CASE STUDY $$ CLIMBING UP

Howard Millard recently opened a retail store specializing in hiking equipment and accessories. He

was quite comfortable making decisions about the kinds of equipment he would stock in the store$$s

inventory, the d$$cor of the retail space and his marketing strategy.

An avid hiker since he was in his early teenage years and a competitive athlete, Howard knew the type

of equipment that would be best to his target audience, and he knew that he needed to round out his

merchandise mix with hats, shoes, energy drinks, snacks and other accessories. He was however, not

certain about how to source the financing for this business venture. In speaking to a colleague he

admitted that he personally did not possess the required financing to start such a business.

To that end, he was cognizant of the fact that a sound business plan was necessary before approaching

any potential lending institution or investor. This plan would provide details on the amount of money

required and how he intends to utilize the funds. In preparing his plan he researched the possible fixed

expenses which included utilities, property rental and his personal salary to afford his daily living

expenses. Further to these, he estimated how much it cost to renovate the store to suit his needs with

items such as shelving, storage racks, cash registers, signs and cold storage for the energy drinks.

To make sure that he did not underestimate these costs, Howard assumed that he would pay retail

prices for everything. He included the salary for a part$-$time employee and advertising costs and

calculated an annual cost of $$60,400\mathrm{.}00.$ Given that the plans for the store$$s fixtures are in place,

Howard needed to stock it with inventory. Adding in the costs of accessories brought the total cost

estimate to $$70,500.$

Howard estimated that his monthly operating expenses would be $$8,000\mathrm{.}00,$ but his business plan

included strategies for reducing them by generating publicity for the new store and promoting it at

sporting events and the local gyms. The business plan created by Howard called for raising enough

start$-$up capital for his hiking equipment and accessories store to survive without any revenue at all.

He managed to come up with $10\%$ of the $$82,000$ start$-$up cost he estimates he will need to open the

store. Question $1$

a$.$ Identify one $(1)$ main competitive advantage for Howard$$s business.

b$.$ Describe in detail five $(5)$ strategies that Howard may utilize to attain a competitive advantage

over his competitors?

c$.$ Provide three $(3)$ national trends$/$ issues in your country that could affect Howard$$s business.

$8$ marks

Question $2$

a$.$ Describe the advantages and disadvantages of debt capital for Howard.

b$.$ Identify five $(5)$ ways that Howard Millard could attract the capital he needs for his business.

c$.$ What steps would you recommend he takes before approaching the sources of funding you

have identified?

$8$ marks

Question $3$

a$.$ Identify and describe the various life stages that Howard$$s business venture will experience.

b$.$ Describe in detail the financing that Howard should be seeking at each stage and the potential

sources for that financing.

c$.$ What milestones should Howard achieve at each stage of the life cycle?

$8$ marks

Question $4$

An investor is considering providing Howard with $$50,000$ as an initial investment.

a$.$ Explain five $(5)$ risks associated with making such an investment for the Investor.

b$.$ Explain five $(5)$ risks associated with taking such an investment for Howard.

c$.$ Do you believe that Howard$$s business has high growth potential? Provide a detailed

justification for your answer.

$10$ marks

Question $5$

a$.$ Provide Howard with three $(3)$ reasons why he should consider an Angel Investor.

b$.$ Identify five $(5)$ potential risks associated with choosing an Angel Investor.

$8$ marks

Question $6$

Explain in detail why each of the following funding sources would or would not be appropriate for

Howard:

a$.$ Family and friends;

b$.$ Traditional bank loan;

c$.$ Bootstrapping and

d$.$ Microfinance Agencies.