Financial viability analysis of Golden Bear Lodge resort

¶ … 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

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.

The company will need to hire 6 permanent staff and four temporary staff and the payrolls for all the staff will approximately $382,000 per year. Moreover, Golden Bear Lodge will need to promote its business to enhance competitive market advantages. The costs of online and offline marketing campaign will be $60,000 yearly. The utilities will be $26,000 while the insurance will costs $24,000 yearly. The total expenses will be $1.47 Million per annum.

Sensitivity Analysis

After analyzing the viability of the business, the paper believes that the company will need to receive up to 65% of the forecasted sales to generate profitability. If the forecasted sales are below 50%, the company profit margin will suffer. It is critical to properly estimate the figure for the business plan and if the figure is not properly estimated, this may jeopardize the success of the business. The wages issue could also affect the company's profitability, for example, if there is a need to increase the number of worker, this may decline the profits. The most important issue is total sales that need to be correct and if the total sales are below the forecasted sales, this may affect the business performances.

Does it worth it?

Analysis of projected income statements of the business reveals that the business venture will be profitable within the 12-month of its operations. As being revealed in Table 2 in the projected income statement, the business will start to make profits from the first month of its operation and the profits will increase as business proceeds. Typically, the increase in the total monthly sales will make business to repay its loans monthly. Thus, the business is a profitable venture because the net worth will increase at the end of the year despite the high start-up costs.

Conclusion/Decision

After conducting viability analysis of the business venture, this paper concludes that the business will be a profitable business worth pursuing. The net worth of the company at the end of the year will be $761,399, which is half of the amount raised from the bank. More importantly, the net profits are impressive after deducting all the expenses that the company will incur for the operations. The net profit margin will be 47.7% after 12-month of operations. Based on the analysis of this business, the researcher decides to implement this business venture. After from being a very profitable business venture, implementation of this business will make researcher to become an entrepreneur, which he has been dreaming for a long time.