Critical Analysis of a Business Plan

Introduction

Before entering into any kind of deliberation on Business Plan of Aqua Auto-care of Edinburgh Limited, it is necessary to delve into what a Business Plan really is, and more significantly, how it aids business, especially Small and Medium Enterprises (SME’s). Business Plans are very much like roadmaps that help businesses achieve their goals and objectives. “A business plan serves three important purposes” (How to write business plan for prospective investors’ n.d., p.1).

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For one thing, it gives genesis to ideas on paper, and offers a clear cut and emphatic business statement on how to go about the business in practice. Ideas that germinate in the minds of entrepreneurs in to be translated into concrete action and the business plan serve just that.

For the second, a business plan serves as a written communiqué that provided vital information to potential shareholders, investors, financiers, employees and other individuals or institutions that are directly connected with the business enterprise.

For the third aspect, it also serves as a good business management technique by which business objectives and goals could be weighed against performance, and necessary variance analysis undertaken. To be effective, business goals need to be regularly compared against pre-determined parameters, or else it would cease to be of value as a performance tool. “Every business starts with a strong business plan – it is the foundation and the building block of every company” (Business plans 2009). The main aspect to avoid is “too often, long-range planning becomes meaningless because the reality of your business can be different from your initial concept” (Session two business plan 2010). The company could “create some type of a membership that will keep your customers coming back to your car wash business again and again” (Writing a car wash business plan, n.d.).

Critically evaluate Aqua auto-care of Edinburgh’s business plan

That being said, it is now necessary to assess how a proper and effective critical “appraising of the Business Plan” (Sander n.d., p.6) of Business Plan of Aqua Auto-care of Edinburgh Limited could be undertaken.

Besides, “ by forecasting where your business will be in six months, one year, or five years, you are not only letting potential investors know your plans, but also setting up realistic milestones for yourself and your employees” (Ten reasons why you need a strong business plan 2010, p.1). However, it needs to be cautioned that car washing business (and hand washing at that) is a different kind of business, which involves quick turnouts per vehicle. Whether this could be achieved by the proposed business would depend upon how effective strategies could be set out and pursued with right earnest. It is thus necessary to “Prepare marketing and sales plans with systems for determining optimal strategies, tactics and pricing” (The business plan for your car wash operation 2004).

Wide disparity between GP and NP figures

Besides, it is observed that the gap between GP (Gross Profits) and NP( Net profits) is quite glaring. While the GP is believed to be 95%, it is seen that the net profit envisaged is only around 10-15%. The business case study pre-assumes that around 80-85% would be non-trading expenses, and a large chunk of the incomes would be needed to meet payroll expenses, of the business, constituting 56% on sales in years 2011 and 2012, and around 48% in year 2013. This is besides the need for paying taxes on payroll. It is necessary to reduce these lacunae to present a more plausible financial model.

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Marketing strategy

Another factor that needs to be kept in mind is the formation of a “marketing strategy that is consistent with your niche” (Business plan for a startup business n.d., p.12). A critical examination of the important assumptions made while drawing up this business plan needs to be reviewed. It is assumed that interest rates would remain constant at 4% in the years 2011-2013, for both current and long term. This may not be rational in actual terms, since interest rates may vary due to economic vicissitudes and other external influences on the economy. Besides, tax rates cannot be pegged at 25% since it may vary during the course of the next three years, most probably at a higher rate. However, the extent of credit sales extendable to customers is an internal matter of the business and may constitute 15% of the business during the next three years.

Exit Strategy

Perhaps one of the most significant aspects is that this business plan has no Exit Strategy, which may be needed, in case things do not work out as expected. This Business Plan needs to understand that hand car cleaning business may be different from repair business, in that the customers may be able to exercise choice through the following ways:

  1. Using part-time non-professionals cleaners on home service. The cars may be cleaned at home at a lower price that what is being charged by this company, who propose to charge £ 10-15/week for manual cleaning
  2. Use competitors, who are charging lower prices.

The marketing plan seeks to deliver high quality hand washing for a premium market but it does not address the modus operandi as to how this could be achieved. The business plan, while addressing the competitive elements on Page Sixteen falls short of devising an actual and concrete plan by analysing different competitive elements, their respective market shares and how Aqua Auto-care of Edinburgh Limited proposes to increase their market share.

“A further major area of concern is the market information presented” (Sander n.d., p.8). This is especially when 20% market share has been forecasted. So it is important to know who, or what constitutes balance 80% of market share.

Risk analysis

It is important that this business plan is concerned about “Broadening their understanding of risk in their market and from their actions, and tightening their execution and key support processes to mitigate that risk” (Lessons from change the market n.d.).The next aspect that needs to be considered in this case study is that the risk analysis has not been carried out for this proposed business plan. It is very much necessary for a plan of this magnitude to have a sound and reliable back up plan in the event of occurrences of unexpected emergencies, or contingencies, either at the formative stages or after the project is upstream. This could be in terms of abnormal variations in energy prices that could affect the automobile sectors, and in effect the business of Aqua Auto-care of Edinburgh Limited, and some other dramatic development that could lay siege on the business. Yet another important aspect would be the effectiveness of management of this potential business. It is believed that it would be a family run car cleaning business, whose sustenance and growth would depend heavily upon existing goodwill and client base of the existing automobile repair unit. “The senior management team has been drawn exclusively from family members” (Business planning papers: Devising business plan strategies 2009, p.3).

