Phowide Company - Feasibility in UAE, Business Structure, Sources of Funds, and Financial Performance - Case Study Example

Running Header: A Cool Opportunity Your name: Course name: Professors’ name: Date Introduction Phowide Company is a business that is set to operate in UAE. It will deal in online photography. This will involve clients uploading their scanned or digital photographs and instruct the firm to resize, or adjust their brightness before printing or mailing them to specific people. This report provides its background information, its feasibility in UAE, its business structure, sources of funds and its financial performance. Background information Phowide Company involves internet photography that will handle clients’ photographs. Upon uploading them, the clients can instruct provide instructions on how they want their photos adjusted. Some of the activities involved in the business include making adjustments of photographs in terms of their sizes, coloring, brightness, darkness, and framing. More so, the company, basing on the clients’ instructions, can print the photographs after designing, resizing, or decorating them. Clients will have to specify the number of prints they want to be produced, and those that want to mail them will be required to provide addresses of their desired recipients. This way, the company can easily and conveniently deliver their services to the intended customers. The company also deals in decoration of photographs depending on what the clients’ specifications. The business will have a highly developed website through which transactions are made. Additionally, the business will provide online services that involve clients uploading their digital camera or scanned pictures and upload them through the internet to the business’ photo shop. Moreover, customers can have an opportunity of sharing their photographs with friends, family and relatives as well as creating photo books and albums. The business intends to generate money out of the aforementioned services. Clients will be required to pay for the services through their credit cards, after which, the company delivers their products to them to their specified destinations. Feasibility of a photo shop business in the UAE Phowide Company’s is highly feasible because of the country’s great aesthetic value. The fact that UAE is one of the most preferred tourist destinations in the world has stimulated the development and creation of beautiful and attractive sceneries. Therefore, there are many prospective customers to the business because of high demand for photography. These clients will comprise of tourists visiting the country and will desire to share their photos with their relatives and friends at their home countries. They will also consist of of the UAE citizens who will want to share their photos with their friends and relatives in and out of the country. The feasibility of the business can be determined by various factors, such as, technology, economy, environment, operation, legal and schedule (Mor & Sehrawat, 2006, pp. 12-14). To begin with, UAE is a country that has advanced technology that is accessible to almost the entire population. This factor is, therefore, favorable for the business especially that its operation is done online. Secondly, the business has operational feasibility in UAE in that it will solve most a majority of the problems that people face in the photography industry. It will offer customers an opportunity to have high-quality printed photographs, send to, or share with their friends, family and relatives. Therefore, the business is feasible since it will satisfy the needs of clients in terms of affordable, reliable, and high-quality services in the country (Roddan, 2010, pp. 1-13). Thirdly, the business will have legal feasibility in that it will meet the legal requirements in the country. This implies that the online photography business in UAE is legalized, and that it complies with its business acts (Nichol, 2007, pp. 13-20). Fifthly, the business will have schedule feasibility since it will be implemented within the predetermined timeline. This way, the business will make high profits since it will work out as it is planned. Sixthly, the business’s economic feasibility is demonstrated by its cost benefit analysis. According to Roddan (2010, pp. 1-13), the company will have more benefits than the costs; hence making huge profits. The business will incur little costs during the development of the website, marketing and promotional activities, printing, and delivery of the products to the clients. On the contrary, the profits projected to accrue from the business are more than the costs incurred. This is because there is a high demand for photography in UAE. The company also is feasible in UAE because of its proper financial plan. The business’s profit and cash flow projections demonstrate high feasibility. Moreover, its projected cost is less than its benefits. In addition, the firm is feasible as regards resources essential for its successful operations (Roddan, 2010, pp. 1-13). The company