Business plan

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS LE THI PHUONG NHI BUSINESS PLAN: QUALITY INSPECTION CERTIFICATION SERVICE FOR USED CAR IN HO CHI MINH CITY (2014-2023) Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisor: Dr Vu Anh Dung Ha Noi, 2012 TABLE OF CONTENTS ACKNOWLEDGEMENTS .i ABSTRACT iii TABLE OF CONTENTS vii LIST OF ABBREVIATIONS x LIST OF TABLES xi LIST OF FIGURES xiii LIST OF CHARTS xiv INTRODUCTION Research Rationale Problem identification Research Objectives Scope & Limitation of the thesis Research Methodology Structure of the Research CHAPTER 1: LITERATUAL REVIEW OF A BUSINESS PLAN 1.1 What is Business Planning? 1.2 What is a Business Plan? 1.3 The importance of a Business Plan 1.4 What are the key aspects of a Business Plan? CHAPTER 2: BUSINESS PLAN OF UCC COMPANY 16 2.1 OVERVIEW OF THE COMPANY 16 2.1.1 Introduction 16 2.1.2 Vision and Mission 16 2.1.3 Current status and key milestones of the company in near term (2013-2014) 17 vii 2.2 INTRODUCTION OF THE SERVICE - USED CAR QUALITY INSPECTION CERTIFICATION 18 2.2.1 Description 18 2.2.2 Why used-car quality certificate? 19 2.2.3 Who will use this service? 21 2.2.4 How to gain trust? 22 2.2.5 Business Model of Used-car Quality Certification service 23 2.3 MARKET ANALYSIS 23 2.3.1 Target customers 23 2.3.2 Market identification and segmentation 24 2.3.3 Competition Analysis 28 2.4 MARKETING ACTIVITIES 31 2.4.1 Service’s substitutes? 31 2.4.2 Pricing 31 2.4.3 Promotion and Brand Development 32 2.4.4 Marketing budget planning 37 2.5 DEVELOPING SALES CHANNELS 38 2.5.1 Direct sales team 39 2.5.2 Strategic sales distributors 41 2.6 MANUFACTURING PLAN 42 2.6.1 Licensed with top used-car certification service company 42 2.6.2 Service procedures 42 2.6.3 Facilities and Equipment required 46 2.7 DEVELOPING HUMAN RESOURCE AND MANAGEMENT 52 2.7.1 Funtional and organizational structure 52 2.7.2 Headcount planning 55 2.7.3 Recruitment and Training 56 2.7.4 Salary and bonus scheme 57 2.8 FINANCIAL ANALYSIS AND PROJECTION 58 2.8.1 Assumption 58 viii 2.8.2 Cost calculation and funding plan 62 2.8.3 Revenue Projection 64 2.8.4 Profit and Loss (P&L) Forecast 66 2.8.4 Cash Flow Analysis 68 2.8.5 Sensitivity Analysis 70 CONCLUSION AND RECOMMENDATION 77 REFERENCES 79 APPENDIX 1: Sample of Inspection Report 81 APPENDIX 2: Cost Projection (2014 – 2023) 84 APPENDIX 3: Capital Funding Structure 87 ix LIST OF ABBREVIATIONS HCM Ho Chi Minh IRR Internal Rate of Return NPV Net Present Value UCC Used Car Certificate WACC Weighted Average Cost of Capital x LIST OF TABLES Table 2.1 Some key miletones at the start (2013 – 2014) 17 Table 2.2 Summary of some key figures of cars market in HCMC 25 Table 2.3 Cost break-down projection of marketing activities in 2014 38 Table 2.4 Number of sales headcounts in 2014-2023 39 Table 2.5 Monthly sales target for sales team and individuals (2014) 40 Table 2.6 Bonus scheme for ―sales center‖ 41 Table 2.7 Decision No 14/2012/QD UBND regarding Percentage of Land Rental Pricing (Clause 1.1.b) 48 Table 2.8 Technical equipments required 50 Table 2.9 Office equipments and furniture 52 Table 2.10 Scope of work of functional divisions 53 Table 2.11 Headcount plan (2014 – 2023) 55 Table 2.12 Base salary scheme for key accounts (2014) 57 Table 2.13 Financial Assumptions 58 Table 2.14 Assumption on basic fixed cost 59 Table 2.15 Assumptions on cost associated with manpower 61 Table 2.16 Assumptions on other operations fee and contingency fee 61 Table 2.17.Cost