6. Financial Analysis
6.1. Costs Structure
6.1.2. Fixed Cost
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6. Financial Analysis
6.1. Costs Structure
6.1.1. Start-up CostThe following table shows a start-up cost for HW Wedding. First of all, we need to develop a logo which can represent our brand equity. The design fee is $50,000 NT dollars. After finalizing our logo, we will apply for legal registration. Registering our company and trade mark pattern to ensure our property is secure by Taiwan business law. For marketing spending in the start-up stage, we will reserve a fund to support our grand opening promotion. To raise awareness online, we need to generate traffic visiting our fan page, through these promotions will help to attract new customers. The last but not least, there will be some basic demand of office supplies. We also accrue for $5,000 miscellaneous fee for urgent usage.
Table 6: The Start-up Cost of HW Wedding
6.1.2. Fixed Cost
Fixed cost of HW Wedding including SG&A, marketing and promotion budget and other basic periodic spending, detail fixed cost as following:
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Table 7: Three-Year Pro Forma Fixed Cost
(a) Start-up cost: Only occur in year 1 when business starts. Detail had explained in previous section.
(b) SG&A: Including employee’s salary, insurance and all the administration expense.
(c) Training expense: HW Wedding’s core value is to be a professional wedding planning company; we need to train our employee periodically with market trend, professional selling skills and customer service skills. Thus, a training related budget is reserved for such usage.
(d) Advertisement and promotion expense: The key expense for promoting HW Wedding brand and business, including ATL spending, such as key word advertisement, banner on key search engine. And also peak seasons promotion funding is also included.
(e) Other expense: To support temporary needs, for instance, allowance for taxi or other usage.
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HW Wedding estimates that in year 2014, there will be 58 ceremonies, 115 banquets and 43 decoration services will be performed. There will be 3 weddings plan by HW Wedding every week in average. And we estimate that with the awareness level increase and word of mouth spread, in year 2015, HW Wedding will perform 4 weddings every week, equals to 192 weddings annually, with 33% growth rate. In year 2016, HW Wedding aim to perform 5 weddings every week which represents 240 weddings annually. Under this assumption, sales forecast as following table shows:
Table 8: Three-Year Sales Forecast
6.3. Income Statement and Cash Flows
6.3.1. Income StatementAfter estimation of 3-year cost and sales forecast for HW Wedding, we can project a 3-year income statement to see if HW Wedding is making profit gain or loss. Business will be tougher in the first year since the brand awareness is still in a lower level; HW Wedding reserves a higher spending on initial investment and marketing expenses. Thus, the overall spending will reach NTD$1.72 million in 2014. Earnings before interests and taxes will be NTD$1.83 million. Tax is estimated to be 17% as Taiwan government regulation, net income after tax will be NTD$1.52 million. Starting from 2015, there will be no start-up cost and marketing investment will also drop to lower level. The net income increase to NTD$3.1
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million as the business grows. In 2016, as business expands to a large scope, HW Wedding will have to increase manpower to support business growth. Thus, year 3 net income will be NTD$3.87 million. Detail as following table:
Table 9: Three-Year Pro Forma Income Statement
6.3.2. Cash Flows
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Table 10: Three-Year Pro Forma Cash Flows
6.4. Break-Even Analysis
In order to calculate how HW Wedding’s sales revenue can cover all spending and make sure our business is on a profitable track, we need to understand where is the optimum point to break even our investment.
(a) Contribution Margin Ratio Formula: CM ratio=(P – VC)/P (b) Break Even in Sales Formula: FC/CM ration
(c) Break Even in Units Formula: FC/CM
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As you can see in table 11, the breakeven point in sales for 2014 is NTD$2.63 millions, which indicates that HW Wedding at least have to perform 107 weddings to keep the investment balance. As the cost goes down in year two and year 3, we only have to perform 44 and 56 weddings in 2015 and 2016.
Table 11: Three-Year Break Even Analysis
6.5. NPV Analysis
NPV is to analyze if a business or investment’s profitability and if it’s worth it to invest. If NPV>=0, such business is considered profitable. Vice versa, if NPV<0, such business will unlikely to be making profit. HW Wedding has positive NPV and that implies HW Wedding will be profitable.
Table 12: Three-Year NPV Analysis
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7. Conclusion
Taiwan’s wedding market is stepping onto a sophisticated path. With consumer’s increasing needs of pursuing delicacy, sophistication and uniqueness, we can sense the strong potential of growing value in the wedding industry. Although the married rate is dropping for the past decade, yet, the growing spending of each couple still drives an approximately 20% growth for wedding market every single year. That is why all players rush into this fruitful, juicy market one by one to seek for greater possibility and HW Wedding refuses to be left behind.
After a thorough analysis of HW Wedding’s business plan, we try to seek for a formula of success to drive our business. How can we pop out from hundreds players and step out of the market? HW Wedding’s business plan is surrounded by how we could deliver our value proposition to all of the potential customers. We developed ATL and BTL plans basing on core value.
As for financial strategy, HW Wedding decides to be cost-driven. In the initial state, we would like to leverage any free resources as we can to minimize cost. Giving less pressure financially will assist us to be more focus on innovation and customer oriented services.
Break even analysis help us to find out equilibrium of cost and revenue. Gradually, we can achieve our goal step by step and lead our business to success.
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3. 2007~2012 Department of Household Registration data4. Executive Yuan, Directorate-General of Budget, Accounting 5. 黃彥達(2002)，數位之牆大字報，台北市：數位人資訊。
6. 邱莉燕(2005)，精緻行銷搶千億元幸福商機，今周刊 445 期 7. Ministry of Economic Affairs, R.O.C.
8. 2013 Customer Data, Hotel Victoria
9. 阮昌銳(1989) ，中國婚姻習俗之研究。台北:台灣省立博物館。
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18. 雙囍婚禮顧問網站 http://www.dhwedding.com.tw/
19. 玉盟婚禮顧問網站 http://1062467.88u.com.tw
20. 囍客婚禮顧問網站 http://www.chic999.com/Appendix