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TOP10602 Unit 42 Business Planning for Growth - Airdri

University: REGENT COLLEGE LONDON

  • Unit No: 42
  • Level: High school
  • Pages: 20 / Words 5088
  • Paper Type: Assignment
  • Course Code: TOP10602
  • Downloads: 21
Question :

This assessment will cover following questions:

  • Evaluate the factors which must be consider by SMEs when they are evaluating growth opportunities.
  • Analyse the different methods by which Pretty Nails Company can access the funds and when to use the various types of funding.
  • Create a business plan and communicate how you intend scaling up with the business.
  • Assess the various ways a small business owner can exit business and the implications of each option.
Answer :

INTRODUCTION

Planning brings changes in the business and it looks so important for the business plan. Planning helps in the connote of growing a business. It focuses on the business goals and detailed information about the organisation. Planning refers to the development of strategies, assessment of goals and assumptions of uncertainties (Wynn, 2017). It is an intellectual process which describes the objectives and build various course of action. Small and medium enterprises are those companies who have fewer employees and share less market. Small businesses is a concept of sole trade, start-ups etc. Purpose of these business is to survive in the market with their strategies and initiatives. Generally, those organisations are considered as a small business who have 500 or less than 500  employees according to Small Business Administration (SBA). Airdri is one of the 100 successful businesses in Thames valley which deals in hand dryers and elevator door detection and situated in Witney, UK. This project report consist various topics such as Porter's generic strategic model, PESTLE analysis, Ansoff's growth vector matrix and sources of funding etc. Business plan for growth which includes detailed information and strategic objectives for business and options for succession or exit for small businesses with benefits and drawbacks.

TASK 1

P1. Analysis of key considerations for evaluating business growth opportunities and justification of these considerations

Generally, companies use strategic plans for growth and these are in the form of written document which is used to communicate goals with employees (Kumar, 2016). To gain the competitive advantage Airdri can consider various strategic models. This model determines the profitability of company in the sustainable environment. To analyse the competitive advantages company can use Porter's Generic Strategic Model.

Porter's Generic Model: This model is related to the business activities and describe that they are narrow or broad. Competitive advantages are owned by business over competitors by offering benefits and services at lower prices to customers (Kouba, 2017). When company applies these strategies in product development then this result in three generic strategies:

Cost Leadership: This strategy involves that being a leader in business environment by cost fluctuation by which firm will become lowest producer (Denton, Forsyth and MacLennan, 2017). In this company target broad market and offer lowest price. Company keeps cost low as much as possible and make sure that they will acquire large market within the average prices. Airdri adopt this strategy by cutting down its production cost. In this company has two options, either they can set high prices to earn profit or low prices to acquire market. There are various ways by which company can adopt this strategy such as optimum outsourcing of goods, produce innovative products at low cost etc.

 Differentiation Strategy: It allows firm to be different and unique by creating attractive and different products in comparison to its competitors (Sarin, 2019). To get success using this strategy requires good creativity, by doing research of market segments and ability to deliver high quality products. Uniqueness allows firm to change its premium price for their ideas, innovation and company can develop its customer base as customers does not shift to substitute products easily. The risk associated with this strategy is that business environment is dynamic so taste and preferences of customers changes frequently. Therefore, company need to control its actions in production process.  

Focus Strategy: This strategy falls in narrow segment and has two variants cost focus and differentiation focus. Company who uses this strategy enjoys huge customer loyalty and this can discourage their competitors. This strategy focuses on dividing the market into different sections (Pallagst, 2017). Airdri should decide that which focus strategy they will follow to gain competitive advantage for growth. If company adopts focus strategy then they have high customer base and loyalty. Company will get success as they build broad range of product development strength in narrow segment. There is a risk in focus strategy that the company is competing with better companies who is providing good quality products and services in targeted segment. 

