business plan art diem (1)

8/4/2019 Business Plan Art Diem (1)

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4/5/2011

IB1150

Integrative Project

Group 4

Felix Chay, Folarin Araromi, Julia Prada, Laura Reeves, Himanshu Gupta, Shahida Tomiran


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2IB1150 Group 4 ArtDiem.com

Contents

Page Description

3 Letter to investors

4 Executive Summary

7 Business Description

7 Market Research

10 Competitors

11 USP

13 Marketing

15 Operations

16 Funding and Exit Strategy

18 Financials

20 Risk

22 SWOT

23 Milestones

24 Legal

25 Appendices


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Executive Summary

Introduction

Name of the company: ArtDiem.com

Structure: Limited company

Location: Office is based in London

What we offer?

ArtDiem is an online based company providing an virtual art gallery, where

contemporary artists can express themselves and show their talents off whilst

earning an stable income.

What we are looking for?

We are seeking financial investment of 200,000 in exchange for 40% equity in our

business.

Target Market

The target group is divided into the sellers and buyers of art. The sellers will initial be

contemporary young artists, but as ArtDiemis an online service anyone is welcome

to subscribe and sell art and a lower commission rate to competitiors.

The buyers again can be anyone who has internet access and appreciates original

art, but ArtDiemwill be targeting retail businesses such as hotels, restuarants and

interiror designers who are looking for unique pieces of art.


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Differentiating Factor

The website will provide numerous services for both the artist and the consumer,

including:

3D Virtual gallery

Social Networking opportunities such as forums, audio descriptions from the

artists and photo simulation.

Reviews from art critics

Management:

Felix Chay CEO and COO

Felix was head of technological operations at J.P. Morgan for 11 years. He will be

responsible for daily business operations, as well as setting targets in order for the

yearly goals to be achieved. He also is a fine art enthusiast and a member of the elite

Art Society in London.

Folarin Araromi CFO

Folarin has extensive experience in financial services, where in his previous role he

served as a Principal Director at Kohlberg, Kravis & Roberts focused on growth

equity and technology start-ups. He will be responsible for developing the systems to

ensure efficient management of the companys finances. He will also be responsible

for the internal auditing and budgeting, and act as a point of contact to external

auditors and other third parties who are interested in the company from a financial

stand point.

Julia Prada Head of Web and Graphic Design

Julia was previously employed by Ebay Inc, where she was responsible for the web

and graphic side of the business. She has since invested time and money in starting

a new business, with the help of the contacts she has retained in the field.


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Shahida Tomiran Director of Marketing

Shahida is dedicated and results driven with a successful background in marketing

for DeviantArt, a rival art retail website. She is responsible for researching and

reporting external opportunities and understanding current and potential customers.

Himanshu Gupta Head of Customer Relation

Himanshu is a dedicated and professional Customer Service Manager. He has been

working with British Airways for the past 7 years. He has superior insights into the

changing needs of modern customers. He can speak four european language and

has worked in many various countries across the Europe.

Laura Reeves Director of Software Management

Laura was director of software management for Google for the past 4 years and will

take on the same role for ArtDiem.com. She holds numerous awards in software

control and security and has successfully managed software installation at high

profile security companies such as Cisco.


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Business Description

ArtDiem.com is a virtual art gallery initially based in the UK, showcasing art from

contemporary artists available for purchase by the general public, providing aconvenient shopping experience from home.

ArtDiemallows artists to express themselves, and makes it more feasible for them to

make a stable income from their talents. The website will cater to both the artist and

consumers which will provide set ArtDiem1 apart from its competitors.

Market Research

The Art Industry is a lucrative, growing market with the UK being one of the top

players in the global art market, with 57% of the EU trade and a global market share

of 29% in 20092, providing an enormous market with opportunities to set up and grow

a successful business.

Aggregate Art Sales in the UK and EU

1

ArtDiem refers to the latin phrase Carpe Diem by the poet Horace, which means seize the moment. ArtDiem therefore encourages people to live their lifes sorrounded by art.2

The British Art Market, 2010 see appendix


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However, as a consequence of the credit crunch the art market in the UK has seen

for the first time in over 7 years a decrease in revenues in 20083. Nonetheless the

market is recovering and is less sensitive to economic crises than other assets4.

