Tuesday, April 10, 2012

PINTO's DECISION - A BUSINESS START-UP



Anita was intending to start her own retail outlet.

She got a 15ft x 10ft shop offer with a basement available in the commercial complex in the city. The owner who was to migrate to America offered her 2 alternatives.
-Outright purchase the going rate was @ Rs.5000 per sq ft.
-On leave and license basis for 2 years with a deposit of Rs.200000 and a monthly rental of Rs.4000
Anita was determined to go ahead with this opportunity with monthly charges of Rs.5000 towards the shop.
Anita had shortlisted 3 alternatives in terms of the product line : 
  1. Greeting cards, posters, gift articles shop
  2. Readymade garments for gents
  3. Bookshop-popular magazines, fiction, stationery but no text books.


She estimated and found that she requires Rs.60000 for interior decoration and Rs.200000 for keeping the stocks.
She felt that raising this money from her own capital plus bank financing was not much of a problem.
Qualities of Anita – as an Entrepreneur !!!
1. Risk-Taking. 2. Determination. 3. Self-Confidence. 4. Optimist. 5. Opportunist.
QUESTIONS & ANSWERS


Which of the above businesses she  should start and why???
Bookshop because: No such shop in the commercial complex, Cost of MR would be less, Direct Customers would be very near and easy to target,  Cordial relationship with the  customers, Less selling costs, Knowledge oriented people, Higher brand recognition, Appreciated as complimentary gifts.
The other business she can start is of selling computer hardware and peripherals.
-  Considering the cost data given, what will be the breakeven volume she has to achieve???
She can initially go in for leave and license option for 2 yrs because :
a. The shop is in basement so advertisement expenditure would be more.
Also, once if she gets a better location somewhere at the ground level or higher, she can move to that location.
b. Less capital required at the start of the business; so the breakeven can be achieved faster.
CALCULATION
Initial Cost:
Interior Decoration – 60,000/-
Opening Inventory  – 2,00,000/-
Deposit              – 2,00,000/-
Opportunity Cost:
Interest lost on Rs. 2,00,000 @ 10 % – 20,000/annum
Recurring Cost:
Rental @ Rs 4000/mnth – 48,000 p.a
Maintenance @ Rs 500/mnth – 6000 p.a
Total Cost -  Rs 5,34,000.
Assume:
Average cost of Magazine @ Rs 30. (Assume 100 copies/month)
Average cost of Fiction Book @ Rs 120. (Assume 40 copies/month)
Average cost of printer paper @ Rs 120. (Assume 200 reams/month)
Average cost of Stationery @ Rs 20. (Assume 500 units/month)
Total Sales/month = Rs 41,800.
Therefore, at the end of 12 months, total sales = Rs 5,01,600/=
So, there is a loss of Rs.32,400 /= at the end of 12 months.
Break even would only be achieved in the 13th month.
Units that need to be sold:
Magazines: 1300 copies.
Fiction Books: 520 copies.
Printer paper : 2600 reams.
Stationery : 6500 units.
How to make a success from this retail outlet????
In order to make a success of this retail outlet, Anita should:
  • Successful advertising campaign.
  • Heavy discounts to the customers.
  • Availability of gold cards to the customers.
  • Complimentary items.
  • Adoption of click- and- mortar business model.

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