Growth and Exit Report

This report discusses different methods of funding available to businesses, including loans from banks, government loans and grants, and angel investors. It also provides a business plan for growth, including projected financial statements. The report concludes with a discussion on succession planning.

Growth and exit report
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Table of Contents
Introduction......................................................................................................................................3
Task 2...............................................................................................................................................3
Different methods of funding available to business....................................................................3
Task 3...............................................................................................................................................6
Business plan for growth.............................................................................................................6
Task 4 ............................................................................................................................................10
Succession Plan.........................................................................................................................10
Conclusion.....................................................................................................................................12
References......................................................................................................................................14
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Introduction
Business is established with an aim to grow, expand and make it big. For sustainable
growth, it is very important that enough sources of funding is available to it. Along with
availability of funding, certain factors like payback period, viability and feasibility of the source
of funding available must also be assessed (Bose., 2017). This report is aimed at assessing
various sources of funding that are available to Ella's Kitchen. It is a British company that
manufactures organic baby and toddler food. It was established in 2006 and has its headquarters
at Oxfordshire, UK. This report discusses various sources of funding available to it and viability
of those options based on payback period. Based on the sources of funding available to it, a
business plan has been drawn up below with an aim to plan for business growth. In the final part
of the project, succession strategies have been discussed and recommendations have been
suggested for their appropriate implementation.
Task 2
Different methods of funding available to business
Finance is very important for an organisation to have smooth business operations and
plan for growth and expansion. Source, nature and amount of funding is dependent on the reason
for which business is raising finance and the cost and payback. For example, if company wants a
reasonable amount for satisfying its short-term working capital needs, it can go for credit
margins and bank overdrafts but if the company wants to raise a large capital for long term
investment, it should go for sources like venture capital, angel investors, loans from government,
banks, financial institutions, etc (Christensen, Bartman and Van Bever, 2016). This report is
aimed at discussing financing options for long term investments that are aimed at funding at
growth plan of the company. It is assumed that company has been looking for a source to finance
£50 million. Below mentioned are the sources of funding that Ella's Kitchen can exercise:
 Loan from banks and financial institutions – These are the most common forms of
funding that are available to the companies. These are easily available to companies and
are most of the time drives on the relationships between company and financiers. It is
based on repayment period, cost of debt and lien attached. It is assumed that had
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company is able to secure a business loan and will invest it in expanding its existing
products in new market, it would be earning below mentioned amounts:
Year Cash flows in millions
Annual Cash Flow Cumulative Cash Flows
0 -50 -50
1 20 -30
2 25 -5
3 30 25
Payback period = Initial amount of money borrowed / Annual earnings by investing borrowed
amount
Payback period = 2 + 5/30 = 2 + 0.17 = 2.17 years
Advantages – Loans from banks and financial institutions provide the option of negotiations on
the repayment period, rate of interest and securities attached (Du and Li, 2019). Company has a
good credit rating in the market and therefore, has an upper-hand in negotiating credit terms with
financiers. Also, there would be no change in the ownership structure of the company as
financiers are external party and are only concerned with repayment of their own money.
Disadvantages – Biggest disadvantage is that they have a fixed repayment period and finance
cost which makes an additional burden over the revenues and assets of the company and in any
unfortunate case, company defaults on repayment, will have negative impact over the sound
track and excellent credit rating of the company. Also, an external party would have right over
the attached property of the company.
 Government loans, grants and subsidies – Government agencies provide finances,
subsidies and grants to the business organisations. They are at much relaxed terms and
conditions however, it is not easy to obtain government funds. Government usually funds
companies which are in urgent requirement of money and are not able to procure either
because of their location constraints or market constraints (Mazzucato and Parris, 2015).
Since, company is has stable finances, it is unlikely to earn grant or subsidy and the loan
amount is also not expected to be full amount it requires. It is assumed that government is
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ready to finance £30 million for launching its organic baby food range in a low income
area at subsidised price. Below mentioned amount is expected to be earned every year:
Year Cash flows in millions
Annual Cash Flow Cumulative Cash Flows
0 -30 -30
1 8 -22
2 12 -10
3 18 8
Payback period = Initial amount of money borrowed / Annual earnings by investing borrowed
amount
Payback period = 2 + 10/18 = 2 + 0.56 = 2.56 years
Advantages – Biggest advantage is that government cost of finance is relaxed and moreover, if
government agrees to provide subsidy or grant, it becomes easier for company to arrange funds
at a relaxed payback and not stringent collaterals to attach (Mian, Lamine and Fayolle, 2016).
