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BSBSMB404 Undertake Small Business Planning
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BSBSMB404 Undertake Small Business Planning
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Course Code: BSBSMB404
University: Tafe NSW
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Country: Australia
Question:
Information about what needs to be included in this section can be found in the Small business planning text book provided on the course Learn site.Enter your text on the first line below the blue box. Delete this instruction once you have begun work on this section.l the text in the blue box and press the DELETE key on your keyboard.
business planning text book provided on the course Learn site.
Enter your text on the first line below the blue box. Delete this instruction once you have begun work on this section. HIGHLIGHT all the text in the blue box and press the DELETE key on your keyboard.
Preliminary sales projections is an estimate of the sales the business is likely to experience in the first year of operation. You may also be able to comment on the expected sales for following years.
You MUST include a description of how you estimated your sales projections, e.g. what did you base the projections on Some information about what needs to be included in this section can be found in the Small business planning text book provided on the course Learn site.However you will likely have to do some additional research for this and you can also discuss this with your lecturer.
Enter your text on the first line below the blue box. Delete this instruction once you have begun work on this section. HIGHLIGHT all the text in the blue box and press the DELETE key on your keyboard.
Answer:
I’m going to start up a massage business in Prospect main road and I’m looking for any available space close to the shopping area. My client that I aim to service will focus more on the people working long period of day and the old people around 50 to 80 of age. My clinic will be a big shop with all separate rooms inside to make my clients feel the most comfortable as they expected.
Business objective
(long term directions)
Goals to achieving the objective (short term directions)
The things you need to do to reach your objective
1
In 2 years gain double the clients of first year (10 to 15 clients a day)
Advertising my business on new papers, social media such as create Facebook and follow local business and healthcare professionals, develop websites, yellow page, etc. Leave business cards in gym, health care professional, psychology clinic, medical clinic, health food store, nail & hair salon, etc.)
Giving out promotion such as 20% for the first week if share and like the Facebook page; or half off for the first-time customer.
Be a true professional therapy while treating clients, treating them with warmth and respect, and to stay in touch.
2.
Increase profit by 30% in 3 months
Gain more customers. Increase the price
Doing retail by selling massage oil, lotions, scrubs, hot packs, massage tools, massage books.
Increase staff members.
3.
Open up another business in a second location after 3 years
Target new customer. Add and create new products to retail market to make more profit
Open a private account to start saving money for the second business
Find a good location for the second business that is easy to grow and expand.
Get idea from current clients where I should open my next business that could be more convenient for them or their family, friends.
Target market size & segments
The current business plan is about the message business. Location wise the business is expected to open at the shopping area. The following business plan would be based on the specific objectives and the subsequent goal to achieve those objectives is also explained. This chosen location would be shopping area or Sydney. The segmentation of the business is done through demographic and geographic segmentation process. The geographic segmentation of Sydney city is targeted in this business plan. In the demographic segmentation the targeted options are the older age of 50 to 80 years of age group people.
Then the occupation wise demographic segment is also targeted. Here the long hour working population this is on average 25 to 50 years of age group people are also targeted. Population wise the diagram below shows that the long hour working population has the highest potential customer. The population trend here is showing the aging trend. In next 10 years the retirement age population would increase by 30.9% whereas working age population would increase by 26.5% (forecast.id, 2018).
The size of the market can be understood from the household income. The diagram below shows that the higher income group numbers of housefuls are greater than the national average. This is promising sign. The weekly household earning of more than $2500 or greater have close to 28.3% of total number (Profile.id, 2018). Therefore a sizable population having higher spending capacity is appropriate for the current business to target.
Market trend
Throughout Australia the wellness index is improving as shown in the below diagram. People are less indulging unhealthy activity like the drinking or smoking, having less medical condition, eating better and engaging with healthy business activity. The health and well spa industry in Australia has close to $438m as revenue with an annual growth rate of 3.3% in last five years (ibisworld, 2018). These last five years time period the completion in the market increased and that impacted profitability slightly. The main demand driving factors here are the busier lifestyle and growth in the discretionary income. In this industry expense on the labour is highly and capital intensity is low (ibisworld, 2018). But is last five years the upward trend in the capital expenditure is the reason for higher investment by the owners on the service delivery premises.
