IBC
Business Plan
Stephen Lumbard
Contribution:
55%
stephen.lumbard@bt.com
Mark Gilmore
Page 1 of 31
mark.gilmore@bt.com
Contribution:
45%
IBC
Stephen Lumbard & Mark Gilmore
Contents
1
2
Introduction .................................................................................................................................... 4
1.1
Executive Summary ................................................................................................................. 4
1.2
Market Definition .................................................................................................................... 4
Marketing ........................................................................................................................................ 5
2.1
2.1.1
Political Factors ............................................................................................................... 5
2.1.2
Economic Factors ............................................................................................................ 5
2.1.3
Socio-cultural Factors...................................................................................................... 5
2.1.4
Technological Factors...................................................................................................... 5
2.1.5
Environmental Factors .................................................................................................... 6
2.1.6
Legal Factors ................................................................................................................... 6
2.2
4
5
The Competitive Environment ................................................................................................ 7
2.2.1
Threat of entry of new competitors................................................................................ 7
2.2.2
Bargaining Power of Suppliers ........................................................................................ 8
2.2.3
Bargaining Power of Customers...................................................................................... 8
2.2.4
Threat of substitute products ......................................................................................... 8
2.2.5
Intensity of competitive rivalry ....................................................................................... 8
2.3
3
The Macro Environment ......................................................................................................... 5
Marketing Strategy ................................................................................................................. 9
Realisation ..................................................................................................................................... 11
3.1
Company name and logo ...................................................................................................... 11
3.2
Building requirements........................................................................................................... 11
3.3
Office Requirements ............................................................................................................. 11
3.4
Staffing requirements ........................................................................................................... 12
3.5
Day to Day Operations .......................................................................................................... 13
Finance .......................................................................................................................................... 14
4.1
The spreadsheets .................................................................................................................. 14
4.2
Most Likely Scenario ............................................................................................................. 14
4.3
Optimistic Scenario ............................................................................................................... 22
4.4
Pessimistic Scenario .............................................................................................................. 24
Strategy ......................................................................................................................................... 25
5.1
Strategic Position .................................................................................................................. 25
5.2
Strategic Direction ................................................................................................................ 26
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5.3
Strategic Analysis .................................................................................................................. 27
5.3.1
Strengths ....................................................................................................................... 27
5.3.2
Weaknesses................................................................................................................... 27
5.3.3
Opportunities ................................................................................................................ 27
5.3.4
Threats .......................................................................................................................... 27
5.4
Three Year Plan ..................................................................................................................... 28
6
Conclusion ..................................................................................................................................... 29
7
References .................................................................................................................................... 30
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1
Introduction
1.1
Executive Summary
Our Mission Statement is as follows:
“Our mission is to generate a profit by providing a bike rental service to people in Sheffield, with a
target market primarily consisting of students.”
Hallam Bike Hire will be a small business start-up based in central Sheffield, South Yorkshire. The
business will rent out bikes to people (primarily students), and will operate as a partnership, with
Stephen Lumbard and Mark Gilmore as partners. The business will be based in Sheffield city centre,
and will consist of a warehouse containing all the bikes to be hired and a front end to deal with
customers, which will be manned by a single employee at any one time. The management and
administration of the business will be conducted by the partners working from home. The partners
will manage the business in addition to their main full time jobs. It is envisaged that once the
business has made it through the difficult first few months, it will require relatively little
management, so management in the partners’ spare time would be viable.
The warehouse will contain bike racks to enable the bikes to be stored correctly. If the business is
successful, more bikes and bike racks will be purchased. The business will only be open during
semester times, due to the fact that the main target market is students. The bikes will require
maintenance and checking once per month with no availability for a day. This will be done by the
employee at the warehouse in addition to their duty of renting out the bikes. They will be trained on
an evening course for six weeks on how to properly maintain the bikes. Should the employee run out
of time and not be able to service the bikes that day, the partners will help out in the evenings as
they will also be trained on how to service the bikes. Customers will be given an option to “hire
purchase” bikes, meaning if they rent the bike out for 12 weeks in a 12 month period, they will be
given the bike to keep. Additional extras will also be available to buy, such as helmets, reflective
clothing, cable locks, etc.
1.2
Market Definition
Sheffield is England’s fourth largest city with a population of over 500,000. It also has a large student
population, with two universities accommodating over 45,000 students. The potential target market
is very large. The business will primarily target students, and the marketing will reflect this. The
business has been deliberately situated in the centre of the city, between both university campuses
to be as useful and as visible as possible to students.
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2
Marketing
2.1
The Macro Environment
To analyse the macro environment, we will conduct a PESTEL analysis:
2.1.1
Political Factors
Sheffield Cycling Action Plan
In 2006, Sheffield City Council published a Cycling Action Plan. The objective of this plan is to create
conditions in Sheffield in which more people choose to use a bike as their daily means of transport.
Key to this will be improved cycle routes throughout the city centre.
