Case Study on Biodiesel Project
Biodiesel Incorporated
Summary of the case study
The case study involves three individuals from the school of management in the class of Business and Sustainability. There are Joshua Maxwell, Hannah Long and Matthew Hammond. Josh, as a student in the school of management and business administration, Hannah, a student in Agricultural Economics and Matthew, a senior in the Department of Mechanical Engineering. They all joined and started a project which finally would turn into a great business opportunity. The plan they undertook was in regard to the challenges and benefits of using renewable energy. They had realized the difficulties of using power in the environment. They were aware of the main problems caused by significant sources of energy. The sources include coal, petroleum and nuclear. There were apparent effects caused by these sources of energy. However, the energy industry is still committed to continuing in the same trend despite the impact it has on the environment.
After realizing the challenges associated with fuels, with the application of his field of study, Matthew came up with a solution to the problem. He suggested the use of biodiesel as a source of energy. The three evaluated his idea and came up with a resolution of emulating biodiesel. They supported it because they realized the environmental benefits that were related to it. They also recognized the benefits of biodiesel in the market. Biodiesel is different from diesel fuel since it is obtained from vegetable or animal-based end products. The arising concern about this source of energy is how the vehicles will adapt to it from the traditional fuel diesel. However, this has been sorted since every car built from 1996 to date is capable of work without any changes. The only vehicles that require modification of engines are the ones made before the year 1996. Don't use plagiarised sources.Get your custom essay just from $11/page
The choice is based on adapting the use of biodiesel is an intentional one since it comes with many benefits to different parties, not only to the environment. The environmental significance is coupled with its viability in the economy. First, technology is promoting air quality due to its reduced emissions of harmful gases. The reduced emission of toxic gases reduces the ozone effect than when using traditional fuel diesel. Comparing the amount of Carbon Dioxide released by petroleum products and biodiesel, the choice remains certain. Biodiesel is also considered the best option since it is biodegradable and a renewable source of energy. They are, therefore, aware that if more pressure is placed on diesel users, biodiesel will be able to charge the necessary premium to eliminate the high costs.
They presented their project based on the incorporation of biodiesel. Their project aimed at enlisting local producers in the effort of capitalizing on the potential market for the biodiesel products. They planned that members grow feedstock and crop residues containing a lot of fat content. The cost of capital equipment to be shared among the members. They suggested for oils to be extracted from biomass collected and the end product to be extracted from the oils. They also aimed at using the petroleum infrastructure to distribute the biodiesel in the local market. The incorporated biodiesel offers aims at bargaining and manufacturing the product on behalf of the members. It will, therefore, control the production of agricultural products.
Factors to consider determining the viability of the business opportunity
Nash, Josh, and Hannah need to consider certain factors before venturing into the business. They need to evaluate the possibility of the company to growth. A viable opportunity can grow. They should, therefore, consider whether their business idea has any chances of developing in size. For the business to be competitive in the market, it should grow and be comparable to the traditional diesel fuel, which is their competitor.
The team should consider the infrastructure of the location of the target market. Easy ace to roads, electricity and the customers reduces the operational costs. If the infrastructure is not well developed, the business will have an additional fee to meet to facilitate the transport services of their products. When the support has been developed, the company will have lower expense costs to meet, thus maximizing the profits.
Josh, Hannah and Nash need to consider the availability of the market for their product. For them to start the business, they must be aware of the market opportunity in the area of the target. The availability of the market would improve sales, thus increasing the net profit on the investment.
The opportunity should be rewarding to all the investors. They should consider the cost-benefit of the business opportunity. The target returns on the investments should be realized within the speculated period of time. The target attained ensures that the benefits of the business outweigh the cost of running it. This cost includes; expenses such as bills wages the capital invested plus all other funds allocated by the members to the business.
They should consider the price structure which they would adopt if they venture into the business. The price structure will determine the profit attained by the company. In the case of Nash, Hannah and Josh, they need to set a price that is relatively lower than that of traditional diesel oil. This will enable them to achieve a considerable profit. However, if they fail to consider the price structure, they will get stuck in the process of price setting resulting in a significant loss.
The team should consider the competition that is available in the market. The biggest threat in the case study is the traditional diesel fuel. Game tends to be healthy, and a business tool since it governs the process of price setting. They must consider the business environment with opportunities and low competition rate to get a reasonable market. They should also employ the appropriate strategies to compete with rivals in the market.
