Concept of Business - Essay Example

Concept of Business: Lime Dry Cleaners and Laundry Service is being formulated to offer the consumer an exemplary level of service, whilst addressingthe strains of modern life and work life balance with an underpinning focus on the environment. The decision to pursue ethical/green dry cleaning is ultimately to capitalize on both the group member interest in environmental issues plus the growth in the sector per se coupled with the magnitude of public interest and awareness being nurtured by big business in other industries, for example, Wal Mart. Our proposal is to offer a considerably ‘greener’ alternative in the form of a hydrocarbon solvent, with a view that we can emulate the success that firms in the several states of United States and Europe have had by following a strategy from an ethical standpoint. Hydrocarbon alternatives have 90% fewer emissions into the environment, greater efficiency, and thus positive benefits for employees, and consumers alike. The company and its service has several uniqueness’s, these are as discussed below: The offering of an alternative environmentally friendly way of dry cleaning. The less abrasive process means that the clothes are not harmed as much as under conventional dry cleaning techniques. Our unique pick up and delivery service and late hour on-site drop off. Competitive business to business arrangements in the future Assisting the re-addressing of work life balance. Organisational Overview: The company will be started off in three different locations. The organisational structure and the decision making of the company will be centralised, i.e. all the decision making for major issues will be handled by the head office and chair person. The company will be set up in three different locations of which the head quarters will be in Abu Dhabi. The other two locations include Mumbai (India) and Cardiff (UK). All major decisions will be made by the chairman. The Abu Dhabi branch being the head quarters will include the main heads of operations, finance, HR, and marketing, will be responsible to handle the entire process across the three locations. The organisational structure of the company will be as illustrated below: The duties of the each of the above mentioned personnel will be discussed below: a) Finance and HR Head: The finance and HR head will be located in Abu Dhabi and the accountants of the other two locations will be answerable here. All recruitments and weekly accounts need to be sent to the Head quarters and to be checked by the Finance head to ensure all the finances are in order. The finance head will also be responsible to manage the daily finances of the Abu Dhabi branch. b) Operations Head: The operations head will be located in Abu Dhabi and will be responsible to manage the customers as well as the operations staff including the drivers and the assistant. The operations head will also be responsible to mange the staff of the other two locations as well and will need to get daily reports for the activities from time the employees clocked in until they clock out. c) Marketing Head: This individual as the name suggests will be responsible for the marketing activities. They will need to travel to all three locations and develop marketing plans based on the location and the markets. The marketing of all locations and the company as a whole will be managed by the Marketing Head. This individual will be based out of Abu Dhabi however will need to make the necessary travels for the job and this can be either weekly, monthly, as the job requires. d) Cardiff (UK) CEO: The Cardiff CEO will be the main head responsible for the company’s performance in UK. He will be the point of contact for both the people working in Cardiff and the heads from Abu Dhabi. He will be responsible for the Customer service in Cardiff as well. The CEO will also be responsible for recruitment or dismissal of the employees in the location. e) Mumbai (India) CEO: The responsibilities will be the same as that of Cardiff CEO however for the location of Mumbai (India). Raw Materials: Traditional dry cleaners offer a service that, on close scrutiny, doesn’t