Professional Documents
Culture Documents
This report is about business plan of a product which is totally new named Piyash and it is to be launched in an existing market. This product will be launched in the beverage market to meet the demand of consumers for coconut water which is not being provided by any company in the market although the mobile vendors are providing coconut water to the people to some extent. As mobile vendors are not available everywhere in every time, it is easy for any company to skim money from the market by selling bottled coconut water. Moreover, coconut water contains promising amount of nutrition which is good for anyone. It can be bottled without adding any preservative. Furthermore, Bangladesh is a country situated in tropical region and coconut is highly available in tropical areas. Therefore, itll not cost that much for any company to bottle coconut water and to seek profit as well. Another fact is that, as no company is bottling coconut water and selling it in the market, it will be monopoly business as bottled coconut water is not provided by other companies, although other beverage companies will be the rival for this product (i.e. Pepsi, 7up). Considering high profitability and the potential market for coconut water Piyash is going to be launched in the market. Piyash is going to be first bottled coconut water in Bangladeshi market and it is expected that Piyash will be able to meet the day by day increasing demand for drinks. As there will be no preservative in this drink and as it is completely natural which tends to provide consumers with high-nutrition, the success of this product is unquestionable. Throughout this report the business plan for Piyash has been developed like the selection of target consumers, how theyll get value from Piyash and how the company will get value from the consumers in return which is how the company will make profit by providing superior value. In addition with that, four parameters for a successful marketing plan product, price, place and promotion for Piyash have been elaborately discussed. Moreover, the probable threats and opportunities of Piyash, the objectives and issues of Piyash, comparative key success factors, financial strategies, different sorts of goals and objectives, the overall beverage industry analysis and future prospect of the business has been described in this report. This report will give the reader a 360 view on the beverage industry and the factors that have a major influence on this industry.
1|Page
demand of consumers. The source of PIYASHs competitive advantage is that it is unique and first ever in Bangladesh. It also helps people to control diabetes, treats kidney stones, and boosts immune system, control weight loss, promotes urinary tract health and many other vital features which none other beverage products in Bangladesh have.
However, the distribution network, availability and consumer response seems to have always been in favor for Abdul Monem Ltd. They have the best in overall Bangladesh. Some of the beverage industry in Bangladesh is Acme Agro vet & beverages ltd, Kohinoor chemical company ltd as we described earlier Abdul Monem ltd. Transcom is also a leading beverage industry in Bangladesh alongside with Abdul Monem ltd. 3.2 Growth rate and Trends Soft drinks industry is one of the rapidly growing industries in Bangladesh. Current market research shows a very positive curve for the growth of Bangladeshs beverage industry in past few years. According to the market analysis the current players in this industry are Abdul Monem Beverage Ltd. who produces Coco cola, Sprite and Fanta. Transcom beverage Ltd and Transcom who produces Pepsi, 7up and Marinda. Akij Food And Beverage Limited produces Mojo, Clemon and some others. Last but not the list Partex Beverage limited that is producing RC cola, RC Lemon Upper 10 and recently introduced Big Boss.
The current market is growing very fast and the growth rate is very high that can be calculated with the help of the following information. Transcom Beverage made about 60 percent growth in the January-June period of 2013. Overall sales of the company increased by about 15 percent during the 2012-13 fiscal years. AML has increased its sales by a billion in last fiscal year. AFBL is a new comer to the market comparing to the others and they are also growing their business in the beverage market of Bangladesh. Partex Beverage Limited, who is the manufacturer of RC cola and Lemons, has secured about 15 percent growth in sales in JanuaryJune period of 2012.
