Business Plan – Room Freshener with hygiene Meter
Executive Summary
This paper is a business plan for the development and sales of an innovative product Room Freshener with Hygiene Meter. This product’s main purpose is to read the hygiene of its surroundings and release sanitizing chemicals if the reading is blow the standard hygiene value. Along with room sanitization the other feature of this product is to work as a room freshener so that a complete five senses of hygiene can be achieved. The global and local companies of the air fresheners will be the major competitor of this product due to the similarity in the target customers. This product will compete with these companies to gain the market share. The target customers will be business enterprises and high end customers who have the concern for their surrounding hygiene. The Marketing mix of four Ps has also been discussed with its specific tools that will help the product to reach its target customers. The projected financial plan gave the indications that the product will have the potential to generate profits form the second month.
Table of Contents
1. Rome Freshener with Hygiene Meter 4
5.2 Operation and Service Management Issues. 14
7.2 Loan Amortization Schedule. 17
7.3 Additional Information. 18
7.5 Projected Income Statement 20
7.6 Projected Cash Flow Statement 20
7.7 Projected Annual Balance Sheet 22
8.2 Intellectual Property Issue. 24
1. Rome Freshener with Hygiene Meter
The world today is fighting today from the biggest pandemic of 21st century. Worldwide this pandemic has taken the toll of 645k deaths with 16.1M global people has been affected (AREAS, 2018). People are now very much concerned about their living and working condition as they are adopting hygiene as the important element in their daily activities. Room fresheners itself gives an feeling of hygienist upon their use (Oh, et al., 2019). Business establishments such as restaurants and cafes need to make their customers believe that their washrooms or working environment are sanitized and clean. Before this pandemic situation the smell of air fresheners of sweet and flowery was enough to convince people about the hygienist condition. However it won’t be enough for present global customers. In order to consider a place hygiene the factors such as amount of light, cleanness and smells are used which won’t be enough (Martínez, Galván, and Alam, 2017). These concerns of customers and business entrepreneurs have led to the formation of this business idea is to design a room freshener with a hygiene mete that will measure the hygiene of the room along with the devise releasing germs killing spray with fragrance.
1.1. Business Opportunity
The business of room air fresheners already had huge opportunity in the present 21st century due to shifting of customers to healthier products and living style. Additionally the 2020 pandemic of the novel corona virus has heightened this need of customers to live in healthier and hygienic environment (Siekelova, Kovalova, and Ciurlău, 2019). With growing global warming and pollution this requirement is hard to get due to which customers have shifted to devices such as air purifier or fresheners to achieve those needs (Roman, Bilan, and Ciumaș, 2018). Thus this device with the requirements of air purifier, fresheners and hygiene meter will have huge opportunity in the market as it will fulling the needs of the present customers.
1.2 Product Description
The product the room freshener with hygiene meter is simple in this production and design. This product has been designed in order to remove odors that are unpleasant along with measuring the hygiene of the vicinity and helps in killing harmful germs. This product will assure that the room where the device is installed is germ free and pleasant. The shape of this product will be designed to given a look of professionalism and trendy so that it can blend with the environment of the business establishments. Thus the product will have professional look along with hygiene factor to help keep its vicinity hygienic. This product will be supported with an app to help its users get reading even if they are not in room. With the assistance of the app its users can contact customer service or request for upgradation. Thus the product the Room freshener with hygiene meter is full package providing its product value and service to its users. In the market there are two type of air freshener where the first one is room sprays and fragrance diffusers. This product will belong to the category of fragrance diffusers as it will diffuse pleasant fragrance along with germ killing chemicals into the air making its pleasant and hygienic. It has been again observed further that there are two types of fragrance diffusers one known as the active diffuser and the other known as the passive diffuser. This product belongs to the category of Active diffusers as it will require an external source of energy to help the device to diffuse room fragrance at the same time reading the hygiene of its surrounding and diffuses the sanitizing chemicals when required. The another reason for using an external energy source is to keep the device connected with a mobile app giving all the information about the room temperature and hygiene in that app.
