James Mowing will provide an affordable and efficient service to the community, leaving your lawn neat and tidy.

Transcription

1 Small business plan: Business Overview: Name of Business: My business is James Mowing Prime Function of the Business: James Mowing will be a lawn mowing business to cater for the lawns of the town of Cityville. To give customers a premium lawn mowing service. The business will provide a comprehensive services, including mowing, edging and trimming, hedge clipping, and (for clients with fruit-bearing trees) bug-spraying. Mission Statement: James Mowing will provide an affordable and efficient service to the community, leaving your lawn neat and tidy. Goals and Objectives: The focus of the goals are financial for the first five years. The social and personal goals will only be reviewed once the business is financially successful. The financial goal- profit To break even - cover the fixed cost after 50 lawns. To make a net income of $50,000 by the end of the first year. To achieve a client base of 400 customers in the first year. (This is a financial and marketing goal) Financial goal - growth To grow the business by 150% in the next 4 years. Growth tactic: Using internal finance to expand the business - organic growth. Organic, or internal growth, refers to growing a business from the inside. o Internal growth goals James must strive to keep adequate retained profits if the business find can expand from internal funds. More retained profits results in more money for the business to use in hiring new employees, buying more equipment, or to fund Creative Classroom 289

2 further advertising. Additionally, retaining profits will help with any financial difficulty they might encounter in the future. o External Growth goals In 2 year s time the business will be expanded through acquiring other businesses. Buying out any competition in the area would give James access to a new customer base, potentially raising profits considerably and possibly giving the business a monopoly in lawn mowing in the area. Buying out similar businesses, not just lawn mowing businesses such as like pool-cleaning, would allow expansion into new markets. Prompt for remembering: The Goal of Professor Mark is to grow & price seeds. Legal Structure: James Mowing will operate as a partnership of two, the parties being James Lorn and Billy Mowan. Both partners will assume an equal share and responsibility through all business dealings; shares will be even split between them and they will both be equally liable for any losses or debts incurred. Application of a memory technique Need to refresh your memory? Refer to the prompt found on page 127 This structure allows the business to remain entirely within the control of the two owners, as all decisions, as well as all profits and losses, pass straight through to James and Billy. One disadvantage of this structure is the potential for dispute between partners. As this is an equal partnership, and there is no clear seniority in the partnership structure, there may be times when James and Billy feel strongly opposed on an issue. However, they are both good friends who have known each other for years, and as such trust each other enough that they should be able to overcome any differences in opinion. (Good luck in the future! Disputes over money usually breaks down friendships) As unlimited liability exists with this structure, the business may change to a private company structure, within two years. Prompt for remembering: Lawyers drive big CARS LAWYER LAWYER Application of a memory technique Need to refresh your memory? Refer to the prompt found on page Creative Classroom

3 Location of Business: James Mowing does not need a corporate headquarters, as they are an on-call, mobile business which comes to the customer. Appointments are primarily made over the phone. However, for the sake of storage and paperwork, the business will be located at James and Billy s shared house, which is located in the centre of Citysville. This location will be perfect for their clientele, who are situated all around the town, as the business can get to anywhere around the town quickly. Citysville itself has many wealthy families, and many houses with large lawns, meaning that there are many potential customers who both require and can afford the services of a lawn mowing business. Specialised plan 1 - Human Rsources plan Employment Relations/Staffing needs: In order for James Mowing to operate as a successful business, when the time comes to hire more employees and expand they need to employ suitable candidates to fulfil the business objectives, and most importantly, the customer satisfaction policy. The owner: Both James and Billy will require a good mix of capable working skills as well as administrative skills in order to run the business. This is because for the first few years they will be the only employees running the day-to-day mowing and trimming, as well as handling the financial and corporate side of the business. James and Billy will need to be efficient in their lawn mowing duties and provide excellent customer service in order to establish themselves as a business. They also should have a clear goal and business plan in order to fulfil their plans to continually expand the business in the future. After two years - The employees: After two years, there are plans for James Mowing to expand and additional employee will be needed. These employees will not need as much managerial expertise as James and Billy, but will still need excellent customer service skills. They may also need slightly more experience in mowing and trimming than James and Billy had when they began the business, as by this stage James Mowing should have a reputation for efficient and precise work. While James and Billy will continue to mow lawns, the added influx of employees will allow them to devote more time to managerial tasks. Employees will work in groups of two, working together to quickly and efficiently complete each job. One of the two will do the mowing and edging, while the other will deal with interactions with the customer, as well as clipping, weeding, and bugspraying. 291

