Producing a Realistic, Practical Business Plan for a Business - Example

Produce a Realistic, Practical Business Plan for Your Business Table of Contents Introduction to the Business Idea 3 Choice of Source of Funds for the Business 4 Investment Appraisal Technique 4 Capital Project Evaluation 6 Forecasted Cash Flow and NPV 7 Conclusion 10 References 11 Introduction to the Business Idea By taking into concern the challenging business scenario prevailing within the restaurant industry throughout the globe, companies need to build efficient strategies for ensuring long-term sustainability. The immense growth of this particular sector or industry over the years has certainly paved the way for new entrepreneurs to emerge with new business ideas as well as concepts and apply the same in their respective businesses. In relation to the changing trend of the industry owing to drastic change in tastes and preferences of the customers, the proposed business idea is mainly setting-up a coffee shop in London (Allen, 2011). The business will mainly deal with the deliverance of coffee as a product to the customers. Notably, in the contemporary scenario, coffee is one of the most preferred beverages all around the world. People consume diverse sorts of coffee in order to become refresh and remove stress on a daily basis. Contextually, the idea of setting-up of a coffee shop in a particular location i.e. London can be regarded as quite prominent owing to wider popularity and acceptance of the product. This will ensure that the business can be able to sustain in the initial days with the targeted marketplace. For the proposed business, London is selected as the target market. This is because of the fact that it is one of the popular and biggest cities of the world with continuous flow of tourists visiting the same throughout the year (Centre for Cities, 2014). The proposed business will be carried out based on sole proprietorship structure, wherein the decisions will be taken entirely by the top-level management. The flow of information will be from the top to lower level employees. However, at times of making important decisions, the viewpoints of the employees would also be duly considered, so that accurate choices can be made. It must also be mentioned that the proposed business will use personal capital and avail loan from banks to meet the funding needs while performing its operations in London. Choice of Source of Funds for the Business Proper funding is one of the prominent aspects, which is associated with any sort of business. Financial needs of businesses generally refer to the volume of funds required to establish a particular business in a target market in an efficient manner altogether. It will be vital to mention in this similar context that a business necessitates huge figure of funds in its initial stage of establishment (Gupta, 2010). The funding needs for any business in the initial phase generally relate with the aspects including purchasing equipments, machinery, plot or land, hiring human resources and meeting legal requirements among others. Contextually, this aspect will also be apparent for the proposed business of initiating a coffee house in London. Notably, the company will establish its business by purchasing all the equipment and machineries required for the start-up. The business will be conducted on a rented property in London. Funds will also be required to hire human resource through the process of recruitment and selection. Moreover, adequate funds will also be needed to obtain licence for starting the business in London. These funding needs of the proposed business of coffee shop in London will be fulfilled through owner’s capital and availing loans from different financial institutions. It must be mentioned that since the business will be established in a small scale, in the initial stages, it will not attract investors in the UK market. Hence, the owner might segregate the risk of business by acquiring financial aid from banks along with investing own capital. This will further make the owner solely liable to enjoy the profits of the business (Crown, 2012). Investment Appraisal Technique In order to depict the effectiveness of any business, proper appraisal of methods used to evaluate the business would be regarded as quite prominent. Contextually, investment appraisal is one of such techniques developed with the intention of understanding the importance and accuracy of the investments proposed in a start-up business. Notably, setting up a new business involves considerable risks owing to which owners or entrepreneurs need to undertake effective strategies. Prior to spending the capital on a start-up business, owners must need to understand the expected rate of return from the same. In this context, investment appraisal methods are used by the business units for the above stated reason. In general, investment appraisal methods include certain specific characteristics such as evaluating the excepted level of earning from the proposed investments to be made and depicting costs along with benefits associated with a particular project. There are various forms of investment appraisal methods that entail net present value (NPV), discounted rate of return, internal Rate of Return (IRR) and Payback analysis