bear up to levels of expectation. Clothes, although clean, are returned in a malodorous condition, materials damaged in the long term, and with the added ‘bonus’ that Per- chloro -ethylene is a skin irritant for some people. Perc has been banned in some areas of the United States and is well documented as being environmentally unfriendly in the form of solvent disposal, air pollution, and being hazardous and carcinogenic to employees. The paying public has thus far been conditioned to this offering and it is our view that a positive, aggressive public awareness campaign would firmly propel us to the forefront of the market, and hence first mover advantage too. All the raw material used is direct. The raw material and the consumables cost per unit cloth item is found to be $ 0.72 approx. Key Personnel and Details: All decision making will be centralised and formulating long term strategies and goals will to. Likewise, everyone will be trained in all aspects of the dry cleaning industry so that they may participate actively in the future development of any staff introduced to the business. This will be of immense importance during the early development stages especially in the context of controlling costs. All the employees of the company will be paid on an hourly basis. The payments will be made at the end of the week and the calculations will be based on the number of hours worked. In terms of the pay per hour: [Note: For the purpose of simplicity and uniformity, all the money will be presented in terms of US Dollars]. In terms of the pay rates the pay rates have been fixed on the basis of the USD. For uniformity all the costs will be based on the prices prevalent in the US. For all locations alike: Salaries payable to each employee: Per Hour Office staff, Customer service representative $ 6.00 Driver and Assistant to driver and cleaning staff $ 5.90 Maintenance engineer $ 6.40 Heads $ 6.50 Finances: Start up costs: The following are the start up costs for each of the three locations. These are the initial investment that the company will need to invest. The company will work out of rented locations. Particulars Cost Spotting Tables (* 2) $ 2,600 Machines (* 2) $ 30,000 Dryers (* 2) $ 9,000 Ironing board (* 2) $ 4,500 Plastic bagging machine (* 2) $ 2,600 Compressor (* 2) $ 5,000 Furniture and fixtures $ 19,000 Electrical insulation $ 1,000 Computers, printers etc $ 2,000 Tills/e-Pos systems $ 15,000 LPG van $ 4,000 Sign boards $ 2,000 Website hosting cost $ 500 Registration cost $ 50 Insurance cost $ 2,000 Advertisements $ 24,000 water connection $ 500 Electricity connection $ 500 Toll free number activation $ 50 Internet access activation $ 50 Copy right Logo $ 60 Legal Expenses $ 1,000 Initial Purchase of Solvents $ 500 Operating Expenses: The operating expenses for the company will be as follows: Particulars Cost Salaries Partners [(6.5 * 30 * 8) * 6] $ 9,360 Office Staff/ Customer Service Representative [(6 * 30 * 8) * 3] $ 4,320 Cleaning Staff/ Assistant to driver [(5.9 * 30 * 8) *3] $ 4,248 Rent $ 15,000 Office Expenses Electricity $ 1,000 Water $ 1,000 Office expenses $ 500 Toll free number $ 250 Website maintenance p.a. $ 1,000 Advertisements $ 2,000 The sales forecast for the first month is taken to be a minimum value (1000 units per centre). The second month’s forecast is a total of 7,500 units (2,500 units per centre), assuming that the marketing efforts are effective. After this the number of units are predicted to increase by 10 % in every two months in the first year of operations. Operations: 24 / 7 working: Pick up and Drop off: The pick up and drop offs would be scheduled for 2 slots during the day. One would be in the morning between 7 and 10 am and the second one would be in the evening between 7 pm and 10 pm. Any pick up or drop that is not completed during one trip would be scheduled forward to the next trip. The only reason a pick up or drop will not be complete is if the customer is not available at the address given. Else the entire pick up and drop offs have to be completed. For this purpose the driver would be given a map which would have to be followed. This map would have the