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 4An investor is considering providing Howard with $50,000 as an initial investment. a. Explain five (5) risks associated with making such an investment for the Investor.b. Explain five (5) risks associated with taking such an investment for Howard.c. Do you believe that Howard’s business has high growth potential? Provide a detailed justification for your answer.
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 making such an investment for the Investor.
b. Explain five (5) risks associated with taking such an investment for Howard.
c. Do you believe that Howard’s business has high growth potential? Provide a detailed
justification for your answer.
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