The Seedia Milk Start-Up Business Idea - Example

THE SEEDIA MILK START-UP BUSINESS IDEA Table of Contents 0 Introduction 3 1 Ownership Structure 3 1.2 Nature of Business 3 1.3 Entry into Business and Growth Strategy 3 1.4 Business Objectives 4 1.5 Target Customers and the market size 5 1.6 Summary and Justification of Idea 5 1.7 Financing the Business 6 1.8 importance of Funding a Start-Up 9 2.0 Competitor Analysis 11 2.1 Operations and Supply Chain Management 12 2.2 Financial Analysis 14 References 16 The Seedia Milk Start-up Business Idea 1.0 Introduction Business Name The name of the business shall be Seedia Milk Enterprise. The name is derived from the main ingredient that is used in producing the milk. The business address shall be as stated below: Seedia Milk Enterprise Box 2222-000132, Saudi Arabia. Tel: 0015648894 Email:seediamilk@hotmail.com Website: www.seedia.co.sa 1.1 Ownership Structure The enterprise will be a sole proprietorship form of business. A high level of independence, quick decision-making, enjoyment of all profits, access to family labour, relatively lesser capital requirements and few legal formalities are considerations that were given preference (Barrow, 2012). 1.2 Nature of Business The business to be established falls under the commercial industry. It will in particular fall under the industrial goods sector. It will begin operations in a medium scale basis with an unlimited opportunity for growth and expansion. The owner of the business shall be the general manager. There shall be three main departments under the operations of the company. These are the finance department, the production department and the sales and marketing department. A department officer shall head each of these departments. The procurement tasks shall be performed in the finance department (Blackwell, 2011). 1.3 Entry into Business and Growth Strategy The enterprise is expected to start operations in the month of December 2016. The required capital sourcing and the establishment of the milk plant have influenced the choice of time. Compliance with the regulatory requirements by the government of Saudi Arabia is expected to take six months from the date of registration. The award of the Certificate of Trading by the Trade Regulation Corporation in the kingdom of Saudi Arabia shall fully authorize the commencement of the operations (Butler, 2008). The business is expected to grow by expanding its market share by over 10% in the first year of operation. Holding all factors constant, the growth trend is expected to increase in a declining manner in the subsequent years. Due to this growth, there shall be recruited ten more employees into the enterprise every year within the first five years of operation. Challenges of growth such as the prevailing and potential competition in the industry shall be managed through proper competitive strategies. The primary aim of the business is not to produce the products it can best achieve but rather the products that meet the customers’ specifications. It anticipated that a broad customer base should be attracted by the new product offering in the market that shall focus on giving a new experience to the customer (Clarke, 2010). 1.4 Business Objectives The short-term goals (Feldman, 2013). The business aims to produce a quality product according to customer needs and specifications. The task shall be achieved through continuous market research and surveys to determine the actual customer needs and their experiences. Continuous improvement of the product shall be tailored toward the changing customer needs. To profitably produce the Seedia Milk at affordable prices for competitive advantage. Price competition and other competition strategies shall be used to curb the impact created by competitors. To build customer focus and establish long-term customer relationships. Satisfied customers will always prefer purchasing the Seedia milk given the good experience they will have with the quality and health-promoting product. Long-term goals (Hettinger and Dolan-Heitlinger, 2011). The business aims at increasing the market share by thirty percent within the first three years of operation. Growth strategies will be adopted to enhance expansion in order to serve a larger customer base. Value delivery to the customers will remain a primary business focus. 1.5 Target Customers and the market size According to the recent researches conducted to establish the number of vegans in the Kingdom of Saudi Arabia, there appears to be a ready market for the Seedia milk product. The key business customers are located at the northern part of the kingdom and thus the location of the business at the capital, which lies to the north. According to the recent researches, there are about ten million vegans living in Saudi Arabia out of the twenty-nine million people. Two-thirds of these vegans are scattered to the northern part. The target customers for the Seedia milk include single consumers, business groups, alliances, and other institutions. The potential customers are about five million in number, which forms fifty percent market coverage by the existing lactose-free milk producers. The available unexploited market size, therefore, comprises five million people (Jury, 2012). 