Expanding a One Store Operation to a Two Store Operation

¶ … Integrated Business Plan

Brief Outline of the Business Venture

Organizational Issues and Expansion

Legal Issues and Expansion

Business Strategy

Technology

Financial Competitiveness and Expansion

Allocation of Funds

Pro-forma Cash Flow

Net Present Value

Internal Rate of Return (IRR)

Profitability Index (PI)

Payback Analysis

Marketing/Sales and Expansion

Marketing Mix Analysis and Expansion

Mediums of Marketing

An Integrated Business Plan

Management is basically a synergy of four elements i.e., planning, organizing, leading and controlling (Chris & Alan, 1999). The essence of management and its particulars are very important from the perspective of an organization. Businesses and business organizations are the heart of an economy as they have a direct relationship with the long-term fragility of an economy (Chris & Alan, 1999). The basic purpose of company is to earn money and increase profit with the help of different provisions. The ratio of profit for the company is based on the level of investment. To increase profit the company should decrease operational expenses.

It is not a piece of cake to establish a business as it requires lots of research and planning as well as finances to do that. The term establishment has two different meanings in business; one is the establishment of a new business while other is the further establishment of an already established business (Chris & Alan, 1999). Further establishment is also termed as expansion of the network of the business.

Section-1

Brief Outline of the Business Venture

Today the entire world has entered into the era of globalization wherein a single effect in one business ultimately affects whole economy. The purpose of the current assignment is to create a business plan for the expansion of one store into two stores. For this purpose the researcher has discussed the concept of expansion followed by a brief description of the venture and then the actual business plan.

Chris & Alan (1999) stated that there is no better way then a business plan in expanding or establishing a business (Chris & Alan, 1999). The current assignment is a detailed description of a business plan discussing how one store will be expanded into two stores. This is a general store where items like sandwiches, newspapers, snacks, beverages and bottles/Cans are sold. The business plan will assimilate and articulate all the financial, organizational, marketing/sales, legal and IT aspects of the venture. The assignment is bit tricky in nature so there is a need to follow a step-by-step (SBS) approach.

Businesses have been made to earn the economic surplus and mitigate the expenses. There are numerous ways in which a business can increase its net worth. As stated above, establishment occurs in two ways, new business establishment and further expansion. Basically the business which has been selected is a General Store in which different general and edible items are presented for sale. It is a small retailing business in the lobby of a large office building. The current store occupies a space of around 1000 square feet.

The business is located in a large residential building where large numbers of tenants live, so the store keeps those things in the shop which can be used by the tenants. These things include newspapers, wrapped sandwiches and many more. As the store is doing good business in terms of sales and revenues and there is opportunity ahead as a new building is being built few two block away from the current building so the store is planning to expand its business. For this purpose the store is planning to open up new franchise in the new buildings.

Following is a detailed discussion of the organizational, Information Technology, sales, legal, marketing and financial aspects of the business plan...

Organizational Issues and Expansion

Chris (1999) stated that majority of the professionals, officials and analysts consider that organizations have been made to increase the level of surplus and mitigate the expenses (Chris & Alan, 1999). An organization can not increase the level of its revenue by sticking to the current level of business. Hence, expansion is the most important strategy to increase the profit from an organization perspective of an organization. There can be numerous issues which need to be addressed during the expansion phases of an organization (Guy & Emma, 2006). The major issue which usually arises during the expansion is the hiring new staff for the new franchise. The business which we have pursued is not a large one and as in the current store, we have two employees working so with relative to this another two employees will be required for the new store which then may be increased with the expansion in the chain of store (John, 2007).

The main issue which the organizations usually face during expansion is the presence of diversity among the organizational and management level but this particular problem will not upset our business because of less number of staff and only a single command authority. There will be no communication gap between the owner of the store and workers because there will be no barrier between them which ultimately cause the owner to increase operational portfolio in the upcoming buildings (Guy & Emma, 2006).

In summary we can say that as the new store will not be very far and also will be of same capacity and same number of employees so this organization will not have to bother with the organizational issues and owner/manager will easily manage both stores. Let's now move towards the legal issues.

Legal Issues and Expansion

Another major issue which the organizations face during expansion is the legal issue. Legal issues are related to the laws set by states for businesses. Establishment of an organization has a large proportion of legal binding and legal sophistication. Without proper documentation and legal binding no organization or business can be formed and expanded. There are numerous restrictions applied on the organizations from the regulating bodies (Guy & Emma, 2006).

