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Planning for Growth-Vectair Holdings Company

University : Ukcbc College

  • Unit No : 42
  • Level : Undergraduate/College
  • Pages 19 / Words 4000
  • Paper Type : Assignment
  • Course Code : J/508/0601
  • Downloads : 1106
Question :

Growth planning is strategic business activity that helps entrepreneurs to make plans and later track its own organic growth of its revenues. Growth planning is an important part of decision-making of management due to having main objective of increasing revenue and brand image. You are employed as a junior manager in SME located in the Thames Valley area in the UK. You are asked to give your input in the strategic planning of an organization. Your Head wants you to use next 2 months to prepare an effective growth strategy for an organization. Thus, the unit aims to understand the ways through which SME can grow into market.

  • Examine the key aspects that SME must consider while analysing growth opportunities.
  • Evaluate the methods through which SME can raise financial resources and its usage.
  • Construct a business plan and demonstrate the ways of scaling up your business.
  • Analyse the various routes SME can exit or succeed along with the implications of each.
Answer :
Organization Selected : Vectair Holdings Company

INTRODUCTION

Small and medium enterprise is a multifarious group that encompasses wide range of business activities including manufacturing of agricultural products, a coffee shop, engineering firm etc. All these business concerns perform their business activities at varied level like regional, urban, rural, national and international. Furthermore, to achieve the path of success in such markets, companies need a set of skills, capital competencies and growth orientation. Numerous studies have been carried out in relation with the SMEs and it has stated that almost fifty five percent of Gross Domestic Product has been contributed by this sector and has offered employment opportunities to millions of people (Burns, 2011). Concerning this, it becomes essential to throw light on small and medium enterprise in detailed manner. For this purpose, Vectair Holdings Company is being taken into account. The firm is a one of the leading technological innovator, manufacturer and supplier of air care as well as hygiene products numerous sectors all across the world. They are offering sanitary solutions from 30 years to more than 130 nations of the world. They deals in air care, odor control, air freshening, hand washing, feminine hygiene sanitary disposal, scent marketing and many more products. Vectair Holdings has its headquarters in Hampshire, United Kingdom and is listed among the top 100 successful SMEs in the

As a Junior Manager in the company, the main aim is to move the firm forward by massive expansion and carry out strategic planning for the company in this regards (Vectair Systems, 2018). The current research report will lay emphasis on various ways Vectair Holding can expand their business and key considerations that needs to be taken care while undergoing the process of expansion. Other than this, the study also assesses numerous sources of funding available to the company and will develop a business plan for the preferred growth options. The later part of the report will throw light on exit strategy or succession options for the business. Under this, various options will be compared and recommendations will be given regarding this which will be backed by convincing justification.

TASK – 1

P1 Consideration for assessing growth opportunities

For each and every business it becomes necessary to expand their business for sustaining in the market for longer period of time. For this, it is quite essential to assess the growth opportunities and searching various ways through which it can be achieved. For Vectair Holdings careful planning in regards with the growth which can bring stability as well as sustainable profits to the firm is quite essential (Burns, 2014). Growth is inclusive of various risks. However, right and precise strategy can deliver long term profits as well as security to the firm. In this regards, firm’s own SWOT analysis is a useful technique when stepping towards the path of expansion. It is quite obvious that every company deviate their attention when they are moving forward from their starting phase of the business. Small and medium enterprise such as Vectair Holdings changes their main priority and now they focus on sustainability and identifying new growth opportunities. Market share, turnover, amount of sales, revenue generated, number of employees are some of the statistics that helps in comprehending the growth of the business. The accurate image of the performance of the firm is majorly dependent on the type of measure, type of business and the present stage of the business. For example, companies who generally have high sales have narrow margins on stock and because of this, there are chances that their profits are not so high which significantly weakens the feasibility of the business. Consequently, it can be said that profits as well as sales are being regarded as the balanced combination for gauging the growth of the firm. Other considerations are as follows:

Competitor analysis – Through this, the competitors of Vectair Holdings can be analyzed effectively. In the market where the firms operate, there are numerous of firms who are giving competition to one other in various ways. This analysis will evaluate the policies, strategies and procedures being adopted by the competitors and thus, Vectair Holdings can formulate their own strategies on the basis of the result and can achieve a competitive edge in the market (Moore, 2014).