Life cycle/seasonality
There is less scope for seasonality factor in the massage business. Still the sales drop in the winter time. But there are great health benefits that the customer can have during winter time massage treatment. On the other hand business lifecycle wise there would be different considerations. At the introduction stage of this business the early marketing effort would be essential to win first set of customers. Here the discounts or the high quality service would matter most. At the next stage of growth the strong customer base development would a high priority. as strong business competency proper skilled massage service provider team development would be important.
During this time strong customer loyality program would be developed. Apart from that word of mouth publicity and referral incentive skills would also be important for the growth. During this growth stage the business wuld open in other prospective locations. During the maturity stage with expected expense pattern the business would hold customer count and income. During this time strong customer relationship management approach would be followed. The last stage of decline would aim at two strategies. One option would be winding up the business but restricting the business to re-enter the growth strategy would be important here.
Target market characteristics/customer profile
The working age population in Australia are working hard. The trend below shows that people at higher age are more likely to engage in the overtime working. On the other hand men more than women are more engaged with the overtime working (Bagshaw and Hanna, 2017). These people need more wellness services to reduce their stress. Therefore current business have great prospect because of this working culture. Another significant trend is the increment of women in the working class population. 34% level of 1996 increased to 56% in current time in terms of working women population (Bagshaw and Hanna, 2017).
Therefore female would be another significant segment for the current business. Another significant trend of the working population is the increase in the retirement age of the people. It has been seen that around 45 years aged people in Australia now plans to work up to 65 rather than up to age of 63 years from 10 years ago. At current status around 13% people are engaged in working who are 65 or more years old (heraldsun, 2016). Therefore the business can have a customer at a early age of a working class people and can expect to have a long term relationship to have long term customer value.
1.5 Competition
There are many competitor businesses in the Sydney locality. Some of the strong contenders and their services are discussed below. The message business provides different experiences to their customers. These experiences are delivered in the form of massage therapy brought from different part of the world. These are the special competency, differentiation point and competitive advantage of the businesses in the market.
Fleur de Lys- in their massage service they provide the experience of Maroccan Hammam. One of their special services is the romantic couple spa (fleurdelysmedispa, 2018).
Lee Massage & Acupuncture- they provide massage service with the acupuncture therapy to differentiate their services. The services are the remedial massage, feet reflexology, acupuncture service and so on (leemassage, 2018). The organisation has proper customer locality program in the form of gift voucher.
Grand royal Thai massage- they provide the massage of Thai origin. Different services are the ancient Thai and relaxing Thai type of massages, oil deep muscle massage, and reflexology foot and so on (grandroyalthaimassage, 2018). the organisation also provides sales discounts to their customer and in recent time they have invested on the premises to attract more customer.
1.6 Competitive advantage
The main completive advantage of the current business is the ambience and service to the customer. The current research for the business shows that the investment in the premises of the massage shop is the approach of value addition. This business is also having that approach. There would be separate large rooms with specialised massage therapist to deliver the best satisfaction to the customers. There would be chosen to the customer in terms of massage types. The competitor’s analysis shows that the other business does not provide any choice to the customer in terms of type of massages but provide choice in their service live. In the current business there would horizontal and vertical extension of different services for the customer to choose from (Teece, 2010). These service type and premise facility and ambience would be main competitive advantage for the business.
Location and/or distribution methods
The distribution channel is simple for the business. At the initial stage the business would operate from one location in a busy shopping area of Sydney. The distribution channel extension would be done at the end of the year 3 where the business would open in another location based on the demand (Hollensen, 2010).
