Entrepreneurship of The Busters - Research Paper Example

?Running Head: ENTREPRENEURSHIP Entrepreneurship Contents Contents 2 Buster’s Business Plan 4 1.Introduction 4 1.2 Description of the Venture 4 1.3 Business Aspirations 5 2. Organization of the Business 5 2.1 Owners 5 2.2 Legal Structure 6 2.3 Management Team 6 2.4 Employees 7 2.5 Contractors/Vendors 8 3. Financials 10 3.1 Anticipated Operating Costs 10 3.2 Investment Requirements 11 3.3 Pro-forma Projected Cash flow 12 3.4 Payback Period Calculation 13 3.5 Return on Investments 14 References 15 List of Figures and Tables Figure 1 Pay-Back period 14 Table 1 Anticipated Operating Costs 10 Table 2 Depreciation 11 Table 3 Projected Cash Flow 13 Table 4 Pay-Back Period 13 Buster’s Business Plan 1. Introduction This business plan helps the readers to understand the business, i.e. The Buster’s and its future planning to open up a similar business in a new building which is located two blocks away from the present business’s location. The Buster’s provides to its customers, a complete variety of snacks, drinks, news papers and magazines. In the coming sections of the report, a complete detail of the proposed venture, its financial requirements and management organization are discussed which will be utilized to attract investors to pour in money for establishing this venture. 1.2 Description of the Venture The owners of the business, i.e. The Buster’s have decided to expand the business size by opening up another store in a new building two blocks away from their current location. The proposed business venture will be designed on the similar basis, as the current business is established. Keeping in view, the expertise and skills of the owner and work force will be beneficial in providing a solid guarantee to the investors that their money will not be spend on a business venture that is non profitable at any point. This is because of the fact that The Buster’s is running smoothly and profitably at its current location. Keeping in view the small size of the business, the owner want to expand by opening up another small store in a new building of about 1,000 square feet of space, maintained and run by a work force of two to three employees. The new office building is located at 5th Avenue near Carroll gardens with the name, The Business Avenue. In the Business Avenue, offices of different multinationals and domestic firms are located and there are around 15,000 different individuals who visit this 20 story building. The Buster’s is keen in providing superior quality canteen items, stationary products, news papers and magazines. In addition to these items, the owner of the store, Marsha Jones, has decided to add more items to store’s shelves as she is going to acquire a larger space in The Business Avenue, i.e. of around 1500 square feet of physical space at the ground floor of the building. 1.3 Business Aspirations The biggest aspiration that evoked Marsha Jones to open up a news Buster’s store was her dream of transforming The Buster’s into a chain of super stores within next 10 years. Opening up her second store in The Business Avenue is just one step towards making The Buster’s a popular super store where customers can get all what they want. She wants to open up another 10 stores like The Buster’s, no matter within New York or in other states and cities of United States of America. 2. Organization of the Business This section describes who will be managing the business affairs of The Buster’s and how many employees will be needed to run the business on daily business. In addition, this section also describes the legal status of the business, that whether it is going to be a partnership business or held solely by Marsha Jones. In the end, this section of the report also provides inside to the company’s vendors and suppliers. 2.1 Owners Marsha Jones, who is the owner and creator of the business, will be managing the store on daily basis. She is going to hire a personal assistant who will closely monitor the financial performance of the store and the performance of the employees who are hired as sales personals. In addition, the assistant manager will also be responsible to keep account of required supplies and merchandise, contact the vendors and suppliers to supply the required merchandise and keep an account of store’s premium customers who regularly purchase merchandise from the store. 