will require at least 20 employees distributed to various departments, such as, sales and marketing, human resource, finance, technical, and customer service departments. This implies that there are readily available, highly competent personnel that will work in the firm as well as adequate time to carry out the business (Thompson, 2003, pp. 1-14). The company is planning to market its services and products through advertisement and through social networking sites, such as, Facebook, MySpace, You Tube and Google. This way, the company will attract as many customers as possible. Most of its clients are both young and old people and both male and female. These customers are also located in various parts of the UAE. Clients will receive their products and services online and in other cases through registered mail and curio services. In order to expand its market size to incorporate all people in UAE, the business will be required to design another website by using various languages; Arabic, Spanish, French and English. This will allow many people from different backgrounds to access their products and services. The business will be situated in various cities in the UAE, such as, Dubai because of numerous tourists and a large amount of people in the area. Furthermore, the business will threaten the old photo shops that operate offline and manually; hence capturing little market. On contrast, Phowide will attract a wider market share because of its ability to satisfy clients’ needs effectively (Thompson, 2003, pp. 1-14). Business Type In the determination of the business structure that firm will take, three options were considered. This implies that there are three main forms of ownership that a firm can take in its operations. To start with, there is a sole proprietorship form of business ownership. This is a business that is owned by a single individual who takes the responsibility of operating it (Clifford, 2008, pp. 4-10). Some of its advantages are that it is the least expensive and easiest type of business to organize, and that it is in total control, in law, to facilitate all decisions made. Moreover, sole proprietorship can be easily dissolved when necessary (Greene, 2012, pp. 197-200). A sole proprietor can obtain all income made in the business to reinvest or keep. On contrast, sole proprietorship has unlimited liability and has legal responsibility for its debts. The business also has personal and firm’s assets are at 100% risk (Burrow, 2008, pp. 167-170). At times, the company is compelled to use consumer loans or personal savings to settle some issues in the business. It is also difficult to attract high-caliber personnel, as well as worker benefits like owner’s insurance premiums cannot be directly deducted from the firm’s income. Secondly, there is partnership form of business ownership, which entails at least two individuals that have a business’s ownership shared. Among its advantages include the fact that profits flow directly to the personal taxes of the partners involved, and that it can attract prospective employees unlike sole proprietorship. In addition, the business is easy to establish, although adequate time should be set for making partnership consent (Greene, 2012, pp. 197-200). On the other hand, Burrow (2008, pp. 167-170) maintains that partners individually and jointly responsible for other partners’ actions; disagreements occur due to shared decisions; partners should share profits; some worker benefits cannot be deducted from business finance on tax returns; and that it has limited life that can end upon partner’s death or withdrawal (Greene, 2012, pp. 197-200). Thirdly, a business can be in a form of a corporation. This entails a business with a separate entity from the owners, charted and headquartered by the state. It can be sued or taxed, and its owners are shareholders (Clifford, 2008, pp. 4-10). Some of its benefits include its limited liability, and ability to raise extra funds from sales of stock. It can also deduct costs of benefits given to workers and officers. Nevertheless, its unsuitability lies on the fact that it can lead to high overall taxes; needs more money and time than other types of businesses; and forced to have paper work that comply with state, federal and certain local agencies regulations (Piotrowski, 2008, pp. 138-145). With respect to the business, the appropriate form of ownership will be corporation. This is because corporations have limited liability, unlike a partnership and sole proprietorship; in case the idea fails and the company goes bankrupt, creditors will take the business assets and leave out shareholders’ assets. In addition, Clifford (2008, pp. 4-10) says that a corporation is the most appropriate type of business because it allows easy and effective development of great ideas. This is because it involves many individuals, unlike a sole proprietorship. Furthermore, a corporation is a suitable form of ownership of the in that it easy to finance the start a business because of the number of shareholders (Piotrowski, 2008, pp. 138-145). Sources