A Hobby Store for Sports Cards and Memorabilia
This business plan describes a concept of a hobby store for sports cards and memorabilia in run by Pani’s Cards and Memorabilia Ltd., a small start-up in Mascouche Quebec. The store will sell sports cards, and memorabilia from Upper Deck, Leaf, Optic. Additionally, the store will sell rare sports collectables purchased online or from the customers. The concept of the store includes three constituencies that are the essential elements of business. These elements include the offline store, which is also referred to as the showroom, the online store, and stores in online platforms. These elements will be launched gradually in term of six months to ensure that the business can start working immediately after the initial investment is received. The store will sell its inventory, offer consultancy services, and sell the memorabilia of the customers on commission.
The key elements of the store that will differentiate it from the competitors include authenticity, large selection, personalized relationship, and accessibility. The value proposition elements are closely correlated with the critical success factors of the industry outlined during the market analysis. The critical success factors include close customer relationships management, human resources, versatile selections of merchandise, high level of expertise, accessibility, and high quality.
The sports memorabilia industry is currently booming, as people were unable to visit sports events due to the COVID-19 constraints. In 2020, the number of online purchases increase considerably, which will be beneficial for the start-up. The industry consists of four methods of sales, including online stores, offline stores, private sales, and auction houses. The analysis of the environmental factors revealed that the external environment of the industry is currently favorable for entry due to a combination of economic, social, and technological factors. The analysis of industry trends revealed that the market size is currently growing due to the effects of the pandemic. Porter’s Five Forces analysis revealed that the competitive rivalry and the bargaining power of suppliers are high, which will make it difficult for the company to penetrate the industry and ensure positive profitability from the first day. However, if the company manages to accumulate a large selection of products and secure a stable clientele, it will be able to sustain its operations and expand. Pani’s Cards and Memorabilia has a clear competitive edge, as the value proposition is closely connected with the critical success factors.
Two general segments were identified in the market, which are children and adults. Even though children are interested in sports and may be valuable customers in the long run, they are not in the focus of the marketing plan. The adult segment is subdivided into three smaller sub-segments, including fans, beginning collectors, and experienced collectors. The fans sub-segment is the most numerous one; however, its representatives are unlikely to purchase rare collectables. The beginner in collecting are interested in rare memorabilia; however, they are unaware of its real value, and they are not ready to pay large prices for the collectables. The experienced collectors can help to build an image for the company, as they can become long-term partners.
- Product. Large selection of merchandise from different categories that includes rare memorabilia for the most sophisticated collectors.
- Price. Value-based pricing will be the core principle. The customers will be able to buy the merchandise through auction, fixed price, and negotiation.
- Promotion. A large variety of promotion activity will be conducted with a focus on online advertisements and social media activity.
- Place. The products will be sold through the online store, the offline store, and online platforms, such as eBay, Amazon, and Facebook.
The company will be established as a limited liability company (LLC), as it appears the most cost-efficient and minimizes associated risks. All the operations will be run solely by the owner of the company until the offline store is open. After that, a marketing manager and two store managers will be hired. Additionally, the company will outsource website development and its maintenance, accounting services, and design services. The total expenditures associated with human resources after the store is open were estimated at $12,500 per month.
The initial investment required for the company is $40,000, which will be used to purchase the initial inventory and pay for capital expenditures, such as equipment for the store and website development. The initial investment will be also used as working capital. The total expenditure for 2022 were estimated at $280,000, while the projected sales were $400,000. The net income was estimated at $127,944 considering the company was not needed to borrow the any funds for from the bank.
Methods for Controlling Costs
A detailed plan for controlling costs was elaborated to maximize profitability and minimize risks. The primary measures for controlling costs included assigning responsibilities to individuals, identification and elimination of duplications, pilferages, and wastes, recycling and reuse, activity-specific budget, and use of modern technologies to enhance efficiency.
Introduction: Aim and Objectives
This business plan describes a concept of an online/ hobby store with a showroom for sports cards and memorabilia run by Pani’s Cards and Memorabilia Ltd. in Mascouche Quebec. The store is expected to sell cards and memorabilia using online platforms, such as eBay, Amazon, Facebook, and Instagram at launch. In three months, the business is expected to develop its online store to increase the marketing opportunities. In one year, the business will open an offline store in Montreal that will be used as a showroom for the available goods.
The purpose of this business plan is to describe the concept of the store and justify its business potential to attract funds from the investors. In order to reach the goal, this business plan needs to achieve the following objectives:
- Describe the concept of the store and its potential development;
- Analyze the industry;
- Create a marketing plan;
- Identify and analyze key stakeholders;
- Describe company structure;
- Provide financial projections;
- Describe methods for controlling costs.
This report is structured to provide a separate subsection for each of the objectives.
The primary rationale for selecting the business is the interest and experience of the author, who is the founder of Pani’s Cards and Memorabilia Ltd., Jonathan Paniccia. The founder of the company has successful experience in selling sports cards and memorabilia through social for more than 20 years. Such experience allowed him to gain expertise in terms of the products and their value as well as communicating with potential buyers to negotiate the price and other details of transactions. The company sees an opportunity to increase its profits through expansion due to the growing demand for the products. However, the company requires significant initial investments to fund the expansion.
