4/5/2011

IB1150 Integrative Project Group 4

Felix Chay, Folarin Araromi, Julia Prada, Laura Reeves, Himanshu Gupta, Shahida Tomiran

Contents

Page 3 4 7 7 10 11 13 15 16 18 20 22 23 24 25

Description Letter to investors Executive Summary Business Description Market Research Competitors USP Marketing Operations Funding and Exit Strategy Financials Risk SWOT Milestones Legal Appendices

IB1150 – Group 4

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“ArtDiem.com”

IB1150 – Group 4

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“ArtDiem.com”

Executive Summary
Introduction

Name of the company: ArtDiem.com

Structure: Limited company

Location: Office is based in London

What we offer?

ArtDiem is an online based company providing an virtual art gallery, where contemporary artists can express themselves and show their talents off whilst earning an stable income.

What we are looking for?

We are seeking financial investment of £200,000 in exchange for 40% equity in our business.

Target Market

The target group is divided into the sellers and buyers of art. The sellers will initial be contemporary young artists, but as ArtDiem is an online service anyone is welcome to subscribe and sell art and a lower commission rate to competitiors.

The buyers again can be anyone who has internet access and appreciates original art, but ArtDiem will be targeting retail businesses such as hotels, restuarants and interiror designers who are looking for unique pieces of art.

IB1150 – Group 4

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“ArtDiem.com”

He will also be responsible for the internal auditing and budgeting. He will be responsible for developing the systems to ensure efficient management of the company‟s finances. He will be responsible for daily business operations.com” . Julia Prada – Head of Web and Graphic Design Julia was previously employed by Ebay Inc. as well as setting targets in order for the yearly goals to be achieved. where she was responsible for the web and graphic side of the business.Differentiating Factor The website will provide numerous services for both the artist and the consumer. and act as a point of contact to external auditors and other third parties who are interested in the company from a financial stand point. where in his previous role he served as a Principal Director at Kohlberg. She has since invested time and money in starting a new business.P. He also is a fine art enthusiast and a member of the elite Art Society in London. audio descriptions from the artists and photo simulation. Kravis & Roberts focused on growth equity and technology start-ups. IB1150 – Group 4 5 “ArtDiem. Folarin Araromi – CFO Folarin has extensive experience in financial services. Reviews from art critics Management: Felix Chay – CEO and COO Felix was head of technological operations at J. including: 3D Virtual gallery Social Networking opportunities such as forums. with the help of the contacts she has retained in the field. Morgan for 11 years.

Laura Reeves – Director of Software Management Laura was director of software management for Google for the past 4 years and will take on the same role for ArtDiem. a rival art retail website.com. He has superior insights into the changing needs of modern customers. Himanshu Gupta – Head of Customer Relation Himanshu is a dedicated and professional Customer Service Manager.Shahida Tomiran – Director of Marketing Shahida is dedicated and results driven with a successful background in marketing for DeviantArt. He has been working with British Airways for the past 7 years. She is responsible for researching and reporting external opportunities and understanding current and potential customers. IB1150 – Group 4 6 “ArtDiem. She holds numerous awards in software control and security and has successfully managed software installation at high profile security companies such as Cisco. He can speak four european language and has worked in many various countries across the Europe.com” .

com is a virtual art gallery initially based in the UK. Art Diem therefore encourages people to live their lifes sorrounded by art. The website will cater to both the artist and consumers which will provide set ArtDiem1 apart from its competitors.com” . Aggregate Art Sales in the UK and EU 1 ArtDiem refers to the latin phrase “Carpe Diem” by the poet Horace. providing an enormous market with opportunities to set up and grow a successful business. 2 The British Art Market.Business Description ArtDiem. showcasing art from contemporary artists available for purchase by the general public. ArtDiem allows artists to express themselves. 2010 see appendix IB1150 – Group 4 7 “ArtDiem. and makes it more feasible for them to make a stable income from their talents. growing market with the UK being one of the top players in the global art market. which means “seize the moment”. with 57% of the EU trade and a global market share of 29% in 20092. Market Research The Art Industry is a lucrative. providing a convenient shopping experience from home.