PESTLE Analysis: This model is used to identify the external forces present in the business environment (Levy, 2016). This analysis is done in the context of research of market, any organisation who want to enter into a new market or start a business need to do this analysis to get success and to know about external environment. PESTLE analysis should be repeated in regular stages to recognise changes in external environment. Airdri uses this model to analyse external factors before entering into new market and helps to evaluate and monitor the different areas. Factors of PESTLE analysis are:

 Political: This factor determines the government policy which impact the economy of country. Different policies such as taxation policy, monetary policy, trade policies, political stability etc. impact company and its policies. If new policy introduces in the business and government is not stable then company's revenues may get affect. 

Economical: This factor affects the economical state and performance of the company which impacts organisation and its profitability. Analysis of this factor before expansion of business gives company advantage over competitors. Economic condition of UK is very strong so Airdri does not have threat in expansion and will not affect buying power of customers.

Social: Company need to analyse the social factors before expanding its business into new market, identify rising trends, culture, trend, values etc. This can be done by conducting research and development activity. Airdri need to determine demand of products and buying trends of the segment. Before expanding business into new market company need to develop various strategies to get success. 

Technological: This factor concerned with the technological aspects such as innovation and development, R&D activities, awareness of technology etc. which impact business and its operations (Daniels and Lapping, 2016). Airdri need to determine the technological aspects before entering into new market and launch its products according to according to the innovative technology.

Legal: In this factor, company need to understand what is legally allowed in their operating territory. It is concerned with the laws which company should know and follow before entering into a market. Government of UK has formed various laws which should be followed by Airdri and company need to make sure that they formulates under these laws.

Environmental: This factor is concerned with the surrounding environment, ecological aspects, and various environment protection acts that can impact business. Airdri is concerned with the environmental protection act and will create positive image in the eyes of government and customers which creates opportunity for company to grow.

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P2. Evaluate the opportunities for growth applying Ansoff's growth vector matrix

This model helps the company to identify the suitable market for companies to launch its products (Colantoni and et. al., 2016). It is implemented by various companies to evaluate different market segments to launch their products. This matrix includes four strategies which is adopted by Airdri to introduce its products in the market. Various strategies are discussed

Market Penetration: This Strategy describes sale of existing products and services into existing market. Market Penetration creates opportunities to generate profits by acquiring more customers in the existing market segment (Ansoff Matrix, 2019). This strategy has its saturation point and after that new strategies must be adopted in order to get success or grow in the market. So, Airdri need to gain growth strategies to improve its market share by focusing on quality of its products.
(Source: Ansoff Matrix, 2018)

Market Development: In this strategy, existing product launches into the new market. It includes the happiness of acquiring new market or geographical areas (Lambert and Oatley,  2017). When a company is willing to target various customers in different market segments this strategy will help to attract them. This strategy conducts SWOT and PESTLE analysis to determine opportunities and threats of different market. Airdri need to target that area in which it is not currently operating for growth.

Product Development: By this strategy, sale of new products are done in existing market. This strategy helps company to grow faster because organisation already have knowledge of customers taste and requirements (Arzaghi and et. al., 2017). This can save the cost of research and promotion if company has good image in the market. Airdri have good reputation in the market and has loyal customer base which help company to launch new product in the market.

Diversification: This strategy is very risky from the four strategies as in this product as well as market both are new which means launching of new product into new market segment (Siedentop, Fina and Krehl, 2016). It is costly as it involves market research and examining the current buying power of customers before launching a product into market. If the product can attract the customers it will help in growth of company. Airdri can adopt this strategy because after doing research and PESTLE analysis company need to introduce new product to attain new market segment and expand its business.

Brief Analysis: From the above discussed strategies, market development strategy is adopted by Airdri because by this company can introduce its existing products into new markets and can occupy new segment. Ansoff's models helps in determining the best strategy company could adopt. The complete analysis involves PESTLE analysis, Porter's generic strategies model and Ansoff's matrix helps the company to determine and understand the customers needs and use of promotional tools to gain competitive advantage over market. But there is risk is associated with every market strategy as it requires huge capital investment to launch its product into new market segment. To minimise risk, company need to do market research which includes customers taste and preferences. Business environment is dynamic in nature and customers preferences will change according to trends so company need to do continuous research to get success in the market and these researches will provide organisation to launch its product into new market segment.