The concept of the store includes three constituencies that are the essential elements of business. These elements include the offline store, which is also referred to as the showroom, the online store, and stores in online platforms. The primary advantage of the concept of three constituencies is that the store can start working immediately after the minimum inventory is accumulated without waiting for the website to be developed or the offline store to be open.
Five steps will need to be implemented to start the business. These five steps are visualized in Figure 1 below.
- Preparation. The preparation stage includes three basic activities. First, the company will need to acquire the required minimum on inventory to offer to the customers. Second, the legal procedures need to be completed to ensure that all the activities are in accord with local and federal laws. Finally, online platforms need to be filled with content, which implies that the public pages need to be carefully designed, prices set, and communication patterns established.
- Online platforms launch. The second stage starts as soon as the legal procedures are completed and the inventory acquired. The company aims at opening all the platforms gradually to ensure that it is not overwhelmed with activity. During the second stage, the company also plans to start developing the website of the online store.
- Online store launch. The third stage is associated with opening the online store. This store will be promoted through all the online platforms to attract the customers’ attention to a new way to purchase goods. During this stage, the company will also look for an appropriate place in Quebec to open an offline store, design the interior, and move all the inventory from Mascouche Quebec to Montreal.
- Offline store launch. This is the final step of the implementation stage, during which the company will start selling using the offline store. The showroom will be advertised using the online platforms and the online store.
- Evaluation and adjustment. During this stage, the success of the company will be evaluated through financial analysis, independent audit, and feedback from the customers. The results of the evaluation will be used to make necessary changes in the business activity to maximize customer satisfaction and profits.
The primary activities of the store will be to buy and sell sports cards and memorabilia. Additionally, the company will provide the services of the experts to help the customers evaluate the sports cards and memorabilia they have. The customers will also be able to sell their own products on commission.
The company will make profit by selling the existing inventory through both online and offline channels, charging commission for selling the products of their customers, and providing the services of the experts. At the same time, the company will purchase sports cards and memorabilia from the customers who are willing to sell their memorabilia and sports cards to stock on new products.
The customers will have the ability to buy and sell sports cards and memorabilia in three ways. First, they will be able to come to the store during business hours to look at the available merchandise and offer their own merchandise for trade or commission sales. Second, the customers will have the ability to send their request trough email, social media, or chat on the website for any services or products. Third, the customers will be given an opportunity to invite a representative of the store to deliver the selected merchandise, evaluate their merchandise, or accept the merchandise to sell on commission.
The value proposition of the store is conceptualized in Figure 2 below. It is based on four central aspects, including authenticity, large selection, personolized relationships, and accessibility.
- Authenticity. The offline and online stores will be designed to have the spirit of sports and the memory of crucial sporting events. Additionally, employees will be selected to have a passion for sport-related memorabilia to ensure that the customer receives an authentic experience by visiting the store.
- Large selection. A designated employee will be hired to ensure that the store has the most versatile selection of merchandise. Additionally, customers will be able to sell their own sports cards and memorabilia, which will increase the selection of goods.
- Personalized relationship. Every customer will be offered free services of a personal manager that will communicate with the customer to better understand their needs.
- Accessibility. The customers will have three different ways to receive the services, including offline store, online store, and invitation of a store representative.
Pani’s Cards and Memorabilia is a company founded in 2022 who specializes in buying, selling and collecting cards and memorabilia with a specialty in sports collectibles. Located in Mascouche Quebec, approximately 20 minutes east of Montreal. Jonathan Paniccia, owner and founder of Pani’s Cards and Memorabilia has been collecting memorabilia for 20 years due to his passion for sports as well as knowledge from his father, who also collected memorabilia as a teenager.
At Pani’s Cards and Memorabilia, one can find a wide variety of cards of the popular North American sports (NHL, NFL, NBA) as well as sports and diverse product such as Pokémon. Some collectible items that can be found at Pani’s Cards and Memorabilia are jerseys, frames, pucks and Funko Pops. Pani’s Cards and Memorabilia also offers group grading submission to PSA, Beckett and MNT, which is a growing Canadian company that offers grading services at a cheaper rate than PSA and Beckett.
Pani’s Cards and Collectibles is currently an e-commerce organization which strongly relies on their presence on Facebook in order to grow their business. This allows Pani’s Cards and Collectibles to find consumers anywhere in the world to join their group and buy into group breaks. A ‘break’ is when the store opens a box of cards and ships the cards to the individuals who has cards in the box. It is a way to make the purchase more affordable for the buyer. The business hopes to be able to open a store in the coming years.
- The company’s vision is “to become Canada’s most trusted partner in the sports memorabilia market.’
- The company’s mission is ‘to build relationships with the customers and share their desire to for collecting sports memorabilia.’
The company will operate in the e-commerce industry along with the Sports Memorabilia Industry. The current market value of the e-commerce industry is $5.4 billion as of 2020 and the market is continuously growing (Torrey, 2020). However, it will be important for the company to offer distinct differentiation since more than $4.7 billion of this market is through eBay sales, which can be done by anyone (Seideman, 2018). Furthermore, the remaining market is divided amongst independent auction houses, private sales, online, and miscellaneous. My business would fall into the online and miscellaneous category which makes up approximately $400 million of the market, which includes retailers, hobby shops, trade shows, etc. (Seideman, 2018).
