Business Plan for Second Street Recovery - Essay Example

SECOND STREET RECOVERY Jewelry, Fine Furniture and Pawn Services BY YOU YOUR ACADEMIC ORGANISATION HERE YOUR HERE HERE Introduction –Company Summary Second Street Recovery is a start-up business specialising in the resale of gold, diamond, estate and costume jewelry for a variety of customers. The business will also carry a wide variety of vintage and antique furniture which will be purchased through independent auction, estate sales, and pawn customers. The Second Street Recovery pawn services will cater to the customer requiring immediate cash in exchange for various jewelry and furniture (and electronics when appropriate). Availability of various gold, diamond and costume jewelry will vary based on current inventory selection, frequency of estate buys and frequency of pawn customer interaction with Second Street. However, unless marked costume jewelry, the majority of all jewelry at the store will be upscale or certified fine-crafted gold and diamond jewelry, which will cater to a wide variety of potential customers. Second Street Recovery is owned and operated by Panayiotis Gavriel who will manage all of the business aspects of the company including administrative, bookkeeping, generic management, inventory and sales recording. This self-managed business philosophy will keep labour costs low and provide the owner with more flexibility in daily business operations. 2. Start-up Summary Second Street will require an initial capital infusion (long-term loan) in the amount of £33,575 at start-up. These costs will cover initial insurance, rent deposits, legal expertise, and generic office expenses necessary to operate the company at start-up. The chart below identifies the start-up capital and justification for launch of Second Street. Start-up Needs     Requirements       Start-up Expenses   Legal £500 Stationery etc. £175 Insurance £800 Rent £3,100 Computer £1,000   £0 Total Start-up Expenses £5,575     Start-up Assets   Cash Required £3,000 Start-up Inventory £25,000 Other Current Assets £0 Long-term Assets £0 Total Assets £28,000     Total Requirements £33,575 3. Market Segmentation The chart below identifies the expected customer demographics for Second Street Recovery as well as projections for growth over a five-year period, based on expected population increases in the London region. The market analysis chart identifies the percentage of customers which maintain the buying potential to utilise Second Street services, presented in pie chart format. Market Analysis     2009 2010 2011 2012 2013   Potential Customers Growth           CAGR Upscale Buyers 1% 10,000 10,100 10,201 10,303 10,406 1.00% Pawn Customers 1% 30,000 30,300 30,603 30,909 31,218 1.00% Males (20-60) 1% 30,000 30,300 30,603 30,909 31,218 1.00% Females (20-60) 1% 50,000 50,500 51,005 51,515 52,030 1.00% Estate Buyers 1% 8,000 8,080 8,161 8,243 8,325 1.00% Total 1.00% 128,000 129,280 130,573 131,879 133,197 1.00% Market Analysis (Pie) 4. Marketing Strategy and Implementation There are currently six to ten competitors in the local region which provide similar pawn services and jewelry resale, making this a very saturated marketplace. For this reason, Second Street Recovery must create a marketing-focused organisation to make Second Street products the foremost name in jewelry, furniture and pawn services. Prouness (2007) describes product positioning from a marketing perspective, which involves creating a connection between the product and the customer by appealing to their unique preferences and lifesyle choices. Product positioning allows a company to focus on the psychological elements of consumer behaviour, making Second Street appear to be more lifestyle-focused than other pawn, jewelry and furniture resale businesses. As a low-cost marketing effort, all print advertisements will utilise the following marketing phrase: Second Street Recovery – Your Beauty Awaits! This marketing strategy takes a positioning strategy in which customers believe that only Second Street products are superior enough to be considered lifestyle enhancement products. The quality and integrity of Second Street products creates long-lasting beauty for people looking for products which fit this psychological customer profile. This marketing slogan will be printed on all distributed flyers and newspaper advertisements as well as various business cards which will be left at all auction locations to assist in promoting Second Street Recovery. The company will also have a strong marketing-focused, interactive website: www.secondstreetrecovery.co.uk which will display the most precious items of jewelry and furniture, allowing customers to take a virtual tour of the item by clicking images of the product to see a 360 degree view. Interactive websites allow customers to explore the many benefits of Second Street products and compare issues of diamond clarity, diamond cut, gold hallmarking, or any other necessity prior to buying estate and vintage jewelry and furniture. Additionally, the website will offer a 15 percent discount for two product purchases (20 percent for each additional) as an incentive to ensure successful marketing and customer service. Siegel (2006) offers that incentives are key to building higher levels of customer willingness to make a purchase and should be used frequently to build consumer interest. Second Street Recovery will provide excellence in website presentation, design and functionality, giving us competitive edge over other lower-scale pawn and jewelry brokers. 