4|Page
Interpretations; Brand Recognition: -PIYASH is a completely new product in the market. It has no brand value in the market compare to other companies like Pran, Transcom, etc. people dont identify this brand at all. So, therefore brand recognition will be ultimately zero compare to the other well established brands. Extensive Distribution: - Distribution system in another key success factor. Distribution system is comparatively low than the other companies. Their production system is very much strong. Companies like Abdul Monem, Transcom sell huge amount of products all over the country and they have varied sources of selling their products all over the country. But as PIYASH is a new comer in the market, their system is not that much strong. They sell their products at limited place. Economies of scale: - PIYASHs economies of scale would be lower compare to the other three industries because PIYASH as they are new to the market they would be selling lesser amount of products which would increase the fixed cost per unit. Whereas bigger companies produce huge amount of products compare to PIYASH, so they have a lesser fixed cost per unit. Uniqueness of the product: - As PIYASH is a new and innovative product, it will capture the biggest market because of its uniqueness. Unlike Transcom and AML, PIYASH because of its uniqueness PIYASH got the highest rating in the key success factor. These are the most important factor that can lead PIYASH to a massive growth in upcoming years. Variations: - Other beverage industries are mostly the same and contain same type of tastes in every new product that they are introducing. Tastes are quite likely to remain same in every products of their company. But PIYASH comes up with a product and it has lots of variety in it ranging from Strawberry, Lichee, and Vanilla etc.
5|Page
Having well defined operational goals and objectives help the organization to achieve operational efficiency and economies of scale. Operational objectives are set to improve the day to day business operation of the organization. The operation process of the business has to be revolving with the market dynamics to ensure sustainability and commitment of the business. The operational objectives of Piyash are as follows: To integrate vertically with the coconut suppliers in order to increase the efficiency of the supply chain and to have a strong supplier base. To forecast the market demand as accurately as possible in its first three years so that from the fourth year Piyash can follow just in time approach.
6|Page
To design a strong distribution network to make the products available in every corner of the country. To shrink the bullwhip effect in the supply chain and to ensure information sharing with suppliers, distributors, wholesalers, retailers and consumers. To initiate a centralized information system within the second year to ensure operational effectiveness.
b. Financial Setting financial goals and objectives for a new business is one of the most important parts of the planning process. Clearly statedfinancial goals and objectives are the determinantsof operational success as they mark critical milestones in each year for the business to achieve. They also help the entrepreneur to determine what actions are needed to be taken to make business successful.
Different businesses aim for different financial objectives depending on their needs, their available resources and the opportunities that financial goals and objectivesexist in the marketplace. The goals and objectives for Piyash are as follows:
To achieve a gross profit margin of BDT 500,000 before the end of the first financial year. Maintain a positive cash flow to ensure a successful operation of the business. To increase net profit by 15% each year for the first three years of operation. To achieve a 30% return on the capital invested by the end of first year of operation. To double the size of operation from in the second year. To reduce the cost of goods sold 20% within the five years to give Piyash a competitive edge over its competitors and to help Piyash to follow costleadership.
c.
Other: without the operational and financial goals and objectives mentioned above Piyash has the following goals and objectives it wants to achieve: To achieve an exponential growth in sales after every third year. To obtain a recognizable brand name within three years to ensure every person of the country is familiar with the name Piyash. Conduct market survey twice a week to check customer satisfaction level.
beverage industry by having a good positioning strategy alongside with a good image of their product in the eyes of customers. 5.2 SWOT Analysis Strengths: The name PIYASH is a very appealing name to the local people. It has been able to create a great opening just due to the name of the product as it sounds very interesting to every people of the country. There are lots of soft drinks and water product like mango juice, orange juice etc.; that are available in Bangladesh. But no other companies have come out with this product. Since it is the first product in Bangladesh it has high probability of achieving popularity and success. A great deal of time has been spent in providing the best hygiene for the product Good quality products PIYASH does not charge as much as the other companies are charging here in Bangladesh. The price of this product is quite reasonable to be succeeded Raw material is available for coconut water in a high proportion. Labor force is cheap Highly experience management team Best technical support Good network with media and other companies Excellent Financial support Sustainable products Bottles can be used for recycling Focus on strong brand equity Distribution chain is diverse and strong Bangladeshi climate is very well appropriate for coconut water. So people can drink it at anytime and anywhere without much a problem.
