Important Decisions in a Business Start-Up
EssayChat / Sep 19, 2019
Abstract
This document discusses decisions in a business start up.
Keywords
Business venture, products, sales forecasts, management, cost
Financial statements reflect what is going on in any business. The combination of financial statements provides an effective overview of the business. The statements are interrelated and changes in one reflect changes in another. The financial statements can be used by the owner to gain a better understanding of how well the business is doing, by prospective investors to see how well the business is being run and whether or not it is profitable, and by taxing authorities to be sure they are getting their share of the taxes.
Balance sheets reflect the business's financial status at a given point in time. The balance sheet reflects assets, liabilities, and the equity the owner has in the business. The owner's equity shows the earnings the owner is retaining. However, in a publicly traded company also shows stocks and dividends. The sheet shows the net income, or the net loss, in the business since the last time that the balance was done. The balance sheet is typically done on a regular basis, perhaps monthly, but it can be done at any point at which the business owner requires or desires.
The income statement reflects what has happened over a particular period of time. This contrasts to the balance sheet, which reflects a single given point in time. Together, the income statement and the balance sheet provide the information which goes into the cash flow statement. It is the cash flow statement that provides information that the company utilizes for decision making purposes and for determining future budgets. Potential shareholders also look at the cash flow.
By looking at the cash flow sheets it is possible to determine what the company's expenses were, their loans, the dividends they paid, and how many purchases they made (in terms of cash). On the balance sheet, the company's assets equal the total of the company's liabilities and the equity of the owner or owners. The two sides should balance; if they do not something has been incorrectly recorded (My Own Business). Today, there is a great deal of software that makes it possible for business owners to keep their own books and create their own financial statements. Once the business begins to grow, most owners utilize an accountant. Certainly corporations do so. Sundries by Suhad will do their own accounting the first year with an accountant's review at the end of the first year. After the first year it is likely that Sundries will utilize an accountant for the company's statements and accounting needs.
The business venture in this case involves a small to medium sized entity set up by a sole proprietorship to acquire and distribute home decorative items. The goal of the business is to do a high volume of sales of home decorative items ranging from the inexpensive to the higher end. The company will deal in both typical and unusual home items, including those hand made by artisans, but will not sell one of a kind items in the upper price ranges. The goal is to be affordable to the average family, and to provide luxury goods at a reasonable price for homes and businesses.
In its initial stages the company will have an Owner/Manager and a Sales Manager. Independent sales agents will market the product on a commission basis. Once the company has developed an income to the point that it is financially feasible, the company will rent or purchase a business site. At this point an Administrative Office Manager will be hired, along with a small number of inside sales people. Staff will increase as sales increase. Eventually the company will have a warehouse, necessitating a receiving crew and Warehouse Manager. The company will have a Risk Management and Quality Assurance Manager (who may also be employed in one of the other positions in the beginning phases of the company's development).
Sundries by Suhad will provide access to a wide variety of decorative objects to adorn homes, offices, and businesses around the world. Sundries will provide a direct online ordering service (website), outside sales, and inside sales. As Schneider (2009) pointed out, "a combination of electronic and traditonal commerce strategies works best when the buiness process includes both commodity and personal inspection options" (p. 16). Sundries will utilize theis combination of products and service. Sundries will also locate particular products or product lines if the customer desires. Suhad also seeks out discount to mid-priced artists who may produce customized goods or handcrafted items. The decorative items range from something as small as a glass paperweight to a wall-sized mural, and anything in between.
Sundries by Suhad will support an online site which solicits sales worldwide. Initially, the offices will be located in INSERT CITY NAME HERE. Any individual or business is a potential customer of Sundries by Suhad.
There is a great deal of sales compeition today (Skyrme). The advantage to this is that the number of online sales venues have expanded a great deal in the last ten years. Sundries by Suhad will utilize a number of sites and affiliate marketing sites to harness sales from the online population. Preliminary demographic market analysis indicates that we should target three primary groups:
- Young people starting out on their own, who are seeking to decorate their homes to represent their new adult selves, in an economical fashion
- Established homeowners, who may be looking to redecorate on a budget, and
- Businesses who are hoping to revamp their appearance or to provide corporate gifts at a reasonable cost.
Sundries by Suhad will also target particular groups at particular times of the year: gifts for mothers on Mother's Day, fathers on Father's Day; gifts for Graduates, gifts to commemorate the arrival of a new child or grandchild, wedding gifts, and so on. The market is quite wide if potential customers can be taught to buy from Suhad rather than purchasing from Wal-Mart or Tesco.
Initially the company will have a sales manager who is responsible for assisting Suhad with sales. The company will utilize a website to begin sales. Outside independent sales workers will get Suhad's name before the public. As the company increases in size, a site will be rented or purchased and inside sales staff will be hired one at a time.
Initial. It is anticipated that business will begin fairly slowly. Projections are for first year sales of 35,000 to 50,000 divided thusly:
Website: 25,000 - 35,000
Independent Sales Agents: 10,000 - 15,000
Of those sales, holiday and special sales events are expected to account for 20,000 - 35,000 in sales.
