Executive Summary
A business plan is nothing but a bit of fiction with immense ideas. It offers an insight to investors before they venture into invest in any business.No doubt, the product should be not only have strong market demand but also have experienced management team. Any investor will ready to invest in enthusiasm and vision. A business plan must primarily focus on testing the service or product offered and should be defining its business model.
If you have a perfect business model, professional investors will find no difficulty in investing your project. A business plan will serve as a map for one’s company’s future and also highlights whether the business idea is feasible or not. A business without business plan is juts like a boat that is drifting in the middle of ocean without direction or parameters for determining its progress. Thus, a business plan will contain all essential information to attract investors and guide the promoter in right direction. (Wadhwa, 2008).
Real International, Inc is a newly incorporated company and its promoters want to fund $, 100,000 as start -up capital and to raise a loan of $ 1,400,000 to bring their innovative product to market. Further, promoters anticipated $27, 00,000 as sales revenue at the end of the second year of business operation. The promoters wishes to raise the loan portion either from the venture capital market or by way of bank loan at an annual interest of 7%
Real International Inc intends to manufacture two products. Scroll Fast is the first product which displays graphic, alphanumeric and animated figures in excellent color and is of commercial in nature. Novel Scope is another product which has a skin texture of a small –sized monitor which displays optic vision in retort to the human music, voice and other related sounds and is of entertainment in nature.
The estimated revenue for these products at the end of second financial year has been projected as follows:
Projected Gross Revenues:
Further, the above sales estimation is regarded as conservative as they are footed on a market penetration of just 6% only. (McKeever, 2008, p.238).
Current economic policy of federal government is to improve economic recovery by minimizing discount rates and to encourage consumers to spend. Will favor the Real International Inc. With present government action and with anticipated future economic recovery, majority of individual’s disposal income will be likely to swell in the next five years. This connotes that more people will have more money to spend on entertainment activities.
Since, Real International Inc has the patented technology and the product being innovative and unique in nature, the company has optimistic view that it will penetrate the existing market and will able to capture at least 10% of the market share of the industry.
Description of venture
Real International Inc is intended to manufacture and market electronic display products for both recreational and commercial purposes. These products are based on the technology that has been covered under a U.S. patent and the company owns an exclusive license for the product patented. All the stocks of the Real International Inc is owned by its promoters namely John Cook and Henry Mathew who are also acts as directors of the company. In case of investment by any venture capital fund or by any third party in the stocks of the company, the promoters are ready to enter into a shareholder’s agreement with the notion of safeguarding the interest of the minority shareholders in the future. (McKeever, 2008, p.235).
Real International Inc intends to manufacture two products both relied on the patent owned by the company. Employing its patented technology, the corporation can develop a moving electronic sign which is more adaptable, economical and attractive than the products existing in the market. One product named as Scroll Fast and this displays graphic, alphanumeric and animated figures in excellent color. The specialty of the product is that it can be produced in various sizes.
At initial stage, the corporation intends to start four feet vertically and five feet horizontally. This is a unique product and this can be used by any kind of business which includes banks, shops, restaurants, supermarkets, stores, bars, airline terminals, real estate offices, railway stations and bus stations. They can inform the consumers about the special features of their services or events or any special offers they make.
If there are any tie-ins for reimbursement of expenses, the cost of the unit will be further minimized. This product is an excellent tool for brand promotion as corporations that extends services or manufactures products in soft drinks, insurance or clothing may provide better discounts to retailers by way of better discount in barter for advertising. (McKeever, 2008, p.237).
Industry Analysis
Industry Research
Source: (McKeever, 2008, p.235).
In the market survey conducted, it has been revealed that though Scroll Fast is a new product, it is going to triumph down the other brands in the market that is having relevant market share as per the above table. Though , competitors are currently is owning a good share of the market , once the Scroll Fast is introduced in the market, no doubt it is going to revolutionize the market due to its uniqueness and product’s distinct advantage.
If one look at the above data , they may understand though a good market share is being owned by the competitors , they are going to loose their market share once the Scroll Fast is introduced due to three factors namely price advantages , quality and innovation.
The management also aware external factors like industry trends , the competitive trends , the make up of the market , demographic trends , economic climate and the role of technology. Further, management has to concentrate also on legal, social and political aspects that could hinder with the business activity,
Since, promoters are dealing with an emerging industry, though there are many opportunities that are ripe, it may also pose a significant risk. It is difficult to identify in emerging industries factors relating to success and failures. Recognizing one’s skill sets and a plan to change speedily and evolve the business plan will be the ‘critical success element’ and the business plan should clearly demonstrate how it is going to plan to respond to industry growth.
