The Prospective Interior Design Business - Case Study Example

A Business Plan for an Interior Design Services Venture Introduction The business under consideration pertains to an interior design enterprise. The proponent, having had a brief experience in the field, is aware of the present circumstances. Owing to the current economic crisis, decorating one’s home or office premises is among the last in the priorities where to put money in.1 As the old folks would say, the dining table first. In sum, allocating funds to refurbish, beautify or enhance the inside looks of a space inside the house or of a work station is a luxury and, during a recession, it is difficult to attract people to become customers for an interior design service, a non-essential item except for the wealthy or for those who really have extra money for the make-up or the make-over or both. To counter the financial constraints and difficulties in a period of economic slowdown, the projected interior design business will offer nice ideas at reasonably low costs. With that concept in mind, together with the incipient three clients, the proponent will look for two venues which still operate and are still functional but are somewhat abandoned or not really cared of - one office space and one home living room. A proposal each to the owners will be offered to decorate the places. Interior design services will be free while materials will be relatively low and will possibly consist of recycled items that do not sacrifice beauty and grace for the locations. The accomplishments will showcase the prospective interior design business. Signs within the proximate vicinity may be installed conveying such messages as “decorate it nice but spend money wise” or “design it best with cost the least”. Flyers to advertise the services will be distributed to potential customers in nearby malls, groceries and stores, fast-food shops, gas stations and other sites frequented by people. Within legitimate methodologies, the business may also be posted to social network audiences in the internet. Better still, a simple website may be constructed for the business entity as a communication forum and a supplemental advertising medium. The entrepreneurial undertaking thus officially starts. For purposes of this presentation, the interior design services outfit will operate as a single proprietorship with the given business name BEST IN DESIGN or BID for short. Executive Summary The office of the proponent will be based at home. There will therefore be no rental expenses. A secretary/receptionist, a design assistant and a utility employee/driver are the only personnel to be hired with the following salaries, thus - Secretary/receptionist - £2,000 per month, Design assistant - £1,800 per month, and Utility employee/driver - £1,800 per month. Total projected salaries per month for the first year therefore total £5,600. Aside from salaries and wages , other fixed costs projected to be incurred on a monthly basis for the first or initial year will include office supplies, £300, office repairs and maintenance, £500, car repairs and maintenance, £800, advertisement, £500, transportation and travel, £800, hospital and medical benefits, £800, accounting and legal fees, £800, light and water, £800, telephone and internet services, £300, insurance premiums, £500, fuel and oil, £1,000, and miscellaneous, £1,000. Purchases for materials and external services for works contracted out to third parties are variable costs which directly bear to gross income. For purposes of projection, materials costs are pegged at 40% of gross service fees while external services, the only direct labour costs, are estimated to be 15% of the said gross earnings or service fees. For the properties and tools that the venture will need for its operations, the most important acquisitions will be a personal computer and printer, tools, office tables and chairs, telephone and internet access, and other petty office needs. Office equipment, furniture and fixture will be depreciated straight-line for two years. One asset item of great necessity for the business is a car for mobility. A brand new unit may not be opted for the first initial year in order to set a prudent course in spending at the start. A second-hand automobile will do. Albeit prices of used or pre-owned cars have risen in recent months, one for £15,000 may still be available.2 It may conservatively be depreciated straight line in two years at £7,500 per year or £625 per month. With all the components and ingredients planned for the business as set forth and outlined above, the next move will be to see how needed funds are sourced in order for the venture to spin-off in good timing. Set-up costs mainly for permits, licenses and registration fees will be around £6,000 and will be fully amortized during the first year. Capital expenditure, together with estimated figures, will include the purchase of (a) a second-hand car, £15,000, (b) office equipment, furniture and fixture, £12,000 and (c) renovation of house structures to accommodate the intended office space and an apt storage area, £12,000 which will be depreciated for two years. All these pre-operating and organization or capital