How to Achieve a Low-Risk Future Growth Strategy in the Clothing Business - Example

Entrepreneurship s Table of Contents Table of Contents 2 Executive summary 4 Introduction5 Case study on a clothing business: Young Fashion House. 6 Business plan on how to attain achieve a low risk future growth strategy 8 Conclusion 15 Reference List 16 List of figures Figure 1: Showing the growth path and business size. Figure 2: Showing the crisis points in the growth of the business. Figure 3: Showing cash cycle. Figure 4: Showing how to purchase using a low risk future growth strategy. Executive summary When starting to operate a small business venture it is essential that one looks at the appropriate financial and legal statutes that define the setting-up and operation of the enterprise. Presently, starting a small business seems to be a vague idea considering the record number of new companies being started around the globe. With more financial regulations directed towards making life easier for small businesses, this ‘golden age’ entrepreneurship seems set to carry on into the future. In starting up a business, there are many financial responsibilities that one needs to be aware of in order to protect their businesses. Most businesses grow successfully by making use of one or several financing approaches that do not need major commitments or outside investors such as trade credits. A firm comes up with marketing plan that will ensure it gains competitive advantage. Strategic planning in a small business is very crucial. The most conspicuous concern for the start up entrepreneurs is where they will find the money to fund the business in the future. Most businesses have implemented a low risk future growth strategy in order to be used by venture capitalists, banks and others to make an evaluation of the future financial soundness and security of the business. Introduction Business growth is considered as a natural process of adaptation and the development that usually occurs under suitable conditions. The legendary movie producer Samuel Goldwyn was quoted saying that predictions are very hard to make; particularly about the future. Similarly, it is quite hard to make a prediction of the future growth of businesses. However, making predictions and risk taking are part of the responsibilities of an entrepreneur. Steingold (2009: 18) asserted that being an entrepreneur provides you with the opportunity to spread your wings and utilize your natural talents to set up a successful business. Law plays a very major role in the successful setting up and operation of a business. Enforcement of financial rules and regulations, and penalties for breaking them are essential for a fair, orderly and business environment. Law encourages economic growth through free competition; protecting the environment; facilitating planning and the realization of reasonable expectations (Mallor et al., 2012:14). The enforcement of low cost growth future strategy enables the business to be funded within the legal framework. The adoption of the low cost growth strategy makes a firm to project on its future financial status. The paper will discuss a business plan for Young Fashion House covering how a low risk future growth strategy will be used by banks, venture capitalists and others to evaluate the future financial soundness and security of the business. Discussion Case study on a clothing business: Young Fashion House. Starting a business is not easy task. As an entrepreneur you need to have strong management skills, technical skills, relevant experience of the industry, and a sound knowledge of the long-term vision to grow and succeed, and finance. Therefore, it is quite crucial that you have an understanding of what is required in running a business and knowing if you suit to own a business. Besides, starting a business enterprise can be incredibly financially taxing. Therefore, you need to pool enough financial resources. Before venturing in the clothing business, we planned and conducted a market research in order to see whether our idea was feasible. We found out if there was need for the products, my competitors, their weaknesses and strengths and the manner in which our business will be different from theirs. We decided to start a clothing business as an after-training program since we had knowledge and expertise on the apparel industry for those of us who had interest in fashion and entrepreneurship. Our business named Young Fashion House is located on Kings Street adjacent to the recently developed neighborhood. The firm has 18 employees and deals in the production and selling clothing, for women, children and men with a specific focus to the young adults. The business venture aims at bridging the gap that has been left by a majority of apparel business entities that have been focusing in producing clothing wear mostly for men, children and women neglecting the young adults’ category. The vision of the firm: to produce high quality clothing for men, women and children. The mission of the firm: To ensure that the society and the whole nation at large is satisfied with our apparel products. The customers are assured of having value for their money by being provided with the latest and quality clothing products. The firm uses low pricing and product differentiation to gain competitive advantage and market share through branding, packaging and labeling, extra features, and customer care. The enterprise has also embraced technology, and it is currently offering products through the internet. This has resulted to extensive advertisements and promotions through the social, with the target population being the young population that is fond of using the internet through social networks, such as Facebook, Twitter, MySpace, and LinkedIn, as well as commentary blogs. This is because when we started the business we had enough knowledge and expertise of capturing the target market. The return on investment is gradually increasing on annual basis showing the prospective growth opportunities. The firm has continued to keep an eye on their competitor’s product pricing so as to gain market share and decrease customer prices. Furthermore, technologically, the firm has improved tremendously to the sense that it offer store cards that track the patterns of customer’s purchases. This