Entrepreneurship and Business Planning

Part 1: Executive summary:

The proposed business would be established as a joint-stock company which would produce and sell ready food products to the customers. The proposed business can be considered as a retailing company. A business plan has been developed for the proposed business enterprise which is presented below:

Company name:

The name of the business enterprise would be ‘Food delight’.

Ownership structure:

The business would be established as a joint stock company in which Mr. Jack Peterson and Mrs. Emily Peterson would be the principle owners.

Mission statement:

The mission of ‘Food delight’ would be to serve ready food items to the customers at reasonable prices to ensure customer satisfaction and business expansion.

Uniqueness of the business

In the view of Jensen and Meckling (2006), uniqueness is vital for the sustainability of a business enterprise. The proposed business enterprise would be unique in terms of the variety of food products offered to the customers. In addition, the business enterprise would offer free home-delivery service to the customers upon minimum specified billing amount.

Details of products and services

‘Food delight’ would offer a range of food products that are mentioned below:

  • Pizza
  • Pasta
  • Burger
  • Indian food items
  • Chinese food items
  • Soups
  • Soft drinks
  • Coffee
  • Ice creams

Therefore, the proposed business would have a diversified product portfolio that would enable the firm to serve a diversified customer base.

Market opportunity

The retail sector of UK is one of the fastest growing industries in UK (Nicholson and Kiel, 2008). The sector is expected to grow at a faster rate in near future. Hence, the market opportunity seems to be promising for the company. In contrast, Peel and O’Donnell (2012) argued that presence of established brands in food industry raises the barrier for new entrants. Dominos, Subway, McDonald’s, and Pizza Hut are some of the leading players in this industry. Hence, it is important for ‘Food delight’ to conduct proper market survey and develop appropriate business strategies before starting its business operations. In addition, the UK population is also growing at a faster rate. Increase in the number of foreign migrants can be considered as a vital reason behind this. Therefore, the market opportunity for the proposed business looks promising if the firm is able to offer large variety of food items at lower prices to the customers. In UK, the existing market leaders like Dominos, Subway, McDonald’s, Pizza Hut, and others lack the availability of variety of food items. In other words, food products offered by these firms are almost similar in nature. However, ‘Food delight’ would offer Indian and Chinese food items in addition to the pizza, pasta, burgers, and soft drinks, coffee. This further enhances the market opportunity of the business enterprise.

Pricing and distribution strategy

In the view of Kustin (2009), sound pricing decision is crucial to the success of a marketing strategy. The pricing strategy of any business is mainly aimed at covering the cost of sales and generating revenues from therein. However, Olhager (2010) expressed that attracting new customers is a major objective of pricing strategy. Hence, it becomes a key responsibility of a firm to price its products in way that it is able to attract new customers based on its current pricing. Market research and pricing strategy of competitors are vital information on this. ‘Food delight’ needs to conduct extensive market research to gather information from relevant secondary sources. In addition, the company can collect pricing and sales related information from the annual reports of existing market players. This would give a fair view of the pricing strategy of competitors and market position to ‘Food delight’ which would further enable the company to develop effective pricing strategy. However, ‘Food delight’ has decided to focus on offering low-cost food items to the customers to gain competitive advantage of the existing market players. In this context, Vorhies and Morgan (2010) stated that comprise on quality of products and services to reduce cost of sales might result in customer dissatisfaction. Hence, the company needs to implement sound quality control system to ensure that high quality food products are served to the customers.

Marketing and sales strategy

Marketing strategy of any company revolves around product, pricing, place, and promotions. These are also referred to as the four Ps of marketing. In this context, Wilkie and Moore (2009) expressed that the key objectives of marketing mix is to offer the right product at the right price at the right place with the help of effective sales-promotion.

‘Food delight’ would focus on offering variety food products to the customers under a single umbrella. The food products would range from ready food items like pizza, burgers, and others to coffees, soft drinks, and inter-continental dishes like Chinese and Indian meals.

The pricing strategy of ‘Food delight’ would be to offer quality food products at lower prices compared to existing market players. The selling price of the food products are presented below:

SL Item name Selling price (£)
1 Pizza 1.50
2 Pasta 1.00
3 Burger 1.00
4 Indian combo meal 2.50
5 Chinese combo meal 2.00
6 Coffee 0.50
7 Soft drinks 0.50

 

In the view of Lowe and Koh (2007), opening of retail stores at busy places enhances the chance of success of the business. ‘Food delight’ would initially open 4 retail outlets at the busiest places in London, UK. The places would be selected on the basis of a study on the population of these areas. This would ensure greater success for ‘Food delight’ through higher sales revenues and profit margin.

