Assignment TakenFinancial Planning for the year 2021-22 ( Budget preparation and Estimated Budget)

Case UnderstandingAirway Delivery is a courier company which majorly operates across India and delivers to most pin-codes. The company wants to add the drone based services to conduct local deliveries as it is an extension of company’s current services portfolios. It will give an edge to the company among all the courier based companies. The company has all the necessary permissions from Director General of Civil Aviation (DGCA), as it is a mandatory rule from all the flying objects in India. For a successful kick start of the business, the company has conducted test deliveries trials to check beyond the visual line of sight (BVLOS). Company has decided to start this venture as "Short Range Drone Based Services" instead of Long-Range Drone Flight operations due to high purchase cost of "Long range drones". Company Intend to build an end-to-end Drone Operations & Management Platform through which a rapid scaling of business can be achieved. The firm can be termed as a success in its year one of operations as the total revenues. However, the firm has its own set of flaws. The total revenue from the firm is less than the cost incurred for the first quarter. In this quarter, the firm suffered a loss of over Rs. 3007200 which is a huge amount for a company venturing into drone based services. The firm has incurred a huge expenditure in the form of advertisement. This is not sustainable as the huge amount of gross is spent on salary. The goal should be to minimize the expenditures and create net profit. It is looking into avenues of expansion: into non dense areas in the cities mentioned above as well as in other cities that have the demographic that the firm targets. Expansion requires more monetary resources as it paves way for more logistics to be included in the chain and more marketing expenditure. Hence the finance department has to figure out a way to figure out the best possible way that the expansions could be carried out so as to break even if not make profits.

BCS Solution SummaryBudget – The Budget has been prepared conservatively. The Budget for Whole Division for Financial Year 2021-2022 is given Rs. 10 Crore. As far as Financial Planning is concerned, the expenditure during the FY 2021-2022 for a drone delivery services can be said to be moderate. The fact remains that drones are not as expensive of trucks or vans and the maintenance of drones is still within the reach of a serious minded entrepreneurs. As a financial planner, planning is expected to spend most of the budget amount on renting a standard warehouse and paying professionals who helps to man the drones. The key areas where most of the budget amount has been spent:- 1. Digital Marketing 2. Promotional Material 3. Company Website:- • Website development • Domain and server hosting • Web designer’s salary 4. App development:- • Android app development cost • Google developer subscription • Ios app development cost • Ios app library subscription cost • App developers salary • UX Designer’s salary 5. Drone operations:- • Drone charges • Software cost for drones • Drone maintenance cost • Qualified drone operators salaries 6. Other miscellaneous expenses We estimated around 3-4 crores to successfully set up our commercial drone delivery services business. And therefore still we utilized the remaining 6-7 crores in purchasing more large and short range drones and hiring of employees for drone maintenance and operations.

Solution

The detailed budget is attached as a pdf file.

The assumptions used for creating the budget are given below:-

Revenue Streams – Airway Delivery is a courier company involved in the business to deliver parcels with the aid of drones in and around India.

In essence, the source of income is delivery of initial participants such as Food delivery companies, few pharma chains and local deliveries and will be the delivery of medicines, into and out of remote areas and transporting packages, machine components, food and other goods with the aid of drones.

Therefore, Keeping this is in mind Average number of orders received daily is increased by 15% in every quarter from the previous quarter. Average charges per delivery using drones is the average price of 1of interest and Net income from previous quarter.

Costs Streams :-

Marketing Costs – Airway Delivery has a long term plan of expanding Drone delivery services all around India which is why we have deliberately build our brand to be well accepted in India before venturing out.

As a matter of fact, our publicity and advertising strategy is not solely for winning customers over but to effectively communicate our brand. Despite the fact that our drone delivery services has reached to most of the pin codes around India we will still go ahead to intensify promotion for the business.

Therefore, In every quarter company increased 2% more than the previous quarter in Digital marketing and Promotional Material Costs.

IT Costs – We hired experts who have good understanding of the commercial drone delivery services line of business to help us develop web designing, developer subscription, etc which are one time costs. And Web designers salary which is 2 @ 2.1 lac per quarter.

HR Costs – The intention of Airway delivery is of starting a commercial drone delivery business to build a standard business that can favorably compete with leaders in the industry. Will ensure that we put right structures in place that will support the kind of Growth that we have in mind while setting up the business.

Therefore, App developer’s Salary – 3 @1.2 lac per quarter after every year it is assumed to increase 1 person for upcoming 4 quarters. And the same assumption goes for Qualified Drone operators – 3@ 1.5 lac per quarter and UX Designer’s Salary -  2@1 lac per quarter. Management Team – 2@3 lpa per quarter.

Other Miscellaneous Costs – Rent + Web + Electricity+ Phone charges which are 30,000 per month are assumed to increase by 10% every year.

Packing Material which is assumed to increase by 5% in every quarter than the previous quarter. And Legal and Auditing Charges, licenses and Approvals, Taxes and Supplies are fixed costs which are same for every quarter.

Sustainability and Expansion Strategy

The future of a business lies in the number of loyal customers that they have, the capacity and competence of the employees, their investment strategy and the business structure. If all of these factors are missing from a business, then it won’t be too long before the business close shop.

One of our major goals of starting Airway Delivery is to build a business that will survive off its own cash flow without the need for injecting finance from external sources once the business is officially running.

We know that one of the ways of gaining approval and winning customers over is to offer our drone delivery services a little bit cheaper than what is obtainable in the market and we are well prepared to survive on lower profit margin for a while.

Airway Delivery will make sure that the right foundation, structures and processes are put in place to ensure that our staff welfare are well taken of. Our company’s corporate culture is designed to drive our business to greater heights and training and retraining of our workforce is at the top burner.

We know that if that is put in place, we will be able to successfully hire and retain the best hands we can get in the industry; they will be more committed to help us build the business of our dreams.

Therefore, the remaining 6-7 crores from the budget is utilized in the next financial year by purchasing 105 Long range drones and 73 short range drones as company is looking forward to exploring  more business areas for cost- effective cargo deliveries and company wants drone services to add value to end users and as it is an extension of company's current services portfolios.

ConclusionThe above mentioned interventions helped the company in becoming operationally profitable and the company’s budget shows that the company would not go into a loss after that. Hence the interventions were successful in making the company generate a surplus. This surplus could now be used to invest in the company’s expansion plans to more other states as well as invest in the company’s research and development. Also the future projections for the company shows that it has the ability to attract venture capitalists or other people interested in private equity. Airway Delivery is in its way to the long run as its current financials for the year and financial projections are very strong.