5. Personnel and Operations Second Street Recovery will operate on a 7-day operating cycle from 11AM to 10PM. During the initial start-up year, ownership will be active six days per week on eight to ten hour shifts to save labour costs. The store will require an assistant manager position with a salary of £30,000. The assistant manager will ensure that the activities of the full-time associate are coordinated and will assist ownership with various management duties such as estate buying, customer service, and various inventory control measures. The assistant manager will work 5 to 6 days, 7 to 9 hours per day as required by sales volume and customer patronage volumes. The chart below lists the personnel plan and costs associated with Second Street Recovery launch. Personnel Plan   2009 2010 2011 Asst. Manager £30,000 £35,000 £35,000 Store Clerk £15,000 £18,000 £20,000 Total People 2 2 2         Total Payroll £45,000 £53,000 £55,000 In terms of operations, once the business has procured its jewelry or furniture items, they will be appraised by an independent fine jewelry and furniture appraiser in the local shopping area. Second Street Recovery will offer this contracted appraiser one percent of the total sale value of every piece of appraised jewelry as an agreement to ensure rapid appraisal of all jewelry. The business will later determine the appropriate retail mark-up based on appraisal value and will list the items both online and in the in-store environment. Pawn services will operate according to a strict policy, with no exceptions. All items have an 18-day payment and recovery option prior to becoming the property of Second Street. If customers fail to claim or repay their pawn loans, they forfeit all claims to the merchandise, regardless of its fineness or long-term value. All furniture items have a 21-day strict policy prior to becoming property of the business. Upscale (top quality gold and diamond) jewelry, if not sold within a 10-month period based on inventory records, will be scrapped at a regional refinery in order to prevent an over-abundance of inventory. In some cases, the scrap value of gold and diamonds (or other fine metals and jewels) will achieve a higher value than the selling price of the item, giving Second Street multiple options for ensuring profitability. Unsold furniture, after 12 months, will be listed on an auction website with an appropriate starting bid to allow customers to help the business liquidate old inventory, thus giving Second Street Recovery a fresh, new look with a constant array of new items. This will satisfy the customer and build a positive reputation for Second Street in the local region. Additionally, loans made against fine jewelry and furniture will be given at an interest rate of 20 percent and at no less than 60 percent of appraised value. Thus, a 14 Karat Gold necklace appraised at £1000 would generate a £600 customer loan. With a 20 percent interest repayment, Second Street would require £800 payback in order to re-release the item back to the customer. This represents a fair and competitive loan rate to other competition and ensures a high profit margin with each pawn service transaction. 6. Break-even Analysis Second Street Recovery requires sales volumes in the amount of £8,525 in order to break even on all business expenses, such as payroll, operations, taxation, rent and other expenditures. Any amount over this £8,525 will be pure business profitability. Based on the interest rates for pawn services and the frequency of estate buys and fine jewelry and furniture inventories, this is an easily-attainable goal with proper marketing and dedication to business success at the senior level. Break-even Analysis     Monthly Revenue Break-even £8,525     Assumptions:   Average Percent Variable Cost 15% Estimated Monthly Fixed Cost £7,246 7. Financial Considerations Expected sales volumes in the start-up year are expected to be £280,000, with a net profit of (minimum) £105,735. Over a three year period, this projected net profit will give the company a net worth of almost £429,000 (a conservative amount). Unlike other companies which have a high cost for manufacture, Second Street Recovery’s only cost is the cost of buying estate and upscale items as a one-time expenditure which is quickly recaptured in the selling price of various upscale and vintage, costume items. Additionally, 40 percent of the business’ profit receipts will be in the form of credit payments. Because of this, the company will maintain a STRICT 30-day accounts receivable policy for all business buyers to ensure a rapid cash flow. A strong company understands how to balance expenses with assets to ensure profitability. If liabilities begin to outweigh asset volume, the company must consider new business strategies to increase profit, such as increasing the loan interest rates or improving the quality of jewelry and furniture purchased to appeal to a higher-income customer group. Profit and Loss   2009 2010 2011 Sales £280,000 £330,000 £375,000 Direct Costs of Goods £42,000 £42,000 £42,000 Other Costs of Goods £0 £0 £0   ------------ ------------ ------------ Cost of Goods Sold £42,000 £42,000 £42,000         Gross Margin £238,000 £288,000 £333,000 Gross Margin % 85.00% 87.27% 88.80%                 Expenses       Payroll £45,000 £53,000 £55,000 