Business Plan for 3Gen Informatics - Essay Example

?Business Plan (3Gen Informatics) This paper intends to produce a realistic and a practical business plan for the proposed business venture dealing with computer sales and service. In this regard, various aspects such as forecasted cash flows and net present value (NPV) among others have been taken into concern in the proposed plan. Table of Contents Introduction 4 Brief Overview of the Venture 4 Choice of Sources of Funds for Your Business with Justification 5 Choice of Investment Appraisal Techniques with Justification 6 Identification of Major Risks associated with Capital Project Evaluation and their Managing Techniques 7 Forecasted Cash Flows and the Net Present Value of the Business 8 Forecasted Cash Flows (Refer to Appendix 2 & 3) 8 (a)Net Present Value (NPV) of the Business 8 (b)Analysing Sensitivity of the NPV to Changes in Business’ Cost of Capital 9 Conclusion 10 References 11 Appendices 12 Introduction A business plan is often considered to be a crucial step for an entrepreneur intending to inaugurate new business venture or expand business unit to a newly located marketplace. The plan generally assists an entrepreneur towards performing various operations resulting in attaining superior competitive position in the respective industry. With this concern, this paper intends to prepare a realistic along with a practical business plan for the proposed business venture relating to computer sales and service. In order to increase the viability of the business plan concerning the above depicted business venture, the business plan s would encompass various aspects associated with the type of business. In this similar context, the plan would clearly depict the business including its offerings, sales and marketing strategies, information of management groups and their roles amid other relevant factors. Brief Overview of the Venture 3Gen Informatics is a proposed business organization which would deal with the business of computer sales and service. It would provide a full range of computer and networking services including computer hardware and software upgrade, repairing hardware, debugging problems in the software and dealing with number of networking problems along with their solutions. The organization would incorporate an inclusive collection of selling computer systems including hardware, software and network trouble shooting for small, medium and large business industries. The services of the organization will be focused on designing and installing network systems, computer hardware along with software supports and training programs. The objective of 3Gen Informatics would be to provide individuals with wide range of services consisting of providing solutions to network problems, hardware and software upgrades, repairing hardware and many more. Thus, the initial investment will be less as the company will focus on services more rather than selling hardware components. Additionally, the company would also recruit five new members in order to accomplish its different computer sale and service related functions. Choice of Sources of Funds for Your Business with Justification Preparing an effective and valid financial plan can be duly considered as one of the major aspects for entrepreneurs to develop an effective business plan. The financial forecast of the business plan would typically involve various major outlines of identifying different costs that are required to start and operate the overall process of the organization. An effective and authentic financial plan for a business involves various attributes such as balance sheet, cash flow and profit statement which aids in accomplishing feasible and profitable outcome from the business operations (Byrne, n.d.). In this regard, the initial investment for starting up a business would require greater initiatives from the owners or the partners. In relation to the proposed business venture, a projection of US$ 100,000 can be made in order to start up the venture including all required expenses. In this regard, a sum of US$ 60,000 would be available in cash and the remaining amount will be obtained from applying loan from a recognised financial institution. In this context, the loan amount of the venture can be viewed to be amounted to US$ 40,000 with a standard interest amount. The justification of each functional category of investing funds in the business has been demonstrated in the following table (Refer to Appendix 1). Choice of Investment Appraisal Techniques with Justification The selection of an effective investment appraisal technique has long been recognised to play an imperative role for the organisations to successfully attain their desired financial goals. Moreover, the integration of an effective and valid investment appraisal approach ensures to reduce the risk of facing different challenges associated with investing funds in organisational operations (Sangster, 1993). In relation to the proposed business plan for 3Gen Informatics, the integration of an effective Discounted Cash Flow (DCF) within the primary form of Net Present Value (NPV) would facilitate the company to achieve its desired financial goals. This can be stated as the technique involving various essential practices that enables the entrepreneurs to make appropriate investments in accordance with the organisational functions. In relation to determine the major advantage of NPV method, it can be stated that the approach tends to increase the value of the organisations’ accounting practices. Moreover, the methodology also helps in easily comparing various investment options that make by the entrepreneurs (Weygandt & et. al, 2009). Therefore, the technique would be a major advantageous factor for the proposed business plan to increase the efficiency of different accounting practices to be performed by 3Gen Informatics. Additionally, it would also enable the new venture to easily identify the investment portfolios along with options that are required to increase the