9|Page
Weaknesses:
As the product is new , it may fail to produce proper awareness among the target customers General concept of having coconut water unpreserved can be our weakness Small size of management can hamper the operation If resources are limited Economic instability Political Unrest Lack of production of coconut Rural people declining of having these as they are more comfortable with drinking a coconut rather than flexible and bottled coconut water A whole lot of time will take for convincing every category of people to have bottled coconut water. It will also take time to convince the distributors. Poor quality goods or services.
Opportunities Huge market Best technological support Seeing the current situation of the beverage industry it can be depicted that Bangladesh needs more modernized and different types of products and this therefore a big opportunity to enhance its sincere position in the consumers mind through increased number of quality and different product. Income level of consumers are increasing With the distribution channel our company have we can cover every corners and streets of the city, hence having the lions share in the market. With the rapid growth we can also cover outside Dhaka city
10 | P a g e
People are very much aware of their diet and drinks. We will supply them with quality drinks. There is also a chance of expanding business overseas We are the only market leaders If we merge with other well reputed companies then it will be very profitable and also from then no other companies would stand a chance in front of us. Company resources and brand could be used to create a new product for the same or in a new market Bottled water demand is always at a peak rather than beverages whose demand is not so high. Other companys failure.
Threats: Many multinational and national companies are entering into the market Increased pressure from nearby competitors results in decreasing price of the product Profit margin is very low Competitors sometimes duplicate our products. Threats from indirect people. People who sale coconut in the streets and roads are one our major threats. Consumers can say anything negative about the products to other people and it could have a negative impact We cannot say that we do not have competitors at all. We could have competition with the other Soft Drink Company. Climate change Natural Calamities Growing government regulation Slow market growth Media rumors New innovative products introduced by your fellow competitors
11 | P a g e
Competitors have superior access to channel of distribution High taxation could be introduced on our product Increase trade barriers
Competitive strategy is a long term action plan that is devised to help a company gain a competitive edge over its rivals. Competitive strategies are essential to companies competing in markets that are heavily saturated with alternatives for consumers. There are three categories of competitive strategy. Cost Leadership: - In cost leadership, a firm sets out to become the low cost producer in its industry. A low cost producer must find and exploit all sources of cost advantage. PIYASH
12 | P a g e
doesnt follow cost leadership strategy in the market because they are completely a new company in the market. They cannot offer huge amount of products with a lesser value at the initial stage of the growth of the product. After some time PIYASH can follow cost leadership, but initially they cannot come up with this strategy. They have to earn revenue at the initial parts of the business and then they can go on to follow cost leadership strategy. If a firm can achieve and sustain overall cost leadership, then it will be an above average performer in its industry. Product Differentiation: - In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It is rewarded for its uniqueness. PIYASH is certainly following differentiation strategy. The bottled coconut product is the first in Bangladesh and certainly very unique. The product differs from competitors in many ways. Buyers can certainly differentiate the products because PIYASH have come up with a product that none have ever introduced in the Bangladesh market and as well as foreign countries. Customers tend to buy unique products rather than buying same old things from the same company. It aims to develop product for different segments of the customers according to the uniqueness of the market. Cost Focus: - It is a strategy, by which a business offers an average product at a low cost to a specific customer group. PIYASH doesnt follow cost focus strategy at all. They are offering their product to every group of people starting from children, adult, senior citizens and to every category of people. In addition they havent come up with average product. They come up with a product which is very unique to say the least. Differentiation Focus: - It is a strategy that focuses on offering a unique product to a specific customer group. Although, PIYASH did come up with a unique product but it doesnt involve targeting a certain group of people. As already mentioned it doesnt involve targeting a specified group of people, but it aims at targeting mass number of people. As PIYASH is a kind of drink, which is made for everyone in the market, so they arent following differentiation focus strategy. In case of future, PIYASH can follow this strategy as it will be modified and can be targeted to different segments of the society for example for children or adults, etc.
13 | P a g e
5.4 Porters five force model The five forces which are must consider analyzing any industry; they are rivalry between the firms within the industry, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products or services, and the threat of new entrants (also known as barriers to entry). They are also shown in the diagram below:
Rivalry among existing firms The rivalry among existing firms is same as threats of substitutes. As different companies might submit the application for license and the government will approve to avoid monopoly business.