Marketing strategies seem to be incomplete without proper advertising and sales-promotional efforts. In this context, Makadok and Barney (2011) expressed that advertising efforts can be considered as effective if such efforts are able to generate higher revenues than costs associated with advertising. ‘Food delight’ is a new company and hence it would look forward cost effective advertising mediums. The company would advertise about its products and offers through local newspapers, TV channels, and radio stations. In addition, ‘Food delight’ would also use hoardings for advertising its products and services. As mentioned by Omar (2009), social media has emerged as an effective sales-promotion tool in modern business world. Hence, ‘Food delight’ would also use social networking sites like facebook, whatsapp, twitter, and others. These mediums are cost effective and result in greater customer awareness.

Resource requirements:

The resources required for a new business can be mainly divided into financial resources, human resources, and technological resources. In this context, Patel (2008) mentioned that adequate organizational resources are highly essential for the success of a start-up business. The details of the resource requirements for ‘Food delight’ are mentioned below:

Financial resources Requirements
Initial capital £1,50,000

 

Human resources Requirements (nos.)
Branch manager 4
Marketing manager 1
Finance manager 1
Accountant 4
Chief 12
Waiters 8
Delivery boys 10

 

Technological resources Requirements (nos.)
Accounting software 1
Payroll software 1
Coffee vending machine 8
Pizza making machine 8
Refrigerators 4
Electric ovens 8
Credit card swiping machine 4

 

The total initial capital requirement has been estimated at £150,000 which would cover both initial capital investments and working capital requirements. ‘Food delight’ can resort to both equity and debt financing to meet its requirements. However, it often becomes a major challenge for a new business enterprise to raise adequate finance from external sources. The need for external resources arises from the lack of sufficient equity capital. In this context, Patel (2008) stated that new business enterprises suffer from the lack of credibility to raise finance. Most financial enterprises and commercial banks look for certain credibility while advancing loan to new business enterprises. This becomes a major hindrance on the way of starting business operations for a newly established business. However, many commercial banks in UK has started offering customized loans and advances to Small and Medium scale enterprises (SMEs). ‘Food delight’ needs to identify these commercial banks and approach such banks to raise the required capital.

The initial capital expenditure would involve mainly involve purchase of machineries and software whereas a part of the funds would also be used to pay salaries to the employees of the organization and meeting other operational expenses like electricity, rent, and others.

‘Food delight’ needs to ensure that only efficient candidates are recruited. This would enhance the productivity of the enterprise. As mentioned by Gebhardt and William (2011), organizational productivity and competitive advantage is determined by the efficiency of the workforce. However, recruiting experienced and highly-skilled employees often becomes a challenge for a new firm as candidate is keen on joining such firms.

 

Part 2: Financial requirements:

Sources of finance:

The key sources of business finance are discussed below:

Equity capital:

Equity capital refers to the owner’s contribution towards the funding of a business. These contributions can be in the form of money, assets or a combination of both. It is one of the traditional ways of raising finance. A joint-stock company can issue equity shares to raise finance. In this context, Bushman and Smith (2008) mentioned that the key limitation of equity financing is the dilution of ownership and control. However, equity financing does not create any financial liability on the part of the company in the form of interest payments, and others. The cost of issuing equity shares is often higher than the cost of issuing debentures.

 

Debenture capital:

Debenture is one of the most common debt instrument used by business firms to raise the required capital. The principle benefit of debenture financing is that issue of debentures does not result in dilution of ownership and control. In contrast, Block (2010) argued that excess use of debentures increases the financial leverage of a firm. Thus, issue of debentures raises the financial risk of a firm. In addition, issue of debentures creates fixed obligations towards interest payment at frequent intervals which affects the cash flow position of the firm. Interest payment associated with debentures reduces the net profit margin of the company which further reduces the quantum of wealth created for investors.

Bank loan:

Companies can approach commercial banks and other financial institutions to raise adequate funds. As mentioned by Kaplan and Norton (2007), bank loan is a quick and easy way of getting corporate finance. Business enterprise can avail loans from banks against business assets. Rise in competition in the UK banking industry can enable a firm to avail finance at a competitive interest rate. However, business organizations availing bank loans need to keep bank authorities informed on various financial and non-financial matters related to business decision making and business operations. This might affect the confidentiality and competitive advantage of business enterprises.

Deferred credit:

Deferred credit can be defined as the postponement of short-term payments to suppliers and other third parties. This can be considered as a source of short-term credit. However, for a new enterprise like ‘Food delight’, it might be difficult to convince suppliers on allowing credit facilities to the firms. Cary (2007) observed that deferred credit cannot be considered as a suitable financing source for a new firm due to lack of goodwill and credibility.

Accumulated profits:

Accumulated profits or retained earnings can be used to fund business operations. These are the portion of the profits that are kept undistributed over the years. This source of finance does not involve any interest charges. However, Gebhardt and William (2011) mentioned that limited money can be availed from retained earnings. Thus, for higher capital investment requirements, a firm is bound to approach bank loan and other sources of debt capital.