The key differentiating factor of the UK art market is the creativity of the artists5. and we as a business reflect the values that are associated with the UK art market. We managed to get 100 people comprising males and females.” (The British Art Market) 4 IB1150 – Group 4 8 “ArtDiem. highlighting the opportunity for growth of our business in the European and World Market. Nonetheless the market is recovering and is less sensitive to economic crises than other assets4. Birmingham and Coventry. 3 See appendix (http://www. The British Art Market). knowledge. Also. skills and creativity have been identified for several years as the essential elements that have given the British a competitive edge.com” .com/) 5 In the context of a global marketplace. The focus on art in the UK has primarily been on the quality of the produce itself compared to other countries. We decided to carry out primary market research by distributing questionnaires to local UK citizens living in London. knowledge-intensive businesses that employ a balanced mix of highly educated individuals.artmarket. and ArtDiem is focused towards finding new artist that provide a new perspective to art.However. “the UK is the largest importer and exporter of art in Europe.” (The British Art Market) We as a business believe that we possess the much needed expertise while at the same time starting a business with a virtually unlimited audience. as detailed in our milestone for year 6. from different backgrounds to answer our questionnaire. as a consequence of the credit crunch the art market in the UK has seen for the first time in over 7 years a decrease in revenues in 20083. “The British art and antiques market is mostly made up of a number of small. and is a net exporter of works of art” (pp4.

IB1150 – Group 4 9 “ArtDiem. People are generally not willing to spend more than £200 for an original piece of art. 5. The majority. 4. 38% of the people buy art for their homes. 35%. Around half of the population has visited an online art gallery once in their life. 2. when buying art as they are more convenient. preferred online art galleries.com” . People generally look for traditional art and photography. 3.The following conclusions were made: 1.

Even though a direct competitor.co.uk Art Gallery is one of few direct competitors who sell original and limited edition art also based in the UK. ArtDiem differentiates itself from Art Gallery in terms of the 3D galleries and reviews from art critics. DeviantArt DeviantArt has been established online for approximately 10 years and sells a range of different art produced by young artists. Also DeviantArt have experienced problems with customer service. they continued to bill a customer after the account is deactivated.deviantart. 100 million pieces of art are sold on the website with 12 million members who buy and sell art.com/?utm_source=DA&utm_medium=UB&utm_content=Takethetour&utm_campa ign=DA_UB_Takethetour_091409 IB1150 – Group 4 10 “ArtDiem. 6 http://welcome. from digital art to literature. There are indirect competitors who specialise in selling art produced by young artists who have been established in the art industry and would be useful to compare to ArtDiem. One of the main problems is with monthly billing subscription to print art. ArtGallery.6 The pieces of art are not exhibited in a 3D art gallery.Competition Through our research it is clear to see that there is little direct competition. instead they are static images on a web page.com” .

gigposters.com/forums/gallery-shows/60185-gallery-commissionrates-2. ArtDiem intends to support artists by providing reviews and endorsement of the art from established art critics. Make a living from your art – ArtDiem makes it more feasible for artist to generate a stable income as oppose to their work lying dormant in a gallery showroom.html 7 IB1150 – Group 4 11 “ArtDiem.Unique Selling Points The Seller A lower commission rate of 30% compared to the standard rate of 40-60%7 art exhibitions charge – this is to capture more market share. http://www. No listing fees – competitors charge for listing so their interests are mostly to maximize their seller base.com” . whereas ArtDiem’s interests are aligned with the artists and are committed to selling the art rather than generating listing revenue.

