Specification topic: Financial Objectives and Influences
Case Study: Perfect Pooches
Living at home and unemployed, Neelam Snell decided to do a dog-grooming course so she could look after her family pets and save money. During the course, she practised on friends’ pets, working from her garage at home. The results were so good that she was encouraged to take the plunge to set up her own business – Perfect Pooches Pet Grooming – and set about finding the funding she would need to rent a suitable shop and kit it out. She had no capital of her own, so was delighted that one of her neighbours and regular customers offered to invest in her business. Harley Miller was a local businessman who wanted to re-invest the profits he had earned in order to gain a high return, and was keen support local entrepreneurs in the process. He agreed to invest half of the £10,000 that Neelam needed to start up, in return for a 50% ownership of the business. With this offer, Neelam was able to get a grant of £2,000 from a government start up fund and a loan from her father, at zero interest rate, for the remaining £3,000. She felt that Harley’s ownership of half of the business – and its profits – was worth giving up, in return for his advice about starting up from scratch.
Neelam held an open day to meet and greet customers and their pets and show them around the new salon. This proved really popular and by the end of the day she was fully booked for her first two weeks of trading. Harley helped to produce budgets and a cash flow forecast to ensure that she avoided an expensive overdraft and to ensure that the profits gave him a share which made his investment worthwhile.
Perfect Pooch’s first year profits exceeded expectations; the salon is now so popular there is a two-week waiting list. Neelam prefers to go the extra mile for her customers – opening late and working weekends to cope with demand, and even helping identify health problems and enabling pets to get treatment in time. She does not charge any extra for these services, because she enjoys her work and believes that this is a good use of time spent with her customers. However, she has come under pressure from Harley to charge a premium price for ‘out-of-hours’ treatments and to make special appointments for her health advice sessions.
Neelam’s confidence has grown along with her business, and she is hoping to take on a part-time staff member soon, to help out with reception. She’s also full of ideas for the future; she would like to invest a further £15,000 in buying a van in order to offer dog-walking and a mobile ‘hosing-down’ service for muddy dogs at local parks. This would raise the total capital invested in the business to £25,000. She has now saved up £5,000 which will go towards this purchase, and she has to decide whether to ask the bank for a loan of the remaining £10,000, or to ask Harley to extend his investment in the business.
- Analyse the financial objectives of two of the stakeholders in Perfect Pooches (9 marks)
- In your opinion, should Neelam seek the investment she needs in order to extend the business from the bank or from Harley Miller? (16 marks)