SimVenture is a medium sized company started in the month of January and thus has been in existence for the last several months. The business has been set up on a strong base of research and a fully understand the market as well as the product. This report explains the performance analysis for the few months of operation.
A comprehensive view if the business performance indicates a healthy business plan which has already helped break-even and offer a good return. In the month of January 2010, the profit and loss account could not be accurately prepared due to incompleteness of the records available. What is noticeable though is the fact that there was substantial expenditure in activities of research and development.
Most of the activities in the month involved setting up the business. However, estimates show that the company made a gross profit of about £61 from the one order which was delivered during the month. The net loss amounted to -£329.
It should be noted that under the expenses, the portion of research was the largest registering £300 of the £390. This is indicative of the solid basis on which the company is found. At this time, the product could only be priced at £460 due to limitations in quality, features, performance and style.
In February, 2010, the company made impressive sales revenue of £1380. The gross profit rose to £114 from the £61 registered in January. However, this time round, focus was on sales and marketing. Of the total expense totaling to £1590, £1500 was used to finance an aggressive marketing campaign geared towards familiarizing the products to the customers.
We were able to accurately identify our target market as well as fully understanding their needs. This was aimed ensuring that we focus all our energies on producing products which meet the needs of our target customers. Appropriate product designs were developed to suite the customer requirements.
A small IT business market was identified as the target market. Still many activities were part of the business set up. As a result, the company recorded losses amounting to £1,476. Notably, the products were now priced at £495 up from £465 due to improvements in product design.
In the month of March, the situation changed. We were able to make a profit of £177. This was as a result of an increase in sales as well as a reduction in costs. The turnover may have dropped to £990 but the gross profit rose to £267. Notably, overheads drastically reduced to £90. This was mainly as a result of the pay-offs from the marketing campaigns held in the previous month.
Again in a bid to improve efficiency, the company changed its supplier and engaged a cheaper source of materials for production. The company also increased its efficiency from 63% in February to 74%.
The number of features available in the Company products was also increased with the aim of appealing to an even wider customer based. By this time the quality of the product had significantly risen to warrant a higher price of £550. This significantly improved the gross profits.
In April, turnover rose to £1100. The marketing strategies were responding even better. Gross profits were a whooping £378. However, the company saw it fit to obtain feedback from the customers. The intention here was to establish possible areas of improvement. This necessitated significant expenditure in research a situation which resulted in a loss of £12.
Expenditure on research alone stood at £300. Therefore excluding the research element of the expenses, the company’s profits would have risen even higher than the previous month. Notably, efficiency level rose to 77% indicating the company’s commitment to improving efficiency both internally and externally.
The Month of May saw a drop in both the gross and net profits. The company produced too many products for the market which saw a rise in costs. This was done together with an aggressive sales and marketing campaign which accounted for about 90% of the expenses. Efficiency in this month fell to 74% mainly due to excess production. However, the order book showed significant growth as a result of the marketing campaign.
In June, the situation improved drastically. Net profit rose to £449. The situation was a show of the effectiveness of our marketing tools. Again, the number of orders remained high. Efficiency remained at 74%. Sales levels rose to £1650 and the number of orders kept rising.
In July, efficiency rose to 80% while gross profits rose to £1433 leading to a net profit of £543. From this point on, the company has managed to maintain profitability and consistently increase the level of efficiency. August saw a gross profit of £1577 which was the highest figure recorded. The company continued to record improved activities in production and even engaged in house research and marketing.
September saw a rise in the price of the product after improvement in product design and in consideration of market trends. The new price was set at £576. This made net profits rise to £1430. We managed to move to an even bigger premise.
Wages were also hiked as profits started streaming in to motivate the employees hence improves on productivity. However it is notable that as the production keeps increasing, the company continues to accumulate debts. Again, the company continues to get more orders hence requiring even higher production.
The entire first year of operation has proved profitable for the company. The overall profits add up to £5,401. 41. This is definitely a positive start which gives a very strong foundation to the company. The strength comes from the fact that the company has significantly engaged in research as well as marketing activities which have enabled it to not only learn valuable information about the market and the products but also grow the market significantly.
The following is a graphical representation of the trend in profits
Graph showing trend in profits
The fact that the last few months have seen consistent profitability tells strongly about the future of the company. It is thus prudent to inject further capital with the aim of achieving three main objectives. First is the need to maintain debts from creditors at manageable levels so as to win them over.
Secondly, there is an urgent need to increase the production so as to effectively cater for the increasing demand for the company’s products. This puts extra demand on the need to boost working capital. Finally, despite the expansions, there is the need to acquire even bigger space which will ensure higher production in the future.
According to the balance sheet, the company has accumulated a large portfolio of current assets and more importantly no long-term liabilities. This means that the company is lowly geared meaning that the company is strong meaning that risk of lending to us is significantly low.
The future presents great opportunities for the company. The market uptake of the company’s products is high as witnessed by the rapid rise in revenues across the short period of operation. Market research shows that the target market is still very lowly penetrated. This is got from the market surveys conducted during the in the last few months.
The penetration rate stands at a paltry 15% in within the locality of the company. Again new businesses are being set up a factor which is rapidly increasing the demand levels for the company’s products. There is also the need to invest in even better and more effective technologies which are likely to attract the clients even better.