14 | P a g e
The other competitors may come with different market offerings to attract the consumers. They may also modify their packages by altering our packages. There is also risk of the switching of the consumer and potential employees. As long as there is two companies of equal dominance there will be rivalry; for example soft drink companies and also Fruit Juice Company will try to overcome our company as we are on their way. Everyone wants to become the market leader. Bargaining power of buyers We must keep prices of our products within the limitations and holds of our consumer. Other existing and emerging companies will also serve them at a minimal cost. They will select the best convenient options for them. We have to provide variations in our services. We have to keep our budget very thoughtfully, because consumers are our main priority. Consumers will always have a high bargaining power unless we provide them with good quality services. Consumers can take the advantage of the rivalry among the existing firms. They will always try to get the best service by paying as much less as they can. Bargaining power of suppliers A manufacturing industry requires raw materials which are labor, components and other supplies. This requirements lead to buyer supplier relationships in the industry. Suppliers, if powerful, can exert an influence on the producing industry such as selling products at a very much high price to capture industry profit. Our product is already a well reputed brand and besides these the new product of ours getting good responses and getting a good share of the market, it is quite understandable from the suppliers point of view to increase their charges. Threat of substitutes The presence of substitute products can lower industry attractiveness and profits because they limit price levels. PIYASH has stiff competition against soft drink companies and as well as other water companies. We are competing against already established brands. Besides that our products are new, therefore it is kind of difficult for us. Our nation is not aware of our products. The consumers will have the easy options to switch towards such brands they know previously. Other problems can arise if someone other companies come up with products with a low price.
15 | P a g e
Threat of new entrants At the beginning of the business threat of new entrants is low, but in the near future threats of new entrants are higher because other big companies will engage in this business. There is already not enough competition which will encourage new firms to enter this business. While getting a licensee is relatively very complex, the barriers to entry are high when it comes to pricing and getting the required transponder. There is a definite, first mover advantage.
16 | P a g e
6.2 Customer Benefits PIYASHS features have been described previously. So after features next come what are the customer benefits of using these products. Customer will highly focus on observing the benefits they will be getting before consuming the product. Benefits are what does something? Help restore the bodys electrolyte balance because it resembles plasma in its salt concentration. Natural rehydration Fat Free, Cholesterol Free, low in acidity Low Sugar Coconut water is naturally sterile and has the same properties of human blood plasma. Coconut water has actually been used intravenously in emergency cases. Helps carry nutrients and oxygen to cells. Helps eliminate swelling in hands and feet Naturally cools the body to the proper temperature Boosts Poor Circulation Helps Maintain hot flashes in menopausal women Raises Metabolism Detoxifies and helps fight off viruses Controls Diabetes Balances body PH thus reducing chances of cancer Treats kidney and urethral stones Cleans digestive tract Boosts your immune system Promotes Weight Loss Hangover relief Acts to normalize body temperature. Promotes urinary tract health because of coconut waters antibacterial properties. Helps to get rid of kidney diseases. Reduces intestinal disturbances in infants.
17 | P a g e
6.3 Warranties/Guarantees The common trend in Bangladesh is that there are no such guarantees in the beverage industry. Because once you consumed it wont be refundable or getting a new one and returning the previous one. But PIYASH is coming up with a 1 day warranty or guarantee of their product. As it is a very unique product and customers will be keen to buy it as well as they would be thinking whether it will be good for them to buy this product. So to remove the fear of how the product will be, or is it a good decision to buy PIYASH, PIYASH comes up with a 1 day warranty of the product. If any problem comes up regarding the product, they will give another one without any cost and ensure customer satisfaction. But there are no refund issues. Customers will be given another resemble product which they purchased, but they wont be given any sort of refund.
6.4 Uniqueness It is the first ever bottled coconut water business in Bangladesh and it is unique in every ways. People in our country are very fond of coconut water. But in city, coconut is available but it takes time to search for coconut water. So PIYASH comes up with this idea of introducing bottled coconut water and it will be readily available for people all around. People now days tend to give attention to more unique products rather than same old groupings of different products. This uniqueness is a key success factor of PIYASH.