Marketing/Promotion £5,000 £5,500 £6,000 Depreciation £0 £0 £0 Rent £21,000 £21,000 £22,000 Utilities £2,700 £3,000 £3,200 Insurance £5,000 £5,500 £6,000 Payroll Taxes £6,750 £7,950 £8,250 Other £1,500 £1,500 £1,500   ------------ ------------ ------------ Total Operating Expenses £86,950 £97,450 £101,950         Profit Before Interest and Taxes £151,050 £190,550 £231,050 Interest Expense £0 £0 £0 Taxes Incurred £45,315 £57,165 £69,315         Net Profit £105,735 £133,385 £161,735 Net Profit/Sales 37.76% 40.42% 43.13% Cash Flow   2009 2010 2011 Cash Received               Cash from Operations       Cash Sales £168,000 £198,000 £225,000 Cash from Receivables £102,978 £130,389 £148,550 Subtotal Cash from Operations £270,978 £328,389 £373,550         Additional Cash Received       Sales Tax, VAT, HST/GST Received £0 £0 £0 New Current Borrowing £0 £0 £0 New Other Liabilities (interest-free) £0 £0 £0 New Long-term Liabilities £0 £0 £0 Sales of Other Current Assets £0 £0 £0 Sales of Long-term Assets £0 £0 £0 New Investment Received £0 £0 £0 Subtotal Cash Received £270,978 £328,389 £373,550         Expenditures 2009 2010 2011         Expenditures from Operations       Cash spending £45,000 £53,000 £55,000 Bill Payments £97,352 £140,151 £156,849 Subtotal Spent on Operations £142,352 £193,151 £211,849         Additional Cash Spent       Sales Tax, VAT, HST/GST Paid Out £0 £0 £0 Principal Repayment of Current Borrowing £0 £0 £0 Other Liabilities Principal Repayment £0 £0 £0 Long-term Liabilities Principal Repayment £0 £0 £0 Purchase Other Current Assets £0 £0 £0 Purchase Long-term Assets £0 £0 £0 Dividends £0 £0 £0 Subtotal Cash Spent £142,352 £193,151 £211,849         Net Cash Flow £128,626 £135,238 £161,701 Cash Balance £131,626 £266,864 £428,564 Balance Sheet   2009 2010 2011 Assets               Current Assets       Cash £131,626 £266,864 £428,564 Accounts Receivable £9,022 £10,633 £12,083 Inventory £3,500 £3,500 £3,500 Other Current Assets £0 £0 £0 Total Current Assets £144,148 £280,997 £444,148                 Liabilities and Capital 2009 2010 2011         Current Liabilities       Accounts Payable £10,413 £13,877 £15,293 Current Borrowing £0 £0 £0 Other Current Liabilities £0 £0 £0 Subtotal Current Liabilities £10,413 £13,877 £15,293         Long-term Liabilities £0 £0 £0 Total Liabilities £10,413 £13,877 £15,293         Paid-in Capital £33,575 £33,575 £33,575 Retained Earnings (£5,575) £100,160 £233,545 Earnings £105,735 £133,385 £161,735 Total Capital £133,735 £267,120 £428,855 Total Liabilities and Capital £144,148 £280,997 £444,148         Net Worth £133,735 £267,120 £428,855 8. Recognising and Controlling Risks The SWOT Analysis format and PEST Analysis formats, two assessment tools to determine the strength of the internal and external business environment, will serve Second Street Recovery well. A SWOT Analysis will identify various competitor activities and determine whether competition is having success by doing business differently than Second Street. If these competitor successes are identified, Second Street will benchmark these activities to ensure that there are no measurable competitive risks to the business’ long-term profit expectations and competitive advantage. The PEST Analysis also identifies risks to the business such as economic or social issues, requiring Second Street to adjust marketing tactics or pricing based on economic demographics in the region during the start-up year. Social risks include customer changes in buying behaviour or discovering that they no longer find a marketing connection with Second Street and are choosing competitor products. The PEST analysis allows Second Street to examine the external business environment in order to change/alter business tactics and strategies in the event of unexpected or rapid changes which short- and long-term risks to the company. Controlling risks also includes issues of theft monitoring, such as the installation of security cameras for customers and staff, to ensure that loss prevention issues are handled. This will require active monitoring by ownership to ensure that no high-dollar items are being damaged or seized by staff or customers. 9. Summary Second Street Recovery is well-positioned for profit success and for having a positive long-term reputation in the local community. The wide variety of upscale products, sold lower than retail prices, will appeal to those customers looking for quality at an affordable price. The company’s emphasis on creating positioning strategies to build customer connection will also give the company higher profit potential and better customer service. All services and products will add high value to the Second Street Recovery name and provide the local region with products ranging from interesting to incredible. By understanding risks, controlling marketing efforts, and having a solid action plan of operations, Second Street Recovery will be a foremost leader in fine jewelry and furniture resale as well as pawn services. This is a hot market with much growth, making this a solid business plan for long-term success and cash availability. 10. References Prouness, Charlene. (2007). ‘Positive Positioning: 10 Steps to Achieving Standout’. HaymarketMedia.com. http://media.haymarketmedia.com/Documents/1/mmm_10steps_feb07_218.pdf (Accessed 14 Dec 2008) Siegel, Carolyn F. (2006). Internet Marketing: Foundations and Applications, 2nd ed. Houghton-Mifflin Company: 305. Read More