2.1.2
Economic Factors
Current Recession – The “Credit Crunch”
As a generalisation, most people are affected by the recession, and as they feel the effects of the
economic climate, it is possible that they could look at cheaper methods of transport such as cycling
rather than driving. People may also be more inclined to rent for a smaller weekly fee than too make
a more expensive one-off purchase.
2.1.3
Socio-cultural Factors
Health Consciousness
People will realise the health benefits of cycling as a means of transport above driving and public
transport, and cycling is being actively promoted as a healthy choice in the NHS’ high profile
active4life initiative.
2.1.4
Technological Factors
The development of more affordable automated bike release technologies (similar to that of the
Paris Vélib) could save the company a significant sum of money by reducing staffing costs to a
minimum after an initial investment in the technology should the company grow large enough.
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2.1.5
Stephen Lumbard & Mark Gilmore
Environmental Factors
Tackling Climate Change
Currently there are a number of Government initiatives as well as legislation in place to help reduce
the impact of climate change, such as the UK Climate Change Program, and the Climate Change Act
2008. The Government is actively encouraging use of less-polluting means of transport.
2.1.6
Legal Factors
The company will have a responsibility to ensure the health and safety of employees and customers
using the bikes. Safety checks must be carried out and all necessary safety equipment must be
available, at the expense of the company. The company should also promote cycling proficiency, and
should ensure all employees are proficient and trained accordingly. The company should ensure that
customers agree to ride safely and legally. To ensure it is legal to ride the bikes the company rents
out on the road, the company should fit the relevant front and rear lights to each bike. These should
be (from http://www.bbc.co.uk/dna/h2g2/A686784):
One steady, fixed white light, marked BS6102/3 (or equivalent), positioned centrally or offside, up to
1500mm from the ground, aligned towards and visible from the front.
One steady, fixed red light, marked BS3648 or BS6102/3 (or equivalent), positioned centrally or
offside, between 350mm and 1500mm from the ground, at or near the rear, aligned towards and
visible from behind.
One reflector, coloured red, marked BS6102/2 (or equivalent), positioned centrally or offside,
between 350mm and 900mm from the ground, at or near the rear, aligned towards and visible from
behind.
Four reflectors, coloured amber and marked BS6102/2 (or equivalent), positioned so that one is
plainly visible to the front and another to the rear of each pedal.
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2.2
The Competitive Environment
In order to analyse the competitive environment, we will use Porters 5 Forces model:
Potential
Entrants
Threat of Entry
Suppliers
Bargaining Power
Competitive
Rivalry
Buyers
Bargaining Power
Substitutes
Threat of Substitutes
2.2.1
Threat of entry of new competitors
While similar companies are currently starting up across the country, no bike hire companies
currently exist in Sheffield. Should the business be successful and profitable, it is likely that other
companies will want to enter the market, due to the sheer size of the target market meaning a
competitive environment is viable. If other competitors did want to enter the market, the only
barrier to their entry would be the initial investment. However, in that instance Hallam Bike Hire
would already have significant advantages following our initial investments and success. Also, if
Hallam Bike Hire was able to secure partnerships with both Universities and the City Council before
any competitors entered the market, again we would be at a significant advantage.
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2.2.2
Stephen Lumbard & Mark Gilmore
Bargaining Power of Suppliers
It is envisaged that within the current economic climate, suppliers would be more than willing to do
business with a start-up company in order to generate as much turnover for themselves as possible.
While we are relying on a non-profit company to supply bikes as cheaply as possible, the money we
could potentially generate for that organisation as regular customers would put us in a strong
position when working with them. Also, should Hallam Bike Hire be successful it would give us extra
bargaining power over other suppliers.
2.2.3
Bargaining Power of Customers
The customers will have relatively low bargaining power: withdrawn bus routes and unwillingness or
inability to use a car for their journey mean that the only alternatives for our target market are to
walk or cycle. Hallam Bike Hire must ensure that rental is cheap enough to dissuade potential
customers from simply purchasing their own bike.
2.2.4
Threat of substitute products
Since the company came into existence to fill a gap in the market caused by the withdrawal of
popular public transport routes, there is little threat from substitute products; the routes from the
main student areas to the Universities and the City Centre are notoriously car-unfriendly, parking on
site is prohibitively expensive, and most student accommodation lacks car parking. While many
students would simply walk as opposed to cycle, a large proportion of the student accommodation is
further than a 30 minute walk from the campuses, making it likely that some students would not see
walking as a viable method. Also, the main student areas fall outside of Supertram routes. It should
be considered that should the withdrawn services should be reinstated, it is highly unlikely that the
business will be viable.
2.2.5
Intensity of competitive rivalry
As previously suggested, on entering the market Hallam Bike Hire would have no direct competitors,
although should the company be profitable this scenario is likely to change. In the event other
competitors do enter the market, it is likely that an already successful Hallam Bike Hire would be
able to use economy of scale to reduce prices and make it difficult for any new start-ups to compete.
