BONBONS CAKES Case Study Solution
SWOT Analysis
The analysis is done to evaluate the internal factors like strengths and weaknesses related to the business and the external factors like opportunities and strengths that affect the business in future (Table No.05).
- Strengths
- The company produces very highly quality and customised cakes, which is the core strength of the company.
- The company also provides the cakes of sizes and in different price ranges, which helps in targeting larger number of population.
- Weaknesses
- The size of the company is small and has very less cope at the beginning.
- Company is new and without any prior experience, which can make it difficult for the company to compete in the market with existing player.
- Opportunities
- Increasing its location by taking benefit from its brand image.
- By making quality cakes, the company has spread positive word of mouth, which will help the company increasing its scope and customer base.
- Not many stores in the areas, which provide customised cakes in the competition of the company.
- Threats
- The people becoming more conscious about their health which might change or decrease the consumptions of cakes. This would affect the future demand of the company.
- Walmart and Albertson’s can use damping policies to diminish the margins of the company.
Financials, Budget and Forecasts
The company needs to invest an initial amount of $200,000 for initiating the business, which will be distributed in fixed cost and working capital.
The demand of the products are forecasted based on the demographic analysis we had done above, which is based on the expected increase in population and consumer income in the U.S.
The company would be able to generate the sales of $1.2 million in the first year, where total number units of cakes sold would be 20,880, and the total profit for the first year would be $99,987. The detailed financial statements are given in the tables below, (Table No. 01 to 04).
Action Plan
The company should start the business by leasing a building and then it should target a small market initially. After that it would be appropriate to focus on making the first few customers more satisfied, the company would provide premium and delicious cakes for its customers.
As the initial customers are always very important therefore, the company will work to retain its customers and attract more customers through its various marketing tools including the website, Facebook and Instagram page.
Control Procedures for the Business
As the business is new and needs various controls like visual, procedural and embedded.
In visual controls, the company would use financial forecasting and dashboards to evaluate the timely performance of the company. As the forecasts are like early warnings, so using visual controls would help the company in taking proactive measures.
In procedural controls internal teams are given clear guidelines and the performance of each employee is evaluated and especially the flow of money. This would help in devising a clear path to follow.
Moreover, the embedded control is very useful because this doesn’t need any follow ups, here the business would sign line of credit with the bank to decrease the risk of liquidity, and moreover the company would hire some few extra members in teams to control any stock out issue or any issue in customer service. This is very important because a single dissatisfied customer means the negative word of mouth.
Appendixes
Table No.1
Assumptions:
| BonBons Cakes (Initial Investment Assumptions) | ||
| Fixed Cost | 100,000 | |
| Working Capital requirement | 100,000 | |
| Total cost | 200,000 | |
| Expected Increase in demand | 2% | |
| Expected Price Increase | 2% | |
| Capital Investment | ||
| Debt | 60% | 120,000 |
| Equity | 40% | 80,000 |
| Total | 100% | 200,000 |
| Taxes | 40% | |
Table No.2
Expected Demand of the Cakes
| Expected Demand of the Cakes (yearly) | 2018 | 2019 | 2020 | 2021 | 2022 |
| 1/2 lb. | 7,200 | 7,344 | 7,491 | 7,641 | 7,794 |
| 1 lb. | 5,400 | 5,508 | 5,618 | 5,731 | 5,845 |
| 2 lb. | 3,600 | 3,672 | 3,745 | 3,820 | 3,897 |
