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Table of Contents
1. Executive Summary Business Opportunity Product/Service Description 2. Company Background Business Description Company History 3. Business Plan For A Retail Company
5. The Industry, Competition, and Market Market Definition Primary Competitors Customer Profile 6. Marketing Plan
7. Financial Plan Investment Plan Break-even Analysis Liquidity Plan Earnings Plan Risk Analysis 8. Conclusion
New forms of cost cutting and store optimization will help to set up a successful business. The operation of this business requires a good knowledge of the selected product area as well as a competitive service concept to increase customer satisfaction. The demand to explain the handling of special items and products for the customers is likely to require a high degree of individual customer advise. Especially new forms of distribution support the successful businesses. Many businesses in the industry have failed to adjust their strategy when customer demands and environmental factors changed. The current growth rates show that there is a demand for retail companies.1 Business Opportunity The retail industry shows currently a strong growth marked by a higher demand but also growing costs.Business Plan For A Retail Company 1 1. The choice of services as well as the development of applications can be one strategy in this field of business. it is critical that this service is offered with a strong focus on cost management. Big industry players have shown that even in a competitive market growth rates of more than 8% can be sustained. The most critical failures in such times were non-competitive offerings. which will help utilize company and employee capacity. Additionally a sound cost management is of critical importance for a solid stream of revenues. slacking cost control and management mistakes. As an add-on a broad range of service activities will be offered. On the other hand. Executive Summary The retail business is one of the growing businesses. This can lead to a fast change of items or whole item groups as well as services. However. 1. unsatisfactory service. A company that provides additional service activities for the customers can be sure to have a high demand and a strong competition advantage. companies that reacted flexibly to their changing environment show significantly higher revenues and margins and increased shareholder value. A strong focus of this business will be placed on the development of new and innovative strategies for the customers that deliver a significant value. The range of products is selected to provide solid growth potentials. The goal of this start-up is the general operation of a retail company with one store that offers a selected range of products and additional services depending on customer demand. The development of new business strategies and solutions seems critical for new industry players to get market shares and survive in this highly competitive industry. New forms of marketing and distribution will increase sales revenues and utilize personnel capacity. One central goal of the proposed business strategy is the development of an own . Compared to other business activities the retail business has low risks because of low required investments. The return on retail business has a growth rate of about 5% to 8% per year. The operation of a retail business that offers a range of products and services is the core of this start-up.
Being the core business the sales segment is expected to generate the largest share in revenues. 1. Additional sources of revenues beside the sale of products are one important element to optimize the profits. This amount is well within the financial requirements observed for other comparable companies. Net earning are expected to be at least 2. This projection is based on the expected strategic direction. The selection of products that show the highest revenues will be another task that will be performed during the business phase.1 shows the revenue mix across segments in the start-up phase.Business Plan For A Retail Company 2 corporate identity. investment amount and business environment. services and applications. For this reason the service around the offered applications and the additional businesses are very extensive. . Such identity will create customer loyalty and help gain a competitive advantage.000 and $55. The required investment for the proposed business is moderate compared to other companies in the industry.2 Product/Service Description The business will operate in the retail industry segment with a variety of products. Synergies in selling product across business segments is likely to boost earning further. Depending upon the location the minimum required investment amount ranges between $50. Therefore it is planned that additional to the selection of new and interesting services a company design is developed.5% above traditional retail businesses with only one or two sales segments. The sale of individual services is expected to be another important generator of revenues which also helps utilize invested capacity. Cross selling is planned to be one of the prime strategies in this business since all products are targeted to serve a similar need and can easily be combined.000 in the start-up phase based on a 15-18% average revenue margin. Labor and the costs for goods are expected to be the main cost driver whereas no other substantial investment in fixed assets is required. Figure 1.
