A new market research tracking business

An entrepreneur, already a founding director of the Oporto fast food chicken chain, wanted to quantify the methodology and cost/volume/profit relationships of a brand new customer focused market research tracking business ideally suited for fast food outlets.

The situation -

The entrepreneur, realised he needed more incisive and timely information about the customer service and food quality in his Oporto fast food outlets.

He devised a solution to this need, namely a Customer focused research tracking system using handheld PDA's. Thinking it was a potentially profitable new business opportunity, he wanted to quantify its financial benefits.

Solutions Marketing, having a strong reputation for its business modelling capability, was recommended by the entrepreneur’s advertising agency.

How Solutions Marketing helped -

We created a financial model of the planned business over the next 10 years incorporating:

• two different sales contracts – deluxe and basic pricing
• a structured process of exactly how the business would deliver the two types of contracts
• a calculation of the labour resource required (based on the number of sales contracts envisaged, as well as the associated travelling, training and other supply needs)
• asset purchases and diminishing value depreciation
• profit & loss statements, linked to cash flows, statement of changes in financial position and balance sheets
• net present value of the business calculated from the 10 year expected cash flows

The model provided allows the client to readily answer a range of questions including:

• Need more profit? – increase sales contracts, change the pricing, reduce the labour costs, delay expenses.
• Negative cash balance in year one? – increase equity or add cash borrowings in the balance sheet, change the collection or payment terms.

Sell a percentage share to raise equity and cash? – we can compute the net present value of the business from the cash flows projected, to make it easy for the client to negotiate a sale price.

The results -

The client knows exactly how he will run his business and can see the results using the financial model.

This model also enabled the client to raise equity capital sufficient to start the business.