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2.3
Stephen Lumbard & Mark Gilmore
Marketing Strategy
As Hallam Bike Hire is actively targeting the student market following the withdrawal of popular bus
routes, it was important to do research into the potential number of students who could become
customers. Data from the National Travel Survey (http://www.dft.gov.uk/pgr/statistics
/datatablespublications/personal/factsheets/cyclefactsheet.pdf) suggests that 3% of all commuting
trips are made by bicycle. Assuming that all 45000 students travel to University every day during
term time, that results in 1350 possible cycling commutes every day. Simple observation suggests
that far fewer students than this currently cycle to and from the Universities. Of particular interest
are the 3600 (108 possible cycling commutes per day) students living in the popular Endcliffe Village
residencies, in the popular student area near Ecclesall Road, as well as other students renting private
accommodation in this area. With these being approx 30-40 minutes walk from Sheffield University
campuses, the withdrawal of the bus route provides an excellent opportunity to target these
students. Again, observation suggests that far fewer students from this market currently cycle, so we
have an opportunity to develop an underdeveloped market.
Basing our warehouse in this area removes any need for students to store bikes themselves; they
could make a short walk simply pick a bike up in the morning and return it in the afternoon.
Common sense suggests that this convenience would make it much more likely for students to hire a
bike.
Based on these findings, our marketing will aggressively target students in the Endcliffe Village, while
also targeting the wider student population. To save on costs, all marketing activities such as
flyering, design etc. will be done by the company founders. We will market the company through the
following avenues:
Figures quoted from http://www.shef.ac.uk/union/about/advertise/.
Advertising in the student newspaper, Sheffield Forge Press.
Print Run: 5000
Readership: 15000
Eighth Page Advert: £210
With a readership approaching 1/3 of the entire of Sheffield’s student population, Sheffield Forge
Press is an ideal solution for getting the company known within the wider student population, and at
£210 for an eight page advert represents good value in relation to the possible audience reach.
However, it is likely that a significant percentage of the readership are not suitable targets for the
business, due to factors such as location. This does not detract from the fact that running occasional
adverts in the newspaper is still a worthwhile activity.
Hiring a stall at Freshers Fair for flyer distribution.
Attendance: 10000
Standard Stall: £500
The Freshers fair at the start of the University year provides an ideal opportunity to market to the
business to new students, many of whom will be unfamiliar with Sheffield, and as such will choose to
live in student accommodation such as Endcliffe Village. It will also be an opportunity to remind
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returning students who may be affected by the withdrawn bus routes of the existence of the
company. However, hiring a stall at Freshers Fair is expensive, and as such only 1 days stall hire can
realistically be afforded. In this time we would estimate that 3000 flyers would be distributed from
the stall.
Hiring a stall at Refreshers Fair for flyer distribution.
Attendance: 7000
Standard Stall: £400
Refreshers fair is the 2nd Semester equivalent of Freshers Fair, and again is a good opportunity to
target returning students. It is cheaper to hire a stall here than at Freshers Fair due to the lower
attendance, but it is still unrealistic to market at Refreshers Fair for more than one day.
Flyering on the Piazza, Endcliffe Village
Resident: 3600 Students
Cost: £100 per day (Max 2000 flyers)
Flyering in this area previously identified as a core market is seen as necessary to the success of the
business. In relation to the other flyering activities, the costs involved represent poorer value in
relation to market reach, but this is seen as worthwhile to reach potential key customers.
Sheffield University Student Union Concourse Flyering
Daily Footfall: 10000
Cost: £150 per day (Max 2000 flyers)
Flyering in this area will again reach a wide audience, but as with the Sheffield Forge Press advert
our services may be unsuitable for a significant proportion of the audience reached, although again
the activity is still deemed worthwhile.
Banner Advert, Activities and Sport Email Newsletter
Mailing list: 2500 Students
Cost: £200 per advert per newsletter
While again a significant proportion of the audience reached may find our services unsuitable,
students reading this newsletter are more likely to lead an active lifestyle, and by association more
likely to be willing to cycle to University, making this a valuable target audience.
From http://www.flyerboy.com/
10000 A6 flyers £165 + £20 Carriage
From http://www.diginate.co.uk/processSolid.php
200 10cm x 4cm Solid Matte vinyl stickers £54.05 inc delivery
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3
Realisation
3.1
Company name and logo
The name Hallam Bike Rental was decided upon as an obvious and straightforward company name.
‘Hallam’ was used in preference to ‘Sheffield’ to align the company better with the Student market;
Hallam and Hallamshire are frequently used in place of Sheffield for student-orientated services.
A company will not be hired to create the company logo, as both company founders have enough
expertise to create a relevant logo. It is envisaged that the logo again will be obvious and
straightforward, as well as being ‘high impact’ enough for successful marketing.
3.2
Building requirements
Initially, no further premises other than the initial warehouse are required for the chosen business
model. The warehouse will need to be supplied with electricity, gas, and water; estimates of the
relevant utility bills will be taken into consideration. A telephone line is not required as Internet
access is not necessary, and we intend to supply the employee with a company mobile phone.
A long-term goal of the business would be to have multiple rental sites, as this makes it much more
convenient for the customers since they could pick the location closest to them, resulting in more
custom. However, the economies of scale required to make multiple locations viable put this
ambition outside of the scope of our initial 3 year forecast.