of Finance In order to ensure smooth operation of the business, choosing proper sources of finance will be high indispensable. In Phowide Company, the business will opt for long-term sources of finances, such as, shares, debentures, public deposits, retained earnings, bank term loans, and loans from financial firms (Das, 2010, pp. 577-580). To start with, shares can be given to the general public in two forms; preference and equity shares. This way, the holders of these shares will automatically become the business owners. Moreover, Bygrave (2011, pp. 420-425) maintains that the business can source its finances by issuing out debentures to the general public. Hence, the debenture holders involved will become the firm’s creditors. In terms of public deposits, general public can also be encouraged to deposit their savings with the company, which in turn, will periodically pay interests and the deposits at the appointed time. Moyer (2009, pp. 545-550) asserts that retained earnings can also be a suitable source of the company’s finances. This can be done by retaining some of its profits and using it as capital. What is more, the business can get finances form loans from banks and other financial institutions in the country. In other instances the firm might be forced to use short term sources of finances, such as, trade credits, bank overdrafts, cost of trade credit, and bank bills finance (Das, 2010, pp. 577-580). Leasing will also be appropriate way of financing the business. Therefore, the business’s success will be determined by its sources of finances. This could be in form of finances leases and operating leases. It can also employ hire purchase form of financing so as to enable it pay form some of the assets in installments (Bygrave, 2011, pp. 420-425). The form of business structure chosen for the business will affect its possible sources of finance. Since it is a corporation form of ownership, the business will suitably have long term sources of finance, such as, shares, loans and debentures (Moyer, 2009, pp. 545-550). If the company uses debentures as a source of capital, there will be no effect on the company’s control and ownership. Debentures also have investor’s risk tolerance as well as increased efficiency and transparency. Furthermore, debentures will enhance the business’s cost management, and gives it tax benefits. However, debentures are highly unsecured source of business capital. Moyer (2009, pp. 545-550) notes that the use of shares is advantageous in that the investors will have a particular interest in the business growth and profits. Thus, this will increase value of the firm by exploring viable and great ideas. This can be done by placing shares in a certain investor like banks. This is beneficial because it cheap and quick source of money to the company. Nevertheless, raising equity finance is time consuming and costly. External investors will also want to have certain background information of the business, and may negatively affect the business’s decision making process. Generally, Bygrave (2011, pp. 420-425) argues that short term sources of finance in business are beneficial in that they are easily available; they match the need for the short term business assets; and lower costs. For example, bank overdrafts are convenient because they are flexible and that banks can require security or forecast. Nonetheless, Moyer (2009, pp. 545-550) says that these finances may be of limited amounts, limited pay-back period, and penalties in case of delays. Some of the documents required before obtaining funds from external sources include national identity cards, business registration number and certificates. Upon getting the funds, some of the documents issued include receipts. Financial Performance Some of the financial performance statements of the business will include cash flow statement, balance sheet statement and profit and loss statement. First, cash flow statement is used to highlight the flow of cash in the company over a given period of time (Das, 2010, pp. 1-5). This cash flow can be from financing activities, operation activities and investment activities. Second, Epstein (2009, pp. 21-25) says that a balance sheet statement is used to provide an insight into the company’s financial status as at a given time. It differs from other statements in that it is prepared by considering the business’s financial health over a substantial period of time (Friedlob, 2006, pp. 127-130). Third, income statement is indispensable as it ascertains the loss and profits made by the business. It is also called the profit and loss statement. Financial statements are almost the same for all business types because of their similar sources of capital. The sources of funds, in this case, will appear in the balance sheet statement under the liabilities and equity (Pinson, 2008, pp. 78-82). Some will appear under current liabilities while others under the owner’s liability. The cost of finances will appear at the cash flow statement of the company, whereas the profits made will be displayed in the profit and loss