1.8 Product mix
In the horizontal product line there would be Swedish, Thai, Maroccan Hammam and Acupuncture based Massage Therapy. Under all of the different types of massage therapy some standardise service would be developed (Wilson et al., 2012). These standardise services are Hot Stone, Aromatherapy, Deep Tissue, Shiatsu, Pregnancy, Reflexology massage therapy.
1.9 Pricing
The current business is providing lot of options to the customer with high quality of facility and ambience of the premise. This is differentiation approach of business strategy. In accordance to that the pricing policy is developed (Wilson et al., 2012). In this business quality leadership pricing policy would be followed where the services would be charged at higher the market average price to the customer at the beginning time of business operation and price would increase as the business grows. But the price would not stop to average market price as the value based pricing policy is followed where the business would provide higher customer service and satisfaction compared to the competitor’s service (Wilson et al., 2012). With growing business the quality of service would continuously increases in the operation. This would higher price demanding factor for the current business.
1.10 Promotion
The business marketing promotion would follow the integrated approach marketing communication. From the communicational mix the direct advertising, social media advertising, direct selling, public relation and the sales promotion. As public relation process the business would try to have article in the local newspaper. As per of the social media strategy dedicated Facebook page and service video in YouTube would be developed. A dedicated business website with high level of mobile device compatibility along with linking with the social media is developed (Fill and Turnbull, 2016). A regular monitoring of the website traffic flow
and social media impression would be done. The direct selling approach would be followed to promote the business by visiting the local gym, psychology clinic, and professional health care serice provider, store of health food, hair and nail salon and so on. The promotion would be done in the printed and online yellow page. The sales promotion would work through the social media approach where up to 20% discounts would be provided for Facebook page like or sharing the business links and a 50% discount would be given for the new customers.
Staffing plan
Position name
Number of staff
Office manager
1
Receptionist
2
Financial coordinator
1
Bookkeeper
3
Supervising
1
Specialist
3
Therapist
10
Cleaning staff
5
Marketing
3
Position
Roles and responsibility
Owner
Business operation, human resource management
Office manager
Managing and efficiently running the office.
Receptionist
Receiving the clients
Financial coordinator
Maintaining business financials and providing insights to the owner for decision making
Bookkeeper
Recoding financial information
Supervising
Supervising client services.
Specialist
Guiding therapist and also provide special treatment to the client when needed.
Therapist
Providing satisfactory massage service
Cleaning staff
Maintaining premise and keeping it clean
Marketing
Promoting the business
Technical expertise required
In this technical expertise part the main advantage is the own experience in the massage therapy. In the current business model there are different type of massage therapy from different region would be offered to the customers. Therefore a variety skill level is required among the massage therapist. Apart from that other technical, marketing support, front desk support staffs needs to have proper skill level to be effective (Burns and Dewhurst, 2016).
Management expertise required
Current business is depending on high differentiation strategy. Considering this the operation needs to be managed through proper approach. This is a small business and because of that a flat structure of the organisation would be maintained. This approach would provide greater control over the business and be helpful for the better quality delivery t the customers. Considering all of these the business would require higher operational knowledge, better business finance expertise (Burns and Dewhurst, 2016). On the other hand the marketing support would be another important aspect that the business needs to develop prior starting the business to improve its survival and growth prospect.
Personal net worth:
The business owner is all set to open H&T Massage Therapy centre in a rented commercial complex close to the shopping area and the business is looking for offering massage service to the persons who are in the age group of 50-80 years and are looking for a good relaxation option.
Here the business owner is assumed to be wealthy enough and has financed the part of the total start-up funding requirements of the business which is AUS $664275 .The rest of the start-up fund requirement has been fulfilled by taking a bank loan of AUS$ 299 993.
The owner has also invested a seed capital of AUS $ 350,000 as liquid cash (collected additionally from friends and family.) in the business so that the business can operate with a strong financial base.
So the sum total of the net worth of the owner that is invested in the business is AUS $664275.
