead of paying per translation. The user will be able to communicate efficiently and effectively in any setting.
As well, the user can choose to store the information for later use of documenting purposes or Braille printing.
The product is currently expected to be sold at a price of $500 per unit.

This device may be powered by either battery or an A/C adapter. The device shall run on easy to use software
with a user-friendly interface, which will be designed during the product development phase. The device will
also be characteristic of simplicity so that it is easy to use regardless of the user’s technological background.

A possible drawback of the device may be issues regarding unfamiliar words. For instance, if the user does not
use common language (e.g. the user may use slang), the device may not be able to translate it. The pre-
programmed languages will be input based on common dictionaries and sentence structures. If uncommon
terms are used, the device may not know what to do with them. In these cases, the unknown terms will be
recorded or output in the original language. Software updates with updated dictionaries will be available for this
device to counteract this problem.

Regarding the technology required to develop this device, most of it has already made its way to the market.
Our task is to integrate all the individual pieces (i.e. speech recognition software, translation software, USB
technology and other software and hardware components) into a new and improved design that will be the first
of its kind on the market.

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Business Plan - Group 2
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Entry & Growth Strategy

Our timing for marketing this product could not have been better. With the introduction of user-friendly search
engines to the public around fifteen years ago, it has been much easier to form relationships with people
anywhere in the world. This has allowed many businesses to function internationally. This product has a huge
advantage in this respect because many companies are still trying to discover the most effective and efficient
way to communicate with people who speak different languages, not only time and clarity-wise, but cost-wise
as well. The Trans-Vo-Text instant audio translator makes these desires possible.

The strategy proposed by our company is to develop a prototype of this product in the first six months of
business. Once a prototype is developed, it will be necessary to acquire a patent. This approach will minimize
competition in the future and also allow us to exploit licensing opportunities. Once the patenting process is
complete, a second-generation prototype will be developed and alpha and beta testing of the software will be
conducted. After completion of the testing phase and a detailed analysis of the market need, the product is to be
placed into production in the second year of business and shall be targeted at each market separately.

Market Research and Analysis

Customers

A large advantage our product has is the large size of our potential market. This consists of any corporation that
does some kind of business in foreign markets, including international trade, business affiliations, etc. Our
initial market will also include international tourists, since there is a large demand for translation when people
visit foreign nations. We feel that both of these markets will be receptive to our device, since companies will be
able to save on salaries for translation staff and tourists would be very interested to be able to fully
communicate with someone speaking a different language. Both of these markets would benefit from our device
and will view the cost of $500 to be reasonable, which means we should be able to capture a decent market
share when we focus on an area.

Once our business is more established, we will be able to expand into further markets. This includes universities
and schools, and the visually impaired. These markets would get a huge benefit from our device and we should
be able to capture many sales from this area.

Market Size and Trends

The sizes of these markets are both very substantial, as there are 922 million international tourist arrivals
annually in 2008, with a growth rate of 1.9% over 2007. In addition to this, business done around the entire
world is constantly rising. The total market of translation services is estimated at $8.8 billion in 2005 with a
projected increase of 7.5% per year for a worldwide market value of $12.6 billion in 2010. This growing market
is due to globalization, which means all people are connected ever closer to each other around the world. With

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Business Plan - Group 2
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these new connections people have, tourism and international business dealings are rising consistently and
should continue to do so. This will give our product a huge market with a constant possibility to grow as the
market grows. Plus, since the opportunity is so large, even with a small percentage of the market share, we will
be able to maintain profitability and grow our business.

Competition and Competitive Edges

At the moment, we have two current competitors, HKTDC and ECTACO® that manufacture and sell devices
capable of speech translation to several languages. These products offered are at a higher price point than our
product ($529 to $599), and do not offer the range of features our device will incorporate. The competing
products are able to sustain a small market share since they are both smaller items sold by larger businesses.
Our company will be able to focus more on research and development and the service we can provide to our
customers. Because of this, our product will have a competitive advantage as soon as it launches.

If we change our business in the future to offer a translation software, we will have competitors in
SYSTRAN®, SDL, babylon®, and PROMT®. These companies offer translations ranging from free to $800
for business software, with monthly subscriptions and translation by the word or document available. These
companies will also compete with our current device, but do not have the portability or features that our product
has.

Estimated Market Share and Sales

Based on the advantages our device has over our competitors in features and price point, we will have a
continuous demand for our product and be able to sell any number of units we manufacture. This will include
around 600 units in our first year of sales with a 230% increase with each subsequent year until the 4th year, in
which sales will be expected to grow at a rate of 136% for all years beyond that. These initial sales productions
are based on our capacity to make our product in the first few years of business as we will need time for fully
develop our company. To expand our company and completely assess our customers’ needs, we will continually
send surveys to clients and potential purchasers to gauge what changes might need to be made to our product.
This will include our outside sales team constantly evaluating customer demand and possible improvements to
be made.

