Sweetex Beverage Company Limited Business - Example

Running header: starting a small business Student’s name: Instructor’s name: Subject code: Date of submission: Task 1 Proposed business name The business which is to be located on 400 Meridian street in the northern district of Alabama will be known as Sweetex Beverage Company limited. The products As the business name suggests, my business will deal with production and selling of fruit juices to be known as Sweetex beverage. The juice will be made by mixing various kinds of fruit juices to give a unique taste not found in other fruit juices commonly found in the market. Various additives will then be added to produce different brands of Sweetex beverage. Three brands of Sweetex beverage will be manufactured i.e. Sweetex super, Sweetex herbal and Sweetex dietary. Sweetex super will be manufactured mainly for children. Sweetex herbal will be a modification of Sweetex super and will target adults who would want to improve their health since it will contain herbal medicine extracts. On the other hand, Sweetex dietary will be a low sugar brand specially made for people with Diabetes but who would still want to take fruit juice without having any side effects. Form of ownership Sweetex Beverage will be a private company comprising of seven shareholders. I deem this form of ownership as being appropriate owing to the fact that a big amount of capital is required for such a business. The shareholders will provide much of the capital needed while the rest will be sourced elsewhere. The business will also have a limited liability and the ownership is not likely to be diluted since each shareholder will contribute a fixed amount of capital. Furthermore, the company will be able to attract quality management from the seven shareholders some of whom will also double as the directors. Short term and long-term aim of the business The short term aim of the business is to create employment for the seven shareholders by offering its products in the entire Northern district of Alabama. It is hoped that in the long run, the business will be able to expand to the entire Alabama and eventually to the rest of the US. This will also contribute to more jobs for the many unemployed youths. It is also hoped that the company will eventually be one of the biggest in the entire industry. The attractiveness of the idea The fact that no other company has attempted to make fruit juice brands that combine many fruits hence giving the juice a unique taste makes the idea attractive. Furthermore, no other company makes herbal juice or juice specially made for diabetic individuals. There is also a big market available for sweetex beverage products. Profitability The business has the potential to be profitable since there are very many people who take fruit juices hence sales are likely to be high. Furthermore, all the ingredients are locally available at very low costs while the production process is not so much labor intensive. This will lead to reduction in production costs and since we expect the sales to be high, the profit is also likely to be high. Competition Currently, there are four other companies dealing with similar products in the district. The companies are well established with advanced technology. Introducing our products into the market is therefore likely to meet with stiff competition. However, since our products are unique and given the kind of marketing strategies we will employ, we expect to gain a substantial market percentage within a short time. Market trend According to my research, the beverage industry in the district is growing at a very high rate. In fact, the industry has grown with about 10 million dollars in the last ten years. The level of consumption of fruit juices is also on the increase. This provides a very good opportunity for one to invest in the industry. Why I would like to be self employed I would like to be self employed due to the limited job opportunities and the few jobs available do not pay well. Furthermore, I would like to have freedom in running my own affairs. The desire to achieve is another factor that makes me want to be self employed. Balancing business and personal life This will call for strict self discipline. I will make a schedule detailing how I will allocate time between business and personal life and strictly follow the schedule. Task 2 Methods used in Target market identification Market research Market research involves using various techniques such as surveys in collecting, analyzing and, making decision based on the data obtained about the potential consumers. The data obtained will be either quantitative such as the ages of the consumers or qualitative such as their level of education. Another method of market research will include the data that will be obtained from the trade department and the municipal about the market Analysis of the level of competition This will involve analyzing the number of competitors in the market and the relative strength of each competitor. This will aid in making a decision on the marketing strategy that will be used by the business. The analysis will also help in identifying their weaknesses and any areas they have neglected and hence take advantage of them. Analysis of economic outlook This will involve analyzing the economic ability of the consumers. The analysis will help in pricing our products and deciding on the specific niche in which to sell our products. The company’s financial ability will also be analyzed vis-à-vis that of the competitors in order to decide the marketing strategies to undertake and the niche to be covered by our products. Age The age of the consumer greatly determines their taste for particular products. An analysis of their ages will therefore help in determining what age groups will form our target market. Geography This involves choosing a specific geographical location within which the business will operate. Methods of identifying target market Geography This method has been chosen owing to the fact that the business is new and hence it might not be able to cover the entire country initially. This is because of financial constraints and the fact that only few people are aware that the products exist. Income Various groups of consumers have different levels of income and hence their ability to purchase our products also differs. We would therefore want to target consumers who have high incomes or