statement of the company. These profits are made through the sale of its services and products to customers, dividends, royalties, and interests from sale of shares (Business Coach, 2008, pp. 40-43). Phowide Company Projected Balance sheet statement (2-years) Beginning Projected Year 1 Assets Current assets Cash in bank $400, 000 $4, 000,000 Accounts receivable - $30,000 Prepaid expenses $40,000 $4,000 Total current assets $440,000 $4,034,000 Fixed assets Computer and machines $300,000 $600,000 Furniture $100,000 $200,000 Total fixed assets $400,000 $80,000 Total assets $840, 000 $4,114,000 Liability & equity Current liabilities Accounts payable - $70,000 Long-term debt - - Bank loans payable - $2,000,000 Total liabilities $0 $2,070,000 Owners’ liability Retained earnings-beginning $600,000 $600,000 Retained earnings-current $0 $200,000 Total owners’ equity $600,00 $800,000 Total liabilities & equity $600,00 $2,870, 000 Phowide Company Projected Profit and Loss Statement (3-years) Year 1 Year 2 Year 3 Revenue (sales) Computers and machines $300,000 $600,000 $1,000,000 Total revenue (sales) $1,000,000 $2,000,000 $3,000,000 Operating expenses Business development $600,000 - - Capital expenditure $2,000,000 $2,000,000 $4,000,000 Personnel $300,000 $700,000 $800,000 Promotion $6,000 $600,000 $800,000 Consulting services $260,000 $100,000 $140,000 Total operating costs $3,166,000 $3,400,000 $5,740,000 Pre-tax profit $30,000 $ 500,000 $1, 460,000 Taxes (10%) $3,000 $5,000 $14,600 Net profit $27,000 $450,000 $1,445,400 Projected cash flow statement Phowide Company Cost Description Fixed Costs ($) Variable Costs (%) Variable Costs Personnel 30.00% Consulting services 4.00% Fixed Costs business development $600,000 Personnel $300,000 Capital Expenditures $2,000,000 Consulting Services $6,000 Promotion $260,000 Taxes $40,000 Total Fixed Costs $3,166, 000 Total Variable Costs 34% Breakeven Sales level $1076440 Conclusion Phowide Company is a business that will deal in online photography. Here, clients will upload their camera digital photographs or scanned photographs. The company resizes and adjusts them according to the clients’ specification. The business is highly feasible in the country in terms of technology, resources, finances, operation, economy and schedule. It will assume a corporation form of ownership because of its limited liability, easy collection of money, and availability of different, great ideas from the shareholders. Additionally, the company will opt for long term sources of funds, such as, debentures, shares, public deposits and bank loans. This is because they are of unlimited amounts and have long pay-back periods. Its financial statements will include the balance sheet, cash flow statement, and profit and loss statement. References Burrow, J. (2008). Business principles and management. Mason, Ohio: Thomson Learning South-Western. Pp. 165-170. Business Coach (2008). Financing a start-up business, Sources of Finances. Business Portal of India. Pp. 40-43. http://www.business- asia.net/pdf_pages/Startup_Ventures/08nov_dec_startup_venture.pdf Bygrave, W. (2011). Entrepreneurship. Hoboken, NJ: Wiley. Pp. 420-425. Clifford, D. (2008). Form a partnership: the complete legal guide. Berkeley, CA: Nolo. Pp. 4- 10. Das, S. (2010). Analysis and Interpretation of Financial Statements: Case Studies. Department of Mining Engineering National Institute of Technology, Rourkela. pp. 1-5. http://ethesis.nitrkl.ac.in/1953/1/10605038.pdf Epstein, L. (2009). Reading financial reports for dummies. Hoboken, N.J. Chichester: Wiley Pub. John Wiley distributor. Pp. 21-25 Friedlob, G. (2006). Financial and Business Statements. Hauppauge, NY: Barron's Educational Series. Pp. 127-130. Greene, C. (2012). Entrepreneurship: ideas in action. Mason, OH: South-Western Cengage Learning. Pp. 197-200. Mor, N. & Sehrawat, S. (2006). Institute for Financial Management and Research Centre for Development Finance. Working Paper Series. Pp.12-14. http://www.ifmr.ac.in/pdf/workingpapers/21/SourcesInfraFin.pdf Moyer, R. (2009). Contemporary Financial Management. Mason, OH: South-Western/Cengage Learning. Pp. 545-550. Nichol, C. (2007). Innovative Finance and Alternative Sources of Revenue for Airports. A Synthesis of Airport Practice. Pp. 13-20. http://onlinepubs.trb.org/onlinepubs/acrp/acrp_syn_001.pdf Pinson, L. (2008). Anatomy of a business plan: the step-by-step guide to building your business and securing your company's future. Tustin, CA: Out of Your Mind ... and into the Marketplace. pp. 78-82. Piotrowski, C. (2008). Professional practice for interior designers. Hoboken, N.J: John Wiley & Sons. Pp. 138-145. Pride, W. (2012). Business. Mason, OH: South-Western Cengage Learning. Pp. 577-580 Roddan, C. (2010). Feasibility Study and Business Plan. ADR Forestry Systems / Shearwater Ltd. Pp. 1-13. http://www.sunshinecoast-trail.com/sct/SCTbusinessplan.pdf Thompson, A. (2003). Understanding the Proof of Business Concept. Murdoch Business School. Pp. 1-14. http://files.uniteddiversity.com/Business_Plans/Understand_a_proof_of_business.pdf Read More