Analysis of Legal and Juridical Aspects in Russia

Table of contents Pages

Introduction……………………………………………………….…3

Chapter 1. Business Plan Structure…….…………………………....5

Chapter 2. Marketing Analysis……………………………………...7

2.1 PEST Analysis…………………………………………..16

2.2 Five forces of Porter…………………………………….20

Chapter 3. Analysis of Legal and Juridical Aspects in Russia….…25

3.1. Tax system overview for small businesses in Russia….28

3.2 The Labour Code………………………………………..33

Chapter 4. Financial Aspects……………………………………….38

Chapter 5. Risk Management………………………………………47

Chapter 6. Strategic Development of the Firm……………………..52

6.1 SWOT Analysis………………………………………….58

Appendix. Business Plan for Native Speakers Club “Tiempo”…….63

Introduction

Background

In general, it is very hard to find a perfect niche to start a business, but there are also many factors that increase the chances of running a successful business even on already existing semi-full niches. The foreign languages market in Russia is a very specific one. Taking into account some historical facts and changes in The Russian Federation in the 90-x years, it can be witnessed a clear line of technological progress, that also brought part of different cultures and trends from western countries.

People are travelling more, spending money on education abroad as well as on buying properties in Europe and America, in comparison to the Soviet Union. The most popular foreign language in Russia, since the year of 2000, has always been English. Learning foreign languages is getting more and more popular. German and Spanish are considered to be the next more popular languages in Russia, meaning the market of foreign languages learning is growing as time goes on. According to various researches, some of the key factors that allowed Spanish to become so popular in Russia are:

The crisis of 2007 in Spain that made properties cheaper and attractive for Russian investors and average population.
Spanish culture that became more popular as people began travelling around European countries.
Relatively cheap tours and air tickets to Spain (before the currency crisis of 2014).

Problem statement

The purpose of this work is to elaborate a business instrument that could reflect the Spanish native speakers club “Tiempo” business model in order to discover a range of possibilities for its future success. It is necessary to take into consideration the restrictions the project holds on existing methodology. The main characteristic of this work is to make a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals.

In order to develop the business plan, it should be focused mainly on the financial goals of the organization, such as profit or creation of wealth. To concretize the work it will have elements that would target goals that are important to external stakeholders, particularly financial stakeholders (investors and costumers). The strategies and tactics described in the plan will be the outputs from a logical and appropriately comprehensive business planning process.

Within this paper project the following environmental business aspects will be analyzed:

Business plan structure, that ensures how a business plan should be done and what points should include
Marketing analysis with the help of methods stated before
Analysis of Legal and juridical aspects based on the law system of the Russian Federation
Financial aspects will be assessed using information of the club’s work during the last 5 months as well adding and correcting values in accordance to several new factors
Risk management in the club will be analyzed in accordance of different characteristics that will be shown in the project
Strategic firm’s development will be evaluated after several concrete results of the previous aspects.

Professional significance of the study

A detailed business plan of the Spanish club “Tiempo” provides the blueprint for successfully creating and running the new venture. The Spanish club “Tiempo” (OOO “Saint”) is a running start-up from august 2014. “Tiempo” combines both education and recreation, which can be hardly located on an already existing sustainable market.

Chapter 1. Business Plan Structure

In order to increase profit margins of any company, it has to constantly develop projects that involve investment of financial resources in the development of new technologies, the organization of new production facilities, renovation of production payments and equipment for the production of competitive products in the domestic and foreign markets, the construction of branches and departments that are close to sources of raw materials and markets. Each of these projects should be based on the business plan from an idea to calculate the specific amount of profit to be derived from its implementation.

In despite companies differ from each other in terms of profit received, number of workers, regional scales and other parameters, on of the most important factors that allows a company to work is the presence of a cash flow within it.

Business plans are commonly used in the search for investors: new shareholders, creditors, sponsorship investments, etc. It helps entrepreneurs and businesses that are going to expand the business by buying a stake in an existing company, or to organize a new organizational and production structure. As the main goal for the organization OOO “Saint” is to raise funds for further expansion.

A business plan is a program that describes the economic and organizational aspect of the project, which should bring profit to the enterprise-investor.

One of the main issues in the process of drawing up a business plans is the methodology needed to dissolve imperfections related to the rationale for the development prospects of companies and organizations, the possibility of obtaining bank loans, the implementation of the restructuring of production, creation of conditions for a more effective and cost-effective operation. A business plan allows you to outline the range of problems to be faced by the entrepreneur in the implementation of its objectives in a volatile, uncertain, competitive environment, generate and provide solutions to these problems1.

The actual recommended structure of the business plan is the following:

Executive Summary (1-3 pages) - as the basic information to get acquainted with the business plan of the project.
Business - plan - for detailed study of the project specialists’ investors and experts.

Any business plan has its own characteristics, and there cannot be a "standard" plan that is acceptable in all cases. There is one tried and tested principle of drafting any business plan. The business plan should always be short and concise.

The content may be divided into the following sectors:

a) Company Summary, which includes a Start-up summary for business, that are about to start or have started its work for just several months.

b) Market Analysis Summary includes market segmentation, location and demographics, competitive edge, marketing and sale strategy.

c) Management Summary includes the personnel plan.

d) Financial Plan. It must include the start-up funding expenditures, important assumptions as well as breakeven analysis. Also will be added the projected profit and loss, cash flow and balance sheet.

e) Tables.

As this project paper inquires it will produce a final outcome as a business plan, it should pointed that most of the information on it will be based on the main analysis of this project paper. Nevertheless, as it will be considered separated from the main work, it should meet the requirements asked by investors, business angels, venture capitalist and other individual or organizations willing to support with the analyzed company for personal financial interests.

Chapter 2. Marketing Analysis

According to Wood (2008, 28), a marketing analysis is used to define the potential buyers for certain, specific products on a market. The statement means, that the costumers are considered to be the main focus for any analysis of the market. For it to be done, an analysis of the environment should be carried on. In order to meet those expectations, the analysis provided includes statistics of potential costumers as well as view of the main external factors with the help of a PEST analysis.

In an industry analysis the company will look at the market characteristics, which include the market size, growth rate, among others. This analysis will include as well the market potential, parameters that would allow to assess the industry structure, the level of competition as well as the trends in the market, which include the implementation of new technologies, drivers of change, changes in use of services, and new categories of service users (Biztree, 2010).2

To begin with, we need to take into account that the population of Russia is around 144 Million3. It is the ninth largest country by population and the sixth largest by purchasing power parity. The country has a higher proportion of higher education graduates than any other country in Eurasia. The average GDP per capita is 14,611 rubles4. The Russian Federation is also home to several sizeable minorities. In all, 160 different other ethnic groups and indigenous peoples live within its borders. Russia's 160 ethnic groups speak some 100 languages. As per the website internetlivestats.com Russia has an Internet user base of around 85 million. The Internet penetration is around 60% of the population. It has an average annual user growth of 10%5.

At the end of November 2014, the Russian Public Opinion Research Centre (VCIOM) published the results of a poll about foreign languages. It asked Russians which languages should be studied in school, whether or not children will find foreign languages useful in everyday life, and which benefits can be gained from knowing foreign languages. One thousand six hundred Russian residents from 130 towns and cities answered the poll, which was the first of its kind run by VCIOM.

The vast majority of respondents (92 percent) think children should study foreign languages in school. That statistic rose to 98 percent in Russia’s biggest cities – Moscow and St. Petersburg.

Nearly three-quarters of Russians (74 percent) are convinced that their children and grandchildren will benefit from knowing other languages. The majority of those who answered, “yes” to this question were young people (82 percent of respondents in the age 25-34 category answered “yes”) and had a higher education (81 percent). As a possibility to learn foreign languages the vast majority still goes for English, nevertheless Spanish remains in the top 5 category.

Taking into consideration that the current market analysis is based on the foreign language market mainly specialized on providing services; one of its most important straits should be taken upon the classification of the main competitors’ line.

As market researches at the area of the foreign languages market are not for public view and require an additional overview, the size of the market as well as the market’s dynamics will be assessed using latest technologies that allow an estimated assessment of the market itself.

Within the frame of this project it is also important to narrow down the market analysis to companies whose main focus audience is located using latest online search engine optimization methods as their marketing policy6.

The main instrument allowing an estimation of real costumers on the Spanish language market will be considered Yandex wordstat system7 that provides statistics on how many people were looking for those services using search engine systems. As result we get the following results, for how many people were looking for “Spanish language” monthly during the period of 01.04.2014 - 31.03.2015:

Table 1. Search Views

Period	Absolute views8
- 01.04.2014 - 30.04.2014	88865
- 01.05.2014 - 31.05.2014	84266
- 01.06.2014 - 30.06.2014	83762
- 01.07.2014 - 31.07.2014	74003
- 01.08.2014 - 31.08.2014	80772
- 01.09.2014 - 30.09.2014	103323
- 01.10.2014 - 31.10.2014	103532
- 01.11.2014 - 30.11.2014	93473
- 01.12.2014 - 31.12.2014	86051
- 01.01.2015 - 31.01.2015	65779
- 01.02.2015 - 28.02.2015	80279
- 01.03.2015 - 31.03.2015	94281

As a result we can observe an annual number of 1 038 386 of people looking for Spanish language services. Other key words may be also used to find the same services, but as the numbers were drastically lower, those were excluded as estimation, that not everyone looking for the services turned to be an actual consumer9. The views do not exclude the fact, that 1 individual could have been looking for the services more than once. In this case it is important to also add sorting criteria called marketing conversion10. Online analytical instruments such as Google analytics11 allow a company to assess the conversion level on their websites, showing the sales funnel path an individual goes through before becoming a client of the organization12. Also it shows the number of times 1 individual visited the same webpage, allowing the statistics to be more precise. As an additional research needs to be arranged in the area of Spanish language learning consumption, in order to gather more precise information on the overall conversion level of costumer, the estimated average conversion level will be used to assess the number of potential clients for this industry within the frames of this project paper. As a statement based on already carried out researches on what is the average conversion level is for most companies, it resulted on a level ranged at 1% till 5%13. As the conversion level is fair for one company’s statistics, there also another fact that needs to be taken into consideration. The fact that an individual looking for “Spanish language” services decided to choose a different company to receive the same service also needs to be considered. Statistically, the other 95%-99% of costumers could have either chose another company or could have decided not to go for the services at all.