4 Specialised plan 2 - Marketing 1. Situation Analysis: Product Life Cycle: Introductory stage o Throughout the introductory stage, James Mowing will experience high costs with few sales, as James and Billy must purchase supplies and equipment such as mowers, clippers, and petrol, and customers may be unaware of the business services. Therefore their main focus will be on establishing customer satisfaction with the client base to hopefully attract business through word-of-mouth referrals. They will place major emphasis on marketing the business to ensure a maximum number of potential customers know of their services. Growth stage o As the business reaches the growth stage, the business should experience a rapid increase in sales. Profits will begin to rise as establishment costs have been paid off, more clients will be coming in, and the workers will be more efficient and experienced. As the business continues to expand, they will begin to buy supplies in bulk, decreasing costs more through the concept known as economies of scale. Maturity stage o As the business reaches maturity, their sales might decline slight as other lawn mowing businesses seek to enter up the market. The loyal customer base, research and innovation by management, and strategic marketing and planning, this will have a major impact on sales and the survival of the business. Post- maturity stage o As the business goes into the decline stage, there are three possible scenarios: The business could enter the renewal stage The business could continue to operate at the current level of sales The business could be stopped completely. The best option for James Mowing would be renewal, meaning that the product has found a new avenue or niche within the market to enter. Through extensive market research and understanding consumer wants and needs, James and Billy could potentially find that many families require poolcleaning, dog-walking or washing, or even pest control or house cleaning. From this, they could revitalize and even expand their business to include any number of potential additions as well as keeping their lawn mowing service. 292

5 SWOT: Strengths: o The strengths of James Mowing are; Providing an efficient and relevant service to the customers. Helping busy customers maintain a good-looking lawn and house. A cheap and quick service. The revenue base is not dependent on one big customer Weaknesses: o The weaknesses of the business are; A limit on potential customers per day. Seasonal grass grows slowly in winter - less sales. During periods of extended rain or drought, work may cease entirely. Opportunities: o The opportunities of the business are; Expanding the business to include other suburbs or even towns, as a major competitor is closing down. The community is expanding due to the rezoning of farms into family homes. New industries are setting up. Threats: o Some major threats to James Mowing include; Competitors starting up in Cityville. There is an economic downturn forecast that a recession is likely next year. The weather forecast is for a drought for the next 6 months Market Analysis: o Before James and Billy open their business, they must understand the potential customers. o They must also research how many large lawns there are in the area, and how many of these are regularly mown by the owners. Competitor Analysis:: Unfortunately new lawn mowing businesses are starting up in Cityville. James must analyse and develop strategies to distinguish the business from the competitors. Their goal is to develop a competitive edge. 293

6 2. Market Research: In order for James Mowing to run as a successful business, it is essential that James and Billy conduct market research to anticipate what they will need to do to satisfy their customers. The business will use primary and secondary research techniques. They will need to obtain primary data made up of relevant first-hand information about the houses and lawns. This primary research will give them the specific information they need for the business This research may be a time-consuming and costly procedure, but the benefits of obtaining this information will outweigh the costs. 3. Marketing objectives: Sales objective: To expand the business to have a client base of 500, within the first 12 months. To have an increase of 20% on sales for each of the next 3 years. To make a net profit of $50,000 within the first year. Geographic: To continually expand the scope and range of their client base to cater to more suburbs within two years. 4. Target Market: James Mowing s target markets are working families whose lifestyle do not give time to mow their lawn, and older families who do not have the capability or willingness to maintain their lawns themselves. Ideally, their customer base would be anyone who has a lawn, but market research has shown some groups of people are more likely to hire a person to mow the laws rather than perform the service themselves. James and Billy will target these two groups in their marketing. 5. Marketing Mix Product When looking at their products, James and Billy need to ask themselves four things; i. Who is my service aimed at? ii. What are the benefits my customers expect? 294