The goal is to create an innovative business in which the customer experiences competent service. 2. Additionally.000 to $55.000 in the start-up phase and the operation is expected to generate profits starting at least in the second or third business year. It is expected that the target employee earns a monthly salary of $2. This set up carries a certain risk potential because of the high equity stake the manager bears and the personal and statutory liability assumed. this set-up preserves a high degree of flexibility in managerial decision taking.000 to $3. A well chosen and targeted selection of offerings will complement this strategy. The development and promotion of a corporate identity is another central task for management. Due to illness and vacation times in the long run an average of 4 permanent employees will be required after the start-up phase. With revenues ranging around $500. Figure 2. Furthermore a corporate identity will support expanding the business to a larger international target market.000 capacity utilization is expected to be around 85%. Both aspects are a core requirement to build customer loyalty. Sales revenues are expected to range between $150. 2. Given the homogeneity of businesses in this industry the development of a corporate identity will markedly increase sales revenues and build a customer base. the sale of service activities is planned to reach an optimal utilization of personnel and company capacity.1 shows a break up of costs in the industry. Furthermore this strategy will provide a clear entrance barrier for prospective competitors.2 Company History In the start-up phase the business is operated as a one-man-business. Although this strategy is likely to require additional investments it is expected that revenues per customer will increase significantly and range above industry average.Business Plan For A Retail Company 3 2.000 and $200. Company Background The goal of this start-up is the operation of a retail business with different products and services and similar offers. With increasing sales and better utilization of employee work time revenue margins will and thus costs per employee will decrease on average. .000 is required which will allow the operation of a typical store business with 2 to 5 employees.000 based on 40 hours per week. The focus of this business will be on the product segment for individuals which shows the highest profits. The sales and service area requires 1 to 2 employees on average working in 2 shifts. The number of personnel to be employed depends on the structural complexity of the operations and the desired size. An initial investment amount of at least $50. However.1 Business Description Management is expected to have a solid knowledge of the offered products and services to influence the customers. In the mean run repeat customers are expected to generate revenues of 40% and more.
For the planned location the following factors are regarded as relevant: The taxes and other administration costs are low. coordinate employees and provide strategic direction to the developing business. This is especially important for stationary businesses because customers. Because of the favorable growth perspectives in the chosen market and growing investment activities we expect to realize yearly growth rates in revenues of 10-15% given an average 4% economic growth rate. Administrative costs are expected comparably small given the expected revenues. Public institutions are expected to provide additional sponsoring. The possibility to recruit additional personnel is favorable. The following analysis is based on 35 businesses in the retail industry. administrative and machine maintenance will be outsourced to external partner since those tasks can typically be provided at better rates externally. Sourcing and marketing will require one employee. Finding the optimal location for a business is one of the success factors in the short and long run. taxes. employees and additional costs are crucial for all businesses. .Business Plan For A Retail Company 4 During the start-up phase a single person will attend to all necessary management task. Since a small company is recruiting its customers typically from the home country a national location is considered as the core market. It is easy to find appropriate employees. Accounting.
Such strategy should focus on items with the highest mark-up potential for the future. This strategy provides a competitive edge against other regional retail companies in the environment and is expected to generate an additional demand and the possibility for a price mark-up. Low priced products that show a high profitability based on the whole sales quantity but also a high competition. services and applications offered will be monitored constantly and vary according to business needs. New applications and services with an additional functionality for the customer will have a mark-up potential of 10-12% above average while the additional cost is minimal at 5%. The specific selection of products. This provides a 10-15% margin.Business Plan For A Retail Company 5 3. The costs for the selection of products and the optimization of the store have to be compensated by additional revenues and a higher profitability. New and innovative products with a low competition. One key element of a product presentation against the customers is to minimize the costs and to increase the profit. Such mark-ups are impossible to achieve in the classical retail segment since the high competitiveness of this segment competes away any price differentials. Business Plan For A Retail Company One of the key elements of a successful business in the retail industry is the selection of products and services that are currently as profitable as possible. The selection will include low and high priced combinations as well as new and innovative elements. High priced and individual products combined with additional services that show a high profitability per product. The selection of products is based on the following financial figures: Profitability Absolute price Absolute demand Handling costs Additional service capacity . The following products show the highest demand and the best profitability.
