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Business Plan Assignment: Business Proposal for Affordable Building

Question

Task: Write a business plan assignment presenting a well-researched business proposal for Affordable Building.

Answer

Introduction
Herein business plan assignment, the business plan of a proposed business which will construct low to medium-rise commercial construction in the Australian built environment sector is discussed. This business plan will have four sections. The first section will describe the different aspects of the company. The second section will include the financial plan of the proposed business. Then the marketing plan and human resource requirements will be discussed.

1. The company description
1.1 Business name
The proposed business is called “Affordable Building”.

1.2 Business structure
The business structure of “Affordable Building” will be a Limited Liability Company.

1.3 Business location
The main office of “Affordable Building” is located in Leppington, a suburban area in Sydney, Australia.

1.4 Business owner(s)
There will be five business owners of the proposed business named “Affordable Building”. These owner names will include Peter Watson, Sam Paul, Frank Alberto and Daniel Clark.

1.5 Overview of the business owners’ experience and knowledge
There is a significant experience of the owners of the business. The first owner named Peter Watson, has a degree in BSc (construction management) and worked for 15 years in the construction field. The second owner named Sam Paul, has an MBA degree in finance as a specialisation and five years of working experience in the banking sector. The third owner, Frank Alberto, has an MBA degree in Human Resource as a specialisation and has ten years of experience working as HR managers in different companies. The fourth owner, named Matthew D’Cruz, has an MBA degree with marketing specialisation and seven years of working experience in the marketing department of retail businesses. The remaining owner, Daniel Clark, has a B.Com (Hons) degree and two years of working experience in a reputable company's administrative department.

1.6 Company goals
1.6.1 Short term goals

The short term goal of the proposed business named “Affordable Building” is given below.

  • To reach the above breakeven sales amount in the first operating year of the business
  • To generate the fund, which is required the different activities in the first operating year.

1.6.2 Long termgoal

  • To ensure that the business grows by 50% in the upcoming five operating years.
  • To ensure that the inventory of the business is turnover within six months period on average.
  • To ensure that the business earnsat least 10% net income from the second operating year of the business.

1.7 Vision Statement
To become the first preference of the customers for purchasing affordable low or medium affordable construction building

1.8 Mission Statement
To continuously deliver its customers a high quality of commercial constructions at affordable prices and givethem good after-sales services.

1.9 Description of the products/services to be offered by the business
The products or services of Affordable Building” include selling of low or medium-rise commercial construction in affordable pricing. The Unique Selling Point of these products of “Affordable Building” is that the business will try to give these commercial constructions to the customers at more affordable price than most of its competitors but also will ensure that the quality of these constructions is not compromised by using good quality of raw material. Also, another step which the business will take is to create efficient communication with the customers by giving effective and fast after-sales service they need regarding their commercial construction after purchasing it in the following year.Some of these after-sales services can be changing the construction according to the customer instruction, any additional installation and some other after-sales services like these.

2. The financial plan
2.1 A simple profit and loss statement for the business for the next 12 months

Profit and loss statement for first 12 months

Table 1: Profit and loss statement for first 12 months
(Source: Calculated by the learner)

2.2 A simple cash flow forecast for the business for the next 12 months

Profit and loss statement for first 12 months

Table 2: Cash Flow statement for first 12 months
(Source: Calculated by the learner)

2.3 Summary of the assumptions
Start-up cost and running cost

The business start-up cost and running cost is estimated to be $6,000,000, out of which $5,000,000 will be paid for capital expenditures including leasing of some critical equipment. The other remaining $1,000,000 will be needed as $1,000,000 cost of inventory is estimated to remain in the business at the end of the year.

Proportion of the different costs
The cost of goods sold is calculated at 40% of sales as in the given turnover level this is the benchmark cost of sales level (Ato.gov.au, 2021). The rent is estimated to be $450 per week and $23400 per year(Realestate.com.au, 2021).The marketing activities will be 10% of the sales, and administrative expenses will also be 25% of sales. Also, other operating expenses will be 10% of the sales. All purchases and sales will be 100% in cash or payment on delivery.

Source of finance
The source of finance will include five owners contributing $3,00,000 fund to the business. Another $3,000,000 will be generated from procuring a secure business loan from the bank. Therefore, the source of finance of this business will be an equal contribution from equity and debt.

