and the fact that these clearly differentiated clothing will be sold at discount prices should help my business generate high revenue.
SUMMARY&CONCLUSIONS
- There’s a gap in the market which my differentiation strategy will fill.
- My boutique will offer high quality designer women’s wear at discount prices.
- The market mapping exercise is based on my perception of the boutiques operating in this market.
Price
Consumers seek for the best bargain prices where they get to purchase products at low prices which is why many retailers in Peckham aim to sell products at cheap prices that are quite attractive to customers. Also, market research data shows that expenditure on clothing accounts for a diminishig percentage of total consumer expenditure as an increasing amount is spent on leisure(holidays), household and personal services.
Consumer expenditure on clothing as a percentage of total
expenditure on durable and non-durable goods & services
(£m at retail selling prices), 1997-2001 Keynotes
This data shows thatconsumers have been spending less on clothing in the past years as consumers spend an average of 5% to 6% of disposable income on clothes and this relatively small amount is shrinking. (Snapshots International)
The average price of clothes charged by the non-designer retailers is £10, which is as a result of their aim to achieve cost leadership in the area thereby causing price wars. However, my pricing will be different from theirs, as I’ll be selling designer apparels at discount prices. Customers can buy designer wear from as little as £10, for example, they could buy a Burberry hat for £13 from my boutique, which costs thrice the price when buying it at the main retailers of Burberry fashions. Although the price I’ll be charging is higher than the average price of clothes in my area, the differentiation of my product means that consumers should be willing to pay more quality.
SUMMARY&CONCLUSIONS
- Customers spending less on clothing.
- Average price of clothing in Peckham is £10.
- The use of discount pricing tactic.
Place
My research showed that the boutiques in Peckham are located near each other. There’s a cluster of these low cost boutiques at the beginning of Peckham Rye Lane. There’s a big Safeway store opposite these stores which offers free car parking, which is an added convinience for shoppers.
The location is important because it is at the heart of the Town Centre,, which attracts a lot of shoppers, and it’s important I locate there, as that is where the gap is.
There is a mixed secondary school on the High Road (about 5 minutes away) which is an advantage as teenagers are also part of the market I’ll be appealing to.
Finally, the cost of locating there is low.
Promotion
Designer labels benefit from main media advertising by their manufacturers and also, as part of retailers’ promotions. Extensive advertising is seen in the daily press, lifestyle and fashion magazines, on TV and on outside posters, and often uses personalities such as models, actresses and sports stars.
Main media advertising expenditure on women’s fashion retail in 2001 was £3,487,000. Keynotes
Most designer wear discount retailers promote their goods by advertising heavily on the internet. For example, e-bay sells designer wear online at bargain prices. They also advertise on local radio stations and local magazines. They use mainly, below-the-line promotion because they are not as expensive as above-the-line promotion(e.g. TV). Also, as they are selling designer wear at discount prices, they have to keep their costs low, so they can make profit.
Window display within the shop is also of utmost importance since there’s an element of impulse buying of clothes.
Market Size
- The sales of womenswear grew by 4.3% in 2001. Total sales value for 2001 was £12,980.8 million
- The compound annual growth rate of the market in the period 1997-2001 was 4.6%.
- The strongest growth was in 1997, with a growth rate of 6.5%.
Market Segmentation Value
The retailers of discount designer wear tend to have performed best in the area of practical everyday clothing (outerwear), as these garments tend to be cheaper to produce and enables the retailers to sell them at lower price points.
Outerwear, representing 73.38% of the market in value terms, is the largest sector of the UK womenswear market.
Market Trends
- Extensive market research conducted by Key Notes shows that between 1995-1999, the number of pair of jeans bought, fell by millions as younger people turned their backs on garments worn by their parents and over 40’s(e.g. Levi’s). However, the rising popularity of designer wearing celebrities and their innovative added details (e.g. embroidery) helped in reversing the trend. Nevertheless, while volume sales have gained ground, value has not because of high levels of cheap imports and heavy discounting.