This concept is adaptive to changes in customer demand. This strategy will help utilize the capacity in personnel since it allows for an optimal coordination of employees. Therefore it is necessary to have a high knowledge about the offered outputs. Initially the investment in inventory. All employees will be trained to cover all aspects of individual services for the customer. The available competence will be used for further business activities that will generate additional revenues. . While this is not a core business segment this concept has growth potential because the demand for services is rising.Business Plan For A Retail Company 6 4. Services Additional service offerings independent from the core sales business are another field of business. Especially the supply of complex product offerings with a higher priced range will require extensive service activities for the customers. technical equipment and personnel capacity of this segment is limited.
But regardless of the selection of items high mark-ups are not . Competition. This analysis will provide marketing and sales data that are indispensable to develop the business potential optimally. 5. For 2004 a growth of 6% is expected with a strong development in the third and last quarter. starting in 2005 this trend is expected to reverse and growth rates will pick up markedly despite the uncertainty in the development of input prices and worldwide economic developments. The market and competition analysis will be based on the entire market. The main competitors are retail companies in the regional environment with a similar selection of products and services and comparable size.Business Plan For A Retail Company 7 5. Sinking prices of input products and service costs have allowed the industry to partially compensate for slowing demand.1 Market Definition Figure 5. According to industry estimates 35% of such innovative businesses gained from cross-selling activities between their business segments. However. New and innovative business concepts in the retail sector still show high growth potentials while growth rates of traditional businesses in that industry were below average. The Industry. Savings in input costs were also due to decreased labor costs. a lot of companies have experienced constant growth rates of more than 5% to 10% since 1999. 5. and Market A careful analysis of the market and competitive forces in this industry is a key element in assessing the business potential of our project.1 shows average growth figures in revenues of typical retail companies during the past 10 years. Despite slowing global economic growth in general and in the retail and service industry in particular. The significant growth of new business concepts is primarily due to sharp cost control and more efficient business strategies that accounted for higher revenue and earning figures. Since the planned project is of national scope the competitive analysis will only have to focus on the local market. Despite slowing economic growth and decreasing customer demand the retail industry underwent a relatively favorable development.2 Primary Competitors The competitive environment is primarily determined by the choice of item groups and the regional location.
High frequented low income groups such as students and pupils also generate relatively high revenue streams although revenues per customer are relatively lower. On the product and service side. To further analyze the competitive environment it is necessary to define the players in that environment. Figure 5.4 shows the size of businesses in this market segment which also includes different products and services that will be sold worldwide. This is the expected equilibrium return in a saturated market. . This gives total revenues per group. As can be seen businessmen and random customers generate high revenue streams.Business Plan For A Retail Company 8 feasible in the long run since this will attract competitors who compete away any rents.3 Customer Profile Independent of the specific products and services the company primarily targeting a young and financially strong clientele. A possible segmentation to identify this group is income as well social groups which allows to determine revenue and earnings per customer or total revenues and earnings. Figure 5. Segmenting the target market is a key element for the design of an appropriate marketing strategy. Such locations will yield a return of 12-15% on average. Although the total visits of young people are relatively high total revenues from this segment are smaller because members in this group have less free cash. Numbers are based on average sales per customer of a particular group multiplied by the member of individuals in the respective group. businesses with a comparable selection of offers are regarded competing in the same market segment.3 shows revenues by yearly income. A firm that generates $300. Members of these groups are frequent buyers of consumer products. As can be seen customers in the middle income cohort generate the highest revenues. The figure shows revenues generated per income group.000 to $1.000 in revenues and employs 5 to 10 people should regard a firm with revenues and personnel 3 times this figures as a viable competitor. The numbers are based on average revenues of companies that run their business more than five years. Numbers are based on the average income per customer and the number of customers per income group.2 shows revenues for different retail companies by social group. 5.000. Figure 5. With a high density of businesses in one location businesses with the highest marginal cost will be driven out of the market.
Business Plan For A Retail Company 9 .
