Management Assignment: Developing Business Plan for Future Profit
Management Assignment Task: You are required to read the given scenario. After reading the scenario, you will be required to prepare a business plan your client can take to her board to justify the expansion including raising $350k. The plan must include the following:
- Identify an Australian city to expand into which will provide a profitable return-on investment. This will include conducting market research to determine which city is suitable based on FutureProfit’s current target market.
- Determine the best solution regarding location – e.g., leasing a commercial property, renting a co-working space, or having employees / consultants work from home. Discuss the advantages and disadvantages of in the proposed city including the financial requirements. Keep in mind the change in working conditions due to COVID19.
- Complete a business model canvas for FutureProfit Pty Ltd. A good video to understand and present the business model canvas, watch
https://youtu.be/IP0cUBWTgpY (The Business Model Canvas - 9 Steps to Creating a Successful Business Model - Startup Tips).
- Identify the specific training staff neede have in order to be ‘future-ready’.
- Discuss two strategies / solutions you think will improve business performance and sustainability (e.g., how and what to automate). This information will also provide the basis for capital injection (e.g., technological requirements).
- Simple financial projections for the next three years.
Jane has asked you to provide her a business / strategy plan for her FutureProfit Pty Ltd in moving forward as the business was impacted by border closures and lockdowns in 2020. Despite the challenges, she is still keen to expand her business into another Australian city and knows she has to automate her business better to be financially sustainable.
She has been operating her business consulting and accountancy practice, FutureProfit Pty Ltd, for five years. She has done quite well for herself being in accounting for over 20 years and being recognised in her field locally, nationally and internationally. Though she has a few clients overseas, the majority of her client base is in Canberra, where her business is currently located and where she has resided all her life.
Despite her success, she is concerned about the sustainability of her practice over the next 5 years due to the changing nature of business in general from COVID-19 and the reality of technological advances that are impacting every industry, including accounting. She has read that artificial intelligence, cloud computing and blockchain will continue to affect the industry. Additionally, she is concerned that her staff do not have the technical, analytical, leadership and consulting skills needed to continue their success in the future. She currently has four full-time employees: two accountants, one bookkeeper, and one office manager. She also has two part time bookkeepers and a marketing/social media coordinator who all work off-site.
Her target market is SMEs who are in a growth phase and have a minimum turnover of $1 million per annum. Though she doesn’t target a specific industry, she tends to attract those companies that are in either health, education or the STEM (science, technology, engineering, mathematics) fields – just due to the nature of Canberra.
She currently promotes her business mainly via word-of-mouth and networking at local professional associations such at the Canberra Business Chamber, the Australian Institute of Company Directors, and the Canberra Women in Business. Her breadth of networks has expanded due to many organisations having their functions online.
Last year’s sales revenue was $550,000. Her key expenses are her own wage ($150k), the two accountants ($80k each), the two part-time bookkeepers ($40k each), the office manager ($45k), and the part-time a marketing/social media coordinator ($35k). Operationally, she budgets $50k for marketing/advertising and $100k for general operations. She has two directors which she pays $25k each per year. She currently operates her business out of a detached building on her property and allocated $24,000 towards rent. Through aggressive marketing, Jane believes that the expansion will increase their sales revenue by 50% the first year, 60% the second year, and 70% the third year.
Her company currently uses XERO, a cloud-based accounting software platform for small and medium-sized businesses. Other than that, no other automation has been implemented. Capital Raise
It is anticipated that the breakdown of the capital raise will be as follows: (a) One full-time technical programmer @$100k; (b) one full-time accountant @$80k; (c) $100k towards interstate expansion (including operational and occupancy costs), and (d) $70k for marketing.
The FutureProfit Pty Ltd selected in the present context of management assignment is involved in providing accounting services like bookkeeping, financial planning and management and accounting. The company has been operating in Canberra for the last 20 years. There are different technological advancement taking place globally which is impacting the business of the company. The company therefore, needs to update its operations and human resource. To increase the sales, revenue and profits, there is a need to expand nationally and strengthen the international footing. In this business report, the decision of expanding to a new Australian city wills is analysed.
In this business plan, the expansion decision of FutureProfit Pty Ltd will be discussed with reference to the external environment analysis of an Australia city, Sydney. As the company has already built its strong image in and around Canberra, expanding to another city in Australia would generate better sales and revenue. Expanding into Sydney would help the company to explore new prospects and attain sustainability in their business, especially after the Covid-19 recession has hit the economy. In this business report, the marketing plan, operations plan as well as financial plan will be included. The company has been limited to a specific area and has not been able to tap many opportunities, which it can now capitalise.