1.3 Value Creation
Value creation is one of the key elements that the customers look into at the time of purchasing a product. The product which has been taken into consideration has its own share of value creation in the current time period. The level of pollution has increased immensely in the current time period and it is due to this fact people are looking for hygiene related products with the help of which they can keep themselves safe. This product with the hygiene meter would detect the extent of germs and bacteria which is inside a room and accordingly would release the air freshener so that pollution and the germs within the rooms can be eliminated and people can inhale safely (Mencken, and Tolbert, 2016). It is very much helpful in offices and public places where there are chances of gathering so that any kind of unprecedented germs can be killed. With the rise in the recent pandemic where the virus is even spreading via air particulate, this product can create value because with the help of this product customers can feel safe and with the use of the product they can keep their environment healthy. The product extensive levels of value creation as customers are looking for products with the help of which they can have a safe and healthy life.
1.4 Proposed Business Model
The proposed business model comprises of the plan and the strategies that would be used with the help of which a structure can be created so that manufacture, packaging, branding, marketing and sale of the product is possible. It is estimated that the demand for the product will be high and it is due to this fact that a crisp structure is prepared. The product will be manufactured by making use of the raw materials required for the preparation of the room freshener from the suppliers. The hygiene meter will be designed another company which has an expertise in the development of various kinds of industrial meters. The meters would be purchased from this company and the raw materials required for the room freshener would be purchased from another and the entire thing will be assembled in our unit for the development of the final product. There will be a team of developers who are concerned with the packaging of the product in order to make the product safe as it is a delicate product and any kind of pressures and mishandling can break or destroy the product. The branding will be done by making the customers aware for the need of such a product in their daily life. The marketing of the product will be made very simple as marketing will be done via social media and online selling apps so that spontaneous response can be received.
1.5 Competitive Advantage
Competitive advantage is one such area which all companies look to attain with the help of their products. It is seen that room freshener with hygiene meter is a unique product and it is due to this feature which makes the product unique. At the current time period these are the products which are in high demand and the availability of such products in the marker will be sold like a hot cake (Xie, Huo, and Zou, 2019). The other feature of the product is the connection and the accessibility with an app which has been developed by our team of experts. Once the product is purchased the customers can link their room freshener with the help of the given QR codes with our app where all the data and the information will be recorded and the customers will have the facility of going through them at a later point of time. The app even provides the customers with the facility of connecting with our customer support executive so that they can receive assistance at any point of time. The product comes with a 12 month warranty and therefore the product can be replaced in case it is not working properly. These aspects create an extensive level of competitive edge for the product.
1.6 Business Model
The business model for the product will be designed on the basis of the proposed business model discussed earlier. It is seen that this product has extensive level of uniqueness and therefore the demand will be high. However, the price of the product would be placed in such a manner so that it will be convenient for purchases every income group level. It is due to this fact that raw materials are purchased from several suppliers and the hygiene meter will be purchased from a company that manufactures variety of meters. This will reduce the overhead cost and the all the items will be assembled to manufacture the end product. A proper packaging structure is maintained so that the products are properly packed as they are delicate items and any kind of mishandling can lead to breakage and leak of the product. A proper distribution channel is maintained with the help of which the products will be distributed in various markets and will be available for purchase easily for the customers. It is to be noted that branding is made properly since such products are innovative and have a demand in the market. The price of the product will be placed at a moderate level so that all the customers are able to purchase them easily. The availability of the app is made free for the users however, there will be certain additional benefits in the app which will be available only to the users who would be making subscriptions. The marketing would be made with the help of social media and online apps. However, in order to make the product easily available to the customers, a small quantity of product would be given out to the retail stores in order to study the market and accordingly plan for expansion. The business model will be an effective one since no huge framework and structure is prepared which can make the process complex. A proper logistics facility would be made with the help of which the products would be delivered to all the necessary markets and the vendors who would be selling the product.
2. Industry Analysis
The global industry of room freshener comprises of market value of around $11thousand million which is expected to rise in future due to growing demand. This product is similar to air freshener with added advantage of sanitization. Thus the industry will be fresheners and sanitizers (Musienko, 2017). The rise in demand for fresheners will create the market acceptance for this product. Again the present requirement of customers to have sanitized working and living environment will add as an added benefit of the product which will led into worldwide acceptance (Busch, Bauer, and Orlitzky, 2016). This product will have the advantage of providing indoor freshness along with sanitization. This type of product is new in the market as till now no sir freshener or any other company has invented a product that will periodically sanitize the indoor environment.