financial ability to purchase our products. Age This criterion has been chosen since different age groups have different tastes and preferences. We therefore aim at selecting an age group which is more likely to have taste for our products to be our target market. Identification of target market Geography Our business activities will mainly be based in the entire Northern district of Alabama. This is because it is the parent district for the company. This will imply fewer costs in terms of transport to the market and also the marketing effort will be concentrated in one area and hence more effective bearing in mind the financial constraints. Income We will mainly target school and college students since although they work when they are not in school, they do not have any financial responsibilities unlike their parents. Therefore, this group might have extra money to buy products such as sweetex beverage. Age The business will mainly target young people as a market for its products. Generally, young people like testing new tastes since they are innovative in nature and hence they form the best target market for a new product such as ours. Task 3 Skills audit Skill Requirement to run my business successfully My strength and previous experience My weakness/lack of experience and or skills gap Technical/ operation skill relating to my product or service -project management skills -machine operation skills -systems management skills -excellent knowledge in machines operations- two years experience -some experience in systems management especially in accounting -No practical experience in project management. Management skills -leadership skills -Supervisory skills -team building skills -communication skills -have experience in leadership and supervisory skills having worked in a managerial level for two years No experience on team building skills Skills related to monitoring business performance -Data collection skills -analytical skills -marketing channel analysis skills Experienced in data collection, analysis and data manipulation. Considerable experience in market performance monitoring and analysis. Not a qualified management accountant. Personal selling skills -communication and interpersonal skills -customer prospecting and qualifying skills -handling customer objection skills Have excellent communication and interpersonal skills. -no prior experience in personal selling. Administrative skills -Communication skills -Book keeping skills -basic knowledge of employment law -interpersonal relations Excellent communication and interpersonal and book keeping skills Scanty knowledge of employment law. Remedy for the above weaknesses Skill Remedy Financial implication Time Project management Attend a training course on part time basis. To be charged a fee of 1,000 dollars One and a half month Team building skills Attend a seminar organized for team building skills training 500 dollars 3 days Lack of knowledge on management accounting Hire a management accountant. To be paid a 3,500 dollars salary per month To be hired within the first three months of operation Lack of experience on personal selling Organize training day for marketing staff on personal selling Estimated to cost 2,000 dollars. 2 days Scanty knowledge of employment law Acquaint myself with the provisions of the law Not expected to cost anything as the law is available in the internet 2 weeks Task 4 Draft business plan Legal status Sweetex Beverage Company limited will be a privately owned company with seven shareholders. Legal obligations Before the business can start operating, it will be required to obtain a trading license from the department of commerce. On its registration, its only legal obligation will be to pay corporations’ tax to the Government. However, other obligations may include payment of principal plus interest on any money borrowed from outsiders. The business will have a limited legal liability based on the number of shares held by the members. Budget The following will be my personal survival budget for the first six month that the business will be operational Personal Budget July 1 2010 to December 31 2010 Cash inflows $ $ Cash at hand 3,200 Monthly allowance 15,000 Total money available 18,200 Less: Cash outflows House rent 4,200 Food and clothing 5,000 Transport 3,000 Entertainment 3,000 Miscellaneous expenses 4,000 19,200 Deficit (1,000) Business costs to be incurred $ Purchase of machinery 55,000 Rent of premises 18000 Staff salaries 50,000 Training and development 7,000 Supplies 12,000 Running costs 15,000 Total costs 157,000 Pricing of the products The three brands of Sweetex beverage will be parked in one liter bottles and will be sold at a price of 7 dollars per liter. Sources of finance that the business start up will require Share holders funds $100,000 Municipal funding $30,000 Loan from bank $50,000 Issuance of debentures $20,000 Total expected funding $20,0000 The forecasted cash flow during the first half year Sweetex Beverage Company limited Cash flow statement For the six months ending 31st December 2010. Net income $120,000 Taxes payable (23,000) Other operating activities (30,000) Net cash flow from operating activities 67,000 Cash flow from investing activities Capital expenditures (170,000) Other cash flows from investing activities (10,000) Net cash flow from investing activities (180,000) Cash flow from financing activities Sale of stock 100,000 Debt acquired 100,000 Other cash flow from financing activities (40,000) Net cash flow from financing activities 160,000 Net cash flows (cash and cash equivalents) 47,000 It is assumed that the company will be able to obtain the various kinds of funding stated. It is also assumed that the company will also be able to make the amounts of sales required to generate the amount of income stated. If we can achieve this, the business will be in the right track. Sweetex Beverage Company limited Profit and loss forecast For the six months ending 31st Dec 2010 Forecasted sales $280,000 Forecasted cot of sales 100,000 Forecasted gross profit 180,000 Forecasted expenses 60,000 Forecasted net income 120,000 Forecasted taxation 23,000 Forecasted profit after taxation 97,000 Break even point Break even point in units (BEP) = TFC/ (SUP-VCUP) Total fixed costs (TFC) are estimated to be $120000. Selling price per unit is expected to be $ 7 while variable cost per unit is expected to be $ 4. Therefore, the break even point is