| 3 lb. | 2,880 | 2,938 | 2,996 | 3,056 | 3,117 |
| 5 lb. | 1,800 | 1,836 | 1,873 | 1,910 | 1,948 |
| Total units sold | 20,880 | 21,298 | 21,724 | 22,158 | 22,601 |
| Expected Price (in dollars) | |||||
| 1/2 lb. | 18 | 18.36 | 19 | 19 | 19 |
| 1 lb. | 36 | 36.72 | 37 | 38 | 39 |
| 2 lb. | 72 | 73.44 | 75 | 76 | 78 |
| 3 lb. | 108 | 110.16 | 112 | 115 | 117 |
| 5 lb. | 180 | 183.6 | 187 | 191 | 195 |
| Total Expected Revenue | 1,218,240 | 1,242,605 | 1,318,662 | 1,345,035 | 1,427,362 |
Table No. 03:
Income Statement
| Pro forma Income Statement Bon Bons Cakes | ||||||
| Forecasts | 2018 | 2019 | 2020 | 2021 | 2022 | |
| Revenue | 1,218,240 | 1,242,605 | 1,318,662 | 1,345,035 | 1,427,362 | |
| Units sold | 20,880 | 21,298 | 21,724 | 22,158 | 22,601 | |
| Direct costs | 60% of sales | 730,944 | 745,563 | 791,197 | 807,021 | 856,417 |
| Gross profit | 40% of sales | 487,296 | 497,042 | 527,465 | 538,014 | 570,945 |
| Indirect Costs | ||||||
| Administrative expenses | 20% of sales | 243,648 | 248,521 | 263,732 | 269,007 | 285,472 |
| Distribution expenses | 5% of sales + Increase by 2% | 60,912 | 63,373 | 67,252 | 68,597 | 72,795 |
| EBITDA | 182,736 | 185,148 | 196,481 | 200,410 | 212,677 | |
| Depreciation | 10% of fixed cost | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 |
| Earnings before Interest, tax, (EBIT) | 172,736 | 175,148 | 186,481 | 190,410 | 202,677 | |
| Interest expense | .5% of sales | 6,091 | 6,213 | 6,593 | 6,725 | 7,137 |
| Earnings before tax (EBT) | 166,645 | 168,935 | 179,887 | 183,685 | 195,540 | |
| Tax | 40% | 66,658 | 67,574 | 71,955 | 73,474 | 78,216 |
| Profit for the year | 99,987 | 101,361 | 107,932 | 110,211 | 117,324 | |
Table N04
Balance Sheet
| Performa Balance Sheet of Bon Bons Cakes | ||||||
| Calendar | Forecasts | 2018 | 2019 | 2020 | 2021 | 2022 |
| cash | 1% of sales | $ 12,182 | $ 12,426 | $ 13,187 | $ 13,450 | $ 14,274 |
| Account receivable | 5% of sales | 60,912 | 62,130 | 65,933 | 67,252 | 71,368 |
| Inventory | 10% of sales | $ 121,824 | $ 124,260 | $ 131,866 | $ 134,504 | $ 142,736 |
| Current Assets | $ 194,918 | $ 198,817 | $ 210,986 | $ 215,206 | $ 228,378 | |
| Plant facilities (Lease) | 20% increase | $ 100,000 | $ 120,000 | $ 144,000 | $ 172,800 | $ 207,360 |
| Good Will | $ 54,358 | $ 85,526 | $ 117,013 | $ 143,846 | $ 169,595 | |
| Fixed Assets | $ 154,358 | $ 205,526 | $ 261,013 | $ 316,646 | $ 376,955 | |
| Total assets | 349,277 | 404,343 | 471,999 | 531,852 | 605,333 | |
| LIABILITIES AND EQUITY | ||||||
| Current Liabilities | ||||||
| Accounts payable | 3% of sales | 36,547 | 37,278 | 39,560 | 40,351 | 42,821 |
| short-term debt | 5% of sales | 60,912 | 62,130 | 65,933 | 67,252 | 71,368 |
| Total Current Liabilities | 97,459 | 99,408 | 105,493 | 107,603 | 114,189 | |
| Non-current Liabilities | 10% of sales | 121,824 | 124,260 | 131,866 | 134,504 | 142,736 |
| Total non-current liabilities | 121,824 | 124,260 | 131,866 | 134,504 | 142,736 | |
| Total liabilities | 219,283 | 223,669 | 237,359 | 242,106 | 256,925 | |
| Share capital | 80,000 | 129,993 | 180,674 | 234,640 | 289,746 | |
| Retained Earnings | 80% of N.I | 49,993 | 50,681 | 53,966 | 55,106 | 58,662 |
| Total equity | 129,993 | 180,674 | 234,640 | 289,746 | 348,408 | |
| Total liabilities and equity | 349,277 | 404,343 | 471,999 | 531,852 | 605,333 | |
Table No. 5
SWOT Analysis
| Internal | ||
| Strengths | Weaknesses | |
| The company produces very highly quality and customised Cakes | The size of the company is small. | |
| Various prices and sizes to meet demand. | Limited reach to customers | |
| External | ||
| Opportunities | Threats | |
| Increases its location by taking benefit from its brand image | Entrance of new cake stores can limit the profits of the company. | |
| By making quality cakes, the company has spread positive word of mouth, which will help the company increasing its scope and customer base. | Walmart and Albertson’s can use damping policies to diminish the margins of the company. | |
| No many stores in the areas, which provide customised cakes for the company. | ||
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