Business Plan for Replay Company - Assignment Example

1.0 Executive Summary The executive summary portion of the business plan (BP) clearly spells out the offerings of the company in terms of what it will manufacture and sell. It gives a brief but concise introduction to the background of the industry, and what exactly the company will manufacture and sell. It clearly explains the business opportunity present and how Replay will combine factors like promoter's expertise, locational advantage, availability of raw material and potential demand for Recycled Pet in packaging industry, to start a highly profitable enterprise. The BP is clear in its statements on Replay's mission and business objectives. The BP describes in detail company's sales, gross margins and net profits to highlight the profitable nature of its venture. The BP indicates clearly what the keys to the success of this venture are and how they business will address them. It explains how the company will source the raw material and how it will sell its products. The critical issues that the business will face and how the company will face them have been explained. This portion of the business plan adequately summarizes the entire business plan that follow. 2.0 Description of Business 2.1 What are the products and services that the company will sell The company will have two divisions and will manufacture two products. The first plant (Recycling division) will produce cleaned and recycled plastic PET Flake (RPET) for which the raw material will be post-consumer beverage bottles. Waste material from Replay's sheets manufacturing customers will also be a source of raw material. Even though the output of raw material from this division can be sold directly in the market as flake, Replay proposes to use most of it in its second plant (Extrusion division). The output from here will be extruded roll stock PET sheets and extruded high strength strapping. 2.2 Why will it be successful Currently there are no competitors offering recycled PET materials in the western coast. All the major producers of this are in the eastern coast. There are distinctive cost advantages for manufactures in packaging industry and strapping material users when using the proposed products of Replay as there is a difference in cost of material of $ 0.2 per pound between virgin PET and recycled PET. Strapping material to be made from RPET is preferred by user industry over other currently used material like steel and virgin polypropylene, because of cost advantage. Locating a plant close to the source of raw material and market is a very important consideration for success of the project. This is because of the high cost of transportation and other logistics. By locating the plant in the west coast, the success of Replays business is assured. The company proposes to use the best technology possible. The plant that is being purchased for recycling PET bottles is state of art and well proven. Several companies are already using it. It uses an environmentally friendly technology. The owner of the patent of the technology is also one of the promoters of Replay. Because of the link of the promoter to the manufacturer, Replay will be able to source the plant at a relatively lower price, which will decrease their initial capital cost. This will further increase the profitability of the company. The raw material availability close to the plant is huge and growing because of increasing public awareness and initiative for recycling. The promoters have already made tie-up with one of the main "consolidators" for sourcing of adequate raw material for their entire requirement of Replay at competitive prices. Replay believes that price and quality will be the main considerations while selling. Its target market is the users of PET for roll stock sheet manufacturers (for producing high visibility packaging) and strapping producers for lumber industry. It expects to be able to give a clear price advantage as well as quality through the plant it is setting up. There is also a huge market for flake. Any material not consumed by their extrusion division will be sold directly as flake. Replay also believes its financial returns will be high because of its strategy of vertical integration. Finally the promoters of the company, between themselves, have the entire marketing, manufacture and business skills needed to make the company successful. 2.3 Growth potential Replay believes growth for the products of the company come from the increasing availability of raw material. Current plant will use roughly 20% of availability of raw material. Environmental concerns and public awareness will lead to increasing raw material availability (e.g., target of 50% of PET to be recycled set by US EIA). Users of PET in the packaging industry will also steadily shift to using products of Replay because of cost, quality and proximity to their plants. 2.4 How is it unique Replay believes that its offering will be unique because of a combination of factors like closeness of plant to market, reputation knowledge and contacts of its promoters and the technology that they will be bringing into the project. 