Securities and Exchange Commission (SEC) is the largest regulating body of the country which governs all the organizations operating in the country (Guy & Emma, 2006). There will be certain restrictions which will be encountered by our business from the regulatory authority. From legal perspective the company is bound to report the government before any kind of expansion. The government requires authentic proper documentation of the current shop and also the documentation of the new shops in the new building (Richard, 2001).

Regulating body also demand reports about the income and revenues in a proper manner from companies so that the provision of taxes will become easy. Let's now move towards the business strategy which will be used in this expansion. So the after the organizational issues are resolved the company will prepare all the documents required by legal authority for the establishment of new store.

Business Strategy

After the organizational and legal issues are solved, the organization has to formulate its business strategy for the new franchise. For the current business expansion is to accommodate low cost, able and safer beverages and accepted articles to our admired barter (Richard, 2001). Our strategy is to assure affordability for the consumers as our indigenous and foremost priority. We will alpha our account by installing the newest and able-bodied maintained accouterment as well as availability of all the required items in the store (Richard, 2005). We will strive to maintain the store and make available the customized agenda times (Richard, 2001). We will serve our respectable customers in a friendly manner and make them realize that they are getting appropriate service against their money. Our main objective is to achieve earnestly:

we will make sure that all the available items in the store are of good quality.

We will manage our account on time, superiority costs and will manage our business budget. We try to absorb the allurement of our casework in the market by befitting the connected account for our admired barter at economical rates.

we will get appropriate approval from the government.

We will make our adapted bazaar allotment at comparable amidst accepted competition. We market aggressively through advertisement and promotional campaigns (Richard, 2001).

We defend our finances, and escort aerial crop for our shareholders (Richard, 2005).

We appoint accomplished and clarify professionals to be an allotment of our team.

We are planning to elaborate our operations in the next year. Our plan is to access achievement plans to the best accepted destinations in the indigenous year operations (Richard, 2001). We will direct the capital share of our obligation to address the store in a way that is best acceptable for our clientele, and make advancement in all areas for the accumulation of a belligerent advantage (Richard, 2005). Our business strategy includes following areas to be focused keenly:

Technology:

This is an era of technology and internet as the entire world is now moving with advanced technology in every field of business from manufacturing to marketing and selling (Richard, 2001). In my view, we don't have to restrict our operations in selling general and edible items but it will be to incorporate some technological items in the store as well like photocopy machine, fax machine and printer. All of these things have demand and people need it in daily life (Richard, 2001). Our business's first priority is to facilitate every tenant by making available every single thing. Let's now move towards the most important part of the business plan which will the Finance section.

Financial Competitiveness and Expansion

Finance is the most important part comes under the umbrella of an organization. Finance and accounts are some what identical but not similar (Richard, 2001). Finance is the name of accumulating the funds for the company from different mediums (Richard, 2005). The essence of finance is very important either from the perspective of new establishment of a business or expansion. Finance gives the idea to a company that how a company can accumulate the funds and how the things will be going forward (Robert & Reid, 2009). Let me tell you first what we will go to do in this particular section as this is the most important section of this business plan.

Firstly, we will see how the store will accumulate the funds for the expansion of the store in the next building (Robert & Reid, 2009). By defining this we will be able to know exactly how much the store will expense out during the expansion (Robert & Reid, 2009). There are number of mediums to obtain funds which are discussed throughout this section. After detailing these, we will move towards the evaluation section of the store expansion. In the evaluation, we will apply the techniques of Net Present Value, Internal Rate of Return (IRR), Payback Analysis and Profitability Index (PI) to assess the feasibility of the expansion. All the figures and tables which will be used throughout this section are based on assumptions. The financial particulars are mentioned below

Initial Outlay (Include expansion charges, building rent, shop rent, worker's salaries and item's cost) = $500,000

Discount Rate = 10%

Let's now move towards the section of accumulating the funds for the expansion.

Allocation of Funds

This section will apprise us that what are the mediums available for the store expansion and which medium should be selected by the company to complete this task (Robert & Reid, 2009). According to the estimation, we have found that around $500,000 will be required to expand the network in the new building. There are usually three mediums available to the businesses to accumulate funds; one is to issue the equity, second is to put their own money and retain earning and third is to go to a bank for loan. Let's consider the advantages and disadvantages of each alternative along with the choice of preference.

