Business plan

ELSAR Company

Made by: Sara Vasilevska and Elena Penkova

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CONTENT

CONTENT ...................................................................................................................................... 0

EXECUTIVE SUMMARY ................................................................................................................ 3

I. OPPORTUNITY ........................................................................................................................... 3

II. EXTERNAL ANALYSIS .............................................................................................................. 3

II.1. General external analysis ................................................................................................ 3
II.2. Specific external analysis - Industry and market analysis............................................ 3
II.2.1. Industry description, analysis and trends...................................................................... 4
II.2.2. Target market............................................................................................................... 5
II.3. Actors analysis - Poter’s 5 forces .................................................................................. 5
III.3.1. Threat of Entry ............................................................................................................ 5
III.3.2. Threat of Rivalry .......................................................................................................... 5
III.3.3. Threat of Substitutes ................................................................................................... 5
III.3.4. Threat of Suppliers ...................................................................................................... 6
III.3.5. Threat of Buyers ......................................................................................................... 6
III.3.6. Complementors........................................................................................................... 6
II.4. Similar businesses .......................................................................................................... 6

III. THE BUSINESS INTERNAL ANALYSIS ................................................................................... 7

III.1. The description of the business .................................................................................... 7
III.2. Value Chain, value factors ............................................................................................ 7
III.2.1. Value chain description ............................................................................................... 7
III.2.2. Value chain, value factors, .......................................................................................... 8

IV. SWOT ANALYSIS ..................................................................................................................... 8

V. STRATEGIC CHOICE ................................................................................................................ 9

VI. COMPANY VISION, MISSION AND OBJECTIVES ................................................................ 10

VI.1. Vision and mission ....................................................................................................... 10
VI.2. Business and financial objectives .............................................................................. 11

VII. THE COMPANY, MANAGEMENT, STRUCTURE, OWNERSHIP .......................................... 11

VII.1. Management ................................................................................................................ 11
VII.2. Company structure ..................................................................................................... 12
VII.3. Legal structure and ownership ......................................... Error! Bookmark not defined.

VIII. BUSINESS PLANNING ......................................................................................................... 12

IX. FINANCIAL PLANNING AND BUDGETING ........................................................................... 12

IX.1. Capital requirements .................................................................................................... 12

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IX.2. Income Statement ........................................................................................................ 16

IX.3. Balance sheet ............................................................................................................... 17
IX.4. Cash flow statement (pro forma) projections ............................................................. 18
IX.5. Break even analysis ..................................................................................................... 19
IX.6. Ratio analysis ............................................................................................................... 19
IX.7. Summary of financial needs (sources) ....................................................................... 20

X. RISK ANALYSIS ...................................................................................................................... 20

XI. EXIT STRATEGY .................................................................................................................... 21

XII. CURRENT STATUS AND REQUIREMENTS ......................................................................... 21

REFERENCES ............................................................................................................................. 21

APPENDIX 1: ............................................................................................................................... 21

APPENDIX 2: ............................................................................................................................... 21

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EXECUTIVE SUMMARY
The company ELSAR is licensed for designing and production of fireplaces and stoves. The
manufacturing plant and headquarters are located in Industrial Zone Struga, with a total area of
1200m2, 1000m2 of which are manufacturing facilities and 200m2 are administration. Within the
factory is showroom I. Showroom II is located in Skopje on Bul. “Partizanski Odredi” no. 35
ELSAR has currently 20 employees. Highly qualified staff and professional designers are at
customer’s disposal, to combine their wishes within the technical possibilities.
ELSAR constantly explores the market and customers' needs by designing and constructing
new types and models of stoves and fireplaces. It uses cutting edge technology for processing
metal to best satisfy customer needs.