3.3
Office Requirements
As the company has no major IT requirements, other than keeping a record of rentals, invoicing
customers, and day-to-day administration tasks, an expensive computer is not necessary. As such, a
second-hand laptop will be purchased for £99 from http://www.ittrading.co.uk/shop/
detail.asp?ProductID=652. To save money on software costs, the laptop will be installed with the
Ubuntu operating system and the OpenOffice office suite, both of which are free and open source.
The software has been checked for compatibility with the laptop and there should be no issues.
A printer is also required to produce customer invoices for deposits. Since the volumes will be
relatively small, we believe that an inkjet printer will be better value than a laser printer; as such, the
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printer we will choose is a HP Deskjet 1560 from http://www.ebuyer.com/product/146764 for
£29.99.
A mobile phone is required for the employee during business hours to answer any enquiries, and
make any necessary calls. The tariff chosen will cost £15 a month from
http://www.three.co.uk/3_Business/Tariffs/Mix_match. The decision to use a mobile phone rather
than a landline phone has been reached as it is significantly cheaper; a business landline alone would
cost £14.10 a month before the addition of a call plan. As the mobile phone plan is SIM only, a spare
phone will be donated from one of the company founders.
A desk and chair will be required for the office. The cheapest computer desk from Ikea
(http://www.ikea.com/gb/en/catalog/products/70089065) costs £10.76 and the cheapest suitable
chair from Ikea (http://www.ikea.com/gb/en/catalog/products/40086723) costs £29.26. All other
office-related expenses can be classed as incidental.
Should the business be sufficiently successful, it is envisaged we would invest in unmanned rental
stations with automatic unlocking technology; however, the investment required means that they
business would have to be operating on a scale larger than we can envisage within the initial 3 year
plan.
3.4
Staffing requirements
Until further expansion, staffing requirements remain at 8 man hours per day, split into two shifts
(7am-10am and 3pm-7pm). This works out at £52 per day. Staff would work on a casual basis, thus
providing sufficient cover for holidays etc. To maximise profit margins against costs, the business will
only operate during University term times, as it is not envisaged there will be enough demand
outside of term times. If such demand did arise, staffing requirements would be adjusted
accordingly, but this is not anticipated to happen within our 3 year forecast. Furthermore, in the
long term the company would be willing to invest in unmanned rental stations using automated
unlocking technology to keep staffing costs to a minimum should the business grow sufficiently,
although this is outside of the scope of the 3 year plan.
We opted to employ staff rather than work ourselves as initially there would not be sufficient profit
in the business for either founder to take a sufficient wage. However, this scenario is likely to change
after sufficient expansion, although again this is not anticipated to happen within the 3 year
forecast.
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3.5
Stephen Lumbard & Mark Gilmore
Day to Day Operations
The warehouse/office will be based on Red Lane, a short walk from Ecclesall Road and the Endcliffe
Village residences. A single member of staff will open the warehouse at 7am, and it will close at
11am. Between these times, customers will come and collect bikes. On their first visit, customers will
register their details, and provide proof of identification. They will also sign a disclaimer to confirm
they are aware of the Highway Code rules for cycling, and that they will wear all necessary safety
equipment. The employee will store their details in a spreadsheet on the computer.
To hire a bike, a customer will pay a £10 deposit, plus either £3 for day hire or £10 for one week hire.
Customers who hire bikes for a week will have the choice of either returning the bike to the
warehouse nightly (if they live nearby and lack storage space themselves) for no additional fee, or
retaining the bike for the duration of the entire week. Each customers hire details will be added to
their customer record. At the point of rental, the employee will attempt to make add-on sales of
relevant equipment (helmets, reflective vests, and cable locks). It is envisaged that the busiest time
will be between 8-9am, and that between 10-11am rentals will be relatively quiet, allowing the
employee to service and clean bikes as appropriate.
The warehouse/office will reopen at 3pm, and close at 7pm. Customers will be returning bikes and
receiving their deposits during this period; no further rentals will be made, and customer records will
be updated as bikes are returned. As taking the bikes back from customers will be less workintensive than hiring them to customers initially, this period can also be used to service and clean
bikes as necessary.
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4
Finance
4.1
The spreadsheets
The financial spreadsheets used for our business start-up predict the financial situation of the
business over the next three years. The financial tools used are as follows:






Balance Sheet
Profit and Loss Account
Cash Flow Forecast
Breakeven Analysis
A marketing sub sheet
A sub sheet which calculates the working days for our business (university semester time
excluding bank holidays)
All of these sheets feed into the main sheet, which is the “What if” calculator. The “what if”
calculator can make predictions of different scenarios based on the values input. The user can
change numerous elements of the business, such as selling prices, estimated sales, marketing
budget, estimated bills, etc. These values can be changed separately for each year of the business.
Any value that is changed on this sheet will automatically update all other relevant sheets, making
this tool a quick and easy way to simulate numerous different scenarios regarding the possible
future of the business. This tool will be used in the following sections to create a number of
scenarios.