The first choice which the store has to expand its network is to issue equity. Issuing equity is the most common option to accumulate the funds for the company. Usually public companies select this option to increase their financial portfolio (Robert & Reid, 2009). Although, this option is good and trustworthy but will not fulfill the requirement of the store and will not work appropriately for current plan (Robert & Reid, 2009). Our business is not public listed in which people will invest their money in the desire to get share by the end of the year. If the business intends to consider this option, then first they have to register the business as public by going in the primary markets which will cost very high, so I would not suggest the officials to go with this option (Robert & Reid, 2009).

The second option is to put own money to finance the expansion. This option can work for the business because with the help of this particular alternative, the business will not be under any kind of pressure of any liability or any other restriction (Robert & Reid, 2009). Inevitably this particular alternative will be fruitful for the business but in my view the company should not use it because they have no idea that how the new store will perform in the new building (Robert & Reid, 2009). The company may loose all of its retained earning and can be a cannibalization for the already established store in the building. Let's now move towards the last alternative available for the business (Robert & Reid, 2009).

The last option available to the business is to get a loan from the bank. Although this particular option will increase the cost of doing business or cost of expansion but comparatively it will be better to choose this one from the available three options (Robert & Reid, 2009). The business is in a good position to obtain the loan from the bank in easy installments and credit policies. In my view the business should accept this option to finance the new franchise in the new building.

After accumulating the funds, the next section deals with the evaluation the expansion from financial perspective; four types of different methods will be used to evaluate the expansion which comes under the umbrella of Return on Investment (ROI).

Pro-forma Cash Flow

Cash outflow and inflow figures are mentioned below. Total Cash outflow is $500,000 while cash inflow is different.

Pro-Forma Cash Flow

Year

Pro-Forma Cash Flow Analysis

Cost

Undiscounted

Discounted

Cash Flow

0

(500,000)

(500,000)

(500,000)

1

50,000

45,455

2

150,000

123,967

3

180,000

135,237

4

210,000

143,433

5

220,000

136,603

Return on Investment (ROI)

Return on Investment (ROI) as clear by the name will explain the user that how much economic profit will be earned on the investment. There are 4 different tools which have been used to complete this particular section. Let's start with Net Present Value.

Net Present Value

To assess the financial capability and feasibility of a project, organizations use different provisions and tools. All of these provisions have been referred as the tools for analysis (TFA). Organizations use only those tools which are relevant to the analytical procedure. Net Present Value (NPV) is among those tools which have real dominance in the world of finance. The tendency to apprise the officials regarding the actual economic worth change by accepting a project from NPV makes it superior than the other available tools.

NPV is very useful in the world of finance and has been counted as the central tool to appraise the long-term projects with the help of discounted cash flow techniques and time value of money factor

The computed result is mentioned below,

Rate 10%

Year

Net Present Value Analysis

Cost

Benefit

Discounted

Cash Flow

0

(500,000)

1

50,000

45,455

2

150,000

123,967

3

180,000

135,237

4

210,000

143,433

5

220,000

136,603

Total

(500,000)

584,694

NPV

84,694

From the above mentioned analysis it can be said that the business has to go with the expansion because it will actually increase the financial value of the store with positive NPV. The Positive NPV according to the computation is $84,694. The first year of the operation will only generate 50,000$ followed by a heavy increment of $100,000. Store's incoming cash flow will increase year on year (YOY) for the next 3 years as well which will bring the total NPV of $84,694. By considering this particular evaluation tool, the store has to go with the expansion of the 2nd store in the new building. Let's now analyze it from the second analytical tool called Internal Rate of Return (IRR).