The Economics of the Business

Gross and Operating Margins

The gross margin in year one is -$227,100 which is focused on R&D, testing and patenting, followed by -
$1,000 and $388,300 in the third year when revenue exceed the costs. Growth following the first three years
will behave in an exponential trend with revenues moving upwards and costs more or less fixed as the price of a
single unit is cheap (about $50 per unit so $500 for 10 units). Testing will occur in local libraries, universities,
schools and conference halls. Our purchase will cover 30% to 40% of total portable language translating
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devices in the 1st 10 years and about 0.5% of all portable devices market (which includes the huge mobile phone
market). On the other hand the operating margins are $147,325, $18,265 and $217,475 for the first three years
and will show a common trend as the market niche and share increases. The contribution margin also shows a
positive trend: 0%, 5.6% and 128%, which attracts future investors.

Profit Potential and Durability

The life of the system is suggested to be 25 years, since we suspect a continuous demand for the product there is
no plausible reason why the demand will reduce as communication will always pose a difficulty in different
language-speaking areas. Even technological outbreaks will not compete with its advancement but rather will
improve the accuracy of translation and the size of the product. Competition will increase but, with patents and
R&D ongoing, it will be easy to dominate a huge share of the market without difficulty. The peak of profits
($5M or about 60% with taxes) occurs when the product gains its reputation internationally by government and
international organizations.

Fixed, Variable, and Semi-variable Costs

The calculations in the financial section of the report detail the fixed, semi-variable and variable costs. The
initial total expenses are $227,100 and $301,700 for years two and beyond. The fixed costs, which includes
office supplies, R&D and licensing, amount to $28,500, which is about 12% in year one and 9% otherwise.
Variable cost expenses are the remaining 88% and 91% in year one and proceeding year one, respectively.
Variable costs include rentals, salaries and marketing expenses. There are no semi-variable costs, except
perhaps a few consultants in advertisement and patenting that come and go in the 5 year period.

Months to breakeven and positive cash flow

The unit breakeven time is estimated as shown in the financial section to take 2 years and 3 quarters; hence, by
the 3rd quarter of 2012, the cash break even occurs at about the same time as the book break even. We suspect
30% growth potential and 5-15% improvement in the learning curve hence value of sales and reduction in costs
beyond the third year. Loans are made beyond the capital which the ventures, owners and family supply (60%).

Marketing Plan
Our initial marketing plan will center on selling to Canadian businesses that operate in foreign regions that have
a need for translation services. This market will be aggressively targeted by our outside sales team, who will go
directly to these companies and show them our prototype to encourage interest. We will emphasize the features
of our product and the cost savings of our device compared to competitors’ products and having translators on
staff. The tourism market will be another main focus initially, which will be targeted through print and internet
advertisements, and possible deals with tourism or travel agencies.

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Business Plan - Group 2
December 8th, 2010

Pricing

Our product will be priced at a level that is competitive with other similar devices on the market and allow us to
generate a healthy profit. Our device cost of $500 will allow a business to save money in the first month of
purchase by eliminating the need for translators on staff. The tourism market will see the price as a fraction of
the cost of one trip, while making each trip easier. This price will help the acceptance and market share of the
product, as it is cheaper than the competitors’ products and has superior features. Since our product can be
manufactured for around $50 per unit, there is a large margin for warranties, sales staff, and an allowance for
potential discounts or promotions. Our company is able to offer this price and service because it is very
specialized; only offering one product and focusing a great deal on service and quality.

Sales Tactics

Since our product needs to be demonstrated to our customers, we will use a direct sales team to sell it to the
business sector and universities. This will allow the translation to be shown directly, with multiple sales
possible with each demonstration. With a sales force on staff we will be able to keep our old business with good
customer service, and to constantly attract new clients. Since the tourism market would be quite difficult to
capture with a direct sales team, we will look at separate distribution channels such as travel agencies. We may
be able to make a deal that combines a translator with a trip to foreign nation that speaks a supported language.
Our sales force and distribution deals would be the most effective way to sell our device for the most profit, as
we would find the widest market for the least amount of overhead per unit sold.

Advertising and Promotion

Our company has plans to advertise in specific areas and promote our product at trade shows and conventions as
they arise. Initially we will only advertise in business and tourism magazines and websites to keep our
advertising costs low. Beyond this, our direct sales team will be constantly promoting our device and word of
mouth will help if our device can perform beyond our customer’s expectations. Since our product is quite small
and the numbers of units sold are not too high, the distribution costs would be a very small percentage of our
overall costs, even when dealing with international sales.

Design and Development Plans

Development Status and Tasks

Trans-Vo-Text Inc. is currently at the stage of formation of initial management team and an initial technical
team. Once a technical team is formed, the company shall focus on development of a prototype. The software
for implementing our device is available in the market, but will have to be purchased and fine-tuned as per our
needs. Once the software has been designed for our needs, a prototype will be built. This prototype is expected
to be completed by June, 2011.

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Business Plan - Group 2
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The expertise of the company does include some background of electronics designing as there are two electrical
engineers in the team, but technical help will have to be hired to develop a strong patentable prototype. Once
the prototype is developed, testing of the product shall be carried on. Prototype testing shall be performed by
inviting persons with differing native languages to converse with one another. Professors from the Faculty of
Arts at the University of Alberta, teaching different language courses can also be contacted for the testing of
languages known to them.