4.2
Most Likely Scenario
The cash needed to start the business will come from a number of sources. We will have £2,000
from our parents that does not need to be paid back. We will then take out two loans, one from
HSBC for another £2,000 and one from The Prince’s Trust for £5,000.
Start-up Cash
Cash from parents
£2,000.00
Bank loan
£2,000.00
Prince's Trust loan
£5,000.00
Total
£9,000.00
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The most likely scenario for the next three years is that we will achieve the following sales:
First Year - April 2009 - March 2010
Sales (weekly)
Price
Quantity
Total
To hire a bike for one day
£3.00
30
£90.00
To hire a bike for one week
£10.00
40
£400.00
Helmets
£20.00
3
£60.00
Reflective vests
£5.00
2
£10.00
Cable locks
£5.00
4
£20.00
Price
Quantity
Total
Second Year - April 2010 - March 2011
Sales (weekly)
To hire a bike for one day
£3.00
50
£150.00
To hire a bike for one week
£10.00
60
£600.00
Helmets
£20.00
4
£80.00
Reflective vests
£5.00
3
£15.00
Cable locks
£5.00
5
£25.00
Price
Quantity
Total
Third Year - April 2011 - March 2012
Sales (weekly)
To hire a bike for one day
£3.00
70
£210.00
To hire a bike for one week
£10.00
80
£800.00
Helmets
£20.00
5
£100.00
Reflective vests
£5.00
4
£20.00
Cable locks
£5.00
6
£30.00
We believe that due to our location, competitive pricing and well targeted marketing strategy that
these sales quantities are not unreasonable. The quantities increase throughout the second and
third years as we become more established and our marketing budget increases. To achieve the
required sales in the first year, we will need to purchase the following stock.
First Year - April 2009 - March 2010
Stock (annual)
Bikes
Bike racks
Helmets
Cost
Quantity
Total
£30.00
60
£1,800.00
£275.00
5
£1,375.00
£15.00
90
£1,350.00
Reflective Vests
£2.50
60
£150.00
Cable locks
£2.95
120
£354.00
LED light sets
£3.99
70
£279.30
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Hallam Bike Hire
Year 1
Profit and Loss Account
Year ending 31/03/2010
Sales
Bikes
Helmets
Reflective Vests
Cable locks
Total Sales
£13,524.00
£1,656.00
£276.00
£552.00
£16,008.00
Cost of Sales
Bikes (60)
Helmets (90)
Reflective Vests (60)
Cable locks (120)
LED light sets (70)
Total Cost of Sales
£1,800.00
£1,350.00
£150.00
£354.00
£279.30
£3,933.30
Gross Profit
£12,074.70
Expenses
Business and Professional Indemnity Insurance
Warehouse Rental
Bike racks
Staffing Costs
Training Costs
Marketing
Laptop
Desk
Chair
Printer
Incidental Expenses
Electricity
Gas
Water
Mobile Phone Contract
Loan Repayments
Total Expenses
£1,000.00
£2,400.00
£1,375.00
£6,396.00
£220.00
£2,459.05
£99.00
£10.76
£29.26
£29.99
£40.00
£360.00
£480.00
£300.00
£180.00
£2,580.00
£17,959.06
Net Profit
-£5,884.36
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As the Profit and Loss account shows, our business makes a loss in the first year. This is unavoidable due to the relatively high start up costs, the costs
associated with running the business and the fact that we will not be very established early on. However, the cash flow forecast shows that the business
retains liquidity throughout each month of the year.
Hallam Bike Hire
Cash Flow Forecast
Apr
May
£
Jul
Aug
£
£
£
1,302.64
2,773.64
2,420.64
1,375.64
850.64
1,302.64
2,773.64
2,420.64
1,375.64
850.64
73.64
Oct
Nov
Dec
Jan
Feb
Mar
£
£
£
£
£
£
73.64
1,384.64
2,151.64
2,158.64
1,665.64
2,940.64
1,384.64
2,151.64
2,158.64
1,665.64
2,940.64
3,115.64
Year two is when the business begins to make a profit, as shown on the following page.
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£
Sep
0.00
Opening Balance
Closing Balance
Jun
£
Hallam Bike Hire
Year 2
Profit and Loss Account
Year ending 31/03/2011
Sales
Bikes
£23,550.00
Helmets
£2,512.00
Reflective Vests
£471.00
Cable locks
£785.00
Total Sales
£27,318.00
Cost of Sales
Bikes (36)
£1,080.00
Helmets (120)
£1,800.00
Reflective Vests (90)
£225.00
Cable locks (150)
£442.50
LED light sets (40)
£159.60
Total Cost of Sales
£3,707.10
Gross Profit
£23,610.90
Expenses
Business and Professional Indemnity Insurance
£1,000.00
Warehouse Rental
£2,400.00
Bike racks
£825.00
Staffing Costs
£7,748.00
Training Costs
£0.00
Marketing
£3,964.05
Incidental Expenses
£40.00
Electricity
£360.00
Gas
£240.00
Water
£300.00
Mobile Phone Contract
£180.00
Loan Repayments
£2,580.00
Total Expenses
£19,637.05
Net Profit
£3,973.85
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The business is more established in year two, and more stock has been ordered enabling increased
marketing to drive more sales. By year three, profit has increased to £8,001.90. This shows that the
business is becoming increasingly successful and after the first three years justifies expansion either
within Sheffield or in other cities in the UK.