performance of the organisation. Correspondingly, the NPV technique generally tends to clearly identify and analyse the effective investment options, enabling the entrepreneurs to make effective financial decisions (Eldenburg, 2007). In this regard, the practice of an effective NPV framework would be appropriate for the proposed business plan, strengthening the decision-making procedure of the organisation and enabling in justifying effective investment options in line with the organisational objectives. Identification of Major Risks associated with Capital Project Evaluation and their Managing Techniques In relation to the rapidly increasing business market competition in this modern day context, it is often observed that various sorts of risks are associated with capital project evaluation of the organisations. The organisations in the unconventional business environment are likely to face challenges associated with cost and accessibility during their capital project evaluation. Moreover, the difficulties in making partnership with external stakeholders, potential labour conflicts and health along with safety related issues can also be considered as few of the major risks associated with capital project evaluation (Hetland & Jergeas, 2011). In relation to the proposed business plan, the risks associated with building effective relationship with the investors along with the other stakeholders can face by 3Gen Informatics while practicing its capital cost evaluation process. In order to mitigate the risks associated with capital cost evaluation, organisations have been recognised to adopt various measures. In accordance with the recent studies, it has been apparently recognised that the development of a strong governance structure and maintaining adequate transparency of different accounting information significantly enable the organisations to effectively deal with the risks associated with capital cost evaluation. Strong governance structure enables the organisations to maintain adequate accountability and facilitates them in making effective financial decisions irrespective of the project stages along with complexities in the financing structure. Moreover, developing clear and standardised framework of different project related activities and identifying their potential risk factors also ensures organisations to effectively address potential threats involved in capital project evaluation. More significantly, the maintenance of adequate transparency, clear and understandable accounting information would also enable to minimise the potential risk factors, enhancing the organisational operations at large (Culp, 2012). Forecasted Cash Flows and the Net Present Value of the Business Forecasted Cash Flows (Refer to Appendix 2 & 3) (a) Net Present Value (NPV) of the Business Net Present Value (NPV) can be regarded as one of the widely used methodologies for making financial decisions of an organisation. It can be duly considered as an unconventional approach for appraising investment proposal of the firms and is highly efficient as the technique considers the concept of time value of the investments. In relation to the proposed business plan, the integration of NPV method in the accounting process would enable 3Gen Informatics to assess effective investment decisions, adding greater value to the organisation. NPV of Project = ?nt=1 Ct / (1 + r)t – Total Investment Where Ct = Cash Flow at the end of the year (t) n = Life of the Project r = Discount Rate assuming at 13.75 NPV = -100,000 + 141,000/(1.27)2 + 49,500/(1.44)3 + 9500/(1.63)4 + 222,500/(1.82)5 = -100,000 + 87,420 + 16,577 + 1345 + 11,147 = 16,489 With reference to the above calculation, it has been identified that the NPV value of the project is positive, which signifies that the cash inflow from the investment yield a good return as compared to the expenses. Therefore, it can be firmly stated that the investment portfolio of 3Gen Informatics can enhance the wealth of its investments. Hence, the project can be accepted, as it would yield greater return to the company. (b) Analysing Sensitivity of the NPV to Changes in Business’ Cost of Capital The primary objective of analysing sensitivity of the NPV value is not only for quantifying the major risk, but also for providing adequate support in assessing the changes in the variables that are used to evaluate (Drury, 2008). With regard to the above calculation, the result of NPV is a positive one, which signifies that the business venture would not fail in terms of making effective investment related decisions. Conclusion From the above analysis, it can be affirmed that an effective business plan incorporating various important aspects such as investment appraisal techniques, NPV and forecasted cash flows would support the newly business venture to attain its desired objectives. It is worth mentioning that the forecasted cash flows and the NPV that have been produced would certainly provide active support to 3Gen Informatics towards conducting its business operations effectively. References Culp, S., 2012. Managing Capital Projects in a High-Risk World. Leadership. [Online] Available at: http://www.forbes.com/sites/steveculp/2012/05/29/managing-capital-projects-in-a-high-risk-world/ [Accessed November 01, 2013]. Drury, C., 2008. Management and Cost Accounting. Cengage Learning EMEA. Eldenburg, 2007. Cost Management: Measuring Monitoring and Motivating Performance. John Wiley & Sons. Hetland, P. W. & Jergeas, G. F., 2011. Risk Navigation Strategies for Major Capital Projects: Beyond the Myth of Predictability. Springer. Sangster, A., 1993. Capital Investment Appraisal Techniques: A Survey of Current Usage. Journal of Business Finance & Accounting, Vol. 20, No. 3, pp. 307-332. Weygandt, J. J. & et. al, 2009. Managerial Accounting: Tools for Business Decision Making. John Wiley & Sons. Appendices 1. Justification of the Requested Amount for at the Project Start-up 2. Forecasted Cash Flow of First Year 3. Forecasted Cash Flow for Five Years Read More