University of International Business

Business Plan for Relax Hostel

Dana Ramazanova GaukharSarsymbayeva Leila Ungutbayeva 11.856

Almaty 2013

Content

I. II. III. IV. V. VI. VII.

Executive Summary...3 Strategic Analysis and Strategic Plan5 Product Analysis6 Marketing Plan..8 Production Plan12 Organization Plan.13 Financial Plan...15

Executive Summary
Relax Hostel is one of the first hostels in Almaty where people can spend weekends, holidays, or a business trip in cozy atmosphere at a relatively cheap price. The price of the stay in the hostel includes breakfast, linen, towels, free internet access, maps with the most popular places to visit in Almaty! There are three owners of the hostel Ramazanova Dana, Sarsymbayeva Gaukhar and Ungutbayeva Leila and our company is a Limited Liability Company(LLC), thus the owners will share the profit equally. Competitive advantage. In Kazakhstan hotels are relatively expensive thats why hostels are a great way to save money while still getting the opportunity to see the country. While hotels allow and encourage privacy, hostel is designed to offer sociable accommodation, with bunk beds in dormitories, living rooms with televisions and books, and self-catering facilities. Bathrooms will be shared, although for a little more money you may be able to rent a private room with en-suite bathroom. Hostels are also more informal than hotels theres much less emphasis on good-quality service because of the cheap prices. There are plenty of hotels that have high, low and average prices, however not all of them have appropriate level of service. According to statistics (stat.kz), percentage of business tourism in Kazakhstan is 93% of the total number of tourists, which is 189 648. Some of the tourists are coming for business trips for not more than one week. That means that they dont want to spend a lot of money for bed, because most of their time in Almaty they will spend at work or they and their company dont want to spend lots of money on accommodation, thats why hostel is a good decision. Mission and Vision Statement Our mission is not to establish a business, but to create a brand new type of youth community in our country: open to new ideas and ventures, not to attract a new customer niche, but to invite guests to our country. Our aim is to create a place where people from any part of in the world would feel like home. Our everyday work is dedicated to provision of relaxing and comfortable atmosphere for our guests. Firstly, the company is aimed at the establishment of a chain of hostels in other large cities,other than Almaty (Astana, Karaganda, Atyrau, etc),that would be located near airports, train and central
3

metro stations. Taking into consideration expanding economic and cultural globalization, it is necessary to emphasize the evolving value of intangible assets of our life, while everything tangible losses its worth. Ecotourism is growing rapidly at an amazing speed; hence it is necessary to provide appropriate conditions. We are going to make RELAX hostel known as a brand of ecological and social sustainability. By applying Total Quality Approach, companys customer service and managements decisions would be based on continuous quality improvement and satisfaction of customer needs. Management and Organization: The organization of the company is simple, as the 2 owners of the hostel are involved in the work process. Accountant/financial director-is one person, Ungutbayeva Leila who is responsible for all issues connected with the cash. Senior manager, Sarsymbayeva Gaukhar, is liable for the control over the receptionist and cashier and checks the presence of items that are needed for clients. Receptionist works 8 hours per day and registers people for accommodation, at the same time is in charge of the cash machine. Janitor is a non-regular worker and cleans the hostel 2 times per week

Analyzing the product

Mission Hostelling business is widely spread around the world. It provides youth usually represented by backpacking community or tourists with cheap but comfortable accommodation. It is not only the source of accommodation but a part of an adventure alongside with travelling. It is a place where you can meet people from any place in the world, communicate and share memories with them. It is an unforgettable and challenging experience, which luxurious hotels are not able to give. So, our mission is not to establish a business, but to create a brand new type of youth community in our country: open to new ideas and ventures, not to attract a new customer niche, but to invite guests to our country. Our aim is to create a place where people from any part of in the world would feel like home. Our everyday work is dedicated to provision of relaxing and comfortable atmosphere for our guests. Vision Our company is planning to evolve in 2 directions: material and sustainable. Firstly, the company is aimedat the establishment of a chain of hostels in other large cities, other than Almaty (Astana, Karaganda, Atyrau, etc),that would be located near airports, train and central metro stations. Taking into consideration expanding economic and cultural globalization, it is necessary to emphasize the evolving value of intangible assets of our life, while everything tangible losses its worth. Ecotourism is growing rapidly at an amazing speed; hence it is necessary to provide appropriate conditions. We are going to make RELAX hostel known as a brand of ecological and social sustainability. By applying Total Quality Approach, companys customer service and managements decisions would be based on continuous quality improvement and satisfaction of customer needs.