Taxation and Interest rate
The first assumption is that the corporate tax rate at which the business will pay tax will be 26% (Ato.gov.au, 2021). The interest will be paid at the rate of 6% per annum on the secured business loan, which will be taken by the business (Banksa.com.au, 2021).

3. The market analysis and plan
3.1 Structure and size of the market

The proposed business named “Affordable Building” will be operating in the Australian construction industry. The Australasian construction industry is valued at US$112billlion annually. It contributes 9% of Gross Domestic Product (GDP)(National Industry Insights Report, 2021). The construction industry is also expected to grow at 2.7% in 2021(Acif.com.au, 2021). Although, in 2019, this industry also contracted by 6.6%. Therefore, overall, this industry is still recovering from the negative impact of the COVID-19 pandemic. It should also be noted that the construction industry is highly fragmented in which most of the business sizes are very small, and the structure is a sole trader.

Another point that should be noted is that most of the construction industry in Australia is Australian owned, but most of the raw materials which are needed in this industry are exported from outside. However, this industry is also highly regulated. There are two key subsectors under this industry which are railway and road construction and commercial construction.

3.2 Future prospects for the market
The future prospects of the Australian construction industry aregood in which this industry is expected to grow by 2.7% in 2021. However, it should be noted that the Australian construction industry is currently recovering or growing positively after contracting till the third quarter of 2020 due to Covid -19 pandemic.However,the Australian construction industry is highly prioritised in which around 163 major infrastructure projects has been announced by the Australian government. These infrastructure projects have been announced to improve consumer investor confidence about this industry which has weakened significantly due to the COVID-19 pandemic and its impact. Also, to better the prospect of this industry, several schemes and initiatives were announced by the Australian government. Some of these schemes and initiatives are the Home Loan Deposit Scheme, the Homebuilder program or the updation of the National Broadband Network(Parlinfo.aph.gov.au, 2021). Also, the Australian economy is expected to recover from the impact of the COVID-19 pandemic significantly. This industry, on average, is expected to grow at a 3.4% annual growth rate from 2022-2025 (Businesswire.co, 2021). Therefore, all these aspects show that the future prospects of the Australian construction industry are bright or good as its recovery or growth is supported by the government initiatives and recovery of the economy from the COVID-19 pandemic.

3.3 Key clients within the market
The main targeted client of the proposed business named “Affordable Building” is the small business of different categories looking for commercial constructions at an affordable price in Sydney and its surrounding areas.

3.3.1 What are their needs
The needs of the targeted customers who are small or medium-sized businesses are to purchase commercial construction which they need to operate their business atan affordable price and also havethe option to do changes in these constructions atan affordable price which they needed to make to make that construction suitable for doing their business operation.

3.3.2 How will these need be satisfied
The business look to satisfy these needs by selling low or medium-rise commercial construction to the customers at a more reasonable price than their competitors. Also, the business looks to satisfy these needs of the business by giving good and high-quality after-sales service to the key clients which they needed regarding making changes to their purchased commercial constructions like any additional changes made in structure or any additional installation or repair or up gradation or any other after-sales services like these.

3.3.3 How do the clients choose who to hire
Word-of-mouth marketing significantly influences the clients and will ultimately choose to purchase its required commercial constructions and hire to do changes in their commercial construction. Although how the word of mouth marketing works had significantly changed over the period before, significant clients asked their relatives or fellow people in business or other acquaintances to recommend a good commercial construction project from whom they should purchase(RSM Australia, 2021). Also, some section of the customer decides to purchase certain commercial construction after watching its advertisement with an influencer endorsing it. However, currently,manyclients go to different websites, which help them to compare different commercial constructions under different projects. Also, ratings will be given of the different commercial construction under different aspects like design or price etc. These sites also play a significant role in deciding which clients will choose construction, and clients choose that commercial construction which, according to website information, is most suitable for their business(Boothman et al., 2018).

Therefore, all these are how clients used to choose from whom and which they should purchase commercial construction.

3.4 The main competitors in the market
As already discussed in an earlier section, most construction businesses are small businesses thatAustralians mainly own. However, some big companies operate in this industry, and these companies enjoy significantly higher market shares compared to other businesses which are smaller in size. These big companies are the main competitors in the market, and some of the companies are Lendlease, CPB Contractors, Hutchinson Builders, Probuild and some other big companies like these(ConstructionPlacements, 2021). Most big businesses and other small businesses are experiencing a tough time in the market due to the Covid-19 pandemic. One of the challenges faced by most of these businesses in the commercial construction industry is a high level of debt or liabilities in the business's capital structure. Another challenge these businesses face is the slow turnover of the finished goods inventory due to the COVID-19 pandemic and its restrictions. This also leads to these businesses reducing the price of these commercial constructions to increase the speed at which this business sells its inventory. This, in turn, leads to lower solvency and business earning loss from these sales.