- International brands such as Spain’s Zara and Mango are showing more impressive growth and are increasingly invading the high streets with their international designs.
- Manufacurers and retailers are doing their best to exploit the ‘Tweenager’ market, as children are growing up faster than ever. Most parents find their offspring develop thoer own, sometimes bizzare, opinion of what they want to wear and nowadays, even younger children want fashionable clothes because of what they see pop idols and movie stars wearing on TV.
- Discount retail outlets opening up in one area, often known as Shopping Villages, bring together a range of discount retailers into one area where consumers cann spend time enjoying a complete shopping experience.
- For designerwear, consumers look for the best bargains on the internet, as there are not many shops selling designerwear at discount prices.
- The table below shows that sales in the discount retail market are continuing to grow since 1999.
Trends in UK Discount retailing sales (1996-2000)
Keynotes International
Summary&Conclusions
- Consumers searching the internet for designer wear at bargain prices e.g. E-bay
- Strong growth in the discount retail market.
- Internatinal brands invading the market.
Market SWOT analysis
Strengths
- Huge gap in the market for designer wear in Peckham.
- No direct competiton as those in the market are located far away and they don’t provide after sales service like garment alterations.
- Clothing is a necessity consumers cannot do without.
- There is a high incidence of impulse buying.
- The UK industry in strong in fashion and design.
- The market is supplied, to a great extent, by low skilled and low paid labour.
- Changes in fashion ensure that the fashion conscious replace and augment their wardrobes frequently.
Weaknesses
- The proportion of income spent on clothing out of the household budget is declining as households spend more on new technology and holidays.
- In the clothes industry, competition is fierce and discounting, heavy.
- UK clothing industry has lower productivity than leading European competitors and is increasingly threatened by low-cost foreign competitors.
- Prestigious brands have high profiles and their products are soon copied for the mass market to buy at cheap prices.
- Big chains dominate the retail sector and market gain is at the expense of another.
- Overstocking is a more serious problem than understocking because fashion changes so quickly.
- Sales are seasonal, with the greatest expenditure seen in the run-up to Christmas, when more expensive coats and designer party wear are wanted.
- Sales are susceptible to unseen factors such as a rapid change in consumer taste which could lead to designs lasting longer than its season, which could be a problem for manufacturers, as they might not have the ability to increase capacity.
Another unseen factor is that of 9/11. Sales suffered in London immediately after the attack, as people feared economic showdown and fewer people visited the capital.
Opportunities
- Brands such as Burberry and Mulberry, have successfully reinvented themselves and there will be consumers aspiring to own luxury brands.
- More working women means that they are not only likely to need more clothes, but also more likely to have financial independence to buy luxury items.
- Once established I could open more outlets in London and start producing clothes using my name.
Threats
- Some established boutiques in Peckham could diversify into the designer wear market, which means they are not just going to attract their existing customers, but also with the use of promotion, new customers (depending on what strategies they use).
- Also, one of the major discount retailers, The Outlet is making plans on opening in Southwark. The precise location has not been disclosed, yet.
Summary&Conclusions
- The sale of designer wear differentiates us from the boutiques in the area.
- Clothing is a necessity.
- Decline in the proportion spent on clothing.
- Population of working women is growing.
- Established retailer plans to open an outlet in this borough.
PEST ANALYSIS
This examines the external environment and the global factors that may affect my business.
Political
This looks at how political developments and factors, regionally, nationally and internationally might affect my business strategy.
The current outbreak of war might affect sales for designer wear, as consumers might be spending more time indoors, therefore, requiring less need for designer wear. This might be due to fear of an attack, which might have affect revenue in the short term.
Legislation surrounding planning for new developments such as renovation of existing buildings, construction of new buildings or changes of land use requires planning permission from the relevant local planning authority.
In 1999/2000, the Department of Environment, Transport and the Regions (DETR) showed that district planning authorities received 526,000 planning applications of which 480,000 applications were approved. (Key notes international)
The delay in getting permission can seriously affect the ability to respond quickly to changing market conditions.
Economic
This involves the analysis of a variety of economic factors and their effects on my business. The following are the information gathered from secondary data.