Product analysis
In Kazakhstan hotels are relatively expensive thats why hostels are a great way to save money while still getting the opportunity to see the country. While hotels allow and encourage privacy, hostel is designed to offer sociable accommodation, with bunk beds in dormitories, living rooms with televisions and books, and self-catering facilities. Bathrooms will be shared, although for a little more money you may be able to rent a private room with en-suite bathroom. Hostels are also more informal than hotels theres much less emphasis on good-quality service because of the cheap prices. There are plenty of hotels that have high, low and average prices, however not all of them have appropriate level of service. According to statistics (stat.kz), percentage of business tourism in Kazakhstan is 93% of the total number of tourists, which is 189 648. Some of the tourists are coming for business trips for not more than one week. That means that they dont want to spend a lot of money for bed, because most of their time in Almaty they will spend at work or they and their company dont want to spend lots of money on accommodation, thats why hostel is a good decision. Our Hostel is located at apartment complex Stolichnii center. We occupy the 1st floor of the building and its hard to get lost. Apartment complex Stolichnii Center is situated in the historical part of Almaty. It is an ideal starting point to explore this beautiful and enchanting city. Hostel is only 5 minutes away from Almaly metro station! Our hostel is surrounded by picturesque parks and nice cafes with warm atmosphere and fashionable design. The atmosphere of the hostel is very cozy, as it designed with light and calming colors, such as: light purple, beige and light pink. First of all, our business must have Certificate of Conformity(GOST), as it is a guarantee of standardized requirements of provided service. There are two types of certification mandatory and voluntary and in order to stay afloat in the market, after proving the conformity of the service we should assure the quality of the service which is evaluated by the customers. Quality Certificate attributes can be formed by Kazakh Association of Hotels and Restaurants; you are notified before 2 weeks of the arrival of the inspection control and the commission checks the quality every year. ISO certificate is related to quality management systems and designed to help organizations ensure that they meet the needs of customers, while meeting statutory and regulatory requirements related to the product. This certificate is very important to have as it responses to international standards so that our customers interests will be on the first place. Actually, there are plenty of
6

certificates that guarantee and confirm the quality of the service, and its not hard to obtain them, but the previous ones are major and obligator. As 60 % of the world are Muslims and having Halal Certificate is becoming very crucial. From the prospective of the tourists whose choice of the hostel depends on religion, Halal certificate will be defining aspect of the choice. According to the World Tourism Organization, ecotourism is the fastest growing market in the tourism industry, growing at a rate of 5% worldwide and representing over 11% of all consumers spending. Thats why we must implement and certify EcoCriteria strategy for such small organization as our hostel. Working with a board of advisors comprised of some of the brightest minds in sustainability, EcoRooms&EcoSuites has developed a strict set of EcoCriteria that is raising the bar for environmental excellence in hospitality. There are two tiers of green designations approved status is based upon satisfactory completion of an application, and certified status requires an on-site audit of the claims made on the application by one of the programs board of advisors. If the hostel after launching develops according to the plan and the profits are earned on time then there is a possibility to expand. It is necessary to open the next branch of the business in the capital of the country, as it is the biggest touristic attraction. Who knows, there is a chance to become one of the first and biggest Hostel chains in the country. Licensing is aimed at governmental security, realization of authoritative monopoly and for protecting the environment. Licenses are given out to legislative entities and they cannot be used by other entities. Firstly, we should write application established by the government, and then we must have documents that confirm the conformity to qualified requirements and the document of payout to the budget for the right to have different types of activity. Ready license gives opportunity to prevent occurrence of the same business with the same name and it protects the business from stealing ideas, people, trademark etc.