TASK 2

P3. Sources of funding of businesses with its advantages and disadvantages

Fund is a monetary term which provide financial resources to the company when it executes its project or program. Fund is used when company uses internal reserves when the need of capital arises (Sources of Finance, 2019). Financing is used when company owns capital from external sources such as credit, donations, taxes etc. and these are the sources of funding. Airdri requires £150000 to expand its business and this amount can be collected from various sources of funds. There are some sources of funds which are:

Internal Sources: These are the sources which are generated by the company itself for its growth and expansion (Abolhasani and et. al., 2016). These medium of funds are available inside the organisation. Airdri will collect funds from sale of assets, retained earnings, profits etc. to expand its business.

External Sources: These are the sources which is generated from outside the organisation and help in launching and running its business carefully. Various examples of external sources are:

  • Bank Loan: It is given by any bank or some financial institutions. By this way company can generate funds for its business by giving any security to bank (Rodríguez-Rodríguez and et. al., 2016). It is the easiest way of availing finance and are used to run business, purchase assets or expansion of business. The owner of Airdri can apply for bank loan to expand its business successfully. Bank loans are provided for limited period of time and the borrower have to repay the amount before maturity date.

 Advantages: In bank loan, borrower need to worry about paying the regular installment on time. Bank loans are always the cheapest options over credit cards and overdraft. Interest payable on loan is tax-deductible expense for business. Interest rates are fixed so the borrower have idea of actual repayable amount. There is flexibility in it because banks does not monitor how and when company uses the loan amount if they make payment on time.

 Disadvantages: It is difficult to get bank loan because it requires many documents such as Bank statement, latest ITR, balance sheet, proof of continuation, certified copy of Memorandum of Association & Article of Association etc. Borrow too much bank loan can decrease cash flow. Mostly, banks would not disburse the whole amount of loan which a company applied for. If company will not able to provide collateral then bank will not approve the company's loan. Irregular payable amount to bank will affect the exact future payments. 

  • Overdraft: It refers to extension of credit amount from lending bank which is more than the balance of the account (Bongaarts, 2016). Bank provide this facility to its special customers and in return it charge high rate of interest of these withdrawal. Airdri can use this source of funding if there is an urgent requirement of funds and able to pay high interest rates. It is a way of borrowing money for broad range of purpose.

 Advantages: With overdraft, cheque bounce can be prevented. It is flexible as in this company only need to borrow the amount which they need. It reduces the load of paper work and fulfil the urgent requirement of company. It is helpful for business to manage its cash flows which might get mismatch due to timing.

 Disadvantages: Overdrafts are secured against business assets. Interest rate on it is variable and by this it is very difficult to calculate accurately the borrowing cost. Company will only get overdraft if they maintain current account. Bank charges very high rate of interest on overdraft and sometimes business assets are seized by the bank when the borrower fails to repay the amount on due date. If Airdri will exceed its overdraft limit with any permission then bank could charge some amount to it. 

  • Crowd Funding: It is a process of collecting money for business by various contributors (Leick and Lang, 2018). It is possible with the help of different technology as owner can invite various investors with the help of emails, social media and many funding websites such as GoFundMe, Kickstarter etc. Airdri can raise funds by implementing its plan in effective and interesting manner.

Advantages: It is the fastest way to collect capital for your business with no additional charges and easiest way to gather investors. By this funding company can promote its brand through their investors network as they can track their progress. Crowd funding is the best way to check public's reaction towards the business or product.

Disadvantages: Crowd funding is a source of finance for small businesses but if company does not have any patent or copyright then anyone can steal the concept. It can create problems when company does not has good market image. If organisation gets fails in any project then it generates a risk factor and can damage the reputation of business and the investors who invest money. If company fails to collect its targeted amount then the remaining collected amount will be refunded to the investors and the company will have nothing as investment.

  • Angel Financing: It is an investor who invest in small business and start-ups to expand the business and for survival (Perveen and et. al., 2017). They are designated as business angel, informal investor and private investor. Airdri is a small business so they invite various business angels to invest in their business by attracting them with excellent plan.

