New Business
MM's Sandwiches is a small upcoming sandwich shop that will offer delicious and uniquely prepared sandwiches. This paper provides a financial plan and a guerrilla marketing strategy for the business. The paper also discusses the most appropriate location for a second store and outlines a plan for securing sources of debt financing for the second store. Operating expenses are forecasted to grow to $350,000 in year 2 and $410,000 in year 3. Pre-tax profit will grow by 74% in year 2 and 34% in year 3. Overall, projections indicate that the shop will be profitable in the first three years. Table 3 below provides income statements for years 1, 2, and 3.
Financial Plan
Financial planning constitutes an important element of the business plan (Sahlman, 2008). It enables a business to understand its present and future financial position. This is important for establishing the viability of the business in the short and medium term. For example, a financial plan may show the extent to which the business may be profitable in the next or first one year, or three years. A solid financial plan is crucial for ensuring the stability of the business. Without meticulous identification of the costs involved in running the business and the expected revenues, the business may experience financial troubles earlier than expected.
The major costs involved in operating the sandwich shop include rent and labour. The shop rests on a 2,200 square feet space, with the leasing cost for a square foot per month being $1.35 and an extra $0.15 for real estate tax. Therefore, leasing costs will be $3,300 per month, or $39,600 annually. The shop will have a workforce of 11 people (the general manager, one operations manager, one accountant, two chefs, one marketing manager, and five waiting staff). Salaries will cost approximately $250,000 annually. As a sandwich shop, ingredients will also comprise a significant portion of the expenditure. Inventory will cost approximately $200,000 in the first year. This is projected to grow by 20% in both years 2 and 3. Other expenditure elements will include utilities, marketing, and insurance. Overall, operating expenses are expected to cost $316,000 in the first year.
The shop will be in operation 7 days a week from 6 am to 10 pm. The shop is projected to make sales of $2,000 per day on average. This will translate to sales of $60,000 monthly or $720,000 annually. Given the projected expenses and revenue, the shop will be profitable in the first year. It is estimated that a pre-tax profit of $54,000 will be made in the first year. Table 1 below summarises revenue and cost projections for the first year.
Table 1: Project income statement for Year 1
Sales $720,000
Cost of goods $350,000
Gross margin $370,000
Expenses
Utilities $2,000
Salaries $250,000
Marketing $15,000
Website $500
Rent $40,000
Insurance $3,500
Miscellaneous $5,000
Total expenses $316,000
Pretax profit (loss) $54,000
A breakeven analysis (table 2) shows that the shop will require sales of $51,232 to break even.
Table 3: Projected income statements for years 1, 2, and 3
Year 1 Year 2-Year 3
Revenue $720,000,864,000 1,036,000
Cost of goods sold $350,000,420,000 500,000
Gross margin $370,000,444,000 536,000
Operating expenses $316,000,350,000 410,000
Pretax profit (loss) $54,000 94,000 126,000
Guerrilla Marketing Strategy
The significance of marketing cannot be overemphasised. It is through marketing that a business reaches out to its target audience. Marketing is particularly important for a new business. Effective marketing can be important for accelerating customer acquisition and market share growth. Nonetheless, marketing can be a daunting task, especially for a small business. Small businesses like MM Sandwiches are often constrained by resources. Therefore, conventional marketing platforms like television and print advertising may often be out of reach of most small businesses.
Guerrilla marketing presents a significantly less costly route for the sandwich shop as far as marketing is concerned. Indeed, guerrilla marketing is often deployed when there is little or limited resources to spend. Guerrilla marketing essentially entails achieving marketing objectives through the use of low-cost unconventional strategies (Levinson, 2007). The marketer invests energy and creative imagination, as opposed to financial resources, to grasp the attention of the target audience. Guerrilla marketing works because it is simple, easy to execute, and substantially cheaper compared to conventional marketing techniques. In fact, as it targets consumers at a more individual and unforgettable level, guerrilla marketing arguably generates greater impression with consumers compared to conventional forms of marketing. For the new sandwich shop, guerrilla marketing will offer a valuable way to get discovered as well as stand out from the competition.
Prior to selecting the guerrilla marketing strategies to use, there are a number of factors that ought to be out into consideration. First, it is important to understand the target market, particularly in terms of thinking and behaviour (Levinson, 2007). This is important for settling for the most appropriate strategy. Second, creativity is a must. The whole idea of guerrilla marketing is to capture the attention of the target audience in an imaginative way. Without creativity, guerrilla marketing messages may be easily missed. It is also vital to understand how to measure success (Levinson, 2007). The success of marketing is usually measured via sales. Nonetheless, sales is not the only way that can be used…
References
Levinson, C. (2007). Guerrilla marketing. 4th ed. New York: Houghton Mifflin Company.
Sahlman, W. (2008). How to write a great business plan. Boston: Harvard Business Press.
Walter, R. (2004). Financing your small business. Hauppauge, NY: Barron's Educational Series.
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