Entrepreneurial Finance

You will be required to answer the questions which relate to a finance and entrepreneurship case study.
Use of the electronic resources offered by the College library and suitable key words will reveal many pertinent academic journal sources. Clearly, researching on and around the topics covered in the case study and using such material to answer the question is very important.Please identify any supporting evidence to help justify any assumptions that have been made. You may need to make assumptions, please clearly identify them as such.

With reference to the VW Camper Van case study that forms part of this module please address the following three questions assuming you were evaluating setting up a similar business:

(1) Where might funding for this type of venture come from ? Evaluate which one would you choose. (max 550words)
(2) Create your own five year financial plan (from start-up) that you would use to impress potential investors. (Use notes and appendices to show detailed calculations.)
(3) Using your year five financial forecast, how might you value the business ? Critically considering the advantages and disadvantages of a full range of exit strategy options, justify which one you would choose. (max 550 words)
Each question carries the same weighting.

Use data and assumptions from the VW Camper case study appropriately. Note any other assumptions made. The use of impactful summary diagrams, models and tables is encouraged and they are not included in the word count. The accurate Harvard style bibliography will be at least two pages long, use double line spacing and include a range of academic journals, academic texts and authoritative web sources in about equal proportions.

this is a case study:
Business opportunity

You have spotted a market opportunity building on the increasing popularity of environmentally friendly do not fly holidays known affectionately as glamorous camping or ‘glamping’. The camping market has been established for many decades but went rather out of fashion with the emergence of affordable package holidays (flights, transfer and accommodation) using charter airlines that were increasingly prevalent from the 1970’s in northern Europe.
You plan to set up a business that rents out a number of VW camper vans. The niche you have identified is relatively affluent middle income families who choose camping perhaps for ethical or environmental reasons rather than on economic grounds. Additionally, other market segments include adult pairs such as empty nesters and young professionals who appear to be comfortable with paying a premium for a novelty experience.
An increasing number of novelty or themed propositions have emerged in this market area to compete with the traditional camping and caravanning (static and mobile) markets, for example using yurt (central asian originating felt domes) and camper van rentals. Competition is intense, business venture success requires a strongly differentiated proposition that generates powerful word-of-mouth (WOM) referrals and an emotionally resonating experience that sustains a premium pricing concept.
You plan to rent a small space in an industrial park to be used for storage and customer exchanges. You have another business near by where you plan to spend three or four days. You will undertake all the sales and marketing activities, predominantly attending events with a van in the summer months and operating the website, which hosts the booking system. You will undertake the client rental briefing sessions usually an hour long, ensuring that customers are fully briefed on the various mechanical foibles and feel comfortable with the array of provided equipment. Aside from insurance and the costs of keeping the vans roadworthy the only other cost incurred is the outsourced mobile valet, who is also able to provide rental handover.
The customer proposition

The camper vans are to be decorated with retro themed curtains and upholstery, epoch inspired pastel coloured exteriors and a complete range of state of the art audio visual entertainment including a large screen television with integrated DVD player, surround sound system and full iPod connectivity. All cooking, camping and sleeping equipment is to be provided, renters merely need to bring their clothes and food. Tea and coffee making equipment is provided as are a full range of extras such as washing up liquid, dish cloths and bin bags. The concept is to offer a fully loaded bus, with everything needed already on board for a stress free rental experience. Customers are buying the experience of a cherished vintage style automobile that has achieved a cult status for cool, that combines escapist notions of freedom and adventure. The chance for a weekend or perhaps longer to join a community that seeks out the independence a camper van can provide. Customers would typically use the vans to undertake a tour heading off to the countryside or coast, stopping at campsites along the way.