2.1 Competitor Analysis
The major global players of air fresheners are Protector & Gamble, Church & Dwight Co. Inc., Reckitt Benckiser Group Plc., Godrej Household Products Lid., Car Freshener Corporation, ACS Giftware Industrial Ltd., Air Delight Inc., California Scents, and Ada Electrotech (Xiamen) Co. Ltd.. Thus these companies will be the global competitors of this product along with local air fresheners which will compete with this product in local market (Kliestik et al., 2018). However the product will not have any main competitor due to its new invention which no other company provides. This product of air freshener with hygiene meter is new to the market with one of the kind market importance. On the other hand since the customers of this product will be similar to air fresheners these freshener companies will compete for their market share. Products such as normal room fresheners and diffusers weather a global company or local company has their own customer base with the help of which they are growing in their business (Gomez et al., 2018). The current pandemic has decreased the market of these products as people are looking for sanitized products not pleasant ones. Thus this change in customer demand will help our product to gain market share and compete with global players.
2.2 Competitor Actions
As discussed above the product room freshener with hygiene meter will have competitors at global as well as local level. This due to the fact that this product is new to its kind with an innovation that is in demand in the present market scenario (Sharmin, 2018). This innovation will create a market disruption which will attract the competitors to have an interest in the new technology and try to copy it. Thus it is essential that the product need to create a patent so that its competitors cannot copy the technology. The competitors will try to create disruption in this product launch and its gain in market share by doing positive or unethical competition. However this product has no brand name attached with it which will act as an advantage for the competitors and they can compete with respect to this. Additionally the supply and distribution can also face problems due to positive competition form the competitor’s side (Furner et al., 2016). Competitors can take various actions such as increasing their own promotions, disrupting the supply chain, creating their own innovations and others.
3. Market Analysis
The market of air fresheners have seen a stable growth in the last few years as the market demand for pleasant room has been increasing. People have become more health concisions and want to live in place which has the ability to fulfill their basic hygiene requirement. The present pandemic is the result of unhygienic conditions and social contacts due to which the virus has spread like a wild fire. This part of the paper will concentrate on the analysis of the market that the product the air freshener with hygiene meter. Thus in order to analyze the market it is important to understand the target customers of this product, the size of the market where it will be launched, its initial sales for first few years. All these aspect will help in the development of the products market which will set a basis for its future growth.
3.1 Target Market
The product room fresheners and hygiene meter at its initial stage will concentrate on targeting the small business enterprises who are concerned about their customers and employees safety. This will be act as a testing of the product in the environment which will help in understanding customer’s demands and any issues with the product. Thus a test run in these small business enterprises will help in further development of the product. The main target customers for this product are the big business enterprises such as offices, restaurants, airports, and others (Dianasari, and Saputra, 2017). Traditionally room fresheners are commonly found in washroom which helps in removing unpleasant order. However this products placement wont only be restricted to washrooms as its use will find its application in all corners such as higher management office room, reception area, employees work place, operational rooms any others. The main target is business owners due to the reason that the pandemic has caused most of the business to change their operational area to the workers home which is impacting business activities and its costings. Thus due to these reasons the business enterprises will be eager to accept this product to increase confidence in their working about their working conditions (Dananjaya, 2018). As this product has a hygiene meter which is visible to all and will act as a confidence booster. In the present unstable economy most of the companies are not investing in those sectors that are not essential. This product will also be considered as an essential investment for the business organizations as it will help in gaining the confidence of their employees. Additional this product will keep the most important resource of the company their human reason safe and secure and will give them safe working environment. The target will also on common citizens who are willing to invest for their hygienic home. Room fresheners have been in demand with common citizen for keeping their rooms pleasant and in some place their also used in washrooms of people homes. Thus this product will also target the people who are inclined towards using room fresheners. As this product complies with the present demand of hygienic environment will attract these customers (Okon, 2018). Thus before the launch it is essential to have a full study of the needs and demands of these target customer which will help in determining the strategy to reach them. This forms the need of a survey which will be made in two different ways one for the business organizations and other for residential customers.
3.2 Market Size
At the initial stages the size of the market for this product will be local as it will be easy to reach these customers. The size of market will grow with the sales of the product which will capture the national and then the global platforms (Petrashko, and Martyniuk, 2019). However on the business enterprise side the product at the initial will also try to gather the market of global business which will help in increasing the brand name of the product and the company producing it. Thus the size of the market for this product in the initial stages will be small which will grow will the growth of the product sales and the company.