Since the start of the pandemic, the e-commerce industry started booming due to the measure for controlling the spread of the disease. More than 150 million people made their first online purchases in 2020 after the start of the pandemic, 6% of which were residents of Canada. Figure 3 below demonstrates the percentage of new purchases in 2020 by country (Shykoloich, 2021). In the US, e-commerce sector grew $360 million in 2019 to $469 million in 2021 (Shykoloich, 2021). Schlossberg (2021) stated that sports memorabilia market is currently booming due to the growing interest of the enthusiasts. Even though 98% of the memorabilia market is taken by sports cards, the interest to other collectables is growing at high pace (Schlossberg, 2021). Thus, the industry trends are favorable for entry.
The market for sporting collectibles has been so high that many businesses are starting to take pre-orders for products that have not yet been released. This is a benefit for a start-up, as this will allow cost savings and cashflow assistance which in the past would have been affected when pre-orders were not being taken. Furthermore, this also assists with mitigating storage costs as once the item is received by the business, it is shipped right out to the end consumer who placed a pre-order on the item. As a result, business has been able to move to smaller locations which also provides cost savings.
There are multiple types for hobby sales that differ in the volume and methods:
- Hobby stores. Hobby stores are usually small local stores that have social media presents. The target customers are local sports enthusiasts and rare treasure hunter that travel around the country in search for rare collectables. Such local stores often act as meeting point of local sports memorabilia enthusiasts.
- Online stores. These stores do not have a showroom, which allows the owners of the business reduce their expenses in terms of rent and human resources. Online stores usually have a broader audience, as customers from around the globe can purchase from the such stores.
- Private sales. Private sales of collectables are conducted through eBay or Facebook. This type of sales is the fastest growing in the industry, according to eBay. In 2020, eBay announced that the trading card category in its platform grew by 142% (Beer, 2021).
- Auction houses. Action houses usually have personal managers that help the owners to manage their collections. These houses also help to sell the collections through offline actions on a large commission. The target audience are owners of large collections.
On of the competitive advantages of the hobby store described in this business plan is that it united all the approaches to sales. It is a store that works both online and offline, which facilitates private sales and provides the services of private managers that were previously available only for owners of large collections.
Critical Success Factors
Critical success factors in the industry include the following:
- Close customer relationships management. Since the competition in the sector is tense and the customers always have the option to sell and buy the memorabilia on numerous platforms from other sellers, it is crucial to have a good company image. In particular, the hobby store needs to have high ratings on eBay and other online platforms, as well as have take care of the customers’ needs at the offline store.
- Human resources. The key to success is having the best employees in the industry to provide high-quality services. The employees need to be highly qualified in terms of understanding the value of the memorabilia. At the same time, the employees need to be able to communicate with customers effectively.
- Versatile selections of merchandise. The key customers are collectors that search for rare additions to their collections. Thus, the store needs to keep a large inventory of different memorabilia to meet the needs of its customers.
- High level of expertise. The business requires high level of expertise in the value of the memorabilia, as most of the merchandise has intrinsic value that is difficult to estimate. Thus, a high level of awareness about the trends in the market is required from the employees.
- Accessibility. All services of the store need to be available through all the possible communication channels, which increases the level of trust of the customers.
- High quality. The store needs to have only high-quality products. In the memorabilia industry, it is difficult to evaluate the quality of products, as the value of all the merchandise is intrinsic. However, the company needs to ensure that only high-quality products that are of increased interest for the customers are stocked.
Critical success factor analysis revealed that Pani’s Cards and Memorabilia has all the required competences to become successful in the industry. In particular, the founder of the company has both the passion for the sports memorabilia and the skills to communicate with customers effectively. Additionally, the company’s value proposition makes a clear emphasis on the key success factors, which is expected to ensure the company’s sustainable competitive advantage.
PESTLE analysis was used to evaluate the external environment in which the industry operates. This analysis focuses on political, environmental, social, technological, legal, as environmental aspects that affect the industry.
Currently, the political situation in the world is slightly unfavorable for opening a global retail business, which focuses on trading of memorabilia and sports collectable. The central problem is Russia’s invasion in Ukraine, which increase the political tension in the world. Even though Canada is not directly involved in the conflict, it is indirectly affected by the situation. According to Simchi-Levi and Haren (2022), the conflict disrupted the global supply chain, which affected all the industries along with shipping services. Moreover, the political situation cut off Russia as a potential market for selling collectibles on eBay (O’Brien, 2022). However, it should be noticed that the effect of the political situation on the sports memorabilia industry is minimal, as it mostly focuses on Canada and the US.
The economic trends in Canada are complicated these days due to the COVID-19 pandemic. On the one hand, the pandemic has affected consumer spending due to income uncertainty. In 2020, Canada experience consumer spending has increased in the market of sports collectibles. The reason this has happened is because the pandemic caused people to be “stuck at home without live sports games” and as a result, the “secondary trading card market to grow 170% last year” (Levin, 2022). At the same time, Canada is experiencing an economic rebound after the pandemic, which positive affected the GDP growth in the country, which can be seen in Figure 4 below (Trading Economics, 2022).
