Business Law Question

 

 

 

 

 

 

 

 

 

XYZ CAR RENTAL COMPANY
Business Plan

 

 

 

 

 

 

 

700 S ISIS AVENUE, INGELWOOD CA 90301
p. (424)386-1148
f. (424)415-2744
XYZ@carrental.com

Table of Contents
I. Executive Summary 2
Highlights Objectives Mission Statement Keys to Success
II. Description of Business 3
Company Ownership/Legal Entity Location
Interior
Hours of Operation Products and Services Suppliers
Service Manufacturing Management
Financial Management
Start-Up/Acquisition Summary
III. Marketing 6
Market Analysis Market Segmentation Competition
Pricing
IV. Appendix 9
Start-Up Expenses Determining Start-Up Capital Cash Flow
Income Projection Statement Profit and Loss Statement Balance Sheet
Sales Forecast Milestones
Break-Even Analysis Miscellaneous Documents

Executive Summary
Highlights
The organization aims at providing quality car rental services to the customers in Los Angeles. The goal of the company is to balance the different startup costs and the earned profits by the end of the first financial year.
Within the first year of operation, there is an expectation of high sales amounting to $1,624,700. Despite this being a startup company, the Los Angeles car rental market is unexplored. This will pave the way for making high sales. However, there is also an expectation of a low net profit as compared to the next two years. The projected net profit is $82,986. The variation between the total sales and the net profit is as a result of the high startup costs. In the second year of operation, there is an expectation of an increase in the number of sales. The projected amount is $1,822,550. The increase is attributed to the consolidation of the company in the market. In addition, the net profit is expected to increase to $120,842 as a result of the elimination of costs of operation. In the third year, there is an expectation of an increase in the number of sales. The expected revenue from the sales is $2,390,190. By the third year, there is an expectation that the company will be in a stable position. The expected net profit is $232,029. Based on these projections, the company is expected to have a positive growth as a result of the gradual increase in the number of customers.
Objectives
The focus of XYZ rental company is to provide quality services to the customers and achieve profits in return. The main objective of the company is to provide a reliable and friendly customer base so as to establish a loyal customer base. The sub-objectives of the company are:
• Make customers understand that hiring a car is better as compared to buying
• Provide transport solution that is cost effective
• Provide quality services ensuring reliable, safe, timely, and comfortable service
• Effectively ensuring ethical business practices

Mission Statement
A customer experience that is driven by value and defines the company’s character through quality and friendly service
Keys to Success
• Optimum car fleet utilization
• Satisfaction of the customer
• Quality services
Description of Business

XYZ car rental company is an electric car rental company that focuses on quality and reliable car rental services. The company was set up in 2022 by three entrepreneurs who have experience in car rental business. The focus of the entrepreneurs is on the following areas:
• Customer satisfaction
• Quality service
• On time departure and arrival
• Regular audits to ensure statutory compliance.
The company is focused on the provision of the following services; long term car rentals, airport transfers, car rentals, event transportation, fleet management, and luxury cars. The requirements of the customers are fulfilled by providing dedicated, committed, and experienced resources. The business will have an online management system for the customers to access different services. The cars will be insured and fully licensed. The intention of the business is to operate with a fleet of 25 cars which include executive and luxury electric cars.

Company Ownership/Legal Entity
XYZ Car rental company is a partnership owned by two individuals. In the business, there is an agreement to share the risks, profits, and responsibility that arise as a result of carrying out the day-to-day operations. There is one investor who is the majority shareholder of the organization. There is one investor who is a silent partner with limited liability.
A contractual agreement will be adopted in this company to form specific processes that will be followed by the management, owners, employees, and the investors. As this is a new company is a highly competitive market, a partnership is idea as it has a simple operating structure. The simple structure involves easiness during the establishment, and no legal forms are required. Flexibility will also characterize this partnership. The company intends to ensure there is flexibility in management hence the focus on making the company a partnership.

