The business idea that is in effect for execution is founding a cleaning service business. A cleaning service business is a low-cost but detailed entity is engaged with a lot of expertise and capital formation to start up. In this case, a suitable title for this entity is Best Homes Cleaners. The cleaning service business entity is categorized as one of the most amazing low-tech businesses. The low level of technology is one of the factors that are encouraging the decision to invest in the sector of operation. Ideally, it will require a proper level of mastery of the job. First, this investment sector is easy to work on since it is not capital intensive and that it does not require a high standard of equipment to operate. In addition, the operational requirements require limited but reliable means of transport from the official premises. The transportation requirements are meant to transport the cleaning facilities together with the human labor (Zhang, 2005). The initial intention of this investment is to outsource cleaning services within the largest geographical scope upon hiring. The intended market target is the large palatial homes and minute emerging companies. The intention of the firm is to launch a full-brown commercial cleaning company. This means that there will be a need to invest in commercial-graded equipment and floor buffers.
The fundamental staffing system in this business entity is intended to incorporate a minimum of four executive leaders. The executive leaders of this cleaning include the managing director is the Chief Executive Officer (CEO), the Human resource manager, the finance manager and the operational manager. Since the entity is a startup entity, the executive bench is not required to have so much experience or outstanding academic qualifications. This is because of the expected initial financial status. The office holders will assess the best avenues in order to choose the best and cheapest moneylender. Applications to different local and state economic development organisations may be among the best sources of finance at that instance. It will be essential to borrow from a suitable and accessible finance Organisation that will not demand so much collateral. Personal savings and contribution from some close friends is deemed to perform leasing and advertisement purpose. However, after the implementation of the situational infrastructure, there will be additional requirements that are essential for effective performance of the company. Being a technical firm, it requires equipment for cleaning and funds to lender wages and transportation expenses within the initial months of its operation. The most effective and reliable source of funding
Sources of Financing
The business requires tools of operation. Each of the tools is assumed to possess a commercial value. Some of the tools of operation that are considered essential in this entity include the employees, the transport agencies, appliances and equipment used for cleaning. Other miscellaneous expenses include the overtime allowances and insurance policies that are essential before legalization of any residential cleaning service firm. For efficient operation, the following semi-yearly expected expenditure system is essential. The cumulative amount of money that the company can access before external intervention is $80, 000. This amount is supposed to be allocated towards the leasing of the central operational center building and paying part of the transportation expenses for the employees, to and from workstations.
A serious assessment of the possible expenditure that requires funding, a cumulative figure of # is deemed reasonable. Below is a simple breakdown of the justified expenses that are expected.
Particular amount of money ($)
Transportation 15, 000
Equipment 62, 000
Maintenance 10, 000
Wages 50, 000
Advertisement 7, 500
Allowances 18, 000
Stock of maintenance appliances 10, 000
Training 15, 000
Total 177, 500
The cumulative amount of money that is required to serve the entity for the initial months is rated as $177, 500. The supportive claim towards this amount of money for such a business opportunity is that is that it is not capital intensive. The proposed and preferable source of these funds is the Local and State Economic Development Organisation that is found in the domestic city. The development Organisation is the preferable source of these funds because of the objectives that predetermine its purpose of the operation. The functions of the economic development organisations are to ensure that there are favorable lending conditions for start-up businesses. First, the business is a startup business. Secondly, the reason behind starting up a business is through funding by an external source is because of the unavailability of the funds at hand of the initiator. Statics stipulates that these organisations offer enticing interest rates. For instance, before a borrower builds a suitable history with the development Organisation, the interest rate that is charged is 5. 25%. per annum (Zhang, 2005). However, after the company develops a tangible relationship with the financing Organisation, then the rates are declined to 4. 0% per annum. To some extents, these loans do not require present collateral and warranties. Another advantage for choosing the Local and State Economic Development Organisation is because they provide accrual chances for loans that are unpaid at the current period. The only challenge that is posted by the organisations is that they do not take the initiative to finance the entire operation of the business enterprise.