1.6 Summary and Justification of Idea The business idea of making and selling Seedia Milk The Seedia Milk Business Idea originates from the availability of a gap in the market coupled with the creativity and innovation in making the product. Following the strong cultural orientation of the people in the Kingdom of Saudi Arabia against animal products, creates a chance to establish a business that meets the specific needs of these people. Vegans dominate the Kingdom of Saudi Arabia. Given that these people do not consume animal products such as meat and milk, the need for products that would substitute dairy milk, meat and other animal products presents a real business thought (Maynard and Warren, 2014). The Seedia Milk product description The business idea described herein seeks to establish a milk plant. The milk produced shall be branded the Seedia Milk. The product shall be tailored to meet the needs of vegans in the Kingdom of Saudi Arabia. People in this region recent dairy milk and other related animal products due to the belief; that dairy milk causes prostate cancer. Many people here are lactose intolerant. It is also believed that dairy milk with its saturation of fat can lead to heart diseases. Seedia Milk made from the Flaxseed and rice shall comprise minerals and vitamins necessary for the human body. The product shall aim at serving the needs of the population in Saudi Arabia by perfectly substituting the purpose of dairy milk. The production processes would be tailored toward ensuring that Seedia Milk takes into account all health concerns raised by the potential customers in Saudi Arabia (Morris, 2008). 1.7 Financing the Business Potential sources of funding There are two primary sources of finances when starting a business. These are equity and debt. Equity investment involves owner-produced money while debt refers to the borrowed money. The choice of a particular means of funding a start-up is a function of many factors. As an entrepreneur, prudence is required when deciding between borrowing and investing owner generated funds in the business. Some people prefer using purely owner produced money; others rely solely on debt while others prudently combine these two sources of funding. Whatever the source of funding available to the entrepreneur, there are advantages and disadvantages associated with each funding method (Morris, 2008). Debt Financing Debt financing would involve borrowing funds from the credit institutions that provide both long-term and short-term loans to small business start-ups in Saudi Arabia. There are a number of credit institutions in the Kingdom of Saudi Arabia, from which to borrow the required capital for a business start-up. These include banks, the Saudi Industrial Development Fund, and other regional and international financial programs. Among the principal banks that offer attractive investment loans in Saudi Arabia are the National Commercial Bank, the Saudi Investment Bank, the Arab National Bank and the Saudi British Bank (Pakroo and Stewart, 2014). The choice of which lending institution to borrow from is determined by the rate of interest attracted by the loan and the repayment schedule for such loans. Short-term loans attract higher rates of interest and have short payment durations. These in most cases prove difficult for business start-ups due to the instability of cash flows during the early stages of business growth. Long-term loans attract lower rates of interest and are repaid over longer periods. However, they have a requirement for securities, which start-up entrepreneurs may not afford. Whether one would borrow from a particular bank or the short-term or extended loan depends on the terms and conditions of the loan (Reuvid, 2011). For purposes of establishing the Seedia Milk Plant, favourable and attractive loan terms should be critically considered against their long-term effects on the business performance. The Bank that offers the friendliest rates of interest and repayment periods should be preferred (Reuvid, 2012). Advantages and disadvantages of Debt (Rickman, 2012) Advantages Debt financing allows the entrepreneur to acquire assets critical for growing the business before they earn the necessary resources. Debt provides an aggressive growth strategy to the entrepreneur where favourable rates of interest are charged. Debt financing is often described as a cheap means of financing business since one would only require a commitment to acquire the loans. Compared to equity financing, debt is necessary since it does not relinquish any control of the business (Ries, 2011). Disadvantages of Debt Financing Any form of debt financing involves hidden costs. The repayment of interest and the principal can be burdensome where the business collapses. Failure to repay debt exposes one’s property to the risk of repossession by the bank. A portion of profits every financial period must be allocated for periodic debt repayment thus reducing the total disposable business income. The reduction in earnings limits the growth potential of the business (Smith, 2012). Equity Financing Equity financing depends on the availability of personal funds for use in establishing a new business venture. Equity financing is best suited for small and medium businesses that do not require a lot of capital for establishment. It is also suitably applied when establishing companies where the principle of pooling up of resources is applied to individual contributions (Ries, 2011). Advantages and Disadvantages of Equity Financing Advantages Equity is not repaid. There are no commitments required to be made. Investors in the case of companies collectively share the risks associated with business growth. The sole proprietor benefits from the greater portion of the profit that is available for re-investment in boosting business growth and diversification. Equity funded companies maintain a small debt-to-equity ratio that