of the first years (2013-2015) 62 Table 2.18 Capital funding plan 63 Table 2.19 Revenue Projection (2014-2023) 64 Table 2.20 Productivity management and Sales target (2014-2023) 65 Table 2.21 Projected Profit and Lost (2014-2023) 66 Table 2.22 Analysis of cash flow, NPV, IRR and break-even time 68 Table 2.23 Sensitive analysis of IRR vs Construction Unit Price and Sales Price 70 Table 2.24 Sensitive analysis of IRR vs Annual Salary Growth Rate and Sales Price 72 xi Table 2.25 Sensitive analysis of NPV vs Annual Salary Growth Rate and Sales Price 74 Table 2.26 Sensitive analysis of IRR vs Annual Salary Growth Rate and Sales Price 75 xii LIST OF FIGURES Figure 2.1 : Business model of used car quality inspection certification 23 Figure 2.2: Customer Engagement Cycle 33 Figure 2.3: SK ENCAR’s home site 36 Figure 2.4 Key steps of service procedures 43 Figure 2.5 Car status report format 44 Figure 2.6 The value chain of used car quality certification service 46 Figure 2.7 Organization structure (2014) 54 xiii LIST OF CHARTS Chart 2.1 Sensitive analysis of IRR vs Sales price and Construction Unit Price 71 Chart 2.2 Sensitive analysis of IRR vs Sales price and Annual Salary Growth 73 Chart 2.3 Sensitive analysis of NPV vs Sales price and Annual Salary Growth 74 Chart 2.4 Sensitive analysis of IRR vs Licensing cost and Sales price 76 xiv ABSTRACT BUSINESS PLAN: QUALITY INSPECTION CERTIFICATION SERVICE FOR USED CAR IN HO CHI MINH CITY (2014 – 2023) Le Thi Phuong Nhi MBA Candidate, 2007-2019 School of Business Vietnam National University, Hanoi Supervisor: Dr Vu Anh Dung December 2012, 86 pages Taking the development trend of developed countries as well as emerging markets in Asia as a benchmark, it is no doubt that motorbikes will be constantly replaced by cars and public transportation towards the development of the socio-economy of the nation The Vietnam’s car market, with its recent increase in demand and supply regardless of economics down-turn, also re-emphasize this trend Going in parallel with this development is the business transactions of used-cars And one of the key concerns when people buy used car is the reflection of the true value and the true picture of its quality behind while the sellers tends to hide the defects or damages of the car Therefore, used-car quality inspection service provider as a reliable third-party can help connecting the buyers and sellers via TRUST and, more importantly, to reduce unexpected accidents/ damages due to insufficient understanding or mistakes on the quality of the used car The idea of used car qualily inspection certification service comes from the demand of using good-quality used car So far there is no one in Vietnam provides this service yet Used Car Certificate (UCC) Company will be set up in Q4-2013 to service this untapped market demand And it is critical to have iii Chart 2.2 Sensitive analysis of IRR vs Sales price and Annual Salary Growth Key findings: - Salary growth rate and IRR are in contrary - With salary growth rate of 10% (vs base level of 15%), the project will expect a very attractive IRR at 63% - If the salary growth rate is from 20% above and the sales price lower than VND Bil, the IRR< 0, the project is not feasible - To maintain an attractive IRR, the company should manage the maximum average growth rate of salary of maximum 20% per annum b Sensitive analysis of NPV versus Salary growth rate and Sales Price To measure the effect of annual Salary growth rate variance to project Net