A restriction, due to the lack of additional researches on the area will imply that a potential costumer looked trough the main 7 companies on the search engine they were looking for. The probability the individual chose one of them will be proportional, meaning it is 14,23% of chances he/she chose a company’s service. Uncertainty of whether an individual decided to choose a company’s service remain, meaning it can be assessed with a possibility of 50% chance (either a viewer decided to take Spanish language services or not). Adjusting the probabilities for the companies in the sector to have different conversion rates to the parameters of annual views, we may obtain optimistic, neutral and pessimistic calculations that could help us assess the current market size. A neutral calculation (considering the average conversion rate at 3%) will lead to the following results:

1 038 386 x 0,03 = 31 151,58 estimated potential costumers that chose 1 company,
1 038 386 x 0,97 = 1 007 234,42 estimated viewers that decided to choose another company’s services or non at all.

From the estimated viewers that decided to choose another company’s services we sort them under a probability of 14,23% of choosing a company, that leads to the following:

1 007 234,42 x 0,1423 = 143 329,458 viewers that may have chosen another company’s service.

The rest of the viewers (1 007 234,42 - 143 329,458 = 863 904,962) may have decided either going on with the services of Spanish language or not with a assumed probability of 50%, meaning 431 952,481 persons may be considered as potential costumers and the other 50% may be excluded.

As a result of the assumed calculations we obtain an average of 606 433 potential consumers for the Spanish language sector.

Also it must be taken into account; the following results were attained for people living within the Russian Federation.

From the period of 01.04.2013 - 31.03.2014 – 1 027 311 searches were being carried out.

In order to estimate the medium price an individual pays for the Spanish language services, a certain classification will be made.

As the market is being narrowed down to Spanish language learning 2 different business structures exist. The first one is considered to be part of official institutions that provide language-learning services such as schools, institutes, etc. The second business structure is included in the private sector, thus providing services of personal education by the means of personal tutoring. The second type is considered to be the most frequently encountered via online optimization marketing channels, as the entry market terms for those businesses is lower as well as the business entry expenses (Native speakers club “Tiempo” as an example stated in the current work). That statement is also justified by fast development of the e-commerce sphere14.

The analysis of standard prices is linked with the number of competitors on the market. But in order to provide an approximation of the prices only the top 7 main competitors providing Spanish learning services will be reviewed.

In order to classify the existing competitors, it is important to set some criteria on how they have been selected. For this paper work, the main criteria of selection are linked with online search engines15. As stated, the top 7 competitors at the area of Spanish learning services (in order to narrow down the market) on the current market were selected. As the results show, the following main players at this area are:

Cervantes Institute16
La Espaola17
Native speakers18
Repetit-center19
Latin quarter20
Es palabra21
Repetitors.info22

Going through their main services stated on the webpages respectively, we observe a large number of services and courses they provide for different consumer categories, as well as the prices differentiate whether the academic process is being carried out by a native speaker or non-native speaker. Also the prices differ. Nevertheless, in terms of a standard academic lesson received, the medium price is 1600 rubles (the native speaker factor taken into account). As a usual consumption of 2 lessons a week and 8 a month, an overall medium price of 12800 rubles per month on Spanish learning.

Although yet still there is another criteria of differentiation used on this project paper, which is related on learning by the means of online technologies. Thus, allowing an individual receive a lesson directly from its home using an electronic device or computer23. Gathered from the same sources stated above, it was calculated an average of 600 rubles per online same academic standard lesson (native speaker factor taken into account), estimated with the same parameters results in 4800 rubles monthly.

An additional research needs to be carried out showing the percentage of people willing to learn at home by the means of computers or electronic devices and those who prefer to receive face-to-face lessons. As a rough approximation of the research the average medium price will be taken. Clients willing to learn Spanish use a final calculation of 8 800 rubles average per month. As the continuity factor of the lessons requires an additional revision as well, as the number of online searches per month using search engines remains stable, it is a fair consideration that a client receives a lesson during at least 1 month.

As it is shown the average consumption price for Spanish language services it is possible to assess the size market by using a method of normative consumption for market size assessment24.

Market size = 606 433 x 8 800 = 5 336 610 400 rubles

The method used above needs to be threated as positive, as the calculations are higher than with the usage of other methods. From the other hand, the online analytical instrument for the number of costumer’s estimation allowed us to consider the seasonal factor the market implies.

As a result we get over 5 billion rubles of market size estimated during the 1 year period from 01.04.2014 till 31.03.2015.

In comparison to the period 2013-2014 were the number of people interested on the market services were slightly lower due to currency crisis in the Russian federation25. As the situation gets better, the possibility of market growth in the future cannot be denied.

Using the information stated, according to the already carried out analysis on the sphere, we can say it is highly possible to settle or continue a business related with Spanish language learning.

Moreover, before the company OOO “Saint” started its work it begun to offer its services, as a single man native speaker using a simple landing page via online platforms with a minimal budget of 5000 rubles during one month for advertisement. This experiment led into 1 interested client willing to pay 2500 rubles per 90 min of Spanish lessons twice a week. What is more is that the individual still remains as a client for the company.

In order to receive a clear view of the external environment, besides real experience based statements, the following table expresses the PEST analysis carried out to identify the primary external factors that act as relevant in this market26.

2.1 PEST Analysis

Table 2. PEST Table

Factors	Factors influence	Expert mark	Medium mark	Corrected mark
		1	2	3	4	5
Political
Bureaucracy and corruption	2	4	4	3	3	3	3,4	0,072
Tax Policy	3	3	4	3	3	4	3,4	0,072
Trends in the regulation or deregulation of the industry	1	2	3	3	2	3	2,6	0,055
Degree of protection of intellectual property and copyright law	2	4	3	4	5	3	3,8	0,081
Future and current legislation that controls the rules in the industry	3	3	2	4	3	4	3,2	0,068
Economical
Economic growth pace	2	2	3	3	4	3	3	0,064
Exchange rates	3	5	5	5	4	5	4,8	0,102
Unemployment rate, amount and terms of payment	1	3	4	3	4	2	3,2	0,068
Level of disposable income	2	4	3	3	4	3	3,4	0,072
Degree of globalization and openness of the economy	2	4	4	3	3	3	3,4	0,072
Development level of the banking sector	1	3	3	2	3	2	2,6	0,055
Social
Education level	2	2	3	3	2	3	2,6	0,055
Attitude, career, leisure and retirement	2	3	3	3	2	3	2,8	0,060
Requirements for service level	2	3	2	2	3	3	2,6	0,055
Lifestyle and language learning habits	1	3	3	2	3	2	2,6	0,055
Development of religion and other beliefs	1	1	2	1	1	2	1,4	0,030
Traveling factor	3	3	3	2	2	3	2,6	0,055
Sex-age structure of the population and life expectancy	2	2	3	2	2	3	2,4	0,051
Size and structure of the family	2	2	2	3	2	3	2,4	0,051
Technological
Level of innovation and technological development of the industry (online services)	2	3	2	3	2	3	2,6	0,055
Development and Internet penetration, using of mobile devices	3	5	4	2	3	3	3,4	0,072
Latest teaching technologies	3	3	2	2	2	3	2,4	0,051
Gadget using incentives	2	2	2	3	2	3	2,4	0,051

Using the help of 5 experts to value the level of external factors, it was possible to assess the current image of the situation. As a result it can be seen, that for the political factors most relevant is the degree of protection of intellectual property and copyright law. Since there is great importance on what methods a designated teacher uses in the process of language teaching, greater importance represents the fact whether those methods belong to someone else and how popular and useful they are. This way many companies in the industry can certainly produce their USP. Less important on this sector are the trends in the regulation or deregulation of the industry.

For the economical factors the exchange rates play a very high role. It makes perfect sense considering the link between traveling abroad and even buying goods online with the ability to speak in foreign languages. Less relevant in this topic comes the development level of the banking sector.

Social factors showed a number of relevant ones, which are the level of education, requirements for the service level, lifestyle and foreign language learning habits and also the traveling factor. It is possible to also consider a link between those as they demonstrate great importance for the industry.

Concluding with the technological factors, it doesn’t really matter whether an individual uses latest technological machines while in the process of education or not, but it does matter the level of Internet usage and mobile devices overall, since most of the company’s marketing policies are been carried out with the help of online platforms.

After getting a wider view of what the external factors are, it is of great importance the need to analyze some of the internal factors. As an instrument of analysis will be used Porter’s 5 forces analysis as a framework to interpret the level of competition within the organization27.

