BUSINESS PLAN FOR WEMBLEY SPORTING INDUSTRY Student`s

BUSINESS PLAN 1

BUSINESSPLAN FOR WEMBLEY SPORTING INDUSTRY

Tableof Contents

Executive Summary 3

Vision and mission statement 4

Findings and Analysis 4

 Management accounting and its role to the organization 4

 Relevance of Management Accounting to our organization 6

 Cost analysis 7

 Source of capital 9

 Breakeven analysis 10

 Functional budgets 12

Conclusion 13

References 15

WembleySporting Industry

Executive Summary

Thisreport is based on plan for a business referred to as “WembleySporting Industry”. The firm will be located at Stratfordtown in United Kingdomand it will be a partnership business. Iand my friend were working in a local leather industrial planthowever, our employment was terminated abrupt due to headcountreduction in our plant. In the past, we have had much of conversationof starting a sports goods industry considering we all have basicexperience in this business field. Recently we met and debated onputting this idea into use and start the business in the SportingIndustry. The company will manufacture and distribute sportsequipment with sports-wear being our major product. To differentiateour company from others in this industry we have decided to ensuremanufacturing using environmental friendly and non-toxic material toremain competitive and ensure corporate social responsibility. Weestimate that the required start-up capital to be approximately£800,000.We intend to source part of this capital from personal savings andthe rest we shall borrow a long term loan from the bank (Mester &ampL.J 1991: 263).

Ourcompany will offer quality products and services which will ensurethat we acquire a huge market share in the market. The company alsoprojects to start making profit by the first quarter of the year oflaunch. This plan has been prepared based on the market demand andestimates which were conducted through a through market research.Based on this plan, the business has set the following future goals

  • Attain a break-even within the first quarter of the first year in operation.

  • The plan aims to achieve average monthly sales turnover to £1,000,000.

  • To ensure maximum customer satisfaction so as to establish a long-term relationships with our customers.

Visionand mission statement

Ourvision will be-

Tobecome a global leader of the sporting goods with brands for sportsand a sporting lifestyle

Ourmission-

Toprovide quality product and services for customer satisfaction.

Findingsand Analysis

  • Management accounting and its role to the organization

Managementaccounting is a process of identifying, measuring, analyzing,interpreting and communicating the financial information which isuseful to the management to ensure accountability for theorganization’s resources (Griffin2009).In our business we shall ensure we adhere to the Sarbanes-OxleyActand maintain proper books of account. Management accounting is mostessential part of organization’s economic system especially when itcomes to the decision making. The importance of Management accountingin our organization will be

  • To facilitate strategy formulation

  • To enhance controlling and planning of activities

  • Decision making

  • To ensure optimal utilization of resources

  • To safeguard assets

  • Management accounting acts as communicating tool to any interested party.

Themanagement in our organization will need to formulate plans whichwill help the company in achieving its goals. We will thereforeneeded to formulate operation plans such as budgeting, profit plansand any other short term operation. Management accounting will alsohelp the management to ensure proper financial management byrecording every transaction on acquire or use of finance. Managementaccounting also communicates financial information to both internaland external users (Hoque&amp Uliana 2005).Through financial control, the management accounting help in takingcorrective actions which will help in bringing plans into reality.

Managementaccounting in Planning

Planninginvolves deciding on what is to be done, how it should be done, when,where and by who (Malcolm: 2013). At Wembley Sporting Industry, wewill start by identifying our goals to be achieved in planningprocess. This will help the managers in identifying catastrophe thatmight occur in future and develop appropriate measures. Planning alsohelps I making short term decisions such as what to sell, whatquantity to produce, what price to sell at.

Controland management accounting

Managementaccounting will facilitate the process of comparing the budgeted orplanned performance with the actual ones (Hoque&amp Uliana 2005).Thedeviations are identified and corrective measures are taken. Themanagement accountant is required to provide a report on performancecomparison.

Communicationand management accounting

Managementaccounting in our company will help to facilitate communicationprocess as we shall ensure installation of effective communicationsystem known as management accounting information system.

  • Relevance of Management Accounting to our organization

Managementaccounting will use various techniques of budgeting, financialaccounting, research and development among others to provide themanagement with the appropriate information which is relevant indecision making process. Its main concern is providing interpretationof the financial information hence making it useful at everymanagement level (Hoque&amp Uliana 2005).