Also, the UK is the largest importer and exporter of art in Europe, and is a net

exporter of works of art (pp4, The British Art Market), highlighting the opportunity for

growth of our business in the European and World Market, as detailed in our

milestone for year 6.

The focus on art in the UK has primarily been on the quality of the produce itself

compared to other countries, and we as a business reflect the values that are

associated with the UK art market.

The key differentiating factor of the UK art market is the creativity of the artists5, and

ArtDiem is focused towards finding new artist that provide a new perspective to art.

The British art and antiques market is mostly made up of a number of small,

knowledge-intensive businesses that employ a balanced mix of highly educated

individuals. (The British Art Market) We as a business believe that we possess the

much needed expertise while at the same time starting a business with a virtually

unlimited audience.

We decided to carry out primary market research by distributing questionnaires to

local UK citizens living in London, Birmingham and Coventry. We managed to get

100 people comprising males and females, from different backgrounds to answer our

questionnaire.

3See appendix

4(http://www.artmarket.com/)

5

In the context of a global marketplace, knowledge, skills and creativity have been identified for several yearsas the essential elements that have given the British a competitive edge. (The British Art Market)


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The following conclusions were made:

1. The majority, 35%, preferred online art galleries, when buying art as they are

more convenient.

2. Around half of the population has visited an online art gallery once in their life.

3. People generally look for traditional art and photography.

4. 38% of the people buy art for their homes.

5. People are generally not willing to spend more than 200 for an original piece

of art.


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Competition

Through our research it is clear to see that there is little direct competition. There are

indirect competitors who specialise in selling art produced by young artists who havebeen established in the art industry and would be useful to compare to ArtDiem.

ArtGallery.co.uk

Art Gallery is one of few direct competitors who sell original and limited edition art

also based in the UK. Even though a direct competitor, ArtDiemdifferentiates itself

from Art Gallery in terms of the 3D galleries and reviews from art critics.

DeviantArt

DeviantArt has been established online for approximately 10 years and sells a range

of different art produced by young artists, from digital art to literature. 100 million

pieces of art are sold on the website with 12 million members who buy and sell art. 6

The pieces of art are not exhibited in a 3D art gallery; instead they are static images

on a web page.

Also DeviantArt have experienced problems with customer service. One of the main

problems is with monthly billing subscription to print art; they continued to bill a

customer after the account is deactivated.

6

http://welcome.deviantart.com/?utm_source=DA&utm_medium=UB&utm_content=Takethetour&utm_campa

ign=DA_UB_Takethetour_091409


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Unique Selling Points

The Seller

A lower commission rate of 30% compared to the standard rate of 40-60%7 art

exhibitions charge this is to capture more market share.

No listing fees competitors charge for listing so their interests are mostly to

maximize their seller base, whereas ArtDiems interests are aligned with the

artists and are committed to selling the art rather than generating listing

revenue.

ArtDiem intends to support artists by providing reviews and endorsement of

the art from established art critics.

Make a living from your art ArtDiem makes it more feasible for artist to

generate a stable income as oppose to their work lying dormant in a gallery

showroom.

7http://www.gigposters.com/forums/gallery-shows/60185-gallery-commission-

rates-2.html
http://www.gigposters.com/forums/gallery-shows/60185-gallery-commission-rates-2.htmlhttp://www.gigposters.com/forums/gallery-shows/60185-gallery-commission-rates-2.htmlhttp://www.gigposters.com/forums/gallery-shows/60185-gallery-commission-rates-2.htmlhttp://www.gigposters.com/forums/gallery-shows/60185-gallery-commission-rates-2.htmlhttp://www.gigposters.com/forums/gallery-shows/60185-gallery-commission-rates-2.htmlhttp://www.gigposters.com/forums/gallery-shows/60185-gallery-commission-rates-2.html


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The customer

Convenience of buying the art from the comfort of your own home.

3D virtual gallery which looks and feels like the buyer is in a physical gallery.

Audio descriptions by the artist in order to allow buyers to learn more about

specific pieces of art just like having the artist there in front of you.

A forum for any added questions or queries consumers have regarding pieces

of art. It can also be used to rate and give feedback for the art, allowing the

buyer and seller to network.

