Business plan for automobile accessories

Business Plan

Business Plan for AutoMobile Accessories

Executive Summary

Auto Mobile Accessories is a new China retailing company, which will offer the quality, affordable car accessory products and relative services to the Chinese private car owners. Auto Mobile Accessories will grow rapidly and will become the Chinese national premier brand for car accessories retailing.

The market

Auto Mobile Accessories will be participating in an exciting, rapidly growing market. The China's private car consumption market has been increasing fleetly, but the relative car services and accessories industry does not develop consistently. So the current market situation gives us a unique opportunity to enter into the car accessories retailing and service providing market.

Products, Services

Auto Mobile Accessories will sell wide rage of car accessory products to the customers, e.g. audio, multimedia systems; security and safety products; interior and exterior styling products; cleaning and body repair products; and so on. Services include products installing, after-sale services, products warranty, etc.

In general, Auto Mobile Accessories' aim is assisting its customers in selecting the best car accessory products and services at the price that meets or exceeds their expectation.

Finance

Automobile Accessories will be profitable from month one. Margins are forecasted to be at over 31%. Year one sales will reach ¥7,000,000, and the growth rate for the first 3 year will be forecasted as 200%. The gross profit will reach ¥2,200,000, the growth rate for first 3 years will also be forecasted as 200%. The net profit will be ¥1,120,000, the growth rate for first 3 years will be over 210%.

Company Summary

AutoMobile Accessories is a new retailing company, which upon commencement of operations will offer the private car owners with quality, affordable automobile accessory products and relative services.

Company Ownership

AutoMobile Accessories is a China private limited company, owned entirely by its founders, Chao Jiang and Ke Kang. Each will have 50% shares of the company capital.

Start-up Summary

Our start-up capital is ¥2,000,000 (equal to £133,400 at the exchange rate of ¥15/£). The business will be initiated entirely by initial investment from 2 partners to a total amount of ¥2,000,000. And the start-up costs are listed on the following page. Major costs include ¥200,000 for rent,¥30,000 for computer hardware, software and setup support; ¥2,000 for telephone systems, ¥30,000 for office equipment and furniture, ¥50,000 for parts shelving and other warehouse equipment, ¥150,000 for leasehold improvements and decals, and ¥80,000 for 2 company vehicles. (All the costs above are basing on the Beijing China market prices and indicate the total costs required for 2 retail outlets.)

Company Locations and Facilities

AutoMobile Accessories will open 2 retail outlets in Beijing, the capital of China. One will be set up in the North zone 4 of the Beijing city (like London, Beijing is divided into annular zone of 1,2,3,4 & 5), just beside the dealers of Audi, Volkswagen, Toyota, Honda, GM, Mazda, Hyundai, BMW etc. and theirs 4S shops. And another one will be located in the East zone 4 of the Beijing city, close to the most of the famous youth nightclubs and private auto racing clubs. The first outlet will provide company a good visibility to those new car buyers and second one will attract the attention of the youth car drivers and racing clubs members. Both of the outlets are located in the high street and within 2km distant to the Beijing capital No.4 annular high ways, which will provide customers with easy, fast and convenient access to the AMA retail outlets.

The advantages of choosing zone 4 area as the company locations are, the rent price will be significantly lower than the central city high street; there are lots of well built old or new warehouses for renting and providing necessary equipments for commencing the business; there will be ample car parking spaces for the customers, as the target customers are the private car owners and most of them will drive their own cars to the shop. So enough parking spaces will be one of essential elements for AMA providing the services.

The company will initially rent two warehouse buildings of 300 sq. m. each. Both locations will consist of the showroom, office space and warehouse. All the sales, deliveries and shipments will be serviced at these 2 locations. And there will have ample car parking available.

And all the retail outlets will open 7 day a week, from 10am till 8pm.