Why people should choose this service and from this company

While car cleaning and repairing may have areas of common interest, it would be injudicious, or unpractical for the promoters, to believe that the benefits of auto business could be passed on to car cleaning business also. For one thing, people may have other alternatives for car washing, either at home, or through contracts with other economically priced agencies. For another, the absence of automatic car wash, which most car owners prefer, may be absent in this business. Automatic car washes “save you from the ordeal of trying to keep your car clean in freezing weather” (Peters 2008).

SWOT

Strengths Weaknesses
Loyal Customers of automobile repair garage may be gained by car cleaning business Cleaning is manual and not automatic

Highly labour intensive and need for

added manpower for special jobs

Catering to luxury high segment class of
Customers who would be able to pay the high priced cleaning costs
Highly competitive business including

works carried out in unorganised auto

sectors

Excellent business location No previous knowledge or experienced

in this field of manual car cleaning

Low operating costs could result in good profits in latter years Family run business and not in hands of trained professional in the field
Opportunities Threats
With quick turnabouts per car, this business could become a money spinner Competitive threats may drive business out of market – price undercutting and rivals may take away valuable customers of this business
Good service could bring good customers Fluctuations in energy prices may affect business
Excellent growth prospects if done in planned and well thought out way Economic, social and environmental risks need to be considered by the promoters
Promoters are well entrenched in automobile field for last 30 years There are possibilities of cash flow problems due to reduced levels of business

The test for C.A.M.P.A.R. I. Test is as follows

  1. C- Character
  2. A- Ability- of the promoters and directors to run the unit profitable
  3. Management- M- dedication, commitment and discipline of people at all levels for running a cohesive and profit motivated unit.
  4. P- Purpose of the business
  5. A – Amount of investments and how invested, cash flows and its analysis over time
  6. R- Repayment- how loans and equity funding would be used and repaid
  7. I – Insurance- what insurance is available to tackle exigent situations

Applied in the context of Business Plan of Aqua Auto-care of Edinburgh Limited, it could be deemed as follows:

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CAMPARI Analysis of Aqua Auto-care of Edinburgh Limited

C- Character- The business in founded on three decades of sound workmanship and expertise gained by James Baxter, father of the promoter, Davy Baxter which would be at the disposal of this car cleaning business unit. The technical skills of Baxter (Senior) would be made available for this business too.

A – AbilitiesAlthough the business is relatively new, it is believed that the abilities of Davy could be put to good use and this could translate into better profits and sales growth in later years

M-Management – To start with, this would be in the capable hands of the father-son team. There would also be need for recruiting people to supervise car wash specialists who could lead a team of line employees and supervisors. As business grows, it would become necessary to absorb more workmen and cleaners on temporary basis.

P-PurposeThe purpose of this business is to provide high quality luxury care washing services, and also take good care of its employees in order to run a viable unit.

A- AmountThe initial corpus of £30,000 would be provided by Davy Baxter as seed capital for running the business. Later funding would be provided out of cash inflows from business.

R- RepaymentsSince it is proposed to be a limited liability company the question of capital repayment would arise upon final dissolution of the business.

I- Insurance – The Company has not devised an Exit strategy or analysed its risk analysis plans. However, it is believed that there is no reason to disbelieve that this would become a profit generating business in later years.

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Recommendations for Davy Baxter creator of business plan to remedy any issues/ problems

The creator of this business plan needs to address areas if improvement, including the need for a backup plan and an exit strategy in the event things do not work out as planned. Besides, it needs to have specific details about competitors, their market share and how they could act as a barrier to this Company‘s growth and sustenance in future years.

Besides, this Company’s claim that it is the most economical in terms of pricing may not be substantiated since it is quite possible that, upon its forays into the business, they may reduce their prices substantially enough to throw Aqua Auto-care of Edinburgh Limited out of business, and later on, hike their prices again to maintain profits and cash flows once this company has made an exit. “This is something that differentiates companies from their competitors in one or more ways that are compelling to their prospective customers and/or difficult or impossible for competitors to overcome” (How to write business plan for prospective investors n.d., p.6).

Conclusion

The technique through which greater detail about the competition vis-à-vis our business could be gained from the chart shown in Appendix 1 to this report. It is necessary that the financial projections of this business be reviewed in the light of very significant impact upon profits, of its trading and financial profits. “Most business plans are in effect sales plans or marketing plans…” (Business plan and marketing strategy 2009). It is also necessary that the business plan should “present all the necessary information (who, what, when, where and why) and be written in a way that keeps readers interested in the success of the business” (What is a good business plan? 2010).

References

Business plan and marketing strategy, 2009. [Online] Business Balls. Com. 2010. Web.

Business plan for a startup business, n.d. [Online]. pp.1-31. 2010. Web.

Business planning papers: Devising business plan strategies, 2009. Web.

Business plans, 2009. [Online] Kimpton Wells Business consultancy. Web.

How to write a business plan for prospective investors, n.d. [Online]. pp.1-10. 2010. Web.

Lessons from change the market, n.d. [Online] Ernst and Young Quality in Everything We Do. 2010. Web.

Peters, E., 2008. Automatic car wash. Automatic car wash tips. [Online] Aol Autos.Web.

Sander, J., n.d. Business plan analysis, pp.1-18. (Provided by the customer).

Session two business plan, 2010. Web.

Ten reasons why you need a strong business plan, 2010. Web.

The business plan for your car wash operation, 2004. [Online] 125aDay.com. Web.

What is a good business plan?, 2010. eHow. [Online] eHow business & finance. Web.

Writing a car wash business plan, n.d. [Online] Your Business Plan. 2010. Web.

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