2.5 Comments on clarity and completeness The BP of Replay is complete and detailed in most aspects. It is however not clear with respect to following points: 1) How does vertical integration increase the profitability of the company, especially when the BP says that there is market both for flakes and extrusions This question arises because while the recycling technology is unique, extrusion technology is not. So what will be the value addition at extrusion division 2) While the price differential between virgin PET and recycled PET flake is said to be 0.2$ per pound, what will be the price advantage for extrusion sheets and strapping when using sheets made of RPET 3) What is the legal entity of the business proposed 3.0 Marketing 3.1 Who will be your customers (Target Market) Replay has the choice of selling either flake or extrusions. Replay's strategy is to use most of its output of flake for extrusion division. Here the products will be strapping (for use in lumber industry) and extruded roll stock which will have three user industries; thermoformers (for high visibility packing) Laminators and Fabricators. 3.2 How big is the market (Number of Customers) Replay has been able to identify 70 manufacturers in the three target states (proximity to market), who use PET as raw material. Analysis of all US market indicates unmet demand for RPET as 1 billion pounds for sheets, 400 million pounds for flakes, and 132 million pounds for strapping. 3.3 Who will be your competitors There are currently no manufacturers of RPET in the western coast of US. Current users are either using virgin resin, or lower quality resin or importing RPET from countries like India, Mexico. Replay has identified 5 competitors who are currently supplying to the users of extruded PET roll stock. Replay also sees one new player, who is proposing to enter the market, but based on its industry knowledge, does not foresee this to be a threat. 3.4 How will you promote sales The CEO of Replay is a well known in the field of plastics. He has extensive network and personal contact with all the manufacturers in the region. The strategy of Replay is to appoint persons on commission basis for selling its products. It has already identified suitable persons, who are agents and brokers well entrenched in the field. All these agents are personally known to the CEO. Replay has identified such agents in 6 different geographical areas to cover the market. 3.5 What market share will you want Initially as the sole supplier of RPET, Replay will be able to meet the entire demand of the market in its target area. 3.6 Do you have a pricing strategy Replay is expecting to supply RPET products at a competitive price initially. 3.7 What advertising and promotional strategy will you use No advertising and promotional strategy is expected to be done now. Sales promotion in a way will be done through the goodwill, reputation and name the promoters have in the industry. 3.8 Comments on clarity and completeness 1) Region specific figures of demand for RPET are not available. This is relevant because Replays target market is users close to its place of location. Replay has demand figures for RPET for pan US but has not projected demand in its area of operation. It has identified 78 companies who are users of PET, but how many will be potential customers for RPET is not known (There may be users who will use only virgin material, for instance suppliers to beverage industry). Quantifying demand for RPET after excluding such users would not be difficult, but it has not been done. 2) Replay has identified 6 current suppliers to thermoformers. It would be useful if the BP indicates the price advantage Replay would give to the thermoformers compared to the existing suppliers. This will be useful for deciding on appropriate pricing policy, about which Replay is vague presently. 3) Marketing strategy for meeting threat of new entrants is not available (Barriers to entry not high-see section 7.2 on critical risks). 4.0 Location 4.1 Have you identified a specific location Have you outlined the location Have you outlined the advantages of this location Any zoning regulations or tax considerations Will there be access to transportation Will your suppliers be conveniently located Replay wants to situate it on the western side of USA but has not finalized the exact location. Ease of transportation, nearness to market and raw material supply will be the criteria by which a suitable location will be selected. 4.2 Comments on clarity and completeness This portion of BP is incomplete, as Replay is yet to decide on the exact location. 5.0 Management 5.1 Who will manage the business What qualifications do you have The three founders, Ben Braddock (President), Sam McGuire (COO) and Carl Smith (CFO) will form the senior management group. Ben Braddock, who will be the President, is an expert in the field of plastics with over 30 years of experience. Sam Mcguire the COO is a graduate engineer with 20 years experience in recycling plastics engineering and Carl Smith has rich experience in the financial sector. 