Business Plan for Robert - Term Paper Example

Business Plan for Robert Table of Contents Executive Summary 3 Main Report 5 Cash Flow Elaboration 7 Factors Contributing to the Development of the Company In The Future 11 Possible Business Issues to Be Focused Upon 12 Amount To Be Provided To Kokoa SA, Chocolate Manufacturer 14 Effective Marketing Analysis 16 Recommendations 18 Conclusion 21 References 22 Executive Summary Cash flow statement is considered as an effective tool to determine whether a business has the capability of sustaining it business operations effectively or not. The cash flow statement specifically helps in elaborating different financial information regarding how Robert plans the business process and accordingly, he will continue taking into consideration all the associated factors such as incomes and possible expenditures. The preliminary data as obtained from the cash flow statement of Robert’s company depicted that the business will be able to conduct business with adequate revenue initially but in the next months, the net cash flow decreases gradually. The company will bear all the associated expenses of the business process rather than just passing it to the customer side and in this respect, the company will gradually have declining profit margin. Quite a favorable chance also exists in case of Robert deciding to decrease his part of the liability by increasing the per unit selling price of the chocolate consignments for increased profit in future. For instance, in the provided question multiple instances describes that the investments made by Robert on the equipment and the storage locations. As a countering part, the discussion also comprises facts depicting how Robert should increase his product selling prices by certain percentage on every quarterly basis in order to recover the additional amount of US$ 16,000, which he has initially invested on the machineries and on processes such as website designing and marketing research. Considerable facts regarding how Robert should expands his market and bring about segmentation within customers are also taken under consideration with the aim of enhancing business performances. Additionally, the report also signifies the necessity of an effective ‘supply chain management’, which needs to be attained by Robert to provide better quality of product delivery services to the customers. In addition, the supply chain management will also enhance the product procurement process. The idea regarding these aspects has been provided in such a manner that customers satisfied with the services will gradually bring about more demands for the products offered by the business conducted by Robert. In this context, it can easily expand his market along with periodically increase the product selling prices as well. Main Report Robert has been conducting business for many years in New York. It is a small company engaged in performing import operation of products over the internet from different countries. It has been identified that Robert wants to add a new product in the existing product portfolio. The new product that Robert want introduce in the product portfolio is chocolate. The provided details also elaborated the product purchasing and the ordering terms as stated by Kokoa SA. A list of startup investments that will have to be made for launching the new online sale of chocolate products has also been elaborated as under. The primary decision for the provided case should be regarding whether to buy the five-year business contract as provided by Kokoa through the upfront payment. Kokoa also agrees towards paying an additional discount of 40% on the average retail price as charged in Switzerland, which is 85CHF per kilogram. In addition, the delivery time may also act as a crucial factor for this business process. In this regard, Robert also intends towards buying a refrigerator worth $8,000 in order to preserve the shipped chocolates still the time it is delivered to the customers. The investment made on the refrigerator will be considered as a fixed asset for Robert. Taking these aspects into consideration, all the fixed and variable assets along with the liabilities has been mentioned as under in the cash flow statement. Fig 1: Cash Flow Statement Cash Flow Elaboration The above provided cash flow statement of Robert’s company clearly elaborates about the each and every financial transaction that will be taking place on monthly basis and annually. Depending on the obtained annual statement, estimation will be made regarding whether this new business process initiation will be profitable or not. For instance, as mentioned, the initial investment, which Robert agreed to make upon is about US$ 100,000. Robert also appears to have agreed upon adding an amount of US$50,000 as loan offered to at an interest rate of 8 percent per annum. In addition, he has also kept the option of providing 5 percent of the available cash per month. In an overall manner, the total initial cash for operation amounted to ($158,625.00) including the sale of 100kgs of chocolate consignment, which the company expects to sell in the month of January 2014. Moreover, fluctuations can be seen within the estimated cash reserve, as a result of increase in the chocolate consignment quantity ordered every month. As per the market research estimates, the maximum quantity of chocolate products that could be sold by this business processes in a month may rise up to about 400kgs depending on the level of market exposure attained