Silver Billion Pty. Ltd. Business Plan

Transcription

1 Silver Billion Pty. Ltd. Business Plan Building a Foundation of E- Commerce for Small Business Kevin Fan The Management Department Economics & Commerce The University of Melbourne

2 TABLE OF CONTENTS 1.0 THE BUSINESS CONCEPT Description of Business Concept and its Novelty Mission Statement and Goals Business Structure SITUATION ANALYSIS Stage of Service Concept Development & Testing Pre- feasibility Study Protecting the Novelty Present Resource and External Needs THE STRATEGY AND ITS KEY ASPECTS Marketing Plan Operation Plan Staffing Plan FINANCIAL PROJECTIONS Monthly Cash Flow Statement Profit and Loss Statement Break Even Chart Balance Sheet KEY RISKS...17 APPENDICES

3 1.0 The Business Concept 1.1 Description of Business Concept and its Novelty The core service of Silver Billion Pty Ltd (SB) is to provide total customized electronic commerce (e-) solutions for local businesses. The novelty of this concept comprises two parts; one is the totality and customization of the service, the other is the magnitude of the value creation. Totality and customization refers to the whole process of designing and implementing a comprehensive e-solution that specifically suits a business. This means that SB does much more than just building a website; its services includes analyzing client s business profile and situation, proposing strategically supportive e-solutions and then actually implementing these solutions in the form of websites and e-tools 1. This concept differentiates SB from many local web development firms, which just provide a website building service, and consultant firms, which generally produce reports but are not involved in the implementation process. The entire process of designing and implementing an e-solution - identifying client s needs, providing and delivering the benefits - creates a value added. However, the actual web building process involves relatively less value creation. To take advantage of broadband technology and the cheap skilled human resource of developing countries, SB has decided to outsource its web building function to its strategic partner Saumya, a web development firm based in India. Consequently, this low value added process will become high value added when it is transferred from India to Australia through the Internet. 1 e-tool refers to e-commerce web features that require specialized knowledge of programming to build. E.g. online quotation, booking, shopping, payment systems, and membership accounts and newsletter distribution. 3

4 1.2 Mission Statement and Goals The mission of SB is, primarily through provision of total customized e-solutions, to deliver benefits of the information communication technology to local businesses in terms of reducing operation costs and increasing efficiency, to assist them in business, market and channel development, leading to a more competitive advantage. SB s goals are: I. Sales level to generate a sales revenue greater than AU$200,000 in the first year of operation II. Return on Investment to achieve an annual profit higher than 20% by the end of the second year of operation i.e. June 2006 III. Customer Base to establish and retain a customer base of at least 100 local businesses by the end of June Business Structure SB will commence its business in a leased office premises in Carlton from July The company will have two shareholders, namely Kevin Fan s parents, who will not work in the company. On other hand, Kevin Fan will be the full time director, The reasons for choosing a home based company structure are firstly, SB lacks experience in the e-commerce industry and has no customers on hand, so the risk will be relatively high. A company structure is necessary in order to limit shareholder risk in terms of personal responsibility for debts and other liabilities. That is a prerequisite for the two shareholders to invest. Secondly, a company structure gives a more formal image and is often considered to be favorable by new customers, especially when SB will not be selling any tangible product. 4

5 2.0 Situation Analysis 2.1 Stage of Service Concept Development & Testing The descriptions for the services that SB will provide have been developed: E-Update o Update existing website at a competitive low price. Customers provide their own information. E-Consulting o Involves a complete analysis and understanding of the client company s situation, objectives and constraints, followed by strategy proposals on product mix, pricing, channel and promotion in term of e-commerce. E-Development (two options) o Design and build website with e-tools as required. The customer could choose to either provide their own information (Option 1) or let SB have a business visit (Option 2) to obtain necessary information, such as photos, interview with the manager. E- Total Solutions (core service) o Combine the service of E- consulting and E-Development with the option of online advertising Although SB also provides a web hosting service, clients are free to choose other web hosting companies. 5

