Business Planning and Feasibility Assessment - Essay Example

?Business Planning and Feasibility Assessment Executive Summary This report will describe the business model plan of clothing store in Dammam. The reason for choosing Dammam is that it is one of the most significant cities of Saudi Arabia in terms of tourism and business. Dammam’s retail business had showed positive growth and it has the third largest market share in Saudi Arabia with regard to retail business. The main reason for choosing clothing store in Dammam area is that there are limited numbers of clothing stores in that area, and it will be profitable to run the business in Dammam. Table of Contents Executive Summary 2 Table of Contents 3 Introduction of the Business, Products/Services 4 The Marketing Plan 4 The Financial Highlights 5 Fig: 1 Shows Estimated Income Statement of the Clothing Store 6 Fig: 2 Shows Estimated Financial Statement of One Year of the Clothing Store 6 The Management Plan 7 Organizational Structure 7 Entrepreneur–Manager Role 8 Manpower 8 Risk Assessment & Mitigation 8 Technical Risks 9 Operating Risk 10 Construction or Design Risk 10 Cost Related Risk 10 References 11 Introduction of the Business, Products/Services The main priority of the new clothing store will be to provide good products and services to customers. The aim of the clothing store is that every customer must feel happy and more relaxed when they buy from the store. The clothing store will provide products for every customer segments such as men, women, babies and kids. Its product ranges from t-shirts, jeans, pants to fashionable jackets, sweaters and blazers. Customers can choose from variety of products from simple products to high cost fashionable products. The most common brands that the clothing store will offer are listed below: Baleno Turnbull & Asser Bossini Peter Werth Crocodile Garments Burberry Joyce Boutique Hamilton Shirts Shanghai Tang Jack London The Marketing Plan The primary target market of the clothing store will be the tourists of Dammam city. As Dammam is a prime tourist spot and many tourists from across the world come to Dammam to visit or for business purposes, thus it will prove to be a large customer base for clothing store. The secondary target customers will be the residents of Dammam. The population in Dammam city is growing rapidly and the people tend to follow the western culture and fashion. Therefore, soon there will be much demand for fashionable clothes in Dammam city. As there is limited number of clothing store in Dammam, it will be easy to attract large number of customers. The Financial Highlights In the first operating year, it is estimated that the growth of clothing store will be moderate and cash in hand/bank will be positive. The clothing store will not sell on credit rather it will accept cash and all kinds of cheques and credit cards. The initial investment will be 150000000 SR (Saudi Riyal). The cost of land and building is estimated as 90000000 SR and Machinery will be bought about 30000000 SR. The estimated cost of Furniture is 15000000 SR. Depreciation will be charged on machinery and furniture to 8% and 2% per annum. In the first operating year it is estimated that the forecasted sales is 30000000 SR. The Gross Margin is accounted as 30% of the total sales. The cost of insurance is estimated as 9% of total gross margin and the selling & distribution expenses are calculated as 70000 SR (estimated figure). According to Saudi Arabia’s tax rate the income tax is charged as 20% on revenue. Fig: 1 Shows Estimated Income Statement of the Clothing Store Income Income (SR) Expenditure (SR) Sales 30000000 Gross Margin (30% of Sales) 9000000 Expenditure Payroll (9 ? 10000 ? 12) 1080000 Insurance (9% of Gross Margin) 810000 Depreciation on Machinery (8%) 2400000 Depreciation on Furniture (2%) 300000 Selling & Distribution Expenses 70000 Profit Before Tax 4640000 Income tax (20%) 928000 Profit After Tax/Net Profit 3712000 Fig: 2 Shows Estimated Financial Statement of One Year of the Clothing Store Liabilities Asset Capital Investment 150000000 Land & Building 90000000 Net profit 3712000 Cash in Hand 8564800 Cash at Bank 12847200 Machinery 30000000 Less: Depreciation 2400000 27600000 Furniture 15000000 Less: Depreciation 300000 14700000 Total 153712000 Total 153712000 Source: (KPMG, “Saudi Arabia Taxation of International Executives”). The Management Plan The employees will be motivated to perform good work as much possible. The work will be divided to employees according to their capacity and strengths in a particular field. The new clothing store will try to pursue good service to customers and display good behavior, because this is essential element for success of any business. The store will assess the productivity and carry out the performance appraisal of each employee quarterly. This can help to get a clear picture of the weaknesses of any employee and accordingly the clothing store can do necessary steps to resolve it. Organizational Structure The clothing store is not a large business and requires a simple organizational structure. The general manager for the store will be recruited by balancing business objectives with the manager’s capability to mange things properly and his experience and skill in this sector. His decision should match the goals and objectives of the clothing store. Employees for this store will be selected according to the expertise level, skills in influencing different customers and managing the customer’s complaints. Entrepreneur–Manager Role The entrepreneur and manager will be responsible for any administrative actions. Their role will be to make decisions about purchasing, inventory management and various promotional activities. They will decide how much quantity will be purchased at a time for optimum advantage and provide financial support for any sales promotion or advertising for the new clothing store. Manpower At the initial stage in operating business at Dammam area, the clothing store will provide moderate salary to the employees. This can help to keep the payroll cost down and the indirect expenses will be less. The employees will be trained for all kinds of business activities that are essential to run the business properly in Dammam city such as managing every type of customer, handling customer objection, knowing the needs and requirements of customers and others. The clothing store can recruit 9 employees at first and when the business will grow it can further employ more staffs. The forecasted salary of each employee is estimated as 10000 Saudi Riyal per month. Risk Assessment & Mitigation The main objectives of risk assessment & mitigation are to monitor the management plan and identify the potential risk of a business. After identifying the risk involved in business, the probability of happening of the risk is to be determined and a plan should be made to evade the risks. Every organization should perform risk assessment & mitigation for producing quality products and operating business smoothly. The faster the risk is identified and removed, the lesser the probability for facing the consequences of the risk in future. Technical Risks Technical risks in business can occur due to implementing untested technologies and processes. If the technology of the organization is not dependable, then it will also cause risk to business. In order to mitigate the technical risks of business, first the firm should ensure a proven and competitive technology. The life cycle of project must be bigger than repayment period; otherwise it will cause loss in business. Operating Risk Operating risk may occur due to lack of professional manpower in any particular field. Too much dependency on few employees also causes operational risk; if any employee left the organization or somehow is unable to perform their task it will cause hindrance for organization. Meanwhile an organization should provide proper training to their employees to minimize the dependency and recruit properly by expert HR professionals to reduce the customer related risk. Construction or Design Risk Construction and design risk can appear due to bad professional guidance and poor design in business operation system. To mitigate the construction risk the organization should buy technology from trustworthy and reliable people. Any project should be implemented after proper testing and monitoring. Cost Related Risk Another important risk of business is the cost risk which may occur due to inadequate control over production cost and other indirect expenses. The micro-economic factors of any country can also influence the cost of products. This type of risk can be diminished by securing long term raw material contract. An organization must not stick to just one sources of raw material rather they must find for substitute sources of raw material which can provide advantage for bargaining the cost. References KPMG. “Saudi Arabia Taxation of International Executives”. April 23, 2011. International Executive Services, 2010. Read More