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We came up with this idea through our love for flowers and the slight
experience and skill we have in this field. It is a beautiful market with ability to
create and innovate. We would like to expand our expertise and skills in this
field and its popularity and relative higher demand for it recently makes it all
the more appealing. Accessibility to this market could not be easier, the laws
and regulations are reasonable and we have already established contacts
within this field. At this point, it would be illogical for us to not come up with
this idea.
Our mission is to provide all that is beautiful and add beauty with flowers to
everyday life at affordable prices and superb customer service.
Resources:
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WACC given by the Kuwait Small Project Development for feasibility studies
and advised us to use it in ours. He was extremely cooperative and tolerant
as were the rest of our sources.
Location:
We have brainstormed many ideas for the location, but the location that
proved to be the most effective and demanded was in Co-ops. Most of the
flower shops that are provided in some of the co-ops are not of high quality
and are not suitable for the residents of the area. We decided to start out in
Abdullah-Al-Salem Co-op and then expand into other co-ops nearby such as
Yarmouk and Rawda. We chose these co-ops because they are close,
accessible and attract customers from different areas as well as their own
residents. We didnt want to be like other flower shops and chose locations in
malls because we want to be unique and malls are not always easily
accessible. We think that this choice of location will be highly profitable and
will hopefully attract a lot of customers and correspond with one of our main
objectives, accessibility. We went forth and investigated Abdullah Al-Salems
CO-OP to get rent prices and the procedures. Throughout our investigation
we have come to a conclusion that we can in fact get a shop in Abdullah Al-
Salem CO-OP with 500 KD monthly rent. This was a stepping-stone for us
because provided this information we could now approximate the dcor
fees, employees capacity and finally the number of fridges required.
Advertising:
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effective with other businesses similar to ours and by the results of the survey
that we handed out to people.
To calculate our initial cost outlay we have added our costs and pre-paid
expenses and came up with 36,635 KD. This initial amount should cover
branding, dcor, 6 months salaries and rent, labor transfer and numerous
expenses that will be detailed below.
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Flowers and vases: To open up our shop we need to
secure flowers and vases for at least the first 2 weeks.
With this in mind we decided that 1000 flowers
prepaid and 200 vases to be used around and in the
shop would be optimal for our open up. As far as
vases go, 5 KD is the average cost of a vase in the
wholesale shop. Flowers however were much harder
to calculate so we got the unit price for 10 different
types of flowers and calculated the average price of
one unit. We arrived at 500 fils per unit using the table
to the left. All numbers used were provided by
Habeeb and are volatile.
Salaries and rent: The rent is 500 KD as told by Abdullah Al-Salem CO-OP and
as far as salaries go we calculated how many workers we needed. We
needed 2 florists, 1 driver, 1 salesperson and a manager. The manger was a
requirement of the Kuwait Small Project Development in which they require
the investee to be unemployed, above the age of 21 and be appointed
manager with a running salary. We choose this manager to be Fay and we
calculated her salary using the base salary of a freshly graduated NBK
employee, her opportunity cost.
IPhone, Laptop: For our shop we will be needing iPhone to use instagram and
twitter as well as to receive orders from customers by phone, whatsapp and
sms. We will also need a laptop to stay connected to 965flowers.com and
receive our orders as well as to keep customers database on it. The costs of
these items were found online using blink.com.kw, which came out to be 580
KD.
Financial resources:
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limited incomes. Later on we will reveal how to buy them out and eventually
solely own our business once we are on our feet.
Depreciation
The survey highlighted our top 4 competitors who are the shops with the
highest market share and in our opinion the ones which we will be most similar
to. We have taken the liberty of highlighting the advantage and
disadvantage of each and playing the disadvantages whilst enhancing their
advantages.
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Our loyalty program will be quite simple. For every 5 bouquets you buy you
will get one for free. We will have a stamp card expiring every six months to
encourage our customers to come back to us. Furthermore, just like our big 4
competitors we plan on joining 965flowers.com and benefiting from exposure
to our target audience.
Survey:
For our survey we decided to use a new method in asking people. We put our
survey online using surveymonkey.com and sent messages to our contact lists
including the link and told them to answer the questions. Our contact lists
then sent it to their contacts and this method proved to be very useful. We
decided to use this method because it is more environment friendly then
printing papers and it is more accurate. Also it is easier to see the results
because the site writes next to each answer how many people picked that
choice and it also gives the percentage. Moreover, in surveys there is a
tendency of some people skipping several questions, but with survey monkey
it calculates the percentage using the number of people that actually
answered this question as opposed to using the number of people answering
the survey giving more accuracy. Furthermore, for a fee this site computed
the pie graphs for us which was extremely helpful and time saving. We were
lucky enough to get 195 people to answer our survey with a variety of ages.
This method of online survey proved to be beyond successful and we were
extremely happy to have used it in our research.
*Please note: Survey results and analysis are attached separately.
WACC: The wacc was fixed for the Kuwaits small project development
company which we were required to use having taken their route in
financing.
Rd: There was no interest rate, instead we paid them earnings on the
ownership percentage until we buy them out eventually.
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Expenses: For our expenses we divided them into 3 major categories; salaries
and rent, marketing, and operating. As per our variable cost, it was impossible
to calculate it due to volatility and unstandardization so we linked it to our
sales making it 55% of sales.
Sales: To calculate our sales we used our capacity approach. What we did
was we calculated our full capacity and conservatively assumed that we will
be occupying 50% capacity as our base. We then calculated our prices using
the answers we got from the survey and the weighted average we received
was 32.6 KD. Again being conservative we have decided to round it down to
25 KD. We then calculated the number of days per year (28x12=336) and
multiplied our capacity with our average price by the days per year arriving
at 126,000 KD.
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Balance sheet:
FCFF: We calculated our free cash flow to firm to arrive at the cash flows,
incorporated was the 5% (growth/inflation rate provided fixed by KSPD). We
used FCFF for our FCFE, NPV, IRR, MIRR and exit strategy. This FCFF was also
used for scenario analysis with changing variables like capacity and prices
seeing our optimistic and pessimistic scenarios.
FCFE: Given the fixed wacc and inaccuracy in calculating our personal cash
flows we decided to do the free cash flow to equity and base our npv profile
on it since we cannot change wacc. Is has proven to be very successful in
our feasibility study and it was nice to know our gain from this project.
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Exit strategy: As mentioned before we were in an equity partnership with
Kuwait Small Project Development and we had to buy them out. Here is how
it works:
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Capital budgeting and evaluation techniques:
NPV profile:
Because the WACC was given and because we are more concerned with
our net present value and not the partnerships value we decided to base
our NPV profile on our return on equity. We noticed that the higher rate of
return we acquire the less our net present value will be which is just about
right. Shown below is a more detailed and graphed NPV profile for our FCFE:
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Conclusion:
We would like to take this opportunity to thank our instructor Dr. Mohammad
Al-Abduljaleel and to everyone who helped us put this study together. Thank
you.
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