Financial Consideration - Assignment Example

There are financial considerations that Sally needs to consider before setting up the new business venture. These considerations are very crucial in that they help her to establish the returns she will receive from the venture and the associated costs to be incurred in the new venture. If the results of the considerations come up to be effective for the new business to start up, then it will be advisable for her to start it up. They are hence important in estimating the outcome and the risks and also the returns to be gotten from the business venture intended to be started up. (Guiltinan et al, 1996). In the case at hand some results have been gotten from the figures given by Sally. The figures she provides show that the business property is to be leased. The total costs to be incurred in setting up the venture include furnishing the new business place at a cost of $100,000. Another cost is the equipment cost estimated at $40,000. This translates to a total of $140,000 in the startup costs. She also categorically states that the entire amounts required are going to be raised through borrowing of loans from financial institutions. This hence means that she will have an outstanding debt of $140,000. According to her, the new venture is to make a half level of sales for the beginning. Through this we can hence classify this as half of the maximum units produced to be sold. The number of units to be produced per day is $1440 units. This hence means that the amount of sales is estimated to be 720 units per day for the first two quarters of the business operations. The business is to however produce two different types of produce. The long black type is to retail at a price of $3 per cup. Assuming that the ratio of the long black to the latte is 1:1, the number of units to be produced daily of the long black type is 360 units. This is also the same number to be produced of the other type latte. Based on this, the revenue to be received from the sale of the long black is to be (3 * 360) = $1080. On the other hand, the revenue to be received from the latte is going to be (4 * 360) = $1440. This are daily revenues for the products. (Guiltinan et al, 1996). There are expenses for the two products. The long black incurs expenses on the paper cups and the coffee. These add up to $3.6 and $180 respectively per day. On the other hand, the latte incurs paper cup costs, coffee expenses and milk expenses. These also add up to $3.6, $180 and $54 respectively daily. Based on this, the profit from the sale of the long black and latte can be estimated as $896.4 and $1202.4 daily. Due to the fact that the maximum number of units a single worker can produce per day is 700 units, she will need the services of another worker due to the extra 20 units which exceed the set margin per worker. This translates to another expense for the business. If a worker gets $1000 per month from the business, two workers will hence get a total of $12,000 from the business for the first two quarters of its operations. (Guiltinan et al, 1996).) In the first two quarters, this translates to half a year and hence the estimated profits for the half year will be (0.5 *365* (1202.4 + 896.4)) = $383031. If we then deduct the amount payable to the two workers for the period adding up to $12000, the profit from the operation of the business for the period after deducting the expense is $371031. The business is hence expected to make much profits from its operations for the period after its beginning of operations. If she was to pay the loan on a continuous period payable quarterly, this means that by the end of the first quarter, she would pay an amount of $35000 in regards to the loan. The same amount would be paid in the next quarter. This translates to $70000 for the first half of the year. Deducting this amount from the estimated period results to a profit level of $301031 after paying the loan halfway. This result means that the business has an income of $301031 after paying off the loan. This being the off peak period, it is a very positive result and through such, she will be able to repay the loan fully in the first four quarters of the operations of the venture (Chekitan and Schultz 2005). The putting in place of the new venture would hence be termed as a wise thought for Sally. This is due to the f act that the businesses will be interchanging their peak seasons. The coffee for the cold seasons and the beverages for the hot seasons. This will hence enable Sally to carry out a yearly business with much profit (David, 2009). Profits will be high for the new venture when the maximum level of sales is made for the period. This will add up to a very high figure. This is very crucial for the development and the expansion of the business for Sally. This will come up to be an additional source of income for her and based on the fact that the previous business has great results, they will make a perfect combination. They will also help in eliminating the seasonality of unemployment which exists in seasonal businesses. The off peak of one venture will be the peak season of the other. They will hence make a combination of an all year venture with very huge returns (Caroline 2001). Due to that fact that all the financial considerations for the startup of the new venture have been well calculated and estimated, it would mean that the returns that the two ventures will bring up together will be enough for the business to strive and excel and even provide more resources for expansion. She should hence put up the business with no delay whatsoever. (Chekitan and Schultz , 2005). Before starting up the business, it is crucial that Sally puts into consideration the four Ps of marketing. They are product, price, place and promotion. By ensuring that there is strict adherence to this, she will have an upper hand in the market and also in the competition industry (Caroline 2001). The product part of the illustration is very crucial for the product development. It means that she should try her very best to see to it that the quality of the product is very high. This is as compared to those of the competitors. High quality products encourage the buyers of a product and the consumers to constantly buy more of a product. High quality always creates loyalty to the consumers. The quantity of the products should also be reasonable. Very high quantities always raise the levels