Social trends have also greatly benefited the market for sporting goods. It is noted that manufacturers are starting to market their product to younger consumers and that millennials are the most popular clients at hobby stores currently (Levin, 2022). Furthermore, the thrill of opening a box of cards has given consumers something to look forward to considering the current pandemic since most people are stuck at home doing nothing. As a result of this, many people are spending money on their hobbies, and this has helped the market increase. An example of the craze behind sports is a 35-year-old shopper at Target in May 2021 who was jumped by 4 men after her bought a box of sporting cards (Cohen & al., 2021).
Technology is one of the driving forces of the development in the sports memorabilia market. Technological advances have already greatly benefited the market (Shykoloich, 2021). Many more transactions and trades can be completed virtually and, as a result, e-commerce business have risen greatly. Using online payment transfers such as electronic funds transfer (EFT), PayPal, Venmo, etc. Many purchases are completed virtually and shipped to a consumer (Shykoloich, 2021). However, with technological advancements also comes the potential for fraud and this is something that will be important for buyers.
There are no significant legal factors that affect the industry. The business will need to comply with all the legal requirements concerning accounting standards and limitations of the activity. However, no recent changes had a significant impact on the sports collectables industry in Canada.
Customers around the globe become more aware about the environmental problems. The growing environmental concern has a mixed effect on the online memorabilia market. There are both positive and negative effects of e-commerce on the environment. On the one hand, e-commerce allows to decrease the impact on the environment due to decreased land use, more efficient energy use, and decreased paper waste (Collins, 2021). On the other hand, e-commerce has a negative impact on the environment due to increased number of packaging, transportation effects, and increased number of returns (Collins, 2021). Thus, some customers may prefer buying online to making the purchase in the offline store due to the perceived positive impact of e-commerce on the environment. However, some customers may prefer to visit the offline store as they perceive that e-commerce has a negative impact on the environment. Therefore, Pani’s Cards and Memorabilia Ltd. will offer both online and offline sales to cater for different customers.
In summary, the PESTLE analysis revealed that economic, social, and technological factors are the driving forces of the industry, which create a positive environment for the establishment of new business. In particular, the pandemic positively affected the demand for sports memorabilia, while the economic rebound allowed customers to increase the purchasing activity. The growing interest in sports memorabilia and collectables is a positive social driver of the industry. Moreover, technology development positively affected the demand for the company’s merchandise. At the same time, political, legal, and environmental factors have a mixed impact on the industry, which affects the industry insignificantly. Thus, it is the outside environment is currently friendly for opening a new hobby store.
Porter’s Five Forces
Porter’s Five Forces in another popular framework used for assessment of external environment. This approach assesses the environment in terms of the threat of substitutions, the threat of new entry, the bargaining power of suppliers, the bargaining power of buyers, and competitive rivalry. The results of the analysis are provided below.
Threat of Substitution: Low
The threat of substitutions in the industry is extremely low. While there are many competitors in the industry, the products sold, which are cards and memorabilia, remain the same. However, it will be important to follow the other businesses in my industry as I will need to be as diverse as possible to ensure my clients do not leave for another business.
Threat of New Entrants: High
The threat of new entrants will always be present and high in this industry. The greatest barrier to entry into this industry is access to distribution channels. As the products being sold are manufactured by a third party, namely Upper Deck or Topps, the new entrants will need to set up a partnership with them to be an official distributor of their products.
Competitive Rivalry: High
The rivalry among existing firms is also high. As there are many different firms in this industry, it will be difficult to find a loyal client base. Furthermore, undercutting the competition will not be enough to grow my business, I will need to diversify my offerings through various products or services, such as a bingo style card game where the winner can win a specific card or piece of memorabilia. It remains important to note that the cards or memorabilia are the same no matter what business, unless it is a limited edition 1 of 1, and it is for this reason appealing to the consumer that will be a crucial factor in the success of my business.
Bargaining Power of Suppliers: High
The bargaining power of suppliers is also high. As there are only a handful of suppliers for the products I will be selling, the supplier will have power over me on the price they decide to sell the goods to me. If the supplier decides to increase their price, I will have no choice but to pay the premium price as there are very few suppliers, in fact each supplier has their own rights with regards to production (such as athlete autographs), and the products are not the same at each supplier.
Bargaining Power of Buyers: Low
The bargaining power of buyers is also low, as the standardization of products differs from each supplier, it is difficult for a buyer to turn around and go to a different supplier since the products are not the same. Furthermore, there are many different buyers from each supplier and as a result the suppliers can set their prices and will find a buyer.
The utilization of Porter’s Five Forces revealed that the business will operate in a hectic environment. The key contributors to the risks associated with operating in the environment are the threat of new entrants, competitive rivalry, and high bargaining power of suppliers. However, Pani’s Cards and Memorabilia Ltd. will be able to benefit from the low threat of substitution and low bargaining power of buyers. This implies that as soon as the company secures a well-established customer base, it will be able to compete effectively in the market and secure its market share. The model is summarized in Figure 5 below.