The Cash Flow Forecast shows that the business maintains a steady flow of cash throughout each
month, despite the summer months when the business does not operate due to the universities not
being open, yet still must pay overheads such as warehouse rental.
Below is the breakeven analysis for all three years.
First Year - April 2009 - March 2010
Analysis
Annually
Weekly
£17,959.06
£641.40
£3,933.30
£140.48
Total Costs
£21,892.36
£781.87
Breakeven point
£23,172.80
£827.60
Annually
Weekly
To hire a bike for one day
1199
43
To hire a bike for one week
1599
58
120
5
80
3
160
6
Fixed costs
Variable Costs
Quantity to sell to break even
Helmets
Reflective vests
Cable locks
Breakeven Chart - Year 1
£1,200.00
£1,000.00
£ (weekly)
£800.00
Fixed Costs
£600.00
Variable Costs
Sales
£400.00
£200.00
£0.00
1
2
3
4
5
6
7
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Second Year - April 2010 - March 2011
Analysis
Annually
Weekly
£19,637.05
£633.45
£3,707.10
£119.58
Total Costs
£23,344.15
£753.04
Breakeven point
£25,033.74
£807.54
Annually
Weekly
To hire a bike for one day
1439
47
To hire a bike for one week
1727
56
116
4
87
3
144
5
Fixed costs
Variable Costs
Quantity to sell to break even
Helmets
Reflective vests
Cable locks
Breakeven Chart - Year 2
£1,200.00
£1,000.00
£ (weekly)
£800.00
Fixed costs
£600.00
Variable costs
Weekly sales
£400.00
£200.00
£0.00
1
2
3
4
5
6
7
8
9
10
In the first year, the business is not predicted to sell/rent enough units to make a profit, which is
reflected in the Profit and Loss account at the end of the year. However, in the second and third
years the business is predicted to sell more than enough units.
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Stephen Lumbard & Mark Gilmore
Third Year - April 2011 - March
2012
Analysis
Annually
Weekly
£22,275.00
£742.50
£4,291.10
£143.04
Total Costs
£26,566.10
£885.54
Breakeven point
£27,984.01
£902.71
Annually
Weekly
To hire a bike for one day
1635
55
To hire a bike for one week
1868
63
117
4
94
4
141
5
Fixed costs
Variable Costs
Quantity to sell to break even
Helmets
Reflective vests
Cable locks
Breakeven Chart - Year 3
£1,200.00
£1,000.00
£ (weekly)
£800.00
Fixed costs
£600.00
Variable costs
Weekly sales
£400.00
£200.00
£0.00
1
2
3
4
5
6
7
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4.3
Optimistic Scenario
An optimistic scenario will now be presented, where more stocks are ordered and sales throughout
the three years are increased. Below are the following sales which will be achieved in this scenario,
along with the required stock:
First Year - April 2009 - March 2010
Sales (weekly)
Price
Quantity
Total
To hire a bike for one day
£3.00
40
£120.00
To hire a bike for one week
£10.00
50
£500.00
Helmets
£20.00
5
£100.00
Reflective vests
£5.00
4
£20.00
Cable locks
£5.00
6
£30.00
Stock (annual)
Cost
Quantity
Total
£30.00
75
£2,250.00
£275.00
5
£1,375.00
£15.00
150
£2,250.00
Reflective Vests
£2.50
120
£300.00
Cable locks
£2.95
170
£501.50
LED light sets
£3.99
80
£319.20
Sales (weekly)
Price
Quantity
Total
To hire a bike for one day
£3.00
60
£180.00
To hire a bike for one week
£10.00
70
£700.00
Helmets
£20.00
6
£120.00
Reflective vests
£5.00
5
£25.00
Cable locks
£5.00
7
£35.00
Stock (annual)
Cost
Quantity
Total
Bikes
Bike racks
Helmets
Second Year - April 2010 - March 2011
Bikes
£30.00
36
£1,080.00
£275.00
3
£825.00
£15.00
120
£1,800.00
Reflective Vests
£2.50
90
£225.00
Cable locks
£2.95
150
£442.50
LED light sets
£3.99
40
£159.60
Bike racks
Helmets
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Third Year - April 2011 - March 2012
Sales (weekly)
To hire a bike for one day
Price
Quantity
Total
£3.00
80
£240.00
To hire a bike for one week
£10.00
90
£900.00
Helmets
£20.00
7
£140.00
Reflective vests
£5.00
6
£30.00
Cable locks
£5.00
8
£40.00
Stock (annual)
Cost
Quantity
Total
£30.00
36
£1,080.00
£275.00
3
£825.00
Bikes
Bike racks
Helmets
£15.00
150
£2,250.00
Reflective Vests
£2.50
120
£300.00
Cable locks
£2.95
170
£501.50
LED light sets
£3.99
40
£159.60
In this scenario, the business still makes a first year loss of £2,327.76, however profits for years two
and three are much higher at £9,939.85 and £13,663.90 respectively. In the first month of year one,
there is a cash flow problem with a loss of £232.76 due to the large amount of stock purchased. This
could be rectified by a small business overdraft as the problem is only temporary.