The objectives of the company go beyond the region. The intention to go regional is very viable. There is the need to aggressively expand in the region where the company is based. This will give us an edge over the competitors and guarantee a much better and bigger growth for the company. Achieving these objectives will require us to raise funds but which will considerably present very low risk.
In the upcoming year we expect to expand our operations consistently to at least four times the current level of operation. This means that the balance sheet should go up by four times.
In February, we intend to scale up on production so as to generate total revenue of £11000. This will ensure that the gross profit rises to £3500 and that net profits rise to £2200. This trend is expected to continue for the next three months.
After this, we expect to relocate to an even bigger spacious building which under the current market prices should cost double the current rent. This amounts to about £376 monthly. This extra space should help us scale up production to at least five times in the next two years.
This being the case, the net profit for March is projected to be about £2600. This is after a rise in gross profits to about £3800. April net profits are projected to be about £2900. In May this is expected to fall due to the expansions expected to be undertaken then. The profitability stream is expected to follow at a much bigger scale.
Projections for profits expected for the next three years are as follows
Year Profit
2011 £11000
2012 £22000
2013 £23000
To fund these expansions, we require a loan of at least £15000. £6000 is expected to be used to boost the working capital so as to make operations more efficient while the remainder will be used to improve technology as well as build on machinery and equipment after relocating to an even bigger space. A repayment installment of about £1,000 per month will be favorable for the company.
By the end of the year, the balance sheet extract should have changed to the following estimates:
Fixed Assets £9550
Current Assets £26000
Long term Liabilities £15000
I find that the above projections are fairly accurate and hence warrant the company a profitable future. This means that our engagement will be of mutual benefit.
Reflective report
SimVenture offered a unique opportunity to interact and cooperate with a team with the aim of achieving the best results. Working as a team was a great experience due to a number of reasons. First, it offered me the opportunity to learn different application of different ideas in business practice.
Each member would come up with unique but informed interpretation of the situation facing the company a situation which would help me view the same issue from many different angles and thus develop the best way forward given the circumstances. Secondly, I was able to improve my skills in teamwork and cooperation towards achieving a common goal.
There were some difficulties especially in developing a common way forward on issues where the views of the members were too divergent. I think this was driven b the different personalities in the team. Some are gambles while others are conservatives. While the gamblers were less risk averse, conservatism made other team members reject rapid expansions.
Again, it was difficult to convince all the team members on the right amounts of money to apply in different situations. As can be seen from the report, there were several instances when an amount of money would be set aside for research or for marketing. Setting these amounts was a challenge.
We needed to undertake lengthy negotiations within the team before engaging third parties who would agree or disagree with our resolutions hence requiring us to go back and discuss again. In the month of April, many team members thought that it was too soon to obtain meaningful feedback from customers.
They wanted the research on customer’s feelings about the company’s products to be conducted much later in the year after the product had been widely tested. However, another group argued that getting feedback early would ensure prompt response to customer’s requirements hence a better future for the company. This issue brought in a lengthy but constructive debate and at the end the group proposing the obtaining early feedback succeeded in convincing the other.
Planning ahead was always a priority for my team. Before starting off in January, we developed a complete plan for implementation within the next six months. The plan included some set targets which were to be achieved within certain time frames. This greatly guided our decisions subsequently.
It is however true that in some situations we had to deviate from the set plans. The plans gave a clear indication of where focus would be during any period. In the early months, market surveys and marketing activities were prioritized in the plans. In later months the need for marketing was the focus.
The team constantly made trade-offs in a bid to achieve certain goals. In January, the decision to engage in research was a trade-off for profits. If the research was not done the company would have incurred a loss of a paltry £61. However, the research was in the long term interest of the firm. Again in February, we incurred a loss of -£1476 after spending £1500 in sales and marketing.
This trade-offs continued in the following months. They were informed by the need to achieve long-term sustainability of the business as opposed to short term goals. It is clear that activities such as marketing always paid off in the subsequent periods and also ensured that our products were able to penetrate the markets even better by creating awareness.
The commitment needed to run a small business is enormous. SimVenture may be a small business entity but it demands full attention from all the team members in a bid to ensure that correct decisions are made and implemented. As team members we had subdivided ourselves in groups of two and would alternate the running of the business on a weekly basis.
However, it required that all the members be present at least twice a week either to make important decisions or to assist in the implementation of the agreed ideas and strategies. An eight hour day is simply not enough to ensure things run smoothly. A great deal of personal sacrifice is required.
The exercise has helped me better understand the intrigues of running a small business. The first and most important lesson is that one should develop a plan way before starting off the business. This is very instrumental in guiding the subsequent decisions in a bid to build a strong business entity. Secondly, the plan should contain fairly accurate cash flows.
These helps establish the financial requirements of the business ahead of time. Such projections ensure that the business does not encounter problems of liquidity which are likely to hamper progress. Again, it is very important to give priority to long term growth as opposed to short term gains as this boosts the ability of the business to ensure continuity as well as growth.
Finally, I have learnt that achieving a successful business entails a great deal of personal sacrifices and commitment towards the implementation of decisions aimed at achieving set targets.
The experiences gained here are arguably the best teaching in business management.