 

Borrowing plan from HSBC bank:

‘Food delight’ can avail the following schemes offered by HSBC bank, UK:

Small business loan:

  • Minimum borrowing amount – £1,000
  • Maximum borrowing amount – £25,000
  • Fixed interest rate throughout the lifespan of the loan
  • Repayment period between 12 months and 10 years

Bank overdraft facility:

  • Easy and quick arrangement of bank overdraft
  • Interest payable on used funds on daily basis
  • Flexible borrowing facility


 

Financial planning:

Fund raising plan:

Sources of capital
Details Amount (£) Amount (£)
Sources of finance:    
Equity capital     100,000.00  
Debentures       20,000.00  
Bank loan       25,000.00  
Deferred credit         5,000.00  
Total capital   150,000.00

 

Estimated start-up costs:

Items Amount (£)
Purchase of equipment and machineries 50,000
Purchase of software 24,000
Interior decorations 30,000
Staff salary 10,000
Rent of showrooms 8,000
Electricity 500
Other operational and administration expenses 1,000
Cash balance 27,500

 


Estimated sales forecast:

Estimated sales forecasts
Items Year 1 Year 2 Year 3
Sales volume Selling price Sales revenues Sales volume Selling price Sales revenues Sales volume Selling price Sales revenues
Pizza 3600 1.50 5,400.00 4000 1.50 6,000.00 5800 1.50 8,700.00
Pasta 2400 1.00 2,400.00 2600 1.00 2,600.00 3000 1.00 3,000.00
Burger 3000 1.00 3,000.00 3200 1.00 3,200.00 3500 1.00 3,500.00
Indian combo meal 2000 2.50 5,000.00 1800 2.50 4,500.00 4800 2.50 12,000.00
Chinese combo meal 1500 2.00 3,000.00 1700 2.00 3,400.00 3700 2.00 7,400.00
Coffee 2500 0.50 1,250.00 3000 0.50 1,500.00 2000 0.50 1,000.00
Soft drinks 3000 0.50 1,500.00 3200 0.50 1,600.00 1800 0.50 900.00
Total     21,550.00     22800     36500

 

 


References:

Block, S.B., (2010), “A study of financial analysts: practice and theory.” Financial Analysts Journal, 15(8), pp. 86-95.

Bushman, R. and Smith, A., (2008). “Financial accounting information and corporate governance.” Journal of Accounting and Economics, 32(24), pp. 237 – 333.

Cary, D. (2007), “An integrated approach to alternative capital budgeting techniques, mutually exclusive projects, and consistency with the net present value rule”, Journal of American Academy of Business, 13(2), pp. 14-19.

Gebhardt, S. and William, R. (2011), “Toward an implied Cost of Capital.” Journal of Accounting Research, 39(1), pp. 135-176

Jensen, M. C. and Meckling, W. H. (2006), “Theory of the Firm: Managerial Behaviour, Agency Costs and ownership Structure”, Journal of Financial Economics, 3(4), pp. 305-360.

Kaplan, R.S. and Norton, D.P. (2007), “Transforming the balanced scorecard from performance measurement to strategic management: part II”, Accounting Horizons, 15(2), pp. 147-160.

Kustin, R.A. (2009) “Marketing mix standardization: a cross cultural study of four countries”, International Business Review, 13, pp. 637-649.

Lowe, A. and Koh, B. (2007), “Inscribing the organization: Representations in dispute between accounting and production.” Critical Perspectives on Accounting, 18(6), pp. 952-974.

Makadok, R., and Barney, J. B. (2011), “Strategic factor market intelligence: An application of information economics to strategy formulation and competitor intelligence”. Management Science, 47(9), pp. 1621-1638.

Nicholson, G. J. and Kiel, G. C., (2008), “A Framework for Diagnosing Board Effectiveness”, Corporate Governance: An International Review, 12(4), pp. 442-460.

Olhager, J. (2010), “Strategic positioning of the order penetration point”, International Journal of Production Economics, 85(3), pp. 319-29.

Omar, O. (2009). International marketing. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.

Patel, V. (2008). Project management. Jaipur, India: Oxford Book Co.

Peel, M. and O’Donnell, E. (2012), “Board structure, corporate performance and auditor independence”, Corporate Governance: An International Review, 3(4), pp. 207–217.

Vorhies, D.W. and Morgan, N.A. (2010), “Benchmarking Marketing Capabilities for Sustainable Competitive Advantage.” Journal of Marketing, 69(1), pp. 80-94.

Wilkie, W. L. and Moore, E. S. (2009), “What does the definition of marketing tell us about ourselves?” Journal of Public Policy and Marketing, 26(5), pp. 269–276.

 

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