Personal Drawings:
The business owner has invested so much in the business and that is why he has decided to withdraw his total persona living needs from the profit to be earned from the business. The amount of total personal living needs of the owner is AUS $20000 and the owner is drawing this amount from profit. The personal living needs of the owner include the items vehicle fuel expense, fooding, clothing entertainment, medical Expenses, Utility bills.
Capital requirements to set up the business:
The capital or fund needed to start-up the business includes the items of “Start Up Expenses ($179,500)”, “Start-up Assets ($331,775)”,” Capital Equipment and Supplies($153,000)” all that are being funded partially by taking the bank loan and partially by the owners equity.
Owners desired net profit:
The business has been expected to earn a positive profit of AUS $ 26184 from the 12th month of the business.
Business expenses:
The business is expected to incur an operating expense which is accountings 39 %( AUS$ 41388) of the total gross profit earned from the sales mix (AUS$67,572) in the 12th month of the projection period and after that the operating expense of the business is growing at an average rate of 17% on a monthly basis. The growth of the operating expense has occurred for making the required expansion of the business.
Break even calculation:
The business is expected to breakeven in the 9th month where from the business is expected to earn the positive profit
Sales mix:
The business is selling the massage service and the retail sales of massage making therapeutic service for earning revenue and these two are the two main sources of revenue earnings for the business.
Profit and loss statement:
The profit and loss statement defines that the business on an average has earned a gross profit margin of 91.43% but has started to earn a positive net profit margin from the 10th month when from the business has break even. From the 10th month the business has earned an average profit of 8%.
Cash flow forecast:
The cash flow statement demonstrates that the owner has invested a liquid cash of AUS$350000 in the business and this investment has helped the business to earn positive closing cash and the end of each month and the business has managed to earn strong positive closing cash balances at the end of each month.
Significance of the financial figures being calculated:
The financial figures that are being calculated or projected in the different financial statements must be achieved otherwise it will be difficult to run the business beyond the projection period.
Contingency plan:
The business owner is thinking of a contingency plan-A, and plan-B in case the business appears as a failure.
Contingency plan-A: Apply for additional bank loan and to object some fresh cash in the business so that the business can be revived within six month.
Contingency plan-B:The business will declare itself as bankrupt and the business will be then liquidated by appointing a liquidator as per the local rules and regulations.
Finance Item
Statement of financial position/need
Identify the $ amount
Comments on the amount you have identified and state its significance to you. If it is not achieved what does it mean for you and what is your contingency plan if it cannot be achieved?
Personal drawings
20000(monthly)
The business owner has invested so much in the business and that is why he has decided to withdraw his total persona living needs from the profit to be earned from the business. The amount of total personal living needs of the owner is AUS $20000 and the owner is drawing this amount from profit. The personal living needs of the owner include the items vehicle fuel expense, fooding, clothing entertainment, medical Expenses, Utility bills.
Personal net worth
AUS $664275 .
The business owner is all set to open H&T Massage Therapy centre in a rented commercial complex close to the shopping area and the business is looking for offering massage service to the persons who are in the age group of 50-80 years and are looking for a good relaxation option.
Here the business owner is assumed to be wealthy enough and has financed the part of the total start-up funding requirements of the business which is AUS $664275 .The rest of the start-up fund requirement has been fulfilled by taking a bank loan of AUS$ 299 993.
.
The owner has also invested a seed capital of AUS $ 350000 as liquid cash (collected additionally from friends and family.) in the business so that the business can operate with a strong financial base.
So the sum total of the net worth of the owner that is invested in the business is $498,565
Capital requirements to set up the business
$664,275
The capital or fund needed to start-up the business includes the items of “Start Up Expenses ($179,500)”, “Start-up Assets ($331,775)”,” Capital Equipment and Supplies($153,000)” all that are being funded partially by taking the bank loan and partially by the owners equity.
Desired net profit
AUS $26184 on 12 th month
The business has been expected to earn a positive profit of AUS $26184 from the 12th month of the business and in the 9th month the business is expected to see a 343% growth in the business.