These construction businesses are looking to mitigate these high obligations arising from liabilities or debt by deferring or restructuring their different liabilities or debts, which will reduce the obligations of the business until the business, recover from the loss suffered due to the COVID-19 pandemic. Also, to better their sales, many construction businesses sell their commercial construction products at lower prices than before to increase their sales. Another step that is helping these businesses mitigate these challenges is the different steps taken by the Australian government to encourage the customers to purchase commercial construction, like low-interest rates(Tradingeconomics.com, 2021).

3.5 SWOT analysis

Strengths

·         Separate legal entity – One of the strengths of this proposed business is that the business structure is a limited liability company that gives this business a separate legal entity separate from its owners. Therefore, the operation of the business will not be impacted due to an event related to a certain owner, like his death or retirement from the business.

·         Generation of High amount of fund – Another strength of the business is that a high amount of funds can be generated by the business due to the structure of the business being a limited liability company is higher than what it could have been generated if the business structure would have been sole traders or partnership.

·         Balanced capital structure – The third strength is that “Affordable Building” is the balanced capital structure that has been decided for the business. The business has decided to use both debt and equity in equal proportion, which will help the business benefit from both debt and equity sources of finance (Le and Phan, 2017).

·         Reasonable Pricing – The fourth strength is its pricing strategy which will be the penetration pricing strategy in which “Affordable Building” will keep lower prices than its competitors to generate a high volume of sales(Gan et al, 2017).

·         High quality of products or services – The fifth strength is the high quality of product or service the business will offer to its customers.

Weaknesses

·         No Existing market share – The first weakness of the business is that “Affordable Building” has no existing market share in the market as it is a new business.

·         No brand awareness – The second weakness is that there is no awareness about the business and its products or services as it is a new business.

 

 

 

Opportunities

·         Forecasted Good growth – The first opportunity is that the Australian construction industry is recovering from the COVID-19 pandemic. Its outlook is good in which this industry is estimated to grow at a good rate till 2025(Businesswire.co, 2021). Therefore, the business can use this highly favourable business environment to generate good sales from the first operating year.

·         Better financial position – Another opportunity for the proposed business is that the company financial position is better than the existing company of similar size as most of the existing company has suffered loss or incur high liabilities due to negative impact of COVID-19 pandemic (Biswas et al., 2021). Therefore, this business can use this better financial position as a competitive advantage to gain a good market share in the market.

Threats

·         High competition – One of the threats to the business named “Affordable Building” is high competition in the commercial construction sector under the construction industry in Australia, in which both small and big industries give high competition to any new business. Therefore, this increases the threat of the business not being successful due to high competition in the market.

·         High compliance requirements – The second threat to the business is the high compliance requirements which the businesses have to fulfil to operate in this industry. This high compliance requirements lead to a high compliance risk in the business where the business may have to pay a high amount if it is unable to meet its compliance requirements.

 

 

4. The human resources plan
4.1 The proposed structure for ownership and management for the business

The ownership structure for the proposed business named “Affordable Building” will include equal distribution of the total company share or ownership between five stated business owners. These five members will form the senior management of the business. Also, they will help in the management of the different divisions of the business. One of the owners named Peter Watson, will head the operational division of the business. There will be around 5 permanent workers working in construction projects. Another owner whose experience is in the finance background named Sam Paul will head in the finance and accounting division of the business. He will have another one worker working under him.The third owner named Frank Alberto, will head the human resource division. He will be in charge of hiring and allocating staff in different departments. There will be another employee working under him.

The fourth owner, named Matthew D’Cruz, will help in the marketing division of the business. There will be another permanent worker under him. The remaining owner, Daniel Clark, will manage the administrative division of the business, which will also include purchase monitoring. There will be another worker with him on permanent basis.

