The cold season has never been easier for most households, campers, and the homeless. People opt for the thermal blankets to help them keep warm especially during winter. The Southwest Woollen Mills is planning to launch a new product, “the Solar-Powered Blanket.” It is designed to meet the needs of campers, families, people allergic to cold such as asthmatic persons and the government, (when conducting disaster operations during the night or in cold seasons). The company intends to produce 9ft x 6ft blankets for potential consumers.
1.2 Entrepreneur Experience
I have years of experience managing organizations so my expertise will be paramount to ensuring the Southwest Woollen Mills thrives to be a billion-dollar investment. Therefore, since the Solar-Powered blanket is a new commodity in the market, it will act as a stepping-stone to the growth in sales and profitability in the organization. A team of qualified human resources, which include two highly qualified managers, the production personnel and a sales team, will also be of great assistance. The group offers adequate expertise to ensure the product becomes a success.
1.3 Business Mission, Goals and Objectives
Strategic Objectives
1. Offer unique and innovative products to existing and potential customers
2. Enhance organizational profitability by delivering high quality goods and services to customers
3. Lower the costs of operation by optimising the organization’s supply chain in order to provide quality products at favourable prices
4. Increase the company’s market share in the entire Europe and other parts of the world by delivering exclusive products at lower prices
Tactical Objectives
1st
Goal: Sell approximately £500,000 of the 9ft x 6ft of the solar-powered blanket by the end of the first year
1st
objective: to meet the above-mentioned goal, by mid-year after the start of operations, the company should increase the number of retail outlets selling the product by approximately 35%
2nd
objective: ensure sales of approximately £42,000 are made on a monthly-basis within the first year of operation
2nd
Goal: Increase the number of new customers by 22% each month after the onset of operations
1st
Objective: Increase the number of retailers selling the product by approximately 6% each month
2nd
Objective: reduce the number of customer complaints by approximately 40% before the end of the first year and lower resolution time to a maximum of two days
3rd
Goal: make approxumately £400,000 in profit by the end of year two
1st
objective: assign 15% of sales on market research and promotions in a bid to enhance profitability by 42% by the end of the second year
2nd
objective: by the end of year two, lower supply chain management costs by 43% and overall operational costs by 36%
Company Mission
The company plans to offer comfort to potential customers at friendly prices, with greater emphasis on innovation and quality.
Company Summary
The Southwest Woollen Mills will be located in Derby, UK because the location has a solid industrial background, especially in engineering sectors. It has a population of approximately 250,000 persons and the home to large companies such as Toyota, Rolls Royce and Bombardier (Derby City Council, 2011).
2.1 Business Start Date
The business will start in January 2019
2.2 Sector it would be Categorised
The company will be categorised in the textile industry
2.4 The Business’s Legal Structure
The business will be a limited liability company owned by two persons
2.4 Start-up Summary
Southwest Woollen Mills will lease space and divide it into administrative and plant sections.
Start-up
Start-up Expenses
Legal
Accountant
Office Supplies
Office Partitioning
Brochures
Salaries
Grand Opening
Other
Total start-up Expenses
Start-up Assets
Cash at hand
Other current Assets
Non-current Assets (plant and machinery " furniture)
Total
£1,200
£234
£3,200
£400
£100
£62,370
£2000
£4,345
£73,849
£36,000
£47,349
£545,691
£629,040
Total Requirement
£702,889
Table 1: Projected costs upon starting the company. (Source: Author)
Start-up Capital
Particulars
Amount
Planned Investment (owner’s capital)
£500,000
Additional Investment required
£187,889
Loss at start-up
£150,000
Total Capital needed
£702,889
Table 2: Start-up Capital. (Source: Author)
Table 1 and 2 above describe the required finances for the business to start. The entrepreneur will need approximately £237,331.81 to begin operations. The tabulated numbers are depicted in the figure below.
Figure 1:Business Capital. (Source: Author)
Source of Funding
Particulars
Amount
Owner’s Capital
£485,469.19
Grants
£64,381
Friends and Relatives
£123,707
Overdraft
£4,591
Deficit
(£24,740.81)
Total
£702,889
Table 3: The Potential Sources of Capital. (Source: Author)
Based on Table 3 above, the owner will provide approximately 70% of the entire capital while the remaining 30% will be obtained from other sources.
