Planning to Open a Netball Shop in Cardiff - Essay Example

I. Executive summary Cardiff Netball Shop is in the business of retailing sports gears and equipment at every age group and gender and also at different level of fitness. The athletic shop shop will carry popular and reliable brands such as Nike, Adidas, Reebok, Converse, K-Swiss, Misuno, Wilson etch. The shop will differentiate itself from the competition by having staffs that are engage in sports themselves and it follows that they are knowledgeable about the specifications and use of the athletic gear and equipment they are selling. This “highly specialized” knowledge of the staff about sports and their equipments will not only promote confidence for the business but will also provide an excellent customer service atmosphere and distinct advantage over competition who are merely reselling popular sports equipment brands. Cardiff Netball shop will be opened in Capitol, a shopping mall located at Cardiff downtown on the Queen Street. Queen Street is an ideal location to sell sport equipment and apparel business because a lot of people frequent the downtown to do their shopping. The traffic of the shoppers and the popularity of the place to shop for equipment and apparel make the Capitol an ideal location for the business. It is expected that the business will yield a healthy rate of return given the marketing strategy that will used. It is expected that in the first year of operation, Cardiff Netball Shop will have an after tax net profit of £65,033, in the second year £106,210 and 106,275 in the third year respectively. The business will also be formed as a Corporation with Limited Liability to shield the shareholders from liabilities in the event that the business’s liabilities will exceed its assets. II. Product and services Cardiff Netball Shop will be retailing the most dependable athletic brands such as Adidas, Nike, Reebok, Mzuno, Wilson, Worth etch. The business however will differentiate itself from the competition by having staffs who are very knowledgeable of the products because they are sport enthusiasts themselves. Thus, customers will not only be assisted in terms of size, fit, style and design but also can be given what specific gear, equipment or apparell do they need according to their level fitness and discipline. III. Market and competitors Cardiff community will be the market of Cardiff Netball shop. Cardiff boast itself as a fit and health conscious community making it an ideal market for the business. Sports and athletic is robust in the area especially with the presence of Cardiff University where athletes and enthusiasts abound who have significant disposable income to spend on sports gear and apparel. The initial market research yielded that the market in Cardiff is segmented as follows Market segmentation Parents who have children engaged in sports Active adults College students and athletes High school students and athletes Senior citizens who are living an athletic and active lifestyle. Direct competitor Cardiff Netball has one direct competitor in the Cardiff community which is DW sport reselling popular athletic brands. The competition however lack expertise in sports and the product they sell making them a mere reseller or outlet of sports equipment. The choices of gears and apparels are also limited due to the limited knowledge of the competition to sports. IV. Marketing plan Cardiff Netball Shop will differentiate itself from the competition by having a knowledgeable staff and service culture company. It still however needs to penetrate the market and establish itself as a popular shop to purchase Cardiff communities sporting and athletic needs. To make the business known to the Cardiff community, the following marketing implements will be used. Marketing approach These value propositions shall be aggressively conveyed to the potential customers through the following marketing mediums; Flyers - Flyers are one of the most effective and cost efficient method of reaching Cardiff Netball Shop’s customers. Distribution shall be limited to the immediate vicinity of Cardiff specifying its products and service. Local Radio – Broadcast advertisements are to be used to reach the untapped and underserved athletic market. Since the prospective customers are only limited to the immediate vicinity of Cardiff Netball, the local radio would be the appropriate medium to reach at the most number of customers at a minimal cost. Local Newspaper Advertisement –Print advertisement shall be used as Cardiff Netball marketing promotion as the information about Cardiff Netball can be kept on record where customers can reference its products and services. Web marketing – the internet will also be used as platform for advertising especially the social networking sites where active people are known to frequent. V. Operational plan The business will be managed by (your name) due to (his/her) specialized knowledge in sport being an avid hobbyist of many discipline. This deep stock knowledge in sport coupled with business background makes the manager an ideal candidate for running to business due to (his/her) knowledge both in the intricacy of product and industry as well as (his/her) knowledge on the business aspect of the company. There are also other three shareholders making the total shareholders to four (4). The other shareholders are ______, ______, ______, _______. The business will have six employees, two supervisors and four sales associates respectively. There will be two(2) Supervisors who will be paid at £9.5 an hour with five hours work per day at five days a week totaling to 264 work days in a year. There will be four (4) Sales Assistants who will have an hourly rate of £6.5 with five hours work per day at five days a week totaling to 264 work days in a year. Personnel Plan   Year 1 Year 2 Year 3 Supervisors (2) £25,080.00 £25,080.00 £25,080.00 Sales Assistant (4) 34,320.00 34,320.00 34,320.00 Number of employees 6 6 6 Payroll Expense £59,400.00 £59,400.00 £59,400.00 The products will be coming from popular and established brands and therefore the business is a mere reseller and does not necessarily manufacture them. The inventory will be on account. Sales will be paid through cash as well as credit cards. VI. Financial Plan and