2.2 Five forces of Porter

1) Threat of new entrants:

In the area of providing foreign languages the threat of new entrants should be considered as intermediate. The lack of strict entering regimes provides certain liberty for any new participant. What should be mentioned is that competitive advantage for new players in the market may vary depending on some legal aspects the firm would like to face, such as acquiring a license or not28. Also e-commerce facilitates the entry of new players. As the market shows relevant stability, its further growth needs to be assessed.

2) Threat of substitute products or services:

Substitute products in the current market are very rare, characterizing this particular threat as low. In despite of technological progress, that allows users to download programs, that allow them to learn languages other than having face-to-face classes with a real teacher, a lot of people prefer learning languages with the help of specialized tutors.

Bargaining power of costumers (buyers):

Costumers have a very high bargaining power. Most of the companies utilize different costumer-reaching channels such as Internet advertisement, offline life events and others. Thus, the variety of ways a company may reach its target audience allow the costumers to choose from a number of different parameters, such as service teaching level, native speaker’s country, price, well looking web-site and others. It is of highly importance the presence or lack of a native speaker tutor in the organization, but the need on them may vary according to an individual’s financial possibilities.

Bargaining power of suppliers:

Since the foreign language sector is mainly focused on providing services rather than selling goods, this force is considered as low. Suppliers at the area of language-based services may be considered companies working at the b2b sector that provide its services to corporate clients. In that case their power level needs to be assessed in accordance the sphere variety.

Intensity of competitive rivalry:

As the entry market barriers are rather low, it allows competitors to enter the market. The intensity of competitive rivalry remains very high, as not only native speakers compete with each other, but professional institutions providing teaching services as well as company’s providing personal tutor services. As it was shown, there is a large number of competitors working under the e-commerce market segment.

According to the internal factor analysis, the company faces high rivalry, which means great effort should be directed into the marketing part of the business. Having a website as a main channel of gathering new target costumers, it implies a right choice for the best marketing channels. A result of the assessment draws a picture of internal micro-economical environment of the sphere. Some factors revealing the intensity of costumer’s needs demonstrate some important characteristics of the area. The competitive environment allows the company to establish its USP in accordance to the costumer’s needs and allowing it to become a fair competitor.

A logical progression justified by the 5 forces of Porter carried above provides the possibility to formulate some of the main Key Success Factors (KSFs)29 that can be applied for the Native speakers club “Tiempo”. The main factors are:

Native speaker presence
Price
Quality service
Possibility to provide online services
Possibility to provide additional services

In order to determine the competitiveness of the company, respective scores with subjective traits will be placed to each KSF for the Native speakers club “Tiempo” and top 3 of its competitors30. The criteria of choosing the following competitors are based on club’s “Tiempo” business model that is focused on the e-commerce area, dealing mainly with native speakers personal tutors.

Table 3. KSF

KSF	Weight	Profi.ru	Nativespeakers	Repetit-center	Club «Tiempo»
		Score	*	Score	*	Score	*	Score	*
1. Native speakers presence	0,2	7	1,40	8	1,60	7	1,40	8	1,60
2. Price	0,25	7	1,75	6	1,50	8	2,00	7	1,75
3. Quality service	0,19	7	1,33	6	1,14	7	1,33	8	1,52
4. Possibility to provide online services	0,21	8	1,68	6	1,26	7	1,47	9	1,89
5. Possibility to provide additional services	0,15	9	1,35	8	1,20	7	1,05	7	1,05
Sum	1		7,51		6,70		7,25		7,41

As it can be seen, the leader here remains Profi.ru by providing a large variety of additional tutor services, focusing not only in the sphere of Spanish language, but in the sphere of providing services. This particularity can influence on its advantage even for the reviewed market. Native speakers club “Tiempo” holds a good competitive advantage amongst the other 2 competitors in despite it is still a young organization.

To receive a better classification of the main competitors a map of strategic groups is made. For the following map 2 subjective characteristics are placed on horizontal a vertical allowing settling the companies inside the matrix31.

Graph 1.

As for the Native speaker presence score, it is been taken a scale from 0 till 3,5 where 3,5 represents the higher level of presence of services related with a native speaker and 0 his absence. The level of native speaker presence is characterized by how many of them are willing to provide their services amongst others. As we can see from the matrix, the main competitors are very close in terms of price, although prices for lessons with a non-native speaker are lower and the quality expected may differ. Club “Tiempo” maintains its position competitive stable. Nevertheless other parameters need to be taken into account in order to receive a better characteristic.

An overall conclusion should state the current market is able to collaborate the Spanish club’s development, the market size estimated is considerable, although it should be highlighted the fact some additional services provided by the company are considered to be related with the foreign language services market, but not directly related with the sphere of language learning. As a restriction of the current project paper it will be focused mainly on the language learning aspect as the company’s main revenue stream.

Chapter 3. Analysis of Legal and juridical aspects in Russia

As the legal and juridical system in Russia is quite complex, it is highly important to take into account what the costs should be on opening a business, but those costs not only should be reflected according to the amount of money and individual wastes, but also how much time it should take in order to prepare to open a company. As the requirements may be worthy or not, the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new firm includes a set of specific procedures. Following is a detailed summary of those procedures, along with the associated time and cost.

Table 4. Time, cost and procedures required for starting a PRIVATE LIMITED LIABILITY COMPANY in Russian Federation

Procedure

Time to complete

Cost to complete

The signature made in the registration blank for application should be notarized as well as a standard registration application form. There is a stamp duty of RUB200 per copy.

Agency: Notary Public

1 day

RUB 200 per copy

Pay registration fee

Payments must be made at Sberbank offices throughout Moscow, or at payment terminals at the Moscow Tax Service Office #46, where business registration is done.

Business registration fee of RUR 4,000 must be paid and a payment receipt will be issued through this machine, and must be presented for Procedure 4. It is a process that takes only a few minutes, but it must be done physically, and is not available online.

Agency: Bank

1 day

no charge

Make a seal in a private company in order to open a bank account

The company needs to make a company seal before opening a bank account. The cost of acquiring a company seal at the average market price is RUB 350

Agency: Seal-making service

1 day

RUB 350

Register with the unified register at the Federal Tax Service on the local level, to obtain the single number of state registration and the number of tax registration (identification number of taxpayer, INN)

Agency: Federal Tax Service

7 days

RUB 4,000

Open the company bank account; certify and register the owner's signature

Banks require business registration and may require documents related to the founder's history and its financial status. c confirmation letter that contains details about the bank account. The entrepreneur needs this information to inform the Federal Tax Service about the opening of a bank account through the required notification32.

Agency: Bank

3 days

free if done at the bank; RUB 200 (signatures and bank card) + RUR 1000 (notary fees) approximately if done with the notary

The table also reflects the real expenses needed for the opening of OOO “Saint”. With the purpose of identifying certain restrictions and possibilities the legal system may offer. As the tax system in the Russian Federation is quite complex, it should be taken into account, that the amount of information and the quality may be assessed subjectively. The main goal of this part of the analysis is to provide a required amount of data that can be helpful for estimating the possibilities making business in Russia may bring, especially in the current market of language learning services. For this to be done, the tax system analysis will mainly include information for small business, according to the factor of recently entrance to the market of OOO “Saint”. Also information about tax regulation and employee legal system hiring procedures will be explained.

Before having an overview of how the tax regulation system works for companies founded on the Russian Federation, it is be important to analyze the current parameters of already existing companies on the industry of foreign language learning as an analogue of what it is meant reach upon the creation of the business plan. As one of the biggest competitors on the market the company EF “Education First” needs to be revised, as it is stated in the New York Times journal to be considered as a huge player owning subsidiaries on over 52 countries, including Russia33.

EF “Education First” provides a variety of services related with the English language-learning sector. Not only it provides English courses, but also the possibility to study at international English schools, as well as face-to-face English training services, online services and a variety of courses for a range of different target consumers. Moreover, the possibility to provide academic and degree programs become one of its main competitive advantages34. Unfortunately, due to secrecy policies from companies working at the foreign language market sectors, the scope of the project will be narrowed down to information obtained by the company native speakers club “Tiempo” time life and respective assumptions.

3.1. Tax system overview for small businesses in Russia

The legislation of the Russian Federation on taxes and fees consists of the Tax Code is adopted in accordance with federal laws on taxes and duties. This, along with federal taxes by the Tax Code can allow regional and local taxes to be installed. The different mix of taxes and fees established by the Tax Code and other federal laws, taxes to be paid by organizations of all forms of property as well as by individuals, should be considered as a general tax regime35.

The right use of the general taxation system envisages the payment of federal, state and local taxes that are listed in the Tax Code of the Russian Federation, including: corporate income tax; unified social tax; the tax on property of enterprises; vehicle tax; land tax; Value-Added Tax (VAT)36.

Some other taxes that are paid by organizations in general tax regime are the following:

Property tax;

Corporate property tax in accordance to the sec. 30 "Property Tax" of part two of the Tax Code is charged in the Russian Federation, which has all the basic elements of taxation (the object of the tax base, the tax rate), mandatory for the entire territory of Russia. In the case of the native speakers club, the main advantage from the business being on its earliest stage of development as well as taking part of the e-commerce sector, demonstrate the possibility to avoid such payments due to the lack of any property by the moment. Nevertheless, the organization’s growth may ensure those payments on a long-term future.