ArtDiemalso enables buyers to upload a photo of the room they want the art

to fit in and see what it looks like. This service will be free of charge and

available before any purchase is made.


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Marketing

Sellers- Artists

SCHOOL and UNIVERSITIES

ArtDiemwill be targeting young contemporary artists from various art schools and

universities. There are more than 80 art schools in UK and our gallery aims to target

them by getting their affiliation and sponsoring events such as art competitions and

small exhibitions within the schools. We plan to organise workshops and career fairs,

so that students from these schools get to know more about ArtDiemand they canassociate with us.

GENERAL ARTISTS

ArtDiemis open to everyone; any individual can upload their art on our website. We

will be targeting them by creating a facebook page and inviting artists from other

websites and pages to join us. We will have our name registered at various art

directories and clubs such as Londonartclub.com in order to interact with them.

Why will they sell art to us?

There are many advantages that we offer to artists, that make us unique. Firstly, we

give them a freedom to price their art without any intervention from the company.

Secondly, their art gets appreciated and reviewed by established art critics, which

helps them to develop their reputation and improve their work. We will hold art

competitions, in which artists can showcase their art and be judged by a panel of art

critics. Through this, the artists will get a chance to meet art critics personally and get

appreciation for their work. This will also be a motivational factor for young artists.


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Who are the customers and how do we reach them?

ArtDiems potential customers are unlimited as online businesses enable everyone

with an internet connection and a bank account can buy on the website.

As well as retail customers we aim to target business such as interior designers,

hotels and restaurants that needs art to decorate their spaces. We will offer

incentives such as discounts for bulk purchases. This will attract more potential

buyers to come in and foster loyalty from our customers.

We also intend to advertise on social networks such as Facebook, Twitter and

Youtube which are good mediums to reach the public as they have high traffic. We

want to reach the wider cyberspace community through advertising on art

enthusiasts websites. Google Ads will be useful and will help to increase our

websites traffic as well as search engine optimisation8. Being top ten in a search

engine is vital as people will only visit the first few pages suggested. Leaflets,

pamphlets and posters can also be distributed through employee contacts in the art

community.

In addition, we will also intend to establish referral schemes which will give

customers discounts based on the number of referrals made. This is an incentive not

only to refer friends and family but also to buy more art on the website.

8http://www.searchengineoptimisation.org/what-is-seo/) Refers to the procedures,

efforts and thought processes behind improving a sites visibility in search engine

results pages (SERPs)
http://www.searchengineoptimisation.org/what-is-seo/http://www.searchengineoptimisation.org/what-is-seo/http://www.searchengineoptimisation.org/what-is-seo/http://www.searchengineoptimisation.org/what-is-seo/


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Operations

ArtDiemwill provide an art search option to view listings classified by medium,

theme, size and price etc. We will also have fixed price systems and an auction

system to give the seller flexibility on how they price their items. We intend to utilize

WorldPay payment processing platform so that anyone with a bank account can

purchase art on the site. Due to the nature of our business, there is no need

significant physical infrastructure; this means we can enjoy a lean cost structure of

the companys financial. Moreover, deliveries will be arranged between the sellers

and buyers; however we will provide special delivery on purchases in excess of

700.

Personnel

IT technician will be responsible for hardware issues.

Web and graphic designers will develop and maintain the website such as the

interactive features. The web designers will also act as moderators in the

forum.

Dedicated customers service on hand at all time to meet customers enquires.

Marketing staff to increase brand awareness.

Sellers

Provide and

responsible for

delivering the art.

ArtDiem

Art search option

Auction and fixed price

listings

Online payment

processing services

30% commission fee

Special delivery for

items over 750

Buyers

Pay for the

delivery of art.


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Exit Strategy

The UK art market is experiencing rapid growth, and even more so in the online retail

sector. We anticipate potential exit, or partial monetization, of ones equity through a

trade sale, most likely to a 3rd party venture capital fund.

We expect to generate roughly 3 million in Revenue (TV) in the 5th year, and looking at

the forward trading multiples for the online art retail industry from 2012 to 2017, we can

see that the average Total Enterprise Value (TEV) to EBIT multiple is 11 times9. This

means with a projected 5th year EBIT of 675,000, in its 5th year ArtDiem would have an

implied TEV of 7.425 million, bringing the value if the seed funds equity to 2.97 million.