They should consider the incentives given by the government and non-governmental organizations. The incentives enable the business to save on the cost as they exploit the opportunity. Such incentives may include the importation of manufacturing machines of free stamp duty. They should also evaluate their financial viability. The required capital investment should guide them in their decision. They have to analyze certain factors such as the break, even analysis, projections of cash flow and profitability of the business. Analyzing will determine business sustenance in the market-mix.
Josh, Nash and Hannah are specialized in different fields of profession. Before they start the business, they should take into consideration the necessary required skills. It is essential to make this assessment to be able to acquire personnel before it too late. The cost of hiring and training the labour force should be considered. The efficiency in the management will enable businesses to achieve their goals.
Market Drivers to consider
A diversified customer base is essential for the viability of the business. When the company that they wish to start prospers, for serving their customers, the rate of dependency may increase to huge revenues (Chris 2020). The business should, therefore, be ready to manage its customers to prevent the risk of losing them.
The market environment impacts each business with the economic trends that have to be met. Josh, Nash and Hannah must understand how the business is impacted by environmental, economic factors. They should also be aware of how the company will manage the impact of the external environment on the business (Chris 2020). They should consider the business` market share and the position in the market.
The marketing strategy and company branding are considered to enhance its image to the public (Chris 2020). Marketing is considered to be the link between the customers and the business products. The strong branding will improve sales due to the increased recognition in the market. Marketing will enhance the efficiency of operations with the aim of achieving their objectives.
Flaws in the current business strategy
Josh, Nash and Hannah have decided to venture into an incorporated biodiesel business. This basically means that the business has legally been separated from the owner; it is given a separate legal recognized entity. There are disadvantages that this team should be aware of before making a choice to incorporate.
Setting up an incorporation business is expensive. Comparing the market with other forms of business such as partnership, incorporation tends to demand a higher start-up expense. A corporation also tends to have a more complex legal structure, thus making it complicated to set-up. Setting up the business t will require a lot of paperwork with the body that charters the corporations, thus spending a lot of time.
Double taxation is ordinary in the incorporation of the business. This means that there will be two tax returns. An incorporated company will not deduct its loss from the profit of the owners (Armour et al., 2009). The business incurs additional costs, such as the account and legal fees. If the team chooses a un-incorporated company, it will only be taxed once.
Opening an incorporated business means that the three individuals will not have any legal ownership of the company. They will have to establish credit and bank accounts that are separate from individuals. They will not mix the business with personal funds. Since the market will involve the selling of shares, it will be owned by the shareholder (Chassagnon, & Hollandts 2014). The shareholders have the mandate of voting the board of directors who have a role in running the business.
The type of financing to use
If the project continues, they will have to finance the growth of the business. There are several types of financing sources to run a business effectively. A corporate may take a loan to finance the transaction. The company also uses equity securities and private equity to fund the corporation. They can also decide to use the earnings for shareholders back in the business in the form of plow back. The use of securities, stocks and bonds attracts payment of interest. Plowback tends to be the best type of financing since it just requires managerial control and no interest is incurred.
The type of distribution channels
After the raw product has been sold to the incorporation business of Josh, Nash and Hannah, they need to distribute their end product until it reaches the consumers. The manufacture needs to partner with the distributing companies by providing them with the product at a wholesale price. The product distributors then sell it to the retailers and other end consumers. Retailers then sell it to consumers mostly in small quantities. This channel of distribution usually enables high-volume sales. However, this method tends to reduce the interaction between the manufacture and the end consumer (Hannan, 2011). Production may then decide to sell the product to the retailers directly. They may use a single distributing partner. This increases the level of interaction between the consumers and the manufactures. This will help the business to get direct feedback from the customers.
How to improve the chances of success
The three founders may apply certain strategies that will enable them to achieve more success. They need to employ product promoting approaches to improve the size of the market by creating public awareness about their product. They need to campaign and educate the public on the benefits of using biodiesel as a source of energy. The business also needs to provide after-sale service to its customers. This will help to retain and attract customers to the business.
References
Armour, J., Hansmann, H., Kraakman, R., & Pargendler, M. (2009). What is corporate law?. The Anatomy of Corporate Law: A comparative and functional approach, 2, 1-34..
Chassagnon, V., & Hollandts, X. (2014). Who are the owners of the firm: shareholders, employees or no one?. Journal of Institutional Economics, 10(1), 47-69
Chris M, (2020) top 10 drivers to enhance company value Retrieved from: https://www.valuationresearch.com/pure-perspectives/top-10-drivers-enhance-company-value/
Hannan S, (2011) enterprise planning and supply-chain interaction, retrieved from: https://www.sciencedirect.com/topics/engineering/distribution-channel