entire route planned out in the way that all the arrears are covered, according to their post codes. The driver would be handed a rooster for every trip where the address of the customer would be printed corresponding to the relevant post code. Once the driver has completed all the areas covered in the route map given to him, he would have to pick up the packages from the various Kiosks in the various areas. Once all these areas are covered the driver would need to get the packages back to the outlet, where he would be needed to sign off a register confirming all the pick ups/ drop off done so that the next route could be scheduled. Backend operations: Once the packages are received at the store, the clothes would be taken to the washing area where the clothes would be marked using the customer id and the date of receipt of the clothes. The marking would be done using print out taken from a small till. The material used would be one which will be resistant to the solvents and the entire washing process. Once the clothes are marked according to each customer id, they would further be divided into batches which would require the spotting process. Once this is done, the clothes which are due for the spotting would be taken to the spotting tables and the process would be carried out. This process will have to be carried out more carefully since the solvent used for washing are relatively less aggressive. Once the clothes complete this stage they are taken back to the area where the rest of the clothes were sent for washing. The clothes would be put into the machine and the entire process of washing would take up to 30 - 35 minutes. Once the clothes are washed they would be dried using the steamers, this process would go on for a period of 20 - 25 minutes. After the completion of the drying, the clothes would have to be ironed and folded or hanged and packed as per the request of the customer. Once the ironing is done the clothes are segregated in accordance to the customer id again, the total number of clothes are verified to be correct and all packed in one bag. The bag used for packing would be cloth bags. Once they are all packed the batch is ready for dispatch. The same process would be followed for all batches. The clothes would now be kept ready for the driver who would be provided with the rooster for the delivery. The diagram below provides a clear illustration of the process being adopted and this will be the same for all three locations. Financial Calculations: Particulars Basis for Financial Calculations     Staff Salary Salaries will increase by 10 % every year.   The wages for each employee is as shown below:   Office staff ($ 6.00 each hour for 8 hrs. for 3 people)   Assistant top driver and cleaning staff ($ 5.00 each hour for 8 hrs. for 3 people) Office Expenses Expenses will increase by 10 % every year. Depreciation Depreciation is done using reducing balance method.   Depreciation rates as follows:   Plant and Machinery 14 %   Office equipments 15 %   IT and vans Straight Line depreciation Dividends The shareholders will receive a dividend of 20 % for the first year, after which it would be 30 % Tax VAT will be charged at 17.5 %.   Corporate Tax will be applies at 19 % and 30 % as per regulations Advertisements The first six months of the business would increase the advertisement expenses by 10 %   Then on there will be a annual increase of 5 % Consumable It is assumed that consumables (electricity and water) costs 10 % of sales Bad Debts Would be 5 % of sales Contingency Reserve A 30 % reserve would be made Raw Materials used 1 % of sales. Note: For all the financial statements, i.e. Profit and Loss accounts, Cash Flow Statements and Balance Sheets of the company please refer the Appendix. Break Even Analysis: BREAK EVEN ANALYSIS     Sales per unit – VAT $ 5.3625 Variable cost per unit   Consumables $ 0.65 Raw materials $ 0.065     Contribution per unit $ 4.6475 Total Fixed cost $ 463948  BE Point  99827 units BE Sales $ 535,322.30 Particulars Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec No. of unit 3000 7500 7500 8250 8250 9000 9000 10500 10500 12000 13500 15000 Cumulative No. of units 