Small Business Management - Simulation Project: Entrepreneur
1. Patryk Seppelt-Gorajewski
MGT 285: Small Business Management
Simulation Project: Entrepreneur
24K (Company Name)
I) Executive Summary / Team introduction / financing
Introduction: 24K is a new extravagance retail clothing store, which offers luxury apparel
created by upcoming and successful designers. The clothing line will consist of primary pants
and shirts. With our company name we want our customers to feel like they are wearing the
highest karat of gold possible. We want to position ourselves as a top retail store in contrast to
our competitors. Our store will be located in a major shopping mall, because they attract many
customers, they have a comfortable environment to shop and also have consistent store hours.
Mission Statement: “We believe that each individual should have the chance to feel luxury in
their life. In our store we make you forget about your daily problems and let you discover our
vision of gold. Our goal is to provide the highest quality of clothing to privileged clientele.”
Business Management: Our business consists of 4 managers:
Maria Bellorin - responsible for the financial aspects like accounting and finances.
Kosta Risteski - is responsible for the company’s marketing section.
Jorge Flores - deals with any special and unusual kind of situation regarding the store and
decisions.
Patryk Seppelt-Gorajewski – responsible for the operations and pricing decisions each quarter.
Company Objectives:
2. 1) Create a unique shopping environment of luxury.
2) Establish a strong base of customers and always seeking for new potential consumers.
3) Achieve a cumulative profit of $100,000 over the period of 12 quarters.
4) Become an active member of the community to be seen as a role model for other
companies
5) Earning more than 50% of the market to be the leader compared to our competitors
Financing
To start up and open our business we didn’t have to take out a loan from the bank, which
really made it easy for us to focus on the essential part of our business. The father of one member
of our management offered to give us a loan for $25,000 at 12% interest. Additionally he stated
that we can decide for ourselves when to pay off the loan and also which amount. With that
financial flexibility we don’t have an automatic loan payment each month.
Below we present our financial Results for 12 quarters (3years)
Operations/Pricing
For our start up quarter we purchased a quite low amount of pant and tops compared to
the following quarters, because we didn’t know how the market and customers were going to
react to our product. Having in mind the value and quality of our product we decided to price our
pants and tops at the highest price possible in the available range.
Marketing/Promotion
At the start up we decided to use two forms of advertisement:
- Afternoon TV (2x each day)
3. - Flyers (handbills)
We believe that our customer range is flexible regarding their work and lifestyle and therefore
able to watch TV throughout the day, which should increase the awareness of our store. We also
believe that flyers are an effective way to spread the word around communities close by the
location of our store. These two tools of advertising combined with the effectiveness of word-ofmouth are going to be a strong factor for the success of our store and its future. Furthermore to
show our customer appreciation we created a promotion budget.
Staff
For the beginning we hired 5 staff members for our store and offered them an hourly
wage slightly higher than the minimum wage in the state of Illinois. With that decision we tried
to motivate our employees to work as profitable as possible. They will be hired in a part time
position while working about 15 hours a week. At the beginning we will always have at least one
or two of the managers in the store to help out, organize the correct flow and just to stand by for
customers and employees.
Competition
As soon as we open our store we didn’t know anything about our 5 competitors. As a
collective we believed that because of the economic instability they will not be willing to offer
high quality designer clothing at the price range that we considered suitable. Therefore we
wanted to distinguish ourselves right from the beginning and prove to our customers that we
have the best quality and that they get what they pay for.
II) Special Decisions
4. 1) Security Devices
At the beginning of the second quarter it came to our attention that there had been
shopliftings and break-ins in the area where our store was located. After hearing about this we
had to decide how to handle the situation. Among the options available to us there were burglar
alarm installation for after hours, signs about alerting people that someone was protecting the
facilities, the installation of convex mirrors, fake cameras, installation of two real cameras or just
doing nothing. After taking into consideration the repercussions each option would bring and
how it would affect our store we decided to install two real cameras in our store. We felt that this
way our customers would feel more comfortable and protected while shopping at our facilities.
At the same time we agreed that this option best fitted our necessities’ to protect our brand and
consumers.
2) Ethical Dilemma
In the third quarter we received an offer from a school official to sponsor our clothes for
the cheerleaders, band and pep club uniforms for the school. This would have ultimately increase
our store profit for at least $3,000 or even $5,000 if one or two more clubs changed their designs
and new uniforms had to be ordered. After all this was said the school official explicitly
informed us he would be expecting a “nice” birthday present in exchange of what he was doing
for the store. Even though he insisted that the birthday present was just a suggestion and not a
demand he also stated that many other storeowners would be more than happy to be “friends”
with him if given the same opportunity. Before making a final decision we took into account
several options such as giving the official a country club membership, opening an account for
store credit in his behalf, turn down the offer and report the official to the authorities or turn
5. down the offer and take no further action. After thoughtful consideration we decided to turn
down the offer and take no further action. We don’t believe in making any kind of unorthodox
decisions to accomplish a self-financial reward.
