Reference no: EM13839189
Business Plan
Type of Business
The type of business I would like to start is selling ornaments and trendy jewelry products. This business is important because it has many potential customers, especially the youth who mostly identify with such products. The specific products include wedding rings of different types, necklaces, bangles, carvings, and handbags.
General Staffing plan
Staffs employed would make sure that there is efficiency, productivity, possible growth of a child within the business. This staff must consist of people who have a given level of qualification. The models of staffing in the business must involve the use of independent contractors who can evaluate the potential applicants to determine their qualification and suitability. The recruitment exercise should be based on the age of the staff, level of education and experience of the person to be employed.
The model based on age and level of education in most cases requires the staffs have to have reached a minimum of 18 years. This means that the management would use "temp employees" model during the recruitment exercise to determine the candidate's suitability. In addition, the staff must have a diploma or a higher diploma in any field related to child education and development. The staff member should also have at least some level of working experience. The rationale for this staffing plan is that it will enable the staff members to apply their knowledge and skills to offer exemplary services, thus promoting the business.
Form of Business
The form of business is sole proprietorship, and I will be the owner and proprietor of the business. This form of ownership is important because it facilitates decision making and the owner is able to plough most of the profits back into the business for expansion.
A Chart of Accounts Specific to the Business
Based on the form of this business, I would be required to use Generally Accepted Accounting Principles (GAAP), and keenly note the latest changes in GAAP. Through consistent monitoring the trend I will be able to notice the latest changes and adopt them when making transactions. Using GAAP would eliminate errors in my transactions, thus gives confident to potential investors since the records would be very clear.
Cash Flow Projections
The financial projections for this venture for the first 5 years are as presented in the table below. This highlights the amount of cash inflow and the amount of cash outflow. They help the firm in financial planning by indicating the surplus cash or shortage cash. It will also help in identifying the possible cash flow problems in advance. Total cash inflows will be sum of all receipts. Total cash outflows will be the sum of all payments.
Pro forma Balance Sheet
|
ITEM
|
YEAR I
|
YEAR II
|
YEAR III
|
|
Current assets
|
(US$)
|
(US$)
|
(US$)
|
|
Stock of raw materials
|
871,000
|
687,000
|
920,000
|
|
Production cost
|
400,000
|
500,000
|
200,000
|
|
Stock of finished goods
|
520,000
|
480,000
|
380,000
|
|
Debtors
|
840,000
|
480,000
|
530,000
|
|
Cash
|
473,300
|
630,0002
|
382,000
|
|
Total current assets
|
3,104,300
|
2,777,000
|
2,412,000
|
|
Current liabilities
|
|
|
|
|
Creditors
|
30,000
|
120,000
|
80,000
|
|
Short term loans for research and development
|
1,200,000
|
800,000
|
600,000
|
|
Bank overdrafts
|
40,000
|
20,000
|
60,000
|
|
Total current liabilities
|
1,270,000
|
940,000
|
740,000
|
|
Working capital
|
1,834,300
|
1,837,000
|
1,672,000
|
Projected Income Statement: The First 5 Years
|
ITEM
|
YEAR I (US$)
|
YEAR II (US$)
|
YEAR III (US$)
|
YEAR IV (US$)
|
YEAR V (US$)
|
|
Sales
|
4,705,000
|
5,900,000
|
6,400,000
|
7,000,000
|
7,500,000
|
|
Cost of goods sold
|
1,751,000
|
1,850,000
|
2,240,000
|
2,280,000
|
3,000,000
|
|
Gross profit
|
2,954,000
|
4,050,000
|
4,160,000
|
4,200,000
|
4,500,000
|
|
Expenses
|
|
|
|
|
|
|
Wages and salaries
|
1,920,000
|
1,920,000
|
1,920,000
|
1,920,000
|
1,920,000
|
|
Rent
|
-
|
150,000
|
150,000
|
150,000
|
150,000
|
|
Water
|
20,000
|
30,000
|
35,000
|
40,000
|
43,000
|
|
Telephone
|
35,000
|
55,000
|
50,000
|
52,000
|
55,000
|
|
Electricity
|
22,000
|
40,000
|
45,000
|
48,000
|
50,000
|
|
Advertising
|
20,000
|
50,000
|
60,000
|
70,000
|
80,000
|
|
Stationary
|
42,000
|
60,000
|
50,000
|
55,000
|
60,000
|
|
Postage
|
4,500
|
6,000
|
8,000
|
8,000
|
10,000
|
|
Transport
|
200,000
|
230,000
|
290,000
|
300,000
|
350,000
|
|
Depreciation
|
10,000
|
15,000
|
20,000
|
22,000
|
25,000
|
|
Interest
|
40,000
|
50,000
|
60,000
|
70,000
|
72,000
|
|
Repairs / Maintenance
|
21,000
|
30,000
|
25,000
|
30,000
|
40,000
|
|
Total Expenses
|
2,334,500
|
2,636,000
|
2,713,000
|
2,765,000
|
2,855,000
|
|
Net Profit before tax
|
619,500
|
1,414,000
|
1,447,000
|
1,435,000
|
1,645,000
|
|
Provision for tax
|
238,000
|
350,000
|
300,000
|
297,512
|
341,050
|
|
Net Profit after tax
|
381,000
|
1,064,000
|
1,147,000
|
2,467,488
|
2,513,950
|
Assumptions of the Projection
