For Alpha Company - Business Plan Example

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Alpha Company

Executive summary

Alpha company is medium sized corporation based in Dallas, Texas that offers products and services to oil and gas companies. This business plan is a comprehensive analysis of the business position and viability of an investment project in which the company intends to invest in the design of an improved drill bit for well drilling. The Company has a turnover of about $2.5 million and employs 25 people. The adoption of the new improved drill bit will make the expansion of the business operations inevitable. The expansion may require hiring technical expertise and developing new marketing strategies hence the business plan will serve the purpose of convincing investors and the other stakeholders that the venture is profitable.

Products and Services

The company offers a variety of services and products such as site location, drilling of oil wells, logistics, rigs and rig equipment. So far the company has been performing well but its intends to enhance its operation, increase revenues and cuts on costs hence the move to invest in the PDC(polycrystalline diamond compact) cutter which is designed to improve drilling efficiency and cut on costs.

Projected Costs of Acquiring New Drilling Equipment

The company is set to acquire a new asset that is expected to boost its efficiency and volume of business. The costs surrounding the acquisition of the new equipment entail set up costs, design and additional expertise .

According to the projected costs, the company would rather develop the design in-house as it is relatively cheaper as shown below:

Table : Costs

contract out the design

Projected costs

Drilling equipment(PDC )

750000

Design contract

250000

Additional human capital

175000

Cost of advertising

98000

$ 1,273,000.00

In-house design development

Projected costs

Drilling equipment(PDC )

750000

Additional human capital

250000

Cost of advertising

98000

cost of software design package

100000

set up costs

50000

$ 1,248,000.00

By developing the design in house, the company will save about $ 25,000.00 hence in-grown design development is the optimal option.

Projected sales

According to previous levels, the forecasted sales for the next there years are as follows:

Sales forecasts

1st year

$1,200,000

2nd year

$1 500,000

3rd year

$1 750,000

The expected returns for the company after the acquisition of the new equipment is as follows:

Alpha company

Profit and loss account

Table: Profit and loss account

Year 1

Year 2

Year 3

Sales

$1,200,000

$1,500,000

$1,750,000

Direct Cost of Sales

$848,000

$400,000

$240,145

Other Production Expenses

$0

$0

$0

Total Cost of Sales

$848,000

$400,000

$240,145

Gross Margin

$848,000

$400,000

$240,145

Gross Margin %

70.67%

26.67%

13.72%

Expenses

Payroll

$250,000

$250,000

$250,000

Sales and Marketing and Other Expenses

$98,000

$50,000

$50,000

Utilities

$4,500

$4,800

$4,896

Payroll Taxes

$4,412

$4,853

$5,338

Total Operating Expenses

$356,912

$309,653

$310,234

Profit Before Interest and Taxes

$843,088

$1,190,347

$1,439,766

Interest Expense

$10,491

$11,175

$12,845

Taxes Incurred

$40,552

$52,349

$70,615

Net Profit

$792,045

$1,126,823

$1,356,306

Net Profit/Sales

66.00%

75.12%

77.50%

Break even analysis

$47.21 to be able to make profits.

(Breakeven point = Fixed Costs / (Unit Sales Price – Variable Costs))

Break-even Analysis

Monthly Units Break-even

2.48million

Monthly Revenue Break-even

$11.712

Assumptions:

Average Per-Unit Revenue

$4721

Average Per-Unit Variable Cost

$2360

Marketing plan, including market analysis and strategies

The Alpha company enjoys considerable brand recognition in the market hence the marketing campaigns and strategies developed will be for the purpose of augment the company’s potion as leading company is provision of services and products to oil and gas companies. The company will sell itself to the already established oil and gas companies seeking to increase their operational efficiency by using efficient equipment in their oil drilling activities .

The marketing strategies will be relationship based to cut the cost of advertising in the future. The oil and gas industry is worth over $3 billion dollars and there about 200 different gas and oil companies in the petroleum industry which makes it quite competitive hence the need for innovative marketing strategies.

Marketing Objectives

• Develop relationships with established oil and gas companies that will hire the company to provide drilling and logistics services and products.
• Increase the company’s market share by entering into long-term contracts with the gas and oil companies.

Marketing Strategy

The company’s marketing department has developed a vibrant marketing strategy. To achieve its goals and objectives, the company has integrated its short and long term goals in its strategies. The core strategy is the organizations overall tactical plan to reach out to prospective customers and make them buy their products and service (Martin,2015). A marketing strategy is designed to convince people to choose a certain product in the market and is drafted from extensive market research to decide the ultimate product mix that will yield maximum profits to ensure the business remains competitive.

The marketing director will reach out to the mangers of the gas and oil companies to establish purchase order relationships and present bids for the drilling contracts. The company will also run adverts on magazines and television to increase brand awareness. The company will place bill boards on strategic places so that gas and oil companies are aware of its services and products. In addition, the company will increase its online presence by developing an interactive company website where clients can interact with the company’s staff and gain more information about the company.

SWOT analysis

Strengths

• The company has developed working relationships with already established companies who are well recognized in the oil and gas industry.
• Availability of market that will benefit from the use of improved drilling bit.
• Increased use of technology that will increase the efficiency in oil and gas drilling.
• Weaknesses
• A reduced cost factor as a result of use of efficient drilling equipment which may scare away clients due to low prices and for competitive purposes.

Opportunities

• Opportunities for Markets-more companies are opting for efficient equipment to cut on drilling costs.
• Cost reduction-Reducing operational costs for the company substantially.

Threats

• Increasing competition due to the development of new companies in the market offering similar products and services

• Reluctance to adopt new technologies by companies in the industry.

Table : Proforma Cash Flow table

Balance sheet Table : The Balance Sheet