3.
For the pushy employee we decided as a team to bring it to their attention without
making a big scandal and making them feel uncomfortable. If we called them out in front of
everyone then that person would have been more upset than they already were and probably have
caused a scene and made a bad image of our store. This way we just bring the dilemma on hand
to that one employee and this way only they know about our confrontation and change for the
better of not only their job but for the store as a whole.
4. Bait and Switch
As a designer brand retail store we didn’t believe in the bait and switch theory because
this would just be devaluating our store brand and product. If we did happen to get one customer
who did catch that theory and exposed us to the public, then this would have hurt our business
financially and would probably cause us to reduce prices on all products. For our store to keep its
brand image of higher luxury clothing for a lower cost, we have to know how low we are willing
to price our products if we want people to feel like they are getting designer products at
affordable prices.
5. Purchasing Policies
Since most stores do 30 day return policies we decided to do that as well to keep up with
our competitors. Not only for that reason but to also give our customers time to think whether
they want the product they purchased or not. This way we establish a relationship with our
customers to feel like we are a dependable store that they can always feel at the comfort stage to
6. come back in good or doubtful positions. Our priority is to satisfy our customer with what they
want so we can achieve our income goal.
6. Problem Employee
It is definitely frustrating when we find out an employee is hurting our store and goes as
far as stealing from the place they work at. We had to set an example out of them but we decided
not to just fire that employee but to have them on probation. This way we don’t go through the
hiring and training process again and instead keep that individual working here but also keep a
close eye on them so this dilemma won’t ever happen again if so then that would lead to an
execution of that person from the store.
7. Cooperative Advertising
In our efforts to advertising our store, we had to make decisions that would help bring
immediate sales to our store. With this said, we decided to engage in communicating with the
community surrounding our store so they can feel like we are trying to reach out to them to not
only shop at our store but to visit us and see how not only they can help us, but how we can help
them with their shopping. We contacted to local newspaper to effectively reach out to that
location in particular and then expand from there.
8. Community Support
Giving back to the community was a huge decision because if we don’t have customers,
then we don’t make sales meaning people won’t come into our store let alone our community
customers. With us reaching to the community, they see us trying to help and going the extra
mile to supporting the community we are engaging in bringing in customers to our store and
making them feel closer to our employees and begin a relationship with them.
7. 9) Political Cause
During our simulation, in quarter 9,we came into the opportunity to finance a political
event supporting the senator. We were aware of the repercussions financing a political event
might bring and had to take into account how it would affect the image of our store. If we
decided to support the campaign and the senator won he had almost promised to construct a new
highway by the location of our store. This would increase our sales as much as 25% because
more people will drive by our store. Among the options we had to choose from there were:
contributing with the campaign by donating money to support the senator, encourage employees
to help call voters in behalf of the senator, help the League of Voters to call encouraging people
to participate in the elections without supporting any particular candidate, and take no further
action regarding the campaigns. We ultimately decided that we will not support or finance either
political complain. We didn’t want to lose customers and affect the business because we chose to
finance one side or another. We want every customer to feel the same about our business, and
not feel that we favor based on the political side they support. Instead of supporting and
financing one particular campaign, we decided to help the league of Voters man phones to help
get citizens to vote in the election, without supporting any particular candidate. We wanted to get
involved in the election but in a way where we can help the community as a whole, not just the
supporters of one particular candidate. Our business is not based on politics, and we do not want
our customers to feel that it is in any way.
10) Homecoming Festivities
In quarter 10 we were asked to participate in the local football college homecoming
event. This homecoming event includes an elaborate parade and other festivities, which has
8. shown to be a great exposure for businesses involved. Not only its great advertising but also a
newspaper report stated that employees involved in community events seemed to increase their
job satisfaction. This all means good exposure, customer interaction, and happy employees while
at the same time involving ourselves in the community events. The only inconvenient is that all
charges will be placed under other expenses, which is not good news to our stockholders.
Ultimately we decided to hire a local flying service to pull a banner over the parade route. Other
than advertising our store, we also wanted to support the community that we are part of too and
the local college. We wanted to show our support, and donated $200 to the Athletic Association.
It is important for students to stay active and be involved in sports, while they are also involved
with school.