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4.4
Pessimistic Scenario
In the pessimistic scenario, we will order the same amount of stock as in the most likely scenario
except the predicted sales will be lower. Below are the sales which will be achieved:
First Year - April 2009 - March 2010
Sales (weekly)
Price
Quantity
Total
To hire a bike for one day
£3.00
20
£60.00
To hire a bike for one week
£10.00
30
£300.00
Helmets
£20.00
1
£20.00
Reflective vests
£5.00
1
£5.00
Cable locks
£5.00
2
£10.00
Sales (weekly)
Price
Quantity
Total
To hire a bike for one day
£3.00
40
£120.00
To hire a bike for one week
£10.00
50
£500.00
Helmets
£20.00
2
£40.00
Reflective vests
£5.00
1
£5.00
Cable locks
£5.00
3
£15.00
Sales (weekly)
Price
Quantity
Total
To hire a bike for one day
£3.00
60
£180.00
To hire a bike for one week
£10.00
70
£700.00
Helmets
Second Year - April 2010 - March 2011
Third Year - April 2011 - March 2012
£20.00
3
£60.00
Reflective vests
£5.00
2
£10.00
Cable locks
£5.00
4
£20.00
This scenario leads to a large loss in the first year of £10,990.36, a loss in the second year of
£1,992.15 but a profit in the third year of £2,339.90. However, due to such a large loss in the first
year the business would have significant cash flow problems. The Cash Flow Forecast shows that the
closing balance drops into negative figures in August of the first year and never returns to a positive
figure in the entire three years. This shows that although a profit is eventually made, the business
would be unworkable due to the problems with cash flow.
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5
Strategy
5.1
Strategic Position
For our business to successfully create and sustain competitive advantage, our business must have
threshold resources and competences in order to effectively compete in the market. The business
must also have a number of unique selling points (USPs) in the form of unique resources and core
competences.
Threshold Capabilities
Resources
 Bikes
 Bike racks
 Premises
 Computer
 Printer
 Mobile Phone
 Staff
 Extras – Helmets, reflective
vests, cable locks
Competences
 Renting out bikes



Capabilities for competitive
advantage
Providing an efficient,
professional service
Offering extras
Offering a hire purchase
scheme where the
customer can keep the bike
after 12 weeks of rental
As we have no direct competitors, we can concentrate on providing an efficient, professional service,
whilst charging competitive prices. We provide a cheaper and healthier alternative to other forms of
transport such as a bus or taxi. We must also focus on the hire purchase element in our marketing,
as this makes our service appear even more attractive and good value for money.
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5.2
Strategic Direction
To establish our strategic direction, we will use Bowman’s Strategy Clock. The clock shows which
strategic directions a business can take, ranging from a low price focused strategy to a focused
differentiation strategy.
Bowman’s Strategy Clock
4
Differentiation
High
3 Hybrid
5 Focused Differentiation
Perceived Added Value Low
2 Low price
6
1 Low price/ low
added value
7 Strategies destined for
ultimate failure
8
Low
Price
High
Hallam Bike Hire will adopt position three, which is a hybrid between a low price strategy and a
differentiation strategy. We offer a low price to hire our bikes, which we are able to do since our
supplier (Recycle Bikes) provides the bikes to us very cheaply (£30 per bike). The obvious advantage
of this is that a low price will attract more customers; however this approach does carry the risk of
starting a price war. However, at this moment in time our business has no direct competitors – there
are no other bike rental schemes in Sheffield. If a new entrant came into the industry to directly
compete with us and start a price war, we will have the advantage of being established for a certain
amount of time and therefore should be able to undercut whatever prices they charge. Our strategy
also includes a certain amount of differentiation due to the fact that in addition to the core business
of renting out bikes, we offer customers a number of extras to buy (helmets, lights, etc). We also
offer the hire purchase scheme where customers are able to keep the bikes after 12 weeks of hire.
This will also set us apart from any potential new entrants into our market.
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5.3
Strategic Analysis
The following section will analyse the strengths, weaknesses, opportunities and threats associated
with our business:
5.3.1




5.3.2



5.3.3


5.3.4



Strengths
Relatively low cost to start up and maintain
No direct competitors at this time
Effective marketing campaign will make us highly visible mainly to students
Competitive pricing strategy
Weaknesses
Underdeveloped market – is this because this line of business is unprofitable?