Interest rates are low, fuelling (or at least, helping to maintain) the level of consumer confidence and spending that is necessary to foster a buoyant market for discount retailing.
Businesses active in this market tend to survive well in times of economic slowdown or recession. When the economy falls, the shoppers that are targeted by the discount retailers continue to shop. While in a recession, new customers that have fallen on harder times are attracted in through the doors. If these customers can be retained, they provide a strong opportunity for the growth of my business.
Social
Projected increase in the population of women and working women will be a major benefit to my business, as they are my target audience. The more working women mean the more money consumers have to spend.
Technological
This is a review of the impact new technology upon my business.
The use of Computer Aided Design (CAD) has made it possible for designer wear to be copied for the mass market at low costs, thereby affecting the demand of authentic designer wear.
CUSTOMER ANALYSIS
Demographic
The customers of my market are women, and they spend an average of 5% to 6% of disposable income on clothing and this is a relatively small amount, but consumer expenditure has grown by 35% over the period 1995-2000. Research also show that working women tend to spend more than those that are not working because they tend to have more occasions to dress for. Consequently, the rise in number of working women helps the growth of the women’s wear market.
In the women’s wear market, consumers tend to follow the trend of designer wearing celebrities they see on TV and magazines.
Profiling
TOTAL POPULATION 244, 867
AVERAGE WEEKLY PAY £623.60
www.upmystreet.com
April 2001 Census
The number of 15-19 year olds has increased substantially, and they are the highly influential consumers in the fast moving market. As teenagers, they are demanding more stylish and fashionable designer garments, aiming to achieve the looks of pop idols like Britney Spears. They are highly active clothes shoppers because by this age, they are beginning to earn money and spend it freely on clothes and personal adornment.
The chart above shows that there are 125, 045 females and 119, 822 males in the population of Southwark. As a percentage, 51% females and 49% males which justifies my target of the female market.
The chart above shows that there are 56.1% employed females and 6.2% unemployed females in Southwark which means females in this area have jobs that they earn money from and spend on clothing – designer wear or non-designer wear.
OUTLINE MARKETING STRATEGY
Marketing Objectives
These are the goals that my business will aim to achieve having analysed the market environment and the conditions surrounding it, I have set the following objectives for my business.
- To diversify into the designer foot wear market, once my business is well established.
- To be the market leader in the area once a new entrant comes in.
- Establish good reputation by giving customers the utmost satisfaction during and after sales.
- To have a minimum of 5% increase in revenue in the next 3 years.
- To create a competitive advantage by emphasizing our exceptional service of garment alteration to our customers, so as to create customer satisfaction and have an advantage over other boutiques in the area.
Marketing Research
This is the process of gathering, collation and analysis of information relating to the marketing and consumption of designer wear. This information is gathered so as to help me in decision making. There are two main methods used in carrying out this research;
Secondary Research This is also known as DESK research, which involved gathering information that already exists. I used marketing research reports from MINTEL, KEYNOTES INTERNATIONAL and SNAPSHOTS INTERNATIONAL from the Business Library in Leicester Square. Information from the Internet was also used to gather information on demography: statistics.gov.uk and upmystreet.com. The benefit of this secondary research is that it is already available and at no cost. However, they were not always 100% accurate, as some of the reports are outdated.
Primary Research This is also known as FIELD research, which involves the gathering of data that doesn’t exist. In other words, it’s the data I collected by myself in the form of questionnaires to customers and a personal interview with the manager of Kolors, the designer shop for men. The sampling method used was quota sampling based on females between the age of 15-44, however, results from this quota sample are not statistically representative of the population. This primary information is going to be used in determining my start up costs, running costs, analyse competition, the market and customer views.
Sample Size: 50 women
Interview with Assistant Manager of Kolors, Mark _ Davis
ME: Why did you choose to locate in Peckham?
Mark: Because we noticed a gap in the market.
ME: Who are your target audience?
Mark: Males aged between 15-44 years old.
ME: Where do you get your stock from?