Besides Prototype design, implementation and testing of the device, first year tasks also include the following:

• File patent to protect the design of the device

• Hire experienced management and technical team
• Sell 30% of company share to attain capital
• Contact Potential representatives
• Set up production line

Difficulties and Risks

The following are the main difficulties and risks that have been identified and may be encountered in the design
stage:

• Capacity Issues:
o The device may not be able to store information for as many languages as planned.
o This can be resolved by using a larger memory on the device or by reducing the number of languages
from the initial planned 50 most spoken languages in the world or else by creating region specific
models of the device containing different languages required in different regions.

• Translation Issues:
o The device may not be able to translate as efficiently as planned because of unavailability of language
expertise.
o This shall be resolved by hiring language experts.

• Speed Issues:
o The device may not be able to perform as swiftly as planned.
o This shall be resolved by using a faster and stronger microprocessor and if required research into faster
algorithms would be performed.

Once the design phase is complete patenting issues may arise and these will be dealt with by discussing the
design in depth with a registered patent agent who is familiar with such technologies.

Other difficulties that may arise include development of a similar product by well-established companies and
will be dealt with by reducing the price of the product and by providing benefits such as warranty on the

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product. This has been discussed in the “Critical Risks, Problems and Assumptions” Section of the Business
plan.

Product Improvement and New Products

Once the initial product is developed, software updates will be released after fixed time period intervals. These
software updates will address to issues reported by customers and will include words missing in their preceding
versions. Over time, as technology evolves, a newer device can also be designed/manufactured that will be
faster, have a larger memory to store conversations, and include a better user interface.

Once the initial product is developed with a fixed number of languages, additional language support packs
would be developed and sold separately. The users will be able to download these language packs into their
already purchased devices.

To target the larger market of Universities and international schools, a separate device using the same basic
technology but with stronger microphones and capability of connections with sound systems will be developed
in later stages.

Costs

The major costs of the design and development budget include:

• Translating Software and Software editor tools

• Electronics such as microphone, microprocessor, speaker, lcd, etc.
• Salaries of technical staff and at the same time, management and marketing staff
• Costs for setting up the production line
• Part time work with minimal salary for persons involved in testing of languages
• Registered patent agent, legal and patenting fees

A detailed analysis of these costs including $ values have been provided in the “Economics of the Business”
section of the Business plan.

Underestimation of this budget may have a major impact on the functioning of the company as during the
original design phase, there is essentially zero income and the company is running on tight budgets. To account
for this, a 20% contingency has been added to the budget for unexpected costs.

Proprietary Issues

The software that will be purchased to translate into different languages will have to be purchased with rights to
edit the software for the purpose of our design. If this is not possible, we will have to develop our own software
and this will add up to costs in the development phase.

Apart from purchasing rights for software editing, we shall not need to purchase any other rights. Several patent
searches performed (without the assistance from a registered patent agent) have been performed and no similar
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patents have been found. Trans-Vo-Text Inc. will be seeking to patent this design as soon as a strong prototype
has been developed. Patenting our design will provide us with competitive advantage in the future.

Manufacturing and Operations Plan

Operating Cycle

Although we do not have enough experience in the industry to predict exact seasonal highs and lows in
consumer demand, we are assuming that the demands will go up during the summer season because of increase
in tourism during the summer months and will go low towards the end of the financial year as companies (target
market) refrain from conferences, international travel and start-up of new businesses towards the closing of the
financial year. It can be argued that the increase in demand in the summer will be compensated by closing of
schools and universities during this period, but schools and universities usually purchase such products at the
start of new academic years and will only add up to the demand during the summer season.

The knowledge of highs and lows of consumer demand will be used to compensate for production and
distribution accordingly. With advance knowledge of demand, production and shipping can be optimized for
cost efficiency.

Geographical Location

Edmonton, Alberta will be the business location for Trans-Vo-Text Inc. Being based in Edmonton allows us to
maintain a low overhead and make full use of our contacts of friends and family, as all six of the group
members are from Edmonton.

Although software development and prototype development will take place at our office in Edmonton, the
manufacturing/production will be outsourced to countries such as India or China to save on production costs.

Facilities and Improvements

At the start of the business development, all operations will take place at our office in Edmonton, Alberta. This
office will be a rented space and will have minimum furniture and only one computer per management team
member. An impressive office is not required at this point in time, as marketing of the product would be carried
out by visiting clients instead of inviting them to our facilities.

Once the prototype design is developed and the company moves on to the production phase, manufacturing of
the device would be subcontracted to a company, which already has the required facilities.

As the company grows over the years and increase in staff takes place, we will have to lease a bigger office
space to run our management operations.

Strategy and Plans

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The strategy for manufacturing is to subcontract to production companies in developing countries such as China
or India, in order to save on production costs due to the availability of cheap labour and manufactories. The
company to contract to will be decided during the design phase by pulling out a tender, and the cheapest offer
that maintains our quality standards will be accepted. Mass production costs due to production in a developing
nation will bring down the expected cost of the device to our company further down from the planned $50/unit.

