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Since FM is a start-up venture, it is very important to figure out the capital to be invested in the business as start up. The store will occupy a leased property which is located in Glen Mall Place in Glen Eden. The shop was previously occupied and would require renovation to customise to the needs of the store. As discussed above in KSIs (5.4) there will be two kinds of costs viz, fixed and variable costs.
The funds for the store will primarily come from a combination of owner's investment and bank funding. The main cost initially will be inventory which will constitute the major part of preliminary expenses. It is estimated that the initial cost of inventory will be around $50,000. Since it is an old shop there will be huge expenditure on the renovation of the place and will cost $20,500 for shelves, flooring, windows and paints. In addition the fixtures and fitting will be charged $2,500 including the lighting and toilette fittings. Computer system and software will be required for billing purpose and will cost about $4,500. Refrigerators and coolers will be bought for a value of $15,000. The office furniture and cash counter will be required too and is assumed to amount $2,500. Sign boards are expected to incur a cost of $ 1000.
FM will also hire a lawyer to deal with all the legalities, also acquire the necessary documents and attain the necessary licences for the start up of the business in a smooth manner. The fees of the lawyer are estimated to be $1000. For the start up and for the continuation of the business, FM will require appointing an accountant who can operate the accounts of the business and help in projecting the sales of the business. He too is expected to charge fees of $1000 for his services. There would be separate cost of food and hygiene certificate.
The below table will determine the preliminary cost for start-up of FM followed by fixed and variable costs.
Computer hardware and software
Fridges and coolers
Food and hygiene certificate
Total Start-Up Expenses
Less Owner's Equity Contribution
TOTAL LOAN AMOUNT REQUIRED:
The total capital required in the beginning is totalling to be $ 159350 out of which the owner is contributing their own secured savings of $40,000. Hence the total loan amount required for the initial set is $119350.
6.1.2 FIRMS BORROWING CAPACITY
The owner of FM is very well supported by family and friends and has acquaintances to support in times of any financial requirement. The owner already has $40,000 in their bank account with ASB bank and also has a life partner's property worth $250,000 in Avondale (Auckland). The requirement of loan after deducting the bank account is $119,350. The owner's partner is ready to keep the property papers as a security towards the amount of the loan.
6.1.3 FUNDS GENERATION
The market for convenience stores is booming and the sales are rising per year. . The number of convenient stores is increasing with every year and there is an emphasis on customer retention with each consecutive period. There are many c-stores opening in various parts of New Zealand expecting a high level of returns .FM will definitely be benefited because of the nature of its business. Since it has an advantage of being the only store in the Glen Mall Place, there are high anticipations that the returns will follow very quickly. As per NZACS, the turnover rate of an average convenience store in NZ is 64%.
Since FM will serve the entire population living near Glen Mall Place, there are high anticipations that FM will recover its money in the early stage of the business. Although the returns would start from zero as it is a start up business.
It will take a year's time for FM to start making profit and reaching an equilibrium. This can be divided into three parts of the stages which FM will undergo in one year.
In this stage, FM will try to fit in to the market by idealizing the current patterns. This is an investing stage where only the investment will be made and no returns are expected. There will be many problems initially regarding the computer systems, their operations and managing the inventories. At this time FM will be in loss and will be spending more than its earning. It will start picking after its third month in business and people will get aware of its presence.
After 6 months
By this time the firm has understood the demand of the customers and is now trying to build up its clientele. Everything has started falling into place; the store is getting into its regulated operations and has also started getting to know the customers demand in its geographical location. At this stage the returns have started flowing and the store is making roughly $1-$3 per week per square foot, with an average of about $2. So FM with 1500 square foot of space will make about $3000 a week.
At One year
After completion of six months, FM will be able to achieve per square foot sales of $3- $5, with an average of $2.5. Hence the sales will lead to $3750 every week and this trend will continue to remain constant throughout the year.
The company will than start to measure its success in the coming years by defining the Key Performance Indicators. These KPIs will be targeting on higher returns and then the returns will be invested in the business to keep it intact to the market.
Projected Sales Month Wise
FB has projected the sales keeping in mind the nature of business and expects very quick returns from the business. The sales
6.2 PHYSICAL ASSETS
6.2.1 Reserves for Inventories
The inventories of a convenience store comprises of a broad range of goods all of which are everyday necessities for the target customers i.e. items like milk, bread , eggs, personal items, baby diapers, and so on.