Mark: We order them from their manufacturers in America and Italy.
ME: How much stock will I need to start-up a business like yours?
Mark: About £50,000 worth of stock.
ME: What is your price range?
Mark: The lowest price in the shop is £20 and the highest is £150, and that’s a leather jacket.
ME: Why did you choose to use discounting pricing strategy?
Mark: Because that’s the most effective way of attracting customers to your shop. Moreover, this is an area where clothes are being sold at cheap prices.
ME: Doesn’t this affect profits?
Mark: No, at all. The suppliers supply end of range clothes and left over stock to us at really low prices because they are trying to get rid of their stock. For example, we buy a shirt from the supplier at £15, we sell it for £30 because at the main designer shops, that shirt might cost £95 and above, so discounting doesn’t affect our profits. As a matter of fact, profits have grown by 15% in two years.
ME: What form of promotion do you use?
Mark: We advertise in magazines, on radio, yellow pages and of course, window displays- they are the best!
ME: About how much does it cost to advertise on radio and magazines alone?
Mark: About £14,000, depending on which magazine and radio station.
ME: How much is your rent?
Mark: £2,500.
ME: How much are your business rates?
Mark: £2797.20
ME: About how much are your daily sales and weekly sales?
Mark: Daily, £1,600-£2,000. Weekly, £8,000-£10,000, and during the festive season (Dec/Jan), about £13,000.
ME: How long have you been trading?
Mark: About 3 years now.
ME: What problems do you think your business has?
Mark: The business has been a success right from the start. This is as a result of price discounting, which is very attractive to customers. However, the business has had its fair share of problems. In December 2001, we had problems with stock delivery because of the September 11 incidence. This affected our sales, as this month is usually the busiest month of the year for us.
ME: I think I’ve got all I need to know, for now, but if I need more information, I’ll contact you.
Mark: You are welcome anytime. Good luck with your project.
Summary & Conclusions
- Secondary data gotten from government statistics and marketing research reports.
- Primary data gathered in the form of questionnaires and personal interview using a quota sample of 15-44 year old females.
-
The research conducted enabled me analyse the market condition, competition, and consumer views and opinions, as this will help me in implementing my objectives.
Likely Marketing Strategy
Based o the primary and secondary research conducted, I will analyse the findings to develop a marketing strategy for my business.
PRODUCT
From the data gathered from my questionnaire, I will stock more of DKNY, Burberry and Versace designer labels than any other label because, according to my research, they are the most popular among consumers.
PLACE
According to this information, I’m definitely going to locate in Peckham because 68% of the 50 people said it’s a good idea. Also, their reasons for this are;
- There are none in the area 20%
- It’s easily accessible for locals 80%
This shows a demand for women’s designer wear in the area.
Locating in Peckham Town Centre means that I’ll be attracting a lot of female customers because this is where I carried out my research, and this is where a large amount of competitive low-priced shops are located.
Transportation in this area is very good. There’s a bus garage with about 18 bus routes, and a National Rail train station that covers a large part of London and the South East.
Peckham Police Station and fire station is about 8 minutes walk from the Town Centre which ensures our protection in the area.
Also, the gap in the market for women’s discount designer wear is an opportunity for my business, as I won’t have competitiors in the same market that are established there.
PRICE
As the Assistant Manager of Kolors said, “The lowest price is £20 and the highest price is £150, for a jacket!”
Clearly, I’m going to use the same pricing strategy as Kolors, as I don’t think to stock clothes that will be highly priced, and due to the low income earnings of locals in Peckham, might not get sold.
Based on research, customers said they spend the following;
-
Trousers £30-£80
-
Denim Jackets £30-£80
-
Jeans £30-£80
-
Skirts £20-£60
-
Tops/Blouses £20-£50
-
Hats £15-£45
Based on this data, these are the prices I’m going to set, depending on how much I get them from the supplier.
PROMOTION
The Assistant Manager at Kolors said they promote their business through adverts on radio, in magazines, yellow pages, and shop window displays.