by it. As a result, an estimated amount of 100kg of chocolates has been considered for the first month taking into consideration of the fact that the market situation is completely new for this business and the estimates are done in a hypothetical manner. Regardless of the above facts, if a comparison is done on the rate of fluctuation of the estimated cash, it can be observed that the estimated cash of the second year appears to be the highest in comparison to the estimated cash amounts of the other months. The graph provided below will help in understanding the difference in a much appropriate manner. Fig 2: Estimated Cash Graph Variation Excluding the Revenue Earned from Selling The provided graph elaborates a detailed variation within the estimated cost throughout all the twelve months of the first year. It can be identified that the investment and the estimated cash for all the months have followed a declining pattern. One factor that can be responsible for the declining incensement is the increase in the quantity of the chocolate consignments that are being made every next month. The below provided graph also elaborates the variation within the level of expenditure depending on which an estimate can be made regarding the profitability of the business (Advameg, Inc., 2014). Fig 2: Total Cost Graph Variation The graph related to the total monthly expenditure, it could be stated that the overall expenditure for the second and the third month remained comparatively low in comparison to that of the first month. However, the condition completely changes between the fourth month and the 12th month where the slope projects a steady rise. From the graphical presentation, it can be understood that there is a gradual decrease in the level of estimated cash and continuous increase in the rate of expenditure due to the greater quantity of the ordered consignments. In this context, the overall profitability of the business process may be affected in the long run and the business may eventually end up masking losses in .future (Texas A & M University, 2014). Fig 3: Comparison Graph Taking a close observation on the two gradients projected in the above graphical presentation, an analysis can be made regarding the area of the convergence. The justification to the above provided statement regarding the possibility of business process undertaking a loss can be also be understood from this comparison graph. As a preemptive measure, either the company will have to minimize the expenses to a major extent, which will not be possible due to the interest rates on the loan amount. On the contrary, the company may increase the value of the estimated cash by bringing about a rise in the selling price of per kilogram of chocolates. For instance, a slight increase in the per kg selling price of chocolates may extent the attainment area of the breakeven point. Furthermore, if a close observation in made on the expense factors associated with each month, it can be understood that the cost factor in the first month is much more in comparison to that of the other months. The justification regarding this statement can be held accountable depending on the fact that multiple purchases and expenditures were made only for the first month. The designing of the website can be considered as an instance of such onetime investment. Robert spends an amount of $ $3,000.00 for designing his e-commerce business website with the prime intention of attracting more and more customers. Factors Contributing to the Development of the Company In The Future The entire business of Robert is majorly dependent on airway freight transport and thus, a slight increase or decrease in the fright charges would affect the overall continuation of the business. For instance, if the airlines companies bring about sudden increase in the freight charges, then to balance the profit rates, the company will have to bring an increase in the per unit selling price of the ordered chocolate consignments (LinkedIn Corporation, 2014). Apart from this, multiple situations related to equipment malfunctions may also arise out of a sudden additional expense loads on the overall business process. However, situational advantages may also come in case the freight charges decreases or in case Kokoa SA delivers the products at lower rates as a sign of loyalty. As a counterpart, the company may also strategize regarding passing on the additional transactional and processing expenses on the customers by increasing the product selling price. Moreover, the company will also have to be careful regarding practicing these initiatives only in situations where appropriate chance of business development and product demand can be maintained (LinkedIn Corporation, 2014). The company will also have to strategize regarding the withdrawal of all the associated investments that Robert has made for starting the business. For instance, Robert can introduce variety of new and costly chocolate products for the niche customer segment. That way he can easily bring about the concept of segmentation within the target customers once the demand for all products starts growing. Inventory storage can be considered as another alternative through which Robert can make more profits. In this context, Robert can bring multiple lots of chocolate consignments at a single time, taking into consideration of an appropriate storage area and the equipment for preserving the perishable chocolate goods. More number of inventories will gradually mean less delivery