among others. Likewise, the proposed business of setting-up of coffee shop in London will take into concern NPV method to depict the future expectations from the investment made or proposed to be made (Gotze & et. al., 2007). As per the method of NPV, the expected revenue as well as the cost of a particular project will be predicted with a systematic analysis approach. In case, if the analysis of NPV depicts a positive value, the entire project can be expected to earn high profits for the investors. However, in the reverse scenario, if the NPV analysis depicts negative value, the chances of obtaining a positive outcome from a particular project become quite minimal. This particular method i.e. NPV, which will be used to analyse the proposed business of establishing a coffee shop, will enable in understanding the future potential of the business and the investment made and likewise required strategies will be developed in a more accurate manner. Hence, NPV can be justified as an approach of investment appraisal for the proposed business of setting-up of coffee shop in London. Capital Project Evaluation Capital is the backbone of any start-up business with regards to the challenging present day business environment. Prior to initiating a particular business, companies need to comprehend their capacity of investing capital. This particular approach of companies towards identifying the capital needs of the business can be regarded as capital project evaluation. For the proposed coffee house business in London, the concept of capital project evaluation will be vital. The owner of the proposed business will need to evaluate the needs of the business and likewise formulate capital requirement plan for the same. There are certain specific risks that are associated with such approach in any particular business. Some of the important factors that can increase risks in capital project evaluation include capital budgeting, risks associated with the overall project and business market competition among others. It has been comprehended that owing to uncertain nature of the marketplace, proper and accurate prediction as well as formulation of budget is quite challenging (Allen, 1991). Again, long-term risks associated with the projects such as fluctuation in market trends, increasing costs of raw materials and uncertain nature of performance of the business further makes capital project evaluation quite risky. Similarly, market risks involve macroeconomic factors that can affect the business in long run. These aspects will also be prevalent in the operations of the proposed business in the market of London. Contextually, the business will take certain strategies to mitigate the risks associated with capital project evaluation. These measures can be in the form of proper market research of UK (London) to understand the market and the risk factors associated with the region in which the business intends to establish its operations. Furthermore, evaluating the past trends of the market will also help the proposed business to ensure accuracy in capital need prediction. Forecasted Cash Flow and NPV The forecasted cash flow for the proposed business of setting-up of coffee house in London has been provided hereunder. The NPV of the proposed business has been calculated hereunder. From the above table, it is quite apparent that the NPV value for the proposed business as per the estimated values is deemed to be positive, which can be regarded as quite beneficial for it. With consideration to this aspect, the proposed business can be regarded as a profitable affair, which will further validate the business proposal by a considerable extent. With the values presented in NPV, it is apparent that the proposed capital of £ 50,000 for the business can be appropriate, as the return of investment (ROI) is positive. Conclusion From the overall analysis and discussion, it can be concluded that starting up a new venture involves various challenging processes, accomplishment of which will ensure that the businesses can be established in a systematic and effective manner altogether. For the proposed business of opening a coffee shop in London, steps such as selection of source of funds, choosing methods of investment appraisal and mitigating the risks involved in capital evaluation will be required to be focused with utmost concern. It is projected that the adoption along with the execution of such important steps will certainly aid in supporting the proposed business to reap several significant benefits in long run. References Allen, K. R., 2011. Launching New Ventures: An Entrepreneurial Approach. Cengage Learning. Allen, D. H., 2011. Economic Evaluation of Projects: A Guide. IChemE. Crown, 2012. Boosting Finance Options for Business. Home. [Online] Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/32230/12-668-boosting-finance-options-for-business.pdf [Accessed November 28, 2014]. Centre for Cities, 2014. Cities Outlook 2014. Files. [Online] Available at: http://www.centreforcities.org/assets/files/2014/Cities_Outlook_2014.pdf [Accessed November 28, 2014]. Gupta, C. B., 2010. Business Studies Xi. Tata McGraw-Hill Education. Gotze, U. & et. al., 2007. Investment Appraisal: Methods and Models (Google eBook). Springer Science & Business Media. Read More