A forum for any added questions or queries consumers have regarding pieces of art. This service will be free of charge and available before any purchase is made. Audio descriptions by the artist in order to allow buyers to learn more about specific pieces of art just like having the artist there in front of you. 3D virtual gallery which looks and feels like the buyer is in a physical gallery. allowing the buyer and seller to network.The customer Convenience of buying the art from the comfort of your own home. ArtDiem also enables buyers to upload a photo of the room they want the art to fit in and see what it looks like. IB1150 – Group 4 12 “ArtDiem.com” . It can also be used to rate and give feedback for the art.

we give them a freedom to price their art without any intervention from the company. There are more than 80 art schools in UK and our gallery aims to target them by getting their affiliation and sponsoring events such as art competitions and small exhibitions within the schools. Why will they sell art to us? There are many advantages that we offer to artists. We will have our name registered at various art directories and clubs such as Londonartclub. which helps them to develop their reputation and improve their work.com in order to interact with them. IB1150 – Group 4 13 “ArtDiem. Through this.Marketing Sellers. We will be targeting them by creating a facebook page and inviting artists from other websites and pages to join us. GENERAL ARTISTS ArtDiem is open to everyone. their art gets appreciated and reviewed by established art critics. We will hold art competitions.com” . We plan to organise workshops and career fairs. so that students from these schools get to know more about ArtDiem and they can associate with us. Secondly. This will also be a motivational factor for young artists. in which artists can showcase their art and be judged by a panel of art critics. the artists will get a chance to meet art critics personally and get appreciation for their work. any individual can upload their art on our website. that make us unique.Artists SCHOOL and UNIVERSITIES ArtDiem will be targeting young contemporary artists from various art schools and universities. Firstly.

efforts and thought processes behind improving a site’s visibility in search engine results pages (SERPs) IB1150 – Group 4 14 “ArtDiem.org/what-is-seo/) Refers to the procedures. Leaflets.searchengineoptimisation. This is an incentive not only to refer friends and family but also to buy more art on the website. We also intend to advertise on social networks such as Facebook. we will also intend to establish referral schemes which will give customers discounts based on the number of referrals made. In addition.com” . This will attract more potential buyers to come in and foster loyalty from our customers. As well as retail customers we aim to target business such as interior designers. Being top ten in a search engine is vital as people will only visit the first few pages suggested.Who are the customers and how do we reach them? ArtDiem’s potential customers are unlimited as online businesses enable everyone with an internet connection and a bank account can buy on the website. 8 http://www. Twitter and Youtube which are good mediums to reach the public as they have high traffic. hotels and restaurants that needs art to decorate their spaces. We will offer incentives such as discounts for bulk purchases. pamphlets and posters can also be distributed through employee contacts in the art community. We want to reach the wider cyberspace community through advertising on art enthusiast‟s websites. Google Ads will be useful and will help to increase our website‟s traffic as well as search engine optimisation8.

We intend to utilize WorldPay payment processing platform so that anyone with a bank account can purchase art on the site.Operations ArtDiem Sellers Provide and responsible for delivering the art. Dedicated customers service on hand at all time to meet customers‟ enquires. there is no need significant physical infrastructure. theme. size and price etc. Personnel IT technician will be responsible for hardware issues. Due to the nature of our business. this means we can enjoy a lean cost structure of the company‟s financial. ArtDiem will provide an art search option to view listings classified by medium. however we will provide special delivery on purchases in excess of £700. We will also have fixed price systems and an auction system to give the seller flexibility on how they price their items.com” . Art search option Auction and fixed price listings Online payment processing services 30% commission fee Special delivery for items over £750 Buyers Pay for the delivery of art. The web designers will also act as moderators in the forum. Moreover. Marketing staff to increase brand awareness. Web and graphic designers will develop and maintain the website such as the interactive features. IB1150 – Group 4 15 “ArtDiem. deliveries will be arranged between the sellers and buyers.