There are multiple direct competitors in this industry. Competitors range from local hobby shops such as Card Chasers and Collectors Avenue in Laval and Montreal respectively through to online shops located in Canada which host hobby breaks on Facebook, some of which are called MAXimum Cards and Breaks as well as Clap Bomb Sports Cards. There are other direct competitors which are individuals or businesses located all over the world which are selling their own cards through eBay.
It is challenging to position Pani’s Cards and Memorabilia against its competitors because there are no large competitors that the company will compete with directly. Instead, the company will compete on the global market that has numerous small-scale companies, private sellers, and auction houses. Several purchases from the competitors were made to evaluate the positive and negative sides of their business model and approach to customers. A list of recommendations for successful entry was created to ensure that best practices of the competitors are used.
A competitor scan was also conducted in Montreal. In particular, three sports memorabilia shops were visited, including CCS Memorabilia, KSKS Sports Collectables, and MVP Signature sports. The key success factors of these stores were online marketing, careful customer management, and good geographical location. A total of 19 sports memorabilia shops were found in Montreal in different parts of the city. The analysis of the competitors confirmed that the competition in the sector is hectic.
There are several types of customer that the business will cater for, that will be divided into adults and children. Adults will be subdivided into three other subgroups, which will help to utilize segment-specific approaches to different customers.
- Children. This group includes children aged between seven and fifteen. This group usually does some sports and watch professional sports online, which makes them fans of different athletes. Even though children enjoy collecting sports memorabilia, they do not have sufficient income to purchase the merchandise sustainably. This segment prefers offline purchases.
- Adults. This segment is usually very active in sports, as they either follow teams and athletes or engage in sports activities. The adult segment can be subdivided into three sub-segments:
- Fans. This segment aged between 18 and 65, with the majority of customers being between 30 and 45. Fans typically spend much time watching sports on TV or visiting the games at the stadium. The average income is $45,000 per year. Fans are not usually interested in rare collectables; instead, they usually purchase memorabilia associated with athletes that are performing well currently. Prefer online purchases.
- Starting Collectors. This segment is interested rare memorabilia and collectables; however, they do not understand the value of merchandise. Even though starting collectors are willing to find something rare, they are not ready to spend significant amounts of money on the memorabilia. The representatives of this segment are usually between 20 and 35 years old with varying income. This segment is the most profitable among others. Prefer offline purchases.
- Experienced Collectors. Such collectors are aware of what they want and how much they are willing to pay for it. Experienced collectors are usually aged between 35 and 65 with above average income. These are the most valuable customers, as they can become regulars and improve the image of the store. Prefer online purchases.
Creating a Unique Market Position
In order to gain a strong position in the market, the company will need to differentiate itself from the competition, as we will be selling the same products which are manufactured from the same companies as well. Therefore, creating a strong buyers experience will be vital to gaining loyal customers. The company will create a positive buyers experience by launching several different games that will allow to reach to customers from different segments.
Some games will include a deal or no deal type of game where the player will be guaranteed a card of X value, group breaks, a bingo style game where the first person to get a bingo will win X card. Some other games will include roulette, where the winner of a raffle will be able to select from a series of cards the one, they wish to have.
This will allow the company to create a positive buyers experience as they are not simply getting a card or piece of memorabilia, but they are also taking part in a game, all while likely getting an item valued higher than what they have paid since most of these are raffle style games. Furthermore, since the products that the company will be selling are not a need but a want, or a luxury item for some, creating a positive purchaser’s experience will be vital to the success of the business.
As previously mentioned, the products sold will be manufactured by multiple suppliers such as Upper Deck, Leaf, Optic, and a few others. There will also be other products such as accessories that will be sold in order to store and/or protect cards and memorabilia such as cases, frames and sleeves. Initially, all products will be stored in the house of Jonathan Paniccia. After a year, the inventory will be moved to the showroom. Apart from the products, the company will offer services concerning managing collections and selling customers’ goods on commission.
It is difficult to determine the price that will be set for my products as it will depend greatly on the market and can change every day. It is for this reason that value-based pricing will be the best approach for the business. Like the housing market, the business will depend on how the market is doing and what the buyer is willing to pay. This implies that company may benefit from doing auction style posts when the company has a strong enough clientele. While the company may lose on some items, it may gain value from other items. The prices of the items will depend on the performance of athletes and teams, as well as the demand and the purchasing power of the customers.
There will be three types of pricing policies applied to different items. First, the majority of items will be sold on a fixed price. The customers will be able to see the price in the showroom and online platforms. Second, some items will be sold through online auctions on eBay. Even though it may be associated with risk, it can help to maximize the profits. Finally, extremely rare items will be sold through negotiation. Even though they will be listed in both online platforms and showrooms, there will be no price tags on these items. The price of these items will be negotiated during a private conversation.
As a startup, promotion will be one of the most important aspects of the marketing mix in order to gain clients as quickly as possible. Google AdWords will be used in order to get clients to the company’s website and Facebook page. This will allow the company to place the products and services in front of people that are already searching for it. Google AdWords allows to determine the maximum the company is willing to pay per click, which will allow to control the costs, which is crucial for startups.