Location

Business is located in Los Angeles near LAX. The specific location will be 700 S Isis Avenue. in this location, there is a charging point for the company’s vehicles. This ensures convenience. This location is ideal as the market in Los Angeles is not adequately explored. Currently, the number of companies offering electric rental cars are in low numbers. The car hire companies in Los Angeles tend to charge high prices as a result of the use of fuel vehicles. The provision of cheap rental cars will contribute to the increased attraction of passengers from Los Angeles International Airport. In addition, the location will allow the acquisition of potential student customers from West Los Angeles College.
Interior
The interior of XYZ car rental company will be design such that it is attractive to the current and potential customers. The front section of the office will sit on a 900 sq. ft. space. The space will comprise of a reception, the finance office, managers, office, and an open plan office section in charge of processing the different requests by the customers. The office space provides space for customers to interact with the employees and also access different offices of the company. The office compound will have a compound with a width of 50 yards and 100 yards in length. The space will accommodate the number of cars for the company.

Hours of Operation
Every day from 8am to 5pm, and from 6pm to 3am. The working hours are aimed at maximizing the sales of the company by targeting passengers from the airport.
Products and Services
The services to be provided by the company are determined so as the primary permits can be acquired and employees hired. We will be having electric standard and luxury cars. These cars will be given on set packages as brought out below:
• 1 day car rental service- customers will be offered cars for one day in exchange for $25 for standard cars, and $30 for luxury cars.
• 1 week car rental service- the cars will be provided to the clients based on a five days charge as compared to a 7 days charge. There will be an option to select the pickup location for the customers
• 1 month car rental service- the cars for one month will be available for the customers on a 25 days charge. The customers will be required to avail themselves at the office locations. The rental service for one month will not be provided online.
• Car drivers- this service will differentiate the company from others in Los Angeles. Car drivers will be offered to the customers considering the three different services.
Regular clients will benefit from discounts and packages. However, in the case of an emergency, there is no customer who will be exempted from the recovery charges except for those who have acquired the company’s driver services.

Suppliers
The main type of suppliers for the company will be electric car suppliers. The company intends to partner with the suppliers of electric cars in an effort to eliminate the costs arise with the use of middle men. With the direct contact with the manufacturers of electric cars, it is possible for the company to benefit from discounts and after sale services. To prevent the possible failure of cars from one company, there electric car companies will be used as suppliers. The main suppliers will be Lucid Motors and Rivian. These companies provide both regular and luxury electric cars. The initial cars will be supplied by these two companies on a pay before delivery basis. There is an expectation that Lucid Motors will deliver 8 regular and 7 luxury vehicles. Rivian, on the other hand will deliver 7 regular and 3 luxury vehicles. The variation in the number of regular and luxury cars is as a result of the increased preference of regular electric cars in the market. An agreement will be reached with Lucid Motors and Rivian so that they can handle the servicing. After the first five years, the Lucid Motors and Rivian will supply additional cars on a trade in basis.

Service
The main service provided by the company is offering car rentals to the customers. However, the company will be involved in the provision of other services for the returning and potential customers. Other services by XYZ Car Rental company include:
• Membership services-just like other car hire organizations in Los Angeles, XYZ Car Rental Company will offer a membership service. The main benefit of this service is to ensure customer can make quick reservations and also access discounts. Upgrades to luxury cars is also enjoyed under membership services.
• Insurance-XYZ Car Rental Company will offer the customers car insurance upon renting a car. By making sure the customers are all covered, they are bound to choose the company again
• Rental of car equipment- this service will be provided to customers on varying pricing. Some of the equipment available for hire by the customers include additional seats, GPS systems, special seats, and different adventuring equipment.

Management
XYZ Car Rental Company will have substantial personnel to provide customers with important services. The owner will be in-charge of supervising the operations of the company. Additional employees will still be hired including IT experts, customer service assistants, receptionists, and general workers. This will ensure the smooth running of the organization. The organizational chart of XYZ Car Rental Company is brought out below.