IRS (Internal Revenue Service) produces every year an industry balance sheet. This is a sum of all the balance sheet filed in a particular industry and is compiled from the corporate tax returns. This acts as an excellent tool for evaluating the financial health of the industry as well as to compare the financial projection of Real with that of industry and to analyse whether business assumptions have been made on prudent basis or not.
For instance, if Real has forecasted staff salary on higher terms, then it could be compared with the industry average and then fine tuning can be made in the Real financial projections. Thus, industry analysis will be of immense help and will offer unbiased style to examine business plan assumptions.
Real should consider the following questions while making assumptions on industry analysis.
- The present financial status of the industry.
- How many players are there in the market
- The magnitude of split in the size and about number of large vs. small companies and their sales volume.
- What market areas are underserved and what market areas over served and which market demonstrate the most conducive climate for future growth.
- What are the competitor’s promotion and advertising strategies?
- What successful value-added factors are being employed
- What are substitute services or products that exist in the market
- Who is having bargaining power and whether it is with suppliers or consumers. (Balanko-Dickson, 2006, p.26).
Real has to look into the loyalty factor that exists in electronic industry in which it operates. If the competition and industry is robust, Real has to evaluate how realistic is it that one can get customers to switch their loyalty and transform their buying preferences.
Real has to ascertain whether the industry demands large volume of accounts receivables and if so, this may negatively impact its capacity to pay staff and suppliers. Thus, Real has to recognize those industry factors that negatively impact its cash flows.
Real has to pay attention how change in technology can upset its business activity in future? For instance, there has been sudden change in the technology in the music industry and how Apple Computers was able to successfully dominate the online music market. There has been a strong case for the business model for selling music was aggravated by the more than 200 million computers that have installed Apple iTunes software alone. (Balanko-Dickson, 2006, p.26).
Marketing Plan
Marketing plan acts a pivotal role in sales projections in any business plan as this will give promoters some sense of support as they plan to introduce a new product. It has become essential on the part of the promoters to develop a logical sales revenue forecast. As the majority of the new products launched in any market always fail to produce adequate profit, lenders and investors always want to have a vibrant data to substantiate a claim that a new product will be an innovative.
Further, the promoters also try to introduce two new products employing the same technology. The first is intended for the commercial market and hence it is priced at high level. Second product is intended for the consumer market and priced at lower levels. (McKeever, 2008, p.234).
Real International Inc intends to have their sales representatives and its product distributors to handle the major part of the marketing activity of the company. Since, the promoters are introducing new products and the company is being a small business, it is wise not to leave the marketing to outsiders as it may result in a disaster. When a product is a novel one, no wholesale or sales representatives or retail outlets will be likely to have much control in its triumph. (McKeever, 2008, p.234).
At the outset, Scroll Fast has the following strong market and sales capabilities:
- The product is distinctive as its style of operation and its unique technical capabilities. For instance, it offers at least thrice the visual resolution what is being offered by other scrolling signs.
- There are very few other manufacturers who produce programmable strip signs that cannot match Scroll Fast function.
- The gross annual turnovers of these products at industry level are projected to be $11,000,000 as estimated by Advertising Graphics Magazine, fall 2008. This symbolizes an increase of 30% from that of previous year. The existing products are analogues in nature. It is really interesting to note that no one existing manufacturers sways a major share of the market.
- Further , Scroll fast is having a distinctive price advantage than compared to its competitor’s product The other competitor’s products are having a price label of $2000 to $2500 and whereas Scroll Fast is being priced at only $1599 only. Thus, Scroll Fast is not only competitively priced but also is having high efficiency of design inbuilt in the patent method employed.
- Further, service contract for Scroll Fast is being offered at an above average for the industry.
- Moreover, Warranty policy for the Scroll Fast is also being offered at above average of the industry level.
Further, it is estimated that entire market for programmable signs in U.S.A is to be around $ 13,000,000 and Real International Inc has projected sales of 1500 units Scroll Fast and 1000 units of Scope Novel at the end of second year of production at a wholesale price of $ 1599 and $ 300 each respectively.. However, these sales estimation is regarded as conservative as they are footed on a market penetration of just 6% only. (McKeever, 2008, p.238).