The partners of the business are inexperienced
The business is only based in one location – ideally in the future we would expand to more
sites to enable customers to rent a bike from one site and drop it off at another
Opportunities
The potential target market is very large. Sheffield has a population of over 500,000, 45,000
of which are students
If the business is successful, expansion into other cities would be viable using the same
business model
Threats
We are currently in a recession, which could continue well into the future. This means
people have less disposable income to spend as a customer of our business.
Alternative forms of transport, such as buses, could adopt an aggressive pricing strategy and
take customers away from our business. In the past, bus companies have specifically
targeted students and have given them significant discounts for them to travel on their
buses. Also, the bus services that have been withdrawn (that our business aims to replace)
could be reinstated at any time.
There could be a new entrant into the market, who could directly compete with us by also
renting out bikes. If this does happen, we will attempt to undercut them out of business.
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5.4 Three Year Plan
The 1st year establishes the business. All office furniture is purchased as the business if founded,
along with 60 bikes, 5 bike racks for warehouse storage, 70 LED light sets to fit to the bikes, 90
helmets to sell, 60 reflective vests to sell, and 120 cable locks to sell, at a combined cost of £3933.30.
Marketing also begins in April with the purchase of flyers to hand out throughout the year, and
stickers to put on the bikes. To quickly get the business known, flyering takes place at Endcliffe
Village and the University Union Concourse, adverts are taken out in the Sheffield Forge Press, and
banner adverts are taken out on the SUU Activities and Sport Email Newsletter. The business
operates until the end of June, when it closes for July and August as there will not be substantial
demand due to the end of term times.
In September, business resumes with marketing activity; flyering at the Freshers Fair, and again at
Endcliffe Village. In October, further flyering takes place at the University Union Concourse, and
again adverts are taken out in the Sheffield Forge Press and the SUU Activities and Sport Email
Newsletter. The final marketing activity takes place in January with a flyering stall at the Refreshers
Fair.
Our expectations for the year are to rent out 40 bikes on weekly rentals per week, with 30 daily
rentals – we believe weekly rentals will be much more popular due to the better value. We also
expect to sell 3 helmets a week, 2 reflective vests a week, and 4 cable locks a week, resulting in a
turnover of £580 a week. The first year is not expected to be profitable. Our expected sales figures
suggest that the business will make a loss of £5884.36 in the first year. Due to the initial £9000
investment, the company will not be out of funds at any point if the sales targets are met.
The 2nd year seeks to grow the business by 50%, resulting in an increased weekly turnover of £870.
We aim to achieve this additional growth through an increased marketing spend, resulting in more
custom. We will still be marketing using the same methods described in year one, but will double the
frequency of flyering at the SUU Concourse, Endcliffe Village, and of placing adverts in the Sheffield
Forge Press and the Activities and Sport Email Newsletter. This will increase the yearly marketing
spend from £2459.05 to £3964.05, an increase of £1505 or 61%. To cope with the increased
demand, we will purchase a further 36 bikes, 3 bike racks, 40 LED light sets, 120 helmets, 90
reflective vests, and 150 cable locks, at a cost of £3707.10. The company is expected to make a profit
of £3973.85 in the second year, an increase of £9858.21 on the first year’s loss.
The 3rd year seeks to grow the business by a further 33%, resulting in a weekly turnover of £1160.
Again, the aim is to achieve this through increased marketing spend, using the profits from the
second year. The marketing spend will increase by 66% to £6550, again by increasing the frequency
of flyering and placing adverts, but still through the same channels. To service the additional
demand, we will purchase an additional 36 bikes, 3 bike racks, 40 LED light sets, 120 helmets, 90
reflective vests, and 170 cable locks, at a cost of £4921.10. The company is expected to make a profit
of £8001.90 in the 3rd year, an increase of £4028.05 on the 2nd year profit. At the end of the 3rd year,
the company will be debt free, having repaid the £2000 bank loan and £5000 Princes Trust Loan,
leaving the company in a healthy state to become increasingly profitable in the future.
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Conclusion
Unfortunately, we must conclude that in the current economic climate that while our most likely
scenario shows that the business will be profitable after three years, Hallam Bike Hire remains an
unattractive business venture. We believe that, by compromising on a one-site business model
rather than a multi-site model to save money on premises and particularly on staffing costs, the
service offered becomes far less attractive to potential customers. If we were able to obtain more
start-up capital to invest in a multi-site model at the start, soaking up larger initial losses with the
extra capital, to make significantly larger gains in the second and third years of the business, we feel
the company would be a success. Economy of scale is a crucial factor for the business: profit margins
become larger as more custom is generated. With more initial investment we could achieve more
early custom and work towards these higher margins; however, achieving any greater initial funding
is simply not realistic. Furthermore, any expansion to a multi-site model would ideally take place
within the initial 3 year period, but using the cash-flow charts based on our sales predictions, the
company would not be at any point capable of launching further sites. It must also be considered
that any reinstatement of the withdrawn bus routes is liable to render the business unworkable; if
this occurred before the operation had recouped its initial losses and paid back all loans over the
initial 3 year plan, there is no way the business could be profitable.
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