This represents a Compound Annual growth rate of 169.2% on the initial investment (

ROI)

9Sourced from CapitaIQs 2012-2017 Forward trading multiples for Internet Retail

Industry (screenshot in appendix)


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Financials

In its first year of operations, our closest competitor artgallery.co.uk sold 291,000

worth of art (Transaction value. Art is a relatively demand elastic product, and the

economic conditions now are direr than they were at the time, so in our realistic

scenario we anticipate revenue of roughly 215,000 (180,000 low, and 250,000 hi)

for the first year.

.

Growth rates in the online retail industry are exceptionally high and even in our

pessimistic scenario we expect a 174.8% Compound Annual Growth Rate in TV(185.5% med, 196.3% hi). ArtDiemoffers a very attractive commission of 30% on

the final value of the artwork, and the Cost of Sales is the 70% that goes to the artist.

Due to the initial set-up costs the company costs will exceed income in the first year.

Most of the companys costs are relatively constant or increase in line with inflation,

which we have assumed at 2% per annum.


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Typically new businesses do not break-even for the first few years after inception,

and while the business will make a loss in the first year, due to the nature of the

business, specifically the lean cost structure, we can achieve profitability from the

second year of operation with margins growing every year (bar year 3, the expansion

year in which significant costs are anticipated to be borne to grow the business). Part

of the uniqueness of the business is that it exists in industry where high margins are

the norm , and the implication of this is that is the business grows, assuming cost

ratios are improved or at worst kept constant, the business will generate increasing

returns on investment.

-200,000

-100,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

1 2 3 4 5

Operating Profit (EBIT)

Operating Profit

(EBIT)

Years


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Risks

Firstly, there is a potential risk of fraud. For instance, a seller could sell a counterfeit

or a stolen piece of art. In order to help deal with this issue, our website is going to

have a reporting system, where our members can report any suspicious sellers byawarding bad reputation points or directly reporting them to our forum moderators,

who will in turn report them to the authorities. Furthermore, ArtDiemwill have

dedicated customer service to minimize any consumers trust related problems. As a

company growing in size, we put maintaining an excellent reputation as our number

one priority.

Additionally, as ArtDiemis unique through its interactive features, forums, and thecritics to the young artist, we see a potential problem of an intellectual property theft,

namely our competitors might try to implement our unique selling point into their own

website. We intend to combat this by enforcing a copyright on our website.

Our business is very dependent on technology and if one of the servers should be

down at any time this may result into a huge loss of income for the company, as well

as impairment in reputation. To prevent this, our hardware technician will guarantee

optimal performance of the servers and regularly backup the servers.


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Another potential risk is the threat of breaches of data security, namely hacking and

attacks on the website. We can count on the experience of our Director of Software

Management to defend against these situations.


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SWOT Analysis

In order to fully understand the value and the opportunities posed by our business

idea, we will use the SWOT analysis to identify the main strengths, weaknesses,

opportunities, and threats posed by our business venture.

In order to gain market share and make our business successful we have to

formulate an economics strategy that will match the qualifications and opportunities10

10The Strategy Process Mintzberg Henry, Quinn James-Brian, Ghoshal Sumanatra As stated by Mintzberg et als

design school (1998)

STRENGHTS

- the originality of the concept and very fewdirect competitors

- The only 3D art gallery and photosimulation will most definitely appeal to a

large number of buyers, potentiallyeveryone who is in possession of a PC.

- financial capabilites: extensive marketing,making profits from year 2

OPPORTUNITIES

- The opportunity for the development ofour business on a global scale is

fundamental to our concept and it shapesour strategy competition

WEAKNESSES

- reliability /dependability on externalsources for internet acces

THREATS

- risk of poor quality of art pieces sold onthe website if not checked throguhly

- competitive changes: another websitethat provides same products and services

- risk of supplier change (McGee at al,2010). Potential competitors could depriveus of our suppliers. (highly unlikely because

80+ art schools in country)

SWOT


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Milestones

The business will begin to expand in the third year as a result of the extensive

marketing strategy, and this will develop the companies brand image

generating significant word of mouth advertising through customers. This is

also when the company intends to initiate advertising partnerships with

established public galleries like the Tate galleries, National Art Gallery etc. We

plan to build a strong mutual relationship with them offering mutual

advertising, as we have a similar customer base.

