Chair Craft Manufacturing Company (CCMC) is the privately owned special manufacturer of special type of office chair to be used in the office that will be comfortable for computer users and others. Customers for the chairs can be from all business levels who can afford high quality office chairs. Chair Craft Manufacturing is owned by 2 friends John Edwin and Graham Del who have more than 10 years of experience of furniture business. The registered office for the business will be in Greenwich, London. Initially the product will be supplied all over London (Bentley, Omer and Sharp 2013). However, the company is planning to expand its business and is planning to deliver its product all over UK over the period of next 5 years. Key to the line of the product is that it will be ergonomically effective chair and will look like executive chair still fulfilling the requirements of all the office people.
The chair will have various versions that will look elegant as office furniture and will be ideal for all office users including the computer users. Two major elements of the chair are that the height of the chair can be adjusted as per requirement and it can be revolved 360 degree. Further, the company will manufacture custom designed chair as per exact required measurement of the customers (Jones and Allen 2014).
Within the niche the company will have 2 major competitors – The Contract Chair Company and The Dining Chair Company. The Contract Chair Company manufactures the upholstered dining chairs those are manufactured and designed in UK. Their products are manufactures as per order and are delivered all over UK and Italy. On the other hand, The Dining Chair Company provides requirement of hospitality furniture industry and delivers the product from the European Manufacturers (Verbeke 2013). They offer their customers with convenience, choice and continuity. However, the major competitive advantage of CCMC is the price. It will sell the product at lower price as compared to the competitors. Sales price of the product will be £ 1,500 per unit whereas the same category of office chair sold by The Contract Chair Company is sold at £ 1,900 and at £ 1,750 by The Dining Chair Company (McKenzie 2015).
Target market of the company is the person working in office who wants to buy the chairs with latest technology in association with fine wood workings and best quality of woods. Segment strategy of target market is not trying to satisfy all the requirements of the office furniture rather concentrating only on different types of chairs. Further, the company will definitely address the requirements of high-end buyer with customized need who will be willing to pay higher amount per product. From the market research it is observed that the customers need more than just the office furniture (Scarborough 2016). They also need reassurance of the wood, quality and good workmanship. As per the research it is found that the market for office furniture is rapidly growing and is expected that it will grow at 12% – 15% for the next 3 years.
Home offices – after year 1990 demand for the furniture for home offices has been rapidly increased. Further the people working outside home also have home offices and therefore the home offices are growing at a faster rate. The home office market is big that is amounted to more than 40 million and CCMC can earn big amount of revenue from this sector (Klettner, Clarke and Boersma 2014).
Small business owners – customer survey of the company indicates strong market within the business owners with less than 100 employees. There are more than 20 million of such businesses in the country that are concentrated on ownership. Therefore, the owners here are the potential customers.
Corporate executives – market survey of the company indicates that approximately 5 million of potential customers including managers and directors of companies. Target customers from this sector will be high executives as the purchase price is high as compared to the standard office furniture.
The manufacturing location of the company will be distinct advantage for receiving local wood. The company can further buy higher quality of cherry and oak as compared to the competitors. Further, owing to high volumes of production company will be eligible to get the raw materials that are the woods at discount (Sharda, Delen and Turban 2013). The company will work mainly with 3 suppliers and all are local. Most of the oak and some cherry woods will be provided by Wood Green Timber. It is well known for providing quality goods and services with good prices. T chambers & Son Timber Merchant Ltd. are 2nd best choice, especially for cherry and some specialty woods. T & T Timber Merchants will be used as the 3rd source and back up source when 2 other suppliers will not be able to supply sufficient requirement. The company will further work with various specialty manufacturers for the purpose of drawer accessories, furniture fittings, shelving accessories, glass and associated purchases. Although initially CCMC will not be able to become major player as compared as compared to the major manufacturers for furniture, it is expected to become biggest buyer of customized raw materials. As most of the suppliers deliver through supply chains of carpenters they will treat CCMC as major customer (Hill 2017).
Price quote received from various suppliers are as follows –
|
Suppliers with websites |
Logo |
Oak |
Cherry |
|
Wood Green Timber – |
£ 125 per board feet |
£ 150 per board feet |
|
|
T chambers & Son Timber Merchant Ltd – https://www.tchamberstimber.co.uk/ |
£ 145 per board feet |
$ 140 per board feet |
|
|
T & T Timber Merchants – https://tttimber.co.uk/ |
£ 150 per board feet |
£ 160 per board feet |
The company will depend on dominance of latest ergonomic technology that will be combined with classic designs of the fine furniture. It ensures to be on top of the technologies with regard to communications, display, output and input, further, the assembly patents of the company is major competitive advantage. No competitor will be able to match the technique that will be used by the the company will turn the drawback – assembling the product into feature. Further, the customer survey indicates that customers consider interlocking system of assembly as the improvements to sense of quality (Leschke 2013).