3.3 Predicted Sales
The product room freshener with hygiene meter is one of a kind in the market due to which its sales is expected to be nearly 40% of the production cost. However the economy of the company and the country is not good to the lockdown situation done to prevent the spread the novel corona virus or COVID- 19. This fall in the economy has reduced the buying power of the citizens and companies and they are only investing in required investments and staying away from the investments that are not required. This might create a back drop in the sales of this product which might cause it go below 30 % of the total cost of the production. Again after having a complete understanding of the present perceptions of the customers and their buying behaviour led to the formation of understanding that customers are spending huge amount in hygienic products which help them to sanitize their homes or surroundings. Thus on the basis of all these current market tend and customer’s behaviour it is predicted that the sales of this product will be close to 35 % to 55 % of the total production cost. It is also predicted that the sales can go up based on the market acceptance but will not go below 35% due to the market need.
3.4 Key Assumptions
Certain important assumptions have been developed in this paper for the sales and development of the room freshener with hygiene meter. Among these assumptions the most important assumption that led to the innovation of this product is the need of the present market and customer perception towards the sanitized surroundings. This assumption is backed up with the help of the market research which has been done for the development of this product. The research indicated that the market has hype for sanitizing products and also for products that will deliver freshness along with sanitizing features. Thus all the assumptions that have been made for the business plan of this product have been back up with research and surveys. Thus the product will have market penetration and customer acceptance. Other assumptions in the development and sales of this product are its competitors, its business reach, and availability of the required parts from the sellers, its technological feasibility and operational workers in the present pandemic conditions. All these assumptions have been taken into proper consideration and done market research in order to find its viability.
4. Marketing Strategy
This part will help in the formation of the complete game plane for the product room freshener with hygiene meter so that it can reach its prospective customers or target customers and can make them the customers of the product (Lipton, 2017). The products marketing strategy will contain the product value creation which has been discussed above, important branding message, data on the demographics on the target customers and pricing strategy (Išoraitė, 2016). The main purpose of marketing is to increase the sales of the product so that it can reach all the target customers and is available for their use. The key aim of this marketing is to understand the target customer’s perception and present the product so that it is easily accepted and accessible to them. The marketing strategy will have its fundamental roots in the value the product created which will be the complete summarization of the competitive advantage this product gives (Drewery, et al., 2019). The competitive advantage of this product is its hygiene meter with sanitizing features.
4.1 Marketing Mix
The marketing strategy mainly comprises of 4 Ps of marketing which is also known as the marketing mix and helps in achieving the products objective along with providing value to its customers. The four Ps in the marketing mix are Product, Price, Place and Promotion which helps in influencing the demand for the product (Bhargav, 2017).
4.1.1 Product
This P of marketing mix deals with the description of the product and the value that it creates for its customers. The tools that this P of marketing mix uses to create value are the variety in the product, its quality, design, brand name, features, services and packaging (Abril, and Rodriguez-Cánovas, 2016). Thus as already discussed above the product will have two different variety one that will be useful for industrial use or business enterprises and the other for the use of commercial and residential places. The quality of the product will also match the expectations of the customers so that they can have the freedom of hygiene surroundings. The design of the product is done on the basis of its variety use i.e. for industrial area use it size matters not the shape or the looks while for the commercial and the residential use the looks, shape and compact size of the products matters (Thabit, and Raewf, 2018). As this is a new innovation this product will have to develop its own brand name but its will try to receive certificated from known and trusted quality management companies giving assurance to its customers about its feasibility and quality. The tool of service will be delivered with the help of the app that will help the customers to contact with the company in just few clicks.
4.1.2 Price
This P is the most essential part of the marketing mix as it helps in generating profits for the company. Thus price deals with the complete amount of money that is paid by the customers. The various tools used by this P are listing price which is printed on the packaging, discounts allowed on the product, allowance given to the distributors and the retailers, payment period given to the distributors, retailers and customers within which they have to make the full payment and credit terms so that the payment will be will done after certain period (Stead, and Hastings, 2018). All these tools will be used for this product as this will help in reaching to the customers. Distributors and retailers are the most important chain who once convinced about the product will act as the external sales personal of the company.
4.1.3 Place
This P is related to the various activities that will make sure that the product is accessible by its customers. The various tools involved in the Place of marketing mix are number of channels that are between the end consumers and the manufactures, total coverage of the channels, location of the distributors and the other intermediators, number of inventory and its locations the company has so that the supply is controlled with respect to the demand and transportations and the logistics (Festa, et al., 2016). Thus all these tools will help in wide and deep accessibility of the product to its end customers.