 Advantages: It is less risky in comparison to loans and brings various expertise such as director service, vertical expertise, business acumen etc. and does not demand any fees for it. These firms are probable to survive at least four years. If company is funded by angel financing then there is no need to pay interest and debts to other outsider parties

Disadvantages: It is quiet difficult to find a perfect angel investor. They does not take follow up of their investments. The owner of the business have to share powers, authority, control, shares and decision making with angels.

TASK 3

P4. Business Plan for growth which includes financial information and strategic objectives of business

A business plan is a document which describes information about company and its shareholders and investors (Kumar, 2016). It help businesses to form strategies for future and policies which reduces risk in various operational activities. Airdri is a hand dryer manufacturer who deals in hand dryers and elevator door detection in UK so the management should make proper business plan to achieve its organisational objectives and before expanding its business.

Company Overview: It is a private limited company incorporated in 1974 which deals in hand drying washroom equipments and provide different hand dryer range such as high speed dryers, resilient dryers and durable which meet the requirements of disabled facilities. It is situated in Witney, UK.

Purpose of Business: Airdri is dealing in hand drying equipments and want to expand its business in new market segment. As a small business or start-ups its purpose is different from other enterprises.

 Vision: Its vision is to provide various products and offer them to the different segment of the customers and become the leader of hand drying manufacturing industry.

 Mission: Its mission is to identify the needs of customers and provide them products according to their requirements so it will help to create positive market image and attract various customers from different market place. Airdri always innovate new products which helps them to acquire new market.

Objectives: Its objective is to successfully launch its business in UK by creating a brand value over there. Airdri want to acquire market share of Witney and satisfy the customers by providing products according to their needs and requirements. This can be achieved by proper maintenance of business activities and control over execution process of business.

 Promotional Strategies: Company will make plan according to the market, customers, their preferences and the above discussed model of market development. In this strategy company will enter into new market with existing products. Company can use it brand image while promoting its products into the market as its reputation is strength for it. According to the various situational analysis as described above company can expand its business in the various regions of UK.

 The government of UK is politically stable which helps in expansion of business and foster its operations. There are some laws relating to the working conditions and employment which protect their rights and prevent them from exploitation. Company need to follow these regulations in order to operate and run successfully as they are abided by law.

Financial Information: Success of business activities are totally depends on the planning and control over operation of business (Kouba, 2017). Funding is important for the business as it helps in the operations. Airdri need funds to perform all the activities and funds that can be generated from internal as well as external sources of funds. While planning to expand the business, management of Airdri have to prepare budget plan which will provide of those fields where funds are required and how the funds are going are to be utilised. This budget will show the expenses which may occur while expansion of business such as promotion, new technology etc.

Forecasted budget of Airdri

Particular

31/12/18 (pound)

31/12/19 (pound)

31/12/20 (pound)

Implementing technology cost

100000

-

-

Promotional expense

12000

10000

7000

Advertisement expense

9000

9000

5000

Catalogues

21000

8000

9000

Training charges

8000

23000

16000

Total Cost

150000

50000

37000

From the above budget plan Airdri will get the idea of expenses that may occur in future, while expanding its business in UK.

Cash Flow Statement: This statement carries the financial information of the company from beginning to ending year or previous years. It is a numerically detailed tool by which cash inflow and outflow will be measured (Sarin, 2019).

P5. Exit and succession options for small businesses with its advantages and disadvantages

TASK 4

Airdri is a hand dryer manufacturer who wants to expand its business in UK by launching its products into different market segment. So, it is essential for the company to have succession or exit options to face future uncertainties. It facilitates the decision making of managers by providing them various options to face issues that may occur in future.

Exit Options: This option is used by companies when they want to discontinue their business, close or hand over the powers and authorities to other person (Pallagst, 2017). These options helps the owner to exit their business. If a company is in loss from a longer period of time then it would be suggested to company to end or wind up its organisation. Following are the options of exiting the firm:

  • Winding up: It is the process of dissolving a company in which owner sale out all the assets, pay off all the creditors and distribute remaining funds and assets to the shareholders and investors of the company (Levy, 2016). If Airdir does not get success in its expansion then this option can be adopted by the company.