Business expenses
AUS$ 41388 at 12th month
The business is expected to incur an operating expense which is accountings 97 %( AUS$ 24516) of the total income earned from the sales mix (AUS$25200) in the first month of the projection period and after that the operating expense of the business is growing at an average rate of 17% on a monthly basis. The growth of the operating expense has occurred for making the required expansion of the business.
Charge out rate / Mark-up % (describe the approach you will use to charge for your goods/services)
$ 61
Here a massage therapy session per customer takes 1.5 hour and in a day on an average around 454 customers are expected to attend the parlour. So the daily labour hours being spent is around 680 hours .The daily expense of 41,388 has been divided usage of hours which gives a charge out rate of $ 61
Cash flow position
2,725,425 (Aus$ cash flow of the 12th month )
The cash flow statement demonstrates that the owner has invested a liquid cash of AUS$350000 in the business and this investment has helped the business to earn positive closing cash and the end of each month and the business has managed to earn strong positive closing cash balances at the end of each month.
.
To cover operating costs and break-even
Break even sales of $45,268 has to be attained to achieve the breakeven and to cover the operating expense of business.
In case the business fails to attain the break-even sales then the following contingency plans can be applied.Contingency plan-A: Apply for additional bank loan and to object some fresh cash in the business so that the business can be revived within six month (Tsorakidis et al., 2011).
Contingency plan- improve marketing plan for improving sales volume
To cover desired net profit
Projected Profit & Loss Statement
for
2019
2019-July-2020 June
Sales
100%
$73,906
Less Cost of Sales
9%
$6,335
Gross Profit
91%
$67,572
Less Overhead Expenses
Pay Roll
7,918.54
Marketing & promotion
13,514.30
Advertisement Expenses
6,757.15
Rent
6,334.83
office utilities
2,639.51
repair and maintenance
2,639.51
Miscellaneous
1,583.71
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total expenses
$41,388
Net Profit (Loss)
$26,184
The object of the business was to have close to 10 to 15 customers every day in the business. As per that desired objective the initial customer volume is estimated. In the business objective it is also stated that the business would aim to double the number of customer in two years. Considering that the growth in customer number is estimated from one month to another month (Fridson and Alvarez, 2011). The sales figure that came up after these projections is $73906. This sales figure through gradual increase would breakeven at 10th month and be able to register a gross profit margin of 91.43% with a sales level of $45268.
The business profitability is shown after deducting the personal drawings of the owner. The business loan would start its repayment from the 2nd year onward. Therefore it was not considered in the first years account.
Prepared for:
2019
For the 12 month period:
2019-July-2020 June
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
vehicle fuel expense
3,000
3,000
3,000
3,000
3,000
3,000
3,000
3,000
3,000
3,000
3,000
3,000
fooding, clothing entertainment
12,000
12,000
12,000
12,000
12,000
12,000
12,000
12,000
12,000
12,000
12,000
12,000
medical Expenses
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
Utility bills
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
Total variable infrequent expenses
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
B. Total Expenses
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
The sales may not meet the expected business net income. Under that circumstance the repayment of the loan would be difficult. Then loan restructuring would be tried with the bankers. The next approach would be to reduce the personal drawings by 50 and this approach would improve profitability of the business. The current objective of the business is to increase the price of the services as the business starts it’s fast growing phase through delivering greater value to the customer (Fridson and Alvarez, 2011). This approach is expected to improve profitability of the business and to facilitate this process further an improved social media marketing campaign would be developed so that customer number increment projection can be improved further.
At the businesses full potential or practical productive capacity
In the developed premise there are 10 rooms for the massage service delivery. On an average one customer would need 1.5 hour from start to completion of the massage. In one day the therapist would be able to deliver 5 such session at max. Therefore total message sales customer number would be 50 customers a day. At the current level of sale the business is able to make an 8% profit from its sale in the first year. The desired profit is 30%. Therefore the sales volume as well as the margin needs to be improved. It took 10 month to breakeven which is showing lower profit percentage. In the second years operation the current sale growth trend would be able to achieve the expected profit. The possible scope to increase the sale volume would also be an opportunity to improve the profitability (Scarborough, 2016). Considering this it would not be required to operate the full potential.