Taxpayers for this tax are considered:

Russian organizations;
Foreign organizations operating in the Russian Federation through permanent representations and/or owning real estate in the Russian Federation, on the continental shelf of the Russian Federation and in the exclusive economic zone of the Russian Federation.

The objects of taxation for Russian organizations are mainly movable and immovable property (including property transferred for temporary possession, use, disposal or trust management, contributed to joint activities). Those are recorded on the balance sheet as fixed assets in accordance with the established procedure of accounting.

The tax base is defined as the average annual cost of property recognized as the object of taxation.

The tax rates (up 2.2%) can be differentiated according to the category of taxpayers (including sectorial basis, the status of organizations), by type of property37.

Profits tax

Taxpayers of profit tax are all Russian organizations and some foreign organizations.

The profits tax object of taxation is the profit that the organization has received (Art. 247 of the Tax Code).

The tax base for income tax is the monetary value of the taxable profit (Sec. 1, Art. 274 of the Tax Code).

As a general rule, profit is the difference between revenues and expenditures of the organization (Art. 247 of the Tax Code).

Thus, the tax base is the monetary value is determined as the excess of income received by you on the left out for tax purposes costs. If the income is less than expenses (ie you received a loss), the tax base is equal to zero (para. 1 p. 8 Art. 274 of the Tax Code).

Earnings must be determined on an accrual basis from the beginning of the tax period (calendar year) (n. 7, Art. 274, para. 1, Art. 285 of the Tax Code).

The total tax rate is 20%.

Laws of the subjects of the Russian Federation rate may be reduced for certain categories of taxpayers in terms of the amount of tax to be credited to the budgets of the subjects of the Russian Federation. The size of these rates cannot be lower than 13.5% (para. 4 para. 1, Art. 284 of the Tax Code).

For small business with an annual income less the 60 million rubles, there is a possibility to diminish the standard 20% rate profits tax to whether a 6% of the company’s income or 15% of the company’s profit (income – expenses). The actual choice for OOO “Saint” is paying 6% of the company’s income. This allows it to minimize their tax payments, considering the parameter of maximizing its income and minimizing its expenses38.

Value added tax (VAT)

Taxpayers for the value-added tax are the following (Art. 143 of the Tax Code):

1) The organization;

2) Individual entrepreneurs;

3) Persons transporting commodities through the borderline of the Russian

Federation.

The list of operations, which are related to, the VAT, provided in Art. 146 of the Tax Code.

These operations include:

Sales of goods (works, services) and the transfer of property rights in Russia (pp. 1 pt 1 Art. 146 of the Tax Code).
1. Transfer of the Russian Federation of goods (works, services) for their own needs (pp 2 para. 1, Art. 146 of the Tax Code).
2. Construction and installation work for own consumption (pp 3 para. 1, Art. 146 of the Tax Code).
3. The import of goods into the territory of the Russian Federation (pp 4 para. 1, Art. 146 of the Tax Code).

OOO “Saint” is allowed to exclude VAT payments in accordance to its current business model. The possibility to exclude working with goods and mainly focusing on the service sphere helps to minimize those additional payments, although an alternative to VAT may be found as certain commissions by the services provided are retained.

The unified social tax (UST)

UST payers are divided into two groups: those who pay taxes on the payments to individuals, and those who pay tax on their income (para. 1, Art. 235 of the Tax Code).

The first group includes (pp. 1 pt 1 Art. 235 of the Tax Code):

Organizations;
Individual entrepreneurs;
Individuals who are not entrepreneurs.
The second group includes (pp 2 para. 1, Art. 235 of the Tax Code):
Individual entrepreneurs;
Lawyers;
Notaries, engaged in private practice.

The object of taxation for the UST for each of the two groups of taxpayers UST differs. Moreover, even within the same group it may vary depending on who is paying the tax.

The total amount of the UST tax rate is 26%. All the taxpayers who pay money to individuals and are not eligible for special reduced rates use it. This is indicated by n. 1, Art. 241 of the Tax Code.

At the same time, along with the general tax regime provided for by the legislation of the Russian Federation on taxes and fees, there are special, different from the general tax system tax regimes, the use of which exempts taxpayers from paying a number of federal, state and local taxes and fees.

Special tax regimes that are used in cases and order stipulated by the Tax Code and other legislative acts on taxes and duties assume a special procedure for determining the elements of taxation and exemption from the obligation to pay some taxes and fees.

Some of the special tax regimes are:

tax system for agricultural producers (unified agricultural tax) (Sec. 26.1 of the Tax Code);
simplified tax system (Ch. 26.2);
tax system as a single tax on imputed income for certain activities (Ch. 26.3);
tax system in the performance of production sharing agreements (Ch. 26.4 of the Tax Code).

As the general tax system provides a complex number of taxation parameters, hopefully, not all of them are applied to OOO “Saint” due to its recent nature and appearance into the market. Nevertheless as the number of employees increases in the future, the complexity of its organizational structure may vary. A result of the information provided, allows summarizing the characteristic of the main taxes in the Russian Federation. As the main taxes are the profits tax, VAT, UST, which imply additional calculations, it is necessary for a company working in this country to assess their main revenue stream in accordance to the payments that must be done to governmental regulative organs to ensure future profitability and growth possibility during its existence on the market.

Another important aspect, besides the restrictions according to the tax system lies on the revision of the Russian employment law (labour code) that includes the rights and needs of an employee working for a Russian company.

3.2 The Labour Code

The labour code in the Russian Federation was originally formed on 30 December 2001 and was designated to replace the old Soviet Code of 1971.

One of the most relevant and basic rules the code holds are stated on the article 9. This article reveals the principles an employee has as it works under a certain agreement on an organization and as its position may get worse, the code will ensure certain protection of its rights.

The code also means to ensure stability of working conditions, equal rights to everyone regardless where they work39.

It must be taken into account some of the main important characteristics of this topic, which include the variants of employee agreements. A relationship between the person that hires an employee and the employee itself it’s formed according to what it is stated in the agreement or by personal commitment from both sides without necessarily signing any paper.

An internal order should be raised within the organization every time a new employee it’s hired40, promoted, granted a vacation, paid a bonus, fired and other different situations.

Internal regulations

As a worker continue with its duties within a certain organization, he/she must adopt a number of internal regulation that refer to its working behavior control, processing its personal information, its performance appraisal, bonus policy and so on. Some of those regulations are mandatory, but others are not.
It is important that the general director of the company has approved the regulations, as they must be also informed to the employees. Those factors are important in order for the regulations to be valid. It is a fair way to resolve conflicts that may appear in the organization, being based on the labour code system that allows the rights of the employees to prevail41.

Important traits of the labour code that state how many working hours an employee is allowed to have, disciplinary sanctions, termination of the employment, compensation an minimum wage, holiday’s range, requirement of medical examination, liability, restrictive covenants, confidentiality and foreign personal work permits are well illustrated within the labour code42and can be reached easily. As for the native speakers club “Tiempo” the most relevant point relies on working with foreign personal.

The actual terms of working with foreigners implies equal rights as if he/she were from the Russian Federation. During the year 2010, as it was stated on the “World Congress of Families” media source43, there were made several changes to the Russian laws that would facilitate the foreign white collar work. There was added a new category of foreign white collars that got the name of “highly qualified specialists” (“HQS”), that receive significant advantages over those who didn’t got the rank. One of the primordial benefits of this category is that they are not necessarily required to obtain a working permit within the Russian Federation. They are as well taken into main priority from those looking for working with foreign specialist and their working permit allows them to be able to work at different regions of the country.

On the contrary, the procedures in order to hire non-HQS workers are quite more complicated and also require additional time. As club “Tiempo” relies on working mainly with non-HQS workers, this implies additional revision, in terms of what could be the consequences while hiring a foreigner and how it could be avoided.

Moving on to some important factors stated in the labour code, as it been stated before, in order to resolve the problem of additional time and financial expenses, due to working with foreign specialists, it is been taken the decision at the Spanish native speakers club (OOO “Saint”) to work using freelancing services. This statement receives its argumentation from several factors. One of them is the fact that companies working in the market of foreign language learning have to hire and work with people from different countries (native speakers). According to the Russian employees hiring system, to conclude with a foreigner a labor contract it is required to have a work permit.

The permit is not required for:

Citizens of the Republic of Belarus, according to the Agreement between the Russian Federation and the Republic of Belarus of 25.12.98 «On equal rights of citizens";
Foreign citizens temporarily or permanently residing in the territory of Russia. A complete list of persons, who are not covered by the employment permission procedure in Russia, set out in paragraph 4 of Article 13 of the Federal Law of 25.07.2002 № 115-FZ "On the Legal Status of Foreign Citizens in the Russian Federation."

If a company hires a foreigner without a work permit or without a permit for such involvement (if necessary) FMS of Russian Federation may impose a fine on the company (from 250 000 to 800 000 rubles) and on its representative (from 25 000 to 50 000 rubles). Otherwise activities of the company by the court decision may be suspended for up to 90 days44.

From the other side, the absence of permission from the employer to hire foreign labor forces does not affect the taxation of wages (a letter from the Russian Ministry of Finance 26.12.2005 № 03-03-04 / 1/444).

The calculation of the "salary" tax payment for a Russian company in favor of foreign workers has some special features.

The income tax on payments related with foreign workers is hold at a rate of 13 or 30 percent - depending on the time of his stay in Russia. In order to avoid those payments companies have the choice of recurring on freelancing services. Thus, allowing the company to avoid unnecessary expenses. OOO “Saint” system of working with foreign workers will be reviewed in a more detailed way within this project.