Marketing Plan
Hostel is a new trend in the market of hotel services. Relax hostel is relatively new type of accommodation in Almaty. The main product that we offer to customers is our pleasant and cozy atmosphere, quality service at a relatively cheap price in comparison with low-cost hotels and other hostels. We are creating friendly work environment, only hardworking and well-mannered staff will be attracted; this fact shows that both clients and prospective employees will be interested in having business with us.

Keys to Success:

The keys to success and advantages of our business are: Affordable prices Convenient location Friendly service Safety

Products and Services

Relax hostel is positioning itself as a temporary type of accommodation for different groups of people. Our services are:

24/7 hostel with 6 rooms (primary function) Help of multilingual staff Lockers, luggage storage Kitchen and laundry services Free Wi-Fi access

Competitiveness Hostel business is an unfilled niche in Almaty. Knowing our direct and indirect competitors gives us clearer image of what we should do to be successful and have the ability to compete. Our direct competitors are Almaty hostel, Apple hostel and Hostel Park. Almaty hostel is located in the foothills of the Almaty, this hostel is a 15-minute drive from Almaty city center. Its rooms and dormitories have free Wi-Fi and offer mountain views. The self-catering Almaty Hostel offers simply furnished rooms and dormitories with either a private or shared bathroom. Bed linen and towels are provided. The main disadvantage of this hostel is that it is not in the city and it is expensive to use a taxi. Mostly for tourists who want to explore the mountain nature. Apple hostel is located 3 minutes walk from Auezov Theatre Metro Station in Almaty. This hostel features free Wi-Fi and a shared lounge with a TV. Abay Avenue is 8 minutes walk away. Set in the city centre, Apple Hostel provides quick access to Almatys main attractions, such as the Central Stadium, 1.5 km away. The Square of the Republic is 8 minutes drive from the property. Every room at the hostel is decorated in a simple style, and bathrooms are fitted with a shower. Guests can use the shared fridge and microwave to cook simple meals, while several cafs and restaurants can be found within a 10-minute walk of the hostel. This hostel has high ratings on booking.com, which shows its ability to compete. Hostel Park is located a 5-minute walk from Alatau Metro Station. Free Wi-Fi and a 24hour reception are featured. The bright dormitory rooms are simply decorated and include a sofa. The shared bathrooms are in the hallway. Guests can cook their meals in the shared fully equipped kitchen, complete with a dining area. A variety of cafs and restaurants can be found within a 5-minute walk from the hostel. The Almaty Central Stadium is a 5-minute drive away, and Globus Shopping Mall is a 15-minute walk from the hostel.

The main advantage of Relax hostel is that it is situated in the downtown, in comparison with its direct competitors and only 2-5 minutes away from Almaly metro station. The hostel itself is pretty cheap, but is situated in area with all the trendy shops and cafes. Our indirect competitors are cheap and middle-class hotels and real estate companies, offering short-term apartment rental. According to booking.com website there are approximately 25 middle class hotels. Although hotels are more expensive, they dont provide necessary youth backpackers atmosphere. Still they are not true competitors to the hostel. They cater to an older demographic and have the ability to be much more private, although some do encourage mingling with guests by offering breakfast in communal areas.They are also two to ten times the price of the hostel which makes them out of price range of our potential customers. As mentioned before, because market of hostel is the developing area business, the quantity of hostels is growing. This can definitely be a threat. On the other hand starting such business Target Market Demographics The target market will be 18 to 34-year-old people: foreign travelers living on a budget and out of a backpack students from other cities of Kazakhstan tourists working peopleon business trips (both Kazakhstani and foreign)

There will be heavy marketing towards international travelers; however, considering the data provided by stat.kz number of students in Kazakhstan is more than 200 000, 70% of them are not Almaty residents. That means that when they come to Almaty and search for the permanent place to live, they need at least 2-7 days where to stay at. Also according to statistics in 2011 (stat.kz), percentage of business tourism in Kazakhstan is 93% of total number of tourists (189 648 people).

Advertising

This hostel plans to use an effective low cost advertising approach though backpacker forums, free web building software, low cost hosting, and through placement in traditional backpacker guides as well as word of mouth through large backpacking networks.A good website with lots of
10

pictures and testimonials and with online availability and booking will be a massive step ahead of the competition. Its also easier to book through Internet. The current hostels in Almaty either do not administer their own websites and, or they do, they do not do a good job updating them. Because we are going to use free cheap hosting like Wordpress or Tumblr, the approximate cost of building of the website will not exceed $700.