5.2 How many employees will you have What will they do How much will you pay your employees and what type of benefits will you offer them What consultants or specialists will you use The BP indicates a head count of 53people in the first year. Full details of the designations, work allocation and remunerations are given in page 22 of the BP. A detailed staffing plan is part of the BP and it gives the head count year wise and the budgets arising out of it. The organization structure explained is simple and adequate for the kind of operations Replay will be involved in. No consultants or specialists are proposed to be used. 5.3 Comments on clarity and completeness This section of the BP is clear and complete. 6.0 Financial 6.1 What is your total expected business income for the first year Quarterly for the next two years (Forecast) What is your expected monthly cash flow during the first year What sales volume will you need in order to make a profit during the three years What will be the break-even point What are your projected assets, liabilities, and net worth What are your total financial needs What are your funding sources The company forecasts a sale of $15.08 million during firs year and $31.55 million the second year. Quarterly projections are not available. The company will break even with a monthly sale of $373,890. 6.2 Comments on clarity and completeness The BP gives adequate details of all financial statements like projected balance sheet, cash flow statement, profit and loss account, break even analysis and financial ratios. All assumptions are clearly spelt out. With gross margins as high as 50% and very little marketing and promotion expenses the profitability is very high. Clearly this is the business opportunity spotted by the promoters. However the following points are noted as lacking. 1) The right place for preoperative requirements given in section 2.0 should be included in this section. The information provided here is quite comprehensive, even though it is not clear as to why the company should project a huge amount of cash requirement of $645,000 at start up after accounting for all start up needs 2) The Business plan projects an investment requirement of $ 5,000,000. While $2,300,000 is accounted for by long term loan ($800,000) and promoter's contribution ($1,500,000) it is not stated as to who the other investors will be for the balance of $2,700,000. 3) Terms and conditions of long term loan and its source are not clear. 4) There are some minor technical errors in some of the projected statements (in cash flow statements, calculating investor IRR), which seems to suggest that it should be recast with professional help. 7.0 Critical Risks 7.1 What potential problems have you identified Have you calculated the risks What alternative courses of action are there The company has identified unavailability of raw material, lack of market for its products, company not meeting environmental standards, unreliable and unproven technology and unavailability of competent management team as risk factors. They have accounted for appropriate course of alternate action to overcome all this. The company has identified backup raw material source. It sees the marketing capability of its President as an insurance against loss of market. The technology being used for recycling PET is proven, reliable and environmentally friendly. It is being procured at competitive price. It has the best management team in its promoters. Location of the plant is appropriate. 7.2 Comments on clarity and completeness 1) The barrier to entry as claimed by the company is not high. Technology being procured from company A is commercially available for other players also. While it may be difficult, it may not be impossible for another set of promoters to put together similar resources and strategies as Replay and start a similar company. Such high profits are bound to attract other players. 2) As a measure of counteracting above risk, the BP indicates that Replay will engage in R&D to update its production technology, but no commensurate budget is shown in the financials. 3) Risk management strategy also should explain how Replay will sustain such huge profits in the long run when new entrants come and compete for raw material (causing its prices to go up) and markets. 8.0 Harvest Strategy 8.1 Have you planned for the orderly transfer of the venture assets if ownership of the business is passed to this corporation Is there a strategy for identifying potential harvest opportunities The BP says that right now Replay is indifferent to harvest strategy and has not decided whether after 4-5 years, they will make public offer of shares of the company or make a sale and exit. They expect good returns if they decide to sell. Comments on clarity and completeness 8.2 The promoters propose to hold only 28% of equity and will always face the risk of losing control of management and hence must plan for an appropriate harvest strategy right now. 9.0 Milestone Schedule 9.1 How have you set your objectives Have you set deadlines for each stage of your growth The BP covers the relevant milestones for the launch of the project. Milestones, date of achievement of these, persons primarily responsible to achieve this is provided along with a bar chart. The details given are adequate and show the management clarity on project implementation. 