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BUSINESS PLAN FOR ESTABLISHMENT OF

Extracts from this document...

Introduction

COURSEWORK BUSINESS PLAN FOR ESTABLISHMENT OF A DOG HOTEL "AMIGOS" IN BOJURISHTE VILLAGE, BULGARIA Course code: EMBA108 Course Title: STRATEGY FORMULATION AND BUSINESS DECISIONS Instructor's Name STELIOS KEHAGHIAS Programme: EBMA Word count: 16 455 Group: Elena Bocheva (Reg. No. EX28105) Lyuben Nanov (Reg. No. EX28108) Lyubomir Iliev (Reg. No. EX28055) Petia Dombalova-Sechenska (Reg. No. EX28061) Alexander Ivanov (Reg. No. EX28104) September 2009 EXECUTIVE SUMMARY The aim of this work is to present a winning strategy for business development of a hotel for dogs in Sofia, under the name AMIGOS. We pursue a thorough analysis of the company's market positioning, growth prospects, resource planning and competitive advantages. Initially, we shape our mission and vision and critically observe both the external and internal environment. We begin with PEST analysis, which enables us to understand better company's macro surrounding, and afterwards continue with the industry analysis, based on Porter's five forces. Further, we outlay the company's competitive positioning and derive driving forces to change, as well as key success factors. Moreover, determining strategic and financial objectives, we can define the desired market position through growth strategy and generic strategy. The main marketing objectives along with a thorough marketing plan and a complete set of advertising tools is presented in the Marketing section. Besides, Operational part gives the detailed outline of the practical organization and implementation of a whole business idea. We explore different techniques for process development and improvement. The Finance section encompasses the investments, capital structure and scenario-based profitability analysis. As a result, business evaluation is derived under various assessment methods that are subsequently used in the exit strategy framework. We conclude that a carefully-thought management strategy can turn into successful business venture, when comprehended as a complex of managerial skills, professional expertise and strong market awareness. TABLE OF CONTENTS 1. INTRODUCTION 5 1.1. Purpose and goals 5 1.2. Method and limitations 5 1.3. Management team 5 1.4. ...read more.

Middle

At end-Y3, long-term assets are more than 60% of overall assets in all cases, which asset structure is typical of service companies. Another example of the service nature of the business we find in net working capital (App. 17). It reveals the sources of funding, especially at the beginning of business activity. Due to relatively large volume of short-term portion of the attracted financing, the net working capital is negative for Y1 and Y2. Under pessimistic scenario, the amount of debt outstanding, booked as a current liability, hinders the growth in working capital. Compared to the volume of income, total assets, and long-term assets, the amount of working capital is trifle, which underscores the service-type of the enterprise. Last, net worth formation matches with the after-dividends profits for Y1-Y3. The ability of the enterprise to accumulate growing net worth under all scenarios underlines its strong competitive positioning. 11.8. Funding We describe an entirely debt-financed venture. In Y1, the PM team attracted external financing (App. 18) and reinvested profit, as follows: o A bank credit line that is paid in installments at the end of Y2 and Y3 (under the realistic and optimistic scenarios) and at the end of Y2-Y4 in the pessimistic case. The pricing (7.70% p.a.) is aligned with the reference annual interest rate for up to a 5-year business loan (App. 19). o Funding by the PM team (EUR 10.000). The cost (10.56%) is consistent with reference annual rate for up to a 5-year loans, extended by non-financial institutions (App. 19). It is a bullet-payment obligation, due at the end of Y3. o Net profit reinvestment, which is accumultated for Y2-Y3, after dividend payouts. The total debt was used to pay for EUR 36.100 start-up investments (App. 21) and for operating expenses. The cost of funding (WACC7) is 7.50%-7.63% (App. 2), and takes into account 10% effective interes rate. We should point out that WACC is at least twice lower than the business net profit margin under all scenarios (App. ...read more.

Conclusion

702 18 702 increase in non-cash working capital /reinvestment2/10 3 767 3 731 773 -2 860 -2 718 1 001 987 989 1 856 FCF11 -16 921 -19 350 -16 589 4 646 10 730 5 627 15 042 18 329 23 623 WACC 7.50% 7.57% 7.63% 7.50% 7.57% 7.63% 7.50% 7.57% 7.63% discount factor at WACC 0,930 0,930 0,929 0,865 0,864 0,863 0,805 0,803 0,802 discounted FCF at WACC -15 740 -17 988 -15 413 4 020 9 272 4 858 12 107 14 724 18 949 company value as per the end of Y3 (1) 387 6,008 8,393 terminal value (forecasted zero-growth FCF after Y3) 9,800 14,500 14,600 company value after the 3rd year with constant FCF (2) 130 632 191 457 191 458 PV of the company (1)+(2) 131 019 197 465 199 852 PV of debt (3) 15 482 491 497 PV of equity (1)+(2)-(3) 115 537 196 974 199 354 Price/Book value of equity 9,65 8,45 6,52 Appendix 23 Dog Area Layout Appendix 24 Doghouse Outlook Appendix 25 Administrative Building Interior Layout 1 P&L - Profit and Loss Account 2 BS - Balance Sheet 3 CF - Cash Flow 4 We use the following abbreviations throughout: P - pessimistic, R - realistic, O - optimistic. 5 SG&A - Selling, General and Administrative expenses 6 BEP - Break-even point 7 WACC - weighted-average cost of capital 8 FCF - Free Cash Flow 9 Net capital expenditures = Capital expenditures - D&A (Damodaran, 2002, p. 255). This is the first component of the reinvestments. 10 Increase in non-cash working capital = +Increase/-Decrease in (inventory, other non-cash current assets)+ Decrease/-Increase in (accounts payable, other non-interest bearing current liabilities). This is the second component of the reinvestment (Damodaran, 2002, p. 262). 11 FCF is the remaining cashflow that is available to shareholders (dividends, stock repurchase etc.) and debtors (payments related to interest-bearing liabilities). ?? ?? ?? ?? Business Plan 2009 AMIGOS Strategy page 14 of 139 16-Dec-2009 page 2 of 142 174 138 ...read more.

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