can enable them acquire loans in future if required (Rickman, 2012). Disadvantages Equity financing involves partial giving up ownership and some level of business-decision making authority. Profits are shared between the shareholders in the case of a company. Capital is hard to obtain for the individual investor. It requires that one must have adequate resources before they can venture into business. In debt, one must not necessarily have resources to venture into business (Reuvid, 2011). Other sources of financing a start-up business include the following: Money borrowed from family and friends- this source of funding is referred to as patient capital since the family members and friends lend and wait to be repaid when the business becomes productive (Pakroo and Stewart, 2014). Venture capital-where venture capitalists, take an equity position in the business by providing the required funds. Business Incubators-these provides support for new businesses at the various levels of growth to ensure that start-ups grow to achieve their goals. They lower the chances of the immature collapse of viable start-ups. Considering the many options of funding, the Seedia Milk Plant start-up business shall adopt a mix of both the equity and debt financing. Critically evaluating the assets required to establish the milk plant, it may not be possible to purely finance the start-up using owner generated funds. The acquisition of the required machines, building and the human capital would consume a reasonable amount of resources. The projections of the required capital to meet these needs and the compliance costs would require the employment of the owner generated funds and debt capital. The owner of Seedia Milk Plant would prefer independently building on the business idea compared to partnering or capital ventures. Borrowing from the bank would only require a demonstration that the idea is viable and realistic (Pakroo, P. and Stewart, M. (2014). 1.8 importance of Funding a Start-Up Importance of funding for a start-up Business It is more likely that a business without adequate funding sources would flounder under the weight of its own debts. Adequate funding is the engine and fuel on which a company runs (Morris, 2008). Funding is necessary since businesses mostly register lower profits at the early stages. These profits would keep increasing over time enhancing the business’ stability in financing its own operations. Enough funds for both the subsequent capital and recurrent expenditures need to be sourced and kept in place to ensure that a business does not collapse. It will require patience by the entrepreneur in attaining the long-term benefits that accrue from business stability and maturity. The amount of funding at the time of foundation majorly depends on the availability and ability of sources. Projections of the required funding, therefore, should involve not only the initial establishment costs but also the finances required to sustain business’ running through a variety of events (Maynard and Warren, 2014). 1.9 Real life Product Testing Testing the market with Seedia Milk A business can fail, even though; a viable business idea is pursued to establish it. The cause of this situation is the excess focus placed by producers of the product instead of the target customers. For Seedia Milk Plant to survive all the challenges of establishment and growth, emphasis and pride must be taken on the customer needs. A product that is designed to satisfy the actual customer needs has a longer life in the market. It is not the producer but the customer that should determine the branding, packaging, pricing and the entire value creating process of product making (Jury, 2012). A market research needs to be conducted in the Saudi Arabian markets to identify what the customers want. The study would enable the business to tailor its product to appeal to the particular needs of the target customers. Firstly, a pre-start market research should be conducted. The study aims at identifying who the customers are. A customer profile that properly defines target customers in terms of their income, buying behaviours, demographics and preferences should be established. This profile helps the entrepreneur to understand the customers he aims at serving (Hettinger and Dolan-Heitlinger, 2011). Secondly, it is important to establish what the customers think about the product you offer in the market. Honest feedback should be gathered from the prospective customers. A real life product testing is carried out here. The Seedia Milk product will target a mass-market appeal research. Adequate samples of the product should be given to the potential customers. The crucial purpose here is to collect information about the product according to the customers’ experience with it. Establish from the customer the price at which they would value the product or if they would pay the price that, you are asking for. A door-to-door market research can be used. Products can also be given to customers in highways and other important avenues. All the responses gathered from the test should be used to analyse how best the product can reach the target customers (Feldman, 2013). 