Sole Trader Startup Business Strategy - Assignment Example

?Business Readers point Legal structure: Sole trader The business proposal I have come up with is about a stationery shop which deals with a wide variety of stationeries needed in offices, homes and institutions of learning. The name of the business ‘readers point’ was arrived at after a survey of the target clients. The name is catchy and also sells out to new clients what the business is all about. Sources of funding are savings of ?25,000, Princes Youth Trust business grant ?4000, loan ?6000 and bank loan of ?20,000. I intend to use my savings and the bank loan for the start capital and the Princes Youth Trust business grant and loan for the operations of the business in the first two months before the business is stable to support itself. The business will be located at a strategic point at the junction between Pace Street and Learners Street, which leads to Wales College. As a student in the college I believe the business will pick very fast as the other stationery stores sell their products in wholesale hence locking out potential clients who want to buy single items. In five years time, I see readers point being the leading stationery seller in Brickston and having several tenders in the college and other institutions of learning as well as other big companies within Brickston. Supplying clients in their offices will reduce the cost of storage as I buy the goods from my supplies and take them to my clients. It’s also time consuming for my clients. I intend to open two more shops but the target is getting tenders from various institutions so as to cut on costs of renting premises as well as personnel. As a purchasing and logistics student, I know the business will make huge profits if I buy the supplies in bulk and sell them in single pieces. I believe that the good quality of my products will sell the products and not getting products at a low price due to the low quality of the goods. The location of readers point is a big plus to my business venture due to the college and other offices in pace street. As a young and new entrepreneur, marketing survey and strategies for my business is essential so as to meet the needs of my clients to get the most reliable and affordable suppliers for the goods I intend to sell. Consistency is key to business success hence the need to get suppliers who have the capacity to supply the shop according to the growing demand. Continuous research in the stationery industry before, during and after start up is important so as to get trendy and new products. The store will open from 0700am – 1900pm due to the diversity of our clientele; the college has evening classes hence there is need to accommodate all of them. The shop will have four employees each working on a six hour shift. They will be required to come in fifteen minutes before their shift begins and leave fifteen minutes later to ensure a smooth transition from one employee to another without interrupting with the normal running of the shop. Preparation at all stages of the business is important. Set up cost Initial renting property: ? 3,500 Renovations and decorations: ?10 000 Purchasing of Stock: ? 25,000 Legal costs: ? 1,500 Total set up cost: ? 40,000 Over heads Rent: ?200 per month Electricity bill: ?150 per month Property Insurance: ?50 per month Monthly loan payments ?100 Total overheads for the first year: ?6000 Monthly Expenditures Monthly Rent: ?200 – the shop is at a subsidized rate as the building belongs to Wales College where I am a student. The institution has policy on how it charges its students and staff. Monthly electricity bill: ?150 – Readers point will only use electricity for lighting, two computers and printing. Property insurance: ?50 per month – the stock is the very valuable hence should be insured against any risk. Telephone bills: ?70 per month – Communication is very essential for the business as we get orders and supplies for the shop. Communication will also be used to inform our clients of new items in the shop Wages for four employees: ?3600 per month - ?5 per hour hence ?30 per day since each employee works six hours a day. Clients who want door delivery will pay the employee directly. Stock supply: ?1500 – However this will depend on the demand of the goods; it may be high as the business picks up. Total expenditures per month: ?6290 Pricing policy The pricing of goods in the shop is wide due to the broad variety of various goods that the shop will deal with. The most expensive product, which is an ink tonner, will retail at ?12 and the cheapest products are the pens and erasers selling at ?0.50 and ?0.20 respectively. The prices are competitive but also affordable due to the character of our clients’ majority being the college students. The prices will be as follows: Eraser: ?0.20 Pens: ?0.50 Sticker notes: ?0.60 A4 envelopes (10 pieces): ?1 A4 printing papers (15pieces): ?1 Pre printed cards: ?1.2 Small notebooks: ?1.30 A4 size books: ?1.5 Cards printed on request: ?2 Flash disks: ?5 - ?9 (depending on memory size) Ink tonner: ?12 Despite it being the only business of its kind in the area, readers point will not exploit the clients neither will the business under price. This is a strategy of fighting other businesses in a healthy way. This will encourage students and other clients come into the shop and buy as much as they can at reasonable prices. Business environment is important to take note of before embarking on the business. A survey I conducted before coming up with the proposal shows that many students will appreciate a local stationery shop, as the others in the area were wholesale hence not responding to the students needs. I interviewed five hundred people on where they purchased their stationery products and if they would appreciate a stationery shop nearby. The answers are as shown below: Shoppers at Jacks supermarket 58% (290 people) People who shop in other streets 22% (110 people) Those who shop in the wholesale shops around 11% (55people) Others 11% (55 People) Marketing and advertising is paramount and essential for anyone who wants to be successful in a business venture and it is for this reason I plan to advertise the business to reach out to the target customers. In the college, I will use the college paper and the student’s radio. The radio adverts will run during the commercial breaks between programs twice an hour. A survey conducted two months ago indicates that 95% of the student tune in to the radio at least two hours daily. Another 86% read the weekly college paper. I will also use fliers and local newspaper adverts to target the offices in the area. I will also drop several fliers in Jacks supermarket, which serves most of the population. The fliers will be given to the shoppers as they leave. As a student, advertisement on the college media is free hence the cost of advertisement will be reduced drastically. For the fliers and posters, I will use ?70. I plan to use content marketing to drive traffic and create awareness of my business. For this strategy to be successful I will plan my content ahead of time through brainstorming, creating contents that pops, use search engine to optimize my contents and finally, I will make my content social through use of tools like twitter, Facebook and LinkedIn. I intend to offer good service to all the customers as well quality goods. Honesty, respect and truthfulness are values that readers point will hold at all times so as to keep our customers coming again and again. Renovations and decorating of the shop will start two weeks prior to opening its doors. The business will be targeting the start of a new semester, which begins in May. Two weeks of operation will have given us exposure and experience before the peak period due to students returning for the new semester. Expected cash flow forecast MONTH SALES EXPENDITURE May ?8000 ?6400 June ?8000 ?6000 July ?9500 ?6200 August ?12000 ?6500 September ?17000 ?6800 October ?18000 ?6800 November ?18000 ?6500 December ?20000 ?7000 January ?24000 ?7200 February ?24000 ?6800 March ?23000 ?6500 April ?25000 ?6500 TOTAL 206500 72700 The above one year estimates are for the first year readers point will be in business. The profits and sales in May, September and January are high due to the college students reporting back to school for their new semesters. In December and April the sales are estimated to be high due to the holiday season hence the sale of cards will be high. I estimate that each customer who comes in to the shop will spend ?5 in the shop. Hence the estimate sale per month is: Number of expected customers x ?5 Estimated one year Cash flow Cash Inflow May June July Aug Sept Oct Nov Dec Jan Feb March Aprl Eraser 750 750 600 1000 1100 800 780 700 1500 1000 700 800 Pens 850 850 950 1200 1300 1200 1150 1200 1500 1500 1600 1700 Sticky Notes 600 600 800 1000 1050 1100 1100 1200 900 1000 800 1000 A4 Envelopes 10 1000 1000 1200 1000 1200 1250 1200 1300 2000 1800 1890 2000 A4 PPRs 3000 3000 4500 4500 5000 4600 4800 4800 5000 5500 5000 5100 Pre.p Cards 150 150 83 100 170 180 150 500 400 150 100 100 S. Notebook 400 400 500 700 900 1000 1200 800 2000 2200 2200 2500 A4 books 1000 1000 1000 1200 3000 2780 3000 2800 3000 3200 3000 3200 Card on Request 200 200 200 200 300 240 240 3000 600 300 100 200 Flash Disk 90 90 60 100 120 140 130 100 400 400 450 600 Total Inflow 8000 8000 9500 12000 17000 18000 18000 20000 24000 24000 23000 25000 OUTFLOWS Rent 3500 200 200 200 200 200 200 200 200 200 200 200 Renovation 10000 - - - - - - - - - - - Stock 25000 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 Legal cost 