Of all the factors that contribute to development and growth of economy, entrepreneurship is the most significant factor because it not only helps in economic revival, but also leads to overall development of the entrepreneur (Hall et al., 2012). A successful entrepreneur needs to be vigilant and proactive in studying the market conditions and feasibility of the business before venturing into one. The following report presents an analysis of the critical aspects of starting a business with the help of an example of ice cream business. It presents a discussion on the factors that are required to be considered while conducting a feasibility analysis to ensure that the venture is a profitable one.
The business idea is to open an premium category ice-cream parlor in Australia that provides a variety of mouth-watering flavors made from locally grown as well as exported fresh fruits, nuts and other savories. Although, there are many options available in this category, but only a few players exist that provide ice creams or frozen desserts with fresh ingredients and with flavors chosen by the customers.
Thus, the proposed business plan is to open one store at a time that provides unique ice creams along with experience where customers can see the flavors blend into the tasty treats. The name of the business will be “Berezia”.
Business Model Canvas
Business model canvas can be seen as a tool of strategic importance while devising a business plan. This tool helps in developing a business model through identification of important components of a complete business ecosystem that includes key business partners, key activities that will be undertaken, value propositions to attract customers, customer relationships, channels of product distribution, key resources, cost structure and revenue structure (Shishkov, 2014). This tool helps the entrepreneur to focus on key internal drivers of one’s business strategy, profitability and growth.
The business canvas model for Berezia is as follows:
Figure: Business Model Canvas
A clear understanding of all these factors will allow the business to remain focused on its goals and key aspects during strategic planning.
Feasibility analysis is an important aspect of any business venture. It is conducted to identify the viability of business idea. It acts as a filter to rule out the ideas that lack potential for business in terms of growth and profitability (Kuratko, 2016). Before committing the resources on the business idea, an entrepreneur assesses the feasibility of business with respect to its current market, technical requirements, financial requirements and human resource requirements. The feasibility analysis of the proposed business plan is as follows:
For any business idea to work it is necessary to identify whether the customers are willing to pay for the product/service, the business has to offer. Assessing the size of market, product demand and competition is useful to determine the attractiveness of idea and potential for growth.
In Australia, the ice cream industry amounts to a whooping $997 million shelling out the profit of $79.8 million. Moreover, the annual growth rate for the industry is 10.3% with large scope for growth and profitability in premium and gourmet ice cream segments (IBIS World, 2016). The increasing popularity of premium segment where people are willing to pay higher prices for ice cream made from fresh and high-end quality ingredients promises the growth of the industry at 3% thereby indicating the vast opportunities for the business (Euromonitor International, 2016).
Currently, the business may face competition from well established brands like Connoisseur, Streets and Bulla that provide standardized ice cream and Gelato Messina, Jock’s Ice cream and sorbet, Helados Juaja en Australia and the like in premium and gourmet category (Esposito, 2014). Even though there are many competitors, Berezia will target people of all ages, be it kids, teens or adults along with event organizers that are willing to pay premium prices for unique experience.
However, the business may face challenges due to rising input costs especially milk, seasonal nature of the business and competitors charging highly competitive prices for the ice cream (Robb, 2014). Moreover, with low entry barriers, it is easy to enter into this business with minimum investment. However, with moderate level of attractiveness, the prices will become important and competitive as more players join in.
Technical feasibility of business idea helps in assessing whether the product/service can be produced at reasonable cost. Moreover, it also helps to identify the most appropriate production technology, equipment requirements, processes and capacity that is required to run a successful business (Kuratko, 2016).
At Berezia, the ice creams would be produced in-house using the traditional ice cream making techniques. Thus, the business would require purchasing storage freezers, blast freezers, cone maker, mixer, and other kitchen equipments whose cost is estimated at $20,000 (Wiilliams, 2012). Moreover, the production and distribution site would be the same that is the Berezia’s ice cream shop.
Additionally, the owner with the help of his/her employees would need to identify the suppliers for various inputs required in making ice cream like milk, sugar, and flavoring ingredients. Identify good supplier would not only ensure the quality of product but would also enable them to procure at lower costs and as per their requirement.
Conduct business also comes with many legal implications like industry standards adherence, ensuring and obtaining certification for food quality and safety, fulfilling training requirements of employees and business establishment requirements. Thus, a business owner needs to register business, obtain license from concerned authority and register for filing tax returns among others (Yazbek, 2015). As the business’s technical requirements can be easily fulfilled, it can be considered technically feasible business venture.