6 SB has already completed the company name registration and trademark application. The director discussed the business concept with the owner of Saumya, who was his university fellow for five years. Saumya indicated that the business concept is technologically feasible and showed a strong interest in forming a strategic partnership with SB, and its current price level is nearly 70% cheaper than the average price charged in Melbourne. Consequently, a contract of cooperation was signed, which constitutes the process operation between two companies. 2.2 Pre- feasibility Study The pre-feasibility study covered five major areas, namely business concepts, market, key people, business operation and financial viability. SB s business concept was developed from the value delivery sequence. It is a solution to the needs of many businesses. These needs are typical of achieving lower operational and marketing costs and enhancing efficiency. Due to the increasing adoption of the Internet by businesses and consumers, these needs are growing. Figure 1 shows the trends over time for the proportions of businesses using the Internet or having a web presence. It can be seen that most businesses in Australia use the Internet. In other words most businesses already have the foundation for developing e-commerce. Thus, there is promising business opportunity in the E-commerce market. 6

7 Figure 1- Business use of IT in Australia Businesses using the Internet % Businesses with a web presence % Source: Australian Bureau of Statistics; Business use of information technology (IT) conducted in SB considers the present level of competition is low. Currently there are 26 firms specializing in E-commerce development around Melbourne, among which only 12 also provide consultancy 2. These firms are not direct competitors since they tend to target big to medium corporations rather than small business, which is SB s target market. However, it is expected that the level of competition will become a threat to SB, as the needs of e-commerce for small business become more and more obvious. The local supplies of high quality labor, especially in e-commerce and IT, could provide sufficient expertise to SB. Saumya assisted SB to carry out a trial on the agreed operation process, which is to design and build a website for SB itself. The broadband Internet enables easy video conference and data transmission between SB and Saumya. The successful outcome of the trial demonstrated the feasibility, cost-effectiveness and efficiency of operation process. In addition, Saumya employed professionals in web design and e-commerce programming, which mean technical issues of the operation could be fixed quickly. 2 Source: Yellow page.com.au : data based on the number of firms under the specific category. E.g. Internet web service (87) > E-commerce (26) > consultancy (12) 7

8 The financial feasibility of the business concept is proven by the financial projection in Section 4. A marketing survey of 30 potential clients has been carried out to support the financial projection. More than 50% of these surveyed businesses showed interest in the combined service of consultancy and e-solution implementation. And 20% or six business said they potentially would purchase the services when SB commences operation in July Protecting the Novelty In order to minimize the damaging impact from competitions, SB takes measures to protect the novelty of its services concept from imitation. These measures include: Registration of the company logo as a trademark, which distinguishes SB s total e-solution from others Confidentiality agreement on employment contract against disclosure of commercially sensitive information. Terms in the contract of cooperation with Saumya, prohibiting it designing or building websites for any other firms in Australia 2.4 Present Resource and External Needs SB possesses the resources listed below: Human Resources: 1 x Director 2 x Contractual consultants (final year university students) 1 x Causal IT administrator 8

9 Physical Resources: Leased Office Office supplies i.e. stationary with company logo, and equipment e.g. Fax machine, printer, phones, computers Web server (for web hosting) with broadband connection Financial Resources: AU$ 5350 cash in bank, (AU$20,000 investment less some initial expenses) The further external needs SB requires are: Human Resources: A pool of qualified candidates for the position of contractual candidates. Detail number depends on the actual demand. Physical Resources: Laptop computer, Digital camera, Video recorder Software for accounting, customer relationship management etc Reference material for marketing and E-commerce consultancy Financial Resources: AU$20,000 loan from bank, (Shareholders provided a car as security) 9

10 3.0 The Strategy and its Key Aspects 3.1 Marketing Plan SB s target market is the small service businesses within the Melbourne metropolitan area. The size of total potential clients is around 50,000 as shown in Figure 2. Figure 2 - Size of Target Market (Service Business in Metropolitan Melbourne) 28% Retail trade 11% 61% Accommodation, cafes and restaurants Personal and other services source: Australian Bureau of Statistics, "Experimental Estimates, Regional Small Business Statistics," The identified market segments include restaurants and accommodation, retail stores (typically grocery, gift / fashion, video/audio) and personal services (hair salon, clinic). The common characteristics of these segments are: Small in terms of resources; does not have the capability of producing e- solutions in house. Located in commercially popular areas where small businesses are full along the street e.g. China town, Lygon street, Brunswick street Low percentage of web presence Private/family owned, which means they have the ability to make quick purchase decisions. 10