We are going to promote our hostel on:

Booking and real estate websites, both local and international (krisha.kz, booking.com, hostels.com) Social media advertising. In the world of fast developing new technologies it is necessary to update information about hostel daily (vk.com, twitter.com, mail.ru, instagram.com). Travel agencies and universities, using posters and brochures. Price Hostel is initially a place for people who dont want to be wasteful and/or are on a low budget. This means that price should be affordable. We offer many types of rooms for families, groups of students and even single travellers.

Type of room 10-bed room 6-bed room Private family room 2000 KZT 3000 KZT 6500 KZT

Price

These prices include such services as: The room or a bed itself Wi-Fi access, TV 1 locker and luggage space per person Usage of washing machine, BBQ and refrigerator Guide-maps

11

Additional paid services: Snacks and beverages Bicycle/car rent Linen and towels rent City tours

12

Production plan
Floor space Capacity Quality assurance sertificates 180m2 Up to 19 persons can be accommodated in one day GOST, ISO, Halal, EcoCriteriaetc (see detailed information in the product analysis) Ecology Our hostel will implement green strategy, as it has already been mentioned in the Product analysis. Firstly, our hostel will be provided with eco-friendly trash cans(plastic, glass, paper, steel) so that the trash could be recycled.(approx. 12000tg) We also will change bulbs for energy-saving once. Further growth of sustainable environment in the hostel depends on the development of the business. The license of the company is obtained on the www.elicense.kz , which is easy and mobile. Firstly, we send application of Electronic Digital Signature to registration center, then register on elicense and write application for license. The 4th stage is applying for enclosure of the license, which requires a long list of documents and only then we take the license

Legal Protection

Marketing products: 8 double-decker beds 1 double bed 1 single bed 21 lockers 38 linens 25 towels 23 pillows 23 blankets 2 computers 2 washing machines 4 tables Sofa( in the lobby) 3 Chairs( lobby) Guide-maps (approx. 600/month)

13

Organizational Plan
There are three general partners with equally distributed liabilities, who will actively participate in the establishment and maintenance of business. Owners: Ramazanova Dana SarsymbaevaGaukhar Ungutbayeva Leila

Personnel: Accountant/Financial director Senior manager Receptionist/Cashier (3shift workers) Janitor

14

HR strategy Selection & Recruitment. The main sources for supplying employees are University alumni and Internship programs. Interns would be selected through 2-day interview. Our company gives a rare opportunity for interns, as they would be able to gain both managerial and cultural experience. Internship programs would be announced through Universities assembly, career centers, Social Media, language skills training centers.

Training & Development Non-managerial employees who are authorized to communicate with customers directly are required to have advanced foreign languages skills (English, French, Spanish, Chinese). Also stuff will have to undergo training & development program, which contains not only the skills of managing hostel duties, but also personal guidance, as our employees will have to communicate with representatives of different nationalities, therefore perform ethically.

Compensation & Benefits Sufficient actions are to be undertaken in order to keep up efficient and fruitful work of the staff members. We enclose system of incentives by implementing bonuses and various compensations: Basic salary + performance based bonuses Healthcare and insurance 3-week paid vacation per year

15

Financial Plan
Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Financial plan is one of the integral parts of business plan. In order to obtain profitability and efficiency of the prospective business, it is necessary to make detailed analysis of all the financial factors. Here we will describe the sources of financing, the allocation of financial resources at maximum possible efficiency and their cost. To identify the cost of our project, we estimated the total initial investment into the company (in tenge):

I.

Financial Statements analysis

1. Investing in inventories (year 1): Quantity Bunkbed Queen-sizebed Twin-sizebed Pillow Duvet Bedding Lamp Bulb Washingmachine Mattress Refregirator Microwave Personalcomputer Towel Tissue Locker Soap Toaster Cashregister Map Fireextinguisher Foodandbeverages Marketingexpences Totalcost: 11 2 2 28 28 28 18 18 1 28 1 1 1 30 20 28 120 1 1 8640 1 Costperunit 23000 30000 10000 1000 4000 4000 600 300 40000 22000 50000 15000 100000 500 200 10000 180 2000 50000 60 15000 Totalcost 253000 60000 20000 28000 112000 112000 10800 5400 40000 616000 50000 15000 100000 15000 4000 280000 21600 2000 50000 518400 15000 2328200 107800 4764200

16

All the furniture, household appliances, items of daily use and food related products will be purchased at abelow-averageprice without sacrificing quality and will meet all sanitary norms and standards.

