6 hours, JWI599 week 7:Discussion:Funding Your Plan and ROI

Hello Dr. Anderson and Class,

 

· How will you fund the startup and ongoing costs for your strategic initiative?

JDS Industries will fund the acquisition of Far From Normal Supply with an equal distribution of cash and seller note financing (Deeb, 1).  $7M will be provided in cash at the closing of the acquisiton, and the remaining $7M will be paid in equal installments of $1M across seven years.  

· How will your plan improve the organization's financial health relative to its competitors?

The financial plan for JDS Industries will improve our strategic position within our existing playing field and the expansion into the emerging direct-to-substrate printing.  As the major competitors in our market area are concentrated on the sign and graphics supply product mix, JDS will leverage our footprint in the personalization market to attract the emerging customer interest to invest in our products and services.  Also, one significant improvement we will leverage will be our $99 order value for prepaid shipping.  Our competition today is offering prepaid shipping on orders of $150 or more.  Combined with offering daily delivery, JDS is confident in our improvement to our organization and our partners' financial growth – customer and vendors. 

 

· How does your plan compare to your company's average (or industry average) profit margins for similar projects or services?

The consensus on strategic financial outlook is a conservative forecast with revenues of current operations to expand by 13% in 2021 as business begins to return to normal (JWMIM599, 2).  In the following years, we forecast a combined operations revenue increase of 7% (4% from JDS operations and 3% from Far From Normal operations).  This forecast is conservative with current business trends for JDS operations. We expect a correction in revenues to return to a positive with Far From Normal operations after a three-year YoY loss.

 

The forecasted profit margins inclusive of the acquisition will be approximately 33% from FY22-FY27.  We are applying the principle of averaging the JDS five-year gross profit margin of 39% with the Far From Normal gross margin of 27% across the last five years.  This projection is conservative with expectations of an annual gross margin beginning FY2028.  

· Why is your proposed plan superior to other options to strengthen the long-term financial health of the organization?

This proposed plan is superior to other options because it allows for a more assertive entry into the sign and graphics market, with the core vendors associated with Far From Normal Supply.  The option for financing the acquisition strategically with 50/50 (cash/notes) affords JDS to retain our cash on hand for immediate and unexpected events (Deeb, 1). 

 

Reflecting on the Cost/Benefits Analysis data (Appendix A), JDS will incur ongoing expenses providing a 1% bonus for three years for the key leaders coming onboard with Far From Normal.  JDS is also incurring an upfront expense of purchasing delivery vehicles for the existing JDS locations. We feel offering daily delivery will be a key strategy in our market expansion.  JDS also is budgeting for a 2% commission structure that is not in our standard operations today.  We will incur this expense as a standard financial incentive from the Far From Normal operations (JWMIM599, 2).  Based on JDS historical trends with marketing expenses, we forecast an increased investment of 3% after the acquisition.  This increase will account for expanding our e-commerce site, trade show attendance, and other miscellaneous expenses to promote our new business strategy.  Last, as mentioned, JDS will incur a $1M cost for the first seven years to pay off the remaining sale price. 

 

As part of our strategic plan to incorporate local delivery services, we forecast an operational savings of $12K per year, offsetting shipping costs with delivery costs. 

 

References:

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1. Deeb, G. (September 4, 2020). Forbes - “Top 6 Ways to Fund a Merger or Acquisition.” Retrieved from  https://www.forbes.com/sites/georgedeeb/2020/09/04/the-top-6-ways-to-finance-a-merger-or-acquisition/?sh=6d7edd5b6a78

2. JWMIM599. Week 7. Experts of Practice Video. Financial Forecasting

3. JWMIM599. Week 7. Cost-Benefit Analysis Worksheet