 

 

 

 

Financial Management

The financial management aspect will be handled by the finance department. Al l the expenses related to the business will be approved by the owner. The major financial assumptions of the company are provided in the appendix.

 

Start-Up/Acquisition Summary
After the selection of a location for the business, it was found viable to lease a commercial property located in 700 S Isis Avenue. The startup capital for the company will be used for car purchase, legal expenses, insurance, property purchase, promotion, and miscellaneous expenses. The decision to lease a property as compared to purchasing was arrived at as a result of the high expenses that arise with purchasing. It is estimated that the startup capital required is $4,000,000. The startup financing will be provided by the owner and one investor. The owner is the majority shareholder with the initial capital of $3,300,000. The startup costs will be adequately covered by the initial capital invested. The company does not require any commercial loan hence the increased focus on the investors who provide all the capital. The investor finances will be used to purchase cars, equipment, property and employment of personnel. The cashflow analysis brought out in the appendix section indicates the ability of the company to handle additional costs that arise during startup.

Marketing

 

Market Analysis

There are more than 25 car rental companies in Los Angeles. These companies have consolidated their position in the market by acquiring a large number of customers. Despite the existence of other players in the market, the company is expected to expand within the first three years of operation. In U.S.A, the car rental business is expected to grow by 2.4% in the coming years. Based on this, there is potential for XYZ Car Rental company to be productive. In 2021, a revenue of approximately $50 billion was generated which is an increase from the previous years. The market has also proved to be a source of employment having employed more than 150,000 people.

Market Segmentation

Before the creation of this business plan, a detailed survey was carried out to analyze the market gap that exists in relation to car rental business. Based on the response of selected people in Los Angeles, it is clear that there are multiple situations that make people hire a car. Students and tourists tend to comprise a high percentage of the overall market. Based on this, the target market can be divided into: students, residents, and tourists. The segmentation of the Los Angeles car rental market is brought out in the pie chart below.

Tourists and students will form a high percentage of the overall customers of the company. A high number of tourists prefer to hire cars as compared to the use of public transport in Los Angeles. By the provision of our services, the acquisition of rental cars will be simplified as cars will be dropped at the agreed location. Students from around schools are significant target for the company. Majority of students do not own cars which results in great opportunities for the company. The residents and senior citizens in Los Angeles are also targeted by the company. The residents will choose electric rental cars due to their cheap nature.

Competition

The biggest competitor in Los Angeles is Enterprise Car Rental. This company is highly rated and has a high number of customers. It provides customers will electric car rental options. The company is strategically located around Los Angeles Airport. In addition to the existence of Enterprise Car Rental as the main competitor, other competitors who deal with electric cars are; National Car Rental, Alamo Car Rental, Aco Car Rental, and Addcar Car Rental. To handle the competition, the focus will be on the provision of convenience to the customers through an online platform. Driving services will also be provided to the customers who do not want to drive the cars. The crew and policies of the company are meant to comfort the customers. This will contribute to the attraction of new customers.

 

Pricing
As XYZ Car Rental Company will enter the market with certain aspects that are competitive, there is a need to set a price that is competitive. The prices of the company will be low as compared to those of established companies. For regular cars, the price will be $25 whereas for luxury cars, the price will start at $30. However, the price will be specific based on the number of passengers carried by the cars.

Advertising and Promotion
The advertisement and promotion of XYZ Car rental Company will be done by use of print media. In addition, influencers will be used to market the services of the company. Billboards will also be erected around the airport area to further target the tourists. The aim of the process of advertising and promotion is simplicity. Based on this, the company will also invest in social media advertising. On social media advertising, the focus will be on the use of Facebook and Instagram as the main platforms.

