Viability Analysis of the Proposed Golden Bear

¶ … viability analysis of the proposed Golden Bear Lodge business venture. Golden Bear Lodge will be an affordable resort hotel that will serve as a good lodge for customers from all works of life. Golden Bear Lodge will be located at four blocks from Crest Lake Village in California, which is an ideal location for holiday resort near the expanded Crest Canyon area. The Golden Bear Lodge will offer 15 two-bedroom units for customers combined with the underground unit. The lodge will also be equipped with the laundry facilities, fully equipped kitchens, and stone fireplaces. Golden Bear Lodge will also offer on-site and off-site front desk services as well as outdoor hot tub services. On the average, Bear Valley Resort Area receives over 150,000 natural lovers and skiers annually and visitors spend over $300 Million annually for food, lodging, and recreational activities Thus, Golden Bear Lodge will take advantages of available market within the Bear Valley to achieve market advantages. Golden Bear Lodge will operate as ski resort between November and April. Between May and August, Golden Bear Lodge will operate as a summer resort. However, between September and October, the lodge will focus on other different activities such as lodging, food services and other recreation activities.

Since this is a new business venture that will face competitions within the Bear village, there is a need to carry out viability analysis to determine about the profitability of the new venture.

Profitability

The owner of the new venture is proposing to invest the sum of $1.5 million in the Golden Bear Lodge business. The total fund is a combination of personal fund and loan that will be raised from banks. However, the owner of the business needs to analyze the viability of the business before putting this entire sum in the business. The first step in the financial analysis is to evaluate the company proposed balance sheet, and income statement of the company. The analysis of data in the balance sheet and the income statement will assist in providing viability of the proposed business venture.

The profitability ratio is an important financial tool that could be used to analyze the viability of a business. The profitability ratio could be used to evaluate the company performances over time. Jewell, et al. (2011) argues financial ratios are the important tools to measure the standard of firm's ratio compared to the industry average. Profit margins, returns and leverage are the important tools to evaluate firm's financial viability. Thus, financial ratios could be used to predict firm's credit viability and risks. Thus, the paper uses gross profit margin and net profit margin as important financial tools to determine the viability of the new venture.

Gross profit margin is calculated by dividing sales by the costs of goods. A company with consistence high gross profit margins is predicted to have a sound business model. On the other hand, a company with low gross profit margin is a company that is struggling to survive. Thus, gross profit margin is a first strep to evaluate a company.

Golden Bear Lodge will be able to achieve competitive market advantages because the company will record the net profit of $614,500 at the end of the year with the net profit margin of 47, 71%. The company will be able to achieve market advantages from the various product and services that the lodge will provide: The products and services that the company will offer are as follows:

Rooms lodge

Food

Ski Rentals

Clothing

The company aims to achieve total sales of $1,288,000 from the products and services that the company will offer. The sales forecast for the year round will be as follows:

Year 1

Sales Forecast

Rooms

$830,000

Food

$221,000

Ski Rentals

$139,000

Clothing

$98,000

Total Sales

$1,288,000

However, the gross profit profits at the end of the year will be $1.25 Million with the gross profit margin of 97.07%. However, the company will need to deduct the cost of sales from the gross profits to arrive at the gross profit margin. Since the lodge will need to prepare food for customer, the lodge will need to buy the food ingredients that would be used for the food preparation and this will represent the cost of sales that will be deducted from the gross profit to arrive at the gross profit margin.

Based on the data recorded, the venture will be highly profitable because the Golden Bear Lodge will record influx of customer for the year round. The market segmentation will be divided in two groups:

Skiers: The Bear Valley area is quickly becoming the most marketable ski resorts in the country. The Bear Valley is easily accessible because it is just 36 miles from Richmond International Airport. Thus, Golden Bear Lodge will enjoy market advantages from visitors across the country wishing to have a good time.

Summer Visitors: During the summer months, Golden Bear Lodge will receive customer wishing to visit Bear Valley Resort area to enjoy summer sun. Bear Valley Resort area is a beautiful retreat providing outdoor recreational activities. Overall, the business venture is highly profitable and ROI (return on investment) will be high. Thus, the company will generate sales from these categories of different customer. The monthly sales will assist the company to repay its loan at the end of the month.

Table 1: Golden Bear Lodge Balance Sheet Before Operations Starts

Golden Bear Lodge Beginning Balance Sheet (For the day of 1/1/2013)

ASSETS

AMOUNT

Cash

$25, 000,00

Lodge supplies and equipment

$120, 000,00

Bar supplies / Lounge, equipment, and furniture

$200, 000,00

Office supplies

$5, 000,00

Land and Structure

$1, 150-000,00

Total Assets

$1, 500-000,00

Liabilities

Bank Loan

$1 500-000,00

Net Worth

The proposal analyzes the income statement for the 12 months period to enhance greater understanding of the viability of the new business venture.

Table 2: 12-Month Income Statement for Golden Golfer's Club ($U.S.)