3000 10500 18000 26250 34500 43500 52500 63000 73500 85500 99000 114000 Break even point Hence the Break Even Volume (No. of Units) is found to be 99,827 cloth items. This corresponds to a break even sales of $ 535,322. From the schedule it is evident that the break even point will be achieved in the first year of operations in November 2010. Exit Strategy We are very confident that there is sufficient need in the market for our business; however, we are also aware of the fact that in business there are no assurances. Therefore, if for any reason the company does not live up to expectations there are some viable options to which the business could follow: If it is proven that the laundry business has greater potential, consideration for switching the business completely to laundry will be made. This will fit within the confines of the present structure of the business; however, moves would be made to operate from cheaper premises. We would, however, be pursue this in line with our ethical stance. To pay all debts that are owed, and exit the business as soon as possible incurring as little loss as possible. Considering the three cases, if one of the outlets needs to be shut down, then the chosen outlet would be that in Mumbai (India). The main reasons being that the target market here; are not very aware and conscious of the “green” method of dry cleaning. Also the level of interest of the markets to provide a greener and better method is quite limited. Hence making the market very low for the company and thereby leaving this outlet to be a very expensive outlet for the company. It is also essential to note that the prices for this has been directly taken at the US Dollar rates which thereby puts a lot of pressure on the outlet to simply be able to meet the standard of the other two countries. Bibliography Ferguson, R. and Hlavinka, K., 2006, ‘Loyalty Trends 2006: Three Evolutionary Trends to transform your Loyalty Strategy’, Journal of Consumer Marketing, Nov 5, 2006, Vol. 23, p292-299  Jobber, D., 2004, Principles and Practice of Marketing, 4th edn, McGraw-Hill International, Berkshire  Johnson, G., Scholes, K. and Whittington, R., 2006, Exploring Corporate Strategy, 7th edn, Prentice Hall, Essex  Sloman, J. and Sutcliffe, M., 2004, Economics for Business, 3rd edn, Prentice Hall, Essex  Wood, A., 2003, ‘The Value of Customer and Prospect Databases as a Corporate Asset’, International Journal of Retail & Distribution Management, Nov 12, 2003, Vol. 31, p638-643 Projected Cash flow for First Year: (Jan – Jun)   Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Cash C/F 330,211           Operating Activities             Cash from Customers 97,500 97,500 97,500 97,500 97,500 97,500 Purchase of Raw Materials - 1,000 - 1,000 - 1,000 - 1,000 - 1,000 - 1,000 Consumables - 9,750 - 9,750 - 9,750 - 9,750 - 9,750 - 9,750 VAT - 17,063 - 17,063 - 17,063 - 17,063 - 17,063 - 17,063 Rent - 25,000 - - - - - 25,000 Salary - 17,928 - 19,721 - 19,721 - 19,721 - 19,721 - 19,721 Advertisements - 3,041 - 3,041 - 3,041 - 3,041 - 3,041 - 3,041 Office Expenses - 525 - 525 - 525 - 525 - 525 - 525 Telephone - 250 - 275 - 275 - 275 - 275 - 275 Website Maintenance - 1,992 - - - - - Insurance - 1,000 - - - - - Additional Provision (Bad Debts)             Net Cash from Operations 19,952 46,126 46,126 46,126 46,126 21,126               Corporate Tax - 29,842 - - - - - Dividends                           Capital Expenditure             Plant & Macinery             Office Equipments             Net Cash Flow before Financing 320,321 46,126 46,126 46,126 46,126 21,126               Financing             Investments                           Cash Flow 320,321 46,126 46,126 46,126 46,126 21,126 (Jul – Dec)   Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Total Cash C/F               Operating Activities               Cash from Customers 107,250 107,250 107,250 107,250 107,250 107,250 1,228,500 Purchase of Raw Materials - 1,000 - 1,000 - 1,000 - 1,000 - 1,000 - 1,000 - 12,000 Consumables - 9,750 - 10,725 - 10,725 - 10,725 - 10,725 - 10,725 - 121,875 VAT - 18,769 - 18,769 - 18,769 - 18,769 - 18,769 - 18,769 - 214,988 Rent - - - - - - - 50,000 