IB1150 – Group 4 16 “ArtDiem.000 investment will be used to cover set-up costs such as detailed above. First Year Set Up Costs Sources Founders Investment Proceeds from Offering £300.000 £200. and sustain itself independently. In the third year we anticipate an expansion of the business and from then on the business will generate sufficient cash flows to meet it‟s current liabilities and working capital needs.000 £18.000 £50.000 Total Uses £168. 50% plus one share).com” . Selling & Admin Expenses Marketing and Advertising Rent Salaries Website Design & Development £500.000 Most of the £200.000 for 40% equity in order to meet start-up costs and projected expenses for the first 3 years of operation.000 £76.000 £4.000 £2.Funding and Exit Strategy Funding The company seeks to acquire seed funding of £200.000 Total Sources Expected Set Up Costs Capital Expenditure General.000 £18. The funding is subject to 3 year lock-in and founders maintaining controlling interest (ie. During the estimated initial 2 month set-up period there will be only be outflows of cash.

com” . and even more so in the online retail sector.425 million. We expect to generate roughly £3 million in Revenue (TV) in the 5 th year. bringing the value if the seed funds equity to £2. in its 5th year ArtDiem would have an implied TEV of £7. we can see that the average Total Enterprise Value (TEV) to EBIT multiple is 11 times9. This means with a projected 5th year EBIT of £675.2% on the initial investment ( ROI) 9 Sourced from CapitaIQ‟s 2012-2017 Forward trading multiples for Internet Retail Industry (screenshot in appendix) IB1150 – Group 4 17 “ArtDiem. or partial monetization.Exit Strategy The UK art market is experiencing rapid growth.97 million. of one‟s equity through a trade sale.000. most likely to a 3rd party venture capital fund. This represents a Compound Annual growth rate of 169. We anticipate potential exit. and looking at the forward trading multiples for the online art retail industry from 2012 to 2017.

Most of the company‟s costs are relatively constant or increase in line with inflation. and £250.3% hi).Financials In its first year of operations.000 worth of art (Transaction value.000 (£180.8% Compound Annual Growth Rate in TV (185. Due to the initial set-up costs the company costs will exceed income in the first year. .000 low. IB1150 – Group 4 18 “ArtDiem. 196.000 hi) for the first year. our closest competitor artgallery.com” .uk sold £291. Art is a relatively demand elastic product.5% med. and the Cost of Sales is the 70% that goes to the artist.co. and the economic conditions now are direr than they were at the time. Growth rates in the online retail industry are exceptionally high and even in our pessimistic scenario we expect a 174. which we have assumed at 2% per annum. ArtDiem offers a very attractive commission of 30% on the final value of the artwork. so in our realistic scenario we anticipate revenue of roughly £215.

com” . assuming cost ratios are improved or at worst kept constant.000 Typically new businesses do not break-even for the first few years after inception.000 £ 700.Operating Profit (EBIT) 800. and the implication of this is that is the business grows.000 600.000 Operating Profit (EBIT) 300.000 500. and while the business will make a loss in the first year.000 0 1 -100.000 400. we can achieve profitability from the second year of operation with margins growing every year (bar year 3. due to the nature of the business. Part of the uniqueness of the business is that it exists in industry where high margins are the norm . the expansion year in which significant costs are anticipated to be borne to grow the business).000 100.000 2 3 4 5 Years -200.000 200. IB1150 – Group 4 19 “ArtDiem. the business will generate increasing returns on investment. specifically the lean cost structure.

forums. as ArtDiem is unique through its interactive features. our hardware technician will guarantee optimal performance of the servers and regularly backup the servers. ArtDiem will have dedicated customer service to minimize any consumers trust related problems. where our members can report any suspicious sellers by awarding bad reputation points or directly reporting them to our forum moderators. our website is going to have a reporting system. we see a potential problem of an intellectual property theft. In order to help deal with this issue. Furthermore. For instance.com” . there is a potential risk of fraud. who will in turn report them to the authorities. Additionally. To prevent this. a seller could sell a counterfeit or a stolen piece of art. we put maintaining an excellent reputation as our number one priority. and the critics to the young artist. IB1150 – Group 4 20 “ArtDiem. as well as impairment in reputation. Our business is very dependent on technology and if one of the servers should be down at any time this may result into a huge loss of income for the company. We intend to combat this by enforcing a copyright on our website.Risks Firstly. namely our competitors might try to implement our unique selling point into their own website. As a company growing in size.

