Strategic Financial Planning for Luxury Brands BUSFIN402

Overview

In this group assignment, your team is required to produce and present a strategic financial plan for ahypotheticalluxuryperfumebusinessusingtheupdatedBusinessPlanTemplate(v2)Excelfile.The exercise involves making and justifying key business assumptions, forecasting sales and costs, evaluating financing strategies, and testing constraints based on realistic business limitations.

Thisassessmentbuildsyourabilitytoapplystrategicfinanceprinciplestoreal-worldluxurybusiness challenges using practical Excel modelling.

ScenarioBackground

You are part of a strategic finance team advising a new luxury perfume venture preparing to launch. Youareresponsibleforbuildingadetailed5- years businessplanusingtheprovidedExceltemplate, making assumptions, inputting data, and providing a rationale for key strategic decisions.

KeyGuidelinesandTasks

Yourteamisexpectedto:

1. InputDataandJustifyAssumptions

• Inputassumptivedataintowhite,borderedcellsintheExcel

• Uselogicalreasoningtodefine:

  • Salesprogressionthroughoutforecastperiodbearinginmindthisisanew product launch

1. Please consider whether to launch Online and Wholesale at the sametimeorstartwitheitherOnlineorWholesale,bearinginmind considerations such as stock purchases, staffing etc.

   • Numberofunitstobesoldonlineandtodistributorandwhat,ifany, average discount to apply online (see constraints below)

• Staffcostsincludinggrosspayandemployersocialsecuritycontributions (see constraints below), bearing in mind that staff need to be recruited ahead of sales growth if the company is growing fast

• Officesizeandimplicationsoncostvsstaffheadcount

• Marketingspend(shouldnotexceedasetpercentageoftotalrevenue)

• Distributionandwarehousingcosts(startat10%ofnetsalesandreduceto 5% with scale, see constraints below)

• WebsitedevelopmentCAPEX(justifyincreasesorsavings)

• CostofGoodsSold(COGS)basedonprocurementstrategy

2. IncorporateBusinessConstraintsYourplanmustcomplywiththefollowing:

• Ecommercesales

  • Averageannualdiscountofbetween5-20%,withhigherdiscountsdriving unit sales growth

• Wholesale/distributorsales:

  • 85%discount=immediatepayment

  • 80%discount=30-daypaymentterms

  • 70%discount=60-daypaymentterms

  • 65%discount=90-daypaymentterms

  • Thetermsabovearetobeinplaceforaminimumofthreeyears

  • Wholesale/distributorsalesnottoexceed40%oftotalretailvalueofsales from 2027 onwards

• COGS/Stockpurchases:

  • 5%ofRRPwith0-daypaymenttermsandminimumpurchaseorderof

2M

• 15%ofRRPwith30-daypaymentterms

• 5%ofRRPwith60-daypaymentterms

• 20%ofRRPwith120-daypaymenttermsandminimumpurchaseorderof

6M

• Attheendofeachfinancialyearthereshouldbeaminimumof20%ofnet sales tied up in stock

• Thetermsabovecanbere-negotiatedeveryyear

• Ecommercestaff

  • Maxnetsalesperstaffmember=500k

• Wholesale/distributorstaff

  • Maxnetsalesperstaffmember=500k

• Averagesalary=55kpaperemployeeoverforecastperiod

• Total marketing spend to be between 25% and 40% of revenue, depending on growthprofileofbusiness(thefasterthegrowth,themoremarketingisrequiredin advanceofrevenuegrowth).Exceptionisyear1wheremarketingspendcanbeup to 50% of net sales

  • Digitaladvertisingspend=minimum10%ofe-commercesales

• Minimumofficesqftperstaff=100sqft

  • Rent=minimum100/sft

  • Utilitiesetc=20%ofrent

• Distribution&Warehousingcoststostartoffat10%ofnetsales

  • 1%ofnetsalessavingsachievedforeveryincremental5Minnetsaleswith maximum savings of 5% of net sales

• Ecommercecostsstartoffat5%ofnetonlinesales

  • 4%ofnetonlinesalesifnetonlinesalesareover5Mbutlessthan10M

  • 3%ofnetonlinesalesifnetonlinesalesareover10M

• Websitecapexoverperiodmustbehigherthan10%ofonlinenetsalesover period

• EBITDA can be negative in years 1 & 2 but must show progression towards profitabilityandthecompanymustbeEBITDAbreakeven/positivebyyear3

  • EBITDAmarginmustbebelievablewithinthecontextofluxurybeauty

• Capitaln mustberaisedthroughDebtorEquityinjection(includeinterest/dividend assumptions)

  • Equityinvestmentofbetween5M-20M

  • Thecashbalanceattheendofeachyearmustbepositive

  • Possibilitytoraiseequityandpaybackshareholderswithintheforecast period, or raise debt and repay within forecast period

  • Possibilitytodoadebt/equityswap

  • EBITDA/NetInterestmustbegreaterthan5x(fordebtservicing)

  • NetDebt/EBITDAnogreaterthan5x

  • Costofdebt=10%

• ReturnoninvestmentforequityshareholdersasmeasuredbyIRRisthemost important metric for assessing the business plan

  • Assumeanexitin2029onamultipleof13x2029EBITDA

3. ConductFinancialAnalysis

• Analyse:

  • Revenue,grossprofit,operatingprofit,andEBITDA

  • Break-evenandcashflowposition

  • Returnoninvestment(ROI)

  • NPVandIRRanalysis

  • Impactofdebtvsequitydecisiononfinancialsustainability

4. DevelopaStrategicArgument

• Presentaconvincingrationalefor:

  • Pricingstrategyandsalesvolume

  • Trade-offbetweenmarketingandexpectedsalesuplift

  • Distributionscalingefficiency(10%?5%)

  • Financingchoices(costofcapitalandbusinesscontrol)

5. PrepareaProfessionalPresentation

• 15-minutegrouppresentationfollowedbya5-minuteQ&A

• IncludekeyExceloutputs(greycells),graphs,andsummarytables

• Clearlyarticulateassumptions,outputs,andstrategicrecommendations

AssessmentCriteria

Yourworkwillbeassessedusingthefollowingcriteria:

LearningOutcomesAssessed

• LO2:Understandkeyconceptsofmanagerialeconomicsandtheirapplicationtoluxuryfirms

• LO3:Examinetheinterrelationshipsbetweenpricing,marketstructure,andluxury positioning

• LO5:Appreciatehowmacroeconomic,financial,andluxurycontextsimpactinvestments

• LO6:Criticallyexaminesourcesandusesoffundsandimplicationsonbusinessplanning

SupportingDocumentsProvided

• Excelfile: Business Plan Template xlsx