I. OPPORTUNITY

To create strategic relationships with complementary businesses and managers of local flea
markets, swap meets and arts. These strategic relationships will lead to repeat business and
sustained long term growth.
If there is a large competitor we have opportunity to come in and take the market share. The
unique combination of high quality products and great customer service will create raving
customers who will generate positive word of mouth.
To have constant positive cash flow this can be expected after establishing strategic
relationships and making potential customers aware of our products

II. EXTERNAL ANALYSIS

II.1. General external analysis

PESTEL analyze

To show which external factors influence our company we use PESTEL tool. As we can see,
ELSAR is political independent company, but of course we respect the government rules and law
(tax policy, labor law, environmental law, trade restrictions). Than about the economic factors we
can say we are company with stable growth and our demand is yet to get bigger. Social factors
that influence us the most is the customers’ age and lifestyle. In order to show our concern about
the environment we use antipollution filters and of course to satisfy our customers we use the
latest technology.

Political -Independent

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Economical -Stable growth

-Bigger demand
-Disposable income of consumers and
businesses
- Inflation

Social -Accepted
-Age and life cycle stage
- Lifestyle and personality

Technology -Using the latest technology

Environmental -Friendly
-Using antipollution filters

Legal -Product safety

II.2. Specific external analysis - Industry and market analysis

Customer Information:
• Target group: 30-50 years old, with higher income
Market Information:
• High prices for electricity
• Past & new trends
• Competition: Bionova, Blist and Jotul

II.2.1. Industry description, analysis and trends

Today, the fireplaces product line consists of 40 different models, aside from the custom-made
ones. 80% of the products are wood burning fireplaces, 10% gas burning fireplaces, 10% ethanol
fireplaces.
Skopje is the capital of Macedonia so the demand for fireplaces is concentrate there with 40%.
Because ELSAR is company established in Struga, it has also customers in western Macedonia
such as Struga, Ohrid, Kicevo, Debar and also other towns with 50%. ELSAR is also present in the
eastern part of the country with small percent of 10%.

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II.2.2. Target market

The fireplaces are usually bought from married couples from 30 to 50 years (70%). The
purchase of fireplaces from the young married couples aged 20 to 29 is also present but in smaller
quantity (20%). People aged 50 and above purchase fireplaces less frequently.
People living in houses prefer to purchase fireplaces more than ones in flats. The percent here
is 90% - 10%.

II.3. Actors analysis - Porter’s 5 forces

III.3.1. Threat of Entry

Threat of new entrants is very low. There are so many barriers to entry in this kind of business
such as the new entrants must make a big financial investment to buy the need equipment to
produce the fireplaces and stoves, in research and development, in stocks / inventory or to build a
brand. Already established firms have cost advantages unreachable to new entrants. It’s so much
harder for new entrants to attract customers. Also there are so many legal barriers and patents
especially if established companies had produced unique fireplaces. Large capital costs are
required for branding, advertising and creating product demand, also establishing new innovation
of the fireplaces limit the entry of newer players in this market.

III.3.2. Threat of Rivalry

In this industry if we analyse only Macedonian market there are many competitors such as Agens
Plus, Hubo, and Bricolage which are only sellers but on the other hand we have producers as
competitors Metalec Bitola, Koper Negotino,ELSAR Struga and MetalArt. Also if a competitor
which is producer would decide to leave an industry it would incur huge losses, so most of the time
it either bankrupts or stays in this industry for the lifetime. There is no threat of being acquired by a
competitor.

III.3.3. Threat of Substitutes

Artificial Intelligent program can be easily duplicated also substitute companies in Macedonia
might offer a similar solution with lower price. Competitors have distribution channel to promote
their product to the market. The demand for fireplaces and stoves is expected to continue, and
hence we think this force does not threaten ELSAR in the foreseeable future.

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III.3.4. Threat of Suppliers

Large number of suppliers creates a lower supplier power. Supplier power is weak when materials
are widely accessible.

III.3.5. Threat of Buyers

Buyers have several substitutes that could choose from as well as few switching costs. The
force of the buyer’s bargaining power is proportional to the ability of buyers to force down prices,
bargain for higher-quality products or more services, and pit rival organizations against one
another.

III.3.6. Complementor’s

Complementor’s of our products fireplaces are stoves on pellets and wood that are used also
for heating and are cheaper alternative. Also other companies that produces fireplaces.