of doubt pertaining to the quality (Blakeman, 2007). Very low quantities also raise questions from the consumers in regards to the value on their money. They should hence ensure that the quantity is reasonable for the consumers in order to ensure continued consumption of their products. The price part is also very crucial for the products of the business and also how they perform in the market. Very high prices will usually encourage the competitors to sell at a lower price and hence attract the customers from the business venture. Very high prices also discourage the consumers from the consumption of the products of a business venture. This is also the same case that applies for unreasonably very low prices of commodities (Caroline 2001). They raise the levels of doubt among the customers as to the quality of what they are consuming. This is especially so in consumables such as coffee which is in the production line of the business venture. Customers/ consumers pay very serious attention on the quality of the things which they consume. Many people are very keen on the things that affect their health. As such, the price being an indicator of the quality should be very reasonable. Reasonable in this case I average and not unreasonably high or unreasonably low. (Kerin and Roger 2012) The place part is very crucial for the business. This comes in where the location of the business is the thing which is paid attention to. The business should be situated in a very convenient place. Convenience in this case comes in first in terms of the location and accessibility of the business. The business should be located in a place easily accessible to the customers. The infrastructure such as roads leading to the business should be good and effective for the consumers. Inaccessible areas tend to discourage the consumers from visiting the business areas (Kerin and Roger, 2012). The place also refers to the security of the area where the business is located. The business should be located in a place where the people in the business and the customers feel even secure to stay at. Security in this case is in terms of the surrounding areas and the business premise. It should be in a place where interruptions arising as a result of security breaches are absent (Chekitan and Schultz 2005). The security surveillance details should also be put in place and security personnel hired. Security also is in the case of security from the accident occurrence. For example slippery floors. Measures should be put in place to see to it that such things as this which might limit the levels of the security of the people are at the highest possible levels. (Kerin and Roger , 2012). Place also in a third way refers to the hygienic nature of the business and its environment. The food stuff related venture is a very critical one when it comes to the hygiene nature of the environment. It should be at situated at a very hygienic environment and hence ensure that the consumers get the courage to consume the products of a company. Very hygienic business ventures which are located at unhygienic environments always raises doubts to the customers. The business should hence ensure that this is put into check. (Chekitan and Schultz 2005). The promotion part is very crucial for any business. This is due to the fact that it is this which defines how the business venture is viewed by the customers and how they are made aware of the product existence and any changes whatsoever that may arise from the business products. The business should hence embark on such promotion strategies as the use of billboards which indicate and sell the business to the potential customers. Another strategy in terms of promotion is the use of press advertising. Here, the business is advertised in televisions and radios and details of the product given. Another strategy in regards to this is personal selling where representatives of the company go to the streets and tell people about the products of the company. Promotion can also be through the distribution of posters and leaflets and brochures about the company. These can be given to people in public places, attached at noticeboards, given to friends, distributed at such social places as churches or even in the streets. They should contain the information of the business. They are crucial in that they are informative and at the same time educative. RECOMMENDATIONS It is recommended that Sally should look for capital to start up the venture. This is due to the profitable nature which it has. She should also put in place such strategies as ensuring that high levels of hygiene for the business are ensured. This should not only be in the working place but also in the environment surrounding it. The business should also ensure that reasonability is ensured in the product quality, quantity and pricing. She should also put in place adequate resources to see to it that promotional strategies are ensured and well facilitated and coordinated in order to well sell the business to the potential customers. Through putting in place of all the above indicated factors, Sally should be well assured that the businesses which she has started will strive and achieve much. REFERENCES Kevin L2009, "1". A Framework for Marketing Management (4th ed.). Pearson Prentice Hall. Blakeman, R2007, Integrated marketing communication: creative strategy from idea to implementation. Lanham, Md, Rowman& Littlefield Publishers. Adcock, D&, Caroline R2001 " ". Marketing: principles and practice (4th Ed.). Xavier Thomas. p. 15. Kotler, Philip & Keller, L. Kevin (2012). Marketing Management 14e. Pearson Education Limited 2012 Adcock, D&, Caroline R2001, "Introduction". Marketing: principles and practice, London, Rutledge, p. 16. David, W2009, Strategic Marketing, London, Rutledge. Guiltinan et al, 1996, "Marketing Management: Strategies and Programs”, Oxford, Oxford University Press Josphine, M2008, Introduction to accounting, Sydney, Prentice Hall. Chekitan, S&, Schultz, D 2005, "In the Mix: A Customer-Focused Approach Can Bring the Current Marketing Mix into the 21st Century". Marketing Management, vol. 14, no. 1, pp. 95-100. Kerin, R2012, Marketing: The Core, McGraw-Hill, Ryerson, p. 31. Kotler, A&, Philip, G2004, Principles of Marketing. Pearson education. Johansen, B2011, Fundamental principles of financial accounting, London, Rutledge. Jared,M2012, Advanced financial accounting, New York, Taylor& Francis Read More