ManagementAccounting verses Financial Accounting

Financialaccounting involves classification and recording of the monetarytransactions of the organization in accordance with some concepts,accounting standards, accounting principles and other legalrequirements (Colin1992).In our company, financial accounting will involve preparation ofstatement of financial position, profit and loss accounts and cashflow statement. Financial accounting will be done at the end ofaccounting period unlike Management accounting which will be carriedout continuously as the need arises.

  • Cost analysis

Justlike in any other organization, our primary goal will be to maximizeon profit generation. We shall achieve this by ensuring avoidance ofunnecessary costs and ensure proper utilization of resources. Being amanufacturing company, our organization will strive to ensure that weare producing at the lowest cost as possible. Making decisionsconcerning cost of production might be somehow tricky and inaddressing this issue we shall ensure that our goods and services aremaintained at highest quality. Most producers tend to attach qualitywith cost but our main strategy is to ensure cost differentiationthough giving quality a first priority.

Thecost analysis technique to be applied in our company is that of costunit where by the cost of producing one set of our products isdetermined individually. The unit cost will then be multiplied by thenumber of units produced so as to get the total production cost.

Atour organization, the costs will be broken down into variable cost,fixed costs and the factory overheads. Variable costs include theadditional costs associated with the production. For example, in ourbusiness the variable cost for producing 1000 units which is expecteddemand for the first month after launching of the business is equalto £487,513.33this implies that the units cost per set is equal to £487.51.The variable cost will be calculated as follows

Direct material cost

Description

Quanitity

Cost

Wood

1.5 mtrs @ 3.1

£4.65

Leather

1 mtr @ 25

£25.00

Polish

200grams @ 2.2

£440.00

Cloth

0.5 mtrs @ 1.2

£0.60

Total direct material cost

£470.25

Monthly demand

1,000

Variable Overheads

Skilled Labour

2 worker @ 224 hours

£6,720.00

Unskilled Labour

6 workers @ 224 hrs

£8,960.00

selling expenses

per month

£1,000.00

Deliverly van expenses

£583.33

Total monthly production cost

£487,513.33

Forfixed cost analysis, it will include those cost which remainsconstant regardless of whether the company is producing or not. Thesecosts are calculated as follows

Fixed Costs

Per annum

Mothly

Factory lighting

£22,000.00

£1,833.33

Factory rent

£25,000.00

£2,083.33

Factory cleaning

£10,000.00

£833.33

Administrative expenses

£16,000.00

£1,333.33

Office rent

£12,000.00

£1,000.00

Interest in bank loan

£62,400.00

£5,200.00

Totals F.C

£147,400.00

£12,283.33

Start-upcost

Thisis the initial cost required to start up the business (Colin1992). Ourstart-up cost will entail the initial capital structure. It willinclude firm machinery and other equipment in the business premises.For instance we have decide to purchase two machineries at a cost of£10,000each hence making the start-up cost to £20,000 dollars.

Settingthe selling price

Theselling price will be based on target cost pricing. The selling pricewill be set by adding the desired profit margin to the unit cost. Inour company, the targeted profit margin is equal to 25% and thereforethe selling price will be 125%×487.5133 which is approximately £610per unit

  • Source of capital

Weintend to finance the business through personal savings and debt fromthe bank loan. We shall contribute £20,000 equally and theremainder of £780,000 will be obtained as loan from the bank.

Implicationsof bank loan as a source of capital

Banksplay a vital role in facilitating growth and development of small andmedium businesses. The bank will provide measure to risk managementwhich will help to prevent liquidity and insolvency chances. Byacquiring the bank loan, the bank will have much close supervision onthe ongoing of the company to avoid defaulting the payments of theloan. Also by funding the business by loan rather than personalsaving helps in tax planning since the interest charged on loans istax allowable. Debt is also the cheapest source of capital ascompared to other sources such as equity and retained earnings(Sekaran2003).

However,on the hand, there are negative impacts for funding the business withthe bank loan. This is because the operations of the business will berestricted by the bank to some extent. The interest charged on loanis also an expense and therefore it reduces the expected earnings ofthe business.