In our first year we anticipate 40,000 unique visitors to the site, and in

accordance with predicted growth rates11 we expect around 4,500,000 visits

per year at our gallery by year 5.

We plan to expand globally by year 7. Initially we will target European

Countries like France, Germany and Spain. We will have individual website for

all target countries and will sell tailor made art according to the taste and

culture of people of that particular country. We will have an office in each

country we target for the purpose of providing good customer service and

other administration work.

11.squidoo.com%2Fonline-gallery%23module86308111&h=e7cb2JwHkUs-K8GYXqslI12ELGQ


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Legal

The company, ArtDiem, will be established as a private limited company, Ltd, under

UK law, such that the personal assets of the invested parties in the entity are distinct

from the assets of the entity. The liability of the members of the company is limited to

what they have invested or guaranteed to the company. In the event that a

shareholder wishes to renounce his stake in the company, he may sell his

shareholding to fellow shareholders. He may also sell his shareholding to a third

party but only at the approval of fellow shareholders.

The online retail industry is a fast moving one and as such Art Diems internal controls

will include regular reviews of the firms term and conditions of business, compliance

procedures, and other internal systems particularly in relation to customer complaints

and fraudulent activity. The management will guarantee the establishment of clear

reporting lines and allocation of responsibilities, reviewing and managing potential

conflicts of interest and staff training (to the extent applicable or necessary). As well as

external auditing , the firm will conduct internal audits to help ensure effective

stewardship and proper business conduct.


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Appendix

APPENDIX 1- THE TEAM

Name: Felix Chay

Executive Position: CEO & COO

Age: 40

Experience:

Head of Technological Operations

Head of Technological Operations at J.P. Morgan for 11 years, and was responsible

for running the business operations of the firm in an international scale. Before he

served as the Head of Technological Operations, he was also in charge of

maintaining the companys website security as well as designing the lay out of the

website.

CEO of Overseas Palm Oil Plantation Ltd.

Furthermore, he also owns a global palm oil business, serving consumers from all

over the world.

Qualifications: Graduated from The University of Warwick with a first class in

Accounting and Finance. He also received an MBA from Wharton Business School.

Key Skills: Maintaining the security and web designing of one of the largest firms in

the world.

A proven entrepreneur skill


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Name: Laura Reeves

Age: 32

Executive Position: Director of Software Design

Qualifications: BA Honours in Business and Law (1999-2003)

Masters in Computer Science at Oxford University (2003-2004)

Experience:

Software Installations Manager at Cisco for 2 years

Responsible for software control and security installation checks

Director of Software Design at Google for 6 years

Assisted in the development in Adobe Photoshop Software


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Name: Shahida Tomiran

Age: 29

Executive Position: Director of Marketing

Qualifications:

BSc in Marketing Management from Northwestern University, US

MSc International Business and Market from the University of Dundee, UK

Experience:

Director of Marketing for DeviantArt for 5 years.


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Name: Folarin Araromi

Executive Position: CFO

Age: 32

Qualifications:

BSc in Accounting and Finance at Warwick BusinessSchool

MBA Quantitative Finance and Law

Experience: Goldman Sachs M&A Division

Worked in teams, offering value added advice to business of all sizes. During this experience

he acquired valuable team working and leadership skills.

He has since decided to pursue his love for art and taken responsibility for the financial side

of ArtDiem.com


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Name: Julia Prada

Age: 32

Executive Position: Head of Web and Graphic Design

Qualifications: Honours Degree in Graphic Design at Bath

University (1998-2001)

Masters in Web Design in Rome, atIED Arti Visive(2001-2002)

Experience: Graphic Designer at eBay.co.uk (2007-2010)

Responsible for the layout and presentation of eBay Inc; collaboration with the

Hardware office on the construction of the new extension of the website eBay Outlet.

