Methods in Business Research Notes Part 2

CHAPTER VII STRATEGY AND IMPLEMENTATION SUMMARY 7.1 Value Proposition The value proposition of Diva Boutique comes from its customer’s preferences regarding styles, designs and fashion. Diva’s employees are confident in their ability to meet the needs of their customers because they share the customers' views and desires. Its confidence and ability translates into confidence for the consumer and a starting point towards developing long-term relationships and trust. 7.2 Competitive Edge Competitive edge of Diva Boutique is its standard of quality of the final product. Diva Boutique focuses on providing better quality and unique outfits to its customers. Diva provides a unique collection of apparels and accessories with high quality. 7.3 Marketing Plan The main goal of Diva Boutique is to acquire, satisfy and retain customers. Marketing plan of Diva Boutique will help fulfill the goal of the business. It includes the following strategies: Products and services Diva Boutique is a store that offers unique and stylish collection of apparels and accessories for women. Diva Boutique will launch its products with the store’s grand opening. Besides the products, Diva Boutique will fulfill the value of educating its customers about recent fashion trends and hoe to properly style their purchases. Most importantly, both the products and services will always be tailored to fulfill the value of meeting the customer’s needs and preferences at all the times. Price Diva Boutique will have a high end price of the products reflecting the better quality. The products in the store will be set after adjusting the gross margin of 40% on the cost of production. The price ranges of the products offered by Diva Boutique are as follows: Items Price Range(Rs.) Saree 15000-35000 Kurta 10000-20000 Jewelry 1000-3000 Other items 500-2500 Promotion The initial goal of Diva Boutique will be simply to create awareness. Thus, Diva Boutique will rely on the promotion methods like word of mouth, social sites like Facebook, Twitter, etc. These free social websites will be a great way to keep the customers updated on products, store events, etc. Another way of promotion will be participation in related exhibitions and advertisement in fashion magazines like Naari. Place The products will be offered in the retail outlet located at Kumaripati, Lalitpur. The products will be neatly merchandised, allowing a plyent of space to move freely about the store. 7.4 Sales Strategy Diva Boutique sells an array of products and services to its customers. Diva provides the perfect makeover the customers can think of or they may not have thought of. Our goal is to maximize our profit through increase in sales. It can be possible when we satisfy our customers. The sales strategy of Diva Boutique will include: Window Displays Unique window displays will draw potential customers to our store. They will be creative and tailored to our boutique's appearance. Diva Boutique will display its seasonal wears in an eye catching way so that the customers will be willing to shop at our store. Subtle Upselling It is a great way for Diva Boutique to sell the product even when the customers are not thinking of buying it.. Select items such as small accessories like purses, ear rings, etc. and placing them near the cash register where the purchases are being run up. Seeing it, the customers may make up their mind to purchase those items. Networking Diva Boutique will create a network of clothing store owners. They can recommend our store for specific items, and we can recommend theirs. This creates goodwill and can ultimately improve sales for our boutique and others in our business community. Creating Sales Because we have relationships with our customers, we can go create the sales when times are slow. We have the advantage of creating demand by selling to our current customers, co-marketing with other businesses, or working with a charity to add new clients to our database. 7.5 Sales forecast Diva Boutique expects sales to grow at 10% annually through year of operation. Sale is expected to reach its peak during the special occasions like wedding, cultural events, etc. Chapter VIII FUTURE PLANS AND RISKS 8.1 Future Plans The future plans of Diva Boutique are as follows: Currently, we will be targeting the female group only. As the business grows, we will also be providing our products and services to other segments i.e. men. For this, the staffs will be hires with the required skills. As the business grows, we will be opening Diva Boutique branches in different places throughout the Kathmandu valley like New Road, Naxal, etc. We will be extending our product lines or product range. We will be adding additional product categories. 8.2 Internal risk and management Several internal business risks can arise during the business operation. They can be as follows: Switching off jobs by staffs Agency problems Technology outdate To solve these risks, the management will try to motivate its employees by providing several contingent incentives and target bonuses to its employees and the organization will be involved in the succession planning so that the possible selection and placement can be done. In addition, we can deal with various trusted organizations to solve the technological problems. We can adopt the advance technology in our business in order to save our time and money as well. 8.3 External risks and management Diva Boutique has to be prepared for the potential external risks. It may include various factors like political instability, changes in economic policies, inflation rate, threats of new entrants and change in customers’ preferences. In such situation, the business should focus on the business strategies to cope with the changing environment. Diva Boutique will deal with other related business houses to deal with the challenges created by the external environmental forces. We can involve ourselves in the strategic alliances for technological and marketing with other similar business houses. CHAPTER IX FINANCIAL PLANNING 9.1 Important Assumptions