 Our idea:
Our business idea is not a newfound product or a yet to be explored market,
it is an existing business with 100% competition. In a nutshell, our business idea
is to open a flower shop catering to deliveries, formalities and small-scale
events. Our objective is to be accessible and convenient whilst offering
above par products.
We came up with this idea through our love for flowers and the slight
experience and skill we have in this field. It is a beautiful market with ability to
create and innovate. We would like to expand our expertise and skills in this
field and its popularity and relative higher demand for it recently makes it all
the more appealing. Accessibility to this market could not be easier, the laws
and regulations are reasonable and we have already established contacts
within this field. At this point, it would be illogical for us to not come up with
this idea.
Our vision is to provide beautifully arranged flowers catering to small-scale
events, formalities in accessible area and slowly yet surely be a dominant
player in the market.
Our mission is to provide all that is beautiful and add beauty with flowers to
everyday life at affordable prices and superb customer service.
 Resources:
For our business recruiting research we utilized numerous resources. The
Internet was of great help to us providing everything from the risk free rate to
quotations for our delivery vehicle and fridges. Moreover, the Internet was of
great assistance in allocating employees and getting a rough idea about
salaries as well as finding out about the training program allocated in London,
England. As our second resource we went to Fleur, a very similar flower
business in a residential area. We got real figures from them who were kind
enough to provide us with the capacity as they are the same size as we plan
to be along with employees salaries and most helpfully the cost of goods sold.
This information despite it being confidential was given to us due to the fact
that the owner is a good friend of ours (lucky streak). The owner herself gave
us a lot of good points to include in our study and personally explained to us
the principles of owning a flower shop. Our third resource was Habeeb, one
of five flower and equipment suppliers in Kuwait. He provides flowers to
numerous florists and wedding planners including au nom de la rose, fleur,
Nicholas and qassem dashti. Habeeb was very helpful as well providing
wholesale quotes of flowers and vases and explaining the volatility of prices in
the business. He reassured the concept of Fleur’s price setting strategy and
explained to us that this was the only way to do it in a business so volatile and
unstandardized in taste, size and most importantly flower prices. Our Last but
certainly not least resource was Sami Al-Ajmi, a representative of Kuwait Small
Projects Development. We met with him on campus where he was very
helpful and briefed us on the know-how’s of equity partnership. He taught us
how to calculate the exit or buyout strategy and informed us about the fixed
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WACC given by the Kuwait Small Project Development for feasibility studies
and advised us to use it in ours. He was extremely cooperative and tolerant
as were the rest of our sources.
 Location:
We have brainstormed many ideas for the location, but the location that
proved to be the most effective and demanded was in Co-ops. Most of the
flower shops that are provided in some of the co-ops are not of high quality
and are not suitable for the residents of the area. We decided to start out in
Abdullah-Al-Salem Co-op and then expand into other co-ops nearby such as
Yarmouk and Rawda. We chose these co-ops because they are close,
accessible and attract customers from different areas as well as their own
residents. We didn’t want to be like other flower shops and chose locations in
malls because we want to be unique and malls are not always easily
accessible. We think that this choice of location will be highly profitable and
will hopefully attract a lot of customers and correspond with one of our main
objectives, accessibility. We went forth and investigated Abdullah Al-Salem’s
CO-OP to get rent prices and the procedures. Throughout our investigation
we have come to a conclusion that we can in fact get a shop in Abdullah AlSalem CO-OP with 500 KD monthly rent. This was a stepping-stone for us
because provided this information we could now approximate the décor
fees, employees capacity and finally the number of fridges required.
 Advertising:
As our survey indicated getting customers to change their florists to us was a
probable which gave us even more reason to build ourselves an effective
advertising strategy. Through our survey analysis we noticed that the most
dominant advertising method was social media so we decided that we will
effectively and efficiently use this platform to reach our audience. The two
most prominent players in social media nowadays are instagram and twitter,
having explored our competitors we have come to conclude that none of
them have twitter and as far as instagram goes the competitor with the most
followers was Fleur with 13K followers. We decided to be active on twitter and
instagram with a target of 15K followers to beat our competitor. On instagram
we plan on posting flower bouquet of the day as well new products we
would like to promote and introduce. Our next step would be to pay an
annual fee and join the 965flowers.com website. This website runs by acting
as an intermediary between our customers and us. This site is very popular
and will definitely bring in a large amount of customers and hopefully make
our flower shop well known. Another advertising plan that will also help to
attract customers is by word of mouth. We plan on sending free flowers to
bloggers so they review our flower shop and mention us in their blogs. Also we
plan on telling our friends and family to also tell the people they know and
spread the word that we have opened a flower shop. We will also be
handling families and friends events with no profits just to have our work out
there and be recognized. These two strategies have proven to be the most
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effective with other businesses similar to ours and by the results of the survey
that we handed out to people.