The next step in feasibility analysis is to determine the financial viability of the business idea. The financial viability requires estimation of the expected revenues from sales, initial investment, costs, profitability and finance acquisition required for the new business. An adequate financial analysis allows the estimate all financial requirements to ensure that the investment proves to be profitable in the end (Allen, 2015).
Keeping in view the popularity of ice cream among Australian, it is expected that the business will sell around 280 units of ice creams per day on an average. Further, the average price per unit is estimated at $7.25 for medium sized serving. Thus, the business is expected to generate revenue of $60,000 per month that translated to $720,000 in the first year. Moreover, the industry is expected to grow at the rate of 3% annually that leads to revenue forecast of $741,600 and $763,848 for the next two years. However, the business is expected to make a loss of $9620 in the first year of operation due to start-up costs, salary payments and other expenses. But, due to growth in sales, the business will earn profits in the successive years of operations. The profit and loss for the business is shown in Appendix 2. It can be seen that the profitability will increase over the years.
The start-up cost for the business is $100,000 of which the owner will invest $30,000 and the remaining amount will be obtained from the external source. The owner will raise a long-term loan of $70,000 from the bank at 5.2% interest rate payable over the period of 5 years. Further, the total start-up cost is estimated at $57,969 and cost of equipments and furniture is estimated at $35,350 (Appendix 1). The remaining amount of the startup capital ($6,681) will be retained in the business as cash to look after the working capital requirements.
A deeper financial analysis shows that the payback period from the business is less than 3 years and the business will break-even after the first year of its operation. However, the net profit margin will be quite low between 5 to 8% (As seen from appendix 2). Nonetheless, the business is financially viable and if the product is unique, the profitability can be increased further.
Human Resource Feasibility
Successful businesses are a result of hard work and skills of the entrepreneur and other employees. The competence of the entrepreneur combined with that of his/her employees determine the fate of the business. It is thus necessary to ensure that the entrepreneur possesses the required skills set to run the business.
Since, the proposed business is a small scale business, the entrepreneur will perform the dual role of owner as well as a manager. In small businesses, the manager is responsible for multiple tasks across different functional areas. As such, he/she is required to possess knowledge regarding all management areas like finance, human resource, marketing and logistics. Thus, the owner will be responsible for hiring, procurement of materials and looking after the marketing activities of the new business. Moreover, the manager is also expected to motivate employees and plan for future expansion. Keeping in view the size of business and number of employees in the initial phase, the business will have simple organisational structure (Wheelen and Hunger, 2012).
Figure: Simple Organisation Structure
Ice cream makers
Table: Human Resource Requirements
As per the requirements of the business, the human resource requirement includes an accountant, two ice cream makers and one attendant. The owner would be responsible for hiring the staff. The job requirement will be advertised in newspapers and online site and interviews would be conducted to identify the best suited candidate. The compensation will be based on the performance and skills of the candidate. Moreover, the employees will get incentive and other benefits like employee funds, sick leaves and insurance as a part of their compensation to keep them motivate to perform at the best of their abilities (Nelson and Economy, 2011). Additionally, the business plans to provide regular training to the ice cream makers to hone their skills so as to prepare good quality ice creams that will lead to customer value generation and greater satisfaction.
The business’s growth strategy is to develop its customer base by opening new retail store throughout the city. However, growth is possible only if the business continues to provide good-quality product to its customers by ensuring the quality of inputs and the technique used to prepare the ice cream. The manager can ensure the quality of ice creams by undertaking regular inspection of raw material, packaging and production technique used. With the growth of business, the number of employees will also increase that will lead to evolution if organisation structure form simple to functional or divisional. The change in structure is necessary to ensure smooth management of growing business and to delegate the responsibility to other employees (Johnson et al., 2013).The growth of the business will not only benefit the entrepreneur but will also provide existing employees opportunities to take up managerial positions within their area of specialization and train the new employees.
The above analysis shows that the proposed business idea is highly feasible. The market analysis indicated that ice cream is popular among Australians, the industry is growing and that they are ready to pay premium prices for unique tastes and experiences. This ensures regular demand for product of proposed business. Moreover, technical and human resource feasibility analysis suggests that it is easy to obtain production equipments, shop space, business license and certification along with human resource. Finally, financial analysis of the business shows that the business proposal is profitable with profit margin between 5 to 8%, payback period of less than 3 years and annual revenue growth at 3% or more. Thus, it is viable to realize the proposed business plan.
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