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Chapter Eight Risk Analysis 8.1 Regulation
All of the electrical devices are required to have some certificates so that they can be sold in specific regions. The basic necessary certificates are CE and UL. The CE marking is the manufacturer's declaration. The letters ‘CE’ appear on many products traded on the extended Single Market in the European Economic Area (EEA). They signify that products sold in the EEA have been assessed to meet high safety, health, and environmental protection
requirements. CE marking also supports fair competition by holding all companies
accountable to the same rules. As for UL, UL provides safety-related certification, validation, testing, inspection, auditing, advising and training services to a wide range of clients,
including manufacturers, retailers, policymakers, regulators, service companies, and consumers.
However, based on this situation, the business require huge amount of expense for certificates. The expense of CE is about $20,000 USD and the expense of UL is about
$30,000 USD. So the total expense of certificates is $50,000 USD.
8.2 Risk Factor Analysis
The objective of the RFA is to identify and understand the underlying factors that ultimately will drive the behavior of the top level schedule, cost, and technical performance measures for a project. Table 3 risk factor analysis show the possible rick that the impact on this business model and the proposed methods to overcome risks.
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Table 3: Risk Factor Analysis
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Chapter Nine Financial Analysis 9.1 Source of Revenue
Major income comes from the sales of WiMic & Crowdfunding. The details of revenue from sales as below analysis. First, the price of WiMic is $120 USD. And the margin of WiMic is 30%. The assumption based on the cost of manufacturing is about 30% of price and
distributors will earn 40%. So the margin of WiMic is 100% - 30% - 40% = 30%. Besides, the goal of total sales volume for the fifth year is 1325000,000(total number of people who shoot video) * 10% (10% of people who shoot good video) * 0.1% (only 0.1% of these people buy WiMic) = 132500. Hence, revenue from sales in first year will be 132500 * ($120
* 30%) = $4,770,000. What’s more, revenue from Crowdfunding will be $30,000 and the total gross profit will be $5,100,000. Details of market share and gross profit as shown in the Table 4.
2018 2019 2020 2021 2021
Price 120 120 120 120 120
Market share 0.00005 0.0001 0.0005 0.0008 0.001
Margin 30% 30% 30% 30% 30%
Total market volume 132,500,000 132,500,0 00 Target sales volume 6,625 13,250 66,250 106,000 132,500
Projected sales 238500 477000 2385000 3816000 4770000
Table 4: Market Share and Gross Profit Forecast
9.2 Fixed Cost
To launch this product, there are some minimal fixed cost associated with this project. Main fixed cost will be towards
• The expense of registration that includes getting legal license, corporate identification, and tax identification. The number is $1700 per year
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• Rent of the office space, setting up the office cubicles, conference room, meeting room needs and internal infrastructure cost. The number is $4500 per month
• Startup expense includes I.T infrastructure cost like personal computers, laptop, projectors, local area network, printer, facsimile and telephone lines to be connected.
The total number is $7000 per year
• Information technology cost will be segregated into hardware and software. Hardware part covers the webserver, license, domain etc. and software part will be the cost associated with the I.T vendor for developing the portals. These cost for systems and UI development is $8,000. The cost for hardware, server, license, domain registration, SEO and google analytics. The total number is 10,000 per year
• Mold is a great amount of cost for hardware companies. Usually, the cost of mold will be at least $30,000
• CE/UL Certificates will cost 20,000 plus 30,000, the total is 50,000
The total expense is $101,200. And the depreciation of mold and IT infrastructure is about 5 years
9.3 Variable Cost
Major variable expenses can be summarized as below items
• Rent of office space is $6000 for each month
• Full time employee’s salary including three directors and 6 subordinates.
Administrative wages for directors will be fixed during the first five years of
operation. RD will be hired every year, from two RD during the first year to five RD at the end of the fifth year. However, the salary of each RD will still increase 5% each year to retain talents
• Utility fee like electricity and water is $200 for each year. In addition, we make the assumption that it will increase 10% each year
• Misc. cost associated with janitor services which is $800. In addition, we make the assumption that it will increase 10% each year
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• Marketing expenses such as exhibition for Cebit, press cover and advertisement. It cost around $20,000. In addition, we make the assumption that it will increase 50%
each year. Marketing budget will increase by 50% regarding to the previous year during the five years of operation because the necessity of promoting the services to attract customers
• Travel budget is around $30,000 because we need to discuss the cooperation with channels or business partners.
Some details of operation expense and wage expense as shown in table 5 and table 6.
Total variable cost is $1,017,500 operating
Table 5: Operating Expense
2018 2019 2020 2021 2022
total wage 121800 140390 159910 180405 189425
Table 6: Wage Expense
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An income statement is a financial statement that reports a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.
The detail of income statement for first five years as shown in Table 7.
2018 2019 2020 2021 2022
Gross profit 238500 477000 2385000 3816000 4770000
crowdfunding profit 30,000 0 0 0 0
total profit 268,500 477,000 2,385,000 3,816,000 4,770,000
operating expenses 91020 91120 91230 91351 91484
wage expense 121800 140390 159910 180405 189425
marketing expense 20,000 30000 45000 67500 101250
certificate expense 50,000 0 0 0 0
income before tax -77,760 183,750 2,057,121 3,445,004 4,356,101
income tax(5%) 31237 349711 585651 740537
Net income -77,760 152,513 1,707,410 2,859,353 3,615,564 Table 7: Income Statement
The first year, there will be negative net income. But after one year, it will be increased to positive net income. As for net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. The value of NPV is
$3,205,366. The internal rate of return (IRR) is 544%. It means that this business is really profitable. However, it is important to overcome the huge expense in the first year to survive.
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Chapter Ten Conclusion
In summary, this business model can help people making a great video with good quality of audio in the trend of live streaming or sharing videos on social platforms. Solving the issue of audio noise and time-consuming post-editing. This model looks like attracting with IRR 544%. By providing this new video shooting partner, people will definitely enjoy the great quality of video and audio without annoying noises.
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Reference
1. YouTube company statistics retrieved from http://www.statisticbrain.com/youtube-statistics/
2. Internet traffic for video in 2019 retrieved from http://tubularinsights.com/2019-internet-video-traffic/#ixzz4cdja4J9M
3. Projected shipment for smartphones. Retrieved from
https://www.statista.com/statistics/263441/global-smartphone-shipments-forecast/
4. Global video streaming market. Retrieved from
http://www.marketsandmarkets.com/PressReleases/video-streaming.asp 5. Explanation of ANC and ANR. Retrieved from
https://en.wikipedia.org/wiki/Active_noise_control