Web Designer at Schiavone (2003-2007)

Responsible for the setting up of the website, collaboration with design office on

various projects throughout the years.
http://www.masterin.it/post-laurea/IED_Arti_Visive17-master-in-web-media-design.htmhttp://www.masterin.it/post-laurea/IED_Arti_Visive17-master-in-web-media-design.htmhttp://www.masterin.it/post-laurea/IED_Arti_Visive17-master-in-web-media-design.htmhttp://www.masterin.it/post-laurea/IED_Arti_Visive17-master-in-web-media-design.htm


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Name: Himanshu Gupta

Executive Position: Head of Customer Relation

Age: 37

Qualifications:

Masters in Human Resource, University of Cambridge

BSc in Law, Warwick University

Experience:

British Airways

He has a 7 years experience in working with British Airways and was responsible for

handling customer grievances and their ticketing. He was a leader and a mentor for

his team, handling customers at Heathrow Airport, London.

Cambridge University Ambassador

He was a leader of the group of students assisting prospective students on the

University Open Days. Was responsible for solving student doubts and taking them

around the whole campus. Was actively involved with student union as a student

consultant and Advisor.

Key Skills: Professional user of Microsoft office

Can speak 4 languages- English, French, German and Italian

Good taste in Traditional art and involved with various art society


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APPENDIX 2 MARKET RESEARCH

QUESTIONNAIRE

The purpose of this questionnaire is to carry out Market research, which will

exclusively be used by ArtDiem. The questionnaire is very short and it should take

you no longer than 3 minutes to complete. Please try answering the questions as

accurately as possible. All the information given will be used only for internal

purposes of the company. All the questions are anonymous and dont provide any

information about the respondent.

What is your preferred source of buying art?

Art Exhibitions

Online

Auction

Art Gallery

Others

Have you ever visited any art gallery online?

Yes

No

What would be your reason for visiting an art gallery?

Sculptures

PortraitTraditional art

Modern contemporary

Photography


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What is your purpose of buying art pieces?

Office

Home

GiftInvestment

others

What are you willing to for an original piece of art?

Less than

100-300

300-500

500 and above

QUESTIONNAIRE -MARKET RESPONSE

online

35%

auctions5%

exhibitions20%

gallery

27%

others

13%

What is your preferred source of buying?


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yes

57%

no

43%

Have you ever visited an art gallery?

sculptures

16%

portrait

13%

photography

27%

traditional art

19%

modern

contemprary

18%

others

7%

What would be your reason for visiting an art

gallery?


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less than 100

29%

100-300

35%

300-500

23%

500 and

more

13%

What are you willing to pay for an original

piece of art?

home

38%

office

13%

investment

7%

gift

25%

others

17%

What is your purpose of buying pieces of art?


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APPENDIX 3 COMPETITORS

Consumer Reviews http://forum.deviantart.com/community/complaints/1558021/?offset=50

"I had been a customer with Deviant Art for years. I had enrolled in their monthly billing subscription

to print some of my art, after awhile I decided I no longer needed to use their service and tried to

cancel the rebilling on my account. My account was deactivated and I thought all of my information

would be taken off of the website but that was not so. My account is still being billed monthly to my

personal checking account and my information cannot be accessed on their site to change it. After

contacting customer service for the past 5 months the situation is still unresolved and Im still being

billed monthly and cannot use anything on Deviant Art. So I still paying for a service I cannot even

use. The customer service is horrible, Im given the same cut and paste response nearly everytime I try

to get help and now the company wont even acknowledge my emails asking for help with the

situation. Be very wary of using this site and putting your personal banking information on this site as

you just may end up paying for more than you want."

"I have been a customer with this company for nearly five years, mostly for the purpose of purchasing

art.

However, recently, Deviant Art made a mistake within their billing practices in regards to my personal

bank account. They drafted money from my bank account without authorization. This was nearly five

months ago (June 2009). So far, DA is claiming no responsibility and has not made any attempt to

resolve this issue.

Be very careful when dealing with this company. I lost money through an unauthorized deduction.

This has turned out to be a very questionable company which to give any sort of financial account

information. Not so much as an acknowledgement of an error or any attempt to solve this problem,

even after repeated attempts to communicate with this company.

I am cancelling my membership with DA."


