Wonderland Wigs: a Business Plan - Essay Example

Report A business report on the forecasted analysis of “your” company with a new product Table of Contents Company overview 3 Selling Price estimate 3 Product cost estimate 4 Break even analysis 7 financial projection advantages 7 conclusion and recomendations 8 bibliography 10 appendix 11 Company overview Wonderland wigs is a virgin retailer of female wig in the UK. Wonderland is looking forward in dealing with various types’ high quality wigs imported from India which is the world largest producer of quality wigs. The company has both local and international distribution strategies of the wig. Wonderland wigs is proud of the excellent quality of wigs it will provide to the market that has been missing in the past market. Wonderland will highly invest on speed, reliance, quality and great customer satisfaction. Selling price estimates The company’s estimates to sells locally through the two contracts companies who both have franchise all over the UK. These partnering companies are called Pks and Shane. The companies will each buy 1000 units of wigs each month. This means therefore that we will produce 2000 units each month at £450 per unit. The company is looking forward to securing a loan with your bank to ensure a boost in the sales and advertisements for the company’s products as well as its expansion. In the budgeted financials for the first year of operation the company expects to report promising returns from venturing in the industry. The company’s budgeted profits are £7,242,400.00 for the first financial year. The company has we are looking to increase the market share thus we will require additional financing from your bank of an amount amounting to £10,000,000. We are requesting the amount based on our projected revenues and a further increase of 30% of our budgeted expenses. The current market interest rate is at 7% which will be conducive for our organisation. The company’s management is aware of the repayment period of three year. Paying monthly payments of £308,770.97 as per the loan amortization schedule shown in the appendix, the organisation will be committed in repaying the loan without failure. Wonderland Company intends to venture in the beauty industry in selling and distribution of female wigs both locally and internationally. The company has established two main distributors in the local market. These distributers are the PKs and the Shane companies limited. The company is looking forward to expanding is market to the international market thus the main reason to securing a business loan. Production cost estimates The company will be sourcing its virgin hair ingredients from India, this is because of the great confidence that local consumers have on the hair. Indian hair is voted to be the best quality and consumer friendly in terms of price. The decision was reached after conducting research of the afro Caribbean hair and wig industry. This justifies the pricing of the Indian hair in the local market. The ingredients that will be used in making the quality hair will be as follows, 250 grams of wig will be required to complete a single product. The Cost per kilogram is £150. We intend to buy the ingredient in form of kilograms. This means that a total of £75,000 will be required to sustain the current demand of the product monthly. Wig caps are other component required for quality production of the female wigs. This Wig cap will cost £1 per unit each will be used in production of a single product. Needles are other essential ingredients necessary for production of the product. This will cost the organisation a total amount of 60 pence for a piece of 5. Each compete product will use a full roll of thread; this will cost a total of £1 each roll. The thread is used in joinery section of production. Production of high quality Wigs will require high quality performing wig making machines. The machines will cost the company a total of £700 each. A total of 10 machines will be required in the factory. This means that the company will have to undergo a total cost of £7000 in purchasing the machines. Employees are significant components in any organisation. We will require 12 employees working 8 hrs and 1hr break with a salary of £14. This means that a worker will receive a total of £98 a day. Cost card The estimated cost to produce a single product and the budgeted selling prices are as shown below; cost structures are the methodologies that are used to determine the proportions of fixed and variable cost of a company incurs in carrying out its day to day activities. Cost structures are used as a tool in the determination of the prices that an individual company will set to its clients. Cost based strategy is a method of identifying the area in production and distribution where costs are likely to inflate the total cost of producing a single unit. In our company Wonderland we chose to apply the traditional cost structure model where cost absorption is based on the overhead absorption rate. In this case cost inflating activities are identified and those cost arising from those activities are distributed evenly to the overheads foot head. The organisation rate of absorption is calculated as follows after identifying the various overheads cost arising in the organisation; The rate of absorption is therefore £5.45 which is arrived at after dividing the total overheads incurred by the total number of units produced. The companies pricing strategy is arrived at after a great market research. The research identified that customers will be able and willing to pay the price of £450 given that the current market products are of much lower quality than those that the company will be offering. The level of competition is also another major factor in pricing the products. The current market is not much saturated thus the price will be easily accepted by the large market population. Break even analysis Due to the net present value of money, the company has established a strategy where it will break even as quick as possible. This assumption therefore needs to have a quick turn over on sale. The price set by the company on the products will ensure a more efficient way to sell the products quickly thus a quick break-even point. The budgeted break point on production is expected to be 387 Units monthly. This means that if the company will be able to produce 387 Units in each production then it will be able to effectively survive the harsh market conditions. Advantages to the company Bank loan financing have a good number of benefits that befall the company securing the loan, they include; Speed: the ease of loan access will enable a quick implementation of projects as compared to the use of retained earnings of the business. The business is therefore able to exploit the market before the change of taste and preferences of clients. In the contemporary market consumers taste and preferences may change at any moment thus it is advisable to obtain a bank loan in order to benefit from the pick season. The interest on business bank loans is tax-deductible .this means that when the company is paying tax, interests from loans are first deducted. In addition, with fixed-rate loans, loan payments remain the same throughout the life of the loan. This makes it easy for businesses to budget and plan for monthly loan payments. A major challenge in securing a loan from a bank at start-up is due to the lack of collateral. Business that take the unsecured loans face the risk as this loans will normally attract high interest loans than the secured loans. This means therefore that the business will have a long repayment period that will consequently increase the organisations expenditures. Advantages to managers There are several advantages to managers on the application and use of operational budgeting strategies. Operational Budgets interpret strategic plans into action of the business. They specify the resources, revenues, and activities required for the coming year thus making it easier in operations of the business. Budgets are responsible for brilliant records of managerial activities and smooth running of the business. With the presence of operations budgets there is improved communication among the employees due to the predetermined activities. On the other hand, operational budgets can also create great predicaments to the organisation. The problems may include; Budgets can demotivate employees because of lack of participation and creativity. The presence of inflexible budgets makes it difficult for employee to bring in innovations and suggestions. Budgets can lead to implied unfairness among employee as it may seem to favour others in the expenses of fellow employees. Conclusion and recommendation Managers frequently use management accounting to trace record and report financial information to shareholders. Management accounting does not necessarily follow a give accounting standards rather. Shareholders can design their favourable management accounting systems according to their company’s business operations and the needs for business information. These advantages usually coincide with the ability for companies to improve operations and overall profitability. Business owners can also create a competitive advantage by developing cost allocation processes in their management accounting function. The accounting records are essential not only to the shareholders but also to the financial leaders who determine the need to lead and to what extent they will support the business in terms of finances. Investors are other parties that have interest on the financial records. Investor need to know how profitable the firms is before the can put their money in the business. In conclusion for business success in the contemporary world the management must be very careful on the mode of carrying out the business and maintenance correct and updated to financial records. Budgeting is another essential activity of the business that will ensure it success in securing a loan if need be. Market research is also a major influence on business success. The management must understand the market and identify the existing gap then take the step to fill in the gap and satisfy the customer’s needs. It is through this strategies that the company will successfully penetrate the market share. 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Cost Management (New York: Thomas Reuters RIA Group) Cliche, P, (2012) “Budget,” in Côté and Savard (eds.), Encyclopaedic Dictionary of Public Administration Appendices: operational budget Loan amortization schedule Cost card Break Even Point Px = Vx +FC £450x = £143.30x + £118,400 £450x - £143.30x = £118,400 £306.07x = £118,400 x = £118,400/£306.07 x = 387 Units Read More