6.5 Production Process First of all, PRAN Beverages Ltd. is going to take the land lease from government in coastal areas of Bangladesh like Saint Martins, Hatiya, Swandip and many other places where coconut
18 | P a g e
grows abundantly. Then the company is going to plant the trees and hire some of the farmer to look after the lands and trees. On the other hand, the company will also hire a local person who is educated and has leadership skills in him and who is willing to stay there; he is going to lead the farmer and look after the cultivation of coconut. Furthermore, he is also going to monitor & handle the problems occur there. Since, none of companys management team will be there to give an instant solution. Secondly, the company is going to make a deal with the people who run trawlers for bringing the coconuts to Dhaka in our factory. As it reduces our transportation cost than in compare with the transportation cost of bringing it by road. Thirdly, we are going to set a factory in Gazipur where the coconut water will be refined and packed in bottles. Set distributors to distribute our product in several places. We are also going to set vans of PIYASH to sell it at Bus stops, in front of Schools, Colleges, Universities, etc. Finally, we are going to do enormous promotional activities; to communicate well with our consumers. As a result our targeted sales will be achieved and a good amount of profit will be received.
19 | P a g e
7.2 Customers motive to buy Facilities that the market is not getting:
Though the market is getting the products in a reasonable price but still they are not getting some facilities. Those are:1) They are not getting good quality. Qualities are not up to the mark. 2) All these beverage company is not using natural or pure ingredients in our country. Without consuming natural ingredients consumers will suffer. 3) People are not getting any healthy drinks. 4) There are no good drinks for childrens in the market. 5) There are no drinks for patients as well.
So beverages limited are developing a new product in the market named PIYASH. It will satisfy every need of people. So it is obvious that the product will be good enough for the market to help them to get rid of these types of problems and hassles.
20 | P a g e
7.3 Advertising
Types of media used in promotion: Advertising is a vital element of putting forward a new product in the eyes of a customer. Promotion is the most crucial part of a marketing plan. The success of a product relies on the promotional activities the company undertakes to inform the consumers about the product or service. The consumers come to know about a product through Promotion. As a result if there is a lacking in promotion the product will not get the market. There is various ways of doing promotion. As PIYASH is a new product, without proper promotional activities it will be difficult for PIYASH to capture value from consumers. The promotional activity those PIYASH will undertake is given below:
Promotional activity for Consumers: TV ads Print Media (newspaper) Radio Billboards & Posters Event management Spokesperson Going to several Schools, Colleges & Universities and provide them our drinks totally free of cost, to make our drink familiar to them. So that once they can get the test of our drink they will definitely buy our product for the next time. Therefore, our sale will gradually increase and so will our profit. Celebrating a whole day as Coconut Festival once in a year.
21 | P a g e
Cost of media while implementing promotion The overall costs of promotion is around 14-15 lakhs because PIYASH is taking eminent people for promotion and this very expensive to say so. Frequency of uses Bangladesh is a country situated in the tropical region. The tropic of cancer passes just through the middle of our country which means summer is longer here rather than winter. The average temperature of summer here in Bangladesh is about 33-36 which suggests us summer is very intense here in Bangladesh. So promotion is not that much needed in summer season as demand would be at its peak. In contrary, in winter seasons level of promotion should be massively increased because demand would be very much less. Due to lesser demand, price would also go down. So to avoid this situation, PIYASH should come up with innovative ideas of promotion to increase the sales in winter season. In addition, PIYASH would do the promotion thing like every year giving advertisements, or posting ads on billboards and even promoting on radio itself. Plans for generating publicity PIYASH comes up with different techniques to publish their product in front of customers. Some of the ways in which they generate publicity for their products are: 1. Viral marketing. Whether its a YouTube video with thousands of views, or a photo that is tweeted and re tweeted, if youre promotional material goes viral it can give your public profile a huge boost. There is no magic formula to viral marketing but something quirky, interesting and funny is more likely to capture peoples imaginations. 2. Use social media for free: - Set up a Facebook page or a Twitter account at no cost. Social media is an excellent way to build relationships with your customers and create word ofmouth publicity. 3. Use celebrity for promotion: - It is one of the best ways to endorse a product or introduce a product. For example now-a- days Shakib-Al-Hasan, national cricketer player of Bangladesh is
22 | P a g e
very popular among people. If PIYASH endorse a product with Shakib as the brand ambassador, it will be highly efficient and productive for them.