II.4. Similar businesses

There are two kinds of competitors – traders and producers of fireplaces in Macedonia. Three
major producers are Metalec Bitola, Koper Negotino and MetalArt. The biggest traders of fireplaces
in Macedonia are Agens Plus, Hubo, and Bricolage, among about 20 smaller sellers of fireplaces.
The other competitors mostly do not produce fireplaces, and therefore do not customize them
to the unique needs of each customer, do no install them, and mostly sell low-end products.
Disadvantage is the lack of presence in the eastern and central parts of Macedonia.

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III. THE BUSINESS INTERNAL ANALYSIS

III.1. The description of the business

The growing numbers of new families and the increasing population in Macedonia have
created a pressing demand for additional housing that is conducive to healthful living. Everyone
wants in winter to leave in great warm house. One of techniques to heat you home and heart is
using the fireplaces.
ELSAR is registered for design and manufacturing fireplaces.
ELSAR’s fireplaces are perfectly designed to fit in in every home. We use the finest inputs in
order to produce the fireplace with highest quality. Our target group chooses the right fireplace that
suits his home the most between 50 models that we provide. As our target group we have married
couples, but also we want to cover new target groups.
ELSAR’s goal is in the next year is to become a leading producer of fireplaces and stoves in
the region and to reach European producers quality.
The housing design and construction industry has made great progress in recent years
through the development of new innovative techniques, materials technologies, and products and
distribution channels. Their main role will be to bring our value better and closer to the customers.
Getting the product in the right place and in the right time is very important. But in the next years
ELSAR wants to open new showrooms in other cities in Macedonia to be more near to the existing
customers and gain new ones.
ELSAR always strive to provide more convenient and warm fireplace to satisfy the customer
needs and wants.

III.2. Value Chain, value factors and VRIO analysis

III.2.1. Value chain description

Describe the value chain using one of the models or combine or modify according to the
business needs: the generic value chain by McKinsey & Company or by Porter

Table 1: The generic value chain by McKinsey & Company

Technology Product
Manufacturing Marketing Distribution Service
development design
Source Function Integration Prices Channels Warranty
Advertising/ Captive/indep.
Sophistication Physical char. Raw Materials Integration
promotion prices
Patents Aesthetics Capacity Sales forces Inventory
Product/
Quality Location Package Warehousing
Process

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choices
Procurement Brand Transport
Parts product.
assembly

Table 2: Porter value chain

Support Infrastructure activities (or Professional Service Providers): Planning, Finance, Legal
Activities Services, MIS

Technology: Research, development, design

Human resource management & development (HRM)

Primary Purchasing Production Warehousing Sales and Dealer

Activity Inventory holding and Marketing support
Materials distribution (S&M) & Customer
handling (W&D) Service

III.2.2. Value chain, value factors.

Table 3: Value chain components and Value Factors

Value Chain Value Factors Considerations

Supplier

Transporter

IV. SWOT ANALYSIS

Table 6: SWOT analysis

Strength Weakness
Good internal communications - Cash flow problems

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- Good relationship with customers - Long process for production

- Global fireplace brand built upon a reputation
from fine products
- Good location
- New innovative products
- Using latest technology
- Environmental friendly

Opportunity Threat
- Similar products are not as reliable and - Similar products
expensive - Competition have good advertising campaign
- Changing customer tastes - Competitors copying our product
- Technological advance - Price wars with the competition
- New distributional channel - Not very popular on the new market

V. STRATEGIC CHOICE

Since the ELSAR Company have competition in the area, the combination of high quality
products and service will enable long term growth and success.
As a strategic choice that will be made in future ELSAR company plans to produces fireplaces
that will bring you lifestyle up on a new level for those that like the experience of thermal comfort.

 Product: Fireplace on gas

 Price: Around 2000-2500 euros
 Place: Belgrade
Promotion: Advertising, special events, direct marketing

The strategy that we will follow in the next years is:

1. Attracting profitable customers who value the quality and artistry of our products. We will
offer specialized products to our customer’s giving the uniqueness of our products and the
artistry involved in creating custom fireplace mantles.
2. Providing the best custom fireplace mantle value to our customers compared to other
custom fireplace mantle companies in our target markets. Meaning that we will provide
best quality products at a price customers are willing to pay.

