Financial Plan for a Retail Store Selling - Coursework Example

Financial Plan for a Retail Store Selling Table of Contents Financial Plan for a Retail Store Selling 1 Start-up Expense 1 Opening day balance 3 Break even analysis 5 Twelve months marketing forecast 7 References 10 Start-up Expense Retailing is presently the fastest growing segment in the global economy. Starting a retail store is not only profitable for an entrepreneur, but also helps the individual to find employment. For starting a business, the foremost task required is acquiring cash and permission from the government authorities. The cash that is required either includes the owner’s capital or loan from the bank. This start-up capital is needed to initiate business, thereby supporting the start-up expenses. The start-up expenses include purchase or rent of land or store, decoration of the store (furniture and essentials) and lastly, expenses related to the purchase of raw materials. The financial plan for the company, Sounds Come Alive, includes start-up expense, which is demonstrated below in the table. The essential of the table are as follows: 1) Payment of advance to the owner of the store as it has been rented. 2) Payment of rent for the first month of operation 3) Purchase of fittings and furniture for the stores. 4) Purchase of equipments such as, ear testing machines 5) Appointment of in-house doctor 6) Purchase of hearing aid from distributors of recognized brands 7) Purchase of materials for interior decoration 8) Hiring of sales executives and store managers 9) Hiring of cleaners and security personnel 10) Establishment charges (registration and license) 11) Payment for establishing telephone connection 12) Payment for acquiring electric connection 13) Payment for incorporating waterline 14) Water and Land tax 15) Payment to suppliers 16) Other expenses (includes payments to workers for shifting and allocating purposes) Table 1: Start-up expense of Sounds Come Alive Start-up expenses of Sound Come Alive Particulars Amount (in $) Payment of advance 5000 Payment of rent 2500 Purchase of fittings and furniture 10000 Purchase of equipments 7500 Appointment of in- house doctor 3000 Purchase of hearing aid (50) 7500 Purchase of materials 850 Salary of store personnel 6000 Salary of cleaners and security personnel 500 Establishment charges 1000 Electric charges 1000 Telephone charges 1000 Establishing waterline 300 Water and Land tax 200 Other expenses 8500 Total Expense 54850 The table above highlights on start-up expenses for the retail store. The retail store requires this fundamental amount for initiating business. The store owners have decided to rent a store for the establishment of their business, rather than purchasing one. The fitting and furniture are the chairs, glass tables, shelves and wardrobe needed for the store. The charges for fitting the shelves are included. An in-house doctor is appointed to give the customers the opportunity to test their ears and undertake effective measures accordingly such, purchasing hearing aids. The store will initially buy 50 hearing aids from different brands and target in order to sell in the first one and a half months. As the store owner did not have any pre-established electric or telephone connection, it needs to develop the same and in turn have to incur electrical and telephone charges. The expenses pertaining to land and water tax are necessities for the business as these are paid to the government. Opening day balance The opening day balance of the store refers to cash balance that the store will have after each day’s operation. The cash balance is obtained after deducting expenditure from the sales of the stores. Here, sales of the stores refer to that of the hearing aids. The opening day balance with respect to Sound Come Alive indicates the cash balance at the end of each month. The cash flow statement of the store will highlight upon this phenomenon (Baines, Fill and Page, 2011; Cherunilam, 2010; Dess, Lumpkin, and Eisner, 2009; Ferrell and Hartline, 2010; Hansen and Solgaard, 2004). The following table presents opening balance of the store for each month, right from its inception. The following essentials are included in the cash flow statement of Sound Come Alive: 1) Cash inflow (revenue and the initial investment) 2) Cash out flows include a) Direct expenses b) Administrative expenses 3) Monthly Cash flow 4) Cumulative cash flow Table 2: Opening and closing cash balance of Sound Come Alive Particulars March April May June July August September October November December January February March                             Cash Inflow                           Sales Revenue 1000 1200 5000 6000 5000 6000 8000 9000 9000 10000 140000 15000 15500 Initial Investment                           Owned Funds 10000                         Personal Loan 50000                         Total Cash Inflow 60000 1200 5000 6000 5000 6000 8000 9000 9000 10000 140000 15000 15500                             Cash