4.2 Discuss the legal structure selected for the business
The legal structure selected for the proposed business named “Affordable Building” is a Limited liability Company. There are several reasons for which this legal structure is chosen. The first reason is this legal structure help the business create a separate legal entity which will help the business not needing to close its operation due to the death or bankruptcy of its owner. The second reason is limited liability for the owners is created under this legal structure(Sikorska-Lewandowska, 2021). Also, the owners can avoid double taxation issues due to this legal structure (Is and Saputra, 2021). However, one of the limitations of this legal structure is it creates high compliance and administrative requirements for the business compared to other legal structures like sole trader or partnership.

4.3 The chosen organisational structure and delegation of power in the proposed business has been chosen
The chosen organisational structure of “Affordable Building” is functional, and there are some reasons for this organisational structureis chosen. This functional structure is chosen because there is a clear line of authority created under this structure, leading to better communication and coordination between the employees and management. The second reason is that under this structure, there is proper clarity among the allocation of power and responsibility of the business, which lead to more accountability in the business. The third reason is that the different specialisations of the owners can be efficiently used under this structure(DelVecchio, 2021).

The delegation of power of this business will include the five owners forming the board of directors of the business. The senior management level decision will be taken according tothe majority of the board of members’ opinion. Then each owner will be allocated a division of the business, and these owners will also work as the head of these divisions, and each division will have employees who will report to these division heads. However, each owner as division head has to justify different significant decisions they took in its daily operation in weekly meetings.

4.4 A proposed organisation chart outlining all of the proposed staff

Profit and loss statement for first 12 months

Conclusion
The above business plan give different information about the proposed business named “Affordable Building”. It has been estimated that the business will significantly above the breakeven level from the first operating years. Also, five owners of the business will head of different divisions and there will be nine other employees working in the organisation.

References
Acif.com.au. 2021. Latest Summary - Australian Construction Industry Forum. [online] Available at: [Accessed 10 September 2021]. Ato.gov.au. 2021. Changes to company tax rates. [online] Available at: [Accessed 10 September 2021].

Ato.gov.au. 2021. Concreting services. [online] Available at: [Accessed 17 September 2021].

Banksa.com.au. 2021. Business Lending interest rates. [online] Available at: [Accessed 10 September 2021].

Biswas, A., Ghosh, A., Kar, A., Mondal, T., Ghosh, B. and Bardhan, P.K., 2021, February.The impact of COVID-19 in the construction sector and its remedial measures.Business plan assignment In Journal of Physics: Conference Series (Vol. 1797, No. 1, p. 012054). IOP Publishing.

Boothman, C., Craig, N. and Sommerville, J., 2018. The UK housing developers’ five-star rating: fact or fiction?. Journal of Facilities Management.

Businesswire.com. 2021. Australia Construction Industry Report 2021: Key Trends and Opportunities by State and Territory to 2025 - ResearchAndMarkets.com. [online]
Available at: [Accessed 10 September 2021].

ConstructionPlacements. 2021. Top Construction Companies in Australia [2021 Updated List]. [online] Available at: [Accessed 10 September 2021].

DelVecchio, L., 2021. Types of Organizational Structure and Their Pros and Cons | PLANERGY Software. [online] PLANERGY Software. Available at: [Accessed 17 September 2021].

Gan, X., Zuo, J., Wu, P., Wang, J., Chang, R. and Wen, T., 2017. How affordable housing becomes more sustainable? A stakeholder study. Journal of Cleaner Production, 162, pp.427-437.

Is, M.S. and Saputra, J.A., 2021. The Legal Concept of Limited Liability Company Based on Social-Justice Through Corporate Social Responsibility. JurnalCitaHukum, 9(2).

Le, T.P.V. and Phan, T.B.N., 2017. Capital structure and firm performance: Empirical evidence from a small transition country. Research in international business and finance, 42, pp.710-726.

National Industry Insights Report. 2021. Construction. [online] Available at: [Accessed 10 September 2021].

Parlinfo.aph.gov.au. 2021. ParlInfo - National Housing Finance and Investment Corporation Amendment Bill 2019. [online] Available at: [Accessed 17 September 2021].

Realestate.com.au, 2021. [online] Available at: [Accessed 17 September 2021].

RSM Australia. 2021. Word of Mouth Marketing. [online] Available at: [Accessed 10 September 2021].

Sikorska-Lewandowska, A., 2021.The Status of a Limited Liability Company in the Polish Legal System.

Tradingeconomics.com. 2021. Australia Interest Rate | 1990-2021 Data | 2022-2023 Forecast | Calendar | Historical. [online] Available at: [Accessed 10 September 2021].

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