Most of our advertising is used in social media and Internet, which means that it is practically free. However the cost will include initial research and some printed advertising materials for distribution purposes.

2. Depreciation: Depreciation per year (total 5 years) 4600 6000 2000 200 800 800 120 8000 4400 10000 3000 20000 2000 400 10000 72320

Bunkbed Queen-sizebed Twin-sizebed Pillow Duvet Bedding Lamp Washingmachine Mattress Refregirator Microwave Personalcomputer Locker Toaster Cashregister Total depreciation:

Value(tg) 23000 30000 10000 1000 4000 4000 600 40000 22000 50000 15000 100000 10000 2000 50000

3. Operating costs: Cost Long-term rent Telephone, Internet Utility (water, electricity, etc.) Marketing expense Total Sum (per year) 4250400 60000 480000 360000 5150400
17

4. Personnel cost: Position Accountant/financial director Senior manager Receptionist/cashier/room service Janitor Total: Numberofemployees 1 1 3 1 6 Yearlypayment 240000 400000 720000 180000 1540000

5. Income statement Revenues. It is possible to accommodate 28 people per day in our hostel, so if our maximum capacity is 100% daily revenue of the hostel equals to 95000. However we assume that average amount of people to whom we will render services is 22 clients per day. Mathematically average revenue per person: 95000/28=3393, we multiply this number by 22 and get 27,244,643 tg per year. We take a loan from Kazkommertsbank; we need 4764200 for our initial investment, 5150400tg to cover 1-year operating costs and 1540000tg to pay salaries for employees, so overall we need 11500000tg. Our interest expense is calculated as follows: 11500000*0,14=1610000. Income statement for the 1st year Sales COGS Gross Profit Selling and Administrative Expenses Depreciation Expense EBIT Interest Expense EBT Taxes(20%) Net Income 27244643 -4656400 22588243 -6690400 -72320 15825523 -1610000 14215523 -2843105 11372418

18

In the second year due to the marketing strategy we assume to have increase in number of clients from 22 to 26, and this year hostel will spend only 700$ on advertising, as in the previous year it has already obtained target group.

Income Statement for the 2nd year Sales COGS Gross Profit Selling and Administrative Expenses Depreciation Expense EBIT Interest Expense EBT Taxes(20%) Net Income 32198214 -2877600 29320614 -6438200 -72320 22810094 -1610000 21200094 4240018,8 16960075

6. Estimated balance sheet for year 1: Assets Currentassets: Cash Inventory Totalcurrentassets Fixedassets: Furniture and fixtures Lessaccumulateddepreciation Totalfixedassets Totalassets Liabilitiesandequity Currentliabilities: Taxespayable Accruedexpenses Totalcurrentliabilities Long-termdebt: Totallong-termdebt Totalliabilities Equity: Totalequity Totalliabilitiesandequity

105000+2850000 4764200 7719200 1748800 72320 1676480 9395680

2843105 552575+1540000 4935680 1610000 1610000 6545680 2850000 9395680

19

Ratios. Profitabilityratios shows the differenceofrevenueandexpenses;itprovidesinformationabout earnedamountofmoneyrelativetosales,valueofassetsandequity. Gross profit margin is equal to 22588243tg, revenue is equal to 27244643tg; Gross profit margin ratio=22588243/27244643= 0.83= 83% It shows that from the revenue of our hostel, from each tenge earned 83% is available to cover overhead, other expenses and profits. Operating margin ratio or return on sales ratio is the ratio of operating income of a business to its revenue. It is profitability ratio showing operating income as a percentage of revenue. From the income statement we see that Operating Income(EBIT)=15825523; revenue is 27244643, and according to the formula: Operatingprofitmargin=15825523/27244643=0.58=58% Operating margin ratio of 58% means that a net profit of 58tyin is made on each tenge of sales. Thus a higher value of operating margin ratio is favorable which indicates that more proportion of revenue is converted to operating income. Net profit margin is a key ratio of profitability. It is very useful when comparing companies in similar industries. A higher net profit margin means that a company is more efficient at converting sales into actual profit. Net profit=11372418; revenue=27244643 Net profit margin ratio= 11372418/27244643=0.42=42% Return on assets is the ratio of annual net income to average total assets of a business during a financial year. It measures efficiency of the business in using its assets to generate net income.
NI=11372418; total assets=9395680