Salary - 19,721 - 19,721 - 19,721 - 19,721 - 19,721 - 19,721 - 234,859 Advertisements - 3,041 - 3,041 - 3,041 - 3,041 - 3,041 - 3,041 - 36,492 Office Expenses - 525 - 525 - 525 - 525 - 525 - 525 - 6,300 Telephone - 275 - 275 - 275 - 275 - 275 - 275 - 3,275 Website Maintenance - - - - - - - 1,992 Insurance - - - - - - - 1,000 Additional Provision (Bad Debts)           - 61,425 - 61,425 Net Cash from Operations 54,169 53,194 53,194 53,194 53,194 - 8,231 484,295                 Corporate Tax - - - - - - - 29,842 Dividends           - 111,792 - 111,792                 Capital Expenditure               Plant & Machinery             - Office Equipments             - Net Cash Flow before Financing 54,169 53,194 53,194 53,194 53,194 - 120,023 672,872                 Financing               Investments             -                 Cash Flow 54,169 53,194 53,194 53,194 53,194 - 120,023 672,872 Projected Profit and Loss Account for First Year: (Jan – June)   Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Sales 19,500 48,750 48,750 53,625 53,625 58,500 Cost of Sales             Opening Stock - 305 318 330 294 258 Purchase of Raw Materials - 500 - 500 - 500 - 500 - 500 - 500 Consumables - 1,950 - 4,875 - 4,875 - 5,363 - 5,363 - 5,850 Closing Stock 305 318 330 294 258 173   - 2,145 - 5,363 - 5,363 - 5,899 - 5,899 - 6,435 Gross Profit 17,355 43,388 43,388 47,726 47,726 52,065               Operating Expenses             VAT - 3,413 - 8,531 - 8,531 - 9,384 - 9,384 - 10,238 Rent - 4,167 - 4,167 - 4,167 - 4,167 - 4,167 - 4,167 Salary - 17,928 - 17,928 - 17,928 - 17,928 - 17,928 - 17,928 Advertisements - 2,000 - 2,200 - 2,420 - 2,662 - 2,928 - 3,221 Office Expenses - 500 - 500 - 500 - 500 - 500 - 500 Telephone - 250 - 250 - 250 - 250 - 250 - 250 Website Maintenance - 83 - 83 - 83 - 83 - 83 - 83 Insurance - 1,000           Start up costs - 4,660           Bad Debts Provision (5%) - 975 - 2,438 - 2,438 - 2,681 - 2,681 - 2,925 EBITDA - 17,620 7,291 7,071 10,071 9,805 12,754               Depreciation             Plant & machinery - 627 - 627 - 627 - 627 - 627 - 1,253 Office Equipments - 250 - 250 - 250 - 250 - 250 - 250 IT Equipment & Vans - 438 - 438 - 438 - 438 - 438 - 438 PBIT - 18,934 5,977 5,757 8,757 8,491 10,814               Corporate Tax - - - - - -               Profit             Dividends Paid             Net Profit             Contingency Reserve             Retained Profit             (July – Dec)   Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Total Sales 58,500 68,250 68,250 78,000 87,750 97,500 741,000 Cost of Sales               Opening Stock 173 88 405 723 943 1,065 - Purchase of Raw Materials - 500 - 1,000 - 1,000 - 1,000 - 1,000 - 1,000 - 8,500 Consumables - 5,850 - 6,825 - 6,825 - 7,800 - 8,775 - 9,750 - 74,100 Closing Stock 88 405 723 943 1,065 1,090 1,090   - 6,435 - 7,508 - 7,508 - 8,580 - 9,653 - 10,725 - 81,510 Gross Profit 52,065 60,743 60,743 69,420 78,098 86,775 659,490                 Operating Expenses               VAT - 10,238 - 11,944 - 11,944 - 13,650 - 15,356 - 17,063 - 129,675 Rent - 4,167 - 4,167 - 4,167 - 4,167 - 4,167 - 4,167 - 50,000 Salary - 17,928 - 17,928 - 17,928 - 17,928 - 17,928 - 17,928 - 215,136 Advertisements - 3,221 - 3,221 - 3,221 - 3,221 - 3,221 - 3,221 - 34,756 Office Expenses - 500 - 500 - 500 - 500 - 500 - 500 - 6,000 Telephone - 250 - 250 - 250 - 250 - 250 - 250 - 3,000 Website Maintenance - 83 - 83 - 83 - 83 - 83 - 83 - 996 Insurance             - 1,000 Start up costs             - 4,660 Bad Debts Provision (5%) - 2,925 - 3,413 - 3,413 - 3,900 - 4,388 - 4,875 - 37,050 EBITDA 12,754 19,238 19,238 25,722 32,205 38,689 177,217                 Depreciation               Plant & machinery - 1,253 - 1,253 - 1,253 - 1,253 - 1,253 - 1,253 - 11,904 Office Equipments - 250 - 250 - 250 - 250 - 250 - 250 - 3,000 IT Equipment & Vans - 438 - 438 - 438 - 438 - 438 - 438 - 5,250 PBIT 10,814 17,297 17,297 23,781 30,265 36,749 157,064                 Corporate Tax - - - - - - - 29,842                 Profit             127,222 Dividends Paid             - 25,444 Net Profit             101,777 Contingency Reserve             - 30,533 Retained Profit             71,244 Read More