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1,500 1500 Electricity 150 150 150 150 150 150 150 150 150 150 150 150 Insurance 50 50 50 50 50 50 50 50 50 50 50 50 Loan Interest 100 100 100 100 100 100 100 100 100 100 100 100 Wages 3600 3600 3600 3600 3600 3600 3600 3600 3600 3600 3600 3600 Total Outflow 43900 7100 7100 7100 7100 7100 7100 7100 7100 7100 7100 7100 End of first year projected Profit and Loss Account Particulars ? ? ? Sales 206500 Opening Stock - Add purchases 25000 Less Closing stock - Cost of sales 25000 25000 Gross Profit 181,500 Expenses Rent 5150 Telephone 840 Electricity 1800 Insurance 600 Wages 43200 Renovation and decoration 10000 Legal Cost 1500 Total Cost 63,090 Profit before Tax 118,410 Estimated End Year Balance Sheet Fixed assets Cost Depreciation Book value Book stands/shelves ?2190 ?165 ?2025 Computers ?4100 ?20 ?4080 furniture ?900 ?5 ?895 Total Fixed Assets ?8190 ?31 ?7000 Current assets Current stock ?25000 Money in the bank ?25000 Total current Assets ?50000 TOTAL ASSETS ?57000 Current liability Interest on loan ?300 Working capital ?1700 Total Current Liabilities ?2000 Financed by Bank Loan ?20000 Other Loans ?6000 Prince Youth Trust business grant and loan ?4000 Personal Savings ?25,000 Total Liability and Financing ?57000 The following ratios will help in showing the general performance of my business in the next twelve months. Ratio Analysis 1. Liquidity Ratio Current ratio = Total Current Assets/Total Current Liabilities 26000/25959 = 1.002 Since the ideal ratio here is 2:1 the difference is caused by the loans acquired to start the business. 2. Debt Analysis Debt/Asset ratio = Total debt/Total Asset 32000/57000 = 0.561 3. Profitability analysis Profit margin = Profit before taxes/Sales 118410/206500 = 0.573 Return on Assets (before tax) = Profit before tax/total Assets 118410/57000 = 2.077 4. Efficiency Analysis Total Assets Turnover = sales/Average total assets 206500/57000 = 3.623 Break Even point To be able to calculate the break even we will have to use the total fixed cost and variable cost. The formula applicable to calculate the break even is: Break even point = Fixed cost divided by (1 – (Variable costs/Actual sales) Our total fixed cost is ?6840 The estimated variable cost is ?61200 Break event point = 6840/(1-(61200/206500) = 9729.99 units Estimated cash Budget for the initial 12months(annual cash budget) Particulars May June July Aug Sep Oct Nov Dec Jan Feb Mar April Total Opening cash balance - 19030 21360 25190 31520 42850 55180 67510 81840 100170 118500 135800 85180 Personal savings 25000 - - - - - - - - - - - 25000 Bank loan 20000 - - - - - - - - - - - 20000 Sales 8000 8000 9500 12000 17000 18000 18000 20000 24000 24000 23000 25000 206500 Other loan 6000 - - - - - - - - - - - 6000 Grant 4000 - - - - - - - - - - - 4000 Total cash available 63000 27030 30860 37190 48520 60850 73180 87510 105840 124170 141500 160830 160830 Initial rent 3500 - - - - - - - - - - - 3500 Renovations/Decorations 10000 - - - - - - - - - - - 10000 Stock purchase 25000 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 41500 Legal cost 1500 - - - - - - - - - - - 1500 Rent - 200 200 200 200 200 200 200 200 200 200 200 2200 Electricity 150 150 150 150 150 150 150 150 150 150 150 150 1800 Wages 3600 3600 3600 3600 3600 3600 3600 3600 3600 3600 3600 3600 43200 Insurance 50 50 50 50 50 50 50 50 50 50 50 50 600 Interest on loan 100 100 100 100 100 100 100 100 100 100 100 100 1200 Telephone 70 70 70 70 70 70 70 70 70 70 70 70 840 Cash c/d 19030 21360 25190 31520 42850 55180 67510 81840 100170 118500 135830 155160 155160 References Anderson F.B, 1911, ‘a lecture given to university of California Berkeley student’s’, morals of trade and commerce pg4 – 5 Barrow C, 2011 ‘Operating effectively’, Starting a Business for Dummies UK 3rd Edition p 221 Black C & A, 2010, ‘Making it happen,’ Good small business guide: how to start and grow your business, 4th edition p67 Davis M, 2005, ‘Your strength and Weakness’, managing a small Business Made Easy, vol 1, no 1, pg 2 Furtwangler D, 2010, ‘pricing policy‘, Pricing for profit: how to command higher prices for your product and services vol 1 p46 Know this .com, 1998, ‘Marketing tutorials,’ Retail categories 2nd edition Lester D, 2007, ‘Marketing strategy’ starting a business 1st edition pg 134 -166 Lawrence S. 1996, ‘Business Environment’, International accounting, 1st edition, vol 1, pg 161 Lucas M, 2000, ‘Global cooperation or rival trade blocs’, Understanding business environs, vol 1, pg 83 McKay M, 2011, ‘Tips and warnings’, How to start a stationery store publication, Morden T, 2004, ‘Communication’, Principles of management, 2nd edition pg 91 Parks S, 2005, ‘How to plan and launch your successful business’, Start your business week by week, vol 2 pg 207 Van Pelt N. 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