Q1: Size up the environment in which Sindy will set up her recruiting agency.

Is it the
right business for Sindy? Why and why not?
Based on our discussion, the location that Sindy chose to start up the business is the strategic
location. Pudong itself is the special economic zone in the Republic of China. Pudong will be
the economic centre that will attract people to come to this place. Besides, the place is
convenience of travel for the staff and the visitors.
Start up the recruiting agency is the right business to Sindy. This is due to the reason that she
has network with the human resources managers and office managers that she knows from
her former job. This relationship can ease Sindys job since she can ask her friends who have
knowledge and experience in dealing with the nature of the business. In addition, during the
recession, the unemployment rate is high and this will attract people to seek for the job. It is
the good opportunity to Sindy as she wants to start up the recruiting agency that will look for
the job on behalf of the applicants. At least, she managed to have the revenue based on the
registration fees collected. Furthermore, in the future, after the recession period end, the
economy will be recover and during that phase, the investors start to invest and the economy
will become more stable and start to grow. The workforce at this time is needed in order to
fulfil the demand of the market. It means that it is the good investment for sindy.
Based on the above reasons, it can be concluded that, Sindys choice to start up the recruiting
agency is the right decision.

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Q2: How much capital does Sindy need if she decides to go ahead? Assume she needs 3
months of operating expenses as her working capital.
In fact, operating costs is defined as the expenses incurred for the day-to-day basis activities
such as administrative expenses. Operating expenses consist of two types of costs which are
the variable costs and fixed costs. Variable cost is the cost varied directly and proportionately
with volumes of services provided or products produced. While, fixed cost is defined as cost
that remained the same with different levels of output. Based on the exhibit given in the case,
some of the costs are classified as the fixed costs while the rest are classified as the variable
cost. Rental and staff salaries are the example of the fixed cost while the others are the
variable costs.
In order to come out with the total capital needed by Sindy for the three months of operating
expenses as the working capital, we add up the projection cost for the payment of the rental,
staff salaries, promotion, and other operating cost for 3 months, as well as leasehold
improvement cost and cost of the furniture and equipment for the installation.
The low basis salary is preferred rather than high basis salary, the aim is to cut off the cost
that will be bear by Sindy. This is due to the economic fluctuation that cause to the recession
during that period. The HR professional will not be hired because it is too costly to Sindy.
Furthermore, Sindy can ask her friends who have knowledge and experience to cover up for
her lack of experience in that industry. If she really needs the HR professional, she can
outsource it. The other cost include is the payroll overhead, which is the cost charge of 20
percent of staff salaries. Besides, leasehold improvement and office furniture are included in
this calculation since the cost is related to the capital investment. For the rental, promotion
and other operating cost, the costs are calculated based on the estimated cost in the exhibit
given in the case for 3 months.
The calculation of the total capital needed by Sindy to operate the business based on the 3
months operating expenses is as follow:

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Operating Cost

Rental
Leasehold Improvement
Office Furniture
Reception area
Interview room
Back office
Fax
Computer
Cell phone
Pagers
Staff Salaries (Low
Basis)
Receptionist
Sales
HR Professional
Payroll Overhead
Marketing and
promotion
Hiring news
Job Fairs
Other operating costs
Office Supplies
Telecommunication

(4,000 x 3)

(500 x 3)
(3,000 x 2 x 3)

LOW
BASIS
RMB
12,000
40,000

HIGH
BASIS
RMB
12,000
40,000

10,000
15,000
30,000
4,000
10,000
2,000
1,500

10,000
15,000
30,000
4,000
10,000
2,000
1,500

(20% x 19,500)

1,500
18,000
3,900

( 26,000 x 3/12)
( 12,000 x 3/12)

6,500
3,000

6,500
3,000

( 6,000 x 3/12)
( 6,000 x 3/12)

1,500
1,500

1,500
1,500

160,400

197,480

TOTAL COST

(800 x 3)
(3,000 x 2 x 3)
(10,000 x 3)
(20% x 50,400)

2,400
18,000
30,000
10,080

Based on the above calculation, the total capital needed by Sindy is RM B 160,400 if she
used low basis salary and RM B 197,480 for the high basis salary. In conclusion, the low
basis salary is the best choice to minimize the cost.

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Q3: What will be the projected fixed asset investment? What will be the projected
operating costs excluding depreciation?
Projected fixed asset investment
The projected fixed asset investment is computed by total up the amount of office
furniture and equipment and leasehold improvement.
RMB
Office furniture and equipment

72,500

Leasehold improvement

40,000

TOTAL

112,500

Projected operating costs (exclude depreciation)

Sindy came out with two projected staff salaries which differentiate the amount of
receptionist and HR professional. The low amount is based on receptionist RMB 500
per month and not hiring the HR professional. Meanwhile, the high amount is based
on receptionist RMB 800 per month and hiring the HR professional.