11) The new Store
As it was the last quarter to reach to the top against our competitors, we decided to
decline the offer of opening a second store. Our inaction on opening a new store has been for the
best, as we evidently did not think we had the management time and financial ability to do so.
The time was just not right in this particular part of the year.
III) Financial Results (based on Entrepreneurship Selected Results form)
Income Statement
The results we achieved at the end of quarters 4, 8, and 12 are not so different from one
another. The prices for pants and tops went down by one dollar from quarter 4 to quarter 8 and
then stayed the same for quarter 12. The biggest difference in inventory sold regarding pants was
173 between quarter 4 and quarter 12 having sold 2,789 pants in quarter 4 and 2,621 in quarter
12. For tops the difference in inventory sold from one quarter to another was 103 from quarter 4
9. to quarter 8 and 157 from quarter 8 to quarter 12. The most notable difference in total expenses
for quarters 4, 8, and 12 is shown in quarter 12. Total expenses were $60,454 in quarter 12 while
in quarter 4 and 8 expenses took an amount of $64,720 and $65,434 respectively. In quarter 12
we decided to cut down our promotion budget from $1,500 to $500 which was one of the reasons
for the significant change in expenses for that quarter. Our expenses for advertising also went
down by approximately $2,000 cutting down evening TV and adding to the budget the
community newspaper. Regarding staff in quarter 12 we decided to cut down our staff from 10
part-time employees in quarter 8 to 9 employees in quarter 12 and made no changes to their $10
hourly wage. Ultimately our net income stayed in between the amounts of $13,000 and $15,000
for the 3 quarters. In quarter 4 we had our highest income with $14,738, in quarter 8 we had our
lowest income with an amount of $13,503, and finally the net income for quarter 12 was
$13,585.
Decisions Summary Analysis
For quarter 4 we decided to purchase 3,300 pants and 2,800 tops and to sale them at $39
and $26 respectively. Our return policy was 30 days with receipt which changed for quarters 8
and 12 to 10 days with receipt. For quarter 4 advertisement we focused on afternoon and evening
TV which made our advertising budget $12,144. For this quarter we also had a total of 10 parttime employees working at a $9.50 hourly wage. In quarter 8 we purchased 2200 pants and 2100
tops and sold them at $38 and $27 respectively. The advertising for this quarter changed a little
bit by removing afternoon TV and adding radio advertisement which made our advertising
budget $12,128. For the staff in this quarter we decided to keep the same amount of part-time
employees but to raise their hourly wage to $10. Finally in quarter 12 we purchased 2,200 pants
and 2,100 tops and maintained the same price as quarter 8. The advertisement changed
10. completely by removing both radio and evening TV and adding afternoon TV and community
newspaper which made our advertising budget $10,080. The number of part-time employees was
cut down to 9 and the hourly waged was kept at $10.
IV) Reflections
a. Applied business theories
When we were planning opening the business, we wanted to be different then everybody
else, a unique fashion store that will attract attention to people with great designed luxury
clothes. There are a lot of clothing stores around, but most of them are very alike, with same kind
of design, close price range, and similar style. Our store will provide clothes that are not
provided by any other store. We decided to open our store in a mall shopping area where
thousands of people go shopping every day. Our target market was people that like classy outfits,
and are willing to pay the fare amount for what they are getting. During the planning, we had to
think of a name for our store. The name we gave to our store was 24K. 24K is a symbol for the
most expensive and real gold. We decided to call our store 24K because the name is unique, and
it is a luxury name that compares our clothes design with gold.
b. Real world experience
After we opened the store, we set our prices to high, because we are a high profile design
store. When people look for style and classy outfit, the price should be higher than shopping for
every day clothes that we wear. It was important for a store of such a high profile to provide
excellent customer service, and make our customers happy. We hired plenty of employees so that
the services we provide at our store were in very high standards. Because of the high profile that
our store was, we had to pay our employees a high salary for their duties at work. High paid
11. employees are the employees that work hard and do their job efficiently. As we started operation
with our new business, things started to go well for the store, and we started making profit. There
were some ups and some downs for the business. Also some actions had to be taken, but at the
end of the day, it is our job to do what it takes to become successful and run a successful
business. It is not easy making decisions on daily bases, but that is what it takes to beat the
competitors and run a business like 24K at a very high rate. As holidays and special events were
coming up, we knew that there will be more customers, which meant that we had to hire more
employees so that the services would be done faster and more efficient. Also as holidays were
approaching, we had to put holiday sales, just like our competitor would and every other store in
the business world. Customers always expect a holiday and special even sale, and being a high
profile store, we had to lower the prices on our goods so that we attract more customers. Also
because of the busy working environment during holidays, we also had to raise the salary for our
employee. A high paid employee is a hard working employee. It is our duty as owners to do what
is best for our business so that we grow and beat our competitors and employee and customer
care is what we have to maintain at best.