Furthermore, social media will be used to gain a strong presence in the market. The company will partner with popular collectors on social media and leaders of opinions on YouTube in order to make posts about the new business and the products offered by the store. This activity will allow the company to reach many consumers who will start to follow the social media pages, which will help to build the customer base. The company will also have consistent activity on my Facebook page where the designated employees will post raffles for cards, run raffles to play different games.
Furthermore, referrals and word of mouth advertising will greatly benefit my business. In order to grow the company’s Facebook presence, the store will run giveaways at predetermined milestones, such as 500 followers, 1000 followers, 100th group break, etc. The company will also run a giveaway raffle for the followers that invite three of their friends and each person that invites three of their friends, who follow the group and buy into any one of my raffles will be entitled to join the giveaway where one person will win a predetermined card. This will allow the company to grow the social media following with people that are interested in the merchandise and help the to engage the customer in active participation in the social media public pages.
As it was mentioned earlier, the products will be sold through three central channels. First, the customers will have the ability to purchase the products from online platforms, such as eBay, Amazon, and Facebook. Second, official online store will be created that customers will be able to use for buying the memorabilia. Third, the customers will be able to come to the store to receive consultations and buy the merchandise. Finally, the customers will be offered to invite an employee of the company to evaluate their collection, receive necessary consultations, give their merchandise to be sold on commission, or order delivery from the store.
On launch day, the company will have partnered with a few collectors and sports enthusiasts to make each a social media post about the brand and the products. This will allow the company to attract customers as of day one, and the company will create the experience the customers are looking for and turn them into loyal customers. On launch day, the company will also start a Google AdWords campaign which will hopefully bring clients to my Facebook page and website. Some of the words will include hobby shop, NHL, NFL, MLB, NBA, cards, card collector, card shop.
Once the business is launched, the company will consistently run Google AdWords as well as Facebook ads in order to keep my business present in my market. Additionally, the company will start advertising the opening of an online store through Facebook and contextual advertising. The Facebook page will also run promotions to attract the customer’s attention to the online store, so that by the time of launch.
In three months, as the online store opens, it will be used as a source of customer inflow. A SEO professional will be hired to optimize the website for web search engines. The website will also a source of promotions and advertisement of the new store that will open by the end of the year.
The legal structure selected for the business was Limited Liability Company (LLC). As the president of the company will be running the business from his home primarily, business will be associated with the danger of personal assets being seized if the business venture fails, which would be the case in a sole proprietorship. The advantages associated with establishing an LLC are provided below (Christiansen, 2016):
- LLCs pass through taxation;
- Such companies no restrictions on the number of allowed members;
- The company can be flexible in structure;
- LLCs do not require much annual paperwork;
- Owners are not responsible for debts of the company.
As an alternative to LLC, corporation was considered. In comparison with LLCs, corporations have several advantages, including unlimited lifetime and easier transfer of ownership. However, these advantages were considered insufficient to favor corporation as the legal structure.
Sole proprietorship was considered inappropriate as the legal structure of the company. The central reason for that is inability to differentiate between the property of the company and the property of the owner. There are several advantages associated with sole proprietorship and general partnerships. They include, ease of establishment, decreased number of annual papers required, and low taxes. However, Pani’s Cards and Memorabilia is expected to take significant loans and open an offline store, which implies that the company will have significant assets and liabilities. Since the owner of the company does not want to risk his property, the LLC structure was preferred.
Process and Technology
The products that the company will be selling will be purchased from suppliers such as Upper Deck, Topps, and private collectors. Therefore, no process of production will be required. However, the company needs technology in order to track inventory and services provided. The most important factor will be proper creation of a website that will allow customers to make their purchases while simultaneously updating the inventory totals to ensure that the company has the enough on hand and have a re-order point. Furthermore, the company will need to have an active Facebook page in order to fill group submissions or breaks while also growing my customer base.
Before the store is open, all the operations will be run by the. The owner will run the day to day activities, which would include daily group breaks, posting new material and content, such as videos of breaks, photos of cards my customers have won through my breaks. Furthermore, the job will consist of packaging and shipping of items through Canada Post. In order to save time, this task will be completed on a bi-weekly basis on Monday and Thursday evenings.
The owner will outsource some of the services to professionals, including website development and maintenance, design development, accounting services, and redesigning the store to have the authentic feel. When the offline store opens, two full-time employees will be hired to run daily operations in the stores. These employees will also become responsible for shipping the orders to the customers through Canada post or other delivery services. When the offline store opens, the owner of the company will take up the role of the personal manager of the key customers, and all the marketing activity will be run by the store managers. As the company develops, a designated marketing manager will be hired to manage the promotions.
Human Resource Needs
As it was mentioned in the previous section, the company will not require any employees until the opening of the offline store. However, as soon as the offline store opens, two full-time store managers and a designated marketing manager will be needed. All the other needs will be covered by outsourcing the accounting, website development, website maintenance, and design services. Outsourcing the accounting services is crucial, as it can reduce the cost and improve the quality of provided services (Kinden, 2021). Designer’s services will be outsourced because the owner does not have skills to create an authentic design, and hiring Table 1 below demonstrates the required human resources and associated costs.