11 All segments are selected based on the similarity of their needs for an e-solution. Their purchase motivation is to provide better customer service, establish greater market presence and achieve low costs. For example, a gift/fashion shops could set up an online catalogue/store, allowing customers to find out the information 24 hours everyday. Restaurants and motels could advertise on Melbourne tourism sites, effectively targeting tourists. And hair salons and video rental shops can simplify their operations by creating an online booking system. Service Mix: In order to satisfy different level of needs, the services mix comprises E- Update, E-Consulting, E-development and E-Total Solution, as introduced in Section 2.1. Domain name registration, Web hosting, and after-sale service are optional secondary services under each of the services mix (Except for E-Consulting). Pricing Strategies: Price involving web development is set to beat the average local price range 3 by 30%. The actual price varies depending on the content, features of the website and the selection of secondary services. Web hosting is an optional service, which is charged separately at an industry average monthly rate, ranging from $20 to $30, depending on how the hosting plan is structured i.e. web space and traffic While consultant service is involved, price is calculated at an hourly rate at $75, which is not a cheap price, because SB positions itself as providing a high-level of expertise. 3 Average local price range $500-$2500, (research data based) on 6 local web design firms. 11

12 SB will regularly monitor competitors prices by researching online or calling up competitors. Promotion Strategies: SB communicates with the identified market segments using the following means of promotions. The key message of the communication is reminding potential clients the needs for an e-solution and the benefits of SB s services. Mail out company brochures and cash vouchers / discount coupons to a list of potential clients based on demographic information Personal selling & cold calling potential clients, focusing on client s needs. (The interactive process helps SB to improve understanding of clients needs.) Actively participate in networking events with business organizations, such as Small Business Victoria, and establish client contacts. Article advertisement in the local newspapers Melbourne Times and Leader. Submit company URL and advertise on Google.com.au Establish a referral award scheme to encourage word of mouth and chain effect. E.g. 20% discount if bring in another client. Distribution channels: Face-to-face interaction, including interview, written report and presentation The World Wide Web (WWW), e.g.. website integrated with e-tools, online advertisement 12

13 3.2 Operation Plan Figure 3 Operations Flowchart Considering the frequent flow of information and face-to-face interaction between SB and the clients, Carlton is selected to be the office location, which could significantly enhance operation efficiency and reduce travelling costs. The operation process starts with information input from clients. Firstly, clients select and give service requirements. SB then requests further information such as text or photo description of the client s business, prices of product/service if necessary. 13

14 Depending on the selection of service, the process might involves consultation, subcontracted service from Saumya or advertising companies, e.g. Google. For E-Updating service (refer Client A, Figure 3), SB will transfer necessary information to Saumya through and video conference. Saumya will then updates client s existing website as required and upload it to SB s web host server, which is shown in the WWW. For E-consulting service (Client B), SB analyzes client s profile and carries out market research. A written report on E-strategies will be provided to Client B at the completion of the service. E-Development service has a similar process to that of E-Updating service. Client s order i.e. website and e-tool, is passed to Saumya to complete and post on the web. E-Total Solution combines E-consulting & E-Development services with an option to advertise online, which includes establishing and enhancing search engine listings, target ing. SB will outsource or buy the service from advertising companies or websites to complete these services. 3.3 Staffing Plan SB will employ four people, namely the director, two contractual consultants and the causal IT administrator. The director holds a degree in commerce specializing in management. He has related work experience in marketing in the consultancy industry, and demonstrated time, stress management and leadership skills (successfully completed the Student Ambassador Leadership Program in Melbourne University). The tasks of the director include: administration, client liaison, marketing decision, accounting and consultation. 14

15 The two student consultants are selected based on their excellent university results in e-commerce and marketing and communication skills as demonstrated by their effective involvement in university and the community. Their tasks include: personal selling, cold calling, consultation and communicate client requirements to Saumya. The IT administrator has over two years relevant experience and an ICT Skill Benchmark Certificate. His tasks include: computer and web server maintenance, obtaining client information e.g. photos and video, data transfer between SB and Saumya and managing outsourced advertisement. SB s strength is its expertise in marketing and e-commerce consultancy. The knowhow is very up-to-date, which is important in terms of formulating effective e- strategies. Also, the director has a long-term friendship and common strategic vision with the owner of Saumya, which makes Saumya a reliable supplier of web designing and building. SB s clear weakness is lack of accounting expertise. Cash flow and other financial projection will potentially be faulty or inaccurate, causing risky decisions. A personality checklist showed that the director is rather reluctant to change especially in uncertain environment. This might be an obstacle for future process improvement. The director might also get too busy with the demanding administrative work or marketing tasks and ignore strategic planning. In addition, the two student consultants lack experience in interacting or communicating with real clients, which means the service quality might not be as high as clients expect, and they might need more training before the operation can run smoothly. 15