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APPENDIX 4 - FINANCIALS

Realistic Income Statement year 1


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Realistic Income Statement year 2


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Realistic Income Statement year 3-5


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Realistic Scenario


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Pessimistic Income Statement year 1-5


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Pessimistic Scenario

Optimistic Income Statement year 1-5


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Optimistic Scenario


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Cash Flow Statement- year 1

Cash Flow Statement year 2


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Cash Flow Statement year 3-5


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Balance Sheet- year 1-5


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Commentary to Appendix 4

Income Statement

The Income statement has been prepared under 3 different assumptions - a pessimistic

scenario (low), a realistic scenario (med) and an optimistic one (hi). These scenarios

represent differences in the level of expected revenue, and growth rates.

The first task in building the projections was projecting revenue in the first year of operations.

In 2009, ebay had 24 million listings of which around 375,000 (or 1.5%) were art related (ref).

In eBays first year there were 250,000 auctions, and eBay reports 60% of all listings on its

site do not end in a sale (ref). So we can expect roughly 4000 (250,000 x 0.015) listings in

the first year, but only 40% of those will end in sale (1600). With an average price of 150

(how did you deduce this average price), that means the total transaction value, the

aggregate value of all the art sold on the site, will be roughly 240,000 in the first year. At a

30% commission on all items sold, that means our net revenue for the first year will equate to

172,000. Note Cost of Sales is the 70% that goes to the artist.

The majority of the costs of the bhsuienss are relatively constant, and increase in line with

inflation.

Advertising costs will include search engine marketing and press advertisements.

Annual Depreciation reflects the impairment in value of fixed assets, namely the businesses

computer hardware and servers. In the fifth year we anticpate to relocate from rent property

and pruchase a property to house the headquaters of the bsuiness. The figure of 35,221 in

this year reflects depreciatoon of assets already uner the ownrship of the business the plus

the depreciation of the property.

Purchases of Hardware & Equipment essentially represent the capital expenditure of the

business. Due to the nature of business (as a medium between buyers and sellers) there are

no significant capital costs and few overheads.

Heating & Electrcity was calculated at 3.1p per kWh of gas, and 8.6p per kWh of electrcity.

We assumed the server would be running constantly 24/7, thus yearly costs would amount to

11.7p x 24 hours a day x 365 days in the year = 1024.

Rent is assumed at 1500 per month, with 12 calendar months in the year, at a 1 year lease

renewable each year.


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Special Delivery Expenses - For a flat additional fee Art Diem offers the option of delivery on

selected items, specifically items above 750 .

Operating profit margin shows a strong positive trend during the 3 years, growing from a -

57.8% in the start up year, to 2.1% and 11.1% in years 2 and 3 respectively, but trendingback upwards to 24.2% by the fifth year. These are quite high relative to other indistries and

represent high returns on capital.

In the first year well make a loss based on just the operating inflows and outflows, but we

have the seed capital to help absorb the loss and cover expenses.

Once a companys yearly taxable profit reaches 300,000 it must pay a corporate tax rate of 27%

(20% below 300,000. ArtDiems taxable profit is not expected to reach this threshold until the 4th

year after significant expansion.

Every year a portion of Net Income will be reinvested back into the business (Transfer to

Genereal Reserve) to help meet costs in the coming period and to fund the expansion of the

business in the 3rd year.

At an average price of 150, the number of listings on the website in the first year is

expected to range from 3,000 (low) to 4,500 (hi), of which it is anticipated 40% will result in a

sale, and as such gross profit for the first year is expected to range from 50,000 to 75,000.

Cash flow statement

In the first 3 years, cash outflows will outweigh cash inflows, but the 500,000 start up capital

investment will be used as a buffer to help meet start-up costs and expenses. The net cash

balance at the end of the year falls for the first 3 years of the business, this is because we do

not expect the business to be sufficiently profitable to generate positive cash flow until the 4th

year. This is off the back of the expected acceleration in realized gains in revenue from the

marketing strategy in the preceding years. However, it is key to note that the cash outflows

of the business are relatively flat for the first 4 years, and this means as that business grows

and generate revenue assuming its cash outflows remain flat the net cash flow will increase.

There is an anomaly in Year 5, due to the expenditure from the purchase of new office

property. This also reflects the huge spike in depreciation in Year 5.


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Balance Sheet

The top line of the balance sheet Cash and cash equivalents represent the net cash

balance eat the year end as show in the cash flow statement.

Our estimate for the annual; Accounts Receivable figure is based on the average yearly

figures for peer group of comparable online retail businesses.