The testing of software, which shall be conducted in the design phase, will be subcontracted to software testing
companies such as Infosys, TCS, Harbinger, etc. in the developing nations.

Such a product always has to achieve the minimum standards of the particular country it is being sold in. In
order to avoid achieving separate standards for separate countries, we will file for international ISI standards
and maintain these standards during the manufacturing phase of our product. Quality control is very important
and this will avoid any returns or faulty devices to be produced. Periodic unannounced inspection of production
line will also be conducted.

Regulatory and Legal Issues

No legal or regulatory issues have been identified as of now. We should be able to avoid these issues by
following international ISI standards, which are usually higher standards than any country’s requirement.
Health permits may be needed and shall be attained wherever needed. A legal advisor shall be hired to provide
guidance for any regulatory and legal issues that may be overlooked by the company.

Management Team
Organization

The management team will consist of six main members. Every task is assigned to each member of the
management team according to his/her ability to handle the task. The management team for Trans-Vo-Text Inc.
was designed in such a way that it would produce maximum performance with limited work force. The
management team will consist of a Superintendant, Critical Analyst, Production Manager, Marketing Manager,
Finance and Group Controller and an Advance Information and Technology Expert.

Key Management Personnel and Board of Directors

Shannon MacDonald: Shannon will work in the management team as a Superintendent. This is so far the most
important position in the management team. Shannon is the leader of the team and will monitor the progress of
the entire project. Shannon, with her back ground in B.Sc. Mechanical Engineering from University of Alberta,
is the most suitable person for this job. She also has leadership qualities and manages various tasks actively. She
will be responsible for assigning tasks to all the managers in the management team, manage accounts and
financial of the project and arrange effective meetings. Superintendent will reach the potential investors as she

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Business Plan - Group 2
December 8th, 2010

has the clear picture of the progress and accounts of the project. Shannon will also be the leader of the
management team and will have an upper hand on everyone in the management team.

Mohamed Al-Amoodi: Critical Analyst. Mohamed will calculate the risks and problems and deal with all the
legal issues affiliated with project. He will work with the production and marketing managers for the initial
research of the device and take into account all the legal matters. Mohamed will also estimate the purchasing
and receiving the necessary equipment and will look after the spinoff technology. Mohamed with his experience
in research and back ground in B.Sc. Chemical Biomedical Engineering from University of Alberta is the most
qualified person for this job. Mohamed has excellent computing skills, and is proficient in many programs, such
as Microsoft Excel, Matlab, VMG SIM and Visio.

Ravish Kalra: Production Manager. This task is assigned to Ravish Kalra in the management team. Ravish with
his knowledge in Electronic Design at University of Alberta will produce the idea of the instant translating
device into a working model, known as the Trans-Vo-Text instant audio translator, for a reasonable price which
is affordable for potential customers. Ravish also has project management experience from his two work terms
at Suncor Energy and has excelled with his abilities at project management working as a coop student. The
translator will then be produced by the production manager on a large scale to fulfill the demand suggested by
the marketing manager. Ravish have perfect understanding of this task as he is currently studying B.Sc.
Electrical Engineering at University of Alberta and already studying and designing electrical devices in his
design projects.

Scott Metrunec: Finance and Group Controller. Scott will manage finance working with Shannon and rest of the
team members. Looking at the financial situation of the business, he will assign salaries of the members of the
management team and will set up the budget for the business. It is very important to have good communication
between team members in the management team and therefore Scott will make sure that there is no
misunderstanding between the team members and he will work on team building, team diversity,
communications, conflict and conflict management. Scott is currently studying B.Sc. in Chemical Engineering
at University of Alberta. Scott has managed various projects at Companies like ATCO Gas, AECON Industrial
and Ainsworth Engineering and has a good understanding of the financials of these projects which he has
gained from his work experience as a coop student.

Effat Faregh: Advance Information and Technology Expert. Effat, the brain behind the idea of the Trans-Vo-
Text instant audio translator, holds a very significant position in the management team. Effat has a B.Sc.
Electrical Engineering and is working on her final year design project where she is applying similar skills in
designing an electrical device. She also did her research on “Teleoperation Haptic Device performance” and
produce excellent results just working as a summer student. Effat, working as an Advance Information and
Technology Expert, will collaborate with Production Manager and Critical Analyst in the production of the
translator up to the required standard of the market. Effat will also analyze similar existing technologies for
Trans-Vo-Text and will help in improving the device. The idea of the Trans-Vo-Text instant audio translator
can be manipulated in many forms and therefore Effat will integrate this idea into daily use devices such as cell
phones and laptops once the business is in good shape.

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December 8th, 2010

Ahmed Ali Babar: Marketing Manager. Ahmed is responsible for the marketing and advertising of the product.
Initially, the market will be studied by Ahmed and he will then suggest an estimate of number units required for
the production of the translator. He will also look for present and potential customers, initially in the domestic
market and later in the international market as the business progresses. Ahmed, with his background in B.Sc..
Chemical Engineering from University of Alberta is the most suitable person for marketing as he has worked at
a Steel Trading Company in Oman and has a great knowledge for dealing with the marketing of a product.
Ahmed has good communication skills and a wide social network. Ahmed also expects to study a Masters in
Business Administration after completing his B.Sc. in Chemical Engineering, which will outshine his abilities
to work as a marketing manager.