Novel Scope is another product which the corporation is going to introduce and it is also a unique product. This product has a skin texture of a small –sized monitor which displays optic vision in retort to the human music, voice and other related sounds. The display is being made in vivid colors and the prototypes generated in retort to sound are really astonishing. It could be very famous among young children, who could experiment with the echo of their own voice. In a consumer survey, it was found out that Novel Scope has been preferred by more than 60% of the consumers..
Production/Operation Plan
Productivity and success are laced to employ one’s mind creative process to full extent. A business plan will make one to think in novel and creative means about a business that one has not imagined before. Further, a business plan also forces one to create goals and offers the mechanism to control the result. In short, a business translates one’s ideas into actions. (Klein, 2008).
The promoters of Real International Inc are of the view that a successful business requires at least two products to survive. This view is partly true as diversification can attain vibrant advantages if one product encounters resistance in the market. (McKeever, 2008, p.234).
Scroll Fast product has been entirely developed and examined. The first 150 units have been already been finished and a production capacity of 250 units per month has been already set up. It is estimated that the sales rate will be maintained at a minimum of 150 units per month. This sales projection as well as long-run sales estimates for the product is footed on extensive research into the requirement for this variety of product as well as into the sales track record of present and existing but low quality product. This research also included consumer surveys where probable consumers were requested to rate a series of existing products against the Scroll Fast. (McKeever, 2008, p.237).
The present manufacturing facility is being carried on a leased facility over 2000 square feet on a moderate rental. This carpet area is being employed for both manufacturing and office purposes. For storage purposes, another 400 square feet area is being rented on an adjoining place. There is no serious worry about the continuation of the lease as Real has entered an option to renew once in three years with a ten percent increase in rent. In case of future expansion, adequate space is available in the same area.
Organizational Plan
Real International Inc is a corporation where there will be two share holders who are currently directors of the corporation. There will be following position for the management of the corporation.
- One director will act as a president and treasurer.
- Another director will function as vice-president and secretary of the corporation.
- One employee will officiate as project manager cum accounts payable manager.
- The above key officials will be assisted by managers and assistants.
Real International Inc has been incorporated as a for profit Subchapter S corporation. This kind of incorporation will facilitate to capture both the advantageous of corporate status offered by the limited liability to the shareholders and also the capacity to be taxed as a partnership firm and this will facilitate the formalities of transferability of interests if need arises in the future. Each promoter has now half of the original stock issue.
Assessment of Risk
At start, Real will function with restricted number of wholesalers and sales representatives who have proven track record in marketing new electronic products. Further, the stress will be given on foraying into market penetration in a selective region which is close to Real’s manufacturing unit. The prime cause for this cautious approach is to recognise effective pricing strategies and marketing techniques. Data collected will be employed in calibrating manufacturing rate needs, inventory requirements etc especially for general North American marketing part. In a nutshell, Real want to be more cautious while walking with a steady and firm tread before it can start to run.
Since the present manufacturing unit is having limited production facility, Real want to emphasis on improving to higher manufacturing volume as this will result in lower price as well as to enhance its products features.
Costs and selling prices of the products
The estimation included in this business plan is footed on various estimation about product cost and its selling prices.
Wholesale Selling Price
Direct (variable) Cost of Each Unit
The above projections do not include any corporation administrative overheads like management costs, rent etc. The above costs are solely related to manufacturing cost of each unit. With the help of extensive market research, all costs and selling prices have been arrived at. These assumptions highlight not only the realities of the market place but also the management’s price objectives.
(McKeever, 2008, p.244).
Financial Projections and Statement
Real International Inc is in the start-up stage and hence no cash flow has been prepared. However, Real has prepared projected profit and loss account and balance sheet for the next five years. As per this financial projection, Real is really in need of $150,000 as equity capital. The promoters have injected just fifty percent of this i.e. $75,000 and seeking the balance from the investors. (McKeever, 2008, p.244).
References
Balanko-Dickson, Greg (2006).Tips and Traps for Writing an Effective Business Plan. New York: McGraw –Hill Professional.
Diane Publishing Company. (1995). Wood Pelletization Source Book: A Sample Business Plan for the Potential Pellet Manufacturer. New York: Diane Publishing.
Klein, K. (2008). Do You Really Need a Business Plan? Business Week Online.
McKeever Mike P. (2008). How to Write a Business Plan. New York: Nolo.
Wadhwa, V. (2008). Before You Write a Business Plan. Business Week Online.