As another important part in the sphere of providing foreign languages services is the fact of acquiring a license to be able to provide teaching services, the borderline between whether it is always need or not is blurry. As the law states in the Education act of the Russian Federation “Article 33.1. Licensing of educational activities subject to licensing. Point 2. Educational activities of educational institutions, research organizations or other organizations for educational programs require a license. Point 3. The regulation on the licensing of educational activities needs to be approved by the Government of the Russian Federation.”

According to the law, license is required wile working as educational institutions, as well as for organizations that provide or would like to provide official valid certificates after finishing an educational course.

In the case of OOO “Saint” license is not required, considering that the main services are provided online, without the help of any educational institution and without providing official certificates. It is not necessarily to officially state a company’s activity is related with education, since there is the possibility to choose working at the sphere of providing online services.

Summarizing the points mentioned above, it is important to highlight the fact that the legal and right system of the Russian Federation provides certain restrictions and rules to be followed, it also provides choices an entrepreneur can make in order to start or continue his business activities.

Chapter 4. Financial Aspects

To be able to recreate a financial model and generate numbers to analyze the financial aspects of the organization, information from inside the company as well as facts and parameters from the external analysis and tax system revision will be used.

As the company is being working for several months, it forecasts substantial sales revenue by year two. This fact can be determined by characterizing the overall target audience for the services the Native Speakers Club provides. As considered by statistically reviewing 7 main companies providing Spanish language learning services that were revised on the marketing and competitor’s analysis above. The standard average price for a 90 min lesson with a personal tutor is 1500 rubles for a non-native speaker and 3100 rubles for a native speaker45. The Spanish Native Speakers Club “Tiempo”, respectively provides a price policy that states a fixed price of 3000 rubles for a face-to-face 90 min Spanish lesson.

In accordance with the information gathered from the Native Speakers club general director that includes the current prices for the services it provides as well as estimated expectations, it was possible to generate an assumptions table that demonstrates the income gathered by providing it services. The table is the following:

Table 5. Assumptions

Important Assumptions for Tiempo
Classes	Revenue per client	Expected Number of Clients per month	Revenue per Month	Commission Charges (Variable)	Number Of Events	Teacher Charges (Semi fixed)	Rent etc	Net profit Per client	Total profit
Spanish Online	1500	50	75000	1100	0	0	0	400	20000
Spanish at home tutor	3000	50	150000	2600	0	0	0	400	20000
Dance Master Class	500	30	15000	0	4	6000	3600	0	5400
Spanish Speaking Club	400	35	14000	0	4	6000	3600	0	4400
Cooking master Class	700	35	24500	0	4	6000	3600	0	14900
Trips to Spain	0	0	0	0	0	0	0	0	0
Total			278500						64700

Table 5a.

Total Costs	213800
Direct costs	185000
Rent	10800
Teacher Fees	18000

Table 5b.

Other expenses	Other expenses
		Per month
Registration Charges	7000
Printing Stationary	3800
Website Design	116000
Advertising		16000
Admin		3600

Table 5c.

Inflation	10%
Growth Rate	20%
Tax Rate	6%
Other Assumptions
Monthly oficial Salary of the General Director	25000
Direct costs include only commission

As shown in the table, the monthly parameters are estimated only, due to fluctuation of clients. The estimated number of actual clients of the club is around 50 mainly focused on Spanish learning at home and online. As a result of that, the estimated numbers of clients stated in the graph is in accordance to the owner’s expectations after gathering additional financing for additional advertisement.

The calculations for the following 3 years of the company’s activity justified by its expected sales can be seen in the profit statement below:

Table 6. Profit Statement

Pro Forma Profit and Loss	Year 1	Year 2	Year 3
Sales	4042095	5335566	7042947
Direct Costs of Sales
Product Cost	2559764	3378888	4460132
Total Cost of Sales	2559764	3378888	4460132
Gross Margin	1482332	1956678	2582815
Gross Margin, %	0,366724	0,366724	0,366724
Expenses
Payroll	516000	567600	924360
Marketing & Advertisement	260000	312000	374400
General & Administration	50200	55220	66264
Others & Miscellaneous	20000	22000	24200
Website	138000	165600	198720
Rent	129600	155520	186624
Total Operating Expenses	1113800	1277940	1575848
EBITDA	368531,6	678737,8	1006967
Depreciation	0	0	0
EBIT	368531,6	678737,8	1006967
Interest	0	0	0
Taxes	242525,7	320134	422576,8
Net Profit after tax	126005,9	358603,8	584389,8
Net Profit after tax/Sales	3,12%	6,72%	8,3%

Also by the end of the seventh month the business will have reached EBITDA breakeven and expect to achieve sustainable profit generation on a continuous basis.

The market research and a marketing strategy, that should be detailed as well in the business plan will result in an after tax profit of 126,005 rubles in year one, increasing to nearly 584,389 rubles after tax profits within three years. Monthly breakeven starts at 139726 rubles. Average Variable cost is estimated to be around 67%.

Table 7. Breakeven Analysis

Breakeven Analysis
Average Percent Variable Cost	67,0%
Estimated Monthly Fixed Cost	92816,67 rubles
Monthly Revenue Breakeven	139726,71 rubles

The following statement is a result of the services prices without the commission that should be given to the foreign specialist. This means that the average percent of the variable costs should be equal to the average commission rate the tutor receives by providing its services.

It is also important not to forget about the seasonal factor within the sphere a language learning services. An estimation of a 70% down for the summer period in the Russian Federation is expected. In order to reflect this tendency and demonstrate how it influences the business itself, it was decided to calculate the monthly sales cash flow for the company in the following table:

Table 8. Monthly Sales

Pro Forma Profit and Loss	Month 1	Month 2	Month 3	Month 4	Month 5	Month 6	Month 7	Month 8	Month 9	Month 10	Month 11	Month 12	Total
Sales	278500	300780	324842,4	350829,8	228039,4	228039,4	371879,6	394192,4	417843,9	442914,5	469489.4	234744.7	4042095
Direct Costs of Sales
Product Cost	185000	196100	207866	220338	143219,7	143219,7	233558,2	247571,7	262426	278171,6	294861.9	147430.9	2559764
Total Cost of Sales	185000	196100	207866	220338	143219,7	143219,7	233558,2	247571,7	262426	278171,6	294861.9	147430.9	2559764
Gross Margin	93500	104680	116976,4	130491,8	84819,69	84819,69	138321,3	146620,6	155417,9	164742,9	174627.5	87313.75	1482332
Gross Margin,%	0,335727	0,348028	0,360102	0,371952	0,371952	0,371952	0,371952	0,371952	0,371952	0,371952	0.371952	0.371952	0.366724
Expenses
Payroll	43000	43000	43000	43000	43000	43000	43000	43000	43000	43000	43000	43000	516000
Marketing & Advertisement	50000	50000	16000	16000	16000	16000	16000	16000	16000	16000	16000	16000	260000
General & Administration	10600	3600	3600	3600	3600	3600	3600	3600	3600	3600	3600	3600	50200
Others & Miscellaneous	3500	1500	1500	1500	1500	1500	1500	1500	1500	1500	1500	1500	20000
Website	116000	2000	2000	2000	2000	2000	2000	2000	2000	2000	2000	2000	138000
Rent	10800	10800	10800	10800	10800	10800	10800	10800	10800	10800	10800	10800	129600
Total Operating Expenses	233900	110900	76900	76900	76900	76900	76900	76900	76900	76900	76900	76900	1113800
EBITDA	-140400	-6220	40076,4	53591,83	7919,691	7919,691	61421,34	69720,62	78517,86	87842,93	97727.51	10413.75	368531.6
Depreciation	0	0	0	0	0	0	0	0	0	0	0	0	0
EBIT	-140400	-6220	40076,4	53591,83	7919,691	7919,691	61421,34	69720,62	78517,86	87842,93	97727.51	10413.75	368531.6

As it is clear from the calculations we can see a considerable fall by the months 5, 6. The table shows the months, starting with month 1 as the beginning of the company’s activity after achieving the expected number of costumers. The expected number of costumers is justified by the amount of investment that should be made on advertisement. Although it is important to state that, in order to avoid the seasonal factor, a theory of diminishing the influence of seasonal factors by the means of cross-selling (adding new services related with the Spanish learning factor) requires an additional research beyond the frames of the current project-paper.

After having an overview to some of the financial aspects of the company, certain logic must prevail, it is important to remember, that the Spanish native speakers club expectations are linked with the purpose of enhancing its advertisement policy, that way it can be represented by an overall sales forecast, based on the calculations done earlier.

The financial model does not incorporate direct personal hiring policies, but it relies on freelancing in order to work with the foreign personnel. As it was stated before, the agreement that is conducted between the foreign specialist and the Native Speakers Club “Tiempo” is being carried out through companies that provide freelancing services.

As the monthly sales assessment had been done, it is possible to provide a forecast of annual sales.