1.1. Company Overview
The FutureProfit Pty Ltd is a company that is located in Canberra, Australia. The company offers its clients accounting and consultancy services. The main target clients of the company are the SMEs. FutureProfit Pty Ltd has been in business for the last 20 years. The company has created its reputation in the local market and is also known nationally. However, the company has very few overseas clients.
1.2. SWOT Analysis
Before taking a decision of expanding into a completely new city, it is essential to carry out an internal analysis of the company. For the purpose of understanding the internal environment, SWOT analysis of FutureProfit Pty Ltd has been carried out. The company has already established its brand position in the market. They have their clients whom they offer personalised service. This consultancy and accounting service brings the company sufficient revenue. However, the company has scope for expansion and growth. The target clients of FutureProfit Pty Ltd include the SMEs who have a turnover of minimum $1 million. The company does not specifically target any particular industry. The new trends like cloud computing block chain technology and artificial intelligence is affecting the business. The increased automation is also becoming a rising threat for the companies involved in accounting practices. The shift in technology is therefore, a concern for FutureProfit Pty Ltd. The company can create competitive advantage and reap the benefits of automation if it implements the same within its process. The SWOT analysis will help in identifying the strengths, weaknesses, opportunities and threats of FutureProfit Pty Ltd.
- The company has a strong brand position and image.
- FutureProfit Pty Ltd has a strong and loyal client base.
- They provide effective customer services for accounting (Schmidt and Pohler, 2018).
- The company has limited fund for business expansion.
- They have limited geographical access.
- There are very few client holdings overseas.
- Revenue and sales is restricted to Canberra.
- Technological shift is a serious threat; technology up gradation includes automation in accounting (Bhargava, Bester and Bolton, 2020).
- The company lacks high skilled employees who have analytical, technical, consulting and leadership skills.
- The rival companies have wider reach in terms of overseas clients and geographical presence.
- The company can tap the competitive advantage of using automatic in accounting.
- The company can utilise its brand name for expansion into new locations.
- FutureProfit Pty Ltd can implement the latest technology to reduce costs and create greater value
- The training of employees can help the company to update its workforce with the changing business environment.
1.3. Trends affecting the Industry
The current business environment for the accounting industry is changing drastically. In this industry 4.0, automation has brought about a complete new revolution (Butler-Adam, 2018). The se of artificial intelligence, block chain technology and cloud computing has enhanced the operations of the accounting industry of which FutureProfit Pty Ltd is a part. This automation is a new thing and so the company has to select the best software for updating its process. This will facilitate accurate and real-time data processing. The use of big data in processing could help in effective forecasting regarding the future market trends. This would further enable the company to take appropriate decisions. The sustenance of the companies is evaluated using the accounting data for financial risk management. The transparency regarding the asset ownership and other aspects of accounting is increased through block chain technology. These technological developments are trying to reduce the chances of occurrence of frauds in any company pertaining to accounting.
1.4. Business Canvas
For the development of any business, a strategic framework is required, which would facilitate the business management. This framework is known as the business canvas. As per Umar, Sasongko and Aguzman (2018), the business canvas fosters organizational alignment, strategizing and effective decision making.
Companies in STEM segment
2. Marketing Plan
The FutureProfit Pty Ltd is planning to expand its business to another city in Australia. If they expand their business from Canberra to Sydney, there are several factors, which they need to keep in mind. Sydney is one of the busiest cities of Australia and expanding into this city would mean access to a strategic location with a wider market. PESTEL and Porter’s analysis has been done for external environmental analysis.
2.1. PESTEL Analysis
Political: As Canberra and Sydney both lie within Australia, they share the same political scenario so this would mean ease of operation. Expansion would simply mean more business for FutureProfit Pty Ltd. The market size of Sydney is large, with many SMEs requiring advanced accounting services. This creates higher demand for the company.
Economic: Sydney would provide the company with more prospect employees who have technical and analytical training. This expansion could boost the business and facilitate reaching international standards of accounting. Overall, Canberra and Sydney share similar economic conditions.
Social: The social structure of accepting automation in accounting is high in Sydney. This will open wider arenas for FutureProfit.
Technology: Technologically, Sydney has many tech savvy people who could be absorbed into the workforce. The accounting industry in Sydney or the operating companies have already started offering cloud-based services (Mourtzis, Vlachou. and Zogopoulos, 2017). This enhances the business and the cost structure. Level of technology is same in Canberra and Sydney, which signifies smooth functioning in the new city.
Legal: Apart from the local rules and regulations, Sydney’s legal structure is same as that of Canberra. Thus, the city would support the protection of stakeholders’ interests through better contractual protections. Legally, the company would not face any restrictions due to this expansion as they are expanding nationally and not internationally.
Environment: The business processes of the company have to be aligned with the environmental concerns. This however, is the scenario even in Canberra.