Sales are expected to increase by 10 % each year and calculated on the basis of average price per unit. Cost of goods sold is expected to be 60 % of total sales and calculated on the basis of average price per unit.. Cost of goods sold is expected to increase by 10 % each year. Out of total capital, 65% will be financed by long term loan and remaining 35% will be financed by equity Long term loan and short term loan is assumed to be 13%. Credit period for the receivables will be 20 days and 30 days for the payables. Preliminary expensed is expected to be recovered within the first year of operation. Depreciation is charged on the fixed assets at the rate of 25% using WDV (Written down Value) method. Salaries of manager, fashion designer, tailor and accountant will increase by 10 % per year. Rent expense is expected to increase by 5% each year. Renewal fees are expected to be Rs. 2000. The tax rate for the business is assumed to be 25%. 9.2 Financial details of start up expenses Diva Boutique will be started with an initial investment of Rs. 1.5 million out of which 35% i.e. Rs. 525,000 will be financed by equity and the remaining 65% i.e. Rs. 925,000 will be financed by a bank loan. The start-up cost will consists of different types of expenses like purchase of furniture, registration fees, advance rent, decoration expenses and the initial marketing expenses. The detail of the start up expenses is shown in Annex 1. 9.3 Sales Forecast and Cost of goods: The sales revenue is based on the quantity of the products sold. The sales for the upcoming years are supposed to increase by 10% every year and the cost of goods sold (COGS) is assumed to be 60% of total annual sales. The COGS is also expected to increase by 25% per year. The details of sales revenue and number of items sold are shown in Annex 2. 9.4 Budgeted Loan repayment Schedule The start-up long term loan is taken at 13% annual interest rate from Everest Bank. This loan will be taken from the bank by keeping the collateral. The annual payment of this loan is supposed to be Rs. 277,207. It will be fully reimbursed within the loan period of 5 years. The detail of annual interest payment with principal amount repayment is shown in Annex 3. 9.5 Pro forma (Projected) Income Statement: Pro forma income statements are an important tool for planning future business operations. If the projections predict a downturn in profitability, we can make operational changes such as increasing prices or decreasing costs before these projections become reality. The pro forma income statement of Diva Boutique shows appropriate profit for the periods of projection, and the pro forma income statement show the increasing profit. The detail of pro forma statement of this store is shown in Annex 4. 9.6 Pro Forma Balance Sheet: A pro forma balance sheet discloses a business’s assets, liabilities, and equity at a specific point in time. The opening balance sheet of Diva shows R.s. 17, 00,000 of total assets with same level of liabilities and equity and the total balance at the end of year 5 is Rs. 4,922,923. The overall pro forma balance sheet of Diva Boutique for five years is disclosed in Annex 5. 9.7 Pro forma Cash flow Statement A pro forma cash flow statement shows the total net cash inflow or outflow at a specific point of time. It shows the cash generated from operating, investing and financing activities. The opening cash flow of Diva Boutique shows the net cash balance of Rs. 898,000 and balance of Rs. 3,574,883 at the end of year 5. The pro forma cash flow statement of Diva Boutique is disclosed in Annex 6. 9.8 Business Financial Ratios: Business Financial Ratios are related to liquidity like current ratio, profitability ratio and solvency ratio. 9.8.1 Profitability Ratios: Profitability ratios measure the company's use of its assets and control of its expenses to generate an acceptable rate of return. The details are shown in Annex 7. Gross Profit Margin: Diva Boutique has maintained its gross profit margin at 40% throughout the years of operation. Net Profit Margin Ratio: Initially, the profit margin is 5.68%. It is increasing and reached to 9.28% at the end of 5 years. 9.8.2 Liquidity Ratios The details of liquidity ratio are shown in Annex 8. Current Ratio: The current ratio started with 4.73 in the first year and increased to 7.55 within 5 years. It shows that Diva will be more capable the company is to pay its obligations. Quick Ratio The quick ratio of the company increased from 3.14 to 6.5 times which means company has the ability to pay out its obligations. Working Capital to Sales The ratio increases from 18.28 % to 38.12% in 5 years. It is gradually increasing. An increasing ratio is favorable for the company if compared to competitors. 9.8.3 Debt and Risk Ratios The details of these ratios are shown in Annex 9. Solvency Ratio: (NPAT+ Depreciation)/Short term liability + long term liability) Initially the solvency ratio is below 1 which is very low however gradually it is increasing which means the company’s ability to meet its debt is becoming better. Debt Ratio: Total Liabilities/ Total Assets. Initially the ratio was 0.69. But it gradually decreased to 0.15 at the end of year 5. This means that the company is less dependent on debt. Debt Equity Ratio: Total Liabilities (Current Liabilities + Non Current Liabilities) / Total Net Worth Initially, the ratio was 1.352 and it decreased to 0.152 in 5 years time. 9.9 NVP and IRR: NPV can be described as the “difference amount” between the sums of discounted: cash inflows and cash outflows. It compares the present value of money today to the present value of money in the future, taking inflation and returns into account. IRR is the discount rate at which the present value of all future cash flow is equal to the initial investment or in other words the rate at which an investment breaks even. The projected NPV shows the total value of Rs. 1626239 and IRR of 43.20%. The calculation is shown in Annex 10. 9.10 Payback Period: The pay-back period of Diva Boutique is 2.15 years. The calculation of these periods is shown in the Annex 11.