Second and third years. In the second and third years of business, sales are expected to total 50,000 - 75,000 divided thusly:
Website: 35,000 - 50,000
Independent Sales Agents: 10,000 - 15,000
Inside Sales: 5,000 - 10,000
Of these sales, holiday and special sales events are expected to account for 40,000 - 60,000.
Fifth year on. By the fifth year of operation, sales are expected to total 100,000, with the website accounting for half the sales, and independent and inside sales accounting for 25% of the sales each. Each year thereafter sales are expected to increase by 15-20% annually.
Goods will be purchased from a variety of wholesale operations. Goods ordered for inside sales will be stored in a large backroom area using the lean ordering concept. Goods that are special ordered will be drop shipped to customers from the supplier utilizing Suhad's mailing materials. Items that are handcrafted or purchased from artisans directly will also be stored either on the sales floor or in the back room area. It is estimated that by the end of the second year the company will need to operate a full warehouse. It is estimated that when the operation is merely 'backroom', one warehouse worker will suffice. When the warehouse opens, the Warehouse Manager will hire one full time and one part time worker, to be increased as needed. Fixtures for the office and warehouse are expected to cost approximately 30,000.
By utilizing drop shipping when possible, product cost will be kept to a minimum. For showroom and backroom items, the initial calculations will be cost of purchase + 150% = sales price.
Items will be priced at several price point levels: 5, 10, 15, 25, 40, 60, 80, and custom pricing. By simplifying the price structure it will take less time to price and merchandise items and gross profit will be increased. Markup will equal approximately 150%, rounded up to the nearest price point. Custom goods over 60. In initial investment will be marketed at cost plus 200% (CSG Network).
SUMMARY
By keeping careful financial records, recorded on the cash flows, income statement and balance sheets, Sundries by Suhad will quickly determine whether or not the pricing structure is working, whether or not expenses are preventing a profit, and whether or not the company is able to afford to expand. These financial records will become invaluable should Sundries by Suhad ever decide to go public.
References
CSG Network (2011) Retail margin and markup table.
My Own Business (2011) Session 8: Cash flow and accounting. MyOwnBusiness.
Schneider, G. (2009) Electronic commerce. Boston, MA: Cenage.
Skyrme, D. (2001) Capitalizing on knowledge: From e-business to k-business. Oxford: Butterworth-Heinemann.
Walther, L. (2011) Principles of Accounting: Chapter 1.
This document discusses decisions in a business start up.
Keywords
Business venture, products, sales forecasts, management, cost
Financial Statements and How They Work
Financial statements reflect what is going on in any business. The combination of financial statements provides an effective overview of the business. The statements are interrelated and changes in one reflect changes in another. The financial statements can be used by the owner to gain a better understanding of how well the business is doing, by prospective investors to see how well the business is being run and whether or not it is profitable, and by taxing authorities to be sure they are getting their share of the taxes.
Balance sheets reflect the business's financial status at a given point in time. The balance sheet reflects assets, liabilities, and the equity the owner has in the business. The owner's equity shows the earnings the owner is retaining. However, in a publicly traded company also shows stocks and dividends. The sheet shows the net income, or the net loss, in the business since the last time that the balance was done. The balance sheet is typically done on a regular basis, perhaps monthly, but it can be done at any point at which the business owner requires or desires.The income statement reflects what has happened over a particular period of time. This contrasts to the balance sheet, which reflects a single given point in time. Together, the income statement and the balance sheet provide the information which goes into the cash flow statement. It is the cash flow statement that provides information that the company utilizes for decision making purposes and for determining future budgets. Potential shareholders also look at the cash flow.
By looking at the cash flow sheets it is possible to determine what the company's expenses were, their loans, the dividends they paid, and how many purchases they made (in terms of cash). On the balance sheet, the company's assets equal the total of the company's liabilities and the equity of the owner or owners. The two sides should balance; if they do not something has been incorrectly recorded (My Own Business). Today, there is a great deal of software that makes it possible for business owners to keep their own books and create their own financial statements. Once the business begins to grow, most owners utilize an accountant. Certainly corporations do so. Sundries by Suhad will do their own accounting the first year with an accountant's review at the end of the first year. After the first year it is likely that Sundries will utilize an accountant for the company's statements and accounting needs.
The Business Venture
The business venture in this case involves a small to medium sized entity set up by a sole proprietorship to acquire and distribute home decorative items. The goal of the business is to do a high volume of sales of home decorative items ranging from the inexpensive to the higher end. The company will deal in both typical and unusual home items, including those hand made by artisans, but will not sell one of a kind items in the upper price ranges. The goal is to be affordable to the average family, and to provide luxury goods at a reasonable price for homes and businesses.
Management
In its initial stages the company will have an Owner/Manager and a Sales Manager. Independent sales agents will market the product on a commission basis. Once the company has developed an income to the point that it is financially feasible, the company will rent or purchase a business site. At this point an Administrative Office Manager will be hired, along with a small number of inside sales people. Staff will increase as sales increase. Eventually the company will have a warehouse, necessitating a receiving crew and Warehouse Manager. The company will have a Risk Management and Quality Assurance Manager (who may also be employed in one of the other positions in the beginning phases of the company's development).