16 4.0 Financial Projections The key assumptions are: Credit sales to be collected 60 days from the month of sales Period of invoice payment is 30 days Long-term loan interest rates (15%), Income Tax (30%) and GST (10%) kept at the current level GST credit and Income tax return (if make loss for the month) are applicable Expenses, payroll wages and other operation costs are constant Efficiency and productivity hold steady The bank will approve loan of amount $ 20,000 to SB before the end of June 4.1 Monthly Cash Flow Statement 4.2 Profit and Loss Statement 4.3 Break Even Chart 4.4 Balance Sheet See APPENDIX 1 to 4 16

17 5.0 Key Risks Key Risk Factors Source Probabilit y Impact Possible Actions Exchange rate fluctuation, which directly affects the cost of web design/building, since payment to Saumya is not in AU$. External High Medium Review pricing strategy to cope with the change of profit. Computer virus stops the whole operations between Saumya and SB External / Internal Medium High SB and Saumya need to install antivirus software and update it regularly. All employees need to be aware of the potential risks of unknown s. Bad debt, clients fail to pay after 60 days. Economic recession reduces small businesses demand in e-commerce development. Failure to handle the clients on hand simultaneously on time Process delay by major public holidays in India External Low Medium Carefully select whom to sell to. Determine the health of business before selling service to them. External Medium High Introduce a more price attractive marketing campaign. Internal Medium Low Prepare a pool of job candidates, so SB can hire extra staff when needed External High Medium Check out the Indian calendar. Plan ahead, avoid telling client 17

18 public holidays in India Rapid growth in salary for IT jobs in India the completion date without confirming the productivity. External High Medium Reasonable price rise, at most to the level of cost increase. At the same time, also continue to develop the service, enabling the service look more valuable Most clients do not choose SB s consultant service External /Internal Low Medium Find out why people do not want the consultant service, and then act on the advice to improve the service Competitors imitate SB s business concept External /Internal Medium Medium Enforce the measures to protect SB s business concept. And try to establish market presence as soon as possible, form a barrier to entry Price war from the rising level of competition Failure to employ/retain necessary personnel Unforeseen technical issues Many businesses do not believe.com will be External Medium Medium Form a customer base first and articulate SB s value proposition, become a differentiator, rather than cost competitors. Internal Low High Create more interesting working environment, regularly review wage level. Internal Medium Medium Prepare contact of IT consultant External Low Medium Change of promotion strategies, to prove the benefit 18

19 useful of e-commerce. It is harder and takes longer to acquire new clients External /Internal Medium High Review marketing strategies, introduce more attractive promotion, more marketing budget and effort. Saumya breaches the contract of cooperation or drops out Interest rate or Tax rate rises Internal Low High Maintain a good relationship with Saumya. But also assess potential alternative subcontractors in India or China. External Medium Low Try to maintain the level of profitability by process improvement. APPENDICES 19

20 APPENDIX 1-12 months Cash Flow Statement for Silver Billion ended Jun 2006 CASH FLOW Pre-start Jul(04) Aug Sep Oct Nov Dec Jan(05) Feb Mar Apr May Jun Credict sales web services (incl GST) Credict sales consultant services (incl GST) Credit Sales from web hosting (incl GST) Cash Sales Cash Receipts (inc GST) 60 days later External Loan Funds Owners Equity Total Cash Receipts Testing sample web Client survey Legal consultancy Phone, fax, copying Total Exploration Cost Lease(bond, stamp duty) loans Establishment costs Electricity, gas, phone and Internet connections Statutory charges Initial marketing cost Legal fee (company registeation & trademark ) Phone, fax, copying etc Business planning Total Initial Costs