Mission and Strategic Objectives

Mission

AutoMobile Accessories is dedicated to providing Chinese private car owners with wide range of car accessory products, which combine good performance and high quality with reasonable, affordable and value pricing. We wish to establish a long-term, successful relationship with our customers, employees and suppliers that respects and pursuits the interest and goals of each party.

In order to satisfy customers' wants and asking for, AMA will continually doing the market research and review the available products in the marketplace. Supplying and providing the latest products and better-improved services will attract and maintain the target customers and finally ensure AMA's success in the market.

Strategic Objectives

  1. To make the AMA the first choice for the purchase of car accessory products in Beijing market.
  2. To achieve gross profit margin of at least 30%.
  3. To achieve the ¥7,000,000 sales by the end of first fiscal year.
  4. To double the retail outlets number every fiscal year.
  5. To occupy the market among the top 10 cities in China by the end of fifth fiscal year.
  6. To make the AMA brand name well known China wide.

Key success factors

In order to achieve above strategic objectives, the critical success factors are:

  • Ability to attract customers and generate sales
  • Deliver the products and provide services promptly.
  • Be an active member in automobile activities, e.g. attend the regional and

national automobile exhibitions and trade shows.

  • Create AMA brand imagine.
  • Build credibility through supplying products and providing the services.
  • Build and develop customer loyalty and relationship management.
  • Financial control and project management.

Products:

AutoMobile Accessories will sell car accessory products to the private car owners. The product range will include Car audio, multimedia and navigation systems; Car security and safety products; Interior accessories and Exterior styling products; Car cleaning and body repair products; Seasonal Motoring products; Workshop equipments and tools; Motoring relative books, videos and DVDs etc.

And the services we will provide will include products installing and fitting, after-sale services, the products warranty, motoring knowledge seminars, D.I.Y. training, etc.

Personnel Plan

The foundation of the personnel plan is to maximize the productivity and minimize the burden on the company's overheads costs. So there are 2 different personnel requirements for the retail outlet and HQ.

The personnel for the retail outlets:

For each retail outlet, there will be 10-14 persons needed:

Number of Personnel

Duty

Store Manager

1

Daily sales/operation management, staffs supervising, inventory management, shipping and receiving, and implementing the orders from HQ.

Deputy Manager

1

Accounting, services/complaint management, paper working and assist store manager.

Mechanic

2

Installing/fitting products for customers, after sale services, mechanical check and maintenance

Salesperson (Full-time)

4

Sale, customer services

Salesperson (Part-time)

2-4

Sale, customer services, assist full-time staffs

And as the business growth and the stores number double every year, we expect to see a fast increases in our personnel in order to match the rapid increase in sales.

The personnel plan for the HQ:

Since the 4th year of the business operated, as the company will have expanded to 16 stores, a formal headquarter need to be built up for systematic management.

Financial Plan

The financial strategy is based on prudent and conservative principles.

7.1 Important Assumptions

Key assumptions for AutoMobile Accessories are:

  • AMA does not sell any products on credit.
  • The growth of the Chinese private car ownership keeps a rapid increase for the flowing 5-7 years.
  • The Chinese automobile industry keeps a steady continued growth.
  • The Chinese economy growth is not over-heated, monetary policy is constant and inflation rate will not change suddenly for the future 5-7 years.

Key Financial Indicators

The following chart shows the key financial indicators for the first 3 years period.

  • Growth Prospects - As the business will be rapid expanding in the first 5 years, the sales growth rate will be rapidly increasing and maintain at the 200%.
  • Profitability - The profitability of business is likely to remain relatively constant over the first 3 years with net profit margin ranging from 15.95% to 18.24%. And as the expected competition will be relatively low in the first 4-5 years, the gross profit margin will remain constant at the rate of over 30%.
  • Cost Control - As the sales increases the overhead as a proportion of sales decreases due to the increase spread of fixed costs.
  • Solvency - The business is relatively comfortable with cash flow. As there is no liabilities occur during the business expansion, the business will have enough cash for using for operations and investment

Start-up Statement

Start-up

Reauirements

Start-up Expenses

Rent

¥200,000

Stationery, forms, etc.

