Nature of Entrepreneurship - Wheelies - Example

NATURE OF ENTREPRENEURSHIP of Table of Contents Table of Contents 2 Business Introduction: 4 Organisational Structure 4 Business Objectives 4 Key Partners 5 Key Activities 5 Key Resources 6 Value Propositions 6 Customer Relationships 7 Channels 7 Cost structures 8 Revenue Streams 10 Conclusion 13 References 14 Executive Summary The business plan being developed is functional in the transpiration and logistics industry. The company has been named as Wheelies and deals in rental car services. Considering the markets structure of the rental car industry, some unique steps have been taken for business development such as selection of hybrid model cars for service delivery, low rental charges and a yearly membership plan for the customers. The company aims to increase their net income by 60% by the end of fifth year and also increase their employee base to 20 by the end of third year. Wheelies have selected the mass market for catering their services and will have focused on meeting the internal as well as external requirements of business as well as its customers. The business ratios have also supported the planning and management plans of the business and thus can be considered as an effective initiative for Wheelies. Business Introduction: The business selected for the report is a service organisation that deals in leasing cars and providing them on rent in an hourly basis. The location of the business is selected as Halifax, Canada. The business model will be based on one of the leading car rental service providers of Europe named Zipcar (Zipcar, 2014). The business plan will encompass the financial, managerial and strategic planning processes related with the system of operations. The objectives of the firm will reflect the purpose and aim of the business. The business has been named as Wheelies. The following section of the report explains other business requirements of Wheelies. Organisational Structure The structure of Wheelies during the initial stages of business will be a simple flat structure considering the requirement of aligning the activities within the allocated capital and budget. All the employees including the entrepreneur will be salaried and the profit earned will be used for business development (MacMillan & Venkataraman, 2009). The entrepreneur will also act as the manager of the company and hence will be responsible for business growth and development. Total number of employees to be recruited during the initial year will be 8 out of which two will be customer representatives, two will be car maintenance and the remaining four will be drivers. All the employees will report directly to the manager of Wheelies. Business Objectives The business objectives have been framed mainly by considering the financial and operational requirement of Wheelies. The first objective is to increase the customers of the company and the subsequent net income by a minimum of 60% at the end of 5 years. This objective will focus mainly on increase of sales and customer service. The second objective is expansion of business by enhancing the employee base to a minimum of 20 employees by the end of 3rd year. Key Partners The primary partners of Wheelies will be the suppliers of cars which have been selected as Toyota. As the business concept has focused on using hybrid cars for their service structure, the selection of Toyota is appropriate. Apart from Toyota, other partners include suppliers of car maintenance equipments such as car washing. Wheelies is also trying to develop some partnerships with the local gas stations so that they can reduce the cost of fuel and also ensure a hassle free service to their customers (Barney, 2009). Considering their operational style and business structure, Wheelies will also create business relations with insurance firms for reducing risks and uncertainties. Medical, theft and fire insurance will be the initial insurance requirements of the company. Key Activities The key activities of Wheelies, in context of business development will focus on timely delivery of services. The value addition in the service quality will mainly rely on expert level driving and reduced lead time. There should be clear instructions to the drivers and they should also know the routes of the operational zones in order to provide fast and efficient service (Longenecker, 2008). The service distribution will be done primarily by Wheelies and hence they will select some likely spots for parking their vehicles in a ready to serve manner. The customer representatives will be responsible for receiving orders and also collecting the details or any special requirements of the customers. The main source of revenue for Wheelies during the initial period of operation will be car rentals. Key Resources The resources of a business house can be segmented into two categories namely human resource and material resource (Germain, Claycomb & Droge, 2008). The key material resources for Wheelies, in accordance to their service structure will be the leased cars. Apart from these, fuel storage, maintenance equipments, administrative