Business Strategies for Bossy Bamboo Furniture Ltd - Case Study Example

Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Executive Summary The Bossy Bamboo Furniture Ltd is a fully registered private company owned and operates in Carlton suburb. The company targets Carlton, Melbourne, and Sydney as a prime market for its products. The initial capital required is $9,000,000 AUD of which it will raise $5,000,000 AUD from long-term debt and $4,000,000AUD from personal savings. The company projects growth in profits from the statement below. The ratio analysis shows a good status of the company in the three-year period. The success is contributed to the marketing mix adopted and its implementation in ensuring that customers are aware of the new products, informed and reminding potential customers to purchase company products. Table of Contents Executive Summary ii 1.0 Introduction 1 1.1 Business location and address 1 1.2 Business objective 2 2.0 Market Feasibility 3 2.1 Market Overview 3 2.2 Marketing mix analysis 3 2.3 The company segmentation, targeting and position (STP) model analysis 5 3.0 Technical feasibility 7 4.0 Human feasibility 10 4.1 Management Team 10 4.1.0 Organisation structure 10 4.1.1 Role and responsibilities of management team 11 4.2 Recruitment Training and Promotion 13 4.2.1 Selection and recruitment 13 4.2.2 Training 13 4.2.3 Promotions 13 4.3 Remuneration and Incentives 14 5.0 Financial feasibility 15 5.1 Projected statement of financial performance 15 Projected Statement of financial performance 15 5.2 Projected Statement of Financial Position 16 Projected Statement of Financial Position 16 5.3 Projected Cash Flow Statement 17 5.4 Ratio Analysis 18 Ratio Analysis 19 Reference: 20 APPENDIXES 22 Appendix One: Required Tools 22 Appendix Two: Initial Cost 22 1.0 Introduction The Bossy Bamboo Furniture Ltd is the incorporation name of the business. The company is a newly registered private entity. The primary business of the company is making furniture from bamboo. The bamboo products include bed, chair, table, easy chair, and sofa. The business idea to developing bamboo based product came as a result of its beauty and prestigious feeling of using the product. The market is still big, and it is expected to grow in future. Therefore, venturing into the business has great potential in turning the business into a profitable venture in future. 1.1 Business location and address The company will be located in Carlton suburb to reduce operation cost. The suburb is two Kilometres from Melbourne and 15Km from Sydney central business center which is our target market. The Carlton has a population of 13,509 according to 2011 census and thus offering ready market within our area of operation (Abs.gov.au, n.d.). The address of the business is as shown below; 441 The Bossy Bamboo Furniture Ltd Carlton Melbourne Victoria Australia, 3052 Tel: + 61 3 9380 9228 carlton@thebossybamboo.com.au 1.2 Business objective The primary objective for incorporation of The Bossy Bamboo Furniture Ltd is to achieve the following objectives; To bring in Bamboo furniture in a glamorous way to Australian market. To reduce the reliance of forest wood in making of furniture. To put into practice the knowledge of running a business venture into profitability. To create employment opportunities both directly and indirectly. To create a plan for increasing Bamboo plantation in Australia by planting bamboo as a corporate social responsibility. To be part of those organisation steering Australian economy. 2.0 Market Feasibility 2.1 Market Overview The Australian market shows the potential of a large market of Bamboo products. The current players in the bamboo furniture are operating in profitability of $300,000-$2,000,000 per year. The average growth is estimated at 5% yearly, though the growth is not consistent since it depends on the level of inflation, employment and other factors affecting spending habits of the consumer. Therefore, Australian market as proved to have; Few competitors Large user base for both present and potential consumer Easy access to channel of distribution Little chances of getting a substitute that replaces satisfaction obtained from bamboo furniture. High growth in consumption of bamboo products. The product will target the high class, middle class and lower class earners in the economy. The products are classified according to customer purchasing power. The first target market is within Carlton suburb before expanding to Melbourne and Sydney business center. 