Table 9. Sales Forecast

Sales Forecast
	Year 1	Year 2	Year 3
Sales	4 042 095,39	5 335 565,91	7 042 947,01
Direct Cost of Sales	2 998 256,64	3 957 698,77	5 224 162,37
Subtotal Direct Cost of Sales	2 998 256,64	3 957 698,77	5 224 162,37

Table10. Personnel Plan

Personnel Plan
	Year 1	Year 2	Year 3
Promoter	516 000,00	567 600,00	624 360,00
Assistant Manager	-	-	300 000,00
Total Payroll	516 000,00	567 600,00	924 360,00
Total People	-	-	-

The simplicity that can be seen on the Personnel Plan table is based on the company’s financial model that includes a single general director working with outsourcing companies that offer their services as well as accountant services, foreign tutors and local renting. Those expenses are already included on the operating expenses. It is important to highlight that as the company remains on its earliest stage of development, the outsourcing factor allow a considerable cost minimization.

The parameters analyzed are of great importance and allow making a positive conclusion. The company’s financial growth perspective is quite high, although many factors haven’t been taken into account upon the current project work. The lack of sufficient researches on the area require further analysis, thus leaving an important field of research within the foreign language market, in this case related mainly with the Spanish language.

Chapter 5. Risk Management

After reviewing the main aspects of the environment including juridical and financial parameters an important part of the company’s right functioning activity should be based on the risk management of the company. In order to characterize and analyze the upcoming risks, information from inside the company will be assessed with the help of a risk matrix, followed by logical conclusions.

It needs to be noticed, that entrepreneurship and risks go hand in hand. Any business process cannot exist in the real world without risks, due to the fact that new technologies, ideas, implementations and innovations may have unexpected outcomes. However, risks can be forecasted, allowing an individual to prevent and in most cases minimize the expenses. It is important to secure a businesses success by ensuring a working system of risk management. (Kuusela & Ollikainen 2005, 66-67; Suominen 2003, 51.)

As stated by Sokolova S.V. on her article46 the main reasons for a company’s loss working on a service oriented market are the following:

Reduction of the planned volumes of production and sales of services due to a decrease in labor productivity.
1. Reduction of prices at which is planed to implement services in connection with non-sufficient quality, any unfavorable changes in the market situation, any decline in the demand or price inflation.
2. Increased material costs caused by overspending materials, raw materials, fuel, energy per unit of service.
3. Problems related to incompetence of specialists and managers and their errors;
4. Problem related with passive capital (loss of income);

6) Problems associated with the investment of big sums of money in the

same project;

Those problems characterize uncertainty within the company’s activity and needs to be minimized in different ways. As a general way of coping with the problems stated the author on the same article provides a solution in terms of what kind of objectives a company should set in order to ensure a certain level of economic security in the company. The objectives of ensuring the economic security of the company, including those working in the service sector are:

Prevention of possible damage to its activities;
Protection of the rights of the enterprise;
Guard the personnel and business owners from sources of external and

internal threats;

Conservation and efficient use of financial, material and information

resources;

Early detection and prevention of various Offences, preventing the causes and conditions giving rise to them; non-admission of emergencies or minimizing their negative consequences.

The recommendations mentioned above will play an important role at the creation of the risk matrix that combined with the Native speakers club general director based criteria of the current risks will serve as an argumentation for the information shown at the risk matrix below47:

Table 11. Risk Assessment

№	Risk	Probability	Damage	Result	Rank
1	Shortage of native speakers in Russia	0,65	0,7	0,6	7
2	Delays while performing different tasks	0,5	0,6	0,48	5
3	Risks associated with the factor of trust from freelancers	0,4	0,73	0,7	6
4	Risks associated with customers tainted by teachers	0,8	0,7	0,8	8
5	Currency risk	0,7	0,6	0,42	3,5
6	Risks related to incompetence of specialists	0,45	0,6	0,33	3,5
7	Increased costs on one marketing channel	0,3	0,6	0,27	2
8	Political risk	0,65	0,75	0,4875	1

Table 12. Risk Matrix

№	Risk	Strategy	Preventive measures	Response measures
1	Shortage of native speakers in Russia	Minimize	Finding teachers from different countries for online classes	Finding the following human resources via internet services
2	Delays while performing different tasks	Minimize	Specify the conditions in the contract	Look for alternatives
3	Risks associated with the factor of trust from freelancers	Minimize	Search for reliable and proven freelancers	Fill a complaint against a company database of freelancers
4	Risks associated with customers tainted by teachers	Minimize	Increase confidence of teachers from other services (cross-selling)	Change the teacher
5	Currency risk	Minimize	Specify the procedure for pricing	Analysis of the foreign exchange market
6	Risks related to incompetence of specialists	Minimize	Immediate dispose of the specialist.	Individual response to the problem
7	Increased costs on one marketing channel	Minimize	Focus on creating costumer liability	Look for alternate channels
8	Political risk	Avoid	Submission of all required documents to the government at time, responsible organization for bureaucratic activity	If the claims of the authorities are not justified, then court system should resolve the conflict. Otherwise - immediate elimination of violations.

The risk matrix shows a subjective view of the current risk, in this case, only related with the Native speakers club “Tiempo”. The structured information reflects some alternatives and preventive maneuvers possible to allow critical losses due to the most relevant risks.

From one hand, it can be seen risks associated with costumers that decided to continue their particular Spanish classes, without using the company’s services, moreover, with the specialized native speaker tutor working for the company are the most relevant risks. This phenomenon can be explained due to people’s personal interest on earning money. As the company grows, this risk needs to be constantly revised, as it will remain as one of the most encountered.

Another important part of the risk management process is related with the future growth of the company, as it grows bigger, different risks will appear. In the frame of this project paper, only actual and closest potential risks were revised, although it would be important to take into account a relevant risk, that may appear in the future, due to the constant use of online payments for different services using plastic/credit cards or other online payments48. As a link between plastic credit cards online frauds

Chapter 6. Strategic Development of the Firm

Using the updated information and the analysis it was carried above, it is important to state that for the Spanish club “Tiempo” marketing is essential to the success of the venture. The first point of contact is usually through the marketing efforts of the organisation.

As it is known, that the company has currently been using a hybrid online offline marketing method.

The offline marketing involves the company’s owner to take master classes on tourism and culture in Spanish speaking countries. All of the services are free for the first time, so as to enable a “let’s try” philosophy amongst the target market49. As for additional services the company works via renting a local paying only for the time it is meant to be used, it allows the company to minimize their rent expenses and expenses overall.

The online marketing efforts are focused on search engine optimization for the website, context and social media marketing. The company’s owner attempts to focus on online marketing to draw greater traffic to the website. The fund infusion will allow focusing on online promotional activities. They are detailed below (inspired from an article from Forbes):

Search engine optimization

SEO optimization is the process that allows a company that uses this instrument of online advertisement to increase its website’s visibility in any search engine’s organic results by the means of pages enhancement using words and phrases people are usually searching for.

There exist different ways to improve organic search results of an individual and they can be achieved by editing existing content on the site, getting rid of barriers that would prevent indexing activities of search engines, changing the the number of backlinks or links a webpage gather from different websites — which demonstrate the importance or popularity of the website.

SEO optimization may become into a time-consuming process at the beginning, but it needs to be considered as relevant step towards achieving more Internet traffic (webpage views) and remaining at a top spots on the most popular search engines results50.

Blogging and guest blogging

This section of the company’s marketing policy offers original content on the site that it also free will help bring new visitors and set the website apart from the competition. Nevertheless, the generation of a variety of blogs in the foreign language-learning niche is more beneficial due to the possibilities e-commerce can offer.

Pay per click (PPC)

PPC Internet advertising will be used to bring in more views to the webpage from the most popular search engines like Google, Yandex. With Google AdWords, the company don’t have any spending requirement — it is permitted to set a minimal budget without restrictions a day or a maximum cost comfortable cost for each click. The main focus of this instrument is to increase the conversion of a site to get the best ROI possible.

Retargeting

Retargeting ads allow a potential customer to revisit the company’s website by placing a tracking cookie on each potential costumers device. Afterwards, the advertisement of the company will return, so that they could revisit it. Using this instrument, as part of the company’s strategy is fundamental, since almost 98% of the viewers the page gets, as analyzed earlier in the market analysis, leave the page. It is possible to make them come back and increase the webpage’s conversion

Facebook ads

Facebook is a well-developed social network with over 1.44 billion active monthly users. The usual amount of time people spent on Facebook every day is 21 minutes. Not only it is popular with young people (mostly) students, but also all types of demographics are now regular users of the social network. Regardless, the level of promotion this instrument can assess varies depending on the company’s working sphere.

Facebook ads also allow the user to locate potential costumers by sorting them through different parameters, such as age, region, interests, etc. As well it allow finding people linked with each other by “Likes”.

YouTube

Another social media that is also being used as an instrument for advertising is Youtube, that facilities the posting of videos to be available for public view. It can help the company’s page unique content get found on YouTube itself. From there, not only does Google index the unique content, but others can embed the club’s videos on their blogs and share it via social media. It’s important to focus on a call to action that tells viewers exactly where to go (the companys website), how to do it (link), and why to do it (free content, contest, etc.) once they’ve finished watching.

The club may be also able to advertise on other people’s videos by buying targeted ads relevant to the business, which could yield a high conversion. This is especially relevant to the master class on Latin American dancing. Dancing is a visual medium activity and thus YouTube is an additional platform to promote this service, in accordance to the clubs policy.

Email marketing

Email marketing is a consider a useful tool because most people need to be engaged multiple times before they buy something, as it was stated by the company’s director. It is needed to give potential costumers justifications to subscribe to the company’s different event, offered on its website and then constantly offer them content that will be able to mitigate their needs. The club needs to encourage them to constantly return to the website by offering new, renovated online content — providing a new service, videos, event, blog posts, etc.