Diffusion of innovation – This is also another consideration for evaluating the growth opportunities for Vectair Holdings. Diffusion of innovation is a process of determining that whether the new products and services are being adopted by the target customers or not. In addition to this, it also renders a supportive hand to the designers and marketers to evaluate the reasons concerning the effectiveness of inferior products in comparison with the superior products. There are five significant stages being included in the process of diffusion of innovation i.e. knowledge, persuasion, decision, implementation and confirmation. Knowledge is the first stage where the marketers needs to spread cognizance of their products and services in the target market. The second stage is persuasion under which the target audience becomes open to the idea of purchase and it is the stage where the marketer can convince the customer by describing the benefits of the products to them. The third stage is related with the decision. Here, the clients analyze the advantages as well as disadvantages of accepting and rejecting the offer being made by the company. The next stage includes implementation where the customers make a decision regarding the purchase of the products or not to make any purchase. The final stage is the confirmation stage and at this level the consumer assesses his or her decision and concludes that he or she will purchase the products and decides about the use of products in the near future (Carlos, 2009).

BCG matrix – BCG matrix is quite and important for representing the investment portfolio of the firm. There are numerous firms who are struggling regarding allocating the products and services, product lines problems etc. This problem can be solved through this matrix. BCG matrix is consists of two factors, growth rate of the market and share of the firm in the market. With this, Vectair Holdings can arrange their wide range of products and can also identify the problem related to the allocation of resources amid various segments.

GE matrix – The acronym GE stands for General Electrical matrix. This tool is being inspired from the traffic light and thus, it involves nine cells along with two dimensions, business strength and attractiveness. Business strength is related with the profit margin, brand image, customer loyalty, share in the market and technology ability. The second dimension i.e. attractiveness is impacted by the rate of growth, market size, economies of scale, trends of prices, structure of distribution, market segmentation and many more. Vectair Holdings is required to draw their varied product lines on the matrix and on the basis of their position strategic decision can be taken (Daron, 2003). Those products which are falling under the area which is green in color are considered to be in a goof position. On contrary to this, the products which are falling under the category of red color are considered to be in danger and will surely lead the firm to the path of decline.

PESTEL analysis – This is a technique being used for evaluating the business environment of the concern. There are many elements being included in this analysis such as economic, political, social, environmental, legal and technological which can significantly help Vectair Holdings to identify the opportunities of growth in a specified country or area (Winch and Bianchi, 2006). The political factors include attitude of the government, trade relationship, regulations, political stability, import and export and taxation that impacts the business of Vectair Holdings. Further, the weak economy of UK has impacted the retailers and non-retailers of hygiene products effectively. In the economic slowdown there has been rise in unemployment and decrease in the purchasing power of people. Other than this, social factors such as density of population, age, gender, cultural values and beliefs also affect one’s business. Moreover, improvement in technology such as mobile apps and introduction of environmental friendly products like recyclable packaging box can augment the sale of the firm. Finally, there are many laws such as export, employment, health and safety etc. that needs to be followed for smooth functioning and operations of the business of Vectair Holdings.

P2 Evaluating the chances for growth by making use of Ansoff’s growth vector matrix

Each and every business aspires to expand their current business and for this, they search for varied growth options available in the market. But while doing this, it is equally very vital to make sure that their present business is operating effectively and efficiently. The main philosophy of Vectair Holdings is to innovate and design quality products which are cost effective and easy to use for the customers. Considering this philosophy, the company wants to develop new business. However, they need to ensure that their core business i.e. manufacturing hygiene products is operating effectively (Shapira, Roessner and Barke, 2005). It is very much vital for the firm to pay attention on its existing business and their valuable customers, as it will further support the growth of Vectair Holdings. Through these customers only, the company can generate the cash flow, which will be required at the time of expansion. In addition to this, time factor is also very vital and significant factor in the success of any kind of strategy related to growth. Now, the question arises, what is the best time of adopting the growth opportunities? This can be ascertained by analyzing the capability of the business to support the expansion process, availability of the resources and systems to perform existing as well as new business and many more things. Other than this, it is also very essential to consider recruitment and selection of additional staff, refining of the manufacturing processes, equipments and machines as well as outsourcing tasks in order to offer flexibility to follow growth strategy (Storey, 2004). Therefore, from the above dialogue it can be well attributed that it is useful and quite necessary to have a review of the present position of the existing business of Vectair Holdings so as to make sure that the merging efforts of the firm will be successful and effective in every possible means. Growth opportunities being available for the Vectair Holdings business are being described underneath:

Market penetration – Market penetration means selling same goods in the same market. Firms adopting this growth strategy focus on the ways through which customer loyalty can be increased (Katrak and Strange, 2002). Some of these ways are improving the order process, availability of things easily to the customers, extending the opening hours etc.

Market development – Market development is selling same product in different market. The new market or customers can be identified based upon the geography and demographic basis. The management of Vectair Holdings can adopt a new marketing campaign that makes use of different channels of sales for targeting the new base of customers.

Product development – Under this growth option, new products and services are being offered in the existing market. Such growth strategy is viable for the business concerns that have different product lines or differentiated products and those who want to achieve competitive edge over the other firms in the market (Assess your options for growth, 2018).

Diversification – Diversification is one of the most vital growth strategies for any business concern. It is quite risky because here firm sells new products in extremely new market. They have no experience about the new market. Thus, risk should be identified at the earliest level and steps must be taken into account to mitigate the same.

Partnership and joint ventures – Partnership as well as joint venture can prove successful and important growth strategy for Vectair Holdings as they can avail different types of paybacks like big customer base, experience sharing, different people with varied skills and competencies, huge staff members and many more (Perks and Easton, 2000). This method will also help the firm in arranging business with non-competitive and complementary business firms and can open a new market for the firm. It will also render a supportive hand in improving the existing business of Vectair Holdings as well.

Mergers and acquisitions – Under this method, a firm is merged or being taken over by another company. This method proves feasible for the companies which are established in the market. Vectair Holdings is one the leading manufacturer of hygiene products and thus, this option can reap out many benefits to the firm (DeYoung, 2010). The process related to mergers and acquisitions are being performed by commercial lawyers as it involves long legal work.

Vertical and horizontal integration – It is also being regarded as an important growth options being available for Vectair Holdings company. Focusing towards the vertical integration, it is generally acquiring of the firm which operates in the production process falling in the same industry. It is quite essential for strengthening the supply chain management of the company as well as accessing the distribution channel. Additionally, vertical integration also supports in reducing the operational costs and captures the both upstream and downstream profits. On the other side, horizontal integration is nothing but a process where the company acquires the firm which is operating in the same industry at the same level. This process will help in increasing the market share, achieves economies of scale due to larger production capacity and attainment of diversification of goods and services (Fraser, 2005).

TASK – 2

P3 Possible sources of capital available to business - benefits and drawbacks

Throwing light in relation with the financial planning, it acts as a major foundation and essential component for any type of growth options. Sound financial planning is essential for establishing three things, deciding the amount to be invested in the new business, time at which the funds will be required and when these funds will be available to the business. In addition to this, forecasting of cash flow is also very vital because as business is expanding the expenditures will increase as compared to the revenue. Additionally, it is also significant to make sure that enough amounts are present within the company to perform their main business successfully. Generally, when the new venture is established handsome amount of time is required to reap out fruits out of it thus projection should be made accordingly (Irwin and Scott, 2008). For venturing new business, there are numerous sources of funding being available to Vectair Holdings Company and is described below:

Angel investors – They are refereed as wealthy investors who gets equity shares in the business in lieu of offering funds to the business. They are in group, individual or work in screens before providing funds. The main benefit of angel investor is the firm can get expert advice as well as flexible terms of business. The main drawback of this method is that the firm is required to give up some sort of control to these investors.

