Creating and Evaluating Business Plan Brain Pulse Technologies: IT Company

Introduction:

One of the most important factors to start up a business is to develop a business plan which assists the owner to crystallise their business idea and think through the problems the business may face in near future. It provides yardstick for business owners to monitor performance of the business. (Abrams and Kleiner, 2003) This assignment presents business plan for a company based inNew Delhi,India, looking to expand its operations toLondon,UKmarket. This report will provide critical analysis of the business plan, which will include description of a business, details about expansion in next three years and the finance required to execute the business expansion. 

 Details about the owner:

Tarun Gupta started Brain Pulse technologies with 5 employees in year 2002 and now in year 2010 they have over 100 employees inNoida,Indiaoffice. They provide various web related services like web design, web hosting, programming and they specialize in SEO (search engine optimization). Now they are looking to expand and open office in London area to capitalize on the foreign market, also they can generate more revenue because of the foreign currency. 

Objectives of Business:

• Offer high quality affordable services.
• Generate residual income through services like web hosting and SEO.
• Achieve sales of £150,000 in the first year. 

Market, Premises and equipment

Currently, the business runs from the office in Noida, India where Brain pulse has over 100 employees working on various aspects of information technology. Majority of the clients are from India, with few clients from UK and USA. Brain Pulse has identified that it’s really important to have face to face discussion with the clients to make them understand about the service they offer. With expanding search engine optimization market they want to expand to London and create awareness about SEO. They want to create and retain customers by providing superior services than its competitors. For its expansion they would need finance. Brain Pulses is a cash rich company as they have client base in India. But still they need to manage finance effectively to run business successful in UK market. They will need finance to rent an office, hire sales team, computers, internet, telephone etc. The main expenses will be on office rent and employee in the sales team. The sales team in London will outsource all the work to Indian office. So the main purpose of London office to generate sales from the UK market. 

How the business is organized: 

Brain pulse has been in business since 2002, their financial position is really strong as they have residual income coming through services like web hosting. For Analysis of the business plan, break-even analysis can be used as a tool to evaluate potential risk and returns in near future. Break even analysis can be used as a decision making tool, the management can abandon a project if forecasts shows below breakeven values are likely to occur. Break even analysis adds strength to business project investigation and is important part of a business plan.

Financial statement are universally accepted tool to analyze business entity, if they are properly understood, it tells how well company has been doing. Financial statements consist of a balance sheet, financial income statement or profit or loss and statement of cash flow forecasts.  The main aim of financial accounting statements is to provide an image of financial position and business performance. These statements give management idea about the cash movements, wealth generation and accumulated wealth of the business.

For the purpose of the business plan the financial statements estimated profit and loss and estimated balance sheet for three years are given below. 

Estimated Break-even Analysis
Revenue Break-even for the month	£5,000
Assumptions:
Average Variable Cost in percentage	10%
Estimated Fixed Cost of month	£4,500

Estimated Profit and Loss
	First Year	Second Year	Third Year
Sales	£163,520	£511,900	£1,193,500
Cost of Sales	£15,650	£41,000	£123,600
Payrolls	£38,392	£91,000	£134,000
Other	£0	£0	£0
Cost of Sales	£54,142	£140,000	£263,600
Average Gross Margin	£110,378	£371,900	£922,900
Average Gross Margin %	67.15%	72.81%	77.85%
Operating Expenses
Sales and Marketing Expenses
Payroll S and M	£31,000	£68,000	£107,000
Advertising Expenses	£2,590	£3,400	£11,000
Travelling Expenses	£1,130	£3,100	£7,100
Miscellaneous	£0	£1,000	£2,400
Total Sales Expenses	£33,910	£76,500	£126,500
Sales and Marketing %	20.65%	14.76%	10.77%
Administrative Expenses
Administrative Payroll	£0	£0	£0
Sales and Marketing and Other Expenses	£0	£0	£0
Depreciation	£3,280	£5,100	£13,000
Rent	£4,500	£12,000	£23,000
Depreciation	£0	£2,100	£3,000
Utilities	£805	£2,100	£4,000
Insurance	£0	£2,400	£4,000
Payroll Taxes	£8,119	£19,180	£28,400
Other General and Administrative Expenses	£0	£0	£0
Total General and Administrative Expenses	£13,604	£43,480	£75,400
General and Administrative %	14.15%	7.26%	7.54%
Other Expenses:
Other Payroll	£0	£0	£0
Consultants	£0	£0	£0
Contract/Consultants	£0	£0	£0
Total Other Expenses	£0	£0	£0
Other %	0.00%	0.00%	0.00%
Total Operating Expenses	£50,614	£118,080	£201,900
Profit Before Interest and Taxes	£59,564	£258,820	£722,000
EBITDA	£63,244	£263,820	£732,000
Interest Expense	£2,300	£2,002	£2,664
Taxes Incurred	£14,230	£63,280	£173,340
Net Profit	£43,134	£191,139	£536,996
Net Profit/Sales	28.16%	32.93%	43.04%