  • Breakeven analysis

Breakevenpoint is at that level of production whereby the business make noprofit nor loss (Sekaran2003).At this point, total revenue TR is equal to the total cost TC.Therefore the profit made is equal to zero. The following are some ofthe assumption that we have made in calculating the breakeven point

  • The volume of production is the factor influencing profitability.

  • Profit maximization is assumed to be the main objective of our business.

  • The technique of production will remain the same for a certain relevant production range

  • Revenue and cost functions are assumed to be linear.

Outputat brake-even

Thequantity at breakeven point will be determined using the followingformula

Quantityat B.E = fixed costs ÷ (price – variable costs) = = 100 units

Break– even chart

Fromthe breakeven chart shown above, the breakeven output will be equalto 100 units. At this point total revenue TR will be equal to £610× 100 = £61,000and the total cost will be equal to 12283.33 + (487.51× 100) = £61,033.33

Atthis production level, the profit which is equal to the total revenueminus total cost is approximately equal to zero.

TheStandard Cost Card for the business is as follows

Standard quantity or hours

Standard price

Direct material

Meters

£470.25

Direct labour

Per set

£15.680

Manufacturing overheads

Expenses for one set

£1.583

Total standard costing per set

£487.513

  • Functional budgets

Thereis a need of forecasting revenues, expenses and the demand for smoothrunning of the company. To ensure this appropriate budgets will beprepared. Such budgets include sales budget, production budget, andcash budget (Bhimani et al. 2002).

Salebudget

Thishelps to predict the expected demand. For our organization, wepredict that the demand for the first month of operation will be1,000 units and it is expected to increase as time moves by. Below isthe sales budget for the first three months of operation.

Month

Quantity sold (units)

Revenue

January 2016

1000

£610,000

February 2016

1500

£915,000

March 2016

2000

£1,220,000

Productionbudget

Thisshows the summary of the production requirement of the aboveforecasted sales. Below is our production budget

Month

Jan 2016

Feb 2016

March 2016

Required ending stock

300

200

500

Add sale for the month

1000

1500

2000

Less estimated opening stock

300

200

Production requirement

1300

1400

2300

Cashbudget

Cashbudgets shows a summary of the expected cash inflow and outflow. Thecash budget in our organization will show the receipts and thepayments during the budget period. We shall prepare cash budgets soas to ensure that there are sufficient cash in hand to facilitatebusiness operations.

Month

Jan 2016

Feb 2016

March 2016

Cash b/d

£300,000

£312,701.1

£532,899.54

Add sale collections

£610,000

£915,000

£1,220,000

Less production cost

£585,015.60

£682,518.2

£1,121,969.9

Other expenses

£12,283.33

£12,283.33

£12,283.33

Cash c/d

£312,701.1

£532,899.54

£618,646.31

Conclusion

Fromthe above analysis, the business has proven to be more profitable. Weprojects to make profit within the first quarter in operation. Apartfrom profit oriented goal, our company will also offer jobopportunity to the community as we plan to hire about 7 permanentemployees and 2 temporary employees. The business will also ensurethat it manufactures at environmental pollution free zones.Management accounting is our core pillar to ensure efficiency andeffectives in the organization. However, one should be aware thatManagement accounting itself is not success but it’s just a tool ofmanagement which can lead to success if well utilized (Morris &ampEmpson 1998: 617).

References

Bhimani, A., Datar, S. M., &amp Foster, G. (2002).&nbspManagement and cost accounting. Harlow: Financial Times/Prentice Hall.

CharlesT. (2011). CostAccounting A Managerial Emphasis. London: EnglewoodCliffs

ColinD. (1992). Managementand cost accounting London. NewYolk: Chapman &amp Hall

EugeneB. &amp Michael E.(2008).FinancialManagement: Theory &amp Practice Branzil:Amazon.

Hoque,Z., &amp Uliana, E. (2005). A Survey of Management Accountingpractices. New Yolk Pearson publishers

.Mester,L. J. (1991). Agency costs among savings and loans.&nbspJournalof Financial Intermediation,&nbsp1(3),257-278.

Morris,T., &amp Empson, L. (1998). Organisation and expertise: Anexploration of knowledge bases and the management of accounting andconsulting firms.Accounting,Organizations and Society,&nbsp23(5),609-624.

Sekaran,Uma, (2003). Research Methods for Business: A Skill BuildingApproach. Fourth Edition. New York, John Willey &amp Sons.