2.2. Porter’s five-factor Analysis:
Competition: There is high competition as there are many players in the accounting industry of Sydney.
Bargaining power of buyers: The buyers have good bargaining power. Thus, FutureProfit offers its service on B2B basis. Therefore, they need to provide high value services so that the clients feel that the price they pay for the services is worth it (Lysek, Danilovic and Liu, 2019).
Bargaining power of suppliers: The accounting and consultancy service providers do not have a critical position to bargain. However, the software providers’ industry has intense competition.
Threat of substitutes: There is low threat from substitutes because the SMEs hardly have any such alternatives in case of accounting service providers.
Threat of new entrants: The resources and skill set that a company has are the two barriers to entry into the industry.
2.3. Strategy for Entry into Sydney
The best strategy to enter into a new market is acquiring a local firm from the accounting industry with good reputation and market share (Holtbrügge and Berning, 2018). This will give FutureProfit Pty Ltd a good start in the market at Sydney and enhance the industry connections. This acquisition could boost the business of the company in the new location.
As expansion into Sydney is a completely new venture for FutureProfit Pty Ltd, it is best to lease a space. The company needs a private space for handling its business operations and cannot share space with any other company. Thus, it would be suitable to enter into a lease contract for an appropriate property in Sydney. This local ownership would give a strategic business position to the company. However, the lease properties in Sydney are quite highly priced, as the market is high dynamic and growing constantly.
3. Operations Plan
3.1 Analysing the Operational
In the long run, to attain stability and sustainability in business, FutureProfit Pty Ltd needs to expand into new location and also increase its international business. The diversification of services and use of advanced software could help it grow in the industry (Javaid et al., 2020).
3.2 Business Improvement Strategies
3.2.1. Software Selection
The company can look for better accounting software, which cater to the accounting requirements of the company and its clients. As FutureProfit does not specifically target any industry, streamlining its accounting needs is difficult. However, as it mostly works with companies involved in education, health or STEM, i.e. science, technology, engineering and mathematics, the software selected should address the accounting requirements of these companies. Besides XERO, which is accounting software with cloud computing, better automation systems can be installed and more advanced software can be implemented within the processes of the company.
3.2.2. Optimisation of Cost Structure
The company can implement the overall cost leadership, which would facilitate lowering the costs (Liu and Atuahene-Gima, 2018). This would help he business to improve and attract more clients. The main customers of FutureProfit include the SMEs and maintaining a lower cost base would be beneficial. It is difficult to manage costs and offer accounting services at low costs; however, this could be profitable in the long run. The no-frill approach would further help the company to eliminate the unnecessary features from its process and reduce further costs.
3.2.3. Lean Process Management
The waste management could be improved through lean process management (Sturm et al., 2018). The entire operation system of the company could be optimised with least generation of wastes. This could enhance the value creation for the clients and make the operations more productive and effective.
3.3. Training of Employees
As stated by Zhang et al (2020), the accounting industry is now embracing the latest technologies like artificial intelligence, cloud computing or block chain technology, the workforce has to be highly skilled. The company needs to train its staff to become more technical and analytical in approach. The company has to organise frequent training programs for enhancement of consulting and leadership skills. The employees should be recommended in-house trainings, participation in webinars and conferences and undertake self-study for skill enhancement.
4. Financial Plan
The expansion will have some financial implications for FutureProfit. Based on a strategic financial plan, the decision of expanding should be put into effect.
As the financial statement shows the company is running at a loss. Therefore, the expansion is needed for increasing sales and business. The company can explore a new market; improve its sales and revenue structure by entering the market in Sydney. Thus, raising $350k for expansion might seem difficult in the short run. However, this decision has the potential to generate higher profits in the long run. FutureProfit Pty Ltd.’s expansion strategy is a three year plan in which through expansion in the first year sales revenue will increase by 50 percent, in the second year it will increase by 60 percent and in the third year it would rise by 70 percent. The capital raise would be justified considering the business growth it would bring for FutureProfit. To increase the sales revenue above $550,000, that was experienced last year, the expansion is required. The breakup for the $350k, which is to be raised for the expansion, is as follows:
- Hiring a technical programmer on full-time basis for $100k
- Appointing an accountant on full-time basis for $80k
- Inter-city expansion cost including occupancy and operations of $100k
- Marketing budget of $70k
It can be concluded that FutureProfit Pty Ltd can increase their sales and revenues through expansion into Sydney. The customer base for the company will also expand. As Canberra and Sydney are the two most significant cities in Australia, having a large market share in both these locations would give a strategic position to the brand. The increase in business would also facilitate developing an international customer base. The reputation earned from the local markets would be a gateway to overseas markets. However, the financial implications of raising a huge capital for expansion should be analysed more critically so that the company does not indulge in any wrong decision that could create a financial havoc.
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