Financial viability of the business idea
The cash flow position of the business provides the liquidity position of the business. The cash flow is positive in the current business which is a positive sign for the business. The profitability position of the business is showing better position at the end of the year. Therefore the financial position is looking viable. But one concern is the borrowed fund from the friends and family amount of $350000. As the better cash flow and profitability position expected from the business from the second year this borrowed fund needs to be reduce show that the business can be self sufficient to repay the loan payment from the second year onward (Ehiedu 2014).
The growth trend in the second year is showing a very bright picture. As the business starts to reduce its obligation from the next year onward the self sufficiency of the business would improve as it progresses. If the financial position does not turn up as expected, especially from the cash flow position, the business would try to include the friend as the partner of the business (Scarborough, 2016). This is one of the contingency plans of the business. The situation may happen that the business may not be able to retain current profitability position. Under that scenario the business would use the new source of funding to improve services to improve profitability.
Financial Worksheet 10 – Cash Flow
Prepared for:
For the 12 month period:
Your ownership structure is currently set as:
Have you set your OWNERSHIP STRUCTURE Type on the Introduction & Assumptions page?
2019
2019-July-2020 June
Sole Trader or Partnership
CASH FLOW FORECAST
RECEIPTS – Cash in
Start Up
July
August
September
October
November
December
January
February
March
April
May
June
Totals
Cash Sales (excluding GST)
375,200
375,200
353,724
332,752
317,004
295,791
279,412
268,994
266,634
280,133
287,881
298,403
$3,731,127
GST received on income
0
37,520
37,520
35,372
33,275
31,700
29,579
27,941
26,899
26,663
28,013
28,788
29,840
$ 373,113
Owners funds
350000
$ 350,000
Loan funds
$ –
$ –
Total receipts
350,000
412,720
412,720
389,096
366,027
348,705
325,370
307,354
295,893
293,297
308,146
316,669
328,243
$4,454,240
PAYMENTS – Cash out
Payments subject to GST
Purchase of non-current assets
334,775
$ 334,775
Start-Up Costs
179,500
$ 179,500
Purchase of goods / materials
0
2,160
2,160
2,160
2,203
2,697
2,751
3,026
3,328
3,661
5,235
5,759
6,335
$ 41,475
Pay Roll
$ –
Direct Cost of Sales
$ –
Salary of massage therapist and astheticians
1,800
1,800
1,800
1,836
2,247
2,292
2,521
2,774
3,051
4,363
4,799
5,279
$ 34,562
360
360
360
367
449
458
504
555
610
873
960
1,056
$ 6,912
Total operating expenses
$ –
24,516
24,516
24,516
25,006
30,608
28,928
26,223
21,745
23,919
34,205
37,625
41,388
$ 343,194
Personal drawings
$ –
0
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
$ 240,000
0
$ –
0
$ –
0
$ –
0
$ –
0
$ –
0
$ –
$ –
$ –
$ –
Total payments subject to GST
514,275
48,836
48,836
48,836
49,413
56,001
54,429
52,274
48,401
51,242
64,675
69,143
74,057
$1,180,419
GST on payments
51,428
4,884
4,884
4,884
4,941
5,600
5,443
5,227
4,840
5,124
6,468
6,914
7,406
$ 118,042
Payments not subject to GST
BAS remittance
– GST
44,334
GST to pay
78,570
GST to pay
66,312
GST to pay
– PAYG instalment
379
379
379
Loan interest
$ –
Loan repayments
$ –
$ –
$ –
Drawings
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
$ 240,000
Total payments
565,703
73,720
73,720
73,720
119,067
81,601
79,872
77,502
152,191
76,366
157,834
96,057
101,463
$1,728,815
CASH POSITION – Cash reconciliation
Bank balance at beginning month
0
-215,703
123,298
462,298
777,675
1,024,635
1,291,738
1,537,236
1,767,088
1,910,790
2,127,721
2,278,033
2,498,644
Add Total Receipts
350,000
412,720
412,720
389,096
366,027
348,705
325,370
307,354
295,893
293,297
308,146
316,669
328,243
Less Total Payments
565,703
73,720
73,720
73,720
119,067
81,601
79,872
77,502
152,191
76,366
157,834