assets such as computers, internet and most importantly the office floor. The office or headquarters of Wheelies will also serve as a physical evidence of its existence to its customers. Apart from this, the logo of the company and the brand name will serve as an intellectual property of Wheelies. The financial resources of the company will mainly constitute the capital investment and other sources of finance used for accumulation of initial capital (Lennon, 2007). Value Propositions The value proposition of Wheelies will mainly focus on providing services to the customers in lower prices in comparison to the market standard. The market of car rental is mainly concentrated on renting charges that differ on the basis of duration of rent and the type of cars being rented (Rhyne, 2009). However, Wheelies are providing services with the motive of enhancing their customer base and hence the rental charges will be low but there will be a yearly membership fees. The membership fees will also be the unique aspect of the value preparation as the members will be provided special packages such as discounts, extra rides and gifts on occasions. The service structure will be simple; the order instructions that will be forwarded by the customer representatives have to be completed by the drivers. The requests of the customers will be the foremost priority for the organisation. Each car will have proper safety equipments such as fire extinguisher, air bags, seat belts and first aid. There will also be a GPS device and the drivers will be properly trained to use all of these equipments if needed. Customer Relationships The primary objective of Wheelies is to develop a long-term and sustainable relationship with their customers so that they can enhance their brand equity and service quality. The customer management process will be mainly handled by the service executives. It will be their responsibility to gather the order details as well as the customer feedback after the service has been delivered. The customers who enrol for the yearly membership will receive a discounted price on their orders and will also be probated with gifts during special occasions (Barringer, 2010). As the business progresses, Wheelies has planned to launch a Wheelies App for smart phone users which will enable the customers to order via application without calling. The App will also include functions such as tracking the position of their vehicles and the expected time required for service delivery. Based on the growth of the business, Wheelies is also planning to enter the logistics market for diversification of their profile and creating a larger consumer offering. Channels The channels reflect the means and systems utilised by a firm to reach their target market place. The selection of channels is mainly associated with the type of services being delivered by a company (Rhyne, 2009). In case of developing the mass market for the service structure, Wheelies, the company will follow the traditional means of promoting themselves and also design their stores accordingly. However, before deciding on the channels to be used, the market segments to be operated should be identified. Wheelies will focus on the medium income group customers of Halifax for leveraging their services. Thus, they will focus self promotion with the help of Kiosks and leaflet ads initially. Apart from this, creating partnerships with gas stations and other car services for promoting their services will be the fundamental channel of Wheelies. Cost structures Table 1: Estimated Income Statement of Wheelies Performa Income Statement Amount ($) Sales $ 5,67,000.00 Cost of Goods sold $ 3,05,000.00 Gross profit $ 2,62,000.00     Operating Expenses   Payroll $ 67,000.00 General and Administrative $ 5,000.00 Marketing Expenses $ 10,000.00 Professional Fees and License $ 4,000.00 Insurance Cost $ 3,000.00 Travel and Vehicle maintenance $ 10,000.00 Lease $ 12,000.00 Miscellaneous Cost $ 6,500.00 Payroll Taxes $ 6,700.00 Total Operating Cost $ 1,24,200.00     EBIT $ 1,37,800.00 Interest Expenses $ 7,000.00 Tax $ 7,068.00 Net Profit $ 1,23,732.00 (Source: Created by Author) The above given income statement of Wheelies reflects the estimated profit or loss that can be sustained by the company in the first year of their operations. It can be observed from the given income statement that the company can earn a healthy net profit margin after paying off their costs and expenses. The income statement has also considered the local taxes to be paid by the company to the governing authorities and has been duly deducted from the Earnings before Interest and Taxes. Table 2: Estimated Balance Sheet of Wheelies Assets Amount ($) Current Assets   Cash $ 65,000.00 Inventory $ 11,000.00 Total current asset $ 76,000.00     Fixed Assets   Expansion Costs $ 35,000.00 FF&E $ 6,470.00 Cars $ 40,000.00 Less: Accumulated depreciation of FF&E $ -647.00 Less: Accumulated depreciation of Cars $ -4,800.00 Total Fixed Assets $ 76,023.00 Total asset $ 1,52,023.00 Liabilities and equity Amount ($) Current liabilities   Accounts Payable $ 33,000.00     Total current Liabilities $ 33,000.00     Long term Liabilities   Lease $ 33,000.00 Bank loan $ 30,000.00 Total liabilities $ 96,000.00     Equity capital $ 56,023.00     Total liabilities and equity $ 1,52,023.00 (Source: Created by Author) The balance sheet of Wheelies has been drawn from the income statement and by evlauting the status of the assets and liabilities of the company. The balance sheet also describes the capital structure of Wheelies as the equity capital is $56023 and the borrowed capital is $96000. Depreciation charges were not previously included in the profit and loss statement and hence it has been treated under the assets segment in the form of accumulated depreciation @ 10% per year on a straight line method. Revenue Streams Current Ratio: Current asset 76000 Current liabilities 33000 Current ratio 2.30 Current Ratio highlights the ability of the business house to pay their short-term obligations and reflects their working capital management (Lasher, 2010). As it can be noticed that the asset base of Wheelies is higher than their liabilities and the resultant current ratio is 2.30:1. Debt to Equity Ratio: Debt 63000 Equity 56023 Debt equity ratio 1.12 The debt to equity ratio of Wheelies has been calculated as 1.12:1 which shows that the company has almost developed a balance between the debt and equity capital. The debt is higher than the initial equity but the gap is limited which provides the opportunity for increasing the equity capital in the following years. Net Profit Margin: Net Sales $ 5,67,000.00 Net profit $ 1,23,732.00 Net profit margin 0.22 The net profit margin of Wheelies is .22:1 which shows that the company has managed its expenses well and will be successful in deriving profits in the first year from their overall sales. Return on Capital Employed EBIT $ 1,37,800.00 Capital employed $ 1,19,023.00 Return on capital employed 1.16 The return on capital employed for Wheelies is quite high which can also be a motivating factor for the business entrepreneur. The ratio for return on capital employed is 1.16:1. Breakeven Analysis The following table reflects the calculation of breakeven point for Wheelies: Table 3: Sales Volume Analysis Units sold per period 0 30 50 70 90 110 130 150 170 190 Sales price per unit $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 $1,225 Fixed cost per period $97,700 $97,700 $97,700 $97,700 $97,700 $97,700 $97,700 $97,700 $97,700 $97,700 Variable cost $0 $2,500 $5,000 $7,500 $10,000 $12,500 $15,000 $17,500 $20,000 $22,500 Total cost $97,700 $1,00,200 $1,02,700 $1,05,200 $1,07,700 $1,10,200 $1,12,700 $1,15,200 $1,17,700 $1,20,200 Total sales $0 $36,750 $61,250 $85,750 $1,10,250 $1,34,750 $1,59,250 $1,83,750 $2,08,250 $2,32,750 Net profit (loss) ($97,700) ($63,450) ($41,450) ($19,450) $2,550 $24,550 $46,550 $68,550 $90,550 $1,12,550 (Source: Created by Author) Breakeven Analysis The above graph shows that Wheelies can achieve the breakeven point in between their fourth and fifth month of operations. The fifth month will be the first profit generation for the company after nullifying the costs and expenses. Conclusion The business structure of Wheelies has been designed in a normal flat structure which enables the manager to focus on all the activities of the company. The company will begin with 8 employees initially and aims to employ 20 employees by the end of 3rd year. Meanwhile, the financial target of the company is to increase their net income by 60% by the end of 5years. The company will lease cars from Toyota and the nature of the vehicles will be hybrid. The service structure will be designed in three parts namely order collection, service development and service delivery. The value proposition of Wheelies will mainly focus on enhancing their service quality and also developing a steady quality benchmark for their services. The financial estimations and coagulations also have reflected a positive trend of growth for Wheelies and highlight a positive trend for business growth. References Barney, J. B. (2009). Strategic factor markets: Expectations, luck, and business strategy, Management Science, 32(1), 1231-1241 Barringer, B. (2010). Managing Your New Business Finances. (4th ed.). New Jersey: Person Education Germain, R., Claycomb, C.& Droge, C. (2008). Supply chain variability, organizational structure and performance: the moderating effect of demand unpredictability. Journal of operations management, 26, 557-570 Lasher, W. (2010). Practical Financial Management. (6th ed.). USA: Cengage Learning Lennon, D. G. (2007). Business Fitness: The Power to Succeed-Your Way - Page 103. (2nd ed.). Oxford: Butterworth Heinemann. Longenecker, J. G. (2008). Small Business Management: Launching and Managing New Ventures - Page 141. (4th ed.). New York: Nova Publication. MacMillan, I. C., & Venkataraman, S. (2009). Defining and developing competence: A strategic process paradigm. Strategic Management Journal, 16, 251-275. Rhyne, L. C. (2009). The relationship of strategic planning to financial performance. Strategic Management Journal, 4, 319-337 Zipcar. (2014). Mission. Retrieved from: http://www.zipcar.co.uk/mission Read More