4.1.4 Promotion
This P of marketing mix will deal with the communication strategies that the company will use in order to describe the product benefits and features to the customers and persuade them to buy the product. The main tools used in the promotional activities are advertising which will be done with the help of media channels, personal selling will be achieve with the help of sales personal, sales promotions like launch party or sponsorships and public relations. Advertising of the product will be done with the help of social media platforms, TVs, radios, magazines and other types of media (Pomering, 2017). Along with these tools in order to promote the product to high end customers the strategy of direct marketing will be done so that they are aware of this product. Customers are an important part of any business as acts as an essential asset for the company. Thus communication will them is essential for the growth of this product with full satisfactory service and customer issues.
5. Operational Plan
This part of the paper will provide with a detailed description about the team, department or the sections that will help the company to achieve its goals. It plan will give a complete description of the daily activities that will be performed within the company related to the production of the room freshener with hygiene meter (Towbin et al., 2018). Thus in order to complete the product various strategies that have been considered are the use of require materials, machines, number of individuals and others. The hygiene meter will be obtained by other company which will be configured with respect to the requirements. The design of the product with the technology that will contain the sanitizer chemical and sir freshener chemical in one single container with two different chambers will be done in the factor itself. The sanitizing chemicals release will also be connected with the hygiene meter so that in case of any hygiene reach the chemical will be released irrespective of their periodical release. The development of the app will be done by renowned worldwide app developed company so that any issue with the app service will be solved by their end.
5.1 Production Plan
This plan made sure that the product is produced as per the requirement along with maintaining the complete hygiene in its industrial and working areas. The company will deal with the production of the container that will contain the chemicals and its design. The hygiene meter will be synchronized with the product in the factory and will also include in the production plan.
5.2 Operation and Service Management Issues
The issues that are related to the operation and service management can led into the excess business costing and decrease profitability. The various issues that are related to operation and service are management of overheads, performance monitoring, importance to the feedbacks, cyber risks, excess or unnecessary flow of cash, training and development of workers, customer retentions and others (Shah, and Khanzode, 2017).
6. Costing
One of the key elements for the introduction and manufacture of a new product in the market has been the costs and the expenses associated with the development of the product. Cost and expenses are levied for the development of a product due to the various elements which are to be purchased and the raw materials that are requited with the help of which the final product is created. There are several kinds of costs that needs to be taken into account that is the fixed and the variable costs. The fixed costs are associated with the expenses that are fixed and the same amount of money has to be paid on a monthly or a yearly basis. The variable costs are the expenses in which the amount varies on a monthly or yearly basis. The product which is to be manufactured is room freshener with hygiene meter and therefore there are several fixed and variable costs associated with it. It is seen that these costs need to be calculated on the basis of every unit of quantity which is purchased for the product manufacture. The machines and the assets that are required for purchase come within the fixed costs as they are one time investments that are made with the help of which the product manufacture can be initiated. The costs are calculated at the time of preparing the startup costs where all the related costs and expenses are shown and the amount of money that would be required is even revealed. The cost analysis would be undertaken with the help of the general accounting rules and theories where each of the costs would be laid down. There are few assumptions which are made during the preparation of the startup plan. It is estimated that the costs would remain the same and there will not be any kind of additional costs that the company would have to bear during the time period. The costs which have been determined is estimated that there will not be any rise in expenses at the time of the operational activities of the business. A proper record structure will be maintained where all the daily and monthly transactions would be shown with so that records can be maintained and one can show the find errors if any with ease. Audit needs to be initiated after a specific time period so that proper check and control can be maintained and the performance of the financial assets can be supervised. The process of auditing will eliminate any kind of malpractices that may arise and thereby proper financial records can be maintained. Reference for the transactions will be kept in the financial data records so that a proper audit trail can be maintained for future reference. The analysis and the recording of the costs and the expenses of the company would determine the actual income that the company would attain from the product with the help of which the actual profit of the business can be gained.