"Proper storage and tracking of inventory are absolutely necessary if your store is going to be prepared to serve customer demand. Every item stocked on the shelves must have inventory in reserve to meet the public's buying response to it. Neglecting inventory storage and management is an invitation to lost revenue." (eHow.com, 2010)
It is also extremely important to foresee the right products to cater the demands of your customers they might need at the last minute i.e. ice, beverages, batteries, camera film, snacks etc. So it is very important to put most of the items available in the display. But it is not practical to keep all the items in bulk in the display, this will give an untidy appearance and more moreover perishable items need deep storage to keep them fresh.
The level of inventory required on hand at FM is dependent upon the speed of movement, shelf life of goods, perishable nature of goods, acquisition difficulty levels, overheads and the amount of space it occupies. It is extremely important to the inventory at a minimum level to reduce the operating cost, management issues and clashes with the output of the store. The level of inventory has to be maintained in such a way so as to fulfill the demands and place the correct order at the right time. Low level of inventory can lead to delays and lost sales whereas high level of inventory can lead to wastage, wear and tear, spill outs and even incur an insurance costs and decreased profit. (eHow.com, 2010)
"A convenience store can be a reasonably profitable business because many people will pay extra costs to buy items quickly and conveniently. The key to successfully opening a convenience store is the location. If you aren't centrally located in a community with the potential to spend money you can't succeed".(eHow, 2010)
It is all about finding and tracing the geographical area of operations which can be termed as a trade area. A trade area generates the maximum number of customers for the customers. It is highly recommended to have knowledge of the boundaries of the trade area to know from where the potential customers are coming from. A trade area comprises of three parts viz, primary part which attracts maximum number of foot traffic, secondary area which will cover about 15% of the customers and the border areas from where the minimum amount of customer turn up.
FM has made thorough research before opening FM, the store has to be opened in Auckland which is the base of business in New Zealand. The location Glen Mall Place in Glen Eden is very good as it is close to Glen Eden Intermediate School, offices, residential areas and is surrounded by some specialty shops. This will allow ease of access to a lot of quality customers. It is also near to the train station and will encourage impulse buying for many people on their way to office or school.
"It is a place that is vibrant and diverse, an exciting urban playground, and an intimate community heart. It is flexible and confident in the place of future challenges and provides a rare urban quality of life". (Waitakere Govt., 2010)
Car parking is also very essential and forms a part of customer service to its clientele for their utmost comfort. For a long term running it is very important to provide parking facility to the customers. Glen Mall place is very good location for FM to open a convenience store as its developing and has a lot of potential customers to be explored.
7. INTANGIBLE RESOURCE DEMANDS
There will be many areas in FM will use technology. Stock keeping, financial record keeping, inventory control (theft control,) customer buying habits, etc can be recorded using the computer systems. There are two areas where the technology can be used to solve the problems viz, front-end and back-end.
7.1.1 Front-End Technology
The main component of technology used in FM will be Point-of-sale (POS) terminal. This includes computer system and accessories like scanners, wands for completing the sale transactions. There will be equipments used to process money which is card machine very important to be present at the POS. There will be other technologies like inventory scanners to update stock and amend in-store pricing and security systems including CCTV cameras, monitors, closed-circuit TV etc. which can record any criminal activity in store. Tagging systems will also be placed by shop entrances to alert staff to thefts.