¥5,000

Decals

¥50,000

Total Start-up Expenses

¥255,000

Start-up Assets Needed

Cash Balance on Starting Date

¥253,000

Start-up Inventory

¥1,200,000

Other Current Assets

¥0

Total Current Assets

¥1,453,000

Long-term Assets

¥292,000

Total Assets

¥1,745,000

Total Requirements

¥2,000,000

Funding

Investment

Personal Investment

¥2,000,000

Other

¥0

Toatal Investment

¥2,000,000

Current Liabilities

Accounts Payable

¥200,000

Current Borrowing

¥0

Other Current Liabilities

¥0

Current Liabilities

¥200,000

Long-term Liabilities

¥0

Total Liabilities

¥200,000

Loss at start-up

(¥255,000)

Total Capital

¥1,745,000

Total Capital and Liabilities

¥1,945,000

Projected Profit and Loss

Profit and Loss 3 Years Forecast

FY2004

FY2005

FY2006

Budget

Budget

Budget

TOTAL SALES INCOMES

¥7,000,000

¥14,000,000

¥28,000,000

Less: Direct Costs

Direct Costs of Goods

¥4,800,000

¥9,600,000

¥19,200,000

Other Direct Costs

¥0

¥0

¥0

TOTAL DIRECT COSTS

¥4,800,000

¥9,600,000

¥19,200,000

GROSS PROFIT

¥2,200,000

¥4,400,000

¥8,800,000

Gross profit Margin

31.43%

31.43%

31.43%

OVERHEADS

Director salaries

¥150,000

¥150,000

¥150,000

Employee Wages/Salaries

¥144,000

¥288,000

¥576,000

Sales and Marketing Expenses

¥200,000

¥300,000

¥450,000

Rent

¥200,000

¥400,000

¥800,000

Water/Heat/Light

¥24,000

¥48,000

¥96,000

Insurance

¥20,000

¥40,000

¥80,000

Motor & Travel Expenses

¥15,000

¥30,000

¥60,000

Telephone & Fax

¥6,000

¥12,000

¥24,000

Office Supplies/Stationery

¥6,000

¥12,000

¥24,000

Security

¥10,000

¥20,000

¥40,000

Leased Equipment Charges

¥0

¥0

¥0

Depreciation

¥29,200

¥58,400

¥116,800

Others

¥0

¥0

¥0

TOTAL OVERHEADS

¥804,200

¥1,358,400

¥2,416,800

Overheads as % of Sales

11.49%

9.70%

8.63%

Profit Before Interest and Taxes

¥1,395,800

¥3,041,600

¥6,383,200

Interest Expenses (@5.58%)

¥0

¥0

¥0

Taxes (@20%)

¥279,160

¥608,320

¥1,276,640

NET PROFIT

¥1,116,640

¥2,433,280

¥5,106,560

Net Profit Margin

15.95%

17.38%

18.24%

The comments:

  1. The sales figure bases on the business expansion plan that the stores number will double every year, so we assume the sales will double
  2. The overhead costs also base on the same plan and principle, the personnel

number and operating expenses will double every year.

The tax rate is based on the current Chinese government's tax policy to the retailing industry. And the interest rate bases on Bank of China's policy for providing Loan to new business.

Break-even Analysis

The break-even analysis depends on the gross margin and business overhead. We assume running costs of each store will be approximately ¥17,000 per month, which include employee salaries, rent, utilities and other running costs.

Base on the 30% margin, sale must reach ¥57,000 each store per month, according to our assumptions. And our sales forecast shows that monthly sales of each store will be ¥292,000, which is much greater than the break-even point mentioned above.