has enabled us to provide apparel that both the local and international consumers prefer and want. This has also enabled us to establish a network with a number of fashion designers and wholesalers. In the near future, the business aims at growing into a multinational fashion company. The firm has been reinvesting its profits in order to create a financially stable future. We have also negotiated with suppliers who sell on credit and pay them later, but after we agreed to buy from them in the long run. We preferred trade credit because it was more readily available as compared to bank loans and other types of loans. Furthermore, we also spread our payments over months with a little down payment at favorable rates. Business plan on how to attain achieve a low risk future growth strategy Most small business start-up ventures are faced with problems on where to find funding for future growth. They also face stiff competition from the already established firms. In addition, some legal requirements can prove costly to the start-up small business ventures, such as, finding a lawyer to set up the businesses’ legal structure and handling other transactions that involve huge sums of money, choosing the legal structure of the business, registering the business, getting licenses and regulations that are needed in order to operate a business, writing contracts, filing taxes, and applying for trademarks, copyrights or patents. Strategies are concerned with business activities’ scope (Dess, Lumpkin, & Eisner, 2009). An entrepreneur needs to have the following skills (Karami, 2012, p. 130): a commitment to purpose with passion, willingness to take risks, opportunistic, strength of character, integrity, ability to engender trust, the ability to view things as they might be and to expect change, self-confident, and creative/innovative spirit. According to Schumpeter theory of entrepreneurship, an entrepreneur is one who perceives the opportunities to innovate. Using these skills we started Young Fashion House, a business that deals in the buying and selling of apparel. The major competitors for the business include a French-based firm located in the capital producing men’s wear, Koyo Jeans- a Japanese firm that deals with men, women and children wear, and Outreach Designers who produce and sell children wear. However, the major objective of our firm, Young Fashion House is to focus on the expanding clothing market for young people. In addition to providing men, women and children wear. According to Turner-Bowker (2001), the choice in clothing can communicate   power, responsibility, the ability to be successful, and status. That is why the firm will implement a low risk growth future growth strategy in order have enough financial resources to provide a variety of choices to the consumers in future. Many young people are associated with latest models, brands and styles (Welters & Lillethun, 2011). Due to their fashion consciousness, using the economic theory, we will use our entrepreneurship skills to offer products that suit their tastes and preferences at a much cheaper price and breaking the traditional commercial structure. Wearing trendy shirts and shoes will make someone look conspicuous in a crowd. Looking fashionable will also enhances your level of confidence. We also read a lot about fashion on fashion articles and visit the internet for latest styles and models in the market. As a result, we will increase the quantities produced especially for the young adults, since they are our target population. We also ensure that we increase spending on this group to satisfy their demands fully as outlined in the growth path below. Figure 1: Showing the growth path and business size (Welters & Lillethun, 2011). Most researchers argue that every enterprise has to start, grow whilst facing challenges and crises, mature and later decline (Gupta, Guha, & Krishnaswami1, 2013). The resource-based theory argues that, in the marketplace there are unlimited sources of opportunities. It is important to manage transition by using the firms resources to establish and exploit the next growth opportunity. Therefore, to determine successive phases of growth resources need to be reconfigured during the transitions between stages. Mount et al. (1993) and Scott and Bruce (1987) focus on models for growth of small businesses. In some crisis situations, some small firms usually employ strategies that will ensure future growth of the business. For instance, a low cost and low risk future growth strategy. Figure 2: Showing the crisis points in the growth of a business (Gupta, Guha, & Krishnaswami, 2013:45). There are various theoretical frameworks of enterprise growth. The predictable framework defines that the growth path can be sequential, linear, invariant, and deterministic (Kimberly 1979: Hanks et al. 1993). Due to our vision for deterministic growth, this plan will cover low risk future growth strategy and be used by banks, venture capitalists and others to evaluate the future financial soundness and security of your business. Risk is defined by Lucas (2012:35) as the likelihood for an event to happen and its consequences. Risk management is the ability to use processes, tools and methods to manage these risks. The business is faced with a financial risk thus the need to come up with a low risk growth strategy. Cash flow management is very vital for the financial health of the business as shown in the figure below. Figure 3: Showing cash flow cycle (Lucas, 2012:112) In order to reduce the financial risks, the business will monitor its flow of cash through interest rates and foreign exchange rates. This is because rate changes will impact on the repayment of debts, as well as the competitiveness of the firm’s products and services as compared to those produced overseas. Failure to assess working capital, monitor credit, monies owed, cash tied up in the inventory, or making sure cash is available can deter the competitiveness of a business. The firm will ensure it has good cash flow management in order to avoid the debilitating downside of cash crises and grant the business commercial edge in its transactions. This balances that cash coming in and going out (Anthony & Breitner, 2003). We will ensure that we compute our net cash position in order to project our future