Also, government does not interfere in the internal administration of the company.
Disadvantages – Biggest disadvantage is that getting loan, subsidies and grants are not easy from
government. Strong competition and difficult criteria have to be met. Moreover, government
doesn't provide funds equivalent to required amount unless it feels like it is so necessary.
 Angel investors – These are high-net-worth individuals or group who invests their extra
funds in business of others which they believe are promising and potential to make bigger
and better (Murnieks, Klotz and Shepherd, 2020). They provide money but take equity
ownership in-exchange. They usually provide one time capital with a specified purpose.
It is assumed that company has option to avail an angel investment who is ready to
finance £30 million with an objective to provide funds for launching new product in
existing market. Below mentioned amount is expected to be earned every year:
Year Cash flows in millions
Annual Cash Flow Cumulative Cash Flows
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0 -30 -30
1 12 -18
2 20 2
Payback period = Initial amount of money borrowed / Annual earnings by investing borrowed
amount
Payback period = 1 + 18/20 = 1 + 0.9 = 1.9 years
Advantages – Biggest advantage is that angel investors are experts in their field and if company
is able to get an angel investor on-board, they'll be able to take better use of their experience,
knowledge, network and skills (Pollack, 2017). They usually exit the company when their
purpose of investing has been fulfilled and they have made enough profit.
Disadvantages – Biggest disadvantage is that in return of offering money and services, they
reserve the right to supervise company's management practises, financial decisions as they
expect high return on their investment. It compromises operational independence of the
company.
Most beneficial source of funding for the company – Based on the payback period, it
can be said that company must avail angel investment. However, it should not be forgot that
payback period has its own disadvantages that it ignores effect of profit, risk and time value of
money, it does not take into account, internal rate of return or cost of investment, etc. Moreover,
company does not have the option of angel investment of complete amount. Therefore,
recommended is the most optimal mix of sources of finances available to the company i.e.
government funding and angel investment to get the best out of both and diversify the risk.
Company can launch new product in existing market and can stream out a percentage at
subsidised rates as well to low-income areas to fulfil government condition. This will improve
company social image and will help it earn more revenues to provide higher rate of return to the
angel investor (Rigby, 2015).
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Task 3
Business plan for growth
As mentioned earlier, company has been seeking funding for £50 million. It is assumed
that company has decided to secure a mix of government loan and angel investment of about £50
million in a combination of £30 million from angel investors and £20 million from government
loan @2.5% interest rate. Company has to repay government loan in 10 years. Company has
been seeking this funding for launching new range of organic baby food products. 25% of which
would be provided at subsidised rates in the local markets and areas where low-income earning
families reside. Rest 75% would be sold at premium pricing but at a competitive range. Below
mentioned is the business plan that would be provided to the investors for securing the
investment amount.
Business plan
Overview of the business
Ella's kitchen is in organic food industry and offers organic baby and toddler food
products through various supermarkets and also, direct selling through its website all over UK
and in some other international markets as well. Proposed investment is aimed at launching new
food products range for toddlers and babies. New drinks, juices and teething sticks are proposed
to be launched in its existing market, starting from UK (Rossi, 2015).
Vision
Company envisions to develop a business that stays true to its mission and values. It has
five business values and everything that company plan, aims and proposes is inspire from them
(Our mission + values, 2020).
Mission
Since beginning, company has made and maintain its mission to improve children's lives
through developing healthy relationships with food (Our mission + values, 2020).
Business analysis
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Strength- Biggest strength of company is its quality products and efficient workforce.
Company procures its raw materials from verified sources and has developed all the process that
will be able to adapt to changes in the market. Company offers organic products which are
healthy and trusted by parents for their kids.
Weakness – Maintaining quality has increased it costs and therefore, it has been having
negative profit margins and fluctuated business performance and growth in last few years. It's
restricted cash flows and limited diversification is also a weakness of the company.
Opportunities – Demands of kids for variety in their food products all over the world is
the biggest opportunity for the company. It can cover more wider area with its online distribution
and can offers its products to new markets to improve its sales (.Sarmento and Forte, 2019).