9.2 Comments on clarity and completeness However the milestones does not go beyond the project launch date and does not cover milestones with regard to achieving objectives and goals such as sales, profit as set out in plan. 10.0 Appendix 10.1 Have you included any documents, drawings, agreements, or other materials needed to support the plan Are there any names of references, advisers, or technical sources you should include Are there any other supporting documents The BP has provided a lot of data related to demand and availability of PET and recycled PET. Though it makes a passing mention about the source of data, details are not available. The BP also says agreements have been reached with both raw material supplier and buyers for most of its requirements. Details of these are not appended. There is no information of any kind provided in the appendix. 11.0 Rating The rating tool provided has been filled in. The rating is largely based on the analysis made above. The overall rating based on the aggregate of the ten components works out as 37. 11.1 Executive summary Outstanding Very Good Good Fair Poor 5 4 3 2 1 11.2 Description of Business Key Elements Have you covered this in the plan Is the answer clear (yes or no) Is the answer complete (yes or no) a. What products or services will you sell Yes Yes Yes b. Why does it promise to be successful Yes Yes Yes c. What is the growth potential Yes Yes No d. How is it unique Yes Yes Yes Rate this component: Outstanding Very Good Good Fair Poor 5 4 3 2 1 11.3 Marketing Key Elements Have you covered this in the plan Is the answer clear (yes or no) Is the answer complete (yes or no) a. Who will be your customers (Target Market) Yes Yes Yes b. How big is the market (Number of Customers) Yes No No c. Who will be your competitors Yes Yes Yes d. How will you promote sales Yes Yes yes e. What market share will you want Yes No No f. Do you have a pricing strategy Yes Yes No g. What advertising and promotional strategy will you use Yes Yes Yes Rate this component: Outstanding Very Good Good Fair Poor 5 4 3 2 1 11.4 Location Key Elements Have you covered this in the plan Is the answer clear (yes or no) Is the answer complete (yes or no) a. Have you identified a specific location No No No b. Have you outlined the advantages of this location Yes No No c. Any zoning regulations or tax considerations No No No d. Will there be access to transportation Yes Yes Yes e. Will your suppliers be conveniently located Yes Yes Yes Rate this component: Outstanding Very Good Good Fair Poor 5 4 3 2 1 11.5 Management Key Elements Have you covered this in the plan Is the answer clear (yes or no) Is the answer complete (yes or no) a. Who will manage the business Yes Yes Yes b. What qualifications do you have Yes Yes Yes c. How many employees will you have Yes Yes Yes d. What will they do Yes Yes Yes e. How much will you pay your employees and what type of benefits will you offer them Yes Yes Yes f. What consultants or specialists will you use Yes Yes Yes Rate this component: Outstanding Very Good Good Fair Poor 5 4 3 2 1 11.6 Finance Key Elements Have you covered this in the plan Is the answer clear (yes or no) Is the answer complete (yes or no) a. What is your total expected business income for the first year Quarterly for the next two years (Forecast) Yes Yes No b. What is your expected monthly cash flow during the first year Yes Yes Yes c. What sales volume will you need in order to make a profit during the three years Yes Yes Yes d. What will be the break-even point Yes Yes Yes e. What are your projected assets, liabilities, and net worth Yes Yes No f. What are your total financial needs Yes Yes Yes g. What are your funding sources Yes Yes No Rate this component: Outstanding Very Good Good Fair Poor 5 4 3 2 1 11.7 Critical Risks Key Elements Have you covered this in the plan Is the answer clear (yes or no) Is the answer complete (yes or no) a. What potential problems have you identified Yes Yes No b. Have you calculated the risks Yes Yes No c. What alternative courses of action are there Yes Yes No Rate this component: Outstanding Very Good Good Fair Poor 5 4 3 2 1 11.8 Harvest strategy Key Elements Have you covered this in the plan Is the answer clear (yes or no) Is the answer complete (yes or no) a. Have you planned for the orderly transfer of the venture assets if ownership of the business is passed to this corporation Yes Yes Yes b. Is there a strategy for identifying potential harvest opportunities No No Yes Rate this component: Outstanding Very Good Good Fair Poor 5 4 3 2 1 11.9 Milestones Key Elements Have you covered this in the plan Is the answer clear (yes or no) Is the answer complete (yes or no) a. How have you set your objectives Yes Yes Yes b. Have you set deadlines for each stage of your growth No Yes No Rate this component: Outstanding Very Good Good Fair Poor 5 4 3 2 1 11.10 Appendix Key Elements Have you covered this in the plan Is the answer clear (yes or no) Is the answer complete (yes or no) a. Have you included any documents, drawings, agreements, or other materials needed to support the plan No No No b. Are there any names of references, advisers, or technical sources you should Include No No No c. Are there any other supporting documents No No No Rate this component: Outstanding Very Good Good Fair Poor 5 4 3 2 1 Read More