Internal Rate of Return (IRR)

Similar to the NPV the Internal Rate of Return (IRR) is also widely used in the literature related to finance (Vernimmen, 2002). Basically IRR is point on which the project's value becomes zero. IRR is used in complex type of capital budgeting and this particular tool is very famous in the European Organizations (Vernimmen, 2002). The computed result of IRR is stated below,

Rate 10%

Year

Internal Rate of Return Analysis

Cost

Undiscounted

Discounted

Cash Flow

0

(500,000)

(500,000)

(500,000)

1

50,000

45,455

2

150,000

123,967

3

180,000

135,237

4

210,000

143,433

5

220,000

136,603

Total

(500,000)

IRR %

15.32

14.81

Similar to NPV, the usage of IRR is also very important. The hurdle rate is 10%; it means that the company has to keep the ROI greater than the hurdle rate to accept the expansion of the store. The undiscounted IRR is 15.32 while discounted IRR is 14.81 which are above the hurdle rate of 10%. With respect to this result it can be said that the business has to go with the expansion of the store. Let's now move towards the next analytical tool which is Profitability Index.

Profitability Index (PI)

Profitability index (PI) which is also called the Profit Investment Ratio (PIR) is another widely used ratio in the world of finance (Vernimmen, 2002). This particular tool is used to rank the projects and it is used with the NPV of the project (Cinnamon & Larsen, B. 2008). If the PI of the project comes more than 1, then investment in the project is considered fruitful otherwise one must avoid investing in the project (Cinnamon & Larsen, B. 2008). The computed result is mentioned below

PI

Year

Profitability Index Analysis

Cost

Undiscounted

Discounted

Cash Flow

0

(500,000)

(500,000)

(500,000)

1

50,000

45,455

2

150,000

123,967

3

180,000

135,237

4

210,000

143,433

5

220,000

136,603

Total

(500,000)

584,694

PV

584,694

Initial Outlay

500,000

PI

1.17

Profitability Index (PI) is another sophisticated tool to evaluate the effectiveness of the expansion. The Computed PV of the expansion is $584,694 while the initial outlay is $500,000. The computed Profitability Index (PI) of the company is 1.17 which is well above the psychological level of 1 which is a clear indication of the fruitfulness of the expansion. By considering this, it can be said that the officials of the store should go with the expansion of the second store in the new building. Let's now move towards the payback period analysis.

Payback Analysis

Payback period computation is also one of the most sophisticated analyses in the subject of economics and finance (Cinnamon & Larsen, B. 2008). Basically it helps the evaluator to obtain the answer to the question that, in how many years, the project will cover its initial cost? Payback period can be applied on both undiscounted cash flows or on discounted cash flows (Cinnamon & Larsen, B. 2008). The computed result is mentioned below,

Pay Back

Year

Pay Back Analysis

Cost

Undiscounted

Discounted

Cash Flow

0

(500,000)

(500,000)

(500,000)

1

50,000

45,455

2

150,000

123,967

3

180,000

135,237

4

210,000

143,433

5

220,000

136,603

PI

3.75

4.38

The payback period analysis shows that the business will cover the initial cost in 3.75 years (undiscounted) while for discounted cash flow the payback period is 4.38 years. From all of these financial numbers, it is evident that the expansionary phase will actually add economic value in the business. By considering all of these sophisticated tools, it can be said that the business has to go with the expansion of the store from 1 store to 2 stores. Now, the next section is the marketing analysis section. Let's now do it.

Marketing/Sales and Expansion

Though the corporate and literature world is very broad but still there is no single significant definition of the term marketing as every author had presented this term in a different way (Robert & Reid, 2009). Basically marketing means to present your product before the consumer in a well understandable and systematic manner. Previous research and surveys reveal that, firms which use marketing to present their products before their customers are more productive and efficient as compared to those organizations which do not (Robert & Reid, 2009). In the field of marketing, the essence of marketing communication is very important as its concepts lies in almost everything.

Marketing function includes the marketing mix analysis and marketing communication analysis. Let's first move towards the marketing mix analysis.

Marketing Mix Analysis and Expansion

The current corporate world has been moving with a robust pace because of the continuous arrival of new firms and businesses in the market (Robert & Reid, 2009). To keep abreast with the business world, the businesses have to strengthen their operations through different tools. Among number of tools, marketing mix analytical tool is one of the mainly used tools. Marketing mix analysis can be used to establish a new business as well as expansion. There are four things which come under the realm of marketing mix analysis which primarily are place, price, promotion, product and competition (Robert & Reid, 2009).

Place means that the products of the company are easily available in the market. We intend to expand another store in the new building. In the expansion of the retail business place mix will not be a big deal. The store has to keep those products which are highly demanded by the customers and easily available in the market. If the demanded items are easily available at the place of store then the desires of the customers will ultimately enhanced.