expected to be at 75000/ (7-4) = 25000 units. Assuming that 40000 units will be sold during the six moths, this will be towards the end of the fourth month. It is believed that the company will break even at this date as we anticipate the sales to be high and the costs to remain as anticipated. The following accounting records will need to be kept. 1. The balance sheet – this will show the financial status of the company at any particular time 2. Income statement- this will show the results of operations at the end of a particular period. I.e. profit or loss 3. Cash flow statement – this will show how cash will be obtained and used by the business. How to set up the business The business name has been identified as Sweetex Beverage Company limited and reserved with the company’s registry. The role of directors and composition of the company has also been decided. The company’s articles of association, incorporation agreement, incorporation application and notice of articles have also been prepared. After the documents have been inspected and approved, the company will obtain a trading license ready to start operations. Advantages of the business form The advantage of the business being a private company is its having a limited liability and also its ownership is not likely to be diluted as shares are not issued to the public. Furthermore, our records will remain secret as they are not required to be revealed to the public. The only disadvantage of the company is payment of corporate tax at higher rate than partnership businesses. In order to ensure that all legal obligations are met, the business will work hand in hand with the company registry. Furthermore, the company will employ lawyers who will advice us on all legal matters. Implication of the survival budget requirements The survival budget requirements imply that the profitability of the business will be reduced by allowances given monthly. The costs to be faced by the business will include costs of acquiring machinery, premises, offices, vehicles, payment of salaries and directors allowances and other miscelenious expenses. However, all the expenses are necessary for the proper running of the company although they reduce the company’s profitability. Pricing The pricing strategy used in setting a unit selling price at $7 per unit which is lower than what other companies charge is penetration pricing strategy. The strategy has been used so as to enable the company gain a substantial market share after which it will be increased to what other companies charge. Sources of finance The company has chosen to use a combination of equity and debt as sources of finance. This is because the owner’s equity was deemed not adequate to meet all the financing required to set up the company. This necessitated the use of debt. Task 5 Basic details of the business Business name The business will be a private company known as Sweetex Beverage Company limited. Products The business will deal with production of three brands of fruit juice known as sweetex super, sweetex herbal and sweetex dietary Short term and long-term aims The short term aim of the business is to create employment for the seven shareholders by offering its products in the entire Northern district of Alabama. It is hoped that in the long run, the business will be able to expand to the entire Alabama and eventually to the rest of the US. This will also contribute to more jobs for the many unemployed youths. It is also hoped that the company will eventually be one of the biggest in the entire industry. Customers The business will initially operate in the northern district of Alabama and will target the young people mainly students. This is supported by market research which shows that consumption of fruit juice among the young is in the increase. The industry has developed by over 10 million dollars in the last ten years. Competitors The business faces four main competitors who are already established with advanced technology. The competitors pose the danger of driving us out of the trade incase we fail to be aggressive enough. Skills I possess the relevant managerial, administrative and marketing skills necessary for proper running of the business. Any skills deficit will be enhanced through training. Pricing The pricing strategy to be used is penetration pricing where we will charge lower prices than our competitors so as to gain a substantial market share. Resources requirement The following resources will be required Machinery $55,000 Premises 18,000 Human resources 50,000 Supplies 12,000 Office furniture 15,000 Total costs 150,000 Cash flow statement for the first six months Net income $120,000 Taxes payable (23,000) Other operating activities (30,000) Net cash flow from operating activities 67,000 Cash flow from investing activities Capital expenditures (170,000) Other cash flows from investing activities (10,000) Net cash flow from investing activities (180,000) Cash flow from financing activities Sale of stock 100,000 Debt acquired 100,000 Other cash flow from financing activities (40,000) Net cash flow from financing activities 160,000 Net cash flows (cash and cash equivalents) 47,000 It is assumed that the company will be able to obtain the various kinds of funding stated. It is also assumed that the company will also be able to make the amounts of sales required to generate the amount of income stated. If this is accomplished, the business will be in the right track. Profitability Profit and loss forecast For the six months ending 31st Dec 2010 Forecasted sales $280,000 Forecasted cot of sales 100,000 Forecasted gross profit 180,000 Forecasted expenses 60,000 Forecasted net income 120,000 Forecasted taxation 23,000 Forecasted profit after taxation 97,000 Break even point Break even point in units (BEP) = TFC/ (SUP-VCUP) Total fixed costs (TFC) are estimated to be $120000. Selling price per unit is expected to be $ 7 while variable cost per unit is expected to be $ 4. Therefore, the break even point is expected to be at 75,000/ (7-4) = 25,000 units. Assuming that 40,000 units will be sold during the six moths, we will break even towards the end of the fourth month. It is believed that the company will break even at this date as we anticipate the sales to be high and the costs to remain as anticipated. Work cited Wright, John. Starting a small business. London: Prentice House, 2009. 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