January

February

March

April

May

June

July

August

September

October

November

December

Total

Revenue

Sales

72750

75850

78750

85790

87048

91260

94520

111456

125026

139200

151000

175350

1288000

Cost of Sales

37800

Gross Margin

70627

73488

76530

83170

84519

87990

91219

107956

121334

135505

146803

171059

1250200

Gross Margin %

97.08%

96.89%

97.18%

96.95%

97.09%

96.42%

96.51%

96.86%

97.05%

97.35%

97.22%

97.55%

97.07%

Expenses

Payroll

31833

31833

31833

31833

31833

31833

31833

31833

31833

31833

31833

31833

382000

Advertising

60000

Depreciation

Utilities

26000

Insurance

2000

2000

2000

2000

2000

2000

2000

2000

2000

2000

2000

2000

24000

Land Lease

84000

Payroll Taxes

57300

Bank loan Repayment

12241,6

12241,6

12241,6

12241,6

12241,6

12241,6

12241,6

12241,6

12241,6

12241,6

12241,6

12241,6

146899,2

Total Operating Expenses

65015,6

65015,6

65015,6

65015,6

66215,6

65015,6

65015,6

65015,6

65015,6

65015,6

66215,6

65015,6

635700

Net Profits

11515.00

18155.00

18304.00

22975.00

26204.00

42941.00

56319.00

70490.00

80588.00

106044.00

614500.00

Net Profit Margin

7,71%

11,17%

14,62%

21,16%

21,03%

22,18%

27,72%

38,53%

45,05%

50,64%

53,37%

60,48%

47,71%

Table 3: Golden Bear Lodge Ending Balance Sheet (For the day of 31/12/2013)

Golden Bear Lodge Ending Balance Sheet (For the day of 31/12/2013)

ASSETS

AMOUNT

Cash

$639,500.00

Lodge supplies and equipment

$120, 000,00

Bar supplies / Lounge, equipment, and furniture

$200, 000,00

Office supplies

$5, 000,00

Land and Structure

$1, 150-000,00

Total Assets

$2,114,500.00

Liabilities

Bank Loan

$1 353,101,00

Net Worth

$761,399.00

Scalability of Operations

Golden Bear Lodge is tolerant to scalability. Resort hotel development in the United States is very profitable due to the country economic improvement. Typically, resort hotel development is currently going stronger after 2008 and the sales of hotel and resort activities increased by 35% within the Bear Valley Resort area. Yearly, room occupancy is up to 100% during the peak skiing season. Golden Bear Lodge will employ aggressive sale strategy to achieve market advantages. The resort booking system of the Golden Bear Lodge will be the critical success for the company. The room rates will be between $150 and $250 per night during the peak season, and the charge for a room per night will be between $100 and $175 during the off-season. With aggressive marketing campaign that the company will implement, Golden Bear Lodge will be able to receive between 1000 and 1500 customers every week. The company will use both offline and online method of advertisement. The company will also design an attractive and colourful website where customer could book and make reservations online. Additionally, Golden Bear Lodge will highlight a promotional piece in the Ski Magazine. As the market opportunities increase, the company will expand its space and include other services. The strategy will assist the company to increase the market advantages.

Degree of Certainty Regarding Financial Estimates

Financial data collected for the estimate of the proposed venture are based on the meticulous primary and secondary research. The owner of the lodge will be able to raise the total amount of $1.5 Million through loan from SBA 7a loan to purchase land, building structure, office equipment, furniture and other essential materials that will be needed to start the business. There is a high probability that the business owner will secure the loan from SBA because SBA provides loan to business starter of up to $5 Million. Based on the analysis of the SBA loan terms, Golden Bear Lodge will be charged 2.75% interest rates for the loan. Thus, the business will need to repay $12,241.60 monthly payment for period of 12 years. The owner of the business will approach SBA to raise loan after reading the article presented by Mihajlov, (2012), which reveals that SBA is established to provide long-term loan for small businesses across the United States. Typically, SBA could guarantee 85% of the loans up to $150,000, 75% of the loans more than $150,000. However, the maximum loan amount of loan guarantee by SBA is $5 million, which lenders will be charged between 2% and 3.75% interest rates.

As being revealed in Table 1, the total fund that will be used to start the business will be $1.5 million, which will be the total assets of the new venture. The total assets are the combination of personal funds and loan raised from SBA (Small Business Administration). From the total loan raised from the SBA, the business will use $120,000 to purchase lodge supplies and equipment. Additionally, the total amount of $200,000 will be used to purchase bar supplies, lounge, equipment, and furniture. Moreover, $5,000 will be used to purchase the office supplies. Since land and structure is going to take up the largest percentage of the fund, the business owner conducted lot of research on the appropriate location for the business venture. After a month search in the internet, through magazines, newspapers and personal contact, Golden Bear Lodge is able to identify a land that is located at four blocks from Crest Lake Village in California. The location will be ideal place for the business because the Golden Bear Lodge is situated at the historic village and quaint of Bear Valley. Many lakes, national forest, and meadows also surround the location of the business venture. The location of the lodge will be ideal location for people looking for a cozy, relax, retreat-to-recreate unwinding environment. Based on the location of the land, Golden Bear Lodge will lease the land for $84,000 a year, which is $7,000 per month. Combined with the structure of the building, the total estimate for the lodge will be $1.15 Million.