growth, thus maintaining a cash flow forecast. Lastly, we will use technology to manage cash flow, such as cloud-based accounting. Entrepreneurs who are searching for a growth strategy are usually concerned about future earnings and funding on the business. A strong financial base usually forms the basis for opportunities for funding. In order to position the business for future funding, we will ensure that we reinvest our profits. This is attributed to the fact that the best source of venture capital for a business that as already started operation is the revenue the business is already generating. This is considered as ‘patient’ capital that builds value in the business devoid of debt and without giving up shares to others. When we started our clothing business, after one year of operation, we started encountering problems of financing the business in future and also we had limited resources to devote to strategic activities. This forced the business to employ relatively low cost and low risk growth strategy. The business will start tapping on trade credit. Trade credit is regarded as a way of putting off payment for products and services from vendors and suppliers. If we found vendors that are more than willing to sell on credit, we can settle on a long term deal to purchase from them as shown in the figure below. Figure 4: Showing how to purchase using a low risk future growth strategy. Homburg, Sabine and Harley (2009) assert that a common concern from startup entrepreneurs is where the cash will come from in order to fund future growth. As a result, trade credit is regarded as the safest form of business borrowing. Bank dates are considered to very deleterious due to the fact the payments are still due even if the sales decrease. Another low risk future growth strategy that we will adopt is lining up of a credit line. This is because having the line of credit assists the business enterprise to grow by offering ready financing if opportunities come up. A line credit is also greatly preferred to utilizing credit cards that carry higher interest rates, as well as other onerous terms. Coming up with a credit line is quite cheap. One only needs to pay interest on whatever the firm borrows and they can make use of the line for almost anything. Another approach for the low risk future growth strategy will be expanding of our banking relationships. Since we have only one account for Young Fashion House, we will consider opening additional accounts at the community bank. This will give us more options when it comes to search for loans and other services to support our low risk future growth plan. We will also consider alternative sources such as credit unions that we will be eligible to join, and the so called ‘peer-to-peer lending. Since our firm has embraced the utilization of the internet, the peer-to-peer lending will be handled through internet-based services that act as intermediaries, such as Lending Club (www.lendingclub.com) and Prosper (www.prosper.com) (Arizona Republic, 2013). When coming up with a low risk growth strategy, customer retention and customer relationship management is very crucial. Attracting customers has been found to be much harder than retaining customers (Awara, 2010). Customer retention does not come easy since a lot of resources and planning has to go into it. According to Gerhard, Ajami, Goddard, and Vidyaranya (81), there are several causes to customer retention, even though those that stand out are psychosocial causes, situational causes, functional and economic causes. The business will ensure that it establishes first contact with the potential customer and will continue throughout the whole life span of Young Fashion House. Customer retention will be enhanced through improved customer satisfaction that will come about by giving the customer more that what they asked for or expected. The customer’s past and current behavior is the best determinant of the future customer behavior. In relation to customer relationship management, the firm will ensure that it constantly keeps the customers happy and listened to. The main objective of the business is to find, attract, and win, nurture and retain already existing customers. As cited by Pilecki (2007, p. 12), the business will be aligned towards customer loyalty, retention and satisfaction. We will also ensure that the current-year advertising expenditures are not above the annual advertising expenditures. This is because when other competitive factors are at equilibrium, companies that have an above-average current-year advertising expenditures have been reported to outsell those companies with below-average current advertising expenditures. Conclusion Entrepreneurship involves the creation of a new organization, identification of an opportunity, and pursuing new ventures (Carton et al. 1998). Enterprise growth and development relies on the motivation and vision of the entrepreneur. An entrepreneurial venture is considered as successful if it is growing in terms of revenue generation. As cited by Homburg, Sabine and Harley (2009), a common concern from startup entrepreneurs is where the cash will come from to fund future growth. Most businesses prefer trade credit because it was more readily available as compared to bank loans and other types of loans. Besides, it allows the business to spread payments over months or even years with a small or no down payment at favorable rates. For a business to project its future growth, it requires a well managed cash flow management. This ensures that it grants the business a commercial edge in its transactions. It also enables the firm to establish cash flow gaps and act to reduce their effect, such as employing a low risk future growth strategy. Besides, it reduces reliance on banks and save interest charges. Reference List Anthony, R., N. and Breitner, L., K. (2003). Essentials of Accounting & Post-test Booklet 8, 8th ed. London: Prentice Hall. Arizona Republic. (2013, January 31). 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Customer Retention is a Process not an Event, New York, John and Sons Publishers Inc. Steingold, F. (2009). Legal Guide for Starting & Running a Small Business. London: NOLO. Welters, L., & Lillethun, A. (2011). The Fashion Reader: The Second Edition. London: Bloomsbury Academic. Read More