Threats – Company is in highly competitive markets and its rivals and open industry is
its biggest threat. Moreover, parents these days are highly aware of what their kids eats and post
pandemic, do not want their kids to eat food which is not healthy. Its not good for some product
ranges of the company (Yayla and et.al., 2018).
Source of finance
Company is raising £50 million as funds. It has decided to secure a mix of government
loan and angel investment of about £50 million in a combination of £30 million from angel
investors and £20 million from government loan @2.5% interest rate. Company has to repay
government loan in 10 years. Below mentioned is the loan payment sheet:
Loan Payment Sheet:
Particulars Amount
Principal to be repaid 2000000
Time period 10 years
Rate of interest 2.50%
EMI £18828.35
Total Payment to repaid
Principal : 2000000
£2259401.71
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Interest: 259401.71
Government loan secured would be entirely used for funding this project while amount
invested by angel investor would be used partly in this project and partly for other operational
purposes in agreement with investor. Below mentioned is the breakup of usage of funding
acquired by the business:
Particulars Amount (in £ million)
Factory cost – building, equipment and fixtures 25
Research and development 5
Advertising 1.5
Fixed Cost 1
Administration and other expenses related 2.5
Other business purposes 15
Potential opportunities for growth and any innovative ideas and financial projections
Projected profit and loss statement for the proposed project for next 3 years (amount in £ million)
Particulars 2021 2022 2023
Revenue 10 15 20
Less: Cost of goods sold -8 -12 -16
Gross Profit 2 3 4
Less: Operating expenses -3 -2 -3
Net profit/loss -1 1 1
Projected Balance Sheet for the proposed project for next 3 years (amount in £ million)
Particulars 2021 2022 2023
Assets:
Accounts Receivables 0.65 0.7 0.45
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Inventories 5 7 3
Other Assets 144.85 145.05 109.8
Total 150.5 152.75 113.25
Liabilities:
Accounts Payables 0.5 0.55 0.75
Other current liabilities 1 1.2 1.5
Non-current liabilities 50 50 10
Capital:
Capital 100 100 100
Net profit/loss -1 1 1
Total 150.5 152.75 113.25
Projected Cash flow statement for the proposed project for next 3 years (amount in £ million)
Particulars 2021 2022 2023
Net income -1 1 1
Cash from operating activities -4 5 4
Cash from financing activities 20 15 16
Cash from investing activities - - -
Stakeholder analysis
To analyse stakeholders, Porter's Five Forces analysis of the external forces for the
company is below mentioned:
 Competitive rivalry – Company is in organic food business. It has lot of rivals both of
large and small scale which makes similar products like Sprout, Miyoko's, Laboratorios
Ordesa, etc. (.Strese and et.al., 2018). Therefore, company uses competitive pricing and
childish and creative marketing strategies. It also has to improve its processes regularly to
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earn incremental revenue and profits. Company operates in an industry where powers of
competition is high.
 Supplier power – Company is very peculiar about the sources of the raw material that it
uses to make its products. It has selected farms and farmers of whose quality they are
assured of. However, they can choose other suppliers and therefore, has the option to
adjust the suppliers to rearrange profit. So, power of suppliers can be said as mild to high.
 Buyer power – Company considers kids as its primary target and therefore, develops
marketing policies as well as pricing policies according to them. It has large and
diversified buyer's base which orders smaller quantity. Therefore, power of buyers of
company can be said to be weak on the decision-making of the company.
 Threat of substitution – Company offers generalised products with unique taste, quality
and freshness. There are products in the market which can offer similar value to the
customers. Therefore, company has to regularly updates its products range and
promotional strategies to avoid the threat of substitution which is high (Sui, Baum, and
Malhotra, 2019).
 Threat of new entry - Company is in food industry which is open to entry and exit. It
already have lots of participants and see increase in participants on a regular basis. It
shows that there is threat of new entrants however, company brand is now suitably
developed in the market and it will take new entrants a little more than usual time to
reach to its level. Therefore, power of new entrants can be said to be mild.