Forecast Start up The typical sourcing the initial capital of a business enterprise usually come from the owners savings or personal money, investment from its shareholders and loans (Temte, 2005). This will be the sources of capital of Cardiff Netball Shop. To start Cardiff Netball Shop as a business entity, the owner’s savings of $150,000 supplemented by other shareholders contribution of $100,000 shall be used as a start-up capital. Additional loan of $50,000 shall be made with the local bank with the owner’s home equity which will be paid in 5 years. Given the potential of the business, it is anticipated that the business will be making comfortable profits starting from the first year of operation that includes the provision for loan repayment. Start-up expense amounts to £58,000 with £195,000 worth of current assets totaling to initial capital requirement of £253,000,000. Available initial capitalization of £300,000 however is enough to cover the start-up capital requirement. Start up requirements Start-up Expenses   Legal requirements 2,500 Insurance 1,000 Accountant 500 Advertisement/Marketing drive 30,000 Advances for rent (6 months) 9,000 Physical improvement of Cardiff Netball 15,000 Total Start-up Expenses 58,000 Start-up Assets   Cash Required 75,000 Start-up Inventory 100,000 Other Current Assets (Delivery Van) 13,350 Total Assets 195,000 Total Requirements 253,000 Start-up Funding Start-up Expenses to Fund 58,000 Start-up Assets to Fund 195,000 Total Funding Required 253,000 Assets   Non-cash Assets from Start-up 100,000 Cash 200,000 Total Assets 300,000 Liabilities and Capital   Liabilities   Current Borrowing 50,000 Total Liabilities 50,000 Capital   Owner 150,000 Shareholders 100,000 Total Capital $250,00 Total Capital and Liabilities 300,000 Total Funding Requirements 271,500 Sales Forecast Due to the marketing strategy that will be implemented, it is expected that sales t for the first three years of operation respectively would be £500,000 on the first year, £550,000 on the second year and £600,000 on the third year. It is expected that the business will have a gross margin of 80% yielding a net profit after tax of £ 65,033on the first year, £106,210 on the second year and £106,275 on the third year. The following projected financial statement will illustrate;         Sales Forecast Year 1 Year 2 Year 3 Sales £ 500,000 £ 550,000 $600,000 Direct Cost of Sales 100,000 110,000 115,000 Total Cost of Sales 100,000 110,000 115,000 Gross Margin 400,000 440,000 485,000 Gross Margin % 80% 80% 80% Expenses       Payroll £ 59,400 £ 59,400 £ 59,400 Marketing/Promotion 40,000 30,000 20,000 Lease 180,000 180,000 180,000 Delivery Van 13,350 0 0 Utilities 7,200 7,200 7,200 Total Operating Expenses £ 299,950 £ 276,600 £321,500 Profit Before Taxes 100,050 163,400 163,500 Percentage for tax 0.35 0.35 0.35 Tax payment 35,018 57,190 57,225 Net Profit/Sales 65,033 106,210 106,275 Break-even analysis The sale of 700 units a month or £35,000 is Cardiff Netball’s breakeven point. This is a very realizable break-even point because it only translates to a 25 units of sale a day. In the projected sales forecast, it is anticipated that the company can make a $500,000 sales in the first year alone due to the potential of the business. The monthly breakeven sale of at least £35,000 a month is very realistic because it is within and way below the projected sales forecast allowing a margin for profit. Risk analysis a. Profitability Return on Equity (ROE) net income/average stockholders’ equity Year 1 Year 2 Year 3 Net Profit/Sales 65,033 106,210 106,275 Equity 250,000 250,000 250,000 Profitability ratio 26% 42% 43% Profitability ratio indicate that the business is a good investment because it has a net profitability of 26% in the first year, progressing to 42% and 43% in the second and third year respectively. b. Stability Debt/equity = total liability/total stockholder’s equity Year 1 Year 2 Year 3 Debt 50,000 40,000 30,000 Equity 250,000 250,000 250,000 Profitability ratio 20% 16% 16% Stability ratio is necessary in assessing risk especially in today’s very volatile environment. Business must ensure that it has enough assets and/or liquidity to cover its liability in the event that creditors will demand payment (Bendrey and Hussey 2004). Stability ratio indicates that the business is very stable because liabilities only covers 20% of total capital in the first year of operation and only 16% in the second and third year of operation. This meant that the business has more than enough assets that will not affect the going concern of the business to cover its liability in the event that the creditors will demand payment. VII. Appendices Personnel Expense             Employees   Rate/ hour Cost/hour Hours work/day days in year Yearly Cost Supervisors           2   9.5 19 5 264 £ 25,080.00               Sales Assistant           4   6.5 26 5 264 34,320.00 Total Personnel Cost (Per annum)           £ 59,400.00 Cash Flow Cash Flow/Budget   Year 1 Year 2 Year 3 Cash balance, beginning 150,000 156,000.00 125,000.00 Cash from Operations   Cash Sales 500,000 550,000.00 600,000.00 Total Cash Available 650,000 706,000.00 725,000.00 Less: Disbursements   Direct Materials 100,000 110,000.00 115,000.00 Operating Expense 299,950 278,500.00 321,500.00 Inventory Purchases 100,000 110,000.00 115,000.00 Total Cash Disbursements 449,500 498,500.00 551,500.00 Financing   Borrowings, beginning 50,000 - - Payments (10,000) (10,000.00) (10,000.00) Total Financing 40,000 (10,000.00) (10,000.00) Cash Balance before Tax 240,500 197,500 163,500 Tax Payment 0.35 0.35 0.35 Total Tax Payment 84,175 67,375.00 55,475.00     Cash, Ending balance 156,325 130,125 108,025 Computation of Breakeven: Assumption: Average price per unit is £50 Average variable cost per unit is £5 Forecasted Fixed cost £30,000 £30,000=£50 - £5 5,000 = 45 666.67 Rounded to 700 units Breakeven sales is £35,000 25 units per day Computation of utilities expense Water £200 Electrical gas 340 Internet 60 Total 600 Months in year 12 Utilities expense per annum £ 7,200 VIII. Bibliography Bendrey, Michael; Hussey, Roger; Colston, Vest (2004). Essentials of financial accounting in business. Thomson Learning, London Temte, Andrew (2005). Financial Statement Analysis. Chicago, IL, USA Read More