2.2 Marketing mix analysis The analysis takes into consideration the four Ps of the marketing mix that is pricing, promotion, place and product. The analysis takes into account various questions that might arise when placing the product in the market by pre-asking the questions and answering them (THE MARKETING MIX: A REVIEW, 2014). The discussion below shows how each element of marketing is treated; Product The product is categorised as furniture and compete with other furniture made from wood and other products. The furniture produced by Bossy Bamboo Ltd includes bed, tables, sofa sets, and other creative pieces of furniture. The design and quality of the products will primarily determine the target consumer. The target market entails higher, middle and lower class, and thus important to produce products that are distinguishable for the three classes to avoid spoiling prestige in its consumption (Knight, 2004). Price The pricing of the products is based on benchmarked prices from competitors where we will adjust the prices to suit us and avoid raising issues such as price war in the market. The price war is not a favourable battle for a newly company since other companies are enjoying stable customer base and economies of scale (Knight, 2004). The company uses the penetration strategy in charging for our products depending on the quality and target consumer. Place or distribution The company will use a short channel of distribution to reduce effects of middlemen to the prices of our products. Also, the adoption of the channel ensures that we receive constant information on how to improve the quality of the product and service delivery. The channel of distribution is as shown in the chart below; The reason for eliminating a large chain of middlemen is to the charge of the pricing of the products (Knight, 2004). The outlets/dealer will be outsourced to those companies which distribute purely wooden furniture. The choice of outsourcing distribution is to give opportunity consumers of wooden furniture a taste of bamboo products. The dealer is not required to sell products from competitors to avoid ensuing unhealthy competition in the market. Also, the dealers have well established and working relationship with consumers in the market. Promotion The promotion is an essential element of marketing mix. The production of the bamboo product will not make financial sense if the company does not engage in promotion of the same. The essence of engaging in advertising is to create awareness, educate and remind consumers to consume the product. The Bossy Bamboo Furniture Ltd will adopt cost friendly and efficient means of promoting the bamboo furniture. The modes of promotion selected include banners, posters, and newspapers, magazines, participating in furniture and trade fair, and billboards. The financial performance at the end of the fiscal year will determine if the company will go a notch higher by advertising on prime time on National TV and radio since they are more efficient but expensive (Knight, 2004). 2.3 The company segmentation, targeting and position (STP) model analysis Market segment The production takes into consideration the existence of different social class in the society, and thus critical to producing products that satisfy all the classes without affecting satisfaction of each (Knight, 2004). The level contributes significantly to the product consumed by the consumers since products properties and prices as based on purchasing power of the customer. Target market The company targets lovers of bamboo products without discriminating the social class of the consumer since the company has products to suit everyone. Market positioning The company wishes to position itself in the market as the most reliable and customer-centric to maintain and gain market share for bamboo products. The company concentrates on quality of its products and ensuring that the current consumers are satisfied. The company uses leaflets, billboards, trade fairs, newspapers and magazines to position its product in the market since they are least expensive and effective (Knight, 2004). 