present value (NPV) hereafter is sensitivity analisis of NPV versus: - Salary growth rate: Base level is 10% with sensitive ranging in the region of -5% and +10% growth rate per annum - Price of issuing Certificate: Base level is 4,000,000 VND with sensitive ranging of +- 1,000,000 VND 73 Table 2.25 Sensitive analysis of NPV vs Annual Salary Growth Rate and Sales Price Project IRR(%) Sales price (VND/certificate) Annual salary growth (%) 0% 5% 10% 20% 30% 40% 261 - 0.50 1.00 2.00 3.00 4.00 1,000,000 0.25 19 (16) (93) (235) (484) 2,000,000 0.50 109 96 78 19 (114) (363) 3,000,000 0.75 200 188 170 111 (242) 4,000,000 1.00 292 279 261 203 96 (125) 5,000,000 1.25 383 370 352 294 187 (13) 6,000,000 1.50 473 461 443 384 278 91 7,000,000 1.75 564 551 533 475 369 182 8,000,000 2.00 655 642 624 566 460 273 Chart 2.3 Sensitive analysis of NPV vs Sales price and Annual Salary Growth 74 Key findings: - Salary growth rate and NPV are in contrary If the salary growth rate is above 20% and the sale price lower than VND Bil, the NPV< 0, the project is not feasible Therefore, the company should manage the maximum average growth rate of salary maximum 20% per annum c Sensitive analysis of IRR versus Licensing Cost and Sales Price The licensing cost also affect significantly to the project performance result Below is the sensitivity analysis of IRR versus: - Licencing cost: Base level is VND 3,15 Bil for the first two years, ranging within the region of – bil VND to + bil VND - Price of issuing Certificate: Base level is 4,000,000 VND with sensitive ranging of +- 1,000,000 VND Table 2.26 Sensitive analysis of IRR vs Annual Salary Growth Rate and Sales Price Project IRR (%) Sales price (VND/certificate) Licensing price (VND Bil) - 1.00 3.15 5.00 7.00 9.00 63.4% - 0.32 1.00 1.59 2.22 2.86 1,000,000 0.25 10% 9% 7% 6% 5% 4% 2,000,000 0.50 43% 41% 37% 35% 33% 31% 3,000,000 0.75 61% 59% 54% 50% 46% 43% 4,000,000 1.00 69% 68% 63% 60% 56% 52% 5,000,000 1.25 73% 73% 70% 66% 63% 59% 6,000,000 1.50 77% 77% 76% 72% 68% 65% 7,000,000 1.75 81% 81% 81% 77% 73% 70% 8,000,000 2.00 83% 83% 83% 83% 78% 74% 75 Chart 2.4 Sensitive analysis of IRR vs Licensing cost and Sales price Key findings: - Licensing cost and IRR are in contrary - With licensing cost of VND 3.15 bil, the project will expect a very attractive IRR at 63% - If the licensing cost is from VND billion above and the sales price is lower than VND billion, the IRR will rapidly drop from 33% to 6%, the project will be is not feasible Therefore, in case of the company wish to set the sales price less than VND mil, the company must negotiate with SK ENCAR to have the agreement with the licensing cost not higher than VND billion per annum for the year 2014 and 2015 76 CONCLUSION AND RECOMMENDATION The followings highlight major conclusions and recommendations on the research of this project There is a big market for Used Car Quality Inspection and Certification service in Vietnam where no one is really tapping it yet Taking the advantage of being a pioneer in the market, UCC will position its branding among car owners and gradually make it a popular service in Vietnam In returns, UCC can make profit at Year of the project and a very good break-even time which is more than years only With a total investment of 12 billions Vietnam which is spreading in years vs projected earnings, the project can make a good return on investment Some key points that UCC should keep an eyes on includes the followings Firstly, in terms of risk