Business

Introduction

Planning is the most effective tool and a staircase towards success. Therefore business plans are promoted to picturing clearly the goals of the business, procedures or steps to attain them and reasons for attainment. Every business is driven by profit motive. Small manufacturing business involved in the manufacturing of bicycles with a strong financial base aspiring towards growth and desiring to introduce an innovative product into the market. Launching of electronic bicycles into market requires lots of studies and research about the market and available resources and its effective utilisation which is demonstrated by the report following. Since the company has loyal staff and customer base which will contribute to the innovating new product. Further investment appraisal techniques will be adopted to analyse whether to prefer in-house designing or outsourcing the same to experts. Moreover, new product will require the additional staff which is highly skilled in addition to an advertising campaign for target customers and wider reach to market.

Market Analysis And Strategies

Marketing strategy is driven by the motive of gaining high market share with increased revenue and profitability. Market-oriented strategies are framed keeping in mind all the short term and long term operations related to marketing(Viorica, Sorin and Cristina, 2013).

Market Analysis

The marketing plan includes evaluation and study of various factors in the market and formulation of strategies to deals with the same. For conducting the market analysis, Porter's five forces model is applied(Rachet, 2014).

  • Competitive Rivalry: Company will face stiff competition from the existing players such as Atlas, hero cycles and Hercules which have a strong customer base in the market. These companies spend huge amounts of product promotion and innovation to attract customers.
  • Supplier Power: Bargaining powers of the suppliers is moderate in bicycle industry as there are limited number of the manufacturer. Suppliers of raw material required such as rubber, tyre, battery and metal industry.
  • Consumer Power: Consumers are rationally aware of the prices range as there are only 3-45 companies popular in the bicycle industry. Therefore they can easily switch over from one to another.
  • The threat of new entrant: Potential threats from domestic companies existing in motorbike manufacturing may enter the bicycle market. Also foreign entrants with better technology and eco-friendly techniques.
  • Threat Of Substitution: Further threat from substitution is very high. As various sport solar powered or electric two wheeler bikes may hamper the market. Moreover, fitness clubs or geared cycles or automatic exercise equipment have the calibre to replace bicycles.

Marketing Strategies

The focus of strategies is based on maximising profits through gaining competitive advantages in the market. Advertising is the major area where attention is placed to promote the product and grab the attraction of customers. Advertising through booking slots on new channels is the cheap and effective source(Mullins, 2012). In addition to brochures in newspaper, internet should be used beneficially. Social media needs to be explored for promoting the electric bicycles by catchy slogans and spreading health and fitness consciousness among citizens. It deals with product designing, customer targeting, branding, pricing and considering publicity of product(McDonald,  2013).

 In-house manufacturing will require an additional cost on research and designing and adoption of expensive technology. On the contrary, if the business opts for outsourcing the design work to the experts it will be benefited in two ways. Firstly, the agency will design the best framework because of its experience and the expertise(Chwolka and Raith, 2012). Secondly, the initial cost for designing will be very high if the company perform the task on its own. Therefore it should be given to experts to prepare the detailed design and its full proof projection which will support the manufacturing process of the company.

Annual Financial Statements/ Annual Cash Forecasting

Table 1: Projections of various variable factors.

 

Year 2016

Year 2017

Particulars

Amount in  £

Amount in  £

No of units projected to be sold

485

600

Selling price  per unit

 540

 540

Cost per unit

410

430

Assumptions :

1: No of units sold of electric bicycles gradually in the second year as the product will become familiar in the market. However, selling price will remain same for both years.

2:  Cost per unit is increasing at 5% on inflation rates.

Table 2: Projected Income statements for two proceeding years.

 

2017

2018

Particulars

Amount in  £

Amount in  £

Revenue

261900

324000

Less: Cost of goods sold

198850

258000

Gross profit

63050

66000

 

 

 

Expenses

 

 

Marketing expenses

7000

2000

Administration expenses

2100

2205

Finance cost

2500

2625

Insurance

950

998

Rent

800

840

Salary and wages

25000

26250

Depreciation

22000

23100

Other operating expenses

2730

2867

Sum of expenses

63080

60884

PBIT

-30

5116

Tax

0

1535

Net profit

-30

3581

 

 

 

 

2017

2018

Marketing expenses

2.67%

0.62%

Administration expenses

0.80%

0.68%

Finance cost

0.95%

0.81%

Insurance

0.36%

0.31%

Rent

0.31%

0.26%

Salary and wages

9.55%

8.10%

Depreciation

8.40%

7.13%

Other operating expenses

1.04%

0.88%

Assumptions :

  1. Huge Marketing expenses will be incurred at the time of launching the product on advertising and testing performed however will reduce in next year.
  2. Salary in wages will increase from current year due to the hiring of skilled workers.
  3. Depreciation will be increased from current year due to additional machinery purchased for supporting the production.
  4. All the other expenses will be growing at the rate of 5% in respect to the inflation rate.