3.0 Technical feasibility The company will concentrate on production and deliver the products to the dealers who will then sell the furniture on its behalf. Therefore, the supply of raw material and sales is outsourced to external parties. However, the company will have a little control in sales since it determines the price and directs the buyers who order from the company to collect their products in dealers shop. The company does not have enough land to open a showroom in the facility and therefore outsourcing is the ultimate solution (Zarzuela and Malabaguio, 2013). The benefit of outsourcing is mutual to both the company and the dealer since the company benefit from existing customer base of the wood furniture dealer and the dealer benefit from an increase in customer base buying a wide range of his/her products. The company has fully complied with preliminary regulation governing formation and operations of the company. The number of government regulation on bamboo harvest led the company to outsource the supply of raw material to more established firm in bamboo. The company has chosen Bamboo Australia. The company has carried bamboo business since 1989 to date, and thus have vast experience in the sector (Bamboo Australia, n.d.). The Bossy Bamboo Furniture Ltd is a youth owned company, and the company has agreed to enter into a memorandum of understanding to supply bamboo products at a lower price. Also, Bamboo Australia has promised to supply bamboo seedlings once the company acquires land. The company wishes to participate in environmental conservation after four of its operation in furniture business (Byrne, 2014). The harvesting of bamboo without replanting is unethical (Byrne, 2014). The quality of the product depends on the quality of raw material. Therefore, the outsourcing of raw material to Bamboo Australia is essential since they are providing proper technology and training to farmers to produce quality Bamboo (Bamboo Australia, n.d.). The manufacturing process is summarised by the flow chart below; The company has purchased some tools used in the manufacturing process as elaborated in the appendix one (Zarzuela and Malabaguio, 2013). 4.0 Human feasibility 4.1 Management Team The Bossy Bamboo Furniture Ltd is a small new venture which acts as a pilot project of the company. The success of the pilot project serves as a catalyst to carry out a massive expansion of our production and market to other states in Australia. The company has a simple organisation structure which guides human resources in addressing any arising issue from day to day operation (Bhattacharyya, 2009). The structure of the company has management elements of a manufacturing firm since its primary activity is manufacturing in nature. The organisation structure is as shown below; 4.1.0 Organisation structure 4.1.1 Role and responsibilities of management team Managing director The duties and responsibilities of the managing director are to ensure that strategic objectives set by the board of directors are implemented. Also, he is responsible for company performance since he/she is answerable to the promoters in the case of poor performance. He represents management team on the board of directors, and thus conveys information to the owners of the business. The promoters of the company appoint the managing director on a competitive basis (Bhattacharyya, 2009). The office requires a person with good experience and academic background since he/she is entitled to the management of a large pool of financial and human resource to manage. General Manager The general manager (GM) has the right to ensure that normal day to day operation of the company runs well. The GM reports directly to managing director on any matters arising within the organisation. The GM works in close collaboration with marketing, administrative, and operational manager who keeps updating him/her on how the company is operating. Managers The managers ensure that they regularly convey information to the GM. They are required to oversee and ensure that their respective departments work well. They have an obligation to monitor and address issues arising from operations for example operational manager ensures that supervisors have all the tools, labour, and raw material for operations to run smoothly. Sales Agents The sales agents are tasked with finding business opportunities for the company products. They are always in the field talking with potential customers and distributors of our products. They report to marketing manager. Supervisor The supervisors ensure that the work is done in the right way, asking for resources from the operational manager, and writing job cards for the labour. Also, they act as an avenue of labour to communicate with the top management. Accounting Clerk The accounting clerk ensures that he/she records the sales, cost of resources, inventory control, and other accounting practices within the organisation. The clerk reports directly to the administrative manager. Guard The guards are charged with safeguarding company property and receiving customers. Also, they are required to record inventory coming in and going out of the company. They report directly to the administrative manager. The guards are required to have experience in security matters to reduce instances of poor reception or handling of potential customers. Labour The labours are a specialised group of artisans in the furniture industry. The labours hold various technical skills in carpentry, majorly in bamboo products. They report directly to supervisors of the company are employed on the contractual basis. 