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.