time of the products to the customers. In such cases, Robert may also find himself accountable to certain percentage of product import discount in case the orders for large quantity consignments. Through the attainment of a steady pace within the business, Robert can easily pass on all the associated expenditures to the customer’s side attaining the opportunity of earning more profit percentage. Under such circumstances, Robert can easily look forward to business expansion options (Board of Trade of Metropolitan Montreal, 2014; LinkedIn Corporation, 2014). Possible Business Issues to Be Focused Upon Robert is required to be considered about the variation of product suppliers within the company. On the basis of Porter’s five forces, it can be stated that relying on a single product supplier may increase the liability of the business process. For instance, if certain bargaining issues arise with the Kokoa SA, chocolate manufacturer, then the overall business process of Robert may be hampered. In a similar manner, the company in case of supply scarcity may also be affected adversely. As a result, it becomes advisable for Robert in terms of establishing side ventures with other product suppliers as well in order to maintain an appropriate balance between the supplier entities. In a similar manner, Robert may also plan to integrate his business with other local dealers for business expansion (LinkedIn Corporation, 2014). In this respect, integrating business process will facilitate in attaining a greater market portion. Contextually, the company will be able to safeguard the business against new market entrants. Subsequently, for better growth of the business process, Robert may look forward towards hiring a bigger storage area where he will be able to store adequate stock rather than order consignments multiple numbers of times, as insufficient storage area in identified to be accountable for increasing expenses. In case of larger orders, Robert can eventually ask for greater percentage of discount from Kokoa SA, chocolate manufacturer for minimizing business cost. Robert should establish appropriate business relationships with local suppliers in order to deliver the ordered product to the customers within desired time, as inappropriate business relationship would adversely affect the business performance and growth prospect. This will also provide appropriate space for bringing in new inventory in case the demand for the chocolate products is augmented. In this context, it can be identified that the company in future may face different issues relating to market competition, business expansion, storage facility and operational cost among others. The aforementioned issues may negatively influence the overall business performance and growth. Respectively, it is also advisable to increase the price of the products after every quarter by 10% in order to mitigate the increasing level of expenses (Tari Digital Ltd, 2014). Fig 4 (Projecting the balance between the product suppliers and the suppliers) Amount To Be Provided To Kokoa SA, Chocolate Manufacturer From a generalized perspective, it is unadvisable for Robert to remit a considerable amount of funds to Kokoa SA, Chocolate Manufacturer as a form of upfront payment. The justification in this context can be provided depending on the fact that once a lump sum amount is paid, Robert’s business will become completely liable to the terms and conditions as presented by Kokoa SA, Chocolate Manufacturer. However, if an utmost necessity is felt, then Robert can himself forward a proposal of paying 20% of every year’s attained profit. In such cases, Robert will have an open option of establishing venture business with multiple other suppliers either belonging from the domestic market or from other geographical areas (Tari Digital Ltd, 2014). The company with increased number suppliers will be facilitated with opportunity of obtaining required consignments from different suppliers within desired time. In addition, establishment of ventures with other supplier will guarantee a continuous supply of products even in cases where one or more suppliers fail to provide the ordered requirements. Robert will also have to make sure that the new ventured members do provide appropriate discount rates on the products ordered (Economics Online Ltd, 2014). It is in this respect that Robert may maintain a continuous supply against the demand rates in the market and keep a hold on the customers as well. Regardless of the above-discussed aspects, Robert may also implement certain aspects of the pricing strategy to improve the profitability of his business. In this respect, the company adopting absorption-pricing policy will be able to conduct chocolate business effectively withy better profit margin in future. For instance, the absorption pricing strategy will assist in recovering all the investments made by him in establishing the business. Moreover, the pricing strategy would also facilitate in ascertaining that business operations are conducted with better business performances (Economics Online Ltd, 2014). In case, the scope of business expansion is limited and the level of market competition increases, then Robert is required to spend much more on advertisements and services for attracting customers. Consequently, the profit earning rate of Robert’s business may be stagnate due to the fact that much portion of the revenue earned will end as payments for the extra expenses within the business. Apart from this, Robert may also