These cost a lot, but in my case, I’m going to advertise in a fashion magazine, Ovation, radio station Naija fm, as they are the most popular amongst consumers in the area. I’ll also have window displays with mannequines wearing attractive clothing.
COSTING
Possible Sources of finance
Sources of finance are the origin of the money invested in a business. This is where the money spent on Capital Expenditure and Revenue Expenditure in the business comes from.
Possible sources of finance are;
- Bank Loan: This is may be a medium or long-term loan with variable or fixed interest rates, depending on the bank. In my case, I don’t want totake out a bank loan because; I don’t want a high gearing ratio and I wouldn’t want to take a risk if my business idea doesn’t become a success. However, I could take out a bank loan when expanding my business in the long term.
- Owner’s Equity: This is the capital put into the business by the owner or owners. In my case, this is my source of finance, as it is my own money and savings, the money has an advantage that it has no interest charges to pay, although, the money is at risk if the business fails. The sum of £200,000 was gotten from the sale of my dad’s house in 2000, and my personal savings of £31,400 will be used to finance the business.
Start up costs
Information of financial estimates for the start up for my boutique were gotten from the interview with Kolors, the men’s designer wear boutique, the costs of equipment were also, gotten from company’s that provide them on the Internet. Dollond and Aitchson, an Estate Agent was also contacted for information on the cost of premises in the area.
Premises
The average size of a clothes shop in Peckham is 25 x 30 ft. The cost of purchasing such premises is about £500, 000. This is a high cost for me, as I don’t have that much capital to fund the purchase of the building at the moment, so my plan will be to:
- Rent the building with an option to buy.
- Redecorate the site.
I don’t need planning permission, as the premises used to be occupied by another shop, so they have paid for the planning.
Lease of premises: £2,500 per month
£30,000 per year
Decoration: The main decorative costs will be from the mirrored walls and lighting.The total cost amounts to £30,000.
So the total start up cost for premises is £60,000.
Equipment and Furniture cost
2 computer systems will be bought at £999 each from PC World.
2 Casio Electronic Cash Registers will be bought at £289 each from Keysan.com .
1 Fire safe for the storage of vital documents and paper work will be bought at £85 from Keysan.com.
Closed Circuit TV (CCTV) and Burglary Alarms that will detect the theft of clothes from the shop will cost £9,000.
Furniture will be £10,000.
Total Cost:£20,373.
Business Rates
The business rate for Kolors is £2,797, so I’m assuming my business rate should be around the same price, and on contacting Southwark Council, they told me the rate should be roughly around the same price.
Stock
This will cost £50,000.
Other Costs
Television set for staff to watch during their lunch break will cost £150.
TV license £100
CD player for the shop floor £250.
To be on the safe side, a contigency allowance of £20,000 willl be kept aside incase of any unforseen costs.
Total Costs: £20,500.
Summary of start up costs:
From this objective I conclude that an initial outlay of £153,670 will be required to set up the boutique in Peckham.
Running Costs
These are the costs that will be used in financing my business on a day to day basis.
Wages
Two sales assistants will be employed and one security guard incase there are any mishaps.
“Unemployment rate is nearly double the national average in Peckham.” ( ACORN Profile – upmystreet.com)
From the data above, I’ll pay my staff the National Minimum Wage of £3.60 per hour if under the age of 22, and £4.60 per hour if over 22, but I’ll be recruiting people under 22. I’ll be paying staff the minimum wage because; I’m trying to keep my running costs as low as possible, so that I’ll have a comfortable liquidity. They’ll work 37.5 hours per week, so wages per week will be;
37.5 X 3.60
= £135 per person.
Total wages per week will be;
£135 x 3
= £405 per week
Rent
The cost of renting the shop is £2,500 per month. (Dollond and Aitchson Estate Agents)
Rates
Business rate for my boutique is £2,797 per year, £699 per quarter. {Southwark Council)
Electricity and Heating
This will cost approximately £325 for each quarter of the year. (Npower)
Telephone
This will cost approximately £70 per month. (British Telecom)
Advertising
Adverts will be placed in fashion magazines Ovation and South London Press at a low price of £10,500 per year. Also, adverts on radio will cost about £3000. (Choice Fm)
Summary of running costs
External Factors Affecting Income
FINANCIAL FORECASTING
This a prediction of my financial status in the future.