com” . namely hacking and attacks on the website. We can count on the experience of our Director of Software Management to defend against these situations.Another potential risk is the threat of breaches of data security. IB1150 – Group 4 21 “ArtDiem.

opportunities. making profits from year 2 OPPORTUNITIES .com” . and threats posed by our business venture. In order to gain market share and make our business successful we have to formulate an economics strategy that will match the qualifications and opportunities10 STRENGHTS . weaknesses. Potential competitors could deprive us of our suppliers.the originality of the concept and very few direct competitors .reliability /dependability on external sources for internet acces 10 The Strategy Process Mintzberg Henry.The only 3D art gallery and photo simulation will most definitely appeal to a large number of buyers.SWOT Analysis In order to fully understand the value and the opportunities posed by our business idea. Ghoshal Sumanatra As stated by Mintzberg et al´s “design school” (1998) IB1150 – Group 4 22 “ArtDiem. potentially everyone who is in possession of a PC. Quinn James-Brian.competitive changes: another website that provides same products and services . (highly unlikely because 80+ art schools in country) WEAKNESSES . 2010). we will use the SWOT analysis to identify the main strengths.risk of supplier change (McGee at al.financial capabilites: extensive marketing.The opportunity for the development of our business on a global scale is fundamental to our concept and it shapes our strategy competition SWOT THREATS .risk of poor quality of art pieces sold on the website if not checked throguhly . .

In our first year we anticipate 40. as we have a similar customer base.com%2Fonline-gallery%23module86308111&h=e7cb2JwHkUs-K8GYXqslI12ELGQ IB1150 – Group 4 23 “ArtDiem.com” . Initially we will target European Countries like France. and in accordance with predicted growth rates11 we expect around 4. We plan to build a strong mutual relationship with them offering mutual advertising.squidoo. 11 . This is also when the company intends to initiate advertising partnerships with established public galleries like the Tate galleries. We plan to expand globally by year 7. We will have an office in each country we target for the purpose of providing good customer service and other administration work. and this will develop the companies brand image generating significant „word of mouth‟ advertising through customers. National Art Gallery etc. We will have individual website for all target countries and will sell tailor made art according to the taste and culture of people of that particular country.000 unique visitors to the site.500.Milestones The business will begin to expand in the third year as a result of the extensive marketing strategy.000 visits per year at our gallery by year 5. Germany and Spain.

In the event that a shareholder wishes to renounce his stake in the company. He may also sell his shareholding to a third party but only at the approval of fellow shareholders. The management will guarantee the establishment of clear reporting lines and allocation of responsibilities. reviewing and managing potential conflicts of interest and staff training (to the extent applicable or necessary). ArtDiem. The liability of the members of the company is limited to what they have invested or guaranteed to the company. under UK law. and other internal systems particularly in relation to customer complaints and fraudulent activity.Legal The company. the firm will conduct internal audits to help ensure effective stewardship and proper business conduct. will be established as a private limited company. The online retail industry is a fast moving one and as such Art Diem’s internal controls will include regular reviews of the firm‟s term and conditions of business. IB1150 – Group 4 24 “ArtDiem. compliance procedures. Ltd. he may sell his shareholding to fellow shareholders. such that the personal assets of the invested parties in the entity are distinct from the assets of the entity.com” . As well as external auditing .

com” .THE TEAM Name: Felix Chay Executive Position: CEO & COO Age: 40 Experience: Head of Technological Operations Head of Technological Operations at J. A proven entrepreneur skill IB1150 – Group 4 25 “ArtDiem. and was responsible for running the business operations of the firm in an international scale. Furthermore. serving consumers from all over the world.P. Key Skills: Maintaining the security and web designing of one of the largest firms in the world. Qualifications: Graduated from The University of Warwick with a first class in Accounting and Finance. CEO of Overseas Palm Oil Plantation Ltd. he also owns a global palm oil business. Morgan for 11 years. he was also in charge of maintaining the company‟s website security as well as designing the lay out of the website.Appendix APPENDIX 1. Before he served as the Head of Technological Operations. He also received an MBA from Wharton Business School.