Return on assets=11372418/9395680=1,21 Thisnumbershowsthatusageofassetsandtheirturnoverisprettyfast,assetsareliquidandforeachass etboughtwegenerate1,21tg ofincome Return on equity= 11372418/2850000=40% The owners receive 40% from each tenge earned Liquidity ratios shows how fast assets can be converted to cash and whether the company is able to pay short-term obligations. Current ratio=7719200/4935680=1,56 Relax Hostel hasitscurrentliabilitiescovered1.56 timesover. Thequickoracidratiomoreexactlymeasuresliquidity.Inventory value is 4764200 Quick ratio= 7719200-4764200/4935680= 0,60
20

Debt ratios Thedebttototalassetsratio shows the share of assets that were budgeted with liability Debt to total assets=6545680/9395680=0,70=70% 70% of our assets are financed with liabilities Debt to equity measures the debt relative to equity Debt to equity=6545680/2850000=0,89=89% Thetimesinterestearnedratio shows how well the company has its obligations covered. EBIT=15825523; Interest=1610000 Times Interest earned= 15825523/1610000=9,82 Assetactivityratios Inventory turnover ratio measures how efficiently the company manages its inventory. COGS is equal to 4656400; Inventory Turnover=4656400/4764200=0,98=98% Totalassetturnover measureshowefficientlyafirmutilizesitsassets. Revenue is 27244643 TAT=27244643/9395680=2,9

21

Capital budgeting NPV- is the difference between the present value of cash inflows and the present value of cash outflows. NPV is one of the major measures of undertaking the investment decision. Cash flows 11444738 17032395

-11500000 In order to make sure that we made the right decision, we calculate NPV of our project, we take the rate of 7%: NPV=-115000000+11444738/(1,07)+17032395/(1,07)^2=14072770 KZT Analyzing our NPV, we can come to the conclusion that the project should be accepted, as the current value of a project, that have operated at 2 years(minimum), is 14072770 KZT at the rate of 7%.

IRR is another measure of the reliability of our project. IRR is the estimated rate of return at NPV equal to 0

r NPV

0 0,3 0,5 16977133 7381984,852 3699778,7

0,85 -337061

0,9 -758339

IRR=0,07+14072770/(14072770-(-337060,54))*(0,85-0,07)=0,831755 or 83,17%, where: 7% is the percentage with positive NPV equal to 14072770, 85% is the percentage with negative NPV equal to -337061. High value of IRR of our project shows high reliability and success of the project, which supports the claim that the project should be accepted.

22

18000000 16000000 14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 -2000000 0 0.3 0.5 0.85 0.9 r NPV

At the table of NPV profile we can clearly see the IRR=83,17% at which NPV is 0, and that if the rate is more than 83%, NPV is negative. Also we can conclude that the lower the rate, the higher is NPV so our rate of 7% is quite appropriate.

PI of our project is equal to 0,22371915 , which is beneficial to our project.

The PP(pay period) of our project does not need to be estimated as it can be clearly seen from the Cash Flows of our project. It is obvious that the CF from the first year equal to 11444738 does not cover the initial investment of 11500000, nevertheless the second years CF of 17032395 cover the residual value of initial investment equal to 55262. Therefore we can conclude that the initial investment would be covered in 1 year and a month.

23

Project analysis Incremental cash flows positive and negative cash flows that will occur if an investment is undertaken. Initial investment Cash Flows.