7. Financial Plan
The development of a financial plan is essential at the initiation of a business plan. The development of the financial plan lays out a structure that needs to be followed by the company for the purpose of understanding the preliminary expenses that would take place and once the company starts to work the probable expenses that the company needs to bear can be known. There are several layers within the development of a financial plan which needs to be considered by the companies and the each of the ledgers and accounts along with the reference and the postings need to be made so that proper financial plan for the business structure can be maintained. At the beginning of the financial plan it is essential to prepare the startup costs so that one can have an idea about the costs that would be made for starting the business. It is essential to understand the source of capital which is needed for the business to start. Capital can be generated from internal sources or can be taken from external sources like from banks and other financial institutions. The amount of loan which is needed to be taken and the amortization of the loan needs to be created so that the loan can be paid off within time. It is vital to prepare the sales forecast of the product so that an idea can be gathered with respect to the process and income the company would be able to generate which would be used in order to pay off the loan and the costs and the additional can be shown as a profit. A cash flow statement would be prepared with the help of which the cash inflow and the outflow can be recorded and the cash activities in various activities can be registered. In this manner any kind of miscellaneous expenses can be discovered and accordingly plans and strategies can be made in order to mitigate the issue. The payback and the exit strategy needs to be prepared so that bankruptcy can be averted and the business can function smoothly in the market. The break even analysis will be prepared in order to understand the break-even point which the company needs to attain or surpass in order to attain profit for the future. The income statement needs to be prepared so that the profit and the losses from the business activities can be found and recorded. The net profit or loss for the business can be ascertained and thereby the future prospect of the business and the product can be understood. The balance sheet will be prepared as well so that an idea can be gathered with respect to the assets of the business and the liabilities of the business and the balance that needs to be maintained among them can be known for proper business activities. The development of the financial plan creates an idea about the future projections that can be made so that the future can prosper in the long run. Each of the financial plan activities have been shown below:
7.1 Start-up Costs
| BUSINESS START-UP COST: | ||
| Amount | Amount | |
| Fixed Assets: | ||
| Plant & Machinery | $2,500,000 | |
| Furniture & Fittings | $500,000 | |
| Office Equipment | $250,000 | |
| Patent & Trademark | $350,000 | |
| TOTAL FIXED ASSETS | $3,600,000 | |
| Working Capital: | ||
| Direct Labor Cost | $131,250 | |
| Office Staff Costs | $107,500 | |
| Other Manufacturing Overhead | $65,625 | |
| Power & Fuel | $109,375 | |
| Other Operating Cost | $126,875 | |
| Marketing Expenses | $50,000 | |
| TOTAL WORKING CAPITAL | $590,625 | |
| Preliminary Expenditures: | ||
| Business Registration | $45,000 | |
| Market Research | $35,000 | |
| Legal Costs | $12,500 | |
| Website Designing | $25,000 | |
| TOTAL PRELIMINARY EXPENDITURE | $117,500 | |
| TOTAL START-UP COSTS | $4,308,125 |
The above table depicts the start-up costs associated with the initiation of the business. The fixed assets that the business needs to purchase or make use of are the plants and machineries, furniture and fittings, office equipment and trademark and patents for the product as it is a new product. The total amount that would be used for the fixed assets is $3,600,000. The other aspect where money would be required is the proper functioning of the working capital. The expenses that would be made is the cost for direct labor, office employee costs, manufacturing overhead, marketing expenses, power and fuel and other operating expenses. These are the primary and the minimum expenses that the company would have to bear in order to proceed with the manufacture of the new business plan and product. The amount that is associated as cost in the working capital is $590,625. There are certain preliminary expenses that the company would have to make like the registration of the new business, research that would be made in order to study the market, legal expenses, and website designing etc so that the company can smoothly operate in the market. The preliminary expenses that the company would have to bear comes to $117,500. It is therefore seen that the total cost in order to initiate the start-up of the business is coming to $4,308,125 and hence the company would have to generate funds of the same amount needs in order to proceed with the business plan.
| Capital Investment: | ||
| Capital from Owner | $1,938,656 | |
| Bank Loan | $2,369,469 | |
| TOTAL CAPITAL INVESTMENT | $4,308,125 |
The analysis of the above table reveals the fact that the amount that would be invested from the owner of the business comes to $1,938,656 and the rest of the amount coming to $2,369,469 would be taken from the bank as a loan. The amount that would be taken from the bank needs to be paid off and therefore loan amortization schedule needs to be prepared for the business.