Management Compensation, Ownership and Agreements

Every member of the management team will hold a share of 10% in the company for first five years of business,
and will work on a fixed salary of $36,000 per year until the payback is reduced to zero and the angel investors’
contracts are over. The share of each member will then increase from 10% to 16.67% after first five years of
business.

Other Investors, Shareholders and Agreements

40% of the initial investment will be done by angel investors (friends, family and investors) and therefore they
will hold 40% share of Trans-Vo-Text Inc. with a five year contract. A 15% rate of return is set to attract the
angel investors for the first five years of business.

Supporting Professional Advisors and Services

The current management team consists of Engineers only, and therefore other expertise such as Legal Advisor,
Accountant and other business and entrepreneurship experts may be hired according to the requirement of the
business.

Critical Risks, Problems & Assumptions

Trans-Vo-Text Inc. is a new company with no previous operating experience. It is common for new companies
to make mistakes. To ensure that we are making the proper steps to building a successful company, all members
of our team are taking a course targeted specifically at project management and entrepreneurship. The course
offers a wide range of information regarding the proper methods of marketing a new product. It also offers
consultation with many professionals in case we have any questions regarding our methods.

A great risk in our business plan, as any plan ever put forth in the past, there is a possibility that our financial
projections are inaccurate, and worst case scenario, too low. It is difficult to know exactly how much material
goods and services will cost at this point, thus the reasoning that it is merely a projection. For many categories
on our financial analysis, the cost was projected on the high end, assuming that the actual cost will be lower

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December 8th, 2010

than stated. This offers a factor of safety in our total amount. If our analysis is way off, or some unforeseen cost
is necessary, it may be essential to approach the investors we have, or new investors, and request another
investment once the finances are reassessed.

Another possible issue is if one of our existing competitors releases a product that is similar to the functionality
of ours, it would greatly affect our sales projection. Customers are more likely to purchase a product from a
well known, successful company than a new company. If it happens that they create a product similar to ours,
then we may have to either cut the cost of our product to below that of the competition or add extra incentive,
such as offering a free warranty for a period of time (this option would be preferred because income is smaller).
People like to get the greatest value out of their money, and this will persuade customers to purchase our
product instead.

A further risk is that our sales projections are too high. For any number of reasons, we may not sell the quantity
of units set forth in our business plan. If this were to happen, it would be noticed early on in the sales and a
prompt market reassessment would be done. It may be necessary to expand to our secondary markets sooner
than anticipated (e.g. advertising our product online to the U.S. or approaching universities).

A possible, but highly improbable, risk that our company may be affected by is international political issues. If
companies overseas put laws in place that their country cannot do business with Canada or any country that
does business with the U.S. then international business relations will largely decrease, revoking the need for our
product. This would also happen if people were instructed to halt international travel for any reason. If this were
to happen, an assessment would be done to see which countries are able to communicate with Canada, as well
as which countries are still able to communicate each other and target the countries that still have some form of
international relations.

The Financial Plan

Actual Income Statements and Balance Sheets

The income statement and balance sheet for an existing business, Systran®, which is the leading supplier of
language translating software, is presented as a means to quantitatively asses Trans-Vo-Text Inc.’s financial
statements.

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Table 1: Income statement for Systran®

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Table 2: Balance sheet for Systran®

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Proforma Financial Statements and Analysis

As can be seen in the balance sheet details, the six founders will contribute 10% for financing. The other 40%
will be provided by angel investors (e.g. investors and government groups). The interest rate is constant at 15%
to attract investors, yet maintaining profitability which will last until the agreed date of December 31, 2013,
which will be found easily as they do not require lots of money. Liabilities and receivables are made within 30
days as a rule of thumb. Short term credit loans are $10,000 annually.

The minimum rate of return (MARR) is 41% (figure 3).

Breakeven will occur in the 3rd quarter of 2012 (figure 2).

Furthermore, a few assumptions were made:

• Tax rate is 40% constant

• Capital cost allowance (CCA) is 30% constant
• Reinvestment and payment interest rate are the same, 15%
• Fixed assets are sold for $0 salvage value (conservative)
• Constant growing economy (no recession)
• Suppliers and expenses are constant
• Bad debt is neglected as this is small scale
• Administrative (SG&A) costs are calculated in table 3

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Table 3: One time - fixed assets expenses (balance sheet)

Cost/Unit ($/Unit) Units Price ($)

Office
Computer $ 1,000 5 $ 5,000
Printer $ 500 1 $ 500
Scanner $ 100 1 $ 100
Phone $ 20 4 $ 80
Fax $ 100 1 $ 100
Table $ 200 2 $ 400
Chair $ 75 8 $ 600
Projector $ 1,000 2 $ 2,000
Total Office $ 8,780