Table 1. Monthly HR costs after offline store launch
|Employee Type||Qty||Outsourced?||Monthly costs per employee||Total|
|Total per month||$12,500|
This section identifies the financial needs for the business to launch and operate successfully. Table 2 below provides a list of all initial expenditures until the end of the year, associated costs, and explanations.
Table 2. Annual expenditures projections
|Expenditure Name||Cost (CAD)||Commentary|
|Initial Inventory Purchase||20,000||The initial inventory will include the memorabilia and sports cards to provide a large selection.|
|Website development||3,000||Average cost is provided (Burley, 2020)|
|Website maintenance cost||2,500||Domain name, monthly hosting costs, plugins for processing payments, and recurring costs for updates|
|Store rent||30,000||$10,000 per month, 3 months, as the store will open in October|
|Store equipment||10,000||Shelves, cash registers, computer, printer, desks, chairs, POP displays, etc.|
|Accountant||6,750||$750 per month, 9 months|
|Designer||4,500||$500 per month, 9 months|
|Website developer||3,000||$500 per month, 6 months|
|Store manager||21,000||$7,000 per month, 3 months|
|Marketing manager||11,250||$3,750 per month, 3 months|
|Marketing costs||18,000||$3,000 per month, 9 months|
Table 3 below provides a sales projections by month with necessary commentary
Table 3. Sales projections
|May||15,000||50% growth is associated with the effect of online promotions and advertisements|
|July||30,000||Online store opening will bring new customers|
|October||65,000||Offline store opening will increase the number of customers|
This section includes pro-forma financial statements for FY2022. All the projections are made assuming the initial investment of $40,000 by the owner or other investors. These statements with commentary are provided in Tables 4-6.
Table 4. Income Statements
|Pro Forma Income Statement||Comment|
|Net sales||$ 400,000.00|
|Cost of Goods Sold||$ 140,000.00||*Initial inventory + monthly inventory-30,000 inventory at the end of the year|
|Gross Profit||$ 260,000.00|
|Salaries and benefits||$ 46,500.00|
|Rent and Maintenance||$ 32,500.00||*Store rent + website maintenance|
|Capital Expenditures||$ 13,000.00||*Website development + equipment|
|Operating Expenses||$ 110,000.00|
|Income before income taxes||$ 148,000.00|
|Income tax expense||$ 20,056.00|
|Net income||$ 127,944.00|
Table 5. Cashflow statement
|Pro Forma Cash Flow||Comment|
|Account||2022 Pro Forma|
|Cash flows from operating Activities||$ 100,000.00|
|Net income||$ 127,944.00|
|Changes in working capital||$ 127,944.00||*since it is the first year of operation|
|Increase (decrease) in accounts receivable||$ 12,794.40||*assuming 10% account receivables|
|Increase (decrease) in inventory||-$ 140,000.00|
|Increase (decrease) in accounts payable||-$ 28,000.00||*assuming 10% purchased on credit|
|Total Adjustments||-$ 25,261.60|
|Net cash provided by operating activities||$ 102,682.40|
|Cash and cash equivalents at the beginning of the year||$ 40,000.00||*the initial investment required|
|cash and cash equivalents at the end of the year||$ 142,682.40|
Table 6. Balance sheet
|Pro Forma Balance Sheet|
|Assets||2022 Pro Forma|
|Cash and Cash Equivalents||$ 142,682.40|
|Account receivable, less allowance for doubtful accounts||$ 11,514.96|
|Total Current Assets||$ 184,197.36|
|Property, Plant, and Equipment||$ 10,000.00|
|Nontangible assets||$ 2,500.00|
|Total property, plant, and Equipment||$ 12,500.00|
|Less: accumulated depreciation||$ 2,000.00|
|Net Property, plant, and equipment||$ 14,500.00|
|Total Assets||$ 198,697.36|
|Liabilities and Shareholders’ equity|
|Account Payable||$ 28,000.00|
|Accrued expenses||$ –|
|Total Current Liabilities||$ 28,000.00|
|Long-term debt||$ –|
|Total liabilities||$ 28,000.00|
|Common Stock||$ –|
|Retained Earnings||$ 170,697.36|
|Total shareholder’s equity||$ 170,697.36|
|Total liabilities and shareholder’s equity||$ 198,697.36|
Business Methods for Controlling Costs
Managing costs for a new business venture is critical in ensuring that it achieves sustainability. Maintaining a low cost of production helps the management to ensure that the firm is profitable even if competition in the market is stiff. Depending on the external and internal environmental forces, a firm can use various methods to control costs. The following is a checklist of some of the most common strategies that firms use to control their costs:
- Conduct an internal assessment to identify all the costs of operations at the firm;
- Identify duplications, cases of pilferages, and wastes that inflate the overall cost of operation;
- Develop a budget that directly addresses the weaknesses identified in the section above. Employees and other relevant stakeholders should be informed about this new development;
- Assign specific individuals within the relevant department the responsibility of strictly managing and accounting for budgets in their departments;
- Encourage recycling and re-use of materials whenever it is possible;
- Embrace emerging technologies as a way of improving efficiency and lowering costs;
- Use benchmarking and downsizing strategies, when possible, to further lower the overall cost of production.