96,057
101,463
Bank balance at end of month
-215,703
123,298
462,298
777,675
#########
1,291,738
1,537,236
1,767,088
1,910,790
2,127,721
2,278,033
2,498,644
2,725,425
Capital requirements to set up the business
Start Up Expenses
Legal Services
$75,000
Printing, Collateral
$5,000
Construction/Design
$62,000
Insurance
$5,000
Monthly rent for premises
$15,000
Research and Development
$2,500
Advertising
$5,000
Other
$10,000
Total Start-up Expenses
$1,79,500
Start-up Assets
Cash
$1,50,000
Start-up Inventory
$6,000
Other Current Assets
$1,75,775
Long-term Assets
$0
Total Assets
$3,31,775
Capital Equipment and Supplies
Hydraulic Massage table – ($5000 x 5)
$25,000
Esthetical massage Equipment
$3,000
Fixture & Furniture
$1,00,000
Software & Computers
$10,000
Jacussies($3000*5)
$15,000
Total
$1,53,000
Total Assets & expenses & capital to be funded
$6,64,275
Equity capital and details of business ownership
In the current business no personal asset would be used.
The business would have only one owner.
In this business rest of the capital is arranged through the bank loan route. Around 60% personal capitals is invested in the business. Therefore majority of the business funding is done through personal funding sources which are a high risk proposition (Ehiedu 2014). Under the business failure circumstances the owner stand a change of losing a significant person fund.
Cash available
159,426
Bonds and shares
239,139
Bank loan
265,710
Total Assets:
$ 664,275
Loan capital
Apart from the personal funding the rest would be funded through bank loan.
40% fund requirement of the business would be met through bank loan.
This would be a long term loan for the business. The loan would be paid from the second year onward. The business is expected to cross the breakeven from the 9th month onward. Therefore a good 15 month time period would be there for accumulating some profit from the business (Higgins, 2012). The start of the loan repayment would start from the first quarter of the 2nd year. The payment would be done quarterly basis at a rate of 15%. After the risk assessment from the bank the interest rate is decided at 10.2% annually. This would be a fixed interest rate for the loan. This long term loan would not have any application or annual frees.
Being a long term loan the business would be able to repay the loan. The current loan is taken at higher rate of interest which helped to get unsecured loan. Therefore the collateral risk is low but the higher interest rate is risk. To avoid the higher interest risk the loan repayment would be done as early as possible.
Acquiring capital
The business capital arranged through personal contribution would have one issue. Around of the person contributed fund would be arranged through liquidating some personal asset. Therefore faster liquidation with desired value generation would have to be done efficiently and effectively (Higgins, 2012). On the other hand the current business is a start-up business and the market research shows that business sector had around 3.5% growth in last five year. Considering this getting a unsecured loan for the business from the bank would be a challenge.
Under the circumstance of fund raising difficulty the business would have problem to invest highly on the premises. Out of 60% personal funding close to 20% fund would come from the uncertain source. Here the possible risk is delay in generating fund or having lower fund from the liquidation process. Therefore the business would not miss out on total 20% proportion of personal contribution. On the other hand not being able have a long term loan agreement would be a difficult proposition for the business. Under this circumstance the business would not be able to start its operation (Fridson and Alvarez, 2011). Under this circumstance the business would look for the partnership option to arrange the required fund and have at list 20% funding through the short term bank loan.