 Initial cost outlay:
To calculate our initial cost outlay we have added our costs and pre-paid
expenses and came up with 36,635 KD. This initial amount should cover
branding, décor, 6 months salaries and rent, labor transfer and numerous
expenses that will be detailed below.
To research the pricing of
each of the expenses we
acquire and estimated how
many units we need to
open our shop.
Fridges: Our shop has a
capacity of holding 3
fridges to store our flowers in
for longer life and inventory.
Each fridge costs 425 KD as
we had seen them in Abyat
by Al-Hassawi.
Delivery Van: For deliveries
and transportation we have
decided that we only need
1 van and 1 driver for the
first period at least. We
checked online for van
prices and arrived at an
estimation of 7000 KD.
Branding: Before opening
up our shop we will need to
create an identity for our
shop along with a logo. We decided to go ahead with Raw design for this
service because their taste best suits ours. They charge 2000 KD for basic
branding (logo, slogan, colors to use, fonts, and cards).
Décor: For our décor we decided to do it ourselves as we have a creative
streaks and ideas of our own. We will be hiring a carpenter to do most of the
work as well as buy ready furniture and accessories to complete the look. We
will be getting parquet floorings from abyat and our wallpaper and fabrics
from nina campell from the UK. We estimate that the total cost for the interior
will be approximately 3000 KD.
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Flowers and vases: To open up our shop we need to
secure flowers and vases for at least the first 2 weeks.
With this in mind we decided that 1000 flowers
prepaid and 200 vases to be used around and in the
shop would be optimal for our open up. As far as
vases go, 5 KD is the average cost of a vase in the
wholesale shop. Flowers however were much harder
to calculate so we got the unit price for 10 different
types of flowers and calculated the average price of
one unit. We arrived at 500 fils per unit using the table
to the left. All numbers used were provided by
Habeeb and are volatile.
Salaries and rent: The rent is 500 KD as told by Abdullah Al-Salem CO-OP and
as far as salaries go we calculated how many workers we needed. We
needed 2 florists, 1 driver, 1 salesperson and a manager. The manger was a
requirement of the Kuwait Small Project Development in which they require
the investee to be unemployed, above the age of 21 and be appointed
manager with a running salary. We choose this manager to be Fay and we
calculated her salary using the base salary of a freshly graduated NBK
employee, her opportunity cost.
Training: For training we decided to invest in someone that cant actually
move so we went with training the manager (Fay) since she already has a
strong background and little skills in running a flower shop and arranging
flowers. The course is 2 weeks and was found online as the total cost including
accommodation is 2000 KD.
IPhone, Laptop: For our shop we will be needing iPhone to use instagram and
twitter as well as to receive orders from customers by phone, whatsapp and
sms. We will also need a laptop to stay connected to 965flowers.com and
receive our orders as well as to keep customers database on it. The costs of
these items were found online using blink.com.kw, which came out to be 580
KD.
 Financial resources:
We used to have our project financed by the Kuwait Small Project
Development. It was established in 1997 by the Government of the State of
Kuwait represented by the Public Authority for Investment. With a capital of 1
million KD in order to assist in developing the national economy by
establishing small and medium projects with the participation of Kuwaiti
citizens and developing their technical skills. We choose them because they
require a lower return on their financing as well as help keep us on track.
Moreover, Kuwait Small project Development is less risky as they start an
equity partnership and an entity where the most I can lose is the money
invested. Finally they finance up to 80% of the project minimizing our
investment making it more affordable for us as college students and with
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limited incomes. Later on we will reveal how to buy them out and eventually
solely own our business once we are on our feet.
 Depreciation
For our depreciation method we decided to go with straight line due to
uneven lives. The fixed assets we decided to depreciate the fridges, van,
iPhone and laptop. Shown in the table below is how we computed the
depreciation used in our net income.
 Sector and competition:
As we have mentioned above our idea is an existing up and running business
with 100% competition. How we plan to get into the market and slowly yet
surely become dominant players in it is where we have to outperform our
competitors. How we plan to do that relies a great deal on whom we are
dealing with.
The survey highlighted our top 4 competitors who are the shops with the
highest market share and in our opinion the ones which we will be most similar
to. We have taken the liberty of highlighting the advantage and
disadvantage of each and playing the disadvantages whilst enhancing their
advantages.
We plan on to hybrid a good and accessible location, be creative and
innovative in our displays and collaborations, create a loyalty program for our
customers all whilst offering better prices and customer service than our
competitors.