c. If you kept the business going
Our business was doing great. We were making a lot of profit, and attracted a lot of
customers that loved our classy designed clothes. I believe if we kept on going on with our
business, we would’ve wanted to expect and open another store. Being in a business takes a lot
of time, hard work and a lot of risks. We were willing to take that risk and open another
designing store and expend around. It wouldn’t be easy to take a risk like that, but we did it with
the first store, and the risk was turned into a very successful business. We would’ve had to hire
12. more employees, look for a place where we would want our business to be located, but also
advertise our success and become more successful.
d. Advice to a new store owner
As beginners when we first started the business, it was important for us to keep tabs on our
financial records. For every business to be successful, financing is a big part of the success. It is
important to know how much money is coming in the business and how much is going out, but
also how is the business operating with the goods that we have sold and re-order more if needed.
No business owner would want to go negative because he/she doesn’t know how much money
they are spending, how much money is needed and how much money is expected or earned.
Opening a brand new business is a big risk, and people are willing to take that risk, but
sometimes they don’t realize that very small details can cast them their life savings or sometimes
put them in a big debt. People don’t really think about the negative consequences that could
happen, because they are so focused about the positives, and how much money they will make
and miss a small detail which might end up failing in the process of opening a new business.
V) Addendums: Excel spreadsheet
Sales
Cost of Sales
Gross Margin $ on Sales
Gross Margin %on Sales
Total Operating Expenses
Net Income
Net Income as %of Sales
Ending Cash Balance
Ending Inventory Balance
Average Sales Price - Tops
Average Sales Price - Pants
Breakeven Point
Sales Per Square Foot
Qtr. 1
$ 102,640
$ 48,443
$ 54,197
53%
$ 45,203
$ 6,391
6%
$ 15,543
21847
$
30
$
40
$ 52,005
$ 51.32
Year 1
Qtr. 2 Qtr. 3
$ 135,390 $ 133,892
$ 63,911 $ 66,869
$ 71,479 $ 67,023
53%
50%
$ 56,598 $ 57,270
$ 10,628 $ 7,075
8%
5%
$ 32,142 $ 37,436
$ 15,875 $ 17,656
$ 30 $ 26
$ 40 $ 40
$ 53,338 $ 62,661
$ 67.70 $ 66.95
Qtr. 4
$ 172,926
$ 87,526
$ 85,400
49%
$ 64,720
$ 14,738
9%
$ 39,408
$ 30,422
$ 26
$ 39
$ 57,537
$ 86.46
Qtr. 5
$ 140,880
$ 68,199
$ 72,681
52%
$ 59,219
$ 9,905
7%
$ 70,821
$ 7,414
$ 28
$ 40
$ 57,110
$ 70.44
Year 2
Qtr. 6 Qtr. 7
$ 146,360 $ 154,161
$ 69,917 $ 75,831
$ 76,443 $ 78,330
52%
51%
$ 59,991 $ 62,823
$ 12,757 $ 11,402
9%
7%
$ 79,222 $ 80,118
$ 11,770 $ 22,276
$ 29 $ 28
$ 40 $ 39
$ 59,342 $ 62,114
$ 73.18 $ 77.08
Qtr. 8
$ 169,621
$ 85,989
$ 83,632
49%
$ 65,434
$ 13,503
8%
$ 111,197
$ 4,700
$ 27
$ 38
$ 56,209
$ 84.81
Qtr. 9
$ 148,418
$ 73,216
$ 75,202
51%
$ 59,190
$ 12,189
8%
$ 123,957
$ 2,128
$ 28
$ 39
$ 56,454
$ 74.21
Year 3
Qtr. 10 Qtr. 11
$ 152,519 $ 146,460
$ 72,890 $ 71,942
$ 79,629 $ 74,518
52%
51%
$ 58,641 $ 74,518
$ 15,528 $ 6,331
10%
4%
$ 121,360 $ 123,671
$ 19,752 $ 21,772
$ 29 $ 27
$ 40 $ 40
$ 63,283 $ 57,670
$ 76.26 $ 73.23
Qtr. 12
$ 158,998
$ 80,599
$ 78,399
49%
$ 60,454
$ 13,585
9%
$ 148,188
$ 10,840
$ 27
$ 38
$ 57,421
$ 79.50