R&D
Software code writing software $ 200 1 $ 200
Microphone $ 10 11 $ 110
Processor $ 50 11 $ 550
Display $ 20 11 $ 220
Battery $ 20 11 $ 220
Input/output parts $ 5 11 $ 55
Power Package $ 20 1 $ 20
Shelves $ 50 2 $ 100
Electric and audio oscilloscopes and meters $ 500 1 $ 500
Plastic case manufacturing unit $ 7,000 1 $ 7,000
Miscellaneous parts and shop supplies $ 500 1 $ 500
Total R&D $ 9,475

Licensing and search for venture capitalist

Patent (Canadian filling) $ 150 1 $ 150
Patent examination $ 200 1 $ 200
Final issuing of patent $ 150 1 $ 150
Maintenance fee $ 75 1 $ 75
Travel $ 1,000 9 $ 9,000
Other business costs $ 700 1 $ 700
Total Licensing $ 10,275

Total Fixed Expenses $ 28,530

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Table 4: Yearly expenses (of year 1 & 2) (balance sheet)

Cost/Month ($/Month) Months Price ($)

Rental
Office $ - 12 $ -
Phone $ 100 12 $ 1,200
Internet $ 25 12 $ 300
Utilities $ 200 12 $ 2,400
Stationary $ 100 12 $ 1,200
Total Rental $ 5,100

Salaries
Prototype development and testing (2 Staff) $ 6,000 12 $ 72,000
Management team (3 Staff) $ 12,000 12 $ 144,000
Opportunity promotion and consultant (2 Staff) $ - 12 $ -
Total Salaries $ 216,000

Marketing
Travel $ 5,000
Advertising $ 1,000
Total Marketing $ 6,000

Total Yearly expenses $ 227,100

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Table 5: Yearly expenses (of proceeding years) (balance sheet)

Cost/Month ($/Month) Months Price ($)

Rental
Office $ 800 12 $ 9,600
Phone $ 100 12 $ 1,200
Internet $ 25 12 $ 300
Utilities $ 200 12 $ 2,400
Stationary $ 100 12 $ 1,200
Total Rental $ 14,700

Salaries
Prototype development and testing (2 Staff) $ 6,000 12 $ 72,000
Management team (3 Staff) $ 12,000 12 $ 144,000
Opportunity promotion and consultant (2 Staff) $ 5,000 12 $ 60,000
Total Salaries $ 276,000

Marketing
Travel $ 10,000
Advertising $ 1,000
Total Marketing $ 11,000

Total Yearly expenses $ 301,700

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Table 6: Pro forma income statement

2010 2011 2012 2013

Year 0 1 2 3

Revenues $ - $ - $ 300,000 $ 690,000

Expenses $ - $ 227,100 $ 301,700 $ 301,700
Patent $ - $ 10,000 $ - $ 20,000
CCA
Equipment (30%) $ - $ 4,279 $ 7,275 $ 4,193
Loan (Interest 15%) $ - $ (4,280) $ (21,467) $ (1,649)
Taxable Income $ - $ (245,659) $ (30,442) $ 362,458
Income Tax (40%) $ - $ (98,263) $ (12,177) $ 144,983
Net Income $ - $ (147,395) $ (18,265) $ 217,475

Table 7: Pro forma cash flow statement

2010 2011 2012 2013

Year 0 1 2 3

Operating Activities
Net Income $ - $ (147,395) $ (18,265) $ 217,475
CCA $ - $ 4,279 $ 7,275 $ 4,193
Equipment $ (28,530) $ - $ - $ -
Net Cash Flow $ (28,530) $ (143,116) $ (10,990) $ 221,668

Loan Required $ (28,530) $ (143,116) $ (10,990) $ -

Cash Balance (for breakeven) $ (28,530) $ (171,646) $ (182,637) $ 39,032

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Receivables are assumed to be collected in 30 days; salaries are debits and paid directly. The seasonal
characteristic of the business is weakly influenced and should be stable. If there are any changes, the audio
translating device may see reduced sales in summer when schools and libraries are used at minimum.

The profits are very sensitive to revenue and expense changes hence the timing and suppliers and customers
should be accurately decided to reduce such risks. We suspect variations ± 7% in the first three years.

$300,000

$200,000
Net Cash Flow

$100,000

$-

-$100,000

-$200,000
2010 2011 2012 2013
Year

Figure 1: Cash flow diagram

A reduction in sales in the first 3 years could affect the business in the long run. However, there is a small
amount of sales made by 2013, which reduces this concern; leverage debt ratio is about 20% (low risk and low
return) initially. The productivity “learning curve” has been taken into account and we suspect improvements in
production and supply costs to produce a cash flow increase of 5-15% annually, which is an advantage of
growth besides “economy of scale” or expansion beyond 2013. The cash break even will be attained easily as
shown in the 3rd quarter of 2012 due to huge revenues and small expenses, which are mainly incurred as fixed
costs, R&D and testing initially. Beyond the first 3 years the salaries and rents will be the predominant SG&A
yearly costs as the COGS is small and sum to about $70 per unit.