2.2 Legal Structure The new store of The Buster’s will be managed by Marsha Jones solely. Therefore; the legal structure which is selected is sole proprietorship. This is because the sole proprietor business format is the easiest to start and manage. In addition, there is no requirement of formal paperwork to start a sole proprietor business (William, Robert, & Jack, 2011). One of the biggest advantages is that the proprietor of the business keeps and manages all the assets of the business and any profits and loss, if incurred, are the responsibility of a single person and he or she is liable to pay all the taxes. Entry barriers are at the lowest level and anyone with sufficient capital and market knowledge can start his or her own business (Piper, 2007). On the other hand, there are few disadvantages of starting a sole proprietor business like, vendors and suppliers will ask the proprietor for a personal guarantee at the time of purchasing inventory. Another major disadvantage is that if the business fails to generate sufficient revenues to pay off debts, the creditors will take over the personal property of the proprietor if the debtor does not have funds to pay out credit (Madura, 2006). 2.3 Management Team The store will be managed and run by Marsha Jones, who is a qualified business graduate from ASA Institute of Business and Computer Technology. She has qualified her master’s degree from the institute and has an experience of working as business developer in a retail setup in Houston. She started her own business with the name, The Buster’s, which is a retail store located in a building in New York. The name Buster’s have been picked by Marsha after the name of her pet dog. The assistant manager position will be filled by Mr. John Aaker, who is a relative of Marsha Jones. Beside taking care of opening and closing of Buster’s, John will also be responsible for receiving and stocking inventory, maintaining customer data base, providing customer’s superior services and train the employees. John is a qualified business graduate from Keller Graduate School of Management. John has a experience of managing an international brand’s retail outlet in Las Vegas and currently working as senior store manager for a local clothing business in Michigan. John has showed interest in front of Marsha that he wants to move to New York as the city is his home town and he wants to work within New York. The previous job record of John reflects that he is a dedicated and honest individual who possess strong professional ethics. The position at which John will be hired, demands an individual who is familiar with working in flexible working conditions and prefers to supervise the operations rather than being involved in sales. Keeping in view the demands of the job and the professional record of John, Marsha has decided to call him upon and ask if he is willing to take over this position in The Buster’s new store in The Business Avenue building. Once these two individuals reach a job agreement, John will be asked by Marsha to immediately join her and provide his valuable suggestions regarding the new store’s outlook and how it should be designed, keeping in view the facilitation of the customers and making this experience more enjoyable for them. 2.4 Employees Employees will be hired by Marsha and Johns after considering different aspects that are involved. First of, the size of the new store will be bigger as compare to the first one, considering the fact that the new one will cover 1500 square feet of space, whereas the first one covers 1000 square feet only. Hence, the larger size will require additional number of employees. Secondly, the target market and their preferences and expectations from a retail store will also be a major factor while deciding about the number of employees to be employed. As The Business Avenue is located in a commercial area of the New York, where thousands of individuals pass by the building everyday. Hence, Marsha and Johns will be required a vast variety of products within one roof, and to manage the sales and facilitate customers, a larger team of employees will be hired. Therefore; Marsha and Johns has decided to hire 4 employees, of which two will be working in morning-mid day shift and the other two will be taking care of the business in mid day-evening timings. It will be essential for the employees to have some experience in sales and promotion of the products or services, which implies that university’s fresh students, will not be hired to fill up these positions. Beside experience, employees will be required to possess good communication skills and courteous behavior towards the customers. The basic focus of these employees will be on catering customers’ queries and providing them state of the art services in order to facilitate their shopping experience at The Buster’s. They will be required to show temperament and character at peak sales hours during the weekdays and weekends. 