7.4 Pricing
Though the drink is a new one, it is going to skim money from the market. The product gets the novelty and it has the quality. So the product will demand more in the customer. As there are no direct competitors, the customer will come closer to the brand and they will be willing to buy the product, as the drink provides some more ingredient and some other extra features, the price is neither that much less nor that much more than any existing brand in the market.
The maximum retail prices (in BDT) of our products will be as follow:
Product Category
250ml Taka 18
/ 500ml Taka 36
/ 750ml Taka 54
PIYASH Regular
PIYASH Strawberry
18
36
54
PIYASH Vanilla
18
36
54
PIYASH Lychee
18
36
54
23 | P a g e
Comparison with other competitors price Here is an illustration of other competitors of PIYASH and along with their price. Product Name Pepsi Size 250mL 500mL 1L 2L 7UP 250mL 500mL 1L 2L Mirinda 250mL 500mL Retail Price 20 38 55 90 20 38 55 90 20 38
Mojo Pran
250mL 250mL
18 20
7.5 Distribution Strategy Apart from Dhaka PIYASH will have distributors in each and every division and from the distributors wholesalers will collect the product and they will sale it to the retailers and from the retailers it will be available to the consumers. This will be the indirect distribution channel for the product PIYASH as mentioned above. Besides that, PIYASH will have floating pick-up conveying products and this will be available in front of all high profitable zones like schools, colleges, universities, bus stops, railway stations and in front of the main business points of the cities and suburban areas. This will be the direct distribution channel for the product PIYASH.
24 | P a g e
Company
Van
Consumers
Company
Distributors
Wholesalers
Retailers
Consumers
The another distribution channel for the company will be carrying the coconuts from the coastal areas to the city and for the transportation of these raw materials PIYASH will use the river route as the mode of transportation as it is cheaper and after the coconuts and other raw materials will be unloaded, these will be transported directly to the factory in Gazipur and the company will use the road to transport coconuts and other raw materials from Dhaka to Gazipur Sales technique and Incentives PIYASHs main aim is to ensure sales, profits and other goals set out in the plan. During situations when targeted sales and profits are not being met, PIYASH would release new packages as promotional efforts to grasp the attention of the customers and market share. These packages may be based on occasions such as New Years Eve or any other special day like Pohela Baishakh etc. If for example company experiences a drop in sales, they would reduce the charges of the products for the customers. PIYASH even has to monitor if the company has acquired an adequate share of the market. In order to get a better share in the market, they need to do better promotional campaigns. Co-Branding is another method if business is not profitable. If it collaborates with a company who has immense brand recognition, it should use a part of the collaborated companys name along with their own brand name. In this way, PIYASH, in collaboration with a more recognized brand name, can attract customers and be a part of the larger companys promotional activities In case of incentives PIYASH would be giving away bonuses for those retailers who would be selling below the expectation level of the company. They would be motivated to sell as many
25 | P a g e
products of PIYASH as they can. PIYASH would set certain standards and if this is met by the retailers or even cross the expectation level, PIYASH would give them good amount of bonuses. Due to this incentive factors, retailers would ensure appropriate customer satisfaction level and this would result in an increase in sales of the company.
In present our target customers are using products of other beverage companies all around the country. In total there are 19 beverage companies in Bangladesh. These 19 products are selling products all around the country and some of the beverage company especially TRANSCOM beverage limited which sells PEPSI and 7UP, are the current market leader. All of them are indirectly our competitors. So to be the market leader, along with an excellent marketing strategy, we also need to identify competitors strengths, weakness, opportunities and threats. These factors should be taken into consideration before coming into a business with a new and innovative product. Other competitors are Fruitika, Frooto, Mountain Dew, Mirinda etc. PIYASH to be an emerging market leader for the future must compete with reputed companies like PEPSI and 7UP as described earlier as they already captured huge amount of market shares for beverages in the industry. These are the SWOT analysis of PIYASHs existing competitor (PEPSI).