21 APPENDIX 1-12 months Cash Flow Statement for Silver Billion ended Jun 2006 CASH FLOW Pre-start Jul(04) Aug Sep Oct Nov Dec Jan(05) Feb Mar Apr May Jun Wagse(director,2 students, IT admin) Subcontractor Travelling Marketing Rent Energy,water bill Insurance premiums Repairs & Maintenance Internet,Telephone cost Bank charges Loan Interest Reference Books Total Operating Costs (incl GST) Pay 30 days later Net Cash Profit Before Taxes Office furniture Office Equipment / supplies Special Equipment Total Capital Cost Net GST paid Gov Monthly Income Tax Total Cash Payment Net Cash Balance for the Month Add: Openning cash Balance from prior month Closing Balance

22 APPENDIX 2 - Profit and Loss Statement Silver Billion Pty. Ltd. For the 12 months ending June Stated in 000s Total AU$ Total % Sales Revenue Web Design/Building Service 149, % Consulting Service 25, % Web Hosting Charge 15, % Total Sales Revenue [J] 189, % Cost of Sales Web Design/Building Service 55, % Consulting Service 11, % Web Hosting Charge 3, % Total Cost of Sales [K] 69, % Gross Profit [L=J-K] 119, % Overhead Expenses Exploration Cost 1, % Initial Cost 5,600 Reference books % Total Overhead Expenses [O] $ 7, % Marketing Expenses Total Marketing Expenses [M] 1, % Administration Expenses Wages and Salaries 73, % Rent 18, % Internet & Telephone 2, % Utilities (energy, water etc) 1, % Insurance 2, % Repairs and Maintenance % Travelling 1, % Bank Charges % Loan Interests 3, % Total General and Adminstrative Expenses [A] 103, % Total Operating Expenses [P=O+M+A] 112, % Income from Operations [Q=L-P] 7, % Taxes Income taxes 9, % GST 1, % Total Taxes [S] 11, % Net Profit [T=Q+R-S] -3, %

23 APPENDIX 3 - Break Even Analysis for Silver Billion 1/2 Fix Costs Amount in 1st year Variables Costs Amount in 1st year Exploration Cost $ 1, Service Purachsing from Saumya $ 55, Initial Cost $ 5, Additional Wage $ 11, Wage $ 73, More Marketing cost $ 1, Rent $ 18, Travel $ 1, Energy/water bill $ 1, More Officie Supplies $ Special Equiptment Repairs&Maintenance $ Upgrade $ 4, Broadband Internet and Telephone Cost $ 2, More Reference Books $ Bank Charges (account fee, credit card process etc) $ Loan Interest $ 3, Officie Furniture $ 3, Officie Equipment & Supplies (computers, Fax, phone, photocopier, pen paper etc) $ 5, Special Equiptment (Digital/Video camera, Laptop, web server) $ 6, Reference Books $ Insurance Premiums $ 2, Fixed Cost $ 123, Variable Cost $ 75,108.00

24 APPENDIX 3 - Break Even Analysis for Silver Billion 2/2 AU($000) Sales Fixed cost Variable cost Net Profit Before Tax Contribution Margin % Sale at break even = Fix cost / contribution margin Sales at break even less variable costs (91.5%) Fix cost profit 0 $ Break-even Analysis $ $ Costs AU($000) $ $ $ $ $50.00 $0.00 $0.00 $50.00 $ $ $ $ $ Sales AU($000)

25 APPENDIX 4 - Balance Sheet Silver Billion Pty. Ltd. [June 30, 2004] Assets Current Assets: Cash at Bank $ 25, Accounts Receivable $ - Less: Reserve for Bad Debts $ - $ - Cash Receivable $ - Total Current Assets $ 25, Non-Current Assets: Office Furniture $ 3, Less: Accumulated Depreciation $ 3, Office Equiptment & Supplies $ 5, Less: Accumulated Depreciation $ 5, Total Fixed Assets $ 8, Total Assets $ 33, Liabilities and Capital Current Liabilities: Initial Cost Payable $ 5, Exploration Cost Payable $ 1, Total Current Liabilities $ 6, Non-Current Liabilities: Loan $ 20, Total Non-Current Liabilities $ 20, Total Liabilities $ 26, Capital: Owner's Equity $ 20, Net Profit $ (13,300.00) Total Capital $ 6, Total Liabilities and Capital $ 33,350.00