Sales Revenue Forecast
This prediction of what my sales will be in the forthcoming years. This is going to be done using the sales data gotten from my interview with Kolors. Weekly sales are between £8,000 and £10,000, which means sales are between £32,000 and £40,000 per month. In December/January, sales are between £12,000 and £14,000 per week.
Sales Forecast for Year 1
At the start of the business, my prediction is quite pessimistic, so the reverse might happen and I might have higher sales than I predicted.
Sales Forecast from 2005 to 2008
The forecast is based on the assumption that my monthly sales will be between £32,000 and £40,000, just like Kolors.
Cash Flow Forecast
This is a statement that sets out the predicted/anticipated/likely cash inflows (receipts) and cash outflow (payments). Each column shows the cash coming in and going out of the business and shows its effect upon the cash balance of the business. All the entries in the statement are estimated because they haven’t occurred yet.
Cash Flow Forecast For First Year
The cash flow forecast shows that my heaviest payments will be in April, as this is when tax is being paid. This gives me a negative cash flow for that month, but overall, my cash flow looks healthy through the year.
Projected Profit and Loss Account
This is a statement that records the firm’s sales revenue and the costs/expenses generated to earn that revenue over a trading period.
It shows net profit after tax by deducting the firm’s expenses and taxation from operating profit.
With my sales and cash flow forecast data, I’ll project the amount of profit I’ll generate in my first year of trading. This account helps in measuring performance and comparing it with other firm’s. Also, in case I need a loan for expansion, the profit and loss account will help in obtaining a loan from the bank, as this will be a proof that my business will be capable of repaying a loan.
However, the downside of this projection/forecast is that, just like the cash flow, it’s just a prediction. Any unforeseen external forces might hinder the success of the forecast.
COLLECTIBLES
Trading and profit and loss account for the year ended 31/5/04
The profit and loss account for the first year of business shows that my net profit would be £-74,797, because of my heavy tax payments. Tax is 40% of my sales revenue, which is £347,000. This is just a prediction, so I believe next year’s account might be better.
Projected Balance Sheet
The balance sheet is another accounting statement that shows the firm’s assets and liabilities, in other words, what the firm owns and what it owes at a particular point in time. This account provides a summary and valuation of the company’s assets and liabilities. It also indicates whether the value of working capital is enough to pay its everyday expenses.
COLLECTIBLES
Balance Sheet as at 30 June 2003
- My projected balance sheet at the end of the first month of trading shows that my assets are £162,470 and my liabilities are £4,400, which is tax. I can prove that my balance sheet is in a healthy position by using ratio analysis.
Ratio Analysis
This interprets the financial data I’ve given above by comparing two figures in the accounts, which are related in some way.
The main ratios that I’m going to use to assess my financial data are;
Performance/Profitability Ratios, Liquidity Ratio and Gearing Ratios.
Performance/Profitability Ratios
This helps to show how well my business will be doing focusing mainly on profits, capital employed and sales turnover.
-
Gross Profit Margin: This shows the gross profit made on sales turnover. It shows the profit made before all overheads/expenses are taken out.
Gross Profit Margin = gross profit x 100%
Sales turnover
Gross Profit Margin = 133,500 x 100%
347,000
=38.4%
This shows how well my business controls its overheads/expenses. It shows the profit made after all overheads have been deducted and the level of turnover made.
Net Profit Margin = Net profit x 100%
Sales turnover
Net profit margin = (74,797) x 100%
347,000
=(21.5%)
Both ratios don’t look good, but this is as a result of this year being my first year in the business. However, this can be improved in the next financial year by raising sales revenue and keeping my costs low. Again, the ratios are based on a forecast, a prediction, so it might not reliable.
-
Return on Capital Employed (ROCE) : This shows the return of the capital I invested in the business. It measures the efficiency with which the business generates profit from the money invested in the business.