Prepaid expenses amount to the cost of insurance in addition to 50% of yearly rent.

Tax expenses are deferred to the following fiscal year.

Property, Plant & Equipment reflects the value of the rent leasehold property, bar Year 5

where we anticipate the purchase of freehold property and the relocation of business

headquarters to said premises.

Reference List

References For Financials

http://answers.yahoo.com/question/index?qid=20090405132531AAE9sVH

http://ebay.about.com/od/ebaynewsarchive/a/_ena_decade.htm

http://www.theartnewspaper.com/articles/Challenge-to-funding-models-for-UK-

museums/18677

http://startupdesi.com/costs-of-running-web-business/

http://www.taxationweb.co.uk/forum/depreciation-rates-t15289.html

http://www.dinopc.com/shop/pc/pcs-home-office.asp?idcategory=95

http://www.energyhelpline.com/business/bz_home.aspx?aid=306&gclid=CNvk7L3fx6gCFYFB4QodKU0MoA

http://startuplawyer.com/startup-issues/how-much-to-pay-your-startup-lawyer

http://www.flexioffices.co.uk/london/kings-cross/grays-inn-road_wc1x_id1278
http://answers.yahoo.com/question/index?qid=20090405132531AAE9sVHhttp://answers.yahoo.com/question/index?qid=20090405132531AAE9sVHhttp://ebay.about.com/od/ebaynewsarchive/a/_ena_decade.htmhttp://ebay.about.com/od/ebaynewsarchive/a/_ena_decade.htmhttp://www.theartnewspaper.com/articles/Challenge-to-funding-models-for-UK-museums/18677http://www.theartnewspaper.com/articles/Challenge-to-funding-models-for-UK-museums/18677http://www.theartnewspaper.com/articles/Challenge-to-funding-models-for-UK-museums/18677http://startupdesi.com/costs-of-running-web-business/http://startupdesi.com/costs-of-running-web-business/http://www.taxationweb.co.uk/forum/depreciation-rates-t15289.htmlhttp://www.taxationweb.co.uk/forum/depreciation-rates-t15289.htmlhttp://www.dinopc.com/shop/pc/pcs-home-office.asp?idcategory=95http://www.dinopc.com/shop/pc/pcs-home-office.asp?idcategory=95http://www.energyhelpline.com/business/bz_home.aspx?aid=306&gclid=CNvk7L3fx6gCFYFB4QodKU0MoAhttp://www.energyhelpline.com/business/bz_home.aspx?aid=306&gclid=CNvk7L3fx6gCFYFB4QodKU0MoAhttp://www.energyhelpline.com/business/bz_home.aspx?aid=306&gclid=CNvk7L3fx6gCFYFB4QodKU0MoAhttp://startuplawyer.com/startup-issues/how-much-to-pay-your-startup-lawyerhttp://startuplawyer.com/startup-issues/how-much-to-pay-your-startup-lawyerhttp://www.flexioffices.co.uk/london/kings-cross/grays-inn-road_wc1x_id1278http://www.flexioffices.co.uk/london/kings-cross/grays-inn-road_wc1x_id1278http://www.flexioffices.co.uk/london/kings-cross/grays-inn-road_wc1x_id1278http://startuplawyer.com/startup-issues/how-much-to-pay-your-startup-lawyerhttp://www.energyhelpline.com/business/bz_home.aspx?aid=306&gclid=CNvk7L3fx6gCFYFB4QodKU0MoAhttp://www.energyhelpline.com/business/bz_home.aspx?aid=306&gclid=CNvk7L3fx6gCFYFB4QodKU0MoAhttp://www.dinopc.com/shop/pc/pcs-home-office.asp?idcategory=95http://www.taxationweb.co.uk/forum/depreciation-rates-t15289.htmlhttp://startupdesi.com/costs-of-running-web-business/http://www.theartnewspaper.com/articles/Challenge-to-funding-models-for-UK-museums/18677http://www.theartnewspaper.com/articles/Challenge-to-funding-models-for-UK-museums/18677http://ebay.about.com/od/ebaynewsarchive/a/_ena_decade.htmhttp://answers.yahoo.com/question/index?qid=20090405132531AAE9sVH


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