Word of mouth (forums/Facebook fan pages, etc.)

It’s vital to focus on building connections with the club’s costumers and followers in order to gain positive reviews and word of mouth recommendations. It is necessary to participate in related forums or comment on blog posts in order to plug the club without coming off as too promotional.

Social media

Similar to email marketing, social media helps communicate with potential customers and encourage them to buy. The website should provide compelling reasons to “like” the Facebook page or follow Tiempo on varies social medias such as Twitter, but the club should also share content that gets user visiting the blog or interacting with the brand on a regular basis to remind them why they stopped by the website in the first place. Social media can serve as a tool for word of mouth marketing; it facilitate the administration of the company and notice what people are talking about and what recommendations they provide. Social media can serve as a tool of optimization, that could be used on any political or financial crisis approaches, although additional analysis on that topic may be required.

Building the Native Speakers Club “Tiempo” reputation and costumer influence is relevant in order to increase traffic (views) to the company’s website. Through public relations strategies, the company’s general director can brand himself as an expert in this niche and build his credibility. Doing this can increase the club’s conversion rates and build brand awareness. For instance, by serving as a source in journalist’s articles, the outlet typically provides a link back to the club’s website — which is usually great traffic that converts well, all while building the reputation of the club. Press releases through big media outlets can also help drive trust and generate interest in the club’s product or service.

Sales Forecast

As it could be observed on the review of financial aspects, the company plans to deliver sales of approximately 4.04 Million rubles in the first year, 5.34 Million rubles in the second year an 7.04 Million rubles in the third year of operations. As indicated, sales are forecasted to increase, with an annual growth rate of 32%. The approximate cost of sales will be 67%.

The club is currently having a base of around 50 students on a monthly basis. The plan assumes a base of 200 students after the infusion of funds by the investor. The current marketing budget is around 10,000 Rubles per month. The plan estimates that this budget will increase to 50,000 Rubles each for the first two months and then stabilize to 16000 Rubles a month. The website will be given a major revamp by investing 116,000 Rubles and will involve a monthly expenditure of 2000 Rubles to keep it updated for the students. Thus it is safe to assume the student base will increase as indicated in the plan due to the enhanced marketing efforts.

According to Ferguson (1974)51. “Advertising increase barriers to entry and reduce competition as measured by increase in monopoly profit”. Moreover, according to Nickels et al (1999)52 advertising not only helps to maintain superior stand in the industry and profit maximization, it provides information about a products or services and also gives consumers free television and radio programs. Giles (1997)53 sees advertising as non-personal communication directed at a target audience through various media in order to present and promote products, services and ideas. The cost of media space, time and advertisement production is borne by the sponsor or sponsors. Advertising gives a clear image for any product or service of a company, which is a great asset. A well-structured and continuous advertising might stand as one of those strategies to sustain a distinct market position.

Also as the organization and marketing spend will grow, it will start experiencing a decreasing marginal cost of acquisition of a student. This effect is due to economies of scale. As the number of alumni of the club increase, they will suggest the club to other friends and will themselves enrol in the other classes available. This cross selling and free word of mouth advertising are essential to achieve the sales forecast.

Taking also into account the external environmental analysis carried out above the perspective to develop within the frames of the current market leave a positive forecast. In order to get a bit deeper into the company’s possible strategies a SWOT analysis will demonstrate the variants it may have.

6.1 SWOT Analysis

Strengths

Focused Play on the Spanish Language and Latin American Cultural Market.
Using Teachers Partners to keep fixed costs low.
Past experience of the promoter in Latin America and the consulate.
Using online tools to scale up the business.

Weakness

The company’s director is a one-man army and there is no fall back for the investor.
Repetitors.info is a well-established competitor in the foreign language learning market.

Opportunities

To be able to create Tiempo as a brand associated with everything Spanish thus allowing cross selling.
Being able to create franchises in different cities of Russia.
Being able to club the tourism component to Tiempo’s existing operations. Tourism is a massive market
And can add directly to the bottom line without any significant overheads.
Adding additional online classes to the website from the current online Spanish classes only.

Threats

Entry of a well-funded competitor into the Spanish/Latin American niche.
The main revenue driver-Spanish classes are not well received in the target market due to bigger selection of teachers on well-established sites like repetitors.info

SWOT Matrix

S1O1-Focussed play on Spanish and Latin American gives the authenticity to cross sell other same themed classes.
S2O2- Teacher partners in different cities enable the creation of franchisees with a low fixed overhead cost base.
S3O3- Promoters network in embassy will give an opportunity to tap the lucrative tourist market.
S4O4- Online tools will help Tiempo expand to other online classes without creating additional infrastructure.

T1S1- Branding should make Tiempo synonymous with all things Spanish and Latin. This niche will create from a general all language competitors.
T2S2S4- Ensure a feedback system is created for teacher partners. Helps in evaluating quality and adding/incentivizing better teachers.

W1O2- Creating Franchisees will ensure that the club grows from a One Man Army.
W2O3O1- Repetitors.info is an online play on tutoring. Whereas Tiempo is a cultural club focused on Spanish and Latin American culture. This gives the opportunity to cross sell classes and focus on the lucrative tourism market.

T1W1-Add investor/partners to take on the competition aggressively.
T2W2- Ensure an adequate screening process to evaluate the quality of teachers on board.

The SWOT analysis intents to facilitate the possible company’s strategies it may implement in accordance to its present needs, situation and goals. The measurement of the parameters was stated in accordance to the company’s current need on investment for further development. The suggested and possible strategies show a completely different path the company may have expected.

As we may notice, one of the most relevant strategic positions that should be taken is focusing on the online system development, as the website allows the company to work, without the necessity of renting an office yet, it may also become a chance to develop its own online programs related with the Spanish learning area. Moreover, an important an risky opportunity relies within the creation of franchisees, that would allow the company enter to the b2b sector as well and, perhaps, becoming a more bigger player in the market. This opportunity requires a deeper analysis that should be carried out besides the frames of the current paper work.

The brand name of the native speakers club “Tiempo” is still on its earliest stage of development. This main weakness needs to be diminished by the means of upgrading the marketing policy of the company. Several conclusions were made related with the company’s current situation, demonstrating its position on the market, development possibilities and expectations. The requirement of investment for further development of the advertisement system is justified. After a stable brand name is created the market may react creating a language services area based on e-commerce, but at the same time intersecting other sectors such as dancing services, tourism, recreation and others in a long future. The current project and business plan can be also treated in the future as a comparison model with the future company’s position and financial parameter. It will be possible to evaluate the business plan’s weaknesses and correct them for the enhancement of further researches on the area.

Appendix. Business Plan for Native Speakers Club “Tiempo”

Table 13. Contents

SR N	Particulars	Page N
1.	Executive Summary	64
1.1	Objectives	63
1.2	Mission	67
1.3	Promoter Background	67
1.4	3 Keys to Success	67
2.	Company Summary	68
2.1	Start-up Summary	68
3.	Services	71
4.	Market Analysis Summary	73
4.1	Market Segmentation	83
4.2	Location and Demographics	86
4.3	Competitive Edge	87
4.4	Marketing and Sale Strategy	89
4.4.1	Sales forecast	93
4.4.2.	SWOT Analysis	95
5.	Management Summary	99
5.1	Personnel Plan	100
6.	Financial Plan	100
6.1	Start-up Funding	101
6.2	Important Assumptions	101
6.3	Breakeven Analysis	102
6.4	Projected Profit and Loss	102
6.5	Projected Cash Flow	104
6.6	Projected Balance Sheet	105
	Tables
	Table 18. Sales Forecast	94
	Table 20. Personnel Plan	100
	Table 22. Profit and Loss (Annually)	102
	Table 23. Cash Flow	104
	Table 24. Balance Sheet	105
	Table 25. Profit and Loss (Monthly)	108
	References	110

Executive summary

Introduction

The business plan provides detailed financial information. It includes basic strategic information necessary for the establishment and growth of Tiempo. This document outlines the tactics for business growth, analysis of the target market and operations management.

It will elaborate on the vision of the Promoter (hereinafter referred to as “The Promoter”) to create a Spanish cultural hub. It will detail how the promoter plans to use technology as a medium to bridge the gap and create an effective marketplace for the services.

The Concept

It is an existing in-development start-up business created in 2014. Currently Tiempo provides one-to-one Spanish lessons conducted by Spanish native speakers using online technologies, such as “Skype”. Also the company provides additional services related to teaching the Spanish language, such as one-to-one lessons and master-classes of Latin American dances and Latin American culinary.

Tiempo aims to redefine the foreign language business space in Russia. It has been able to create a unique position for itself in a cluttered market through extreme focus on Spanish Language and Latin American Cultural classes (like dancing and cooking). The Spanish-Latino proposition coupled with the promoter’s experience has helped create a niche for Tiempo. The promoter would like to partner with an investor to bring the Spanish experience to entire Russia. Spanish is one of the most widely spoken languages in the world and with the Russian economy slowly but surely opening up, Spanish will be a natural language for Russians to embrace.

Financials

The promoter forecast substantial sales revenue by year two. Also by the end of seventh month the business will have reached EBITDA breakeven and have achieved sustainable profit generation on a continuous basis. Tiempo is an exciting business that provides a combination of sought after services and experiences that are not offered by a direct competitor currently.