Strategy and Implementation

The main strategy for XYZ Car Rental Company is market penetration. In the adoption of this strategy, the focus will be on tapping on the existing services in the market. The implementation of the market penetration strategy will involve adopting new services that are currently not in the market. These services include the provision of equipment services for the customers. Market penetration strategy will be adopted in the first three years of operation.
Appendix

Start-Up Expenses

Legal $160,000
Insurance $75,000
rent $70,000
equipment $130,000
consultants $0
Interior Modifications $20,000
Startup assets $850,000
Start-up inventory $60,000
signs $3,300
Advertisement $10,000
employees $75,000

$1,453,300
TOTAL STARTUP EXPENSES

Determining Start-Up Capital

Startup funding
Start-up expenses $613,000
Start-up assets $540,000
TOTAL FUNDING NEEDED $1,153,000
Assets
Non-cash Assets $850,000
Cash Requirement $700,000
Additional Cash Raised $50,000
Cash Balance $70,000
Total Assets $1,670,000
Liability and Capital
Liabilities $70,000
Accounts Payable $40,000
TOTAL LIABILITIES $110,000
Capital
Planned investment $3,300,000
Investor $700,000
Total Planned Investment $4,000,000
Total Funding $4,000,000

 

Cash Flow

Cash Received 1st Year 2nd Year 3rd year
Cash from company operations
Cash Sales $56,000 $58,000 $62,500
Cash from Receivables $3,000 $8,000 $8,500
TOTAL CASH FROM OPERATIONS $53,000 $50,000 $54,000
Additional Cash $0 $0 $0
TOTAL CASH RECEIVED $53,000 $50,000 $54,000
Expenditures
Cash Spending $23,000 $25,000 $20,000
Payments $13,500 $15,500 $21,000
TOTAL ON OPERATIONS $36,500 $40,500 $41,000
TOTAL CASH SPENT $36,500 $40,500 $41,000
Net Cash Flow $17,000 $18,300 $19,200
Cash balance $19,500 $22,200 $21,800

Profit and Loss Statement

1st year 2nd year 3rd year
Sales $995,000 $1,120,000 $1,425,000
COST OF SALES $995,000 $1,120,000 $1,425,000
Gross Profit $630,000 $715,000 $915,000
Gross Margin 37.5% 36.3% 35.7%
Expenses
Payroll $350,000 $375,000 $415,000
Marketing $3,300 $3,500 $3,500
Depreciation $2,010 $2,115 $2,011
Utilities $4,500 $4,950 $5,230
Insurance $1,500 $1,500 $1,500
Rent $7,500 $7,500 $8,000
Taxes $52,300 $53,250 $55,450
Total Expenses $421,110 $447,815 $490,691
Profit before taxes $309,624 $295,842 $226,362
Taxes incurred $28,500 $31,200 $32,300
Net profit $82,986 $120,842 $232 029

Balance Sheet

1st Year 2nd Year 3rd year
Assets
Current Assets
Cash $286,000 $310,500 $363,000
Accounts Receivable $18,200 $19,100 $21,500
Inventory $4,350 $4,800 $5,100
TOTAL CURRENT ASSETS $308,550 $334,400 $389,600
Long-term Assets
Depreciation $13,300 $14,500 $15,100
TOTAL ASSETS $321,850 $348,900 $404,700
Accounts Payable $10,200 $11,300 $12,050
Current Borrowing $0 $0 $0
TOTAL CURRENT LIABILITIES $10,200 $11,300 $12,050
TOTAL LIABILITIES $10,200 $11,300 $12,050
Paid-in Capital $28,000 $28,000 $28,000
Retained Earnings $47,000 $51,000 $62,000
Earnings $112,020 $$156,000 $178,000
TOTAL CAPITAL $189,000 $222,100 $270,500
TOTAL LIABILITIES AND CAPITAL $199,200 $233,400 $282,550
Net Worth $198,600 $232,000 $281,050

Sales Forecast

The sales forecast for the company are brought out below.

Break-Even Analysis

 

Break-even of monthly units: 4330
Break-even of monthly revenue: $124,000
Assumptions:
Average revenue per unit: 278.43
Average variable cost per unit: $0.77
Estimated monthly fixed cost: $198,463

 

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