Small Business Management

positiveriverManagement

Nov 20, 2013 (3 years and 11 months ago)

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GLORIA JEANS

Small Business
Management

Coffee Shop


XYZ

9/17/2012






A report on a
proposed
business in the small business sector

and the related

market research
plan to establish the viability of the enterprise.

Contents


Executive Summary

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.................

2

Description of the business

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................................
......

3

Start
-
up Mode

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..........................

3

Ownership st
ructure

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................................
................

4

Market Research Plan

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.............

5

Outline of Preliminary Budget Operations

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................................
...........

8

Conclusion

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................................

9





















Executive Summary

The report provides an analysis
and evaluation
of a proposal to establish an

enterprise chosen
in the small business sector.

It gives the entire process used to identify a business in the small
business segment, the start
-
up mode for the enterprise, the chosen ownership structure,
a
detailed market research plan to establish the viability of this business proposal
, and an
outline of the initial budgeted projections relating to the sales, cash flows and the finance
requirements for the business.

It provides a description of the enterprise chosen, which is a
small coffee shop in the Melbourne City 3000.

It identifies the star
t
-
up mode chosen for the
enterprise
, which is a franchise business

and shows a critical evaluation of the basis on which
it has been chosen.

It identifies the ownership structure chosen to run that business. It is
proposed to open the business under a part
nership and the report reflects upon the
reasons for
chosing such an ownership structure, its advantages and the personal risks associated with
this structure.

It goes on to develop a detailed market research plan to
determine and
establish
the
viability

a
nd practicality of this choice of enterprise.
It gives a proposal of the plan
devised to carry out market research related to the business to establish demand for the
business
, the state of competitors and the tastes and preferences of the consumers.

It makes
use of primary and secondary research methods for this purpose so as to collect the relevant
data and information.

Finally, it seeks to provide an outline of the
preparations and
projections of the various financial data relating to sales mix, mo
nthly sales forecasts, cash
flow forecasts, and finance requirements for a 12
-
month period.

T
his is done with a view to
ascertain the financial viability of the proposal in hand.





Description of the business


As per the Australian Bureau of St
atistics

(
ABS)
, a small business is one in which the numb
er
of employees is less than 20 or a sub
-
type in which the number of employees is less than fiv
e
or yet, another type in which the only employees are the owner managers. The Australian
Taxation Office

(ATO)
, on the other hand, recognises a small business on the basis of
annual
turnover which is to be less than $ 2 million.

Further, the
Fair Work Australia (FWA) defines
a small business as one having

less than 15 employees, whether full time or part time.

The

small business chosen for the report is a coffee shop
in the city of Melbourne

under the
franchise of Gloria Jeans’ Coffee
.

Start
-
up Mode

The choices available for deciding upon the

start
-
up mode for the selected business are
starting
a new business or
franchise business

from an existing business
.

In order to cho
o
se a
particular mode, it is required that an analysis be carried out of the two modes in terms of
their
pros and cons,
benefits and flaws or, advantages and disadvantages.


Let us begin with def
ining the term franchise. First, let us try to understand the term
franchising. Now, franchising is an arrangement whereby, the buyer
or the franchisee buys
the right to

sell a product or a service from a
seller
, who is called the franchisor.

This right to

sell a product or a service is franchise.

The major advantages of a franchise are that they
combine the

various advantages and benefits of
brand name and ownership
, experience,
economies of scale and synergies of operations provided by the corporate
franchisor.

Besides,
these represent a complete packa
ge required to start a business and operate a business
including the brand name,

trade
name, product, operating procedures,

management support,
quality assurance standards and the entire design of the fa
cility.

Besides these major
advantages of
training, support,
economies of scale, advertising, financing, another advantage
is that a
reputable
franchise offers the minimal of risk in comparison with

any other business.

The major disadvantages of a franchis
e are that a franchise fees is requi
red to be paid to the
franchisor

at the inception of a franchise.
(Stokes, 2006)

Besides, it may be required to pay
a
royalty based on the monthly sales or income and this is required to be paid irrespective,
whether the
business is profitable or not.

Further, since the franchise agreement dictate the
terms of operation, there is little scope for innovation and initiative and hence, results in
loss
of control over operation.

Lastly, a major disadvantage of a franchise is

t
hat it contains a
termination clause in the agreement to the effect that
the franchise agreement be terminated if
certain conditions are not met.