management, UCC should build up a good relationships and connections with the Government and particularly Ministry of Transportation to keep track on regulations on car market in Vietnam, or any potential regulations on quality of used cars Secondly, it is important to note that this project has a good internal rate of return and return on investment whereas the entry barriers towards existing repair shops and auto dealers is technically not so high Therefore, it is very likely that those indirect competitors will take eyes on this model and soon enter the market during 2015-2016 Therefore, UCC must move very fast in 2013 & 2014 to build up core advantages around non-technical factors such as branding, reputation with licensing from trusted international vendor, company leadership and management, a strong network & alliances with key strategic sales channels Those can set a sustainable foundation for UCC’s 77 development in the following years no matter there are competitors entering the market Furthermore, the engagement with SK Encar on licensing is critical for the success of the project Therefore, a back-up with other leading used car quality certification service such as Edmunds, Enterprise Car Sales, RamaDBK, etc is worth to be paid a serious attention on Within the scope of this research, UCC only present the business plan covering HCMC as target market only However, with positive net profit right in Year and break-even time in 3.1 years, UCC can afford for business expansion to other key cities starting from Year of the project In terms of priority, UCC can expand this service to Hanoi first, following by Hai Phong, Binh Duong, Dong Nai, Da Nang and Can Tho 78 REFERENCES Gov.vc- Government of St Vincent and the Grenadines Preparing a Business Plan, 23rd October 2012, http://www.gov.vc/index.php?option=com_content&view=article&id=45&Ite mid=119 Sba.gov How to write business plan, 23rd October 2012, http://www.sba.gov/category/navigation-structure/starting-managingbusiness/starting-business/how-write-business-plan Bplans Writing a business plan, 23rd October 2012, http://articles.bplans.com/writing-a-business-plan/what-is-a-business-plan/33 Wikipedia Content of a Business Plan, 23rd October 2012, http://en.wikipedia.org/wiki/Content_of_a_business_plan Entrepreneur, Should you buy a certified pre-owned car?, 07 August 2010, http://www.entrepreneur.com/worklife/automotive/smartmoney/article192220 html Ehow blog, How to start a Car Inspection Service, 07th August 2010, http://www.ehow.com/how_2077338_start-car-inspection-business.html Power and Associates, The McGraw-Hill Companies Inc Used-car Pre-Purchase Inspection, 07th August 2010, http://www.jdpower.com/autos/articles/Used-Car-Pre-Purchase-Inspection Edmunds.com What Are Certified Used Vehicles?, 17th Dec 2003, by Brian Moody, http://www.edmunds.com/certified-cars/what-are-certifiedused-vehicles.html Dangkiemoto Statistics of number of cars in Vietnam, 31 Jan 2011, http://www.dangkiemoto.com/?vnTRUST=mod:faqs%7Cfid:2024 79 10 Dong Do Trading and Investment Company, Việt Nam sẽ nhập ô tô 12 tỉ usd năm!, 02nd August 2010, http://bailinh.com/newsview.aspx?id=74 11 The Saigon Times VAMA’s negative comments on cars industry, 19th Dec 2012, http://www.thesaigontimes.vn/Home/oto/tintuc/76723/ 12 SK Encar, About us; How to buy; Choose your car; Information; Contact us, 23rd October 2012, http://global.encar.com 13 Edmunds Inc., Home; New Cars; Certified Cars; Used Cars; Car Reviews; Tips & Advice; Car Loans; Auto Insurance; Forums; Local Services, 23rd June 2010, www.edmunds.com 80 APPENDIX 1: Sample of Inspection Report (According to sample of SK Encar) 81 82 83 APPENDIX 2: Cost Projection (2014 – 2023) Description 2013(năm 0) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 A BASIC FIXED COST 4,938,012,529 Business license registration fee 10,000,000 Land rental fee 162,000,000 Deposit of land rental fee 324,000,000 357,210,000 393,824,025 Construction cost (garage, office, parking & landscape) 3,570,000,000 4,241,517,000 5,039,346,348 Cost of technical equipments 852,012,529 1,012,276,086 1,202,685,218 Cost of office equipments & furniture 161,231,111 48,369,333 191,558,682 48,369,333 227,590,871 48,369,333 48,369,333 48,369,333 48,369,333 48,369,333 Maintenance cost 50,662,182 53,080,649 113,272,387.08 115,690,854 187,204,658 189,623,125 192,041,591 194,460,058 196,878,525 199,296,991 Depreciation of fixed assets 101,324,364 101,324,364 251,803,710 251,803,710 490,183,058 490,183,058 490,183,058 490,183,058 490,183,058 490,183,058 Website design, maintenance and upgrade 10,000,000 10,900,000 11,881,000 12,950,290 14,115,816 15,386,240 16,771,001 18,280,391 19,925,626 21,718,933 10 Wifi installation 2,000,000 11 Internet fee 1,500,000 1,500,000 3,000,000 3,000,000 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000 12 Water and Electricity fee 24,000,000 29,705,175 67,774,538 73,374,706 121,166,134 125,754,192 130,481,032 135,351,969 140,372,400 145,547,819 B MANPOWER ASSOCIATED COST 119,000,000 1,459,897,276 3,557,208,462 6,810,374,930 8,800,504,299 13,519,449,301 15,755,887,099 18,829,658,213 21,895,184,494 25,668,015,038 29,837,101,799 13 Salary 119,000,000 1,248,000,000 3,022,800,000 5,778,960,000 7,251,288,000 10,963,180,800 12,600,630,240 14,923,629,864 17,070,761,796 19,703,868,342 22,466,525,600 - CEO 105,000,000 420,000,000 462,000,000 508,200,000 559,020,000 614,922,000 676,414,200 744,055,620 818,461,182 900,307,300 990,338,030 20,000,000 998,717,656 925,279,521 7,681,133,404 2,005,470,893 10,045,560,277 3,354,907,305 3,487,491,941 3,626,548,031 3,772,402,325 2,850,364,161 648,000,000 680,400,000 1,428,840,000 1,500,282,000 2,362,944,150 2,481,091,358 2,605,145,925 2,735,403,222 2,872,173,383 3,015,782,052 2,000,000 (1,075,034,025) 2,000,000 84 - HR Manager - 171,600,000 188,760,000 207,636,000 228,399,600 251,239,560 276,363,516 303,999,868 334,399,854 367,839,840 - HR Executive - - 101,640,000 111,804,000 245,968,800 270,565,680 446,433,372 491,076,709 540,184,380 594,202,818 - Account & Finance Manager - - 217,800,000 239,580,000 263,538,000 289,891,800 318,880,980 350,769,078 385,845,986 424,430,584 - Account & Finance Executive 84,000,000 92,400,000 304,920,000 447,216,000 737,906,400 811,697,040 892,866,744 982,153,418 1,080,368,760 1,188,405,636 - Sales Director - 303,600,000 333,960,000 367,356,000 404,091,600 444,500,760 488,950,836 537,845,920 591,630,512 650,793,563 - Sales Manager - 132,000,000 290,400,000 319,440,000 527,076,000 579,783,600 637,761,960 701,538,156 771,691,972 848,861,169 - Sales Executive 252,000,000 646,800,000 1,219,680,000 1,677,060,000 2,582,672,400 3,111,505,320 3,720,278,100 4,419,690,383 5,221,782,341 6,140,095,787 - Marketing & PR Manager - - 246,840,000 271,524,000 298,676,400 328,544,040 361,398,444 397,538,288 437,292,117 481,021,329 - Marketing & PR Executive 84,000,000 92,400,000 101,640,000 223,608,000 368,953,200 405,848,520 595,244,496 654,768,946 720,245,840 