The projections are based on the following business assumptions. First, the profitability of the organization depends on the amount of input and investment that the organization has. Second, the working capital must be sufficient for the business to run efficiently. Third, the profit that the organization makes will be progressive, increases on annual basis. Finally, adequate financial planning will create cash surplus for the company to finance other expansion programs (Steven and Tiffany 235). The best case scenario is when the prospective consumers identify with the company products, a situation that will increase the overall sales of its products. This will increase sustainability of the business operations. Alternatively, a worse case scenario is when the company manufactures its products then fails to secure a sizeable market for the produce.
Another assumption made when preparing the financial projection is that the costs to be incurred and revenue to be realized will be based on the accrual and prepayment concepts. The two concepts help the entire management to forecast the expected sales and revenue for the venture. This will hence develop the various techniques and approaches to create a better attainment of goals. The business of the venture will be evaluated based on several factors that create a bright future. The concepts allow the accountant to account even for the expected revenues and costs. The concepts allow the accountants to project the depreciation charge for the fixed assets based on straight line techniques. The assumptions require formulation of the essential concepts as they initiate a measure of economic performance for the venture. This allows the management to become more sensitive to the costs and revenues as per the accrual concept in accounting.
The costs to produce the products and get them to the market include the stock of raw materials and the cost of production. In essence, the raw materials will be manufactured in finished products. Moreover, the manufacturing of raw material equally needs a lot of money to make sure that the final products are of higher quality that meets the expectation of the consumer. The venture's most significant costs include acquisition of raw materials, production cost and short term loans for research and development. They are considered as significant because the company cannot operate without the raw materials, finance to meet the production cost and research on the best options available for the company. The business operations will be successful depending on the extent to which the management meets the significant costs.
Internal Controls
In comparison with the industry norms, the projections outline the fundamental internal controls that would help the business. The first control is using financial requirements, which will determine the potential stability of the business. It includes pro forma balance sheet, pre- operational costs, working capital, pro forma profit and loss accounts, projected cash flows and break-even of sales. I would implement the financial requirements by making appropriate financial projections that would determine the level of success of the company based on pre-operational costs that the management must put in place. The impact is that this control would ensure smooth operations.
The second internal control is streamlining indirect costs, as this would play a very significant role. By implementing this control, the venture would incur the costs of fulfilling the laws and regulations set by the government regarding the ventures and other businesses. The impact of this control is that it would minimize the overall expenditure of the business.
Impact of the Regulatory Environment
Ideally, the regulatory environment such as Sarbanes-Oxley Act, and business licensing would facilitate the growth of business by aiding capitalization decisions and promoting the use of cost alternatives. For instance, Sarbanes-Oxley Act promoted accountability whereas licensing ensures that the government recognizes the business and investors could invest their money without fear.
Capitalization Decision
This is a comprehensive analysis of the company's capitalization decisions in terms of asset, lease purchase, tax consequence, and cash flow expenses. The balance sheet shows list of things that we own and those that we owe others. It will also show where all the enterprise capitals sources and how it will be used. All sources and uses must be equal. For planning, the capitalization will reflect the composition of assets, liabilities, and owners equity. It will also include the rate of growth of the business assets as shown in breakeven on the subsequent page. A list of proposed capitalization decisions includes land, premises, raw materials, labor, and operational expenses. The management of the business will have to do everything to ensure that the capitalization decisions are made considering the targeted market and the global monetary situation that the company will have to obey.