Crowd funding – This is also another method of availing finance which involves taking small amount of capital from many people by way of internet. Using social platforms, capital is arranged from peer group, family, friends and other social networks. This method has a clear aim of attracting new investors by getting word out of the business. Through this, the new venture can be expanded easily by raising fund from numerous new investors. But, to get the desired outcome, dedication, time and hard work is requisite (Ibrahim, 2008).

Bank loan – For the firms like Vectair Holdings Company who are expanding in to new venture, bank loan is being regarded as one of the best source of funding available to them. The owner of the firm should have complete knowledge in relation with the rate of interest and other terms and conditions. Bank loam has many advantages like many funding options are made available, easy and quick process, business is not controlled by bank etc. there are some cons of bank loan as well such as lengthy documentation, timely repayment of money whether business is incurring loss or profit (Blanchard, Oncken and Burrows, 2011).

Venture capital – Venture capital is another source of funding available to Vectair Holdings wherein investors capitalize substantial money in exchange for equity in the business. The investors get their money back when the business is being acquired by other firm. By this method Vectair Holdings Company can easily arrange their funds and at the same time can get the best advice to develop their new venture. However, the main disadvantage of this source is that the firm needs to give their part of business in exchange of funding being offered by the investors (Helmann and Puri, 2002).

When the types of sources of funding available to Vectair Holdings are being identified, it becomes very essential to evaluate the ways these sources can be used. Investment decision making can help the firm in this regards. Investment decision making is a process that supports in analyzing the portfolio decisions and the value that will be created by them. Furthermore, it takes into consideration numerous factors like social, culture, environmental, legal and finance. Out of this, the most significant aspect is financial appraisal. Throwing light in relation with the financial appraisal, it is quantifiable tool which is being applied to the benefits which reaps out financial outcome. This appraisal can be carried out by adopting numerous techniques. But the easiest method is payback period. It takes into account the time being taken for net cash inflow to become equivalent to cash investment. Payback period method is useful for screening process at the initial level. In addition to this, discounted cash flow methods are utilized such as NPV i.e. Net Present Value (Wall, Coday and Mitchell, 2014). They are being used for evaluating the value of benefits as well as substitute ways of offering them. It renders a supportive hand in computing present value of cash flows against investment. If NPV is high it means returns will be better and vice-versa. In all these computations, discount rate clearly depicts decrease in the value of money with the passing of time.

TASK – 3

P4 Developing a business plan

Summary

Vectair Holdings dealing in the innovative hygiene products have their reach in the global market. Company now desires to expand their business in the untouched market by considering the diversification strategy. Related to this, the company decides to open a coffee bar which is quite a diverse market for the firm. The coffee bar is being determined to become a bar which satisfies the daily cravings of locals for coffee and to develop a place where one can escape their stress and problems and remain comfortable and peaceful. Speaking in relation with the present era, the demand for gourmet coffee is increasing continuously with good and hygienic services (Vectair Systems, 2018). Therefore, the main attention of the coffee bar will be on providing best services to their clients. They will need around £1400000 as start-up funds.

The main aim of the Vectair Coffee bar

To become one of the best coffee bar in the nation

To earn good amount of profits by giving maximum value of the price being paid by the customers

To maintain 50 percent of profit margin

Mission of Vectair Coffee bar

Vectair Coffee bar aspires to offer a distinctive and unique place to customers or visitors where they can mingle and feel comfortable. In addition to this, they also want to create such atmosphere that helps the customers to feel relax and their stress are relieved to some extent. Further, the company also wants to offer great ambience, good location, good and friendly customer service, hygienic environment and healthy food items. The portion of amount of profit generated will be reinvestment in further added strategies that can maximize the satisfaction level of the employees as well.

Start-up Summary

The start-up expenses being incurred by Vectair Coffee bar are as follows:

Legal expense for procuring licenses and other accounting services £1,300.