3.0 Products and Services
3.1 The Basic Product to be sold and their Unique Attributes
The company intends to sell the solar-powered blankets to its consumers. The product is simple with two light and flexible solar panels embedded in the blanket that can be folded easily. It also has battery to store energy for approximately 7 hours after being charged in the sunlight. The solar-powered blanket also has a plug to recharge especially during winter due to absence of sunlight. The company also intends to produce smaller versions of the same products (6ft x 4ft and 4ft x 3ft) that would be sold at slightly lower prices for the price-sensitive customers.
4.0 Market Analysis Summary
4.1 Identifying and Targeting Potential Customers
Defining the target customer assists the organization in targeting the ideal segment.
4.3 Market Niche and Basis for Identification (Segmentation)
The market is comprised of families, people who love camping especially during summer, persons with cold allergies, and the government
4.4 Market Characteristics
The consumers are largely families and people who love adventure.
4.5 Methods of Positioning the Business for Competitive advantage
The company will position itself using innovation, favourable prices and quality as the niche elements for earning a competitive advantage.
4.6 Pricing Policy
The company will use penetration pricing of £17 to market directly to final consumers and a wholesale price of £15.21 to reach wholesalers. Leveraging the economies of scale will lower the cost of manufacturing the product.
4.7 Product Distribution Process
The company will use mainly 40% wholesalers and 60% retailers to ensure the product reaches the ultimate customer.
4.8 Sales Tactics to be Utilised
The company will use advertising. Use of the print (magazines, newspapers, billboards and business journals), electronic (television) and online platforms (social media and blogs) disseminates the message to a large number of potential customers (Yeshin, 2012). Additionally, the company will use public relations and promotions to create product awareness and to catalyse purchases. The firm’s website will also play a key role on ecommerce purchases and advertising. Marketing will consume 15% of the sales each month.
5.0 Strategy Implementation and Summary
5.1 Competitor Analysis
The only competitor is the Trillium worldwide, a US-based company that manufactures the electric heated fleece travel blankets for travellers and campers. Their products have a battery that is charged via electricity. The battery also has a safety time auto shut-off that allows it to go off after being fully charged.
5.2 SWOT Analysis
Strengths
Innovation
Quality products
Creativity
Weaknesses
Inadequate financial resources
Few competent human resources
Opportunities
Potential for growth in market share
Threats
Stiff competition from well-established firms
Possible counterfeits
Table 4: SWOT Analysis. (Source: Author)
5.3 Operations and logistics
The company will be under two directors, 2 managers, 10 production and 10 sales persons. The directors will also earn less than expected for the sake of the growth of the business. The other employees will be paid a basic salary, while commissions will be based on the amount of production and sales. As earlier stated, the firm will use wholesalers, retailers and direct sales to the customer to ensure the product reaches the ultimate customer.
6.0 Risk Analysis for the Business
Risks are events or circumstance that can cause business disruptions and downtimes. The table below depicts the different types that can affect a business.
Risk
Description
Financial Risk
1. Due to scanty financial resources, the company may suffer poor cash flow
Operational Risk
1. There is a possibility of computer hacking since the organization does not have adequate resources to build strong security framework
2. Employee resignation or theft in the company
3. Natural hazard though they occur less often in the region
Hazard Risk
1. Human error (production personnel)
Strategic Risk
1. Entry of a hostile competitor
2. Changes in customer tastes and preferences
3. Changes in production technology
4. Employee turnover
5. When a big company acquires or merges with a potential competitor in Europe then this poses a strategic risk
Compliance risk
1. Adherence to the nation’s laws and regulations ensures proper corporate governance
6.1 Risk Analysis using Risk Matrix
Risk Matrix
Probability
Consequence
Low
1
Medium
2
High
3
Catastrophic
5
Almost Certain 5
5
10
15
25
Likely 4
4
8
12
20
Possible 3
3
6
9
15
Unlikely 2
2
4
6
10
Rare 1
1
2
3
5
Risk
Probability
Impact
Risk
Financial
5
5
25
Operational
3
5
15
Hazard
1
3
3
Strategic
2
3
6
Compliance
1
2
2
Medium
High
Catastrophic
Since the organization is at its infant stages, there is a higher likelihood of it experiencing financial and operational setbacks, which can be catastrophic. Strategic risks are medium while hazard and compliance fall under low risks.
