The making of a business plan investment proposal is an important part of the future for a company or a community. For the company, it has to do with its financial wellbeing in the future. Business firms’ objective is to generate more profit they can. A good and successful investment plan can guarantee a bright future for the company. For the communities, the plan is implemented or impacts, its stakeholders, it is a question of the future of their lives. There are certain aspects of the business plan proposal that should not be underestimated and left out.
For the coming five fiscal years the company assumes that the entertainment industry will continue to grow at the present rate and even more. The company expects that the five years sales will exceed the expectations subject to certain risk factors. Another assumption is that nobody else is offering the quality product that this company is offering in that area for the moment. Advertising is also a basic assumption of the business plan discussed. The company expects to increase advertising by 90% at the end of the five-year period and that this will allow it to be on the top preference of consumers thus attracting more clients to the museum complex. The main problem is that the assumptions do not take into consideration adequately of the risks associated with the opening of the entertainment business. In difficult financial times, it is the entertainment industry that suffers first from lack of sales (Taylor, 2006, p. 33). This is because consumers tend to save more and spend only on what they view as more necessities for the moment.
For example, if they were to visit the museum twice a month now it will be once a month and without buying the souvenir.
Thus the predicted very favorable increase in sales in such difficult financial times for the budget of many families is dubious. Also according to the plan the company has designed, the sales of tickets and souvenirs will be the basic sources of funding for the museum. There will be a $100,000 credit line open with Harris Bank but this would be only as a back-up in there is necessity. The selling of LPU’s will serve as a build up for the initial capital. But, as explained above, sales are based entirely on the financial wellbeing of the families which at the moment are suffering from the financial crisis. Thus the cash flow projected to go from $420,000 the first year to $525,000 the second and $628,000 the third is very dubious. Since it will take 2-3 years for the average American family hit by the crisis to re-begin spending again as before on the market (Simon, 2009, p. 1).
Also, in the plan we find the operating expenses to be relative low according to the company. But unfortunately reports show that for the coming two to three years the costs of certain products and services are to increase at an asymmetric rate (Houston, 2009, p. 28). Thus we can expect the cost of repair, utilities and rent to go up more than that predicted on the projected income statement. Also, the cost of advertising can go up since the company would find itself in an uncomfortable position and will have to appeal more to consumers which will be reluctant to spend money from their family budget in these times.
With sales bringing less and less cash and costs rising over the expected rates, the gross and net profit range will decrease even more. The advice is simple in this case. The plan should have included a way of cutting expenses the max possible in times when sales are expected to be hit negatively by a nationwide financial crisis. By cutting the expenses at the min level you assure that the gap with the sales will remain sufficient to have enough liquidity in your company.
Long term strategy
It is strange but when we see the plan carefully we find that the company was aware of these potential risks from the financial crisis. The basic pillar of its long-term strategy is the ongoing campaign during the five year period. Even though one can have doubts on the forecasted results in the plan that it will make possible that this company remains on top sales, still it is the correct strategy to pursue in difficult times. This ongoing advertising campaign will at least create favorable brand recognition among consumers for the museum as an entertainment park worth passing a few hours a week. This brand recognition will in turn ensure the company a good market share (Gomez-Mejia, et al, 2008, p. 4). Furthermore, it will assure the company that when the financial conditions of the consumers will improve, the sales of the company will also improve symmetrically since it already got a positive recognition in their minds. Another positive aspect of the long term strategy of the firm is the open credit line it has ensured with Harris Bank. This open credit line will ensure liquidity if necessary at a present moment of time. The critique aspect is that it has not included in this long term strategy other elements of liquidity insurance like the cutting of expenses that we discussed above.
References
Taylor, W. (2006). Introduction to Management. Ninth Edition. Prentice Hall: New Jersey.
Gomez-Mejia, Luis R.; David B. Balkin and Robert L. Cardy (2008). Management: People, Performance, Change. 3rd edition. New York: McGraw-Hill.
Houston, Ch. (2009) Credit card crisis: resolved? Mays business online. Web.
Simon, H. (2006). Administrative Behavior. 4th edition. Blackwell Publishing: London.