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December 8th, 2010

$100,000
$50,000

Cumulative Cash Flow

$-
-$50,000
-$100,000
-$150,000
-$200,000
-$250,000
2009.5 2010 2010.5 2011 2011.5 2012 2012.5 2013 2013.5
Year

Figure 2: Break even analysis

The minimum acceptable rate of return is about 41% as calculated in the diagram below this was based on a
trend of 25 years data (beyond which as a rule of thumb it would be meaningless to assess present values as
they are about $0).

$250,000.00
Present Equivalent Worth

$200,000.00

$150,000.00

$100,000.00

$50,000.00

$-

-$50,000.00
0% 10% 20% 30% 40% 50% 60%
Interest Rate

Figure 3: Rate of return analysis

The cost of control will be obtained semi annually beyond the first three years (and quarterly initially). The
experienced management team will focus on begetting time and recourses by looking for information from
financial sources and reliable sites. As mentioned above, the minimum rate of return (MARR) is 41% (Figure
3) and the breakeven will occur in the 3rd quarter of 2012 (Figure 2).

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Business Plan - Group 2
December 8th, 2010

Proposed Company Offerings

Initial Investment and Desired Financing

An initial investment of $227,100 per year is required for the first and second year of business. As the business
progresses, the investment will be increased to $301,700 per year to improve the quality of the business by
increasing marketing funds. Each of the six members of the management team will provide a 10% initial
investment, i.e. $22,710. The rest of the 40% initial investment, which make a total of $90,840, will be provided
by angel investors (friend, family, government and investors).

Use of Funds

Initial investment will be spent on all business utilities such as production cost of the Trans-Vo-Text instant
audio translator, office rentals, equipment, management team salaries, marketing and traveling related to
marketing, telephone, internet and other utilities attributed to the business itself.

Offering

The profit from the first year of sales (second year of business) will be invested back into the business to
increase the business quality and to decrease the payback. The price of the translator is estimated to be $500 per
unit. As per research, such a device does not exist in the market. Assuming that the sales will grow
exponentially and therefore generate double profit, the estimated payback period is three years and six months.

Capitalization

Each management team member will work on a salary of $36,000 per person per year. The salary will remain
fixed for the first three years of business and each member of the management team will hold a share of 10%
initially. 40% of the shares will be in hands of the investors. After the payback is reduced to zero and the
investors’ contracts are over, the shares of the company will be given to the members of the management team
and thus each member will hold a share of 16.67%. It will be up to the members of the team to keep the shares
or sell them.

Investor’s return

Angel investors will hold a share of 40% in the company for first five years of business. A yearly 15% rate of
return will be set to attract the investors. The primary priority of Trans-Vo-Text Inc. in the first five years of
business will be to reduce payback to zero. Therefore all the profit will be invested back in to the business to
return any financial holdings.

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December 8th, 2010

References
• Example Reports from eLearning Eng M 402
• Timmons from eLearning Eng M 402

Financial statement (income statement and balance sheet) of Systran from

http://www.systransoft.com/systran/investors/financial-report/annual

http://en.wikipedia.org/wiki/Tourism

http://www.world-tourism.org/market_research/facts/market_trends.htm

http://www.commonsenseadvisory.com/Research/All_Users/060301_QT_top_20/tabid/1429/Default.aspx

http://www.ectaco.com/ECTACO-iTRAVL-Corrida-Deluxe-NTL-9C

http://www.systransoft.com/

http://www.babylon.com/

http://www.online-translator.com/

http://www.elan.com/company/management_team.asp

http://web.ebscohost.com.login.ezproxy.library.ualberta.ca/ehost/pdfviewer/pdfviewer?hid=109&sid=fa2583bc-
4f34-4944-a3ed-5b5b96e74b7f%40sessionmgr112&vid=1

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December 8th, 2010

Appendix
Over-All Schedule

A1
Over all schedule:

The proposed business plan for TRANS-VO-TEXT Inc. is approximately covering the first 4 years
of the business operation. The entire schedule has been divided into 4 different phases:

Phase I: Incorporation phase

Phase II: Production phase
Phase III: Profitability phase
Phase IV: Future plans

Each phase consists of many subtasks/activities that company needs to pursue in order to move
on to the next phase. For each phase of the plan, based on the initial investigations, a required
time interval has been estimated, and a duration time has been assigned to each single tasks.

The initial management team (i.e. our group) is not well experienced in terms of professional
management. Therefore, the overall schedule has been created as spread as possible to
compensate for this issue. By assigning an overestimated time (within some reasonable range)
for each task, we make sure to still be able to fit any unpredicted task -which might need to be
completed in the first a few years of the business- within the overall schedule without having to
delay any major activities.

In this schedule, three “share offering” phases (A, B and C) have been defined at which we are
expecting to sell 30%, 50% and 70% of the total shares by the end of each phase, respectively.
One might think that the assigned deadlines for these milestones have been underestimated
(i.e. we need a longer period to be able to sell that amount of share). Even if that’s the case, as
mentioned above, a bigger time intervals have been assigned to the rest of the plan; thus this
underestimation wouldn’t have much effect on the overall schedule.