ROCE = Operating Profit x 100%
Capital Employed
ROCE = (74,797) X 100%
153,670
= (48.6)
Most businesses regard a 20% ROCE as very satisfactory (Course Work Handbook) , but with my negative figure, this is considered as a risk, especially when the money invested is mine. However, if there’s no success in the first year, that doesn’t mean there wouldn’t be in the next year. Again, it’s a forecast, and this figure can be improved by increasing the level of profits generated by the same level of capital employed.
Liquidity Ratios
This shows the solvency of my business, showing if the business is able to repay its debts by focusing on short-term assets and liabilities.
Current Ratio
This often referred to as the working capital and examines the liquidity position of the firm by showing the relationship between the firm’s current assets and liabilities.
Current Ratio = Current Assets
Current Liabilities
Current Ratio = 141,697
4,400
= 32.2 :1
Acid Test Ratio
This examines the liquidity position of my business by comparing current assets and liabilities , but it omits stock from the total of current assets, as stock is the hardest to turn into cash without a loss in its value, and are not guaranteed to be sold.
Acid Test = Current Assets – stock : Current Liabilities
= 141,697 – 50,000 : 4,400
= 91,697 – 50,000 : 4,400
= 41,697 : 4,400
= 9.5 :1
The suggested or ‘ideal’ ratio for current ratio is approximately 1.5:1, so a current ratio of 32.2 : 1 shows that I’m capable of paying whatever debts I might have, which I don’t, at the moment. This high ratio is as a result of the cash at bank, which I’m saving to develop my business once established, so my money is being tied up unproductively.
The Acid test ratio’s ‘ideal’ ratio is 1 : 1, so an acid test ratio of 9.5 : 1 shows that for every £1 of short-term debts, my business has £9.50 to pay it back.
Gearing Ratios
This is also known as leverage, and focuses on the long-term financial stability of my business by measuring long-term loans as a proportion of capital employed. It shows how reliant a business is upon borrowed money.
However, I am not taking out any loans to finance my business, as I’m going to use my own money to finance the business, so I’ll have no gearing.
Gearing = Long- term loans x 100%
Capital Employed
The fact that I have no gearing in my first year might help me in securing a loan in the future if I run into financial difficulties.
RECOMMENDATIONS
I believe that the majority of the research conducted is as accurate as possible. The demographic information taken from the most recent Census was produced in 2001 and it can be assumed that the main difference in recent data would be an increase in population, as the data is about two and a half years old.
I also believe that the questionnaire conducted in Peckham Town Centre produced inaccurate results, as it is unreasonable to say 68% of the sample size of 50 women said they think it’s a good idea to locate in Peckham. I believe that this anomaly arose due to the small sample size of 50. If I had more time to compile my research, I would interview a greater amount and range of people, for example, devise a specialised questionnaire for the different age groups and a sample size of 150 or 200.
It must also be taken into consideration that regardless of the amount of research conducted, there may be many unforeseeable circumstances that could affect the profitability of the business, external factors such as a downturn in the economy due to the war in Iraq.
Finally, the business may be more profitable if it set up in the West End, a high profile area with people having high incomes. However, there is much more competition in this area, and it’ll be a risk to enter a fiercely competitive area.
CONCLUSIONS
After conducting all the relevant research and taking into consideration any anomalous data, I believe there is a chance of success for my boutique, Collectibles. Research showed that there is a substantial demand for women’s designer wear and a continuation of this demand would enable my boutique to expand into the designer footwear market.
From the questionnaire, it is evident that the average price consumers are willing to pay for discounted designer wear is £40, which is fine, as stock comes cheap.
Although the financial forecasts don’t look too good in the first year, I believe, the reverse might happen, as I was quite pessimistic when I predicted my sales revenue. Again, it is just a forecast, and if my predictions are right, then it is worth taking into consideration that this is the first year of trading, and finances could be improved using good marketing strategies.
However, I’m going to go ahead with my business idea, not taking into consideration financial forecasts because they are just predictions.