7.2 Loan Amortization Schedule
| LOAN AMMORTIZATION SCHEDULE: | |||||
| Month | Opening Loan Value | Interest | Principal Payment | Monthly Payment | Closing Value |
| 1 | $2,369,469 | $16,784 | $31,830 | $48,613 | $2,337,639 |
| 2 | $2,337,639 | $16,558 | $32,055 | $48,613 | $2,305,584 |
| 3 | $2,305,584 | $16,331 | $32,282 | $48,613 | $2,273,302 |
| 4 | $2,273,302 | $16,103 | $32,511 | $48,613 | $2,240,791 |
| 5 | $2,240,791 | $15,872 | $32,741 | $48,613 | $2,208,050 |
| 6 | $2,208,050 | $15,640 | $32,973 | $48,613 | $2,175,077 |
| 7 | $2,175,077 | $15,407 | $33,206 | $48,613 | $2,141,871 |
| 8 | $2,141,871 | $15,172 | $33,442 | $48,613 | $2,108,429 |
| 9 | $2,108,429 | $14,935 | $33,679 | $48,613 | $2,074,751 |
| 10 | $2,074,751 | $14,696 | $33,917 | $48,613 | $2,040,834 |
| 11 | $2,040,834 | $14,456 | $34,157 | $48,613 | $2,006,676 |
| 12 | $2,006,676 | $14,214 | $34,399 | $48,613 | $1,972,277 |
The above table reveals the loan amortization schedule for the amount taken as capital for the business. The percentage of capital that is taken as a loan from the bank comprises of 55% and the loan period is 5 years. The interest for the loan is 8.50% per annum. It is seen that a monthly payment of $48,613 would be made each month and proper payment of the loan amount on a monthly basis would pay off the loan within the span of 5 years.
7.3 Additional Information
| Additional Information: | |
| % of Revenue: | |
| Direct Raw Materials | 25% |
| Direct Labor Cost | 15% |
| Power & Fuel | 12.5% |
| Other Manufacturing Overhead | 7.5% |
| Other Operating Cost | 14.5% |
| Depreciation & Amortization Rate: | |
| Plant & Machinery | 10% |
| Furniture & Fittings | 15% |
| Office Equipment | 17.5% |
| Patent & Trademark | 25% |
| Initial Equity Investment | 45% |
| Bank Loan | 55% |
| Loan Period (in years) | 5 |
| Interest on Loan p.a. | 8.50% |
| Collection from Debtors in 1st month | 75% |
| Collection from Debtors in 2nd month | 25% |
| Credit period for Suppliers | 60 days |
| Payment to Staffs | 30 days |
There are certain assumptions which have been made so that the calculations can be made properly. It is seen that raw materials would use 25% of the revenue and labor cost would comprise of 15%. The power and fuel for the business would consist of 12.5% and the other operating costs would be 14.5%. The other manufacturing overhead would gain 7.5%.
The depreciation of plants and machines would be made at 10% straight line and for furniture and fittings would be 15%. Office equipment would be depreciated at 17.5% and patent and trademarks at 25%. The collection that would be made from the debtors would be 75% of the actual amount in the first month and the rest of 25% would be made in the second month. The credit period of the suppliers is for 60 days and the employees would be paid after a period of 30 days.
7.4 Sales Forecast
The sales forecast has been made for a period of 12 months in order to have an idea about the selling price per unit for each month and the estimated sales volume of the product in the coming 12 months. It has been estimated that the expected sales volume would increase each month starting from the first month of sale of the product. The table below would explain the sales per unit and the expected sale volume of the product.
The table reveals that the sales per unit of the product would remain constant for the entire 12 months and the selling unit of the product is $500. It is seen that the expected sales in the first month will be 1750 and the monthly sales revenue will be $875,000. It has been observed that there would be a rise in the sales volume of the product as it is seen that in each of the months the amount volume is rising steadily even though the selling price of per unit product is the same. At the end of the 12 month period, it is seen that the sales volume is expected to be at 2993 and the monthly sales for the last month is $1,496,547. It is estimated that within one year the product would gain a sales revenue of $13,927,486. It is therefore seen that the product would be very profitable owing to the demand in the market and the recent pandemic situation.
7.5 Projected Income Statement
The above table reveals the projected income statement for room freshener with hygiene meter product. The table explains that the net profit for the first month of the product will be negative owing to high initial expenses and the expense that is generated from the interest that needs to be paid for the loan taken from the bank. It is therefore seen that the company in the first month has a net loss of $1680. However, from the next month forward it is seen that the company starts earning profit slowly and steadily simply due to the rise in revenue with comparison to the rise in the total expenses. The table reveals that the expected sales revenue is increasing every month and in comparison to the total expenses but the amount of net profit for the period is becoming higher as the interest expense is getting lowered with the passing of every month. It is therefore seen that as per the projected income statement of the product, the company would be able to increase their net profit even after paying off all the liabilities and expenses. It is estimated that the firm would be able to generate total net profit at the end of the first year to be $259,197. The projection depicts that the product would be profitable for the company as within one year of its production and sales the product will increase its revenue due to demand in the market and thereby would be able to capture the market with a loyal customer base.