expenditures total £45,000. Sufficient amount may also be needed as a reserved fund for contingencies at, say, £10,000. The grand total will therefore be £55,000. The most likely provider of the capital fund is a bank loan with interest placed at 3% per annum. These assumptions will mean that the proponent does not contribute cash as initial personal equity and will instead allow the use of the home space for the business. Applying the separate entity accounting principle, the space contribution of the proponent is reasonably fixed at $30,000 which will be depreciated based on the allocated value in a period of five years using the straight-line method.3 That will mean a depreciation cost of £6,000 per year or £500 per month. For the revenues, the first three incipient clients are projected bring earnings to the enterprise at £30,000 gross each, or a total of £90,000, and to be realized in the first month of operations. For the succeeding income generating initiatives, the proponent self-imposes a monthly quota of £50,000 gross earnings per month commencing in the second month. The beginning balances in the general ledger for balance sheet accounts will therefore have the following data: Debit Credit Cash £10,000 Building space 30,000 Car 15,000 Office equipment, furniture and fixture 12,000 Office and storage space improvement 12,000 Organizational cost 6,000 Loan payable – bank £55,000 Capital, proponent 30,000 ________ _______ Totals £85,000 £85,000 vvvvvvv vvvvvvv Description of the Business Despite the small size of the intended business, it is important to implement an organizational chart and a handbook for duties and responsibilities. The secretary/receptionist, preferably a female as is presumed here, will be assigned to have charge over the upkeep of the office and its day-to-day affairs and activities. For credentials, the candidate will have at least a two-year college education and an office proficiency qualification. Experience may not be very necessary but a one-year previous stint in a similar position may be good enough. For her detailed duties and responsibilities, the secretary/receptionist will make all calls to clients, suppliers, outside contractors and all other parties having any business or transaction with the office. She will likewise answer the phone. All official receipts given by payees, vouchers, invoices and other supporting documents evidencing payments made by BID will be filed by the secretary/receptionist. At the end of the day, the data from these papers will be encoded by her in a personal computer accounting software, preferably Quick-books or Peachtree. Each item of payment will be issued a corresponding duly registered BID payment voucher. BID payment vouchers must be pre-numbered as accountable forms and must be issued in numerical order. Likewise, all cash or checks for fees, deposits and other incoming payments will be received either by the proponent for collections made in the course of field visits and out-of-office dealings, or the secretary/receptionist for those received in the office. Each collection will be issued a duly registered BID official receipt. Like the BID payment vouchers, BID official receipts must be pre-numbered and must be issued in numerical order. Also at day’s end, cash and check collections will be entered in the proper accounting software register. Incoming payments made via on-line bank deposits or via credit card facilities shall be recorded in the same manner. The secretary/receptionist will receive all visitors. Considering this welcome function, her office table shall be strategically situated near the entrance door. While it is mentioned that the secretary/receptionist enters into the accounting software payments and collections at the end of the day, she may do so in the intervening hours when she is free in order to avoid the accumulation of data to be encoded. The secretary/receptionist will do all the typing for correspondence and written communications. She will also be the one to coordinate with the accountant and the lawyer who are engaged on retainer basis. As a matter of course and circumstance, the secretary/receptionist makes coffee for guests and visitors if and when advisable and proper. Generally, the design assistant will be the complete support arm of the proponent. As much as possible, a male applicant will be considered for the position taking into account that there are heavy things involved in the relevant assignments. When and where needed, he may fill in the driving functions. For qualifications, it may be sufficient that he has reached second level in college and must have at least a vocational education in home maintenance. The utility employee/driver is the regular chauffeur for the entity. Aside from that function, he does any other work not handled by the secretary/receptionist or by the design assistant. Likewise, the designated employee has to be a male as much as possible considering that his duties normally include the tough side of the business like carrying materials, storing and checking physical inventories and doing the more physical aspects of the designing process. The proponent will naturally and logically be the chief operating and executive