2.5 Contractors/Vendors Unlike the products that are offered at The Buster’s first store, Marsha and John has decided to offer more product varieties to the customers. In addition to the food items and snacks, Marsha and John will also be including stationary items, office supplies, miscellaneous items, toys, confectionary items, organic food items, smokes and liquors and cosmetic items on the shelves of the new store. For this reason, different vendors and suppliers will be contacted in order to fulfill the demand for these items. The major vendor of the company will be Great lakes Wholesale and Marketing (Limited Liability Company). Great lakes will be responsible to supply high quality products in food, cleaning, health and beauty, gift and party item categories. In addition to these, Great Lakes will also be supplying general merchandise ranging from assorted beverages, stationary and others (Great Lakes Wholesale, 2011). Accessories Palace Incorporation from Florida will also be contacted to reach a vending contract. Accessories Palace will be supplying Fashion jewelry, headbands, head wraps, lighters, smokes, liquors, fashion accessories and cosmetic accessories (Accessories Palace, 2011). Another major supplier of wholesale products to The Buster’s will be Fun Express, a Nebraska based wholesale dealer. Fun Express will be supplying thousands of items ranging from toys to seasonal items like greeting cards, party favors, art and craft items, decoration items and wholesale novelties (Fun Express, 2011). Dollar Item from Los Angeles, California will be supplying all general merchandise categories including branded items, holiday and season items, multi purpose containers, backpacks, kitchenware, candies, candles, beverages, apparel, cosmetics, snacks, toys, store supplies, plastic ware and disposable items (Dollar Item, 2011). Dollar Days, a supplier of merchandise of over 200 different categories is also contracted by The Buster’s to supply office and academic stationary and supplies. A Scottsdale, Arizona based company, Dollar Days manufacture and supply pencils, pens, rubbers, sharpeners, markers, highlighters, paper products, wholesale apparel, general merchandise, house wares, flip flops, seasonal and thematic greeting cards and other stuff (Dollar Days, 2011). Other suppliers of The Buster’s are A-1 Family Wholesale from Missouri, VK Wholesale from Chicago, Countryside Closeouts from Springfield and Trico Sources from Brooklyn, New York. 3. Financials This section of the report presents the financial facts and figures which are related to the launching and smooth running of Buster’s business. 3.1 Anticipated Operating Costs The following is the projected operating costs for The Buster’s operations in The Business Avenue over the next 3 years. Operating Costs Year 1 Year 2 Year 3 Sales $365,324 $373,105 $746,377 Direct Cost of Sales $113,267 $115,679 $231,410 Gross Margin $252,057 $257,426 $514,966 Gross Margin % 69.00% 69.00% 69.00% Expenses Payroll $46,500 $48,825 $81,414 Sales and Marketing $16,000 $16,341 $32,689 Depreciation $5,800 $5,800 $11,600 Utilities $7,306 $7,462 $14,928 Insurance $700 $700 $1,400 Rent $14,400 $14,400 $36,000 Other $3,653 $3,731 $7,464 Total Operating Expenses $94,360 $97,259 $185,494 Profit Before Interest and Taxes $157,697 $160,167 $329,473 Interest Expense $9,000 $9,000 $9,000 Taxes Incurred $37,174 $37,792 $80,118 Net Profit $111,523 $113,375 $240,354 Net Profit/Sales 30.53% 30.39% 32.20% Table 1 Anticipated Operating Costs Assumptions 1. Sales and Marketing Expense for Year 2 and Year 3 are estimated based on proportion of this expense to sales in the first year =$16,000/$365,324 2. Depreciation Straight Line Method Furniture and Fittings $75,000 Estimated Life 15 Years Depreciation $5,000 Long term assets $20,000 Estimated Life 25 Years Depreciation $800 Total Depreciation $5,800 Table 2 Depreciation Total Depreciation in the third year is expected to be doubled because of the expected increase in the fixed assets. 3. Utilities Estimated to be 2% of the sales revenue 4. Other Expenses They may include any other expense that may be deemed necessary for store operations. Provision of 1% of sales revenue is made. 5. Tax Rate Corporation tax rate is 25% in United States of America. 6. Interest Rate expected to be 12% on long term borrowing. 