Other sources that could have been effective for some level include the SBA 7(a) loans, bank loans, smart leases among other favorable sources existence. However, there are some reasons that lead to prioritizing the use of development Organisation. One of the reasons behind leaving banks loans behind is because they require collateral and retrievable records within their system. Ideally, this idea is not reliant on an account holder in either of the banks with a qualified history (Fitz-enz, 2000). First, the essence that there are no funds that are available mean that there are no collaterals that can stand for these loans. In addition, they do not offer any pardon if the business does not materialize at the stipulated time of repayment. This means the time that the borrower is supposed to refund the bank expires penalties are affected. Conclusively, the interest rates are not favorable for a starter. Compared to the advantages that are displayed by the development organisations prove that the choice made about the source of the funds is optimal.
Return on investment
The term of performance by the residential cleaning services company is expected to give appeasing results. The activities that the company is intellectually involved in are paid for from the central office premises. For effective analysis of the rate at which the investment yields, some of the tools for returns on capital have to be employed. The importance of these tools is to ensure that there is a complete assessment of the expected returns that are after expenditure. Similarly, they tools and techniques of investment appraisal are used to estimate the future costs and benefits within a specified period of the company’s life.
There are myriad of techniques that are used to evaluate the validness of the business in terms of its economic performance. These are termed as the techniques of investment appraisal. The most effective techniques in this case are the ROCE and the Payback techniques. Initially, ROCE represents the Return on Capital Employed. First, the return on capital-employed techniques is supposed to show the financial relationship between the average annual profits and the initial capital cost in terms of percentage. On the other hand, it is important to use the Payback period technique to rate the ability of the company to retrieve the funds that it had borrowed from an external lender.
ROCE (Return of Capital Employed)
The total invested capital includes the initial investment funds that were used to lease the building and the capital that is used as a working capital in the company some up to form the capital employed. That is; lease capital=$80, 000 and $177, 500.
Calculations of the ROCE:
The expected cash flows are indicated as follows for the first six months of operation.
Month 1 2 3 5 6
Cash inflows ($, 000) 50 48 64 54 58
The solution is given by:
ROCE= average annual profits = (50+48+64+54+58), 000= 19. 89% Initial capital costs 275, 500
The rate of return on capital ratio is significantly aggressive.
This relatively shows that the rate of payback period is also very encouraging. The conclusion is that the Rate on investment is positive. In terms of the return on capital employed the expected returns after investment from the internal sources of funds and the external show a positive sign of the same. The most important stakeholders who are supposed to be made aware of these records are the funders of the project and the willing investors who can indulge into the same company by purchasing of ownership units. These are called the shares (Fitz-enz, 2000). First, the lenders who are the selected Local and State Economic Development Organisations are willing to access the performance of their clients for them to assess the ability of the firm pay back. This acts as the possible assurance of good performance. The other target of this information is the public interested in investing in the company’s ownership title. The information given by the ROI can encourage the investors to be part of the cleaners company. Active involvement by stakeholders assures the possibility of success in the companies’ activities.
Justification of the venture’s success
After a close analysis of the company’s possible performance, there is hope for long-term operations. Initially, the expected ROI is encouraging. The initial step of this endeavors starts by a calculated move to invest from internal funds. This is a financial plan that ensures that there is a balance between equity and the credit funds of the company. In addition to that, the entity is planned to have the scope that is easy to handle. In that connection, the financial operation may not record any strain. According to Maslow’s theory of financial planning, the strategy that is used is determined to create professional standards results to admirable results. Initially, the identification of the areas that require absolute funding and the amounts that they need is very important. Ideally, the role that the management has been mandated to do with reference to the already set standards of accounts is evident.
There are myriad pricing strategies that can be adopted by the firm. However, when drafting policies, it is important that one have it in mind that it be a startup project. In addition, it should be noted that the firm is a market and field oriented entity that involves little or no technicality. The preferred pricing strategy in this situation is the penetration strategy (Zhang, 2005). It is essential in loyal-building, as well as, market entry tool. This strategy may enable the entity to survive a world of irresistible competitors. A high probability is there are other more efficient companies that deal with residential cleaning services. For a company to secure a segment of the existent market, the pricing strategy can be easily applicable. After acquiring a section of the market, this pricing strategy is essential in maintaining that segment. The process of market maintenance is followed by successive improvement of the entity.
The business venture is not heavily invested. In addition; it is not involved in a technical intensive industry. The efforts made to acquire funds from the development organisations are a possible source in indeterminate operational future. This means that though the facilities may be inadequate; there is a possibility of future improvement. The reason behind the possible future dominance is deemed to materialize. The penetration strategy, as well as proper involvement by the stakeholders, is the source of ultimate success in the near future of the company.
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