Outflow                                                       Direct Expenses                           Equipment charges 7500                         Furniture and fittings 10000                                                                                                             Subtotal of direct expenses 17500 0 0 0 0 0 0 0 0 0 0 0 0                             Administrative expenses                           Interior Decoration 850                         Staff salary 6000 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000 Rent of property 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 Electricity Bills 1000 1000 850 850 850 850 850 850 850 850 850 850 850 Telephone bills 500 600 550 600 600 550 600 600 600 550 600 600 600 Advertisement and promotion   850 850         850       850 850 Registration of company 3200                                                     Sub Total of admin expenses 14050 8950 8750 7950 7950 7900 7950 8800 7950 7900 7950 8800 8800                                                         Total cash outflows(B1+B2) 31550 8950 8750 7950 7950 7900 7950 8800 7950 7900 7950 8800 8800                             Monthly cash flow (A-B) 28450 -7750 -3750 -1950 -2950 -1900 50 200 1050 2100 132050 6200 6700                             Cumulative cash flows 28450 20700 16950 15000 12050 10150 10200 10400 11450 13550 145600 151800 158500 From the above table, it is evident that the cash inflow and outflow of Sound Come Alive will be positive after each month. The cash flow is, however, observed to increase during the first three months and then fall for next few months. The opening cash flow will rise in January next year. The sales revenue and initial investment fall under cash inflow. The cash outflow includes direct and administrative expense of the store. The total out flow is fixed cost of the stores and the variable cost includes the administrative expenses. Hence, cash flow statement reflects that the store will incur positive cash opening and closing balance for each month. The store will also concentrate on improving its cash balance at the end of each month by increasing sales and lowering expenses. Break even analysis Breakeven analysis is used to determine the point at which costs associated with the sales equal to that of the products. It also aims at calculating margin of safety for the company. The margin of safety is defined as the amount that exceeds the break-even points. This is an indication to the company that below this level of revenue, the business will incur loss. The breakeven analysis of Sound Come Alive highlights on the sales and cost of receiving the revenue. Here, the sales refer to selling of hearing aids that are the main products of the stores. The cost of purchasing hearing aids of different brands is reflected in the table below. This table foregrounds cost and revenue of the stores, which is needed to calculate break even sales of the stores. Table 3: Breakeven analysis Break-even analysis of Sound Come Alive   March April May June July August September October November December January February March Sales 1000 1200 5000 6000 5000 6000 8000 9000 9000 10000 140000 15000 15500 Cost of sales 7500 7500 10000 9000 6000 4000 6000 7000 6000 8000 9500 9780 10500 Gross Profit/Loss -6500 -6300 -5000 -3000 -1000 2000 2000 2000 3000 2000 130500 5220 5000 Gross Margin (% of sales) -6.5 -5.25 -1 -0.5 -0.2 0.33333 0.25 0.2222222 0.3333333 0.2 0.9321429 0.348 0.3225806 Variable cost 14050 8950 8750 7950 7950 7900 7950 8800 7950 7900 7950 8800 8800 Variable Cost (% of sales) 14.05 7.45833 1.75 1.325 1.59 1.31667 0.99375 0.9777778 0.8833333 0.79 0.0567857 0.586667 0.5677419 Contribution -13050 -7750 -3750 -1950 -2950 -1900 50 200 1050 2100 132050 6200 6700 Fixed Cost 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 Profit Before tax -14050 -8750 -4750 -2950 -3950 -2900 -950 -800 50 1100 131050 5200 5700 Break even Sales -76.628 -154.84 -1333.3 -3076.9 -1694.9 -3157.9 160000 45000 8571.4286 4761.9048 1060.2045 2419.355 2313.4328 The following can be deduced from table 3: 1) The gross profit of the stores will be negative for the first five month. In August, the gross profit will be positive. The negative value indicates that the cost of sales is greater than the sales revenue. 2) The gross margin of the store is observed to increase in August. So, it can be stated that the store will earn profit in August. The gross margin is seen to greatly fluctuate and gross margin will be the highest in January. 