Business objectives with the application of appropriate frameworks to achieve objectives
Business objective Time frame Measures to achieve
To launch a new healthy drinks
and juices range in the market
1 year - Product development by its kitchen
experts (within 6 months)
- Designing and planning costing,
financing and operational budget – within
6 months
- marketing and launching in 1 year
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To reach to a level of £200
million revenue (minimum
increment of 25% revenue each
year)
3 years - Diversification of products and market
- renewed brand promotion and market
strategies (Tan. and Sousa, 2020)
Launch its own outlets and
restaurants
(first near its head office, then
near its factories)
5 years - Strong and stable financial and market
position
- Backing by loyal and diverse customer
base and strong brand image (Todorov and
Akbar, 2018)
Task 4
Succession Plan
Succession plans are business strategies which helps in expanding business and identifying
successors within a business. It focuses on transferring leadership and management from one
generation to the next within business (Kiwia, Bengesi and Ndyetabula, 2019). Following are the
succession plans available for the business:
 Keeping business in the family- It is one of the common business plan for succeeding to
young generation in a family. It is consist of finding successors which helps in keeping
business inside the family.
◦ Strengths- It helps in securing business values and activities with succeeding into
own family.
◦ Weaknesses- It leads to failure in finding new talent outside the family
 Selling business to managers or employees- This strategy or business plan helps in
selling business inside the company. It leads to exiting from the business with
transferring of business ownership to one of its employees or managers.
◦ Strengths- It helps in selling of business to people within the company leading in
transfer of ownership in safe hands.
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◦ Weaknesses- It may leads to under estimation of business value with selling it within
company. This leads to failure in finding best valuation of business from outside the
business (Ogbu Edeh, 2019).
 Selling to another business- It is selling of business with identification of sellers in the
market with the help of bidding and negotiation strategy. This leads to selling of business
with finding buyers
◦ Strengths- It helps in identifying competent buyer in the market with good valuation
of business through bidding and negotiation methods.
◦ Weaknesses- It may leads to failure of set up business with selling it to others. It
involves risk of unknown buyer in the market.
 Selling of shares back to the company- In this ownership is transferred through selling
of shares back to the company. It is one of the famous succession business plan which
leads to exiting from the company easily.
◦ Strengths- It helps in selling business shares inside the company leading to change in
ownership with residing authority and control inside the company. It helps in
avoiding control and ownership or involvement of an outsider.
◦ Weaknesses- It leads to failure in finding right price for selling shares inside the
company. Owner may receive a good price by selling in market (Tao and Zhao,
2019).
 Transferring designation- This plan helps in transfer of position to others which leads
to succession of business to an eligible and competent person.
◦ Strengths- This plan helps in transferring ownership in successful hands to one of the
competent person. It is achieved by identifying right people in the market with
appropriate skills and knowledge.
◦ Weaknesses- It may lead to develop resentment among existing members of
company due to fulfilment of position by other person.
Recommendations
It is recommended to utilise succession plan of keeping business inside the company.
Ellas kitchen has built good image in organic baby and toddler food sold internationally. This
leads to operation of business at a global level which requires a trustworthy person with
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capabilities. To manage business at a global level needs competent and experienced person
which can be filled by family person. This strategy helps in successful transfer of ownership in
right hands to the younger generation. It helps in launching plan in company with required
changes . Also, it helps in maintaining of business control and image in market with succeeding
into younger generation in family. It leads to operation of business within family reach which
helps in protection of name, quality and image at global level. Furthermore, for managing
business at international level requires competent and family person for maintaining quality and
reputation in the market. This leads to management of business with control and authority to
make decisions by a family person. It results in better management and proper control within
business by a family person or young generation (Umans, Lybaert, Steijvers and Voordeckers,
2020). Thus, company can be better lead and manage by a family person for satisfying needs of
managing business.
Plan for implementation
Succession plan can be implemented successfully in Ellas kitchen with the help of press
conference and various other media channels such as business newspaper, broadcasting channels
and social media marketing. It is important to reach audiences at international level with
communicating information to target audiences. This leads to implementation of succeeding
strategy or plan with spreading awareness about change in ownership of company. It is one of
the important information to be spread among target audience.
Conclusion
From the above report, it can be concluded that financial planning is very important for
company to plan its growth. In the above report, various financing options available to the
company are discussed. Based on observation, optimum mix of finance is suggested and a plan
to present to investors is presented. In the final part, succession plans have been evaluated and
suggested.
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Online
Our mission + values. 2020. [Online]. Available
through:<https://www.ellaskitchen.co.uk/jobs/our-mission-values/>
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