Several marketing and sales promotion strategies are available in the retail industry. They are used at business openings primarily and offer special discounts. Only 45% of businesses have used these elements and 55% of these regard this instrument as beneficial. Marketing Plan In the start-up phase it is a central task of the marketing concept to establish a name recognition and own trade mark.Business Plan For A Retail Company 10 6. The use of marketing and sales promotions proceeds as follows: to a broad base attract new customers the strategy will include a combination of printed advertisements and special offers with opening discounts. Figure 6. Direct mailings are a very efficient strategy that sends mailing to selected customers or businessmen groups. A marketing alliance and online advertisements will also come to use. Marketing alliances with other online businesses to generate cost savings and increase efficiency are used rarely. 49% of businesses in the retail industry use printed advertisements and about 60% of this group regard this as the most beneficial form of marketing. The numbers are based on typical businesses in the retail industry. The figure can serve as a direction for the planning of a marketing and sales promotion strategy. Since spreading costs of such mailing are very low this marketing element provides a useful tool for special offer promotions. 49% of businesses use sales promotion strategies frequently and 81% of the users responded that this instrument is successful. . As can be seen printed advertisements targets a large potential customer group but at a relatively high cost. This strategy is expected to continue for 3-4 months after which the effort will turn towards creating a customer loyalty for regular customers. Later on the strategy will primarily be targeted to gain new customers and create customer loyalty of repeat customers.1 shows different marketing elements and their use in marketing strategies as well as their estimated potential success factor. Sales promotion strategies have temporary effects only. Printed advertisements in international newspapers and magazines is regarded as very beneficial in the start-up phase to attract a large group of potential customers and draw attention to the range of articles offered. Such strategies include mutual use of marketing and web promotion events and joint promotion arrangements. Web and e-mail marketing is used frequently in the retail industry although this would be a relatively inexpensive additional effort. Furthermore a group of customers will be selected for direct mailings. This strategy is supplemented by a regular marketing strategy and direct mailings to regular customers.
Financial Plan A sound financial plan is the key factor for the success of a business start-up.2 gives a break-even analysis that shows revenues at the break-even point. This affects small businesses between 10 and 20 employees most severely. This effects is due to the better utilization of capacities in personnel at rising revenues at constant cost.2 shows the expected relationship of cost and revenues. The inputs for this financial plan are based on 40 businesses of different size and market segments in the retail industry which serve as a group of comparable firms as well as own estimates based on the planned business environment. If capacity is fully utilized additional personnel must be recruited.85. As can be seen the relationship is not linear everywhere but costs decrease relative to sales at an initial investment of $50. Figure 7.000 to $55.000 to $2. At sales levels between $1. The cost revenue relationship is important not only during the start-up phase but also for planned further expansion. Revenues from service sales can be differentiated into those from low priced services to sophisticated services with some elements.000 costs increase by the factor 1. The classical product sales segment will of all segments have the smallest contribution to sales in relative terms (11%) but given the high sales volume the largest in absolute terms.Business Plan For A Retail Company 11 7. The sales margin is expected to be 12-15% whereby each business segment contributes differently to sales and earnings.000. This includes all investments necessary during the start-up phase. . The initial capital requirement is estimated to be $50.000 administrative costs are expected to return to a linear relationship of sales. Depending on the initial investment sum cost and revenue estimates vary. Every additional sales revenue adds to profit and vice versa.000. Investors and banks will base their funding decision on the information given in this plan. Revenue estimates are conservative and expense projections include a cushion for unforeseen contingencies. The details of the financial plan are laid out in more detail as follows: Section 7.000. Figure 7. At a specific size this relationship reverses because administrative costs rise sharply. the financial plan has to be revised and refined on a constant basis so that discrepancies can be uncovered and solved instantly. Section 7.000. Besides a plan of the financial needs this plan must insure that the business is always liquid and ultimately profitable.1 gives an investments schedule. The sale of goods is expected to generate a 10% sales margin while the margin from sales of services is expected to be closer to 15%. Often such expansion strategies are based on this relationship. Other industries are able to generate cost savings of 30-50% during expansion periods while for the retail industry this factor is close to 15%.1 shows the source of revenues by segment during the start-up phase. Since the sales and earnings projections in the business plan are based on expectations. At an investment sum of $100. Since the sales revenue of lower priced consumer products is expected to be larger this segment will generate a significantly higher profit.