The table below summarizes the total projected operating costs:

Low (RMB)
Rental

High (RMB)

48,000

48,000

Staff salaries:

Receptionist

6,000

9,600

Sales

72,000

72,000

HR professional

Payroll overhead (20%)

15,600

120,000
40,320
93,600

241,920

Marketing and promotion

38,000

38,000

Other operating costs

12,000

12,000

TOTAL

191,600

339,920

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Q4: What will be the projected per position revenue based on 30%, 10%, and 5%
charge of success fees? Assume registration fee is RMB 10 per application.
The projected per position revenue is derived by summing up the amount of registration fee
and success fee. Sindy estimated that every week, she might be able to advertise and fill five
positions from the paper and each position would probably attract 20 applicants.
It is assumed that the registration fee is RMB 10 per applicants. Hence, the registration fee
per position revenue is simply computed as following:
20 applicants x RMB 10= RMB 200
As for the success fee, the agency should receive the portion of fee from the applicants
annual salary. However, since the amount was not specified, we assumed that the applicants
salary was RMB 10,000 per year.
The computation of the projected per position revenue is shown below:
RMB

RMB

RMB

Registration fee

200

200

200

(+) Success fee. Based on:

30%

10%

5%

30% = RMB 10,000*0.3

3,000

10% = RMB 10,000*0.1

1,000

5% = RMB 10,000*0.05
TOTAL

500
3,200

1,200

700

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Q5: Based upon the current projections, how many years will it take Sindy to recover
her investment in fixed assets under the different revenue and operating cost scenarios?
RMB
10%

30%
Revenue:
Registration fee [5 positions x 20 app.
x 4 weeks x 12 months x RMB 10]
Success fee [RMB 10,000 x 5 positions
x
4 weeks x 12 months] = RMB 2,400,000
Total revenue

5%

48,000

48,000

48,000

48,000

48,000

48,000

720,000

720,000

240,000

240,000

120,000

120,000

768,000

768,000

288,000

288,000

168,000

168,000

Less: Operating costs:

Office rental
Staff salaries
Marketing & promotions
Other operating costs
Total cost

LOW
48,000
93,600
38,000
12,000
191,600

HIGH
48,000
241,920
38,000
12,000
339,920

LOW
48,000
93,600
38,000
12,000
191,600

HIGH
48,000
241,920
38,000
12,000
339,920

LOW
48,000
93,600
38,000
12,000
191,600

HIGH
48,000
241,920
38,000
12,000
339,920

Net profit before tax

576,400

428,080

96,400 (51,920)

tax at 30%

172,920

128,424

28,920 (15,576)

Net profit / (loss) after tax

403,480

299,656

67,480 (36,344)

(23,600) (171,920)
0

(23,600) (171,920)

TABLE 1
Table 1 above shows the annual revenue projection for 30%, 10% and 5% charge for
success fee. Low indicates Sindy Sin did not hiring the HR professional while high means she
hiring the HR professional. As for revenue, there are two sources which are application fees
and success fees. For registration fees, Sindy Sin targets to fill five positions from the paper
every week and she expects to attract 20 applicants with RMB 10 for each applicant. While
for success fees, assume that the annual salary for the hired is RMB 10,000 and expect that
all 5 positions for each week will be filled for 12 months. After calculated, total revenue
under 30% charge for success fee is RMB 768,000, for 10% charge the revenue calculated is
RMB 288,000 and lastly for 5% charge is RMB 168,000. After that, deduct the different
revenue calculated with operating expenses for one year which is RMB 191,600 for low and
RMB 339,920 for high to derive the profit or loss.

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30%
RMB
RMB
1st year:
Net profit/loss after tax
Less: fixed asset investment
b/f FA investment

2nd year:
Net profit/loss after tax
c/f FA investment
b/f FA investment
Years Recovered

403,480
112,500
290,980

RMB

10%
RMB

RMB

5%
RMB

299,656
67,480 (36,344) (23,600) (171,920)
112,500 112,500
112,500
112,500
112,500
187,156 (45,020) (148,844) (136,100) (284,420)

1 year

1 year

67,480 (36,344) (23,600) (171,920)

45,020
112,500
112,500
112,500
22,460 (148,844) (136,100) (284,420)
1.8 year

TABLE 2
If Sindy Sin charge the hired with 30% charge for success fee, she can recover her
fixed asset investment which cost RMB 112,500 within one year in both cases (high and low)
as shown in table 2. For 10% success fee charge, fixed asset investment can be recovered in
1.8 year as show in table 2 if she did not hire HR professional. If she hires the HR
professional, the fixed asset investment cannot be recovered as the business incurs loss. This
situation same with 5% charge of success fee for both cases (low and high).

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Q6: Should she go ahead with the venture? If yes, any advice for her? If no, why not?
Yes, Sindy Sin should go ahead with the business. However, there are some important
things that she should consider in order to success in a recruiting agency business. Firstly, she
should charge 10% success fee to the hired because it result in positive net profit. Although
by charging 30% success fee will resulting higher net income, people might not willing to
pay too high success fee especially during recession time. While if Sindy Sin charge with 5%
success fee to the hired, the revenue is not enough to cover the operating cost and fixed asset
investment. Sindy Sins decision to charge for application fee is reasonable as it is to cover
the first round interview cost and people can still accept it. Besides that, Sindy Sin should not
hire HR professional in order to minimize the cost. Maybe after the business seems more
stable, she can consider having the professional works with her. For this early stage, she can
benefits from her connection with HR managers and consult them with any unclear things.
Lastly, Sindy Sin can focus on junior level positions first as she is lack of experience in the
industry and she did not hire HR professional to help her manages the recruiting agency.

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