VW camper van heritage

The type 2 VW camper van emerged in the 1950’s as a micro bus variant of the VW Beetle, and quickly became popular for its flexibility of function and modest cost. Panel vans (no rear windows or seating) were used by traders and the emergency services. Three rows of bench seating offered an early multi-person vehicle or mini-bus and companies such as Westphalia, Devon, Viking and Danbury modified stand tin top models into camper vans with roof conversions that allowed adults to stand up inside. With convertible rear seats that rolled flat into a double bed and the provision of a kitchenette with basin, leisure battery powered fridge and cooker the vehicle could provide a versatile home-from-home. The earliest versions, produced in the fifties and sixties in VW’s German plants, were dubbed splities because of the flat, two panel windscreen. Innovation in glass manufacturing saw the introduction of curved windscreens and the second version, known as the bay after its curved front windscreen, was produced in the seventies. Popular in youth culture, campers were synonymous with the peace movement notably adorned with psychedelic paint schemes proclaiming “peace” and “love”. They offered a cheap and convenient mobile home cherished at political protests and festivals such as Woodstock and became entwined with the hippie culture. In the eighties, with the launch of the more linear T25, the VW commercial vehicle design became less curved and adopted more conventional box shape that offered little differentiation with the competition. Round eye like head lights, that endeared many to personify their buses with names and highly individualistic decorations, were replaced with less iconistic linear shapes. At the same time, with Mediterranean charter or package holidays becoming more popular, domestic vacations rather fell out of fashion. The old manufacturing lines headed out to South America, Mexico for the Beetle where they were still popular as taxis into the 21st Century and Brazil for the camper van where they continue in small scale production. Many buses spent time languishing off road as owners struggled to finance road worthiness, rusting unfashionably. In the nineties, with vans and parts very affordable, keen restorers began to see upward movement on van prices and demand for restoration projects and road worthy holiday vans was strong. There is quite a strong community of VW officionados which supports numerous specialist maintenance and sales outfits, importing old vans from USA, South Africa, Australia (“rust free”). Several monthly colour magazines operate (one dedicated solely to VW vans) celebrating van restorations, with show quality (mint condition) models showcased in a rebuild that might include seeing a rust bucket being dug out of a hedge after 25 years.
Financial Considerations

An important choice needs to be made regarding the type of vehicle that would be offered for rent. Initial market research quickly established that the linear T25 and more modern vans, whilst offering better driving technology, lacked the psychological attractiveness of the split screen and bay window models. You decided that original splitties, often priced at £20,000 and upwards, were too expensive to consider and thus a more detailed evaluation between original bay window model or contemporary Brazilian imports of the same model would be considered.
The base cost of a ‘new’ VW Brazilian manufactured Type 2 camper van is currently around £25,000 and a fully converted camper model would cost upwards of £40,000 depending on specification.
Mechanically the modern Brazilian buses sport rather dated technology, with low powered 1.4 litre Polo engines enabling a slow lane motorway driving top speed of around 60 mph, no power steering, tricky gear changing and wing mirrors that offer very limited rear visibility. Although only slightly longer than a conventional estate car, the driving and manoeuvrability is notoriously compromised, this old style, challenging driving is perceived as part of the allure.

You found that the cost of bay window units was very high and would require significant upfront and ongoing investment to offer a rental quality product. It is estimated that using original VW buses would require more extensive mechanical support, initially to restore the buses and subsequently to keep them in a road worthy condition. A skilled mechanic costs £50/hr with between 100 and 200 hours required per bus per year but it would be possible to purchase vans in poor or very poor condition at £5,000 with this level of support. If the original used bus strategy is pursued a one off refit cost of £5,000 per bus would be incurred. You are not skilled in car mechanics and initial non-numeric evaluation has suggested that choosing the new Brazilian manufactured buses using the old design, modified by Danbury was the optimal decision.

The vehicles, as is customary with automotive rental, have a short economic life span. Fully equipped the Danbury costs £35,000 and would likely have an expected useful economic life of 5 years, when it could be sold on in the used market to a private owner who might pay in the region of £12,000.
Sources of finance

Assume that you can arrange a £10,000 overdraft from your bank, £10,000 on your personal credit cards. A £7,500 contingency should always be available to ensure any unexpected repairs are required to the vans.
Cost of capital 5% p.a. secured against the company assets and your house.
Your partner is appointed as the company secretary, you are the managing director, having invested £10,000 to establish the publicly limited company.

Costs

Valet £35/turn around
Client pre-rental brief 1 hr
Client post-rental handover 10 mins (pre-arranged time window)
Cost of Danbury model £35,000
Cost of entrepreneurs time £10/hr – additional earnings will be taken out of the business when available as dividends
15 shows/trade events per year each a day long, average cost £1,000
Insurance £35bus/week
Maintanence cost for new buses £75/bus/week (parts and labour)
Administrative time spent on bookings 5 hrs/week
Company overheads (website, accounts management, power & other utility bills) £500/month
Premises rental £450/month payable three months in advance

Revenues

£350/weekend off peak £450 peak weekend (3 days 1400 Fri- 1000 Mon or 1400 Mon – 1000 Fri) £550/week off peak, £750 week peak
Single days £200, subject to availability (unlikely in peak season)

Peak season covers Xmas/New Year fortnight, May – Aug inclusive.
Assume 85% utilisation during the peak season and 35% in the off peak.
Competitor pricing

Rental Period / £ Low Season (Nov-Mar) Mid Season (Apr-Jun, Sep-Oct) High Season (Jul & Aug)
Winter weekend (Sat am – Sun pm) 195 Last minute N/A
Weekend (Fri pm-Mon am) 275 375 425
Mid week (Mon-Fri) 275 375 425
Week (Fri-Fri) 425 575 725

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