Cost Alternatives
This section is an analysis of cost alternatives (subcontracting, shared services, in-house vs. out-of-house expenses. This is the financial tool used for measuring the business performance. The break even level is the point at which the income earned is capable of meeting all the expenses of the business. At this point, neither profit nor loss is made.
|
ITEM
|
Costs
|
|
|
Year I (US$)
|
Year II (US$)
|
Year III (US$)
|
|
Subcontracting
|
1,950,000
|
1,950,000
|
1,950,000
|
|
Shared services
|
6,000
|
6,000
|
6,000
|
|
In house services
|
20,000
|
20,000
|
20,000
|
|
Out of house expenses
|
1,751,000
|
1,850,000
|
2,240,000
|
|
Repairs and maintenance
|
21,000
|
30,000
|
25,000
|
|
Outsourcing
|
50,000
|
75,000
|
45,000
|
|
Total
|
3,798,000
|
3,931,000
|
4,286,000
|
Proposed Sources of Capital
This will show description of capital sources, for instance, the amount of money will be needed, and how it will be used. The table below shows the amount needed and the following manufacturing, trading profit and loss account shows the ways it will be used in production.
|
SOURCE
|
AMOUNT (US$)
|
|
Own contribution
|
75,000
|
|
Bank loan
|
200,000
|
|
Family & friends contribution
|
734,000
|
|
Total
|
1,018,000
|
Inventory
The amount of product you will have to inventory that the company needs include the following listed in the below table.
|
ITEM
|
1st year
|
2nd year
|
3rd year
|
|
Fixed Assets
|
US$
|
US$
|
US$
|
|
Salaries and Wages
|
1,950,000
|
1,950,000
|
1,950,000
|
|
Insurance Premiums
|
6,000
|
6,000
|
6,000
|
|
Licenses and Permits
|
20,000
|
20,000
|
20,000
|
|
Total Fixed Assets
|
1,976,000
|
1,976,000
|
1,976,000
|
|
Variable Costs
|
|
|
|
|
Repairs and maintenance
|
21,000
|
30,000
|
25,000
|
|
Purchase of raw materials
|
1,751,000
|
1,850,000
|
2,240,000
|
|
Electricity
|
22,000
|
40,000
|
45,000
|
|
Postage
|
4,500
|
6,000
|
8,000
|
|
Advertisement and Promotions
|
20,000
|
50,000
|
60,000
|
|
Telephone
|
35,000
|
55,000
|
50,000
|
|
Water
|
20,000
|
30,000
|
35,000
|
|
Stationery
|
42,000
|
60,000
|
50,000
|
|
Transport Costs
|
200,000
|
230,000
|
290,000
|
|
Total
|
2,115,500
|
2,351,000
|
2,803,000
|
|
Breakeven
|
3,592,727
|
3,293,333
|
3,528,571
|
Keeping an inventory for the business is an essential practice that facilitates monitoring of the procurement, production, and sales in the company.
Injection of New Funds
The injection of new funds will stimulate the production process by increasing the amount of goods that could be manufactured an instant. The funds will also help in the acquisition of new and efficient machines to help improve the quality of the products. This is a sure way of promoting the productivity of the firm to make it more appealing to the potential customers than its competitors. Concerning this business plan, the venture will be initiated by availing the required materials for its operations after which new funds will be injected into the venture. Once the necessities are availed, the operations will be implemented in series, beginning from the acquisition of the location to initiating and managing the entire business. In addition, the plan will be used throughout the business to make sure that the intended outcomes or deliverables are achieved within the time allocated.
Desired Financing
This indicates the amount of money required to start the business. The firm will consider the following in desired financing.
|
ITEM
|
AMOUNT (US$)
|
|
Pre operational costs
|
547,000
|
|
Working capital
|
260,000
|
|
Fixed assets
|
|
|
Tools, Machinery, & Equipment
|
161,000
|
|
Furniture and Fittings
|
50,000
|
|
Total
|
1,018,000
|
Funding Sources
Some of the funding sources that the company will be qualified for include local commercial banks, central bank, donors, Family members, friends, and personal contribution. The amount received from such sources will be enough for running the affairs of the company. Moreover, savings from sales will be ploughed back to the company, thus guarantees it sustainability.
Works Cited
Jennifer, Lee, Chris Guillebeau and Kate Prentiss. The Right-Brain Business Plan. Novato, CA: New World Library, 2011. Print.
Osterwalder, Alexander and Pigneur Yves. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. New York, NY: Wiley, 2013. Print.
Steven, Peterson and Paul Tiffany. Business Plans for Dummies. New York, NY: For Dummies, 2011. Print.
Required:
Draw a business plan and the various factors involved in a successful business plan