The Zappos Companys Financial Considerations

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Zappos is an active business entity that conducts its operations online. The organization stocks a wide range of products, including shoes, clothes, and appliances (Askin & Petriglieri, 2016). Accordingly, Zappos is a subsidiary of Amazon but operates independently. The following section covers the online retail firms financial consideration by focusing on its startup costs, sales forecast for the years 2023 and 2024, break-even analysis, profit, and loss analysis, and funding requirements.

Startup Costs

Being an operational business means Zappos does not involve many fresh costs like other startup enterprises. However, several items require appropriate budgeting for the entity to operate successfully. Such facets fall under two broad groupings; assets and expenses, as shown in Appendix 1. Inventory and equipment outlay constitute the assets cost, amounting to $12,000 a month. Moreover, some of the establishments basic expenses worth budgeting include marketing, web hosting, rent, insurance, utilities, payroll, repairs and maintenance, and organizational dues. Each of these expenses has a monthly budget, stipulated in Appendix 1, with the total budget for the expenses amounting to approximately $8,000. Accordingly, Zappos will require at least $20,000 monthly to finance its elementary operations. The inventory forms the largest part of such a monthly financial plan due to the aspects criticalness in online dealings. Nonetheless, the budget for monthly inventory concerns new stock since Zappos is already doing business. Marketing and payroll expenses form the other expensive budget features for Zappos. That is because the entity culture seeks to set the firm as one of the most caring online retailing organizations per Tonys plans.

Sales Forecasts

Zappos earns by bridging a market gap concerning attire and appliance supply. Initiated before the twentieth century, the organization depends on Tonys customer service brilliance to reach out to millions of consumers all over the U.S. and other parts of the world, mainly Europe. As per Askin and Petriglieri (2016), Zappos best previous sales before the acquisition exceeded $1 billion. Consequently, this sales forecast relies on the preceding records to establish probable and viable projections. Therefore, Appendix 2 shows Zappos likely sales for 2023 and 2024 as $2 and $2.3 billion, respectively. Being part of Amazon, a trusted online player with an extensive network, coupled with the provision of specialized items, makes the estimates substantially reliable.

Break-Even Analysis

Businesses use different approaches to undertake break-even examination, including the break-even quantity or volume method. In this slant, the investor, especially those dealing with multiple products, identifies a specific primary item to utilize for the analysis (Gallo, 2019). For example, Zappos can use its original products; shoes, to find the number of pairs the firm must sell to return all the costs involved in the acquisition and daily operation since the Amazon buyout. Appendix 3 gives the equation for this calculation, where Zappos annual fixed costs immediately after the acquisition (figuring out the $1.2 billion takeover fee) totaled, approximately $2 billion. The entity sells a pair of shoes at about $50, making a profit of approximately $15. Subtracting variable cost per unit of $6, the BEV will be above 181 million pairs of shoes.

Projected P&L

The profit and loss statement shows an organizations profitability by reporting a businesss earned profit or experienced loss within a specific trading period. The statement does this by comparing income and expenditures. Appendix 4 shows Zappos projected P&L based on the projected earnings and expenses for 2023.

Funding Requirements

Zappos requires at least $3,000,000,000 to finance its operations effectively. This amount includes the $1.2 billion utilized during the buyout by Amazon and the subsequent expenses necessary for the firm to function as a real subsidiary of the acquiring retail giant. Correspondingly, part of this sum will cater for the payroll and other basic purchases before Zappos can generate adequate finances to operate independently. Appendix 5 provides information about this figure and where it comes from, based on the fact that Amazon is an already financially stable online retail business.

References

Askin, N., & Petriglieri, G. (2016). Tony Hsieh at Zappos: Structure, culture and change [PDF document]. Web.

Gallo, A. (2019). A Quick Guide to Breakeven Analysis. Harvard Business School Publishing. Web.

Appendices

Appendix 1: Startup Cost Analysis

Business Startup Costs/ Month
Items	Amount
Assets:
Inventory	$ 10,000.00
Equipment	$ 2,000.00
Subtotal (Assets)	$ 12,000.00
Expenses:
Web Hosting	$100
Marketing	$1,000
Rent	$1,200
Insurance	$1,000
Utilities	$300
Payroll	$4,000
Repairs and Maintenance	$300
Organizational Dues	$95
Subtotal (Expenses)	$7,995
Total	$19,995

Appendix 2: Sales Forecast

Year	2023	2024
Sales	2,000	2,300
COGS	1,500	1,700
Gross Margins	500	600
Expenses	140	170
Net Income Before Tax	360	430
Income Tax	108	129
Net Income After Tax	252	301

Appendix 3: Break-Even Analysis

Appendix 4: Projected P&L Statement (Values in 1,000)

Profit and Loss	2023
Sales	20,000
Direct cost of sales	1,500
Other costs of sales	0
Total cost of sales	1,500
Gross margin	18,500
Gross margin %	0.85
Operating Expenses
Servers payroll	0
Advertising/promotion	650
Other operating expenses	0
Total operating expenses	650
Operating expenses %	3%
General and Administrative Expenses
Office supplies	4,300
Legal and professional expenses	500
Repairs and maintenance	800
Depreciation	0
Rent	0
Utilities	3,600
Insurance	1,596
Payroll taxes	0
Other general and administrative expenses	5000
Total general and administrative expenses	15,796
General and administrative %	79%
Other Expenses
Other payroll	0
Consultants	0
Cell phone	2,000
Fuel and gas	1,300
Internet and Wi-Fi	400
Total other expenses	2,000
Total expenses	18,446
Profit before interest and taxes	54
EBITDA	54
Interest expense	2
Tax incurred	16
Net profit	36

Appendix 5: Funding Requirement

Financing (Owners Equity and Liabilities)
Owner Initial Investment	3,000,000,000
External Investment	0
Total Equity Financing	3,000,000,000
Bank Loan	0
Line of Credit	0
Total Liabilities	0
Total Equity Financing and Liabilities	3,000,000,000

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