There have been new advancements in the technologies used by convenience stores. FM will be using these high tech systems after looking at the billing trend of the store. There are new measures of security through the latest bill acceptor technology used for electronic safe and cash payment at the pump. "The electronic bill acceptor provides greater employee security, accuracy of cash count, time savings, reduces employee theft, offers cashier time savings, has electronic acceptability and cashier accountability. It also cuts down on administrative costs and reduces armored car expenses". ( Business Wire, 2006)
7.1.2 Back-End Technologies
The technologies that are used at the back office for the store operations are known as back-end technology. FM will not have to use back-end technology during the initial years of its commencement but will require it after opening a chain of stores in various places. These technologies will be required to manage the inventories of various stores and for their replenishments. FM will require a warehouse or storage technology to receive orders placed at one place and will distribute it from there. The technology required at that time will be telephone systems, Internet connections, websites, ecommerce sites, web hosting, wireless connections, computers, computer software, servers and security systems. ( Neil Kokemuller, 2010)
All the business planning, pioneer thinking and well built strategic moves come to a halt without a reputation of the company with customers, employees and its suppliers. A strong reputation can even rescue a sinking ship and a bad reputation can turn castles into caves. A company's "reputation quotient" can be measured by six key dimensions: emotional appeal, product and services, financial performance, vision and leadership, workplace environment and social responsibility (PROFITguide.com, 2005) . FM will be following these dimensions to formulate its reputation in the market. It also recognises that a good reputation is very hard to be earned and very easy to lose. In fact, there are considerable facts to suggest that the stores reputation, along with its products and services is its most important intangible assets. A good reputation can differentiate FM with all its competitors in the market, help in maintain good dealings with the suppliers and also encourage people to join the business.
It is critical for FM to have a good reputation in the market as it will face cut throat competition in the future. With this booming industry everybody is opening a convenience store and in no time there would be plenty opening at every nook and corners of the street. To achieve good reputation FM will work on few components which have a direct relation with it. To name a few, good service (giving the least acceptable standards of service), good product quality in reasonable prices, an effective management team, positive financial and performance indicators, leadership tactics and soft concerns like emotional, friendly, honesty, integrity and social and environmental consciousness. "However, in the retail world, "societal value" plays the largest role in reputation. "Societal value" comes from being an ethical, good corporate citizen. And, socially responsible organisations are linked to employees with higher morale, commitment and retention. (Dr. Nicos Rossides, 2010)
Achieving reputation is even more imperative to FM because of the character of the business. FM does not add value to its products and sells the same as other convenience stores. The customers are also aware that they are paying more at convenience store for their convenience than they would be paying at a supermarket. Hence FM will require building its reputation consistently to occupy the target market and achieve its vision and goals.
8. HUMAN RESOURCE DEMANDS
8.1 Hiring and Training
Human resources are the most prestigious resources required by any company. FM recognises that it has to employ people which prove to be an asset to the business. It also believes that prosperity of the store will be dependent on its personnel selection. There are various methods and legalities that are applied to acquisitioning, developing, maintaining & remunerating employees in organization. The entire recruitment procedure will require planning, organizing, directing & controlling of the procurement and development of the employees. They would be trained and educate in such a manner so that individual, organizational & social objectives are accomplished.
FM believes in conduction of fair and ethical business practices to generate faith in the minds of all the employees. It also believes in setting high rank of quality in all the actions and appreciating the performances of the employees. FM will give equal opportunity to all its employees to learn at work place to contribute to their personal growth and that of the company.
FM will not be able to expand and achieve its ambitions without effective hiring and managing quality employees. FM will prefer employing from Glen Eden areas and somebody who have an experience in customer service or have worked in a convenience store. This would enable us to modify the staff as per our requirement and also take the benefit of their work experience.
8.2 Initial Recruits
FM for its initial start up will require one full time staff for the position of the manager, who can take care of the till and all the operations right from ordering the goods, maintain contact with supplier, stocking, shelving, book keeping, maintaining cash register. The manager will be paid $ 15 per hour, will be required to come 5 days a week and would receive all the employee benefits entitled under NZ employee codes. There would be one part time employee for the position of shop assistant responsible for filling of the stock, maintenance of the store and doing some paper work and filling. The part time employee would be kept on the minimum wage structure in New Zealand $ 12.75, be required to come 2 days a week and would be very open to hire students to support their studies. The rest of the hours would be done by the owner itself and will be participating equally in the day to day operations of the store.
Hourly Wages ($)
Estimated Hours Per Week ($)
Weekly Cost ($)
Monthly Cost ($)
Miscellaneous Cost ($)
Yearly Cost ($)
Cost to Company
Table 2(Cost to Company)
It has been illustrated in the table 2, that FM will be spending on the salaries of the employees and will also invest an amount in training, development and refreshments of the employees to keep them happy at work. The store will be spending
9. RESOURCE AVAILABILITY
Availability in the market (Scale of 0-5)
Availability in the Company
(Scale of 0-5)
Firms Borrowing Capacity
Reserves for Inventories
Hiring and Training