Products and Services
Sundries by Suhad will provide access to a wide variety of decorative objects to adorn homes, offices, and businesses around the world. Sundries will provide a direct online ordering service (website), outside sales, and inside sales. As Schneider (2009) pointed out, "a combination of electronic and traditonal commerce strategies works best when the buiness process includes both commodity and personal inspection options" (p. 16). Sundries will utilize theis combination of products and service. Sundries will also locate particular products or product lines if the customer desires. Suhad also seeks out discount to mid-priced artists who may produce customized goods or handcrafted items. The decorative items range from something as small as a glass paperweight to a wall-sized mural, and anything in between.
Marketplace
Sundries by Suhad will support an online site which solicits sales worldwide. Initially, the offices will be located in INSERT CITY NAME HERE. Any individual or business is a potential customer of Sundries by Suhad.
Size of the Market
There is a great deal of sales compeition today (Skyrme). The advantage to this is that the number of online sales venues have expanded a great deal in the last ten years. Sundries by Suhad will utilize a number of sites and affiliate marketing sites to harness sales from the online population. Preliminary demographic market analysis indicates that we should target three primary groups:
- Young people starting out on their own, who are seeking to decorate their homes to represent their new adult selves, in an economical fashion
- Established homeowners, who may be looking to redecorate on a budget, and
- Businesses who are hoping to revamp their appearance or to provide corporate gifts at a reasonable cost.
Sundries by Suhad will also target particular groups at particular times of the year: gifts for mothers on Mother's Day, fathers on Father's Day; gifts for Graduates, gifts to commemorate the arrival of a new child or grandchild, wedding gifts, and so on. The market is quite wide if potential customers can be taught to buy from Suhad rather than purchasing from Wal-Mart or Tesco.
Sales Plan
Initially the company will have a sales manager who is responsible for assisting Suhad with sales. The company will utilize a website to begin sales. Outside independent sales workers will get Suhad's name before the public. As the company increases in size, a site will be rented or purchased and inside sales staff will be hired one at a time.
Sales Forecast
Initial. It is anticipated that business will begin fairly slowly. Projections are for first year sales of 35,000 to 50,000 divided thusly:
Website: 25,000 - 35,000
Independent Sales Agents: 10,000 - 15,000
Of those sales, holiday and special sales events are expected to account for 20,000 - 35,000 in sales.
Second and third years. In the second and third years of business, sales are expected to total 50,000 - 75,000 divided thusly:
Website: 35,000 - 50,000
Independent Sales Agents: 10,000 - 15,000
Inside Sales: 5,000 - 10,000
Of these sales, holiday and special sales events are expected to account for 40,000 - 60,000.
Fifth year on. By the fifth year of operation, sales are expected to total 100,000, with the website accounting for half the sales, and independent and inside sales accounting for 25% of the sales each. Each year thereafter sales are expected to increase by 15-20% annually.
Key Operations
Goods will be purchased from a variety of wholesale operations. Goods ordered for inside sales will be stored in a large backroom area using the lean ordering concept. Goods that are special ordered will be drop shipped to customers from the supplier utilizing Suhad's mailing materials. Items that are handcrafted or purchased from artisans directly will also be stored either on the sales floor or in the back room area. It is estimated that by the end of the second year the company will need to operate a full warehouse. It is estimated that when the operation is merely 'backroom', one warehouse worker will suffice. When the warehouse opens, the Warehouse Manager will hire one full time and one part time worker, to be increased as needed. Fixtures for the office and warehouse are expected to cost approximately 30,000.
Product Cost
By utilizing drop shipping when possible, product cost will be kept to a minimum. For showroom and backroom items, the initial calculations will be cost of purchase + 150% = sales price.
Gross Profit
Items will be priced at several price point levels: 5, 10, 15, 25, 40, 60, 80, and custom pricing. By simplifying the price structure it will take less time to price and merchandise items and gross profit will be increased. Markup will equal approximately 150%, rounded up to the nearest price point. Custom goods over 60. In initial investment will be marketed at cost plus 200% (CSG Network).
SUMMARY
By keeping careful financial records, recorded on the cash flows, income statement and balance sheets, Sundries by Suhad will quickly determine whether or not the pricing structure is working, whether or not expenses are preventing a profit, and whether or not the company is able to afford to expand. These financial records will become invaluable should Sundries by Suhad ever decide to go public.
References
CSG Network (2011) Retail margin and markup table.
My Own Business (2011) Session 8: Cash flow and accounting. MyOwnBusiness.
Schneider, G. (2009) Electronic commerce. Boston, MA: Cenage.
Skyrme, D. (2001) Capitalizing on knowledge: From e-business to k-business. Oxford: Butterworth-Heinemann.
Walther, L. (2011) Principles of Accounting: Chapter 1.