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3. Build the business through word of mouth referrals. Word of mouth is the passing of
information by verbal means, especially recommendations, in an informal, person-to-
person manner. Word of mouth is not only the most credible form of marketing, but it is
also the least expensive.

Competitive advantage/disadvantage: Competitive advantage of ELSAR DOOEL Struga is the

know-how gathered experience, skilled management, engineers and workers, and quality products
that become well-known via word-of-mouth of the satisfied clients. Outlets cover two areas densely
populated with clients and potential clients – south-west region of the country, with high percentage
of emigrants that come home in the summer and build houses, and the country capital, with people
with highest incomes in the country. Customer care is provided by personal contact with each
customer, customized products and post-sale services, such as installation of the fireplaces.

Use relevant business or corporate strategy.

Business level strategy (single industry or market):

- Cost Leadership
- Product Differentiation

Corporate level strategy (multiple businesses)

- Vertical integration
- Corporate diversification
- Strategic alliances
- Mergers and acquisitions

Include social responsibility in the business model.

VI. COMPANY VISION, MISSION AND OBJECTIVES

VI.1. Vision and mission

Mission – ELSAR’s is a company that produces fireplaces that enable maximum comfort to the
customers.
Vision – Through innovations we seek to become leading designers and manufacturers of
fireplaces and stoves in the region.

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VI.2. Business and financial objectives

ELSAR’s goal is in the next years is to become a leading producer of fireplaces on woods and
gas in the region and to reach European producers quality and quantity. Since the company is in
the growth stage in the upcoming 2019-2020 it want to increase the total profit for 15%.
The company management plans to further expand sales locally, by educating customers
about the features of ELSAR fireplaces, building brand awareness and attracting new customers.
Their goal is to connect fireplaces with the ELSAR brand in the minds of Macedonian customers,
and to educate them about the advantages and aesthetics of a fireplace in their homes.
Company’s strategic plan: In the next 3 years, the company is planning to achieve growth
through:
1) Building and implementing digital marketing strategy in Macedonia
2) Conducting market research and entering a regional market, in order to achieve export of
the products
3) Developing new product models, gas fireplaces, energy efficient products, environment
friendly products

VII. THE COMPANY, MANAGEMENT, STRUCTURE, OWNERSHIP

VII.1. Management

General Manager is on the top of the hierarchy of the company. There is one vice manager,
and one quality and environment coordinator. Together they decide on the most important aspects
of the company and its processes.
There are 4 departments, Administration, Project and Development, Production and Internal
design and relaunch. Administration department employs 2 employees working in finance, one
sales and marketing and one for procurement. The finance division is responsible for the financial
processes happening like accounting, invoices, payments, salaries etc. The marketing department
constantly communicates the value of the company to the customers in most creative ways,
through different marketing campaigns. Using different advertising techniques, the marketing team
always informs the public of what’s new in the company, active promotions and when new products
are being launched. The employees in the procurement department are taking care of the inputs or
raw materials needed for the processes. There are 2 employees in Project and development
department, and together with the top management they create innovative products and solutions.
The employees in Production department and their roles are as follows: 2 in Preparation for
production, 2 in Machine department, 5 in Welding department, 2 in Testing department, 1 in Paint
department, 2 in Assembly and packaging department, and 2 in Services and maintenance

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department. The sales and marketing employees in internal design and relaunch located in Skopje
are responsible for positioning, communicating and selling the product in that part of the country.

VII.2. Company structure

VIII. BUSINESS PLANNING

Describe the business planning.

Use separate subheadings for each part of the business.
Use one of the models (the generic value chain by McKinsey & Company or by Porter) or
combine or modify according to the business needs.
Include professional services obligatory.
In HRM section obligatory include staff needs and availability, and compensation policies.
Describe business partnerships for each part and summarize business partnerships in
separate section.