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Our loyalty program will be quite simple. For every 5 bouquets you buy you
will get one for free. We will have a stamp card expiring every six months to
encourage our customers to come back to us. Furthermore, just like our big 4
competitors we plan on joining 965flowers.com and benefiting from exposure
to our target audience.
Moving on to the supplier, we plan on getting supplied locally from Habeeb
for our flowers and equipment. We agreed that we will be buying on credit
and paying him at the end of every month. Moreover, he will be making
semi-weekly flower and vases deliveries to our shop. To us the most important
thing is having good flowers and availability which will both be met with the
supplier we have chosen. In this sector, the inventory turnover is very high due
to the short life of our product. It carries a percentage of risk, which is how we
decided to get supplied locally and not worry about over or under buying
and having shortages and surplus. We think it’s the best way to go, for the first
five years at least.
 Survey:
For our survey we decided to use a new method in asking people. We put our
survey online using surveymonkey.com and sent messages to our contact lists
including the link and told them to answer the questions. Our contact lists
then sent it to their contacts and this method proved to be very useful. We
decided to use this method because it is more environment friendly then
printing papers and it is more accurate. Also it is easier to see the results
because the site writes next to each answer how many people picked that
choice and it also gives the percentage. Moreover, in surveys there is a
tendency of some people skipping several questions, but with survey monkey
it calculates the percentage using the number of people that actually
answered this question as opposed to using the number of people answering
the survey giving more accuracy. Furthermore, for a fee this site computed
the pie graphs for us which was extremely helpful and time saving. We were
lucky enough to get 195 people to answer our survey with a variety of ages.
This method of online survey proved to be beyond successful and we were
extremely happy to have used it in our research.
*Please note: Survey results and analysis are attached separately.
Our link: http://www.surveymonkey.com/s/9SZ2BWG
 Financials, sales forecasting:
WACC: The wacc was fixed for the Kuwait’s small project development
company which we were required to use having taken their route in
financing.
Rd: There was no interest rate, instead we paid them earnings on the
ownership percentage until we buy them out eventually.
Rs: We computed the return on equity using the CAPM equation.
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Expenses: For our expenses we divided them into 3 major categories; salaries
and rent, marketing, and operating. As per our variable cost, it was impossible
to calculate it due to volatility and unstandardization so we linked it to our
sales making it 55% of sales.
Sales: To calculate our sales we used our capacity approach. What we did
was we calculated our full capacity and conservatively assumed that we will
be occupying 50% capacity as our base. We then calculated our prices using
the answers we got from the survey and the weighted average we received
was 32.6 KD. Again being conservative we have decided to round it down to
25 KD. We then calculated the number of days per year (28x12=336) and
multiplied our capacity with our average price by the days per year arriving
at 126,000 KD.
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Balance sheet:
FCFF: We calculated our free cash flow to firm to arrive at the cash flows,
incorporated was the 5% (growth/inflation rate provided fixed by KSPD). We
used FCFF for our FCFE, NPV, IRR, MIRR and exit strategy. This FCFF was also
used for scenario analysis with changing variables like capacity and prices
seeing our optimistic and pessimistic scenarios.
FCFE: Given the fixed wacc and inaccuracy in calculating our personal cash
flows we decided to do the free cash flow to equity and base our npv profile
on it since we cannot change wacc. Is has proven to be very successful in
our feasibility study and it was nice to know our gain from this project.
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Exit strategy: As mentioned before we were in an equity partnership with
Kuwait Small Project Development and we had to buy them out. Here is how
it works:
At the beginning of every year
we calculate the KSPD
ownership and ours.
After knowing the ownership
percent of each party we
compute the net profit of the
year.
KSPD pays an annual incentive
of 40% and an additional 20%
performance fee if ROA is higher
than 7.5%. These incentives
however must be paid back to
KSPD to buy them out.
We then deduct the
incentive/buyout amount which
leaves is with the earning to be
paid out as dividends.
Each party receives their earning
in correspondence to their
ownership stake.
This goes on until the KSPD have
no ownership in the company
leaving us the sole owners of our
shop.
For our project we bought them
out as fast as 1.78 years.
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 Capital budgeting and evaluation techniques:
 NPV profile:
Because the WACC was given and because we are more concerned with
our net present value and not the partnership’s value we decided to base
our NPV profile on our return on equity. We noticed that the higher rate of
return we acquire the less our net present value will be which is just about
right. Shown below is a more detailed and graphed NPV profile for our FCFE:
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 Conclusion:
In conclusion we have decided to go forth with this project because it has
proved to be profitable. With a positive and relatively high NPV, an IRR and
MIRR higher than WACC and a reasonable payback period. This project
seems successful and a good investment for our time and money.
We would like to take this opportunity to thank our instructor Dr. Mohammad
Al-Abduljaleel and to everyone who helped us put this study together. Thank
you.
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