7.6 Projected Cash Flow Statement
The projected cash flow statement is an essential financial record that needs to be prepared with the help of which the cash transactions and activities that are taking place at all the level of business activities can be understood and an idea can be projected as to the area of the operational activities where the cash outflow and inflow are the highest.
The above table reveals the project cash flow statement of the product taken into consideration for the business plan. The cash flow statement has been prepared for a period of twelve months in order to understand the projection and the development of the product in the market. The cash flow from the operating activities involves collecting cash from the debtors and payment for the expenses that take place within the operational activities. The maximum amount that is spent in the first is over the insurance costs in order to cover the business for any kind of damages or losses and the registration of the business, initial research of the market and the legal expenses along with the website designing of the product. The net cash flow from the operating activities has been $68,594. The net cash flow from the investing activities in the first month is the highest as several expenses for the purchase of the fixed assets are made which is a one-time investment for the company. It is seen that the next cash flow from the investing activities is negative as amount of cash outflow is higher with regards to the inflow of cash. The cash flow from the financing activities in the first month has been high since the initial capital investment from the bank and the contribution of the owner is taken into consideration. It is seen that net cash flow from the financing activities is high and the net increase in the cash in the first month has been $703,105 which is considered to be the closing cash balance of the company. From the next month onwards the cash outflow of the company reduces as the cash outflow from the investing activities are nil and the one-time payment made in certain operating activities are eliminated. It is seen that the net cash flow from the operating activities have been positive for the next 11 months even though the amount has varied from month to month depending upon the changes in the variable costs. However, it is seen that the net cash flow from the financial activities have remain fixed as the amount withdrawn by the owner every month has been fixed and amount paid for the payment of interest and the loan repayment has been fixed when considered together. The next cash flow from the financing activities have been negative from the second month and the company has observed an increase in the next cash for each of the months even though the amount has varied. The net cash increase for the company at the end of the 12 month period has been $1,351,433 which is considered to be the closing balance of the firm. The projected cash flow statement reveals that the product has been generating cash from its activities and therefore the product is demanding ib the market.
7.7 Projected Annual Balance Sheet
The projected balance sheet explains the total assets and the liabilities of the business and the net assets that is available for the business by deducting the total assets by the total liabilities. It is seen that total asset of the business is $4,986,820 and the total liabilities of the business is $3,088,966. The difference which is generated from the assets and the liabilities depicts the net assets of the business and this amount gets balanced when the total capital generated from the business is shown in the balance sheet. This explains that the company has the ability to pay off their debts and liabilities since their total assets are more than their liabilities. The company has the ability to pay back for the finances they have taken externally with the help of the profit they would be generating from the business activities and in case of an exit strategy the business can sell off their assets available to them so that all their debts can be paid off and the company stop its production without any available credit in the market.
7.8 Break-Even Analysis
The projected break-even analysis of the product and the business explains that the business has to generate $1,056,050 sales revenue every month in order to stay at a position where neither profit nor loss for the business would be gained. The attainment of such a revenue would replicate that the company would be able to survive in the market and would be able to operate their business smoothly. However, the aim of the business is to ensure that they surpass the break-even point in order to earn profit so that they can expand their business and improve their business production.
8. Critical Risk Factors
8.1 Legal Issues
There are certain legal issues that the business may have to face the registration of the business with the government and obtaining a tax id and a trade license so that the company would have the power to undertake sales in the market. It is essential to gather all the business permits and licenses and take NOC certificate from the department of health and ministry in order to ensure that the product which would be sold is safe and even take permission from the environment department in order to comply with the fact that the product is environment friendly (Rosati, and Conti, 2016). The legal costs need to be paid all the relevant permits need to be gathered and health and safety measures need to be maintained within the production unit of the business so that safety of the employees can be attained. Violation of any of these permits may create legal issues for the business.
8.2 Intellectual Property Issue
In order to avoid the intellectual property issues for the business the company needs to make patents, trademarks and copyright of their products in order to ensure that no other companies can copy or claim the innovation of the product. This would ensure the safety of the product and make the product unique in the market (Türko, 2016). This would reduce the extent of competition and use of the product by any other company would require permission from the business owner.
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