2.0 Competitor Analysis Weighing Up the Competitors for Seedia Milk The available market in the Kingdom of Saudi Arabia shall be shared among the competitors based on their strengths, weaknesses, threats, opportunities and trend (Butler, 2008). The prevailing and potential competition should be analysed. Competitor analysis can begin with web-based searches, flicking through the pages of business Directories and even local papers and magazines. A detailed evaluation of competitors in the production of lactose free milk should be carried out. The risk of other people venturing into similar businesses in future should also be assessed. Competitor analysis can take the form indicated in the table below. Table 1.1: Competitor Analysis competitor strength weakness threats Trend Market share Seedia Milk Producers Quality product, qualified personnel, fair prices, deliver health Inadequate capital for growth and expansion, an idea not tested Barriers to entry and competition Start-up Not established Lactose-Free Milk producers Popular and established products Poor marketing strategies and product promotion New entrants into the market Increased market share and growth About 40% of the total market share Others Fair prices Poor quality of products New Entrants into the market Declining market share About 15% market share Competitor analysis would also require the entrepreneur walks around the selected market location and assess what it reveals about competition. Essential to establish are the prices they charge for the products and the terms they offer (Blackwell, 2011). 2.1 Operations and Supply Chain Management Supply Chain management The supply chain of Seedia Milk Enterprise would involve three intermediary groups in supplying the milk to the market. These actors would include the Distributors who would mainly avail the companys products to the assigned outlets and retail dealers. The business will also sell directly to large buying groups and alliances, which would in turn sell to the retailers and other outlet operators. The retailers would then deliver the product to the final customer for consumption purposes. The figure below illustrates the supply chain management of Seedia Milk Enterprise (Barrow, 2012). Figure 1.1: supply chain management A number of operations would require to be put in place before the final product can be produced. These involve the acquisition of the relevant raw materials and, in particular, the flaxseeds, rice and the mineral and vitamin components. This task shall be under the designation of the Finance Department headed by the finance officer. There would be required a Production Department to perform all the milk production functions. A production officer will head the department. The Sales and Marketing Department will ensure that the product is delivered to the market in good time and form. They will conduct all market related research for changing circumstances. A marketing officer will head the department. The enterprise will purpose to employ ten employees in each department and increase the number with the expansion of business. A General Manager shall perform the overall management role. The diagram below indicates the operations of the Seedia Milk enterprise (Butler, 2008). Figure 1.2: operations management 2.2 Financial Analysis Cash Flow Projections (Hettinger and Dolan-Heitlinger, 2011). The statement below represents a cash flow projection for Seedia Milk Enterprise for the first three years of operation. PARTICULARS 1ST YEAR($) 2ND YEAR($) 3RD YEAR($) TOTAL ($) Beginning cash balance(minimum) 10,000,000 10,000,000 10,000,000 30,000,000 Cash inflows(income) Accounts receivables collection 5,000,000 3,000,000 4,000,000 12,000,000 Loan proceeds 10,000,000 - - 10,000,000 Sales revenue 10,000.000 15,000,000 20,000,000 55,000,000 Other 2,000,000 - - 2,000,000 Total cash inflows 37,000,000 28,000,000 34,000,000 97,000,000 Cash outflows(expenses) ($) ($) ($) ($) Advertising 4,000,000 2,000,000 1,000,000 7,000,000 Distribution 3,000,000 3,000,000 4,000,000 10,000,000 Insurance 500,000 500,000 500,000 1,500,000 Interest 10,000 10,000 10,000 30,000 Purchases(inventory) 2,000,000 3,000,000 4,000,000 9,000,000 Office expenses 400,000 600,000 700,000 1,700,000 Salaries and wages 500,000 600,000 700,000 1,800,000 Taxes 3,000,000 4,000,000 5,000,000 12,000,000 Rent or lease rentals 300,000 300,000 300,000 900,000 Others 1,000,000 1,500,000 2,000,000 4,500,000 Subtotal 14,710,000 15,510,000 18,210,000 48,430,000 Other cash outflows: Capital purchases 20,000,000 10,000,000 3,000,000 33,000,000 Loan principal 3,000,000 3,000,000 3,000,000 9,000,000 Drawings - 2,000,000 3,000,000 5,000,000 subtotal 23,000,000 15,000,000 9,000,000 47,000,000 Total Cash Outflows 37,710,000 30,510,000 27,210,000 95,430,000 Closing Cash balance -710,000 -2,510,000 6,790,000 3,570,000 Interpretation of the cash flow projections The caption for cash inflows as presented in the cash flow statement represents all the funds expected to be received in the business from all sources for the three years of consideration. The projections for the cash outflows are funds expected to be used up during the period under review. Seedia Milk Enterprise has a total forecast of cash inflows of $97,000,000 for the first three years of operation. Total projected cash outflows amount to $95,430,000. There is, therefore, a reported net cash inflow during the three-year period of $3,570,000. The cash outflows in the first and second year exceed the inflows by 710,000 and 2,510,000 respectively. The implication here is that there are more funds invested into the business to support the start-up than they are generated. There is probably a lower rate of return on investment. Things appear to change during the third year of operation when a positive net cash inflow of $ 3,570,000 is reported. The indication is that the rate of return on investment is gaining momentum with business maturity. 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