3) The Profit before Tax (PBT) will be highest in November. Figure 1: Break even analysis of Sound Come Alive (Source: Author’s creation) In the above figure, the break even sales are presented. Breakeven sales indicate the minimum amount of sales required for earning profit. Twelve months marketing forecast Before elaborating on the marketing forecast of Sound Come alive, it is necessary to explain marketing activities of the stores as this is related to product sales. The marketing expenses and sales are interrelated, but are not dependent. The increase in marketing expense does not necessary imply the same in sales of the stores. The marketing mix of Sound Come Alive is as follows: Product: The main product of Sound Come Alive will be hearing aids. Due to rising sound pollution, an increase in number of hearing problems among the mass worldwide is observed. Individuals are in need of these hearing aids for experiencing the essence of everyday life and remain fit. Sound Come Alive aims at serving these individuals who have deficiency in hearing and requires hearing aids, which are of high quality and works effectively. Sound Come Alive will purchase hearing aids belonging to different brands so that customers can easily choose from the same. The sales price of these hearing aids will be set in such a way that profit is obtained after cost of the sales is deducted from the sales revenue. Price: The price of different branded products will be dissimilar. The price will depend on quality, durability and clarity of hearing sound. The price of the machines also varies with quality of battery used. If a high quality battery is used in the machine, then the price will invariably be high. Changes in prices will not affect the demand owing to nature of the product as individuals with hearing deficiency will necessarily buy it. Promotion: The promotion of the products is very vital for the store as this contributes towards improving sales. The store will promote their products through leaflets, which will list product specifications, along with the price ranges. The products will also be displayed on outdoor hoardings. The promotion of the product is needed in order to increase awareness for the product among the mass. There is a particular cost associated with the promotion, which will be spent by the stores as a part of marketing expenses. People: The target customers of the product are individuals who have deficiency in hearing and require hearing aid. The company will also perform a market research for identifying the deficient individuals so as to easily target them. For undertaking this market research, a particular amount is spent over research and development. The following table presents sale forecast of the store for the first twelve month of its operation, starting from March of current year to March of next year: Table 4: Sales Forecast Sales Forecast (12 months) Particulars March April May June July August September October November December January February March Sales Revenue 1000 1200 5000 6000 5000 6000 8000 9000 9000 10000 140000 15000 15500 The table given above elaborates on sales forecast, which depicts the fact that sales revenue will fluctuate during this period due to rise and fall in demand. The table below elaborates on marketing expenses of the stores. The marketing expenses encompass the cash spend for promoting the products of Sound Come Alive. The promotion charges include costs for printing leaflets and publishing advertisement in newspaper. The promotional charges also cover expenses incurred for outside hoardings. Table 5: Marketing Expense Marketing expenses Printing of hoardings 450 450 350 250 350 450 260 150 450 500 250 300 350 Printing of leaflets 100 120 150 152 152 175 185 125 162 150 152 165 175 Charges for news paper advertisements 500 500 300         200 500 300 300      Total 1050 1070 800 402 502 625 445 475 1112 950 702 465 525 The above table highlights marketing expenses, which reflect that the store will considerably spend upon promotion of the products offered. Promotional activities are very important as this will make individuals aware of products that the store is selling. Apart from these types of promotional activities, the store will also provide discount on purchases. These will ensure that customers are satisfied with the price and they in turn will recommend the store to others. The store will also offer free check up for customers, once they have brought the hearing aids. The store will facilitate free service if the hearing aid does not function well (Ayres and Nalebuff, 2003; Connoll, 2010; Gelder and Woodcock, 2003). References Ayres, I. and Nalebuff, B. (2003). In praise of honest pricing. Sloan Management Review, pp. 24-28. Baines, P., Fill, C. and Page, K. (2011). Marketing. Oxford: Oxford University Press. Cherunilam, F. (2010). International business: Text and cases. New Delhi: PHI Learning. Connoll, A. (2010). Winning health promotion strategies. Westport: Quorom Books. Dess, G., Lumpkin, G. T. and Eisner, A. (2009). Strategic Management: Text and Cases. 3rd ed. New York: McGraw-Hill Education. Ferrell, O. C. and Hartline, M. D. (2010). Marketing strategy. 5th ed. Connecticut: Cengage Learning. Gelder, D., and Woodcock, P. (2003). Marketing and promotional strategy. Cheltenham: Nelson Thomes Ltd. Hansen, T. and Solgaard, H. (2004). Strategic pricing: Fundamental considerations and future perspectives. The Marketing Review, 4, p. 99-111. Read More