6.2 Importance of Risk Management to the Business
After identifying each risk and its potential effect, the organization can put in place measures to minimize setback or downtimes that might take place due to their effects. Some risks can be ignored, others can be transferred to third parties such as insurance, while the rest can be contained within the organization (Lussier, Corman and Kimball, 2014).
6.3 Business Plan Evaluation
Once an entrepreneur has a business plan, it will be less difficult to obtain support/backing from potential funders or investors. Furthermore, with an initial investment of approximately £700,000, the business sees a potential market of over £2,000,000 in the second year of operation.
Appendix: Financial Forecast
5.4.1 Sales Forecast
Sales Forecast
Year 1
Year 2
Sales
Units sold @£15
Total Sales
Variable Costs
Production Cost/Unit £7.69
Distribution Cost/Unit £2.50
Packaging Cost/Unit £0.75
Total Variable cost/unit £ 10.94
37,733
£1,322,615
37,733 units @10.94
£413,411.66
82,860
£2,900,100
82,860 Units @10.94
£1,118,724
Table 1: Sales Forecast. (Source: Author)
5.4.2 Costs and Pricing Strategy
Product Name
Solar-Powered Blanket
A
Total product Cost
£6.94
B
Cost per unit
£10.94
C
Price per unit
£22
D
Mark up (%)
51.41%
5.3.3: Project Milestones
The following milestones indicate the timeframe and costs of starting and completing actions needed to ensure the company starts and runs. The goal is to start production and sales by January 2019. However, before inception, there is need for business registration and the acquisition of the relevant documentation to assist in the smooth operation of the business as described below.
Milestone
Start Date
End Date
Cost
Department
Register Company
1/6/2018
2/6/2018
£100
Director
Obtain legal documentation such as permits and licenses
4/6/2018
11/6/2018
£500
Legal
Find renting space (lease)
14/6/2018
5/7/2018
£100
CEO
Clean and partition space
6/7/2018
12/7/2018
£400
Operations
Fix machinery and furniture
13/7/2018
3/8/2018
£2,000
Purchasing and supplies and operations
Test machinery
4/8/2018
15/8/2018
£0
Acquire insurance
17/8/2018
19/8/2018
£5,000
Risk and insurance
Develop company website
21/8/2018
4/9/2018
£700
Outsourcing
Hire employees (sales and production team)
5/9/2018
5/10/2018
£1,200
Outsourcing
Establish IT department " Install " Test ERP
6/10/2018
7/11/2018
£300
ICT
Grand opening
9/11/2018
10/11/2018
£2,000
Marketing
Begin production
14/11/2018
14/12/2018
£0
All departments
Begin advertising
15/12/2018
3/01/2019
£2,000
Marketing
Continue with advertising and promotions
Table 2: Project Milestones. (Source: Author)
The following Excel Gantt Chart describes the milestones
Figure 2: The Gantt chart for the entire project. (Source: Author)
According to Fig 2, it will take six months to register the business and obtain the actual documentation and equipment before the onset of operation at the beginning of the year 2019.
9.1 Explanation of the Forward Financial Projections for the Business
Figure 3: Projected Cash flows for the Firm, Year 1. (Source: Author)
Fig 3 shows the projected cash flow for the business for in the first year. The business is expected to make losses in the first six months before it gains solid financial footing. It may not become profitable immediately due to the high operational costs and low sales. A loan will help boost profitability.
Figure 4: Projected Cash flows for the Company Yr2. (Source: Author)
Fig 4 depicts the cash flows for year 2. Sales may increase from April, reach peak in July and decrease slightly in the remaining months. The high mid-year sales are attributed to the summer holidays when most people go camping.
