Due Diligence NEWCO - Assignment Example

Due Diligence ‘NEWCO’ Student’s Name Institutional Affiliation Date Due Diligence ‘NEWCO’ Statement for Investment The technology and appropriateness of NEWCO is a potential and investable business idea in the current mobile phone era. The product is a solar powered mobile charger that is designed to charge up to six mobile phones at a go. The gadget has the ability to absorb sunlight and convert it to electrical energy which is then stored in its battery for charging the phone. The outside section of the solar gadget has six channels for connecting with the mobile phones during the charging process. This product is aimed at solving the problem that mobile phone users in the rural areas of sub-Saharan Africa face due to the lack of electricity. Kenya is specifically chosen for the assessment and implementation of the project. The current situation for the rural Kenyan dweller requires them to travel up to ten miles to access the nearest electrified area for charging their phones (NEWCO Business Plan, n. d). The business idea prompts an investment in the business rather than starting up as an entrepreneur. Investment into the business is a more reasonable considering the fact that the idea appears to be short-lived. The main reason for the establishment of NEWCO is distributing solar powered gadgets to rural Kenya is due to lack of electricity in these region (NEWCO Business Plan, n. d). The project can be rendered useless in the near future due to the current plan by the government to expand its rural electrification project. The project is set to cover nearly all the rural areas in the next 5 years. Electricity will, hence, be affordable and accessible to the rural Kenya dwellers. Having electricity in their houses indicates that there shall be no need for residents to seek NEWCO’s services in charging their mobile phones. With this regard, it is reasonable for an investor to venture into the project for a specified period after which she/he shall feel that the company will not be as potential as it is at the moment (Drucker, 2012). Strengths and Weaknesses of NEWCO Business Plan Strengths The business plan intends to source a strong team of individuals with sufficient management skills from China and U.K where the products will be manufactured and assessed before being shipped to Kenya. This will ensure that the powered solar chargers are of high quality, earning the company a high degree of recognition and reliability for the kiosk owners, who are the major customers. The proposed plan wants to ensure that the company manufactures bulky solar powered products. This will be an advantage for the company since it will enjoy economies of scale when operating against other competitors that may wish to venture in to the business. Production in large scale ensures that customers don’t lack the products whenever and wherever they need, hence, developing trust for the company. Apart from the production of the solar powered gadgets, the company has a plan to provide microfinance facilities to both large and small enterprises through its partnership with a microfinance firm. The strength for this step is from the fact that the main source of income for the company shall not only be from the sale of mobile solar powered chargers but also from the interests earned through loans. The feet and street strategy for direct sales persons for NEWCO will ensure a wider market penetration and increasing the sales. In addition, the sales persons always use language and more explanation about the use of the product in the most layman way to suit the local people’s level of understanding, therefore attracting more sales. The mobile solar powers for NEWCO have high energy utilization. The durability is calculated to last up to five years. This ability attracts more sales from kiosk vendors who may term the benefit of the gadgets as several times more than their buying cost. Weaknesses The plan has failed to establish intellectual property rights protection for NEWCO in Kenya. The effects of lack of intellectual rights shall be frequent clashes with the government over claims of counterfeit sales in the country. The products are manufactured in china. The distance of transporting the products to the rural Kenyan regions is very high. This in turn increases the overall cost of production of the products reducing the income for the company. The logistical processes and the systems are planned to take course from scratch. Going by this cause shall involve a lot of time and expenses before the operations of the company can finally kick off. The only source of capital as per the business plan is from the entrepreneur. Unless there is a further plan for capital investment from other business angles, the growth of the company will only be limited to the little capital. The Repair of NEWCO products is not possible locally. The customers count losses if guarantee services available for the company cannot meet some accidents or breakdowns involving the gadgets. The staff as well as the direct sales agents will have to undergo training on the uses and benefits of the products before they can enter the market. Proposal for Improving the Business Plan In order to purchase or invest in any company, assessment of risk factors is the first skill that capital ventures must have. Any prospective buyer of the NEWCO product must carefully carry out an investigation in order to gather all the relevant information about the company and its assets. The purpose of the assessment is to decide whether the intended venture can proceed or whether to withdraw from the investment. This is done through a well outlined due diligence checklist of the company and that critically assesses a company’s current potential profitability (Anderson and AL-Mubaraki, 2012). In considering NEWCO’s business plan could be improved to suit the real purpose of the venture by considering a number of elements. These are some of the elements of the business plan and how they can be improved to serve the main purpose of the investment. Financial information Any potential investor or buyer will definitely be interested in the financial potential of the respective company. The proposed company should include in its plan an audited financial statement for the last three years of operations, a schedule of receivable accounts, a schedule of payable accounts, a copy of its general ledger, contingent and indebtedness liability and a summary of fixed and variable expenses. Accounts payable are bills that are unpaid by the business whereas accounts receivable are all unpaid customer bills or any other money that is owed to the company by its clients. To determine the health of a company for investment, revenues are usually taken into account as the greatest determinants. The accounts receivable for NEWCO must be higher than the accounts payable which shows the ability of the company to maintain the flow of expenses at a lower level while keeping the revenue account high. The higher the accounts receivable are for the company, the greater the financial stability of the company at present and in the future (D'Angelo & Viner, 2014). The overall financial statements of NEWCO from the business plan indicates that the accounts receivable are more than the accounts payable which demonstrates its ability to pays debts and increase revenue. The documents also support the idea that the company is able to maintain its general expenses at a lower level while increasing its