4.2 Recruitment Training and Promotion 4.2.1 Selection and recruitment The managing director is tasked with selection and recruitment of other posts in the company. The process commences upon his/her confirmation as the managing director of the company. The vacancies must be advertised in not less than two public media to increase chances of getting the best employee from a pool of applicants. The managing director will head independent human resource in recruitment where they will look at academic qualification, working experience and other relevant consideration (Grieves, 2003). 4.2.2 Training The training of employees entails organising seminars, educational sponsorship, and other vocational training courses. The training is part of the company human development program that aims at enhancing expertise and improving employee satisfaction (Grieves, 2003). 4.2.3 Promotions The Promotions is entirely based on overall performance of the employees. The head of each department proposes individuals to be promoted, and it is at the discretion of managing director and other members of the board to ratify the promotion (Bhattacharyya, 2009). 4.3 Remuneration and Incentives The Salaries are paid at the end of the month for all employees apart from labour who will receive their payment weekly. The payment is fixed for other employees but labour will be paid depending on furniture made. The company has an overtime payment plan for those employees with fixed salaries to encourage them to work for longer hours when demand is at the peak (Bhattacharyya, 2009). 5.0 Financial feasibility The financial feasibility of the business idea is broken down into different items which include statement of financial performance, statement of financial position, cash flow statement, and payback analysis and cost structure of the company (Palepu, Healy and Bernard, 2000). The initial capital required is $9,000,000 AUD to kick start the business. The company aims to use a mixture of owner equity and borrowed loan. The company will borrow $5,000,000AUD and $4,000,000AUD from personal savings. The following statements provide in-depth understanding on financial projections of the company; 5.1 Projected statement of financial performance Projected Statement of financial performance For the year ended 2016-2015 Details 2016 2017 2018 Production capacity 55% 70% 90% Sales 4,355,200 5,800,500 6,975,800 Cost of Goods Sold 1,200,000 1,377,250 1,503,810 Gross Profit 3,155,200 4,423,250 5,471,990 Admin and selling Expenses 300,000 405,000 598,000 Operating Profit 2,855,200 4,018,250 4,873,990 Interest from Long term loan 340,038 209,095 120,090 Interest from Short term loan 50,000 80,000 70,000 Depreciation 40,000 40,000 40,000 Earnings Before Tax (EBT) 2,425,162 3,689,155 4,643,900 Tax expenses (30%) 727,549 1,106,747 1,393,170 Net income after tax 1,697,613 2,582,409 3,250,730 The projected statement of financial performance signifies growth of sales and reduction of interest expenses of long term loans. The net profit after tax shows great improvement with time due to increase in market share and business stabilization. 5.2 Projected Statement of Financial Position Projected Statement of Financial Position For the year ended 2016-2018 Particulars 2016 2017 2018 Liabilities and equity Current Liabilities: Short term loan 1,340,000 1,080,200 950,000 Long Term Liabilities Long Term Loan 4,800,000 4,000,105 3,084,090 Total liabilities 6,140,000 5,080,305 4,034,090 Retained Earnings 1,697,613 2,582,409 3,250,730 Equity Capital 4,000,000 4,000,000 4,000,000 Net Capital 5,697,613 6,582,409 7,250,730 11,837,613 11,662,714 11,284,820 Assets: Current Assets: Cash 4,170,953 3,909,054 3,263,960 Total Current Assets 4,170,953 3,909,054 3,263,960 Fixed Assets: Land 6,700,100 6,800,100 7,080,300 Equipment 25,000 24,000 23,000 Less: Depreciation (1,000) (1,000) (1,000) 24,000 23,000 22,000 Building & Civil works 900,000 889,500 879,000 Less: Depreciation (10,500) (10,500) (10,500) 889,500 879,000 868,500 Other Assets: (Generator) 30,000 28,500 27,000 Less: Depreciation (1,500) (1,500) (1,500) 28,500 27,000 25,500 Preliminary expenses 24,560 24,560 24,560 Total Fixed Assets 7,666,660 7,753,660 8,020,860 11,837,613 11,662,714 11,284,820 5.3 Projected Cash Flow Statement Projected Cash Flow Statement Projected Cash Flow Statement Particulars 2016 2017 2018 Cash flow from operating activities: Net income after tax 1,697,613 