com” .Name: Laura Reeves Age: 32 Executive Position: Director of Software Design Qualifications: BA Honours in Business and Law (1999-2003) Masters in Computer Science at Oxford University (2003-2004) Experience: Software Installations Manager at Cisco for 2 years Responsible for software control and security installation checks Director of Software Design at Google for 6 years Assisted in the development in Adobe Photoshop Software IB1150 – Group 4 26 “ArtDiem.

com” . IB1150 – Group 4 27 “ArtDiem. US MSc International Business and Market from the University of Dundee. UK Experience: Director of Marketing for DeviantArt for 5 years.Name: Shahida Tomiran Age: 29 Executive Position: Director of Marketing Qualifications: BSc in Marketing Management from Northwestern University.

com” .Name: Folarin Araromi Executive Position: CFO Age: 32 Qualifications: BSc in Accounting and Finance at Warwick Business School MBA Quantitative Finance and Law Experience: Goldman Sachs M&A Division Worked in teams. During this experience he acquired valuable team working and leadership skills.com IB1150 – Group 4 28 “ArtDiem. He has since decided to pursue his love for art and taken responsibility for the financial side of ArtDiem. offering value added advice to business of all sizes.

collaboration with design office on various projects throughout the years. collaboration with the Hardware office on the construction of the new extension of the website eBay Outlet.com” . IB1150 – Group 4 29 “ArtDiem.uk (2007-2010) Responsible for the layout and presentation of eBay Inc.Name: Julia Prada Age: 32 Executive Position: Head of Web and Graphic Design Qualifications: Honours Degree in Graphic Design at Bath University (1998-2001) Masters in Web Design in Rome. at IED Arti Visive (2001-2002) Experience: Graphic Designer at eBay.co. Web Designer at Schiavone (2003-2007) Responsible for the setting up of the website.

Cambridge University Ambassador He was a leader of the group of students assisting prospective students on the University Open Days.Name: Himanshu Gupta Executive Position: Head of Customer Relation Age: 37 Qualifications: Masters in Human Resource. French. He was a leader and a mentor for his team. handling customers at Heathrow Airport.English. Was responsible for solving student doubts and taking them around the whole campus. Key Skills: Professional user of Microsoft office Can speak 4 languages. Warwick University Experience: British Airways He has a 7 years experience in working with British Airways and was responsible for handling customer grievances and their ticketing. London. University of Cambridge BSc in Law. Was actively involved with student union as a student consultant and Advisor.com” . German and Italian Good taste in Traditional art and involved with various art society IB1150 – Group 4 30 “ArtDiem.

com” . All the information given will be used only for internal purposes of the company. Please try answering the questions as accurately as possible. What is your preferred source of buying art? Art Exhibitions Online Auction Art Gallery Others Have you ever visited any art gallery online? Yes No What would be your reason for visiting an art gallery? Sculptures Portrait Traditional art Modern contemporary Photography IB1150 – Group 4 31 “ArtDiem. All the questions are anonymous and don’t provide any information about the respondent.APPENDIX 2 – MARKET RESEARCH QUESTIONNAIRE The purpose of this questionnaire is to carry out Market research. which will exclusively be used by ArtDiem. The questionnaire is very short and it should take you no longer than 3 minutes to complete.

com” .What is your purpose of buying art pieces? Office Home Gift Investment others What are you willing to for an original piece of art? Less than 100-300 300-500 500 and above QUESTIONNAIRE -MARKET RESPONSE What is your preferred source of buying? others 13% online 35% gallery 27% exhibitions 20% auctions 5% IB1150 – Group 4 32 “ArtDiem.

com” .Have you ever visited an art gallery? no 43% yes 57% What would be your reason for visiting an art gallery? others 7% modern contemprary 18% sculptures 16% portrait 13% traditional art 19% photography 27% IB1150 – Group 4 33 “ArtDiem.

What are you willing to pay for an original piece of art? 500 and more 13% 300-500 23% less than 100 29% 100-300 35% What is your purpose of buying pieces of art? others 17% home 38% gift 25% office 13% investment 7% IB1150 – Group 4 34 “ArtDiem.com” .