Importance of Cash Flow Statement
According to Cornwall, Vang and Hartman (2016, p. 140), “the primary reason cited for cash flow problems among start-ups was the difficulty in collecting monies owed, the second was the seasonality of sales and the third was unexpected variations in sales.” Thus, pro forma cash flow statement especially in a business plan helps in determining the possible financial needs of the firm and the form in which cash will be circulating within the company.
9.2 Profit and Loss Statement
The table below shows the business’ pro-forma income statement for the two years.
Pro Forma Income Statement for Southwest Woollen Mills for the year ended 2019 and 2020
Year 1
Year 2
Sales
£1,322,615.00
£2,900,100.00
Cost of Sales
£413,411.66
£906,488.40
Gross Margin
£909,203.34
£1,993,611.60
Gross Margin %
68.74%
61.42%
Expenses
Payroll
£680,400.00
£748,440.00
Sales " Marketing
£198,392.25
£435,015.00
Utilities
£4,123.00
£4,356.00
Telephone
£497.00
£1,089.00
Insurance
£5,924.00
£9,245.00
Interest
£46,218.00
£92,436.00
Rent
£33,600.00
£33,600.00
Other Expenses
£13,946.00
£39,425.00
Total Operating Expenses
£983,100.25
£1,363,606.00
Profit before Tax/Interest
(73,896.91)
£630,005.60
Tax/Interest
(£13,301.44)
£113,401.01
Net Profit
(£60,595.47)
£516,604.59
Add profit/Loss c/f
£0.00
(£60,595.47)
Total Profit
(£60,595.47)
£456,009.12
Table 3: Projected Income Statement for the Company. (Source: Author)
Importance of the Profit and Loss Statement
Lussier, Corman and Kimball (2014, p. 340) assert that the income statement is important because it reflects the company’s financial performance in terms of income and losses from operations in a given financial year. Therefore, the organization will be able to identify ways of enhancing revenues and reducing costs to improve profitability.
Employee Salaries
The table below shows the salaries for the directors, the managers, and other employees in the company. Salaries will be subject to 10% rise annually
Position
Number
Salary
Total
Directors (One in charge of Marketing " public relations and the other for production and operations)
2
£3500
£7,000
Managers (ICT and Human resources)
2
£3200
6,400
Production Personnel
10
£2700
£27,000
Sales Personnel
10
£3000
£30,000
Total
£70,400
Table 4: Salaries for the Employees. (Source: Author)
9.3 Balance Sheet for year 2
Pro Forma Balance Sheet for Southwest Woollen Mills for the Year Ended Dec 2020
Non-current Assets
Cost
Acc. Depreciation
NBV
Furniture and Fittings
£78,346.00
£1,440.00
£76,906.00
Plant and machinery
£467,345.00
£8,571.00
£458,774.00
Current Assents
Cash
£111,291.12
Bank
£311,561.00
Debtors
£380,656.00
Inventory
£94,976.00
Total Assets
£1,434,164.12
Finance by:
Share Capital
£500,000.00
General Reserve
£0.00
Retained Profit
£456,009.12
Current Liabilities
Creditors
£369,774.00
Interest
Less Interest
(46,210.00)
£323,564.00
Provision for Loss
£150,000.00
Overdraft
£4,591.00
Total Liabilities and Capital
£1,434,164.12
The balance sheet indicates an asset base of £988,164.12 and liabilities and capital of the same amount.
Importance of Balance Sheet
According to Lussier, Corman and Kimball (2014, p. 340), the balance sheet is important for the firm because it provides a snapshot view of the value of the company, so that shareholders can sound decisions designed to enhance the organization’s financial position.
References
Derby City Council. (2011). Derby Population. Retrieved from https://www.derby.gov.uk/council-and-democracy/statistics-and-census-information/census-information/population/
Lussier, R. N., Corman, J., and Kimball, D. (2014). Entrepreneurial New Venture Skills.
Routledge. Cornwall, J. R., Vang, D. O., and Hartman, J. M. (2016). Entrepreneurial financial management: An applied approach. Routledge.