IX. FINANCIAL PLANNING AND BUDGETING

IX.1. Capital requirements

Elsar is currently looking for early-stage funding and strategic partnerships to execute the program.
The company plans to raise up to €5 million for bulding a plant in two rounds of financing during
Year 1, along with securing access to additional €1 million for the cash flow purposes, before

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making its program fully available to start to manufacture fireplaces. The preliminary rollout timing
is set September. Based on conservative financial projections, the company will become profitable
from early Year 2. The dual-pricing strategy generates solid net income and nearly eliminates the
downside risks. By Year 5-end , the €4 million investment will produce €5 million in cash flows, all
internally generated. The company can go public as early as Year 2. Should an IPO be undertaken
at Year 3-end, the financial standing of the company should support a market capitalization of
more than €10milion.

The table below outlines the start-up expenses.

START-UP REQUIREMENTS

Start-up Expenses Yearly

Legal €1500

Office supplies (computers, printers, scanners, desk, chairs, servers, €10000

programs, etc.)

Brochures €1200

Insurance €5000

Rent (Showroom Skopje) €10000

Research and development €3000

Expensed equipment €450.000

Logistics (Trucks) €4500

Other (Architects, Web-site, etc.) €7000

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TOTAL START-UP EXPENSES €492200

Start-up Assets

Cash Required €5m

Other Current Assets €0

Long-term Assets €0

TOTAL ASSETS €5m

START-UP FUNDING

Start-up Expenses to Fund €492200

Start-up Assets to Fund €4507800

TOTAL FUNDING REQUIRED €5m

Assets

Non-cash Assets from Start-up $0

Cash Requirements from Start-up €492200

Additional Cash Raised $0

Cash Balance on Starting Date €492200

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TOTAL ASSETS €492200

Liabilities and Capital

Liabilities

Current Borrowing $0

Long-term Liabilities $0

Accounts Payable (Outstanding Bills) $0

Other Current Liabilities (interest-free) $0

TOTAL LIABILITIES $0

Capital

Planned Investment

Co-owner €2.5m

Co-owner €2.5m

Other $0

Additional Investment Requirement $0

TOTAL PLANNED INVESTMENT €5m

Loss at Start-up (Start-up Expenses) €(492200)

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TOTAL CAPITAL €4507800

TOTAL CAPITAL AND LIABILITIES €492200

Total Funding €5M

IX.2. Income Statement

Table X: Sales and profits (for the last three years)

Year 1 Year 2 Year 3
Sales Revenue €0 €3m €3.5m
Less Cost €500000 €750000 €1m
Gross Profits
€(500000) €2250000 €2500000
(operating profits)
Less: Interest
€200000 €450000 €850000
Expense
Net Profits Before
€300000 €1800000 €1650000
Taxes
Less: Taxes €60000 €360000 €330000
Net Profit After Taxes €240000 €1440000 €1320000

Include the assumptions important for sales and profits forecast.

Table X: Forecast sales and profits (for the next three years)
1 2 3
Sales Revenue 4m 4.5 5
Less Cost 1.5m 1.8 2.2
Gross Profits
2500000 2700000 2800000
(operating profits)
Less: Interest
1000000 1300000 1500000
Expense
Net Profits Before
1500000 1400000 1300000
Taxes
Less: Taxes 300000 280000 260000
Net Profit After Taxes 1200000 1120000 1040000

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IX.3. Balance sheet

Table X: Balance sheet (for the next three years)

1 2 3
Cash 300000 450000 620000
Marketable Securities - - -
Accounts Receivable 250000 380000 420000
Inventories 150000 230000 340000
Total Current Assets 700000 1060000 1380000
Land & Buildings 420000 420000 420000
Machinery and Equipment 450000 450000 470000
Vehicles 60000 60000 80000
Total Gross Fixed Assets 930000 930000 970000
Net Fixed Assets 232500 232500 242500
Total Assets 1630000 1990000 2350000

Accounts Payable 200000 250000 350000

Total Current Liabilities 200000 250000 350000
L / T Debt (Inc. Financial Leases) - - -
Total Liabilities 200000 250000 350000
Common Stock - - 1000000
Retained Earnings 500000 650000 760000
Total Stockholders' Equity - - 2000000
Total Equity 1430000 1749000- 2000000

Include the assumptions important for balance sheet forecast.