officer of the entity. With the back-up of the delineated personnel, it will be a group of four. At the helm is the proponent who will actually be working round-the-clock particularly because the base station is situated at home and who will be doing the following, among others, thus - (a) campaign for clients or customers, advertise the business through legitimate and effective advertising including website social networking, design sales or marketing strategies and other actions toward the building up of the clientele and the earning of revenues; (b) see that costs and expenses are within budgeted figures and check if there are variances in order that remedial measures or other appropriate actions are taken in a timely fashion; (c) conceptualize innovative, more attractive and more saleable designs to please the customers; (d) work hands-on in the actual implementation of the interior design jobs or closely supervise the design assistant and the utility personnel/driver in the execution of design works together with contracted outside parties such as the plumbers, masons, carpenters and other participants; (e) discuss from time to time with the secretary/receptionist all relevant data and information on sales, cash collections, cash disbursements in order to monitor that established internal control procedures are religiously followed; and (f) do such other things as will redound to the benefit of the venture in the long-term. Budget, Finance and Projected Profits Projections for earnings, costs and expenses for the first month of the initial year are shown below. Income from fees £90,000 Less: Direct variable costs Materials - at 40% of gross income £36,000 Labor - at 15% of gross income 13.500 _______ Total direct variable costs 49,500 _______ Gross margin 40,500 Less: Administrative costs and expenses Salaries 5,600 Management fee 2,000 Fuel and oil 1,000 Repairs and maintenance – car 800 Light and water 800 Hospital and medical benefits 800 Transportation and travel 800 Accounting and legal fees 800 Office repairs and maintenance 500 Advertisement 500 Insurance premiums 500 Office supplies 300 Telephone and internet services 300 Miscellaneous expenses 1,000 ______ Total administrative costs and expenses 15,700 _______ Net income on operations before depreciation and amortization costs 24,800 Depreciation - car 625 Depreciation - office equipment, furniture and fixture 500 Depreciation - office and storage space improvement 500 Amortization - organizational cost 500 _______ Total depreciation and amortization costs 2,125 _______ Net income after depreciation and amortization costs 22,675 Less: Interest on loan 138 _______ Net income before provision for income tax 22,537 Less: Provision for income tax - at 30% of net income before provision for income tax 6,761 _______ Net income for the month £15,776 vvvvvvvv Monthly projections for earnings, costs and expenses for the second month to the twelfth month of the first year are presented hereunder. Income from fees £50,000 Less: Direct variable costs Materials - at 40% of gross income £20,000 Labor - at 15% of gross income 7.500 _______ Total direct variable costs 27,500 _______ Gross margin 22,500 Less: Administrative costs and expenses Salaries 5,600 Management fee 2,000 Fuel and oil 1,000 Repairs and maintenance – car 800 Light and water 800 Hospital and medical benefits 800 Transportation and travel 800 Accounting and legal fees 800 Office repairs and maintenance 500 Advertisement 500 Insurance premiums 500 Office supplies 300 Telephone and internet services 300 Miscellaneous expenses 1,000 ______ Total administrative costs and expenses 15,700 _______ Net income on operations before depreciation and amortization costs 6,800 Depreciation - car 625 Depreciation - office equipment, furniture and fixture 500 Depreciation - office and storage space improvement 500 Amortization - organizational cost 500 _______ Total depreciation and amortization costs 2,125 _______ Net income after depreciation and amortization costs 4,675 Less: Interest on loan 138 _______ Net income before provision for income tax 4,537 Less: Provision for income tax - at 30% of net income before provision for income tax 1,362 _______ Net income for the month £3,175 vvvvvvvv With the foregoing forecasts, the projected income for the whole of the first year is computed below. Net income for the first month £15,776 Net income for the remaining eleven months, or from the second month up to the twelfth month £3,175 per month multiplied by eleven months 34,925 _______ Total net income for the first year per projections £50,701 vvvvvvvv References BUSINESS ENTITY ACCOUNTING PRINCIPLE OR CONCEPT. College Accounting Coach. [internet] Accessed March 6, 2010. Available at: < http://basiccollegeaccounting.com/business-entity-accounting-concept/> Gould, Debra. Recession Proof Your Interior Design or Decorating Business. Buzzle.com. [internet] Accessed March 6, 2010. Available at: Scrappage scheme: second-hand car shortage causes prices to soar. Telegraph.co.uk. [internet] Accessed March 6, 2010. Available at: < http://www.telegraph.co.uk/motoring/news/6178246/Scrappage-scheme-second-hand-car-shortage-causes-prices-to-soar.html> Read More