The financial picture of the company is encouraging. It is slow is taking debt, however with the increase in the sales it is expected to apply for bank credit to the limit of £ 25,00,000. The credit line of the company will easily be supported by the assets.
The opening cash balance of the company in the month of January will be £ 100,000. Further cash will be received from product sales and various other incomes. Debtors will be given 2 months credit period; therefore, receipts from debtors will be received from the month of March (Titman, Keown and Martin 2017). Major amount of cash outflow will take place for purchasing the stock of woods and other raw materials. Accountant’s fees will be same at £ 4,583.33 throughout the year. Advertising expenses and bank fees will be £ 10,000 each for each month. Interest amounted to £ 3,000 and loan payments amounted to £ 12,500 will be paid quarterly. All other expenses will be paid monthly as and when incurred. Closing cash balance at the end of the year is expected to be £ 43,69,899.67 (Blackburn, Hart and Wainwright 2013).
It is assumed that out of total start-up requirement amounting to £ 54,59,000, 40% of that that is the amount of £ 21,83,600 will be borrowed from bank and financial institutions and rest 60% that is £ 32,75,400 will be raised through equity. 60% will be raised through equity as against the debt of 40% as the debt are to be repaid at certain point of time and the interest on debt must have to pay even if there is no profit in business as the interest is fixed cost. Further, the company is required to pledge the particular asset in exchange of debt as security. Moreover, sometimes the owners are required pledge their personal asset as security. High debt equity ratio represents the company as highly leveraged and the potential investors will be less interested in such company that is exposed to high financial risks. Further, equity is helpful for those companies who wish to issue their shares publically as the company is required to bear various costs for conducting IPO.
Break-even point is the point at which market price of the security is equal to original cost. In other words, the the seller must reach that point to avoid the loss and making profits. An important term used in computing break-even point is the contribution margin that is equal to revenues reduced by the variable expenses. For the business owners those are specialized in accounting, conducting the breakeven analysis is crucial step for determining the sales volume for covering up the costs. It is particular computed for the start-up businesses that require projecting the initial goal for sales. If the company is computing the break even for the 1st time the company shall take into consideration the most sold services or products for computing the break even unit. Therefore, Chair Craft Manufacturing Company will consider the office chairs for computing the break even unit. Further, the company is required to gather various information regarding the product that include sales price for the product, variable cost of the product, net profit from selling of the product. These figures are crucial as it is the simplest way for the business to evaluate the impact on break even if any of the cost changes. However, if the fixed cost is higher the breakeven point will be higher which in turn will require the company to sell more units for covering up the costs. Working on the breakeven will assist the managers and owners in gaining better insights regarding the price accuracy and reliability of the sales goals. However, if the amount of sales required by a company for breakeven is greater than the unit it can achieve realistically, the business will know the services or products it requires to price well or reduce the cost of manufacturing the product. Apart from that the business owners shall know the contribution per unit that will make the overall profit of the company. This step is crucial as it can assist the business to determine the actual profitability of the business. It will further help the company in revising the price of the product oir minimising the cost.
It is calculated through dividing the fixed costs by sales per unit reduced by variable cost per unit. For calculating the break even unit of the product it is assumed that the price of each unit will be £ 1,500. It is assumed that 70% of the selling price that is £ 1,050 will be cost of goods sold per unit. If the fixed cost is assumed to be £ 450,000, the company will be required to sell 1000 units to break even.
Conclusion
From the above discussion it is concluded that the business plan has various positive aspects considering which the business can be started and expanded. It is identified that the business will require £ 54,59,000 for start-up. Out of which 60% can be raised through equity and 40% from borrowing. Hence, the business at initial levels will not be overburdened with financial obligations and interest on that. Taking into consideration the growth rate of office furniture market it is expected that the sales will eventually be increased by 12% in the 2nd year and 14% in the 3rd year. Further, the operating expenses are expected to be reduced in 2nd year and further in 3rd year. As the debtors will be allowed only 2 months credit, from 3rd months the business will start receiving the dues from debtors. Further, as large proportion of sales on 1st year will be made on cash basis it is expected to have sufficient cash to meet operational expenses. Further, as per the break-even computation the company will be able earn profit if it can sell 1000 units. However, looking at the demand trend of office furniture for last few years it can be stated that company will easily be able to sell much more than 1000 units. Therefore, it is recommended to go ahead with the business plan and implement it as it has various positive aspects.
Reference
Amaresearch.co.uk., 2018. 4% growth in the UK office and home office furniture market in 2016. [online] Available at: https://www.amaresearch.co.uk/blogs/4-growth-in-the-uk-office-and-home-office-furniture-market-in-2016 [Accessed 11 Jul. 2018].
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Blackburn, R.A., Hart, M. and Wainwright, T., 2013. Small business performance: business, strategy and owner-manager characteristics. Journal of small business and enterprise development, 20(1), pp.8-27.
Haag, A.B., 2013. Writing a successful business plan: An overview. Workplace health & safety, 61(1), pp.19-29.
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Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), pp.145-165.
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