Methods Used for Controlling Costs
The hobby store company is an e-commerce store that relies on social media platforms to ensure that its products reach its clients. Like any new startup that is keen on achieving growth, the firm will need to ensure that its costs of operation are controlled as much as possible. The management will have to be careful when selecting strategies for controlling costs to ensure that operations are not affected. The following are the strategies that the company should consider.
Assigning Responsibilities to Individuals
Individuals should be assigned specific responsibilities based on the budget of the firm. Gupta (2021) explains that one of the reasons why waste is generated within a firm is because of a lack of accountability. A firm cannot specifically identify individuals who are responsible for the misappropriation of resources. When people realize that they will not be held individually responsible for the loss or mismanagement of funds, they are always tempted to steal from a company. The best way of eliminating this problem is to assign resources to specific individuals and hold them individually responsible. Assigning responsibilities should start at the highest point of management within the firm. The chief executive officer should understand that they have the individual responsibility of ensuring that every resource is used responsibly.
The chief executive officer will be expected to assess and approve the budget for every department within the firm. They have to be convinced that every department has justified why they need a given amount of money within a specific period (Mehta, 2021). Once the budget for every department is approved, the burden of financial responsibility shifts to the departmental heads. Every head of the department should assign resources to specific activities to ensure that there is effective management. Every unit within the department will have an officer who will be individually responsible for the allocated resources. They have to account for every money or item that has been handed over to them.
When specific assignments are completed, a detailed report of how resources were utilized must be handed over to the immediate supervisor. Each department will then develop a report on how resources were used within a given financial period. The top management will review the report and ensure that every expense is justified. Sometimes it may be necessary for the top management to hire external auditors to ensure that financial records are thoroughly scrutinized, and any embezzlement is identified.
Identification and Elimination of Duplications, Pilferages, and Wastes
Duplication of works is one of the main causes of cost inflation in a firm, irrespective of its size. The management of this company will need to streamline its operations to ensure that redundancies are eliminated in the firm’s operations. Mehta (2021) explains that one of the best ways of eliminating redundancies is to define all the activities in each department and then assign specific individuals roles of completing them. At the same time, the management should identify wastes within the firm and eliminate them. Prolonged storage of raw materials or finished products in the warehouse of a firm is one of the main causes of wastes generation. Poor handling of products during storage and transportation is another major cause of waste generation. An internal audit should be conducted to identify areas where wastes are generated, and corrective measures are taken to eliminate them. The management should also ensure that pilferage is not tolerated within the firm. Employees should understand the fact that they have a responsibility to protect the resources of the firm, and that anyone caught stealing will be subjected to severe punishment.
Recycling and Reuse
Recycling and reuse of products are one of the ways of lowering the cost of production and protecting the environment. The management of the company should focus on identifying ways in which specific materials can be used. For instance, it can develop a policy of reusing packaging materials. It will help in lowering the cost of purchasing such items (Gupta, 2021). It should also embrace the concept of recycling. Water that is used for cleaning can be recycled, using modern technologies, and used in the toilets or to water gardens instead of letting it go down the drain. The strategy will not only lower the cost of purchasing this commodity but will also help in protecting the environment through responsible use of this scarce resource.
Employing activity-based budgeting may be an appropriate way of controlling costs within a firm. The most common budgeting strategy is top-down, where the management identifies activities to be done and then assigns resources that will facilitate their completion (Murray, 2021). It may be necessary to change the strategy to a bottom-up approach, where every unit and department explains projects that they need to complete and the resources needed for each. The top management will then assess each project, conduct a survey to ascertain the justification for the requested resources, then approve the budget based on priorities and emergencies that the firm is facing.
The goal is to ensure that resources are assigned to specific activities. It eliminates cases where departments are assigned more resources than they need while others are denied resources critical for their operations (Hansen et al., 2021). Using this strategy, the top management will be assured that once resources are released, there will be an immediate implementation of the approved projects. The strategy is important because it makes it possible for the management to assess how money was used by assessing the progress of each project. Any misappropriation of funds can be traced to specific projects and individuals. It means that there will be enhanced responsible expenditure among all employees in different departments.
The Use of Modern Technologies to Enhance Efficiency
The management should consider using modern technologies to enhance efficiency and control costs. This firm is an e-commerce company that fully relies on online platforms and social media to promote and sell its products. According to Mehta (2021), one of the challenges that e-commerce companies face is the high cost of warehousing. They purchase products, keep them in remote stores before delivering them to their clients. Using emerging technologies, the firm can have an accurate assessment of the market demand and ensure that it has the right products in stores that will be released to the market within a short period. It means that the overall cost of storing goods will be significantly reduced, while at the same time eliminating cases where it runs out of products that customers need.
Emerging technologies can also be used to redefine operations at the company. Pepe (2020) explains that it has become possible for firms to replace the human resource with machines because of the increasing application of artificial intelligence (AI). These machines are superior to human beings when it comes to making data-based decisions and processing large data. Although the initial cost of installing such a system may be high, it has numerous long-term benefits, including lowering the cost of human resources. These strategies will help control costs at the firm, which will eventually facilitate the growth of the firm.
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