Reference no: EM132565703

Case Study:

Recent graduates Emil and Xavier want to go into business together. Although neither of the two friends have ever worked in a business before, they have decided the time is right for them to start a business.

They have entered into a partnership, with each of them investing £2,500 into the business. They both studied Fashion Design at Royal Holloway and have decided to open a fashion clothing store in Egham. They are hoping to copy the idea of 'fast fashion' and design clothing themselves which they can have made in countries such as China and Pakistan.

Revenues:

Emil and Xavier expect to have sales of £6,000 per month for the first 2 months, £7,000 per month for the next 2 months, and £8,000 per month for the next 2 months of trading. There is no credit given to customers.

The main costs associated with the start-up are:

Equipment and shop fittings      £5,000 (month 1) and £2,500 (in month 4), a total investment of £7,500

Marketing                              £500 per month

Legal and accounting costs         £1,550 (month 1 only)

Cost of stock (clothing)  50% of sale price. It is assumed that suppliers will allow Emil and Xavier 30 days to pay for these costs

Running costs (for example, staff wages and shop rental) £2,000 per month. These will be paid in the month incurred.

Emil and Xavier will pay themselves a salary of £1,100 each per month whilst the business is established.

Other sundry costs        £500 per month have been assumed.

You are required to draw me an analysis of the above case study using the following questions as SUBHEADINGS:

Question 1. Prepare me a 6 month cash-flow forecast for the business - you may estimate if any numbers are missing, but you must highlight/explain your estimates.

Question 2. Considering the cash-flow forecast you have created, what advice would you offer Emil and Xavier about how to improve their cashflow? Give your reasons.

Question 3. Emil and Xavier have set aside £500 per month for marketing. Using your knowledge of the marketing mix (4Ps) give them advice on marketing their business.

Question 4. Xavier has been approached by a factory owner in Bangladesh who is prepared to reduce the cost of clothing by 50%. This is a very interesting offer, but Emil has heard that this factory is probably using child workers to make the clothing.

a. Do you think the partners should take this offer? Explain your answer.

b. Discuss other ethical issues that might affect fashion businesses.

Question 5. Considering the case study overall give your opinions on whether you think that their business will be a success. Explain your reasoning. Do you have any other advice for them about their approach to starting a new business?