 

Estimated  Balance Sheet
	First Year	Second Year	Third Year
Assets
Current Assets
Cash	£52,704	£124,806	£417,029
Accounts Receivable	£23,260	£132,871	£386,045
Other Current Assets	£5,650	£5,650	£5,650
Total Current Assets	£85,614	£234,327	£769,724
Long-term Assets
Long-term Assets	£0	£19,000	£30,000
Accumulated Depreciation	£6,180	£9,180	£12,180
Total Long-term Assets	(£3,180)	£28,820	£18,820
Total Assets	£82,434	£276,147	£729,544
Liabilities and Capital	Year 1	Year 2	Year 3
Current Liabilities
Accounts Payable	£8,150	£12,313	£26,836
Current Borrowing	£0	£0	£0
Other Current Liabilities	£0	£0	£0
Subtotal Current Liabilities	£7,150	£12,213	£43,836
Long-term Liabilities	£20,100	£15,411	£11,189
Total Liabilities	£29,250	£28,624	£43,025
Paid-in Capital	£18,500	£18,000	£19,000
Retained Earnings	(£2,250)	£40,384	£220,523
Earnings	£43,034	£190,139	£533,996
Total Capital	£58,784	£248,523	£783,519
Total Liabilities and Capital	£82,234	£273,147	£826,544
Net Worth	£57,324	£248,523	£756,519

Costs to produce the product or service:

The cost main cost involved in providing SEO services are of computers and employees. The average salary for employees working in SEO industry is around £250 in India. Brain pulse will hire 10 employees dedicated for London market. Majority of the finance will be dedicated to the Sales staff in London office, where the salary for the employee will be around £1000, they are looking to hire around 5 employees. The competitive advantage for Brain Pulse is trained SEO employees in the Indian Office. This strategy will enable them to focus on sales in London and outsource work to India. 

Sources of finance, how the finance will be raised, cost of finance:

Small business face challenges to raise external finance than do larger businesses. So many small businesses rely heavily on internal generated funds to greater extent.  When considering sources to fiance the business, it is useful to make a distinction between internal and external sources of finance. Internal sources means, sources which does not require any agreement beyond manager directors of the company. Retained profits are considered as internal source. Finance from external sources includes, fiance from issue of new shares which involves compliance from various shareholders. Another category of sources of fiance can be divided into long term and short term sources of finance. Long term fiance are those which provide fiance for at least one year, short term finance is for shorter periods like certain number of months. Internal sources of fiance may include retained profit, sale of assets, reducing stocks, trade credit and external sources of finance includes commercial banks, personal savings, building societies, share Issue, debentures, venture capital, leasing and hire purchase and factoring services. 

For UK expansion Brain pulse will use combination of internal and external sources of finance to minimize the business risk. They will use retained profits from previous years and would also take loan from ICICI bank at the rate of 7.5% per annum. They have opted for ICICI bank because they have long term business relationship and they provide good interest rates. 

Budget and Cash flow forecast:

Cash flow forecasting can be used by new and existing businesses and is most important projection as it deals with amount and timing of expected cash inflow and outflow. The cash flow forecast will enable the inventor to evaluate management’s plans for cash needs. Cash flow indicates the need for additional financing and indicates the requirement for the working capital. The Research by Lazaridis, (2006) concluded that many of the forecasting methods which are used to generate cash flow estimates and majority of the business adjust capital expenditure for inflation.

Sales Budget represents the quantities and the values of total sales to be achieved in a given period, the purpose of sales budget is to develop a plan with clearly defined objectives towards which operational efforts are directed to achieve long term business objectives. 