2,582,409 3,250,730 (+) Depreciation 40,000 40,000 40,000 (i)Net cash from operating activities 1,737,613 2,622,409 3,290,730   Cash flow from investing activities: Initial cost of project 9,000,000 (ii)Net cash from investing activities 9,000,000   Cash flow from financing activities: Increase in equity 4,000,000 Increase in term loan 5,000,000 Repayment of loan (1,069,695) (1,059,695) (1,046,215) Less: Dividend paid 20% (407,860) (340,200) (iii)Net cash from financing activities 7,930,305 (1,059,695) (1,046,215) (iv)Net increase/decrease in cash 18,667,918 1,562,714 2,244,515 (v)Opening cash balance 34000 18,701,918 20,264,632 (vi)Closing cash balance (iv+v) 18,701,918 20,264,632 22,509,147 The company projects stable cash flows since the closing balance is positive. The studies show that positive cash flow is an indication of a healthy business, but too much accumulation of cash flow shows poor management of raw material in the organisation. 5.4 Ratio Analysis The ratio analysis is important in the determination of business viability (Nissim and Penman, n.d.). The ratios that are analysed include capital structure, asset utilisation, profitability, and return on investment ratios. Ratio Analysis Detail 2016 2017 2018 Capital Structure ratio       Debt to capital 45% 33% 20% Times interest is earned 4.03 Times 5.57 Times 9.13 Times Debt to equity 120% 90% 70% Return on Investment ratios       Return on Asset 55% 56% 59% Return on Equity 42% 45% 49% Profitability ratio       Gross profit 59% 59% 57% Operating profit 75% 70% 68% Net Profit Margin 32% 36% 43% Asset utilisation ratio       Sales to cash 98 Days 95 Days 90 Days Sales to total asset 0.5681 0.7481 0.8697 The ratio analysis above shows a clear indication that business idea is viable, and the financial performance improves with time. The important ratios include the asset utilisation ratio which correlates with the production capacity in the statement of financial performance. Also, all the profitable ratios signify good prospects for the company since it keeps on improving (Nissim and Penman, n.d.). Reference: Abs.gov.au, (n.d.). New 2011 Census data reveals more about the Australian Capital Territory. [online] Abs.gov.au. Available at: http://www.abs.gov.au/websitedbs/censushome.nsf/home/ACT-05 [Accessed 23 Sep. 2016]. Bamboo Australia, (n.d.). Bamboo Australia. [online] Bambooaustralia.com.au. Available at: http://www.bambooaustralia.com.au/ [Accessed 23 Sep. 2016]. Bhattacharyya, D. (2009). Human resource development. Mumbai: Himalaya Pub. House. Byrne, J. (2014). Gardening Australia - Fact Sheet: The Bamboo Man. [online] Abc.net.au. Available at: http://www.abc.net.au/gardening/stories/s3987652.htm [Accessed 23 Sep. 2016]. Grieves, J. (2003). Strategic human resource development. London: Sage Publications. Knight, P. (2004). The highly effective marketing plan. London: Pearson/Prentice Hall Business. Nissim, D. and Penman, S. (n.d.). Ratio Analysis and Equity Valuation. SSRN Electronic Journal. Palepu, K., Healy, P. and Bernard, V. (2000). Business analysis & valuation. Cincinnati, Ohio: South-Western College Pub. THE MARKETING MIX: A REVIEW. (2014). ELK Asia Pacific Journal of Marketing and Retail Management. Zarzuela, D. and Malabaguio, M. (2013). How to make bamboo furniture. [online] Entrepreneur Philippines. Available at: http://www.entrepreneur.com.ph/startup-tips/how-to-make-bamboo-furniture [Accessed 23 Sep. 2016]. APPENDIXES Appendix One: Required Tools Sl. Items Quantity 1. The Adjustable Hacksaw 14” 2 2. The Ball Pin Hammer [200 gm] 3 3. The Hand Drill 4mm” drill Bits 2 4. A Measuring Tape 5M 5 5. Steel Rule 15” 3 6. Callipers 8” 4 7. Compass 2 8. The Wood Planner 2 9. A Fine Splitting Knife 2 10. A Pruning Scissor 2 11. The Half Round Chisel 3 12. A Combination Stone 10” 3 13. A Blow Lamp – 2.5 Ltr. 10 14. A Mini Hacksaw 8” 10 15. A Flat File 6” 3 16. A Half Round File 15” 7 17. A Nose Pliers 6” 4 18. A Screw Driver 8” 3 Appendix Two: Initial Cost The project cost Details Amount in $AUD land and site development 5,778,500 Building and Civil works 2,090,000 Plant and Machinery 101,000 Preoperative expense 30,000 Minimum cash requirement 1,000,500 Total 9,000,000 The Building and Civil Work Details $AUD Offices 340,900 Warehouse 300,000 Assembling and treatment area 90,000 Total 730,900 The Plant and machinery Details $AUD Equipment 25,000 Generator 30,000 Total 55,000 The Working capital requirement Particulars 2016 2017 2018 Raw Material 340,000 150,800 160,300 Labour Cost 598,000 600,000 467,000 Factory Overhead 430,560 304,000 350,000 Administrative overhead 300,000 405,000 598,000 Total 1,668,560 1,459,800 1,575,300 Read More