Howard Millard recently opened a retail store specializing in hiking equipment and accessories. Hewas quite comfortable making decisions about the kinds of equipment he would stock in the store’sinventory, the décor of the retail space and his marketing strategy.An avid hiker since he was in his early teenage years and a competitive athlete, Howard knew the typeof equipment that would be best to his target audience, and he knew that he needed to round out hismerchandise mix with hats, shoes, energy drinks, snacks and other accessories. He was however, notcertain about how to source the financing for this business venture. In speaking to a colleague headmitted that he personally did not possess the required financing to start such a business.To that end, he was cognizant of the fact that a sound business plan was necessary before approachingany potential lending institution or investor. This plan would provide details on the amount of moneyrequired and how he intends to utilize the funds. In preparing his plan he researched the possible fixedexpenses which included utilities, property rental and his personal salary to afford his daily livingexpenses. Further to these, he estimated how much it cost to renovate the store to suit his needs withitems such as shelving, storage racks, cash registers, signs and cold storage for the energy drinks.To make sure that he did not underestimate these costs, Howard assumed that he would pay retailprices for everything. He included the salary for a part-time employee and advertising costs andcalculated an annual cost of $60,400.00. Given that the plans for the store’s fixtures are in place,Howard needed to stock it with inventory. Adding in the costs of accessories brought the total costestimate to $70,500.Howard estimated that his monthly operating expenses would be $8,000.00, but his business planincluded strategies for reducing them by generating publicity for the new store and promoting it atsporting events and the local gyms. The business plan created by Howard called for raising enoughstart-up capital for his hiking equipment and accessories store to survive without any revenue at all.He managed to come up with 10% of the $82,000 start-up cost he estimates he will need to open thestore.The question he faces now is from where he will get the remaining 90% required. Question 4 An investor is considering providing Howard with $50,000 as an initial investment. a. Explain five (5) risks associated with taking such an investment for Howard.
Howard Millard recently opened a retail store specializing in hiking equipment and accessories. He
was quite comfortable making decisions about the kinds of equipment he would stock in the store’s
inventory, the décor of the retail space and his marketing strategy.
An avid hiker since he was in his early teenage years and a competitive athlete, Howard knew the type
of equipment that would be best to his target audience, and he knew that he needed to round out his
merchandise mix with hats, shoes, energy drinks, snacks and other accessories. He was however, not
certain about how to source the financing for this business venture. In speaking to a colleague he
admitted that he personally did not possess the required financing to start such a business.
To that end, he was cognizant of the fact that a sound business plan was necessary before approaching
any potential lending institution or investor. This plan would provide details on the amount of money
required and how he intends to utilize the funds. In preparing his plan he researched the possible fixed
expenses which included utilities, property rental and his personal salary to afford his daily living
expenses. Further to these, he estimated how much it cost to renovate the store to suit his needs with
items such as shelving, storage racks, cash registers, signs and cold storage for the energy drinks.
To make sure that he did not underestimate these costs, Howard assumed that he would pay retail
prices for everything. He included the salary for a part-time employee and advertising costs and
calculated an annual cost of $60,400.00. Given that the plans for the store’s fixtures are in place,
Howard needed to stock it with inventory. Adding in the costs of accessories brought the total cost
estimate to $70,500.
Howard estimated that his monthly operating expenses would be $8,000.00, but his business plan
included strategies for reducing them by generating publicity for the new store and promoting it at
sporting events and the local gyms. The business plan created by Howard called for raising enough
start-up capital for his hiking equipment and accessories store to survive without any revenue at all.
He managed to come up with 10% of the $82,000 start-up cost he estimates he will need to open the
store.
The question he faces now is from where he will get the remaining 90% required.
Question 4
An investor is considering providing Howard with $50,000 as an initial investment.
a. Explain five (5) risks associated with taking such an investment for Howard.
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