The following shows the task table and the Gantt chart for the first 4 years of the business
operation. On this schedule, all the milestones have been identified and placed on the
corresponding estimated date.
ID Task Name Duration Start Finish
1 PHASE I: INCORPORATION PHASE 105 daysMon 10/01/11Thu 02/06/11
2 Forming the initial management 2 wks Mon Fri 21/01/11
team for the company 10/01/11
3 Collecting the initial investments 2 mons Fri 21/01/11 Thu 17/03/11
4 Incorporation of venture 0 days Fri 18/03/11 Fri 18/03/11
(MILESTONE)
5 Purchasing/receiving the required 1 mon Sat 19/03/11 Thu 14/04/11
technology and equipment (in a
small scale)
6 Producing the initial pack of the 2 wks Fri 15/04/11 Thu 28/04/11
devices for testing purposes
7 Testing the initial pack of the 2 wks Mon Thu 05/05/11
devices 25/04/11
8 Running surveys among the 1.5 Mon Thu 02/06/11
potential buyers to support our mons 25/04/11
marketing strategy
9 Final required 2 wks Fri 06/05/11 Thu 19/05/11
improvements/adjustments on
the device
10 Completion of the design and 3 wks Fri 13/05/11 Thu 02/06/11
development
11 Completion of prototype 0 days Thu 02/06/11 Thu 02/06/11
(MILESTONE)
12 PHASE II: PRODUCTION PHASE 220 daysThu 02/06/11 Thu 05/04/12
13 Getting a patent for the prototype 4 mons Thu 02/06/11 Wed
21/09/11
14 Hiring the experienced 1 mon Thu 02/06/11 Wed
management team 29/06/11
15 Share offering (Phase A) 8 mons Thu 02/06/11 Wed 11/01/12
16 Selling 30%+ of the company's 0 days Thu 12/01/12 Thu 12/01/12
share (MILESTONE)
17 Hiring the required production 1 mon Thu 02/06/11 Wed
line's personnel 29/06/11
18 Purchasing/receiving the required 1.5 Wed Tue 26/07/11
technology and equipment (for mons 15/06/11
production line)
Page 1
ID Task Name Duration Start Finish
19 Preparing the production line 6.5 monsWed 22/06/11Tue 20/12/11
20 Contacting the potential 4 mons Thu 15/12/11 Wed
representatives 04/04/12
21 Signing up initial with sale 0 days Thu 05/04/12 Thu 05/04/12
representatives (MILESTONE)
22 Starting the production line 0 days Thu 05/04/12 Thu 05/04/12
(MILESTONE)
23 PHASE III: PROFITABILITY PHASE 530 daysFri 06/04/12 Fri 18/04/14
24 Seeking for Governmental loans 2 mons Fri 06/04/12 Thu 31/05/12
25 Receiving the 1st order 0 days Fri 04/05/12 Fri 04/05/12
(MILESTONE)
26 delivering the 1st sale 0 days Fri 25/05/12 Fri 25/05/12
(MILESTONE)
27 Backing up the defected products 2 wks Sat 26/05/12 Thu 07/06/12
(i.e. replacing/fixing them if
necessary)
28 Receiving the 1st payment from 0 days Wed Wed
the receivable account (Max. 2 25/07/12 25/07/12
month after delivery)
(MILESTONE)
29 New share offering (phase B: up to 4 mons Thu 07/06/12 Wed
50% of total share) 26/09/12
30 Selling 50%+ of the company's 0 days Thu 27/09/12 Thu 27/09/12
share (MILESTONE)
31 Increasing the Company's 2 mons Fri 28/09/12 Thu 22/11/12
administrative support personnel
as required
32 Contacting the representatives for 1 mon Sun 28/10/12 Thu 22/11/12
feedback
33 Increasing the number of 1.5 Tue 23/10/12 Mon
production line's personnel mons 03/12/12
34 Expanding the plant and 3 mons Sun 18/11/12 Thu 07/02/13
equipment
35 Increasing the number of unit 4 mons Sun 06/01/13 Thu 25/04/13
production

Page 2
ID Task Name Duration Start Finish
36 Reaching 40% increase in 0 days Fri 26/04/13 Fri 26/04/13
production
37 Increasing the number of sale 6 mons Fri 22/03/13 Thu 05/09/13
representatives/distributers
38 Reaching to the cash breakeven 0 days Thu 05/09/13 Thu 05/09/13
(MILESTONE)
39 New share offering (phase C: up to 6 mons Fri 06/09/13 Thu 20/02/14
70% of total shares)
40 Reaching to the book breakeven 0 days Fri 21/02/14 Fri 21/02/14
(MILESTONE)
41 Getting a long term bank loan 2 mons Sat 22/02/14 Thu 17/04/14
42 Paying the 1st dividend to the 0 days Fri 18/04/14 Fri 18/04/14
owners (MILESTONE)
43 PHASE IV: FUTURE PLANS 143 daysFri 18/04/14 Tue 04/11/14
44 Evaluating market for investments 5 mons Fri 18/04/14 Thu 04/09/14
in spin off technologies

45 developing the main idea to 5 mons Wed Tue 04/11/14

produce new products 18/06/14

Page 3