Budget Sales Forecast and Estimated Cash flow forecast and given below: 

Months		1st	2nd	3rd	4th	5th	6th	7th	8th	9th	10th	11th	12th
Sales
Website	0%	£0	£0	£6,800	£7,400	£5,200	£6,400	£7,500	£8,500	£9,000	£10,200	£21,200	£25,200
Direct Marketing	0%	£0	£0	£0	£0	£0	£0	£1,450	£2,300	£2,600	£3,400	£4,300	£4,400
IT Cost	0%	£0	£0	£210	£380	£510	£750	£1,010	£1,350	£1,790	£2,290	£2,810	£4,330
Web Hosting	0%	£0	£0	£1,800	£200	£640	£680	£2,020	£2,340	£3,740	£4,200	£4,700	£4,220
Sales		£0	£0	£6,130	£39,870	£6,140	£7,920	£11,190	£14,980	£21,320	£26,180	£27,920	£31,640
Cost of Sales		1	2	3	4	5	6	7	8	9	10	11	12
Website Development		£0	£0	£0	£0	£0	£0	£0	£0	£0	£0	£0	£0
Result-based Marketing		£0	£0	£0	£0	£0	£0	£1,000	£2,080	£2,440	£3,800	£4,160	£5,520
Maintenance		£0	£0	£0	£0	£0	£0	£0	£0	£0	£0	£0	£0
Web Hosting		£0	£0	£350	£450	£450	£450	£250	£1,100	£600	£800	£800	£800
Subtotal Direct Cost of Sales		£0	£0	£350	£350	£350	£350	£1,250	£2,180	£2,140	£2,500	£2,860	£3,220

Estimated Cash flow forecast:
	First Year	Second Year	Third Year
Received Cash
Operations
Sales	£53,392	£166,927	£397,175
Receivables cash	£69,569	£265,372	£638,141
Subtotal Cash from Operations	£126,260	£433,289	£1,035,326
New Investment Received	£10,800	£0	£0
Subtotal Cash Received	£136,960	£439,289	£1,338,326
Expenditures	First Year	Second Year	Third Year
Expenditures from Operations
Cash Spending	£69,492	£158,000	£255,000
Bill Payments	£39,764	£155,598	£358,881
Subtotal Spent on Operations	£108,256	£313,598	£621,881
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	£0	£0	£0
Principal Repayment of Current Borrowing	£0	£0	£0
Other Liabilities Principal Repayment	£0	£0	£0
Long-term Liabilities Principal Repayment	£0	£3,589	£4,222
Purchase Other Current Assets	£0	£0	£0
Purchase Long-term Assets	£0	£19,000	£20,000
Dividends	£0	£0	£0
Subtotal Cash Spent	£109,256	£330,187	£650,103
Net Cash Flow	£26,704	£90,102	£372,224
Cash Balance	£53,704	£124,806	£507,029

 Financial projections and Plans for expansion:

Brain Pulse is looking to expand its business toLondonfor many reasons, bankers and Financial Institutions would be interested in their investment. For banks the heart of the business plan is represented by the financial projections which should includes income statements, balance sheets and also cash flow statements. These statements should provide bankers with two very important details like, ability of the company to generate enough cash to repay the bank and long term success of the business.

Brain Pulse feels positive about the SEO industry as all major search engines like Google search engine, Bing search (which is owned by Microsoft) and yahoo search engine are doing well and growing at a rapid pace. As they have successful business in India, it will give them a strong platform from where they can expand to other countries. Brain Pulse will be looking to succeed in the UK market in next two years, but they are also looking to expand to USA market. With certain amount of experience working with clients from UK and USA from India, it will give an edge to Brain Pulse and they will be able to adapt to these markets quickly. There are many advantages to expand in UK and USA markets as the awareness about the new technologies among UK and USA citizens are more. Also there are other factors like education standards and cost of living is very high, which gives Brain Pulse more chances to succeed.   

Conclusion:

This business plan report critically evaluates various aspects related to the functioning and expansion of the business practice to other country. The figures and the data used in this report are estimates. As the technology industry is growing at a rapid pace, it gives Brain Pulse maximum chance to enter new markets and expand their current business operations.