792,270,424 - Technical Director - 184,800,000 203,280,000 223,608,000 245,968,800 270,565,680 297,622,248 327,384,473 360,122,920 396,135,212 - Technical Manager - 118,800,000 261,360,000 287,496,000 474,368,400 521,805,240 573,985,764 631,384,340 694,522,774 763,975,052 252,000,000 646,800,000 1,422,960,000 1,900,668,000 3,197,594,400 3,787,919,520 4,464,333,720 5,238,151,565 6,122,089,641 7,130,433,818 - IT Executive 96,000,000 105,600,000 232,320,000 255,552,000 421,660,800 463,826,880 680,279,424 748,307,366 1,028,922,629 1,131,814,892 - Receptionist & Administration 60,000,000 66,000,000 145,200,000 159,720,000 351,384,000 386,522,400 425,174,640 467,692,104 514,461,314 565,907,446 14 - Commission (for sales) 119,264,851 308,272,308 597,609,953 926,810,866 1,550,179,000 1,941,504,572 2,428,018,899 3,032,281,799 3,782,097,798 4,711,717,466 15 - Training cost 33,000,000 72,000,000 135,000,000 159,000,000 231,000,000 243,000,000 264,000,000 276,000,000 291,000,000 303,000,000 16 - Bonus 59,632,425 154,136,154 298,804,977 463,405,433 775,089,500 970,752,286 1,214,009,450 1,516,140,899 1,891,048,899 2,355,858,733 17 - Uniforms 4,500,000 10,000,000 19,100,000 22,700,000 33,500,000 35,500,000 38,400,000 40,400,000 42,700,000 44,700,000 C OTHER OPERATIONS COST 3,778,897,276 1,024,908,462 1,599,539,930 2,269,122,549 3,423,901,313 4,285,547,874 5,358,642,118 6,694,189,910 8,355,355,711 10,420,337,468 - Technical Executive 14,000,000 - 85 18 Marketing & PR 19 Licensing fee (SK Encar) 20 Entertainment cost 21 Service fee for Warranty Insurance of professional idemnity D CONTINGENCY COST TOTAL - 450,000,000 562,500,000 703,125,000 878,906,250 1,098,632,813 1,373,291,016 1,716,613,770 2,145,767,212 2,682,209,015 3,352,761,269 3,150,000,000 - - - - - - - - - - 119,264,851 308,272,308 597,609,953 926,810,866 1,550,179,000 1,941,504,572 2,428,018,899 3,032,281,799 3,782,097,798 4,711,717,466 - 59,632,425 154,136,154 298,804,977 463,405,433 775,089,500 970,752,286 1,214,009,450 1,516,140,899 1,891,048,899 2,355,858,733 395,041,002 79,897,413 74,022,362 614,490,672 160,437,671 803,644,822 268,392,584 278,999,355 290,123,842 301,792,186 228,029,133 5,452,053,532 6,317,409,622 5,581,418,807 16,705,538,936 13,235,535,412 27,792,555,713 23,664,734,862 27,954,791,628 32,506,046,278 38,097,565,260 43,335,832,561 86 APPENDIX 3: Capital Funding Structure Unit: VNĐ '000,000 2013 (năm 0) 1,000,000 Net Cash Flow (exclusive TEV) Fixed cost (begin of year) Capital Investment 2017 (5,057) (3,455) 2,001 (1,049) 9,827 (3,312) (811) (324) (5,951) (714) - - 3,462 3,000 - 3,000 6,000 - From Equity 6,000 4,000 - From Co-Investors 4,000 2,000 - From bank loan 2,000 - Repayment to bank (exclusive interest) Bank loan balance (end of year) 943 87 2016 12,000 Cash flow (end of year) 2015 5,057 Minimum capital required (begin of year) 2014 1000 - 1000 2000 2,000 - - (1,000) 2,000 2,000 1,000 488 2,489 3,440 (1,000) 12,267 ... OF A BUSINESS PLAN 1.1 What is Business Planning? 1.2 What is a Business Plan? 1.3 The importance of a Business Plan 1.4 What are the key aspects of a Business Plan? ... successful business [1] 1.2 What is a Business Plan? A business plan is a tool which helps entrepreneurs to plan their businesses It is a written summary that describes important aspects of the business. .. Financial analysis and projection CHAPTER 1: LITERATUAL REVIEW OF A BUSINESS PLAN 1.1 What is Business Planning? Business planning is thinking and working out the details of your enterprise with