Conclusion
After analysing all the different aspect of the business it can be said that the business would be able to remain viable in its operation. The personal skills level and all the employee skill level would be highly useful for the current expected service delivery to the customers. The investment plan would be able to develop better facility and premise for the customers. The current business plan has some important risk factor for the owner but the future projection is showing less likelihood of that to happen. The cash flow and the portability position of the business is going to be stronger which would reduce the critical risk factor for the business also (Storey and Greene, 2010).
The marketing and promotion plan of the business would be sufficient to generate appropriate incomes. The legal requirement analysis shows that the business would be able to fulfil all the different legal requirements. Therefore in all the different aspect of this new business formation shows that there is a strong viability of this business.
Recommendations
The business idea has shown its strength to become viable. Considering this the business can be started from the next financial year. The business model is looking sound and does not need any changes (Stokes et al., 2010). If the business profitability or the sales revenue does not match the current projection, the business model then would have some change in the following recommended way.
Recommendation 1- Under the current business model different types of massage therapy from different region would be provided as services. At that time most profitable types of massage therapy would be continued. This approach would reduce additional products or services of the business as they are not performing properly. This streamlining of the services would improve efficiency and productivity.
Recommendation 2- Another approach would be improving service quality of these best performing service and develop some premium service out of these lot (Storey and Greene, 2010). This would improve margin from the services.
Recommendation 3-The personal funding is almost ready for the investments expect the part when a personal asset needs to be liquidated. Because of that reason the remaining time of the financial year would be utilised. This time also would be utilised as the loan fund generation process. Current the business is not looking for any partnership approach but as the contingency measure it would be applied.
Recommendation 4-Further research can be done to understand the customer expectations which are not fulfilled from the local massage businesses (Stokes et al., 2010). This help in improving the differentiation points of the business.
Reference
Profile.id. (2018). Household income | Australia | Community profile.
forecast.id. (2018). City of Sydney Population and age structure.
roymorgan. (2015). Australian Wellness Index: health improves, but young women suffer sharp decline in psychological wellbeing.
ibisworld. (2018). Health and Wellness Spas – Australia Market Research Report.
Bagshaw, E., and Hanna, C. (2017). Census 2016: The workers with the longest hours in Australia.
heraldsun. (2016). Australians delaying age of retirement, working longer.
leemassage. (2018). Lee Massage & Acupuncture.
fleurdelysmedispa. (2018). MOROCCAN HAMMAMEXPERIENCE. [online]
Zott, C., Amit, R., and Massa, L. (2011). The business model: recent developments and future research. Journal of management, 37(4), 1019-1042.
Schwenzer, I., Hachem, P., and Kee, C. (2012). Global sales and contract law. Oxford University Press.
Fill, C., and Turnbull, S. L. (2016). Marketing communications: brands, experiences and participation. Pearson.
Wilson, A., Zeithaml, V. A., Bitner, M. J., and Gremler, D. D. (2012). Services marketing: Integrating customer focus across the firm (No. 2nd Eu). McGraw Hill.
Hollensen, S. (2010). Marketing management: A relationship approach. Pearson Education.
Teece, D. J. (2010). Business models, business strategy and innovation. Long range planning, 43(2-3), 172-194.
Tsorakidis, N., Papadoulos, S., Zerres, M., and Zerres, C. (2011). Break-even analysis. Bookboon.
Fridson, M. S., and Alvarez, F. (2011). Financial statement analysis: a practitioner’s guide (Vol. 597). John Wiley & Sons.
Scarborough, N. M. (2016). Essentials of entrepreneurship and small business management. Pearson.
Ehiedu, V. C. (2014). The impact of liquidity on profitability of some selected companies: the financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), 81-90.
Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.
Storey, D. J., and Greene, F. J. (2010). Small business and entrepreneurship. Financial Times Prentice Hall.
Stokes, D., Wilson, N., and Wilson, N. (2010). Small business management and entrepreneurship. Cengage Learning EMEA.
Burns, P., and Dewhurst, J. (Eds.). (2016). Small business and entrepreneurship. Macmillan International Higher Education.
Storey, D. J. (2016). Understanding the small business sector. Routledge.
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