3.2 Investment Requirements Marsha has decided to open up the second store of her superstore namely The Buster’s and for this reason, she has selected The Business Avenue as the location for opening up this store. It should be kept in mind that The Business Avenue is located at a location which is near to the heart of New York, i.e. The Wall street which is also considered to be the heart of global business. Keeping in view the importance of the place, the rates at which property can be hired for rent. Is relatively high as compare to other locations of the city. Therefore, it is anticipated that the costs of producing services will be higher. The initial investment that would be required by Marsha Jones to establish The Buster’s at The Business Avenue is $ 300,000. It includes all the costs that will be involved in launching this new store and transforming it into a running business. Since the initial investment required amount is low, Marsha has decided to invest $ 200,000 from her pocket, whereas another $ 100,000 will be raised by taking loan from the bank. 3.3 Pro-forma Projected Cash flow The following is the projected cash flow statement for The Buster’s operations in The Business Avenue building over the next 3 years. Pro Forma Cash Flow Year 1 Year 2 Year 3 Cash Flow from Operations Net Income $111,523 $113,375 $240,354 Add: Depreciation $5,800 $5,800 $11,600 Change in Accounts Receivables $0 $0 $0 Change in Other Current Assets ($5,000) $0 ($5,000) Change in Accounts Payable $22,500 $0 $22,500 Change in Other Current Liabilities $10,000 $2,000 $8,000 Change in Inventory ($75,000) $0 ($75,000) Net Cash Flow from Operating Activities $74,823 $121,175 $207,454 Cash Flow from Investing Activities Purchase of Fixed Assets ($75,000) $0 ($112,500) Purchase of Long Term Assets ($20,000) $0 ($30,000) Purchase of Office Space ($40,000) $0 $0 Net Cash Flow from Investing Activities ($135,000) $0 ($142,500) Cash Flow from Financing Activities New Long-term Liabilities $75,000 $0 $0 Capital Invested $149,800 $0 $0 Repayment of Loan ($7,500) ($7,500) ($7,500) Net Cash Flow from Financing Activities $217,300 ($7,500) ($7,500) Net Cash Flow $157,123 $113,675 $57,454 Cash at the Beginning of the Year $157,123 $270,798 Table 3 Projected Cash Flow Assumptions 1. Cash sales are expected to be 90% of the total sales revenue and credit sales to be 10%. However, receivables are expected to be collected in the same year. 2. Opening up of new store in the third year will be made from the accumulated cash and retained earnings and therefore, no external funding or additional capital needs to be raised. 3. Previous year's ending cash balance is the opening balance of cash for the next year. 3.4 Payback Period Calculation Header Amount in $ Initial Investment 300,000 Cash Flow 1st year (157,123) Cash Flow 2nd Year (113,675) Total 29,202 Table 4 Pay-Back Period P.B.P = $ 29,202/Cash Flow 3rd year P.B.P = $ 29,202/$ 57,454 = 0.5083 Therefore, The Buster’s will be requiring 2.51 years to recover the initial investments made on the venture. Figure 1 Pay-Back period It is clear from the graph presented in Fig. 1 that The Buster’s has invested $ 300,000 into this venture, i.e. opening up a new super store in The Business Avenue building in New York. Point A denotes the exact time, at which The Buster’s has recovered all the investments made in the venture. After that point, whatever revenues The Buster’s will be generating will be recorded as pure profit of the company. 3.5 Return on Investments The return on investment required to be calculated in this section can be determined by utilizing the following formula: Return on investments = Average profit for three years / Total initial investment x 100 Return on investments = {[($ 111,523 + $ 113,375 + $ 240,354) / 3] / $ 300,000} x 100 Return on investments = ($ 155,084 / $ 300,000) x 100 Return on investments = 52% Therefore, the return on investment from the above calculation for three years is found to be 52%. References Accessories Palace. (2011). Information. Retrieved January 28, 2012, from website.informer.com: http://website.informer.com/visit?domain=accessoriespalace.com Dollar Days. (2011). ABout Dollar Days. Retrieved January 28, 2012, from www.dollardays.com: http://www.dollardays.com/aboutus/ Dollar Item. (2011). About Us. Retrieved January 28, 2012, from www.dollaritem.com: http://www.dollaritem.com/About-Us_W2766.cfm Fun Express. (2011). About Us. Retrieved January 28, 2012, from www.funexpress.com: http://www.funexpress.com/ui/help/sharedFlowController.goToHelpController.do?requestURI=helpContent&documentKey=aboutus Great Lakes Wholesale. (2011). About Us. Retrieved january 28, 2012, from www.glwholesale.com: http://www.glwholesale.com/d/AboutUs Madura, J. (2006). Introduction to business. NY: Cengage Learning. Piper, M. (2007). Surprisingly Simple: Independent Contractor, Sole Proprietor, and LLC Taxes Explained in 100 Pages Or Less. NY: Mike Piper. William, P. M., Robert, H. J., & Jack, K. R. (2011). Business. NY: Cengage Learning. Read More