26 | P a g e
Market shares Large number of diversified business Sponsorships Weaknesses: Decline in taste Political franchises Short term approach Weak distribution Low consumer knowledge Financial downfall
Opportunities: Increase population Changing social trend Diversification Distribution of snack foods
Threats: Another company coming up with similar kinds of products Government rules & regulation Corporations shortage problem Threat of labor strikes
8.2 Potential Competitors PIYASHs potential competitors are those companies who will engage into same kind of business. They will be keen in doing this business because they are seeing; there is huge scope of opportunity of new entrants. If the potential competitors come up with more diverse ideas along
27 | P a g e
with the concept of bottled coconut water, it will be very much difficult for PIYASH to keep the uniqueness of the product within them. PIYASH should come up with diverse ideas, expand their business and come up with profitable marketing ideas to sustain the innovativeness and uniqueness of the product within themselves. The most important vital feature of potential customer is that if they come up with improved quality of the product and with a low price. So they need to keep in check the price and quality of their product, so that probable competitors wont come up with cheap prices. Another group of potential customers are companies which sell mineral water. They are also a potential competitor of PIYASH.
ones. To finance this project the initiators of Piyash will provide BDT 4,000,000 and there wont be any borrowings from family and friends. External Sources: Initially, to raise the capital the organization can contact angel investor and/or venture capitalist. These groups finance for new businesses those entails high risk. As a part of external financing to raise a big chunk of capital the entrepreneur can go public that is issuing IPOs (initial public offering) in compliance with the regulations of SEC (Securities and Exchange Commission) and/or they can issue corporate bonds. Raising capital through IPO is known as equity financing. It is basically selling the ownership of the company to the general investors. The investors will buy the stocks if they anticipate that the company has a good future prospect. Therefore, the company needs to make the business plan attractive and promise good returns in forms of capital gain and/or dividend gain. On the other hand, companies with a good financial rating can easily sell corporate bonds to the lenders. However, without a good financial rating a company can sell corporate bonds if they promise a higher interest return. To pursue the project Piyash Incorporation will use a combination of financing. The financing will basically contain the entrepreneurs own investment, issuing IPOs and issuing corporate bonds. c. Capital structure: It is crucial for the new companies as well as for the existing companies to figure out an optimal capital structure so that the company can maintain a balanced financial position. Both equity and debt financing have their own sets of advantage and disadvantages. Equity financing helps an organization to raise capital without promising a confirmed payback. In contrary, the biggest disadvantage of equity financing is dilution of ownership. Dilution of ownership interests often acts as a sort of infringement on the controlling and decision making powers of the managers. Moreover, equity financing is costly and time consuming. On the other hand, debt financing is easier and it activates the tax shield. Using this sort of financing helps a company to pay less tax as it can show a lower EBT (earning before tax) in its income statement and as a result the
29 | P a g e
organization has to pay lower tax. The major demerit of this financing is it puts an interest burden on the organization. Therefore, none of the financing option can be claimed as best and it is recommended that the organization uses the best optimal capital structure. For Piyashthe initiators will provide 40% of the equity and 20% of the capital will be raised by issuing IPOs. Rest 40% of the project will be financed by issuing bonds. It will be an optimal capital structure for Piyash. The debt to equity ratio is 0.67.
d. Profitability: Piyash has a target net income of BDT 500,000 in its first year of operation and after that Piyash will have an average growth of 20% every year. Profitability shows the net operating profit of the company after deducting all sorts of costs and expenses. The higher value of net operating profit will attract the investors to invest more in that company and thus, the company can easily raise capital from the financial market. For every year, Piyashs objective is to maintain a 30% of its sales as net operating profit.
30 | P a g e