Table 3: Projected Balance Sheet for proceeding two years

 

Year 2016

Year 2017

 

Year 2016

Year 2017

Liabilities

Amount in  £

Amount in  £

Assets

Amount in  £

Amount in  £

Equity Share Capital

35300

35300

Goodwill

10000

10000

Reserves

2500

5000

Furniture

25000

25500

Long term debt

25000

28000

Plant and Machinery

20000

25000

Provision for bad debts

200

210

Investment

5000

4200

Trade Payables

4100

4590

Trade receivables

4800

5900

 

 

 

Cash in hand

2300

2500

 

67100

73100

 

67100

73100

Assumptions:

  1. There is a significant increase in long-term debt to support the production of the innovative bicycle.
  2. A further increase reserves due to rise in profits.
  3. The increase in Plant and machinery is due to the installation of technology.

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Cost And Break-Even Analysis

Table 4: Cost analysis for the upcoming two years

 

Year 2016

Year 2017

Particulars

Amount in  £

Amount in  £

Sales

261900

324000

Less: COGS

198850

258000

Less: Variable Cost

 

 

Marketing expenses

7000

2000

Administration expenses

2100

2205

Salary and wages

25000

26250

Other operating expenses

2730

2866.5

Contribution

26220

32678.5

Less: Fixed costs

 

 

Finance cost

2500

2625

Insurance

950

997.5

Rent

800

840

Depreciation

22000

23100

Net Operating Profit

-30

5116

 Cost analysis of the two years depicts that there is significant shift or reduction in the marketing expenses due to initial product launch in the first year. Further depreciation has increased due to additional machinery purchased to support the production of electric bicycles. Other operating expenses include various commission and electricity which varies in the proportion of production units.

Table 5: Calculation of Break-even point in sales units

 

Year 2016

Year 2017

Particulars

Amount in  £

Amount in  £

Fixed cost

26250

27562.5

Contribution per unit (Total contribution/no. Of Units)

54.06

54.46

Break-even Point (Fixed Cost/Contribution per unit)

486

506

Break even analysis refers to the no of units sold which covers the fixed cost of the company. In the year 2016 company will have to sale 486 units to cover the fixed costs whereas in the year 2017 it will have to make sales of 506 units in order to cover the fixed costs.

Swot Analysis

SWOT analysis refers to the analysis of internal strength, weakness, threats and opportunities to the company(Yuan, 2013).

  • Strengths: Strengths are the uniqueness or core competencies possessed by the companies. Bicycle company has the electric bicycle which is almost energy free and also does not need driving licences.
  • Weakness: However bicycle manufacture face the challenge of high prices, and also seasonability of business and limited target customers are the weakness of the
  • Opportunity: Since the awareness about eco-friendly means of commuting is rising opportunity can be grabbed. Moreover, the increased trend of health consciousness will generate the demand.
  • Threat: Company will face a threat from online bicycle sellers and also large discount chains as pressure will increase from mass merchants.

Gantt Chart

Table 6: Sequence of activities and time duration

 

Activities

Duration in weeks

Preceding activity

1

Designing the  bicycle

6

 

2

Staffing

4

1

3

Arranging Finance

2

1,2

4

Manufacturing

20

2,3

5

Packaging

5

2,4

6

Marketing

3

1,3

Gantt chart depicts the detailed schedule of the project in series. It states the sequence of the project and relation between activities regarding preceding or succeeding(Grünig and Kühn, 2015). It also shows the start and terminal activity of the project.

Critical Path of the Project = 1-2-3-4-5 = 37 weeks

Critical path method evaluates the maximum time by which project can be delayed. Any delay in the activity on the critical path will delay the entire project and increase the cost and time of project(Chadwick,  2013). Bicycle company will take 37 weeks maximum to complete all the activities concerned with electric bicycles.

From the above analysis and study it can be concluded that electric manufacturing of bicycles will be a profitable project in long run and company will p[roper due to this.

References

  • Chadwick, G., 2013. A systems view of planning: Towards a theory of the urban and regional planning process. Elsevier.
  • Chwolka, A. and Raith, M.G., 2012. The value of business planning before start-up—A decision-theoretical perspective. Journal of Business Venturing. 27(3). pp.385-399.
  • Grünig, R. and Kühn, R., 2015. Strategy Planning Process. In The Strategy Planning Process. 67(2). pp.90-205.
  • McDonald, M.H., 2013. Ten barriers to marketing planning. Journal of Product & Brand Management. 9(3). pp.109-145.
  • Mullins, J., 2012. The new business road test: What entrepreneurs and executives should do before writing a business plan. Pearson UK.
  • Rachet, B., 2014. PESTEL analysis and Porters Five Forces For Innocent Drinks Company. Docs. school Publications. 5(3). pp.89-108.
  • Viorica, B.F., Sorin, D. and Cristina, N., 2013. Business Plan As A Management Tool. Annals-Economy Series. 1(2). pp.164-169.
  • Yuan, H., 2013. A SWOT analysis of successful construction waste management. Journal of Cleaner Production. 39)3). pp.1-8.
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