I lost money through an unauthorized deduction. DA is claiming no responsibility and has not made any attempt to resolve this issue. This has turned out to be a very questionable company which to give any sort of financial account information.APPENDIX 3 – COMPETITORS Consumer Reviews http://forum. I had enrolled in their monthly billing subscription to print some of my art. However. They drafted money from my bank account without authorization.com/community/complaints/1558021/?offset=50 "I had been a customer with Deviant Art for years. Deviant Art made a mistake within their billing practices in regards to my personal bank account. My account is still being billed monthly to my personal checking account and my information cannot be accessed on their site to change it. Not so much as an acknowledgement of an error or any attempt to solve this problem. Be very wary of using this site and putting your personal banking information on this site as you just may end up paying for more than you want.deviantart. This was nearly five months ago (June 2009). Im given the same cut and paste response nearly everytime I try to get help and now the company wont even acknowledge my emails asking for help with the situation. My account was deactivated and I thought all of my information would be taken off of the website but that was not so. The customer service is horrible. recently. I am cancelling my membership with DA. even after repeated attempts to communicate with this company. So I still paying for a service I cannot even use. after awhile I decided I no longer needed to use their service and tried to cancel the rebilling on my account. Be very careful when dealing with this company." IB1150 – Group 4 35 “ArtDiem. mostly for the purpose of purchasing art. So far.com” . After contacting customer service for the past 5 months the situation is still unresolved and Im still being billed monthly and cannot use anything on Deviant Art." "I have been a customer with this company for nearly five years.

FINANCIALS Realistic Income Statement year 1 IB1150 – Group 4 36 “ArtDiem.APPENDIX 4 .com” .

com” .Realistic Income Statement year 2 IB1150 – Group 4 37 “ArtDiem.

Realistic Income Statement year 3-5 IB1150 – Group 4 38 “ArtDiem.com” .

Realistic Scenario IB1150 – Group 4 39 “ArtDiem.com” .

com” .Pessimistic Income Statement year 1-5 IB1150 – Group 4 40 “ArtDiem.

Pessimistic Scenario Optimistic Income Statement year 1-5 IB1150 – Group 4 41 “ArtDiem.com” .

Optimistic Scenario IB1150 – Group 4 42 “ArtDiem.com” .

Cash Flow Statement.com” .year 1 Cash Flow Statement – year 2 IB1150 – Group 4 43 “ArtDiem.

Cash Flow Statement – year 3-5 IB1150 – Group 4 44 “ArtDiem.com” .

year 1-5 IB1150 – Group 4 45 “ArtDiem.com” .Balance Sheet.

000.5%) were art related (ref). and eBay reports 60% of all listings on its site do not end in a sale (ref). and increase in line with inflation. Heating & Electrcity was calculated at 3. At a 30% commission on all items sold. These scenarios represent differences in the level of expected revenue. namely the businesses computer hardware and servers. Due to the nature of business (as a medium between buyers and sellers) there are no significant capital costs and few overheads. In eBay‟s first year there were 250.000 x 0.015) listings in the first year.com” .000 (or 1.000 in the first year.221 in this year reflects depreciatoon of assets already uner the ownrship of the business the plus the depreciation of the property.a pessimistic scenario (low). Purchases of Hardware & Equipment essentially represent the capital expenditure of the business. In 2009. a realistic scenario (med) and an optimistic one (hi). The first task in building the projections was projecting revenue in the first year of operations. In the fifth year we anticpate to relocate from rent property and pruchase a property to house the headquaters of the bsuiness. ebay had 24 million listings of which around 375. We assumed the server would be running constantly 24/7. and 8. at a 1 year lease renewable each year. Rent is assumed at £1500 per month. Advertising costs will include search engine marketing and press advertisements. The majority of the costs of the bhsuienss are relatively constant.1p per kWh of gas.6p per kWh of electrcity. but only 40% of those will end in sale (1600). The figure of 35. thus yearly costs would amount to 11. that means the total transaction value. IB1150 – Group 4 46 “ArtDiem. Annual Depreciation reflects the impairment in value of fixed assets. and growth rates. with 12 calendar months in the year.Commentary to Appendix 4 Income Statement The Income statement has been prepared under 3 different assumptions . the aggregate value of all the art sold on the site.000 auctions. So we can expect roughly 4000 (250. Note Cost of Sales is the 70% that goes to the artist.7p x 24 hours a day x 365 days in the year = £1024. With an average price of £150 (how did you deduce this average price). that means our net revenue for the first year will equate to £172. will be roughly £240.