The market research and a marketing strategy detailed in this business plan will result in an after tax profit of Ruble 126,005 in year one, increasing to nearly Ruble 584,389 on after tax profits within three years. Monthly breakeven starts at Ruble 139726. Average Variable cost is estimated to be around 66.7%.

Table 14. Highlights

	Year 1	Year 2	Year 3
Sales	4042095	5335566	7042947
Gross Profit	1482332	1956678	2582815
Net Profit	126005.9	358603.8	584389.8

Graph

Objectives

The objectives for Tiempo are outlined below:

Become an established destination for our target community by end of year one.
Earn sales of at least Ruble four million in year one and Ruble seven million by year three.
Ensure that the brand image of Tiempo in particular and Spanish culture in general is enhanced through our services. The company aims to become the “go to” place for anything Spanish.
Achieve Net Income of more than 7.50% of sales by second year.

Mission

Tiempo will provide its patrons a unique experience of Spanish Language and Latin American culture through top notch educators and curated courses.

Promoter Background

The promoter is a young entrepreneur, who is graduating from “Higher School of Economics” National state university in Moscow. He has lived in Latin America (Lima, Peru) for 12 years and fluently speaks English, Spanish, and Russian. He has held positions in the Spanish consulate in Moscow and credit department in a Russian bank.

Spanish and Latin American consulates actively engage in promoting their culture and language. His experience with the Spanish consulate will give Tiempo a network to pursue for business relationships.

3 Keys to Success
Experienced and skilled teacher-partners who are familiar with working in a professional setup and are oriented towards creating a fun and a unique learning experience for the patrons.
Website is the mainstay of the organisation. It represents the organisation to prospective clients and teacher partners and is thus necessary for creating the right first impression. It must be assured that the technology behind the website is secure and able to handle live classes.
Effective marketing: The promoter should effectively engage the target market through online and offline marketing.

Company Summary

Tiempo club is a combination of a technology and a cultural learning services company. Its focus is on the Spanish market, where it caters to one to one Spanish lesson through its online website (tiempo-clubs.ru) and through physical offline classes. It also conducts master classes of Spanish language, Latin American dance and Latin American culinary.

The Tiempo club is an officially registered company under the name of Saint LLC. (Saint in Russian). The company has been operational since august 2014 and is now looking to expand through building up its technological capabilities so as to cater to more online Spanish learning students. Also it will be pursuing marketing activities to cross sell its other offline services.

The company is focused on providing a cultural hub to the students through both online and offline services.

It’s uniquely focused on Spanish and Latin American classes which gives it an inherent advantage over its competitors. Its competitors are either focused on only the language space or cooking/dancing space. Also the language players focus on all languages thus reducing the specialized tag the club carries for Spanish. Tiempo can become a hub for all things Spanish. It will help in branding and attracting core consumers. Also Spanish is one of the most widely spoken languages in the world with more than 550 million speakers.

Startup summary

The details for the start-up costs and funding are as follows.

Table 15. Set-up Costs

Set-up Costs
Setting up the business
Accountant's fees	1,600.00
Bank's fees	2,000.00
Business registration	7,000.00
Insurance premiums	-
Others	1,500.00
Setting up the premises
Lease deposit and advance rent	-
Fit out	-
Utility bonds and connection	-
Stationery and office supplies	2,000.00
Plant and equipment
Equipment	-
Vehicles	-
Telecommunications	-
Computers and software	-
Starting operations
Advertising and promotion	-
Website development	-
Working capital for 5 months expenses	5,61,400.00

Start-up capital
Equity investment	6,00,000.00
Borrowings
Total	6,00,000.00
The result
Total set-up costs	5,75,500.00
Surplus funds	24,500.00
Borrowings required	0

The working capital requirement has been assumed for 5 months of operating expenses. The club is expected to incur losses for the first two months. It is expected to break even on a cumulative basis in the seventh month. As such to ensure sufficient liquidity for the business, it has been found prudent to have 5 months operating expenses in hand to cover any sudden and unexpected downturn. Attorney Andrew Sherman, a partner in Jones Day, and primary author of Essays on Governance: 36 Critical Essays to Drive Shareholder Value and Business Growth advises enough to cover six months of operation. Keith Fitz Gerald, the chief investment strategist of money map report also indicates that keeping 6 months of expenses as buffer is a usual rule of thumb. Mr Richard passov in an article in Harvard Business Review argues that Because of higher underlying volatility for knowledge companies, it is imperative for them to keep large cash balances.

An excerpt from the article states “We believe that the knowledge companies’ decisions to run large cash balances is one of the key factors in sustaining the value of their intangible assets—which typically comprise a substantial portion of overall valuations for knowledge companies. Only by consistently investing in their intangible assets can knowledge companies hope to preserve the value of those assets. A company that finds itself unable to meet such commitments because unfavourable market conditions reduce its operating cash flows will find its share price suffering almost as much as if it were to default on its debts. By the same token, with the right balance sheet, knowledge companies can profitably insure against the risk of failing to sustain value-added investments in difficult times. An optimal capital structure that calls for significant cash balances is at odds with the results of a traditional capital structure analysis but explains the financial policies of many well-run knowledge companies.

Thus keeping a large cash balance and a five month working expense buffer is a prudent exercise for the sustainability of the club.

Services

The promoter is already providing the following services:

Online Spanish tutoring

This service allows the student to study Spanish from the comfort of his home through online networks like Skype. The teacher is better off as well as it saves her the time to travel for one single student. This is the most expandable service for Tiempo as it is based on an online customer acquisition model and the marginal customer acquisition rate is almost negligible on the online platform.

Offline One to One Spanish tutoring

Individuals not attuned to online platforms or have some unique needs prefer the one to one tutoring service. It gives the learner extreme personal attention. Usually serious students/businessmen prefer this service. The demand is usually price inelastic and once our brand name is created, can help create good steady revenue for the company.

Master Classes in Spanish

The Company organizes master class events for the price conscious student. Here the teaching is one to many. The advantage is that the student is engaged with the club and is usually enrolled/cross sold for our other master classes. Usually students come in self-made groups to have classes. So marketing expenses are mitigated.

Master Class In Latin American Dancing

The company also organizes master classes for dancing. Latin American dancing is world famous for its sensuous moves and there is heavy enrollment by couples for this class. It creates a platform for the club to introduce the student to other master classes on Spanish language and culinary.

Master Class in Latin American culinary

Food is a universal language in itself. This group class introduces the learners to Latin American cooking.

Phase 2

The promoter has thought of expanding the services in phase 2. He would like to introduce trips to Spain. This will round out the other services provided to create a comprehensive Spanish/Latin American themed organization.

The promoter also would like to create franchisees so as to share the Spanish cultural experience across different cities of Russia.

Graph

4. Market Analysis Summary

A marketing analysis is the actual assessment of the target population, competition and needs for marketing that product or service (W.D. Bygrave, 1994)1.

The population of Russia is around 144 Million1. It is the ninth largest country by population and the sixth largest by purchasing power parity. The country has a higher proportion of higher education graduates than any other country in Eurasia. The average GDP per capita is 14,611$2. The Russian Federation is also home to several sizeable minorities. In all, 160 different other ethnic groups and indigenous peoples live within its borders. Russia's 160 ethnic groups speak some 100 languages. As per the website internetlivestats.com Russia has an internet user base of around 85 million3. The internet penetration is around 60% of the population3. It has an average annual user growth of 10%.

The vast majority of respondents (92 percent) think children should study foreign languages in school. That statistic rose to 98 percent in Russia’s biggest cities – Moscow and St. Petersburg.

Nearly three-quarters of Russians (74 percent) are convinced that their children and grandchildren will benefit from knowing other languages. The majority of those who answered “yes” to this question were young people (82 percent of respondents in the age 25-34 category answered “yes”) and had a higher education (81 percent).

Graph

Spanish language has more than 550 million4 speakers across the world. Over half of these users are on the internet. By some estimates it’s the third most widely used language on the net after English and Chinese. Spanish is lingua franca for dealing in the resource rich South America and has emerged the second most important language of business in America. Spanish is the primary language of around 20 countries5. And is one of the six official languages of UN.

Graph. Geographical Distribution

Official language

1,000,000+

100,000+

20,000+

Active learning of Spanish

The following table shows the number of Spanish speakers in some 79 countries.

Table 16.

Country	Population	Spanish as a native language speakers	Native speakers or very good speakers as a second language[	Total number of Spanish speakers(including second language speakers)
Mexico	121,005,815	112,172,391 (92.7%)	119,190,728 (98.5%)
United States	318,881,992	38,417,235 (13%)	41,343,921	52,000,000 (including 7.8 million students[6] and some of the 9 million illegal Hispanics not accounted by the Census
Colombia	48,014,00	47,505,624	47,629,888 (99.2%)
Spain	46,771,341[	38,352,500	46,210,085 (98.8%)
Argentina	43,131,966	39,500,000	42,873,174 (99.4%)
Venezuela	30,620,404	29,522,160	30,252,959 (98.8%)
Peru	31,151,643	26,198,532 (84.1%)	26,977,323 (86.6%)
Chile	18,006,407	17,724,807	17,880,362 (99.3%)
Ecuador	15,580,000	13,200,000[	15,499,800 (98.1%)
Guatemala	15,806,675	9,484,005	13,656,967 (86.4%)
Brazil	201,032,714	460,018[	460,018	12,460,018
Cuba	11,266,000	11,266,000	11,198,404 (99.4%)

Graph. Spanish spoken at home in the United States