Hypothetical Hearing Aid Dispenser Business Plan

II. NEWCO ANALYSIS

This section follows the order of the Business Finances Spreadsheet at the end
of the paper and explains the numbers and the organization behind the numbers.

II. A Corporate Analysis

Corporate negotiates an average price of $350 per hearing aid. Similar to the

price negotiated by the VA for a similar volume of 560,000 aids fitted in one year.

Corporate marks up the aids not by a percentage but flat rate or $35 per aid. The sale price to the franchises is an average of $385 per aid.
The net revenue is $35 times the number of aids sold.

Administrative and Executive Branch

There are 35 members of the administrative staff ranging from assistants to

President.  The average salary is $140,000 ranging from $40,000 for assistants
to hundreds of thousands of dollars for top management.  Corporate does the
following:

1. Negotiates prices and services with manufacturers.

2. Handles national advertising/branding campaigns for all of the franchises.

3. Provides at cost all franchises with bookkeeping software, customer-relations
software, and franchise-management software.  These packages are all internet-
based with data stored redundantly at two separate off-site locations for safety.

4. Trains and monitors franchises in business management, operation of

software packages, and customer services. If a customer moves, s/he knows that records, warrantees, and the same expert treatment are available in any other NEWCO franchise.

Rent

Administrative space will be 10,000 square feet at $20 per square foot per year. The facility is situated in a location requiring modest rent and centrally located for travel considerations.

Advertising

Corporate spends $9.65 on advertising for each hearing aid purchased or 27.6%
of markup.  The resulting $5 Million will be used annually for national campaigns
that brand the franchises, their services, and features of the aids currently sold.
NEWCO expects word-of-mouth from satisfied customers to be their best
promotion.

FICA and Benefits

Social Security and Medicare insurance born by the employer and employee will be 15.3% of wages. Benefits including healthcare insurance and 401(k)
contributions will be 12% of wages.

Unallocated Expenses

Rather than try to make this budget delineate every tax, fee and expense at this stage, a large category of Unallocated Expenses covers those expenses.  Part of this amount may be corporate distributions to shareholders and bonuses.

Total

The markup of $35 on each of the 561,508 aids sold in one year provides $19,652,780 for the corporate facility and its staff.

II.B Franchise Assumptions

Each franchise obtains a license to operate as a franchise of NEWCO and has the following benefits and obligations:

Benefits

1. Top-of-the-line hearing aids cost an average of $385 each.

2. Training for staff will be available periodically each year at various locations convenient to groups of franchises featuring manufacturers under contract, and experts in business management and the field of Audiology.

3. Advertising/branding the franchise, its services and products

3. Quality software for bookkeeping, customer relations, and management.

Obligations

1. Pricing for services and products is standardized

2. Quality of service and equipment exceeds standards

3. Quality of the facility exceeds standards

3. Salaries have local control with ranges related to job function.

4. The more aids and services sold, the more profit for the franchise. Profits are dispersed within the franchise for facility and equipment upgrades along with bonuses, and increased salaries.

5.  Each franchise will spend approximately 2% of its revenues to augment corporate advertising.

An audiologist leads the staff. Two hearing-technicians help in areas such as
tests, fittings, adjustments, and ordering aids products.  The receptionist greets
the customers, notifies the technical staff of arrivals, maintains the appointment
calendar and updates the customer relations software. A bookkeeper (or
bookkeeping firm) works approximately 16 hours/week and handles Payables,
Receivables, Payroll, Tax computations, and maintaining on-line bookkeeping
application.

In this hypothetical company, the minimum desired salaries for the staff are:

Audiologist              $120,000

Lead Tech              $50,000

Tech              $42,000

Receptionist              $38,000

40%-time Bookkeeper              $20,000

With the assumed cost/revenue structure, the franchise numbers are: Number of Aids sold per year:  916

For corporate to sell over 560,000 aids/year it needs 613 franchises

The franchise buys aids from Corporate for an average of $385/aid

The franchise sells the aids to customers for an average price of $565 each To sell 916 aids the franchise needs 458 paying customers
To get this final result the following are performed:
641 hearing tests

609 fittings

1827 adjustments

305 additional 30 minute visits
25 2-hour support groups

NEWCO is a fee-for-service organization.  For most hearing aid sales, the following services will be needed:

1 hearing test

1 fitting

3 adjustments

1 Year Support Group Membership
required part of the purchase package)

$100 (1 hour)

$150 (2 hours)

$50 each (1/2 hour each)

$50 (optional - a suggested but not a

For the activities listed above, the actual salaries are:

Audiologist              $120,202

Lead Tech              50,088

Tech              42,074

Receptionist              38,067

Part-time Bookkeeper              20,235

Increased salaries or bonuses can be obtained with an increase in activity.

Expenses

Rent: Assume a 2000 square-foot office at $20/square-foot-year

Equipment: Cost of Maintenance, Repair, and Replacement

Advertising:               2% of total revenue for local campaigns.  Corporate supplements
advertising with a $5,400,000 national campaign to brand the business, its
service, its products and costs.

Unallocated Expenses: Expenses not covered in the allocations above, profit for shareholders and/or extra bonuses

FICA (Federal Insurance Contributions Act)

15.3% Social Security and Medicare Insurance Payments

Benefits

12% 401(k) retirement account and health insurance

Work Hours (Possible and Actual)

Assume practice hours consist of five 7-hr days per week for 48 weeks per year. That would be 1680 hours/year per person.  The billable hours are performed by three staff members to provide a possible total per year of 5,040 billable hours. The calculated workload (including two staff members at 25 support group
meetings) to achieve the franchise activities in the spreadsheet is 3025 hours.  A 3-person staff would average 4.2 hours each per day.  This leaves nearly 3 hours per day for seeing customers for other issues related to hearing and balance,
studying the current literature, and going to workshops and other outside tasks while not infringing on the 4 weeks of vacation leave.

III. Summary

Three major differences between NEWCO and its competition are:

1) The total package for a pair of hearing aids will average $1,530 approximately 25% of obtaining similar hearing aids from the competition.

2) Services rendered are charged whether aids are purchased or not.  Assume a
customer had her hearing tested, hearing aids fitted, and three adjustments with
the purchased aids. If the customer decides not to keep the aids, she will get all
her money back except for services rendered. In the above case the services
were: test ($100), fitting ($150), and three adjustments ($ 50 each) for a total of
$400.  If fewer services were rendered before the aids were returned, the cost to
the customer would be less.  Charging fees for services rendered is expected in
laws affecting hearing aid distribution.  It is VERY IMPORTANT that the customer
is told and agrees that charges for services rendered will be withheld from money
refunded if hearing aids are returned during the trial period.

3) A support group is available.  It is two hours long and held 25 times a year.

Each meeting will be facilitated by two members of the staff (audiologist and one
of the two hearing-technicians) It is open to anyone who has paid a $50 annual
fee.  This includes prospective customers and purchasers of hearing aids from
other dispensers.  The two hours will have guest speakers discussing equipment
and programs available to the hearing impaired. There will be time for general
discussion of member experiences and ways to cope.  Also there will be time at
each meeting where one can talk one-on-one to a staff member about a

particular issue.  If more time is needed, an office visit can be scheduled.