Online Business of Vibe T-shirt Would Be Remunerative and Profitable - Essay Example

Introduction The online selling of T-shirts is a lucrative business option considering the point of view of changing fashion trends all over the globe. The online mode of business offers the option to the business to target a wide range of customers and at the same time opens up a horizon of collection of products for the customers. The Vibe T-shirts have been planned to be sold online which would offer attractive designs at affordable costs to the customers. The business would offer Vibe T-shirts that would meet the lifestyle and recent trend of customer needs. In order to set up the business, the aspects of available equity and debt capital, initial investments, the costs to be incurred versus the expected revenue inflow and the break-even point have been taken into consideration. Description of business The business of online T-shirts by the brand name of Vibes has been set up with appropriate forecast according to the plan. The Vibe T-shirts would be sold through the online website of the company. The customers would be able to purchase the T-shirts with visiting the physical store and taking advantage of virtual shopping mode. There are various payment options for the customer as they offered credits for 30 days and 60 days for online purchase. The online marketing and selling of T-shirts of Vibe brand is considered to be highly competitive as e-commerce has emerged to be recent trend with various companies investing in online commodity business. The detailed forecast of the business in terms of the initial capital available, cash budget, forecast of income statement and financial position of the business has been given below. Pricing of Vibe T-shirts The business has paid due consideration in pricing the Vibe T-shirts so that it is affordable to a wide range of customers. The pricing strategy of Vibe T-shirts has been designed in order to meet the mission and vision of the business which is to connect to people of different cultures all over the globe. Vibe T-shirts business envisages to emerge as the most desired T-shirt brand through the virtual mode of e-commerce. The pricing has also been fixed taking into consideration the expenses incurred for procuring the raw materials, wages, general selling and administrative costs. The price of each Vibe T-shirt has been fixed at 25 pound sterling which is expected to drive in the forecasted revenue and the profits to reach the break-even point within a short period of time. Cash budget The cash budget for the business of Vibe T-shirt has been computed as given in the excel calculations. The cash budget has provided an indication of the amount of cash deficit or surplus that would occur from the online selling of Vibe T-shirt. The difference in cash receipts and cash payments of the business provide the amount of surplus which when added to the available or opening cash balance produced the closing cash balance. The available cash with the business is due to the amount raised through issue of shares amounting to 24000 pounds and a loan of 53150 pounds. Due to the forecasted increase in sale of Vibe T-shirts, the cash receipts are expected to increase over a period of time. An initial outlay due to investment in infrastructure, plant and equipment would take place in the first year amounting to 45000 pounds. In the subsequent years, the increase in cash payments would be due to increase in the cost of raw materials, labour and wages, administrative costs, salary, etc. Since the online business of T-shirts are expected to churn in more revenues with less burden on continuing establishment cost, the cash surplus and closing cash balance of the business is expected to increase over a period of time. Income statement Based on the cash budget and cash flow, the revenues and costs to be incurred over a period of time have been compared. This has helped in estimation of income of the business that has been shown in the excel calculations (Baker and Powell, 2009). The revenues earned by the business have been due to the volume of Vibe T-shirts sold for the brand in the online mode. There has been fixed cost as well as variable costs incurred by the business. The total sales revenue earned by the business in the first year is 578671 pounds. The cost of procurement of raw materials, inventories and the wage payments made by the business have been deducted to derive the gross profit of 547842 pounds. After payment of royalties, administrative costs, depreciation cost and the salary payments, the operating profit for the business is expected to be 485842 pounds. The interest payments on account of overdraft and loan instalments have lastly been considered after which a profit before tax of 470118 pounds is forecasted. Statement of financial position The financial position of the business has been forecasted on the basis of liabilities to be incurred and the equity capital versus the available current and non-current assets. The fixed assets of the business would be majorly considered as the non-current assets of the business. The short term assets of the business would be majorly in terms of the inventories and the receivables expected from the online sell of T-shirts. The major part of the receivable would be due to the customer credit offered by the business for a period of 30 days at 10% and for a period of 60 days at 20%. Apart from the long term loan, the business also plans to incur a loan of 25000 pounds for short term for an interest on account of bank overdraft at 10% rate would be paid. The total trade payable and interest on short term loan would add up to 85224 pounds. The total liabilities and equities of the business would be met up with the assets of the business amounting to 440399 pounds. As the business is deemed to be remunerative and profitable as shown in the figure below, the increasing variable costs of the company would be met up with the available assets of the company in a short period of time. The break even sales for the business have been calculated to be 13449 pounds which is expected to be met in the first year of the business. Conclusion The forecasted cash budget, income statement and statement of financial position of the business reveal that the online business of Vibe T shirt would be remunerative and profitable over a period of time. Due to wide reach of the business towards the customers and flexibility of the online mode of payments and customer credits, the revenues of the business would start growing in a short while in comparison to the costs incurred. This would help the business to cross the break-even point in the first year of operations. References Baker, H. K. and Powell, G. (2009). Understanding Financial Management: A Practical Guide. New Jersey: John Wiley & Sons. Read More