Expenses related to marketing promotion of Coffee bar £3,500

Flyer printing expenses for 1000 flyers at 0.4 per copy will be £400

Consultancy fees for setting up of a coffee bar £1000

Insurance coverage premium £2400

Pre-paid rent expenses for one month at £4200

Remodeling of the premises in the amount of £10000

Other start-up expenses such as stationery, phone and other deposits £5000

Start-up assets being required for opening a coffee bar

Total operating capital will be required £67,123 that includes the salaries of owner and staff of around £23,900 for 2 and cash reserve for first three months i.e. £14,400

Start-up inventory of £16,027

Equipments £59,170

Financial sources

Currently Vectair holdings have an overdraft facility arrangement with the bank to the tune of £200000 which has not been utilized by the firm till yet. Thus, there are two major sources of funding being available to the firm i.e. bank loan and owner’s investment. There will be two owner’s and will contribute £200000 and £200000 respectively. Other investments of the firm contribute around £300000 that together brings the total investment of around £900000. The other required amount £200000 will be arranged from bank loan for five years which will be secured.

Segmentation of market

For reaching large group of people working in offices, students and faculties from universities and colleges and sophisticated teenagers, the Vectair coffee bar will focus on their marketing strategies and activities. According to the results of the marketing research being conducted, the above identified group of customers is more likely to purchase this gourmet products related to coffee.

Sales forecast

SALES FORECAST

YEAR 1

YEAR 2

YEAR 3

Sales

Coffee beverages

£260,400

£286,440

£423,984

Coffee beans

£78,600

£76,360

£85,996

Pastries, etc.

£145,000

£160,600

£146,660

TOTAL SALES

£484,000

£523,400

£656,640

Direct Cost of Sales

Year 1

Year 2

Year 3

Coffee beverages

£76,600

£85,360

£92,996

Coffee beans

£34,800

£39,180

£41,998

Pastries, etc.

£62,000

£69,300

£75,330

Subtotal Direct Cost of Sales

£173,400

£193,840

£210,324

TASK – 4

P5 Assessing the exit or succession options for SME with benefits and drawbacks

Speaking in relation with the exit strategy, it is a strategy which is being focused by almost every owner of small and medium enterprise (Christman, 2015). In business, many a times situation may arise when they need to move forward and it is the investor who is in a dilemma about the amount he or she will get in return of their investment being made and how the money invested can be plunged out from the business. In this regards, different exit strategy can be adopted by Vectair Holdings and these are as follows:

Acquisition – here, in this method, the firm is being purchased by the other sound or big business. This is quite best option for SMEs. Negotiation in the price can be done in this method. Further, there are chances that acquirer might pay more if the seller has strategic value. But this is sometime messy and creates a problematic situation, as there is merging of two firms with different culture and processes (Exit and Succession Planning, n.d.).

IPO (Initial public offering) – This is another exit strategy being available to Vectair Holdings, wherein shares of the firm are being sold to institutional investors. Firms get fame and the value of stock increases. But this option is not available to all SMEs; they can be used by specific firms only. Further, it consumes lot of time and involves more transaction costs.

Liquidation – It is nothing but the closer of the business. Liquidation is very simple and easy method and the process is dependent on the sale of the assets. If the firm adopts this method than they will get lower amount of return from their total investment.

Selling to friendly buyer – In this type of method, the ownership is transferred to friend or family members or to the neighboring owner of other business. It is very simple method and the seller is well aware about the buyer so there are fewer chances of fraud and other issues (Financing Innovations: Innovation Support Transfer - Supporting Innovations in SME, n.d).

Business fails pertaining to numerous reasons like poor management, wrong start-up of business, incorrect location, limited planning, insufficient capital and over expansion. Other than this, this is also correct to say that sometimes business owners want to exit their business even if it is very successful. In this matter, succession planning plays a crucial role. It happens when the head of the family decides to transfer the ownership to his successor who will become the leader of the family after the current head retires (Newton, 2009). This method is full of challenges and problems too such as generation gap, change in thinking process and ways of performing task, lack of ability, issues related to culture and many more.

CONCLUSION

Thus, it can be well attributed that for SMEs like Vectair Holdings to work efficiently and effectively, growth orientation, capital, skills, competencies and sophistication is quite essential. Furthermore, it is very much vital to analyze the opportunities of growth in the market and various ways through which it can be achieved. Opportunities can be many but with proper strategic planning, best option need to be undertaken for the prosperity and success of the business.

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