Current asset changes 105000 increase in Cash 1550000 in Inventory Total CA change:1655000 Operating Cash Flows Sales Operating Expenses Depreciation Expense EBIT

Current liabilities changes 1610000 increase in AP 552575 increase in Accruals Total CL change: 2162575

21244643 -2609900 -72 320

18 562 423

Corporate Income Tax in KZ (20%) Net Profit Depreciation Expense back) Net Incremental Cash Flow (added

3712484,6

14 849 938 72 320 14 922 258

Operating

24

Break-even analysis Fixed Costs: 5150400+1540000=6650400 Variable cost per unit: 580 Price of the service: 3393

BEP(units)=6650400/3393-580=2364
BEP(sales)= 2364*3393=8021616 tg
15,000,000 KZT

10,000,000 KZT TFC TVC TC Sales Profit

5,000,000 KZT

0 KZT 0 -5,000,000 KZT 400 800 1,200 1,600 2,000 2,400 2,800 3,200 3,600 4,000

-10,000,000 KZT

25

Information on loan The main source of our investments is bank. As stated previously, the amount that we should take from the bank as a loan is 11500000tenge. The bank offers us 14% loan for 10 years. As borrowers, we should repay the fixed percentage every month.

Table of amortization of loan

Month 1 2 3 4 5 6 7 8 9 10 11 120 Start Balance 11,500,000.00 11,455,610.27 11,410,702.65 11,365,271.12 11,319,309.55 11,272,811.76 11,225,771.49 11,178,182.43 11,130,038.16 11,081,332.20 176,497.27 Principal 44,389.73 44,907.61 45,431.54 45,961.57 46,497.79 47,040.26 47,589.07 48,144.27 48,705.96 49,274.19 176,497.27 Interest 134,166.67 133,648.79 133,124.86 132,594.83 132,058.61 131,516.14 130,967.33 130,412.13 129,850.45 129,282.21 2,059.13 Payment 178,556.40 178,556.40 178,556.40 178,556.40 178,556.40 178,556.40 178,556.40 178,556.40 178,556.40 178,556.40 178,556.40

The total outflow of cash from budget is 178556tg per month.

26

Risk assessment A probability or threat of a damage, injury, liability, loss, or other negative occurrence that is caused by external or internal vulnerabilities, and that may be neutralized through preemptive action. Some of the risks associated with a hostel business include:

1. Safety: Safety of guests and visitors must be the prime consideration for hostels. There also is risk of workplace injuries and accidents. Were using electrical equipment, which can cause fire. Solution: we will place strict prohibition for smoking inside the hostel building. It will not only a good step toward health but also helpful from fire and any other explosion. There should be the fire protection instruments inside the hostel building as well.

2. Poor Quality: It is very important to have a good reputation among hostels, as the quantity of them is little. Hostels positioning itself as cheap type of accommodation and sometimes it can be challenging to achieve quality for a low price. The risk of losing customers and earnings due to poor service quality exists. Solution: quality issues shouldnt be eliminated as they arise, but they should be prevented at the very beginning.

3. Staff Issues: To achieve good quality of service, we should hire competent service workers. Issues related to staff not performing, turning up late or causing problems with other staff members may arise. Employees may commit fraud in the mess expense and in transportation etc. As our product is service, mostly personnel creates necessary friendly atmosphere. Also employees are very important for any organization. If they are satisfied of their jobs and the management behavior, then they will be motivated and will not leave the organization. Solution: manager will check the record on daily basis. Furthermore, there must be check and balance upon employees, and there must be proper monitoring system to check performance of staff. Giving employees the opportunity to express themselves.

27

4. Financial Risk: Hostel business is risky itself. We should be able to fill in the hostel at its maximum capacity (or close to 100%).When the opportunity arises,then we need resources to obtain the advantage of that opportunity. To avail this opportunity, we may go to the bank and other financial institution and demand loan, in case, when we dont have further capital. If they refuse to lend us loan, then we may miss to avail that opportunity. In order to prevent form this kind of risk we should have to make a reserve fund from our profit and will use this reserve when we have no capital to meet the requirement of our business and also used to avail the opportunity when it will be rouse.

Hostel Risk Assessment Plan:

1. Identify the hazards 2. Decide who might be harmed and how 3. Evaluate the risks and prevent it 4. Record your findings and implement them 5. Review your assessment and update quality control (if needed)

28