Table X: Forecast balance sheet (for the next three years)

Cash
Marketable Securities
Accounts Receivable
Inventories
Total Current Assets
Land & Buildings
Machinery and Equipment
Vehicles

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Total Gross Fixed Assets

Net Fixed Assets
Total Assets

Accounts Payable
Total Current Liabilities
L / T Debt (Inc. Financial Leases)
Total Liabilities
Common Stock
Retained Earnings
Total Equity
Total Liabilities. & Equity

IX.4. Cash flow statement (pro forma) projections

Include the cash flow projections for each month of the first year and each quarter for the
second and third year.

Table X:
1 2 3 4 5 6 7 8 9 10 11 12
CASH REVENUES

Revenue from Product Sales

0,1 0.15 0,12 0,16 0,2 0.25 0,2 0,29 0,15 0,1 0,3 0,12

Revenue from Service Sales

TOTAL CASH REVENUES 0,1 0.15 0,12 0,16 0,2 0.25 0,2 0,29 0,15 0,1 0,3 0,12
CASH DISBURSEMENTS
Cash Payments to Trade Suppliers
Management Draws

Salaries and Wages

Promotion Expense Paid
Professional Fees Paid
Rent/Mortgage Payments
Insurance Paid
Telecommunications Payments

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Utilities Payments
TOTAL CASH DISBURSEMENTS
RECONCILIATION OF CASH
FLOW
OPENING CASH BALANCE
ADD: TOTAL CASH REVENUES
DEDUCT: TOTAL CASH
DISBURSEMENTS
CLOSING CASH BALANCE

IX.5. Break even analysis

Table X:
A. Fixed costs per month (or B. Average Gross profit Break even sales revenue**
year) percentage (expressed as (A/B)
decimal) = Gross profit*/
Sales

*Gross profit=Sales-COGS
**minimum sales to survive
Breakeven Point = Fixed Costs/ (Unit Selling Price - Variable Costs)

IX.6. Ratio analysis

Table X: Ratio analysis (past three years and forecasted three years)
RATIO ANALYSIS
Profitability ratios
Gross Profit Margin (>)
Operating Profit Margin (>)
Net Profit Margin (>)
Return on Total Assets (ROA)
(>)
Return on Equity (ROE) (>)

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Liquidity ratios
Current Ratio (2-3)
Quick Ratio (1)

Leverage ratios
Debt Ratio (<)
Debt-to-Equity (<1)
Times Interest Earned (>>1)

Activity Ratios
Inventory Turnover
Average Collection Period
Fixed Asset Turnover
Total Asset Turnover

IX.7. Summary of financial needs (sources)

Breakdown of sources of funds

Loan repayments

X.7 Summary of investments (uses of money)

Break down uses of funds (where did you invest)

X. RISK ANALYSIS

Possible Threats:

1. Competitive risk. Carefully analyze the number and power of our competitors. Having more
than a couple of large companies that have bigger market share is very big threat for the
company.

2. Financial risk. If Total revenue is negative the company will be in risk to pay all depts.

3. Technology risk. In a situation when the competitors are starting to use new technologies, our
company may run into unpredictable performance or manufacturing problems.

4. Operational risk. Some businesses require huge support or administrative infrastructures.

Other risks that ELSAR Company might face with are: Price wars/competitors prices,
Substitute products, unusual change of the raw materials and change of quality of the products.

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XI. EXIT STRATEGY

An exit strategy’s that will be used in case something goes wrong:

a) Sell the company for profit

b) Passing the company on a family member or sell out to our stake and let one of our
business partners take over OR
c) Arrange for our employees or managers to buy out from us.
d) Using IPO as an exit strategy
e) Mergers & Acquisitions

XII. CURRENT STATUS AND REQUIREMENTS

REFERENCES

APPENDIX 1:

APPENDIX 2:

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