adopt product-skimming strategy as the product or business type is completely new to the market, which would be an advantageous opportunity for inadequate number of competitors in the market space for a considerable period of time. However, theoretically it will not be possible due to the fact that the business is associated with perishable goods. Thus, the existence of multiple competitors can be expected (Economics Online Ltd, 2014). Concisely, Robert may also implement the concept of pricing leadership in order to increase customer base under situations when the level of inter-business competition within the market space is high. Providing the ordered chocolate products at low price in the initial stage will eventually attract lot of customers in comparison to that of the competitors. However, it will confine the profit earning procedure to be completely dependent on the volume of products sold. Thus, there will be a viable chance of being subjected to significant amount of loss making in case the demand of the chocolate products tumbles down drastically (Economics Online Ltd, 2014). Effective Marketing Analysis Based on the present market statistics, it can be stated that the chocolate sector within the US market has been in a stagnated owing to the increasing level of health issues such as obesity and heart related problems. The statistical report also elaborates the fact that the annual consumption of chocolate by each American individual is less than half of the chocolate consumption within Switzerland (Simon Fraser University, 2014). The graph provided below projects a detailed understanding of the statistical reports associated with chocolate consumption. Fig 5 (Estimated Chocolate Consumption till the year 2017) Source (Simon Fraser University, 2014) From the graph, it can be understood that although the chocolate market in US has shown considerable amount of development, still the growth rate is depicted to be stagnated. This might appear as a challenge for Robert to sustain his business (Simon Fraser University, 2014). Since the product associated with Robert’s business is completely perishable, Robert will have to develop a mix of marketing strategies through which he may position his chocolate products at a higher end in comparison to that of the other competitors within the market space. For instance, Robert may implement the concept of product packaging and ‘reference price effect’ to manipulate the psychological factors of the customers associated with the chocolate products as delivered by Robert. Product packaging as per marketing terms plays the role of a vital factor in terms of depicting the type and the quality of the product. Robert can use the packaging tool in terms of raising the prices of certain chocolate products. That way, he will be able to make appreciable amount of profits through which he may compensate all the extra expenses associated with the business. Online advertisements although costlier may be effective in attracting major segments of the customers. In this context, Robert is required to be cautious regarding the type of advertisement message that will be delivered to the customers. Monopolistic business may also appear to be an appropriate option in case of minimum competition (Education Portal, 2014). Merging up with competitors in the market will help Robert in attaining a firm spot in the market space along with an appropriate chance of expanding the business process. It will safeguard the business in terms of performing competitively with new entrants entering the domestic market (Education Portal, 2014). In addition, he will have to bring down all the variable cost associated with business process to increase profit margin. As a suggestive aspect, it is worth advising that Robert should include considerable portion of the product packaging and the transportation expense to the selling prices of the chocolate products delivered to the customers. Respectively, the company with the assistance of different marketing tactics will be able to conduct business effectively, which in turn will aid in repaying the loan amount within due time (Crown, 2014; The State of Queensland, 2014; University of Missouri, 2014). Recommendations In accordance with the analysis of the market segments in the New York and cash flow statement, it can be stated that the company is required to adopt certain appropriate strategies based on which business operations can be conducted in a competitive as well as sustainable manner in the long run. Based on the evaluation, the business conducted by Robert should bring about reduction in the variable cost associated with the business process for managing business operations successfully. Apart from the fixed machinery and storage related costs, Robert will have to perform cost cutting within all other forms of business expenses. An instance in this context includes the cost associated with freight charges, chocolate product packaging and modes of delivering it to the customers. Robert will have to strategize policies regarding ordering chocolate consignments in large lots to reduce the intensity of incurring freight charges and delivery time of the products to the customers (Education Portal, 2014). The company is required to establish ventures with multiple partners for providing goods to Robert at higher discount rates in comparison to that of the Kokoa SA, Chocolate Manufacturer. Building up of a larger supplier base will eventually minimize the risk associated in terms of