On the other hand, the pros in favour of a new business are that
it fulfils the desire to be one’
s
own boss.

O
r else, if there is a business idea which you have dreamed of for long and want to
put into practice, then a new business is the best option to be adopted in respect of a small
business.

Then, it is felt that there is no limit to the amount of profits one
can make if
working on their own as these are not required to be shared with a franchisor.

O
n the basis of above discussion, it becomes viable that
the business be started on a franchise
mode and the chosen one is

the brand name Gloria Jeans’ Coffee.

Ownership structure

Choosing the right kind of ownership structure for the business is a very crucial decision and
needs to be made after a careful evaluation of various
important factors. The factors which
need to be considered are the type of business, t
he number of owners of the business, the
financial situation, potential risks and liabilities of the business, the activities and expenses
involved in establishing each kind of business structure, the effect of income taxes,
and
the
investment needs of the

business
.

In a nutshell, one has to pick that structure which meets the
needs of the business and its owne
rs in the best possible manner.
(Schaper
, 2012)

On the basis of these factors, it is proposed to use the partnership mode of ownership
structure for
the business.
The main advantages on the basis of which this form of structure is
chosen are that in comparison to
a company there are a lesser number of formalities involved
and expenses involved in setting it up and getting the partnership agreement regi
stered.
Secondly,
this structure was chosen for the reason that it is easier to raise capital and finance
for the business as there
is

more than one person in the business.
Since it is a coffee shop, the
combined skills, experience, and knowledge of another individual can help to provide more
ideas and hence, better service to the customers.
As the saying goes that two brains are
always better than one
, and, it helps in shari
ng of management, operating, decision making,
and staffing responsibilities
.

Another reason for choosing this structure is
that it reduces the
burden of the various obligations of the business such as debts, liabilities, and losses.
Lastly,
it offers more
opportunities for tax planning and offsetting of tax losses against
o
ther personal
income in certain conditions.
(Stokes,2006).


However, it cannot be ignored that there are various personal risks associated with this
structure such as a probable disputes o
ver sharing of profits,
administrative control, and
decisions of the business.
Also, each partner is jointly and severally liable for the debts and
liabilities of the partnership
whether incurred

with or without his knowledge. But, as a result
of these disputes, the changes of ownership may prove to be difficult, as it would require a
new

partnership to be established.

Market Research Plan

After
deciding upon the ownership structure it is imperative that a detailed market research
plan
be prepared so as to
establish the viability of the enterprise choice and thereby, also
identify the target market and prospective customers, their choices, tastes
and preferences,
motivational aspects, and the collective impact of these on the
business.
A well
-
developed
market research plan essentially involves defining the research objectives,
and carrying out
related research through primary

and secondary research

methods, and finally the mode of
presentation of such info
rmation collected.

The first and foremost market research objective is to seek assurance as to the feasibility and
sustainability of the
enterprise being the coffee shop.
(Schaper,2012).

All other sub
-
objectives
are to be designed in a manner that they are encompassed within the main or primary
objective.



First objective would be to identify the potential target market and prospective
customer base.



Secondly, it is required to establish
a profile of the buyer or the customers who are
likely to come to the coffee shop.



It is desirable to test the financial and operational feasibility of opening this business
of a coffee shop.



It is also required to determine the market influence as to ho
w does the market
influence the various factors relating to pricing, timing, etc. of the products available
in the coffee shop and the service provided.



It is important to gauge consumer sentiment as to how likely are the customers going
to throng the cof
fee shop.



Other objectives include studying the attitude of customers, their perception towards
different coffee shop chains, consumer expectations, and finally establishing the
benchmark for customer satisfaction.

After deciding the research objectives,

it is important to air mark a sample amongst the
prospective customer base
and then, collect data both quantitative and qualitative through the
use of primary research and secondary research methods. Since the coffee shop is proposed to
be situated near t
he Melbourne City Centre,
it is desirable that the prospective customer base
would comprise of the office goers,
and the people running small businesses nearby.

Primary Research

It is proposed to use various methods such as surveys, interviews, and taste
tests for the
purpose of estimating demand, determining consumer preferences and gaining an edge over
competitors.

It is also proposed to carry out own research rather than outsourced research
management.
It is a good idea to carry out survey through handi
ng out and completely face to
face questionnaires
from the visitors near the city centre, so as to find out
the menu
preferences of the people

regarding the premium and other varieties of coffee
,
the opening
hours that would suit