For the 3years break-even analysis will be shown in the chart below:

Break-even Analysis

FY2004

FY2005

FY2006

Break-even sales

¥1,140,000

¥2,280,000

¥4,560,000

Total Sales Income

¥7,000,000

¥14,000,000

¥28,000,000

Projected Cash Flow

Cash Flow projections are critical to the AMA's success. The following chart illustrates monthly cash flow in the first year, and the table shows cash flow for the first 3 years. Monthly Cash flow projections are included in the appendix.

Cash Flow 3 Years Forecast

FY2004

FY2005

FY2006

Cash Received

Cash from Operations:

Cash Sales

¥7,000,000

¥14,000,000

¥28,000,000

Cash from Receivable

¥253,000

¥506,000

¥1,012,000

Subtotal Cash from Operations

¥7,253,000

¥14,506,000

¥29,012,000

Additional Cash Received

Sales Tax, VAT, HST/GST Received

¥0

¥0

¥0

New Current Borrowing

¥0

¥0

¥0

New Other Liabilities

¥0

¥0

¥0

New Long-term Liabilities

¥0

¥0

¥0

Sales of Other Current Assets

¥0

¥0

¥0

Sales of Long-term Assets

¥0

¥0

¥0

New Investment Reveived

¥0

¥2,000,000

¥4,000,000

Subtotal Cash Received

¥7,253,000

¥16,506,000

¥33,012,000

Expenditures

Expenditures from Operations

Cash Spending

¥531,000

¥2,812,000

¥5,324,000

Payment of Account Payable

¥3,844,000

¥7,688,000

¥15,376,000

Subtotal Spent on Operations

¥4,375,000

¥10,500,000

¥20,700,000

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out

¥279,160

¥608,320

¥1,276,640

Principle Repayment of Current Borrowing

¥0

¥0

¥0

Other Liability Principle Repayment

¥0

¥0

¥0

Long-term Liability Principle Repayment

¥0

¥0

¥0

Purchase Other Current Assets

¥0

¥0

¥0

Purchase Long-term Assets

¥292,000

¥584,000

¥1,168,000

Dividends

¥0

¥0

¥0

Subtotal Cash Spent

¥4,946,160

¥11,692,320

¥23,144,640

Net Cash Flow

¥2,306,840

¥4,813,680

¥9,867,360

Cash Balance

¥2,306,840

¥5,120,520

¥10,987,880

Projected Balance Sheet

The balance sheet is quite solid. The following table shows the annual balance sheet results, with a healthy projected increase in the company's net worth.

Pro Forma 3 Years Balance Sheet

FY2004

FY2005

FY2006

Assets

Current Assets

Cash

¥2,306,840

¥5,120,520

¥10,987,880

Inventory

¥1,200,000

¥2,400,000

¥4,800,000

Other Current Assets

¥0

¥0

¥0

Total Current Assets

¥3,506,840

¥7,520,520

¥15,787,880

Fixed Assets

Fixed Assets

¥292,000

¥584,000

¥1,168,000

Accumulated Depreciation

¥29,200

¥58,400

¥116,800

Total Fixed Assets

¥321,200

¥642,400

¥1,284,800

TOTAL ASSETS

¥3,828,040

¥8,162,920

¥17,072,680

Liabilities and Capitial

Current Liabilities

Accounts Payable

¥432,240

¥1,121,320

¥2,689,480

Current Borrowing

¥0

¥0

¥0

Tax

¥279,160

¥608,320

¥1,276,640

Other Current Liabilities

¥0

¥0

¥0

Total Current Liabilities

¥711,400

¥1,729,640

¥3,966,120

Long-term Liabilities

¥0

¥0

¥0

Total Liabilities

¥711,400

¥1,729,640

¥3,966,120

Paid-in Capital

¥2,000,000

¥4,000,000

¥8,000,000

Retained Profit

¥1,116,640

¥2,433,280

¥5,106,560

Total Capital

¥3,116,640

¥6,433,280

¥13,106,560

TOTAL LIABILITIES AND CAPITAL

¥3,828,040

¥8,162,920

¥17,072,680

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