7 iii. iv. How can we position the product in the market? What are the special features of our product? They must also consider product branding, product quality, product design, and product features. Prices: Prices of Services and Products: Mowing $10 Hedge and tree clipping $10 Edging $5 Bug-spraying $5 Weeding $5 All-in-one-package $25 In order to formulate a good pricing strategy, James and Billy undertook market research to tell how much customers are willing to pay, as well as the prices charged by competitors. One pricing strategy adopted was Penetration Pricing, where the business sets a low price for their good or service in order to increase sales and foster market share. Once the business has secured a place in the market, the managers will try to increase market share. James and Billy will give introductory offers for new customers, offering a further $5 discount off their already reduced all-in-one package. Promotion James and Billy will have to invest in promotion in order make their business more visible in the community. This is especially relevant during the introductory and growth stages. They ultimately decide upon three promotion strategies: i. Advertising ii. iii. Sales promotion Internet marketing The business should create a recognizable slogan and logo in order to form brand association. Spending money on brochures, pamphlets and other forms of advertising will allow customers to learn of their services, and increase the scope of their potential base. Another form of promotion they could use would be using coupons for discounted services or other loyalty rewards benefits, lowering cost or offering additional services for repeat customers. This should discourage customers from switching to a competitor. 295

8 Place: As stated earlier in the plan, James Mowing does not need a corporate headquarters, as they are an on-call, mobile business which comes to the customer. 6. Implementing, Monitoring & Controlling: James and Billy should review and assess the pros and cons of all strategies. After the strategies are put in place they must be monitored to ensure they remain effective in both the short and long terms. Short term strategies can often be improved by fine tuning or modification. In the longer term the business may have to develop new or more innovative ways to drive the business. 7. Revising the Plan: For James Mowing to operate successfully, the owners must keep up with trends in consumers want and needs, as well as counter the actions by competitors. A business must change, revise, and adapt its practices. If James Mowing is unable to do this, the business may fail. 296 Prompt for remembering: The story - Protesters sit and research an objection to target developing Mic s resort Creative Classroom

9 Specialised plan 3 - Financial Financial overview: James and Billy have a total of $30,000 in equity. The total costs of starting the business are $60,000, including purchasing lawn-mowers, leaf-blowers, whipper-snippers, and other gardening equipment, as \well as initial advertising and promotion. As James and Billy have $30,000 between them, they will have to borrow $30,000. Therefore, their gearing ratio is 1:1 Tools and equipment Lawn-mowers, whipper-snippers, hedgers, leaf blowers, petrol, and insecticide $50,000 Uniforms $1,000 Logo design $1,000 Telephone, fax connection & internet connection $1,000 Computers and operating system $2,000 EFTPOS + credit card connection $ 500 Stationery $1,000 Advertising $1,000 Insurance $1,500 Name Registration $1,000 Application of a memory technique Need to refresh your memory? Refer to the prompt found on page 188 Sources of finance: The business will take out a long-term loan of $20,000 from the Cityville Bank. This loan will be taken out for a year at a rate of 7.29% p.a. Loan repayments will be payed monthly at a figure of $ 455. Their short term loan is $10,000 External - Short term: Commercial bills: James and Billy can turn to commercial bills if they need short-term finance quickly. Commercial bills can be either variable or fixed, and provide a quick source of cash for borrowers. The business chose variable $2,000 in total Overdraft: Overdrafts occur when a bank balance exceeds the funds on deposit in the account. It is flexible, but extremely expensive. As this form of short term loan is very flexible they chose to borrow $8,000 Factoring: (in the future): James and Billy could alternately sell their accounts receivable to a third party factor such as a finance company. The factor company then collects the money that was owed to the business. The business needs to have sold their services on credit for this to be an option. 297

10 External - Long term: Mortgage: Both James and Billy took out a mortgage on property to obtain this loan. Value of the loan is 20,000. Debentures and Unsecured Notes: These financial options are not possible however if the business becomes a public company, they could consider issuing debentures and/or unsecured notes. These are long-term liabilities issued when a large amount of money is borrowed from a company by many investors. Debentures are also backed by collateral, meaning that if the borrower defaults, the creditor has access to the borrower s assets which can be sold to repay the loan. This makes debentures a very risky endeavour in a partnership such as James and Billy s, as they both hold unlimited liability together. This means their personal assets could be sold to repay a debenture. Unsecured Notes: Borrowings with no security over any of the business s assets. They include a higher interest rate than the debenture, limited loan amounts and lack of flexibility. In reality, using debenture and unsecured notes are unlikely sources due to the high costs of setting up these form of funding. Prompt for remembering: The story -It is DUMB to borrow long term. Internal: Retained Profits: These are profits that are retained by the business rather than distributed to James and Billy. In the case of a partnership, it is easy to put some profit aside for future finance purposes. The business has to make a profit for this form of funds to be a possibility. Application of a memory technique Need to refresh your memory? Refer to the prompt found on page 158 Selling assets is another source of funds for expansion. The process of selling off assets, may seem to be the opposite to expansion, but the selling of some assets, such as an outdated or inefficient mower, could divert funds to other areas. Accounting - Sheet 1 Cash flow Statement: Cash flow statement: James Mowing will use a cash flow statement to gauge the movement of money in and from the business. A cash flow budget is a measure of the expected payout for the year, and will help the owners plan for peaks and troughs within the scope of that year, as well as helping to inform the budgets of later years. The following is James and Billy s cash flow statement for June of the first year of trading: 298