The net cash balance at the end of the year falls for the first 3 years of the business. but the £500.For a flat additional fee Art Diem offers the option of delivery on selected items. cash outflows will outweigh cash inflows.000 to £75. IB1150 – Group 4 47 “ArtDiem.500 (hi).000 (low) to 4. In the first year we‟ll make a loss based on just the operating inflows and outflows. This also reflects the huge spike in depreciation in Year 5. due to the expenditure from the purchase of new office property.000 it must pay a corporate tax rate of 27% (20% below £300.com” . specifically items above £750 . At an average price of £150.000 start up capital investment will be used as a buffer to help meet start-up costs and expenses. to 2.000. the number of listings on the website in the first year is expected to range from 3. Operating profit margin shows a strong positive trend during the 3 years. Every year a portion of Net Income will be reinvested back into the business (Transfer to Genereal Reserve) to help meet costs in the coming period and to fund the expansion of the business in the 3rd year.8% in the start up year. There is an anomaly in Year 5. and as such gross profit for the first year is expected to range from £50. and this means as that business grows and generate revenue assuming its cash outflows remain flat the net cash flow will increase. However. this is because we do not expect the business to be sufficiently profitable to generate positive cash flow until the 4th year. growing from a 57. but we have the seed capital to help absorb the loss and cover expenses. This is off the back of the expected acceleration in realized gains in revenue from the marketing strategy in the preceding years. of which it is anticipated 40% will result in a sale.1% and 11. ArtDiem‟s taxable profit is not expected to reach this threshold until the 4th year after significant expansion. Cash flow statement In the first 3 years. These are quite high relative to other indistries and represent high returns on capital.000. but trending back upwards to 24.Special Delivery Expenses .2% by the fifth year. it is key to note that the cash outflows of the business are relatively flat for the first 4 years. Once a company‟s yearly taxable profit reaches £300.1% in years 2 and 3 respectively.

com” .energyhelpline.com/od/ebaynewsarchive/a/_ena_decade.flexioffices.com/question/index?qid=20090405132531AAE9sVH http://ebay. Property. Tax expenses are deferred to the following fiscal year.com/costs-of-running-web-business/ http://www.co. Accounts Receivable figure is based on the average yearly figures for peer group of comparable online retail businesses.asp?idcategory=95 http://www.theartnewspaper.taxationweb.uk/london/kings-cross/grays-inn-road_wc1x_id1278 IB1150 – Group 4 48 “ArtDiem.Balance Sheet The top line of the balance sheet “Cash and cash equivalents” represent the net cash balance eat the year end as show in the cash flow statement. bar Year 5 where we anticipate the purchase of freehold property and the relocation of business headquarters to said premises.uk/forum/depreciation-rates-t15289. Plant & Equipment reflects the value of the rent leasehold property.com/shop/pc/pcs-home-office.yahoo. Reference List References For Financials http://answers.about.com/startup-issues/how-much-to-pay-your-startup-lawyer http://www.co.html http://www.dinopc.htm http://www.com/articles/Challenge-to-funding-models-for-UKmuseums/18677 http://startupdesi. Prepaid expenses amount to the cost of insurance in addition to 50% of yearly rent. Our estimate for the annual.aspx?aid=306&gclid=CNvk7L3fx6gCFYF B4QodKU0MoA http://startuplawyer.com/business/bz_home.

com” .IB1150 – Group 4 49 “ArtDiem.

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