revenue. NEWCO can as well improve this financial position to increase further it revenues by cutting the costs of productions and training. These elements require readjustment in the plan so as to improve the company’s performance. Employees One important area that the plan has not taken into total consideration is the issue of employees. Employees are a company’s most important asset. Assessing, training and understanding of the needs of the employees are factors that should be addressed before the commencement of NEWCO mobile solar charger. The plan ought to include a list of both current and former employees and their salaries and bonuses over the period of past three years. The description of retirement procedures for employees, agreements and description of employees over the last three years in the company is also a factor that a serious investor is interested in knowing. The history of employees’ harassment in the company and the legal suits surrounding the matter are significant areas of interest for a potential investor (Flyvbjerg, 2013). This will enable the determination of the ethics of human resources in the organization which, at the moment, cannot be rated. This area should be dealt with in the plan since it can greatly affect the success and survival of the company even if its financial position is stable. As noted above, employees are the most important assets since they handle, use and manage all other assets in an organization. Intellectual Property Rights From the plan, it is learned that the company has not acquired intellectual property rights. The lack of this essential element exposes the company to legal risks. Legal risks can result to enormous payouts for the company in case the matter reaches legal jurisdictions. Such payouts can easily land a company such as NEWCO into financial peril (Lundan & Muchlinski, 2012). The financial plan for the company should include a number of things pertaining legislation into its business plan. These can include things such as a schedule of all pending litigations and a well description of litigations that can be threatening. The plan should also include copies of insurance policies that can provide coverage for any pending litigations for the company. With such information at hand, a potential investor may find ways to reduce the degree of liability exposure to such threats if they finally invest in the company. Intellectual property rights are a factor that needs improvement in the NEWCO’s business plan. This is because lawsuits can contribute greatly to the deterioration of any company’s financial position and management (Lundan & Muchlinski, 2012). The business plan should therefore be readjusted to include how the intellectual property will be acquired and dealt with in the company. Material and Transportation NEWCO has designed its place of manufacture for the products to be in china. However, there seems to be a problem of transportation since the place of manufacture to the destination is very far. The plan should at least have some layout on how the products will reach the market in a less costly and efficient way. The mode and cost of transportation should not be too much in such a way that it affects the revenue and price of the product for the final consumers who are the Kiosk Vendors (Sherer, Hoffman & Ortiz, 2015). If possible, the plan can create another manufacturing venue that is within East African region for ease of distribution of the product into the rural Kenya regions. Environment Energy companies are subject to risks involving environmental pollution. NEWCO is producing environmentally friendly source of energy. The state and government laws require that companies and especially energy producing companies provide an audit of a list of all hazardous substances that are emitted by the companies and a list of environmental permits and licenses. Potential investors are much concerned with the effects of the company’s emissions on the environment (D'Angelo & Viner, 2014). These elements should be included in the plan even if the products of the company are environmental friendly. Some waste products of the already used gadgets may be harmful to the environment when carelessly disposed. The business plan should include the effects of certain disposable substances of the products for investors to find it easier explaining to the government the health standards of the company. However, the company does not face the legal risks of accusation due to environmental pollutions. Recommendations Due to the increasing demands of the investments, the plan should therefore increase its first year’s capital investment from US$ 170, 000 to US$ 200,000. This will assist the company in covering the additional expenses including the fixed and the variable expenses. The company can minimize the legal risks that are facing it by changing it into a corporation. A corporation will be in a position to protect NEWCO from legal constraints. The company can try as much as it can to minimize the liabilities that are facing it. There should be employment of various simple but reasonable practices to attract many investors without sacrificing legal measures. Various insurance policies will also protect the company from accidents that may encounter its workers insurances and warranties could be used to prevent lawsuits against the company that may arise from accidents. Conclusion A due diligence assessment on any business project is important to ensure that errors made during the plan are rectified before one gets fully into the venture. Business plans are always subject to changing depending on the investor’s on an entrepreneurs’ point of view. Some investors may not bother with the risks arising from intellectual property rights since they may deal or register the company in accordance to all state and government requirements (Anderson & AL-Mubaraki, 2012). However, revenues and expenses factors appear to be a more worrying thing for investors since the future success of the business shall depend on the revenues generated in both short and long term basis. Therefore, the due diligence assessment report on NEWCO shall be very instrumental in coming up with solutions to assist a potential investor in deciding whether to invest in the company. References Anderson, B. B., & AL-Mubaraki, H. (2012). The Gateway Innovation Center: exploring key elements of developing a business incubator. World Journal of Entrepreneurship, Management and Sustainable Development, 8(4), 208-216. Drucker, P. F. (2012). Due Diligence And The Business Plan. Creating Entrepreneurial Supply Chains: A Guide for Innovation and Growth, 179. D'Angelo, W. C., & Viner, A. E. (2014). Closing the Deal: Data-Driven Due Diligence. Natural Resources & Environment, 29(2), 18. Flyvbjerg, B. (2013). Quality control and due diligence in project management: Getting decisions right by taking the outside view. International Journal of Project Management, 31(5), 760-774. Lundan, S. M., & Muchlinski, P. (2012). Human rights due diligence in global value chains. New policy challenges for European multinationals (progress in international business research, volume 7), 81-201. NEWCO Business Plan (n.d). New Technology of Mobile solar powered Charger Sherer, J. A., Hoffman, T. M., & Ortiz, E. E. (2015). Merger And Acquisition Due Diligence: A Proposed Framework To Incorporate Data Privacy, Information Security, E-Discovery, And Information Governance Into Due Diligence Practices. Rich. Jl & Tech., 21, 5-15. Read More