11 Cash Flow Budget (for June only) Opening cash in the bank account $ 2,000 Cash in Cash Sales $ 20,000 Cash out Advertising $ 20,000 Telephone, fax & internet $ 1,000 Interest on the loans $ 2,000 Petrol $ 1,000 For June there is a shortage of cash of $ 2,000 - Action must be taken to prevent a financial crisis. Accounting - Sheet 2 Income Statement: Income statement: This is a summary of the financial performance of a business over time. It reflects the past performance. This report tracks how their business has performed. By having a profit and loss statement, James and Billy will be able to objectively determine the financial performance of their business. Income statement for James M4455 the year ending 2013) Sales $80, 300 Value of opening stock (OS) $100 Purchases (P) $200 Value of closing stock (CS) $ 0 COGS = $ 300 Gross profit $80,000 Less Operating Expenses Expenses financial $30,000 Expenses administration $20,000 Expenses selling $10,000 Net profit $20,000 Application of a memory technique Need to refresh your memory? Refer to the prompt found on page 152 GP SELLING COGS 299

12 Accounting - Sheet 3 Balance Sheet: Balance sheet (as at 1/1/2013) Current assets $20,000 Current liabilities $20,000 Non-current assets $80,000 Non-current liabilities $30,000 Total Equity $50,000 L E A F Application of a memory technique Need to refresh your memory? Refer to the prompt found on page 155 Accessing the Business Profitability Ratio: Return on Total equity: o Net profit: $20,000 o Total equity $50,000 o Return on owner s equity = 40% The Return on total equity of 40% is desirable. James and Billy have a large return. A return of about 10% would have been adequate Efficiency: In order for James and Billy to improve the efficiency of their business, they must take into consideration three main aspects of improvement: 1. Financial 2. Administration 3. Selling o Financial: To lower financial costs, James and Billy should borrow the least amount possible. As their business is just starting, they are forced to borrow some money. As it becomes established, they may not need to borrow any more, unless they wish to expand the business. o Administration: James and Billy have very low administration costs, as they run the business from home. They do not need to maintain an office or other business premises. However, they do pay upkeep on phone and internet bills, as well as petrol and insecticide. Care and monitoring should be undertaken to ensure efficiency, and changes made if they are inefficient. o Selling: One way to lower selling costs would be to reduce advertising throughout the community once a sizable customer base has been created. On-line advertising, together with billboards in key locations and personal word-of mouth referrals, could be enough to keep customers aware of the 300

13 business. However, initially the business will be forced to spend a lot of money on advertising in order to generate the initial interest necessary for a community-driven business to survive. Expense ratio: o Expenses: $60,000 o Sales: $80, 300 o Ratio: 75% The sales are higher than expenses, but this does not mean the owners can take a step back from reflecting and monitoring their cash flow budget they must continue to watch and improve if they are to thrive. Application of a memory technique Need to refresh your memory? Refer to the prompt found on page 164 Credit sales: Next year the business will offer 60 day credit for work done. The business believes that sales will rise as a result, but there are problems attached to this strategy. If there is a high instance of customers not paying on time it may be wise to investigate methods to encourage the debtor to pay. Liquidity Ratio: Current assets = $20,000 Liabilities = $20,000 Ratio = 1:1 Ideally a liquidity ratio should between 1:1 and 2:1. This at the low end and current assets should be raised to meet short term financial obligations when they fall due. Solvency: Debt = $50,000 Equity = $50,000 Solvency = 100% o The lower the ratio, the better equipped a business is to pay off its debts and survive in the long term. 0.8:1 is a targetable ratio. o A high debt-to-equity ratio also means that a business has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. The story - Parramatta Eels Love Sterlo. Parramatta = Profitability Eels = Efficiency Love = Liquidity Sterlo = Solvency END OF THE BUSINESS PLAN STERLO 301

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