 Advantages: Hire purchase and lease agreements will gets terminated at the date of winding up of the company. If company is suffering from any legal action then it will stop at the time of winding up. The owner will be free from the debts and the company will not have to face more losses.

Disadvantages: Owner will lose the control over assets and management as liquidator will undertake the entire winding up process. All the assets of the company will sold and the company will lose effective workforce of the company.

  • Selling in open market: It is process of selling its business globally or in the open market and the business will be purchased by third party outside of the business (Lambert and Oatley, 2017). In this option, the business operations and the other activities will remain same but the owner of the business will get changed.

Advantages: This option will not harm the business image and activities because the buyer will purchase a running business, that will not affect the operations.

Disadvantages: In this option the owner will lose its authority and skilled employees of the business. This will affect the company's staff morale and values and can also demotivate them.

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CONCLUSION

By the above information it is concluded that planning is the process of determining goals, objectives, future events and risks for the company to identify opportunities that may help to reach the goals. If company wants to launch its business in different market places then it can conduct PESTLE to analyse the factors that may affect its business. Ansoff's model can help to select best strategy for the market segment. To make the expansion plan successful the owners should prepare business plan that include internal information such as vision, mission, objectives, financial information and cash flow statement. Therefore, this will help in attracting the investors. An organisation should also have exit options to deal with any future uncertainty that can affect business.   

REFRENCES

Books and Journal

  • Abolhasani, S., and et. al., 2016. Simulating urban growth under planning policies through parcel-based cellular automata (ParCA) model. International Journal of Geographical Information Science. 30(11). pp.2276-2301.
  • Arzaghi, E., and et. al., 2017. Risk-based maintenance planning of subsea pipelines through fatigue crack growth monitoring. Engineering Failure Analysis. 79. pp.928-939.
  • Bongaarts, J., 2016. Development: Slow down population growth. Nature News. 530(7591), p.409.
  • Colantoni, A., and et. al., 2016. Cities as selective land predators? A lesson on urban growth, deregulated planning and sprawl containment. Science of the Total Environment. 545. pp.329-339.
  • Daniels, T. and Lapping, M., 2016. Land preservation: An essential ingredient in smart growth. In Growth Management and Public Land Acquisition. (pp. 23-48). Routledge.
  • Denton, G., Forsyth, M. and MacLennan, M., 2017. Economic planning and policies in Britain, France and Germany. Routledge.
  • Kouba, G., 2017. Economic growth in Czechoslovakia. Routledge.
  • Kumar, D., 2016. Enterprise growth strategy: vision, planning and execution. Routledge.
  • Lambert, C. and Oatley, N., 2017. Governance, institutional capacity and planning for growth. In Urban Governance, Institutional Capacity and Social Milieux. (pp. 125-141). Routledge.
  • Leick, B. and Lang, T., 2018. Re-thinking non-core regions: planning strategies and practices beyond growth.
  • Levy, J.M., 2016. Contemporary urban planning. Taylor & Francis.
  • Pallagst, K., 2017. Growth management in the US: Between theory and practice. Routledge.
  • Perveen, S., and et. al., 2017. Evaluating transport externalities of urban growth: a critical review of scenario-based planning methods. International Journal of Environmental Science and Technology. 14(3). pp.663-678.
  • Rodríguez-Rodríguez, D.,and et. al., 2016. Achieving Blue Growth through maritime spatial planning: Offshore wind energy optimization and biodiversity conservation in Spain. Marine Policy. 73. pp.8-14.
  • Sarin, M., 2019. Urban planning in the Third World: the Chandigarh experience. Routledge.
  • Siedentop, S., Fina, S. and Krehl, A., 2016. Greenbelts in Germany's regional plans—An effective growth management policy?. Landscape and Urban Planning. 145. pp.71-82.
  • Wynn, M., 2017. Routledge Revivals: Planning and Urban Growth in Southern Europe (1984). Routledge.

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