products supply. This will also provide Robert with an additive opportunity of demanding higher percentage of discount in case his business flourishes in the present market space. In addition, Robert will also have to implement multiple marketing strategies with the prime intention of attaining better hold over the market. Common instance in this context includes better advertisement techniques, which the company will do for attracting the attention of the customers (Education Portal, 2014; University of Missouri, 2014). In a similar context, packaging of the product appears to be another such initiative, which the company will have to carry out to bring about segmentation within the customers. In this context, the company is required to increase the selling price. Eventually, the technique will also assist in attaining higher amount of profit through which all the other expenses associated with the business process can be paid off. Regardless of these facts, Robert is required to scrutinize market conditions on a periodic manner with the aim of having better knowledge about competition and market condition. In this regard, initially, the company is required to ensure that the business venture with the new product portfolio is conducted in a systematic and appropriate manner based on preferences of customers and market condition. Subsequently, the company in order to excel in business operations should make investments in enhancing storage infrastructure and area, which may raise the expense level and thus, minimizing the rate of estimated cash. The rate of expense will rise up against the business earning rates and eventually, the overall business process will end up in losses (University of Missouri, 2014). Multiple other recommendations such as establishing a partnership is worth suggesting for the successful development of this business process. The justification regarding these aspects can be provided in a manner that establishment of a monopolistic market will gradually restrict other new entrants from entering the market and snatching out the existing developmental opportunities through the business process. Implementation of pricing strategy will assist the company in performing business operations effectively and profitably. This is due to the fact that implementation of a pricing strategy can specifically be done depending on the level of competition and substitution product within the market space. Recommendation in this context includes the implementation of skimming pricing strategy in case the number of competitors in the market is less and the product being launched is completely new. Whereas, suggestions regarding the practicing of price leadership concepts can be done in case multiple competitors are present within the market space and all are competing in terms of product pricing. The only risk associated with such initiative is that the chances of loss making gradually increase if the demand for the chocolate products suddenly starts dropping (University of Missouri, 2014). Conclusion By considering all the above-discussed facts, a detailed understanding can be attained regarding the possible chances based on which Robert improve sustainability of the business. Based on the analysis, it can be comprehended that the estimated cash decrease gradually and accordingly, for better sustainably and profitability in the long run, the company is required to adopt different appropriate marketing strategies that include pricing and marketing strategies among others. Apparently, it can also be understood that the success factor of the business will completely depend on the level of competition within the market space. For instance, if the number of competitors against Robert’s business is multiple, then Robert will have to think from a wider perspective regarding how he can project his products to be superior in comparison to competitors in the market space. Moreover, multiple facts have also been discussed regarding how Robert can bring about reduction in the level of business expenses undertaken by him during the launch of the business. Specific details regarding the fixed and variable costs associated with the business process have been analyzed successfully. Suggestion regarding the possible ways of business expansion and growth can be attained through the adoption of effective marketing strategies. Additionally, the analysis of cash flow statement signified that expenses such as bank loans and interest rates could not be minimized. As a result, Robert will have to minimize the intensity of the consignments ordered. In this respect, Robert may bring down the transportation cost and other variable costs that include freight and packaging cost. References Advameg, Inc., 2014. Inventory Control Systems. Reference for Business. [Online] Available at: http://www.referenceforbusiness.com/encyclopedia/Int-Jun/Inventory-Control-Systems.html [Accessed September 25, 2014]. Board of Trade of Metropolitan Montreal, 2014. Assess Your Options for Growth. The Importance of Business Growth. [Online] Available at: http://www.infoentrepreneurs.org/en/guides/assess-your-options-for-growth/ [Accessed September 25, 2014]. Crown, 2014. Transport and Distribution for International Trade. Introduction. [Online] Available at: https://www.gov.uk/transport-and-distribution-for-international-trade [Accessed September 25, 2014]. Education Portal, 2014. Business 102: Principles of Marketing. Competitive Advantage. 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