Business Plan For A Retail Company Section 7. Section 7. The projection shows that the critical amount of revenues at which the business is profitable and how profit develops over time. The plan also includes initial marketing and sales promotion expenses. Liquidity must always be positive.4 contains a long-term profit projection for the first 4 years of business. The risk analysis contains critical factors that may impact the financial numbers presented in this plan. .2. The figures are based on a business with 3-5 employees and expected revenues of $350.5 provides a risk analysis. 7. This plan is based on current cost and revenue estimates from Section 7.000 in year 2-3.3 gives a liquidity plan. 12 Section 7.1 Investment Plan The investment plan comprises primary capital needs for the foundation and operation of a retail company with different products and services for sale.
2 Break-even Analysis The break-even analysis shows how earnings rise as a function of sales. Fixed costs are estimated at $90. If the break-even point is not achieved in the long run the business loses liquidity and may become insolvent.000 to $100.000 and given fixed costs the business will generate a profit.000. Increasing sales volume will increase pre-tax earnings margins but this development reverses when administrative costs begin to rise .000 and variable costs at $100.000 pre-tax. This represents an earnings margin of 25% pre-tax and 14% after-tax. At a sale revenue of $200. This requires that a critical amount of revenues must be generated. This analysis is important for the development of the liquidity plan. These estimates are realistic in this market segment. The break-even point is the point at which revenues from sales cover total costs (fix costs and costs rising with sales). At a realizable revenue of $500.000 after 2-3 years profits will rise to $125.Business Plan For A Retail Company 13 7.
000. This serves as a base for a pricing strategy. Revenue estimates are drawn from a standard normal distribution.Business Plan For A Retail Company 14 sharply.3 Liquidity Plan The liquidity plan shows the amount of finances necessary to assure permanent liquidity of the business. The plan is based on 4 representative months of a typical business with 3 to 5 employees and annual sales of $300.5% after which the margin decreases to constant 25. . Additionally the graph shows the amount of sales at which a marketing campaign can be run profitably. Up to a sales volume of $1.000.000 earnings margins rise to 27. 7.3 shows at which critical sales volume the business generates a profit.5%. Figure 7.
Revenue estimates are drawn from a normal distribution with an estimated growth rate of 20 to 30%.4 shows profit over time. . Figure 7. The plan is based on the first 4 years of business.Business Plan For A Retail Company 15 7.4 Earnings Plan The earnings plan shows the results from ordinary operations.
Such failures might also come from external shocks instead of operating deficiencies. 19% of businesses with insufficient demand go bankrupt. Insufficient demand: This is the most frequent reason that leads to business failure. Data are drawn from questionnaires of 25 retail businesses with comparable product offerings and revenue. 1.Business Plan For A Retail Company 16 7. Such factors can involve failures during the implementation phase as well as during operations.5 Risk Analysis The risk analysis considers critical factors that may lead to a failure of the business concept. Since the expected frequency of customers during the start-up phase are . This includes permanently low demand as well as a temporary collapse in demand. Shown is the key factor that led to the failure only. Such potential factors are ordered according to the probability at which they can arise. 50% of these businesses report that once demand slacked they did not react accordingly because they believed that this phenomenon was only temporary. Often demand estimates were too optimistic at the outset.and cost structures that went bankrupt during the last 3 years as well as analyses of different research institutes.
The majority of investments are funded by debt. innovative ideas and concentration on core businesses are an easy means for an entrant to gain a competitive edge. Often start-ups did not consider that even when the choice of market may not be wrong at the outset it may later become so when economic conditions worsen. 6. Currently retail businesses have a capacity utilization rate of personnel of 70% to 75%. More than 10% of insolvent businesses reported that they went bankrupt because of the wrong market selection. 10% of all insolvent businesses report that they went bankrupt due to macroeconomic conditions although the relevant indicators of the business looked healthy. Location and market: The market of the business and the selection of the right potential customers is an important success factor and one of the fundamental decisions that have an impact on the future prosperity of a retail company. 5. 70% of employee working hours can be directly credited to sales. This is also important for the future development of the business.Business Plan For A Retail Company 17 still low a critical success factor is to focus promotional effort so as to generate customer loyalty early on which will help minimize the effects of demand fluctuations. Liquidity constraints: Another frequent reasons for bankruptcy is in sufficient liquidity. A better service concept.e. Personnel and capacity utilization: Often personnel capacity cannot be adjusted flexibly easily when demand slows down. In that case it is possible that all liquid funds are used to cover losses or that liquidity needs were planned too tight. i. liquidity and leverage. 2. debt obligations cannot be covered. If the business becomes unprofitable. 4. Approximately 16% of insolvent businesses were driven out of the market by that competition. Although this factor does not affect the business in itself it does have an impact on profitability. 3. 8. Therefore a careful analysis is necessary. Cost remain constant during such period but revenues typically decrease which affects overall profitability. At small businesses this value is often lower which means that 30% of working hours arise without generating any further revenue. To be able to flexibly react to changing liquidity needs it is important that sufficient funds be planned even during the start-up phase thus 5-10% of the investment sum should be held as liquidity reserve permanently. 7. This may be due to structural changes or different interest of customers. Behavior of Competition: Due to low entry barriers additional businesses can enter the market at low cost. 13% of insolvent businesses reported liquidity as the reason for bankruptcy. Wrong Business Decisions: Often wrong business decisions and difficult situations go . Macroeconomic Conditions: In a cyclical downturn revenue expectations my not come in according to expectation. Over-indebtedness: Many business are run on a small equity base. 13% of such businesses go bankrupt for this reason. Little more over 10% of insolvent firms reported over-indebtedness as the reason for going bankrupt. It is therefore important that a share of earnings is retained for debt service.
Small businesses should use such indicator ratios to assess their business outlooks.5 shows the relative importance of each factor for businesses that went bankrupt. Figure 7. Studies have shown that many businesses fail in their start-up phase because of management’s inability to make sound business decisions while one a business is settled such mistakes are very rare. Certain key figures can help measure this ability and allow to objectively determine a decision's chance for success. A critical and independent reflection of a decision are critical factors to determine the value of a management decision and evaluate the business' profitability. . The numbers are based on the most relevant reason that triggered bankruptcy but not the reason responsible for bankruptcy. A critical management instrument is the ability to detect potential failures and problems. As can be external factors that changed the competitive environment and changing macroeconomic conditions were the most important reasons relative to internal factors.Business Plan For A Retail Company 18 unnoticed for some period which can lead to a failure of the business.
Deficiencies in service quality can lower demand while good service quality can help create customer loyalty.Business Plan For A Retail Company 19 8. This is also true for new trends in the retail industry to better control costs and increase efficiency. For a successful operation of a retail company 5 factors are critical and central for the business strategy: In the retail industry it is important that the customer experiences a comprehensive and competent service. This situation is mostly driven by the competition of larger companies. The relatively modest investment requirements and running costs compared to other businesses are a favorable argument since external funds from banks becomes more difficult since the risk aversion to finance such ventures has risen. Conclusion The retail business with different products and additional service elements is a very profitable business while almost any other segment in the market currently lives through a difficult time. Cost management is a critical success factor for businesses in industries where margins are low. Better quality of products and services at lower cost increases customer satisfaction. Computer aided planning for the store is an integral part of cost management. Service is a critical factor that can earn a competitive edge. A critical factor in the retail industry is quality management. Market conditions change constantly as do customer demands. This will secure customer loyalty and optimize profitability in a market that is very competitive. A carefully selected assortment of interesting and profitable products as well as the selected choice of new technologies is a potential to gain a competitive edge against competitors. A business that successfully survives the current temporary slow down can be certain of increased profitability one the situation rebounds. The utilization of personnel capacity is critical for the long-term profitability because of changing margins and the constraints to flexibly reduce personnel. Furthermore a service that aims to give the customer an added value through new services can justify price mark-ups. Therefore the additional selling of service elements like the development of customized products is a further segment of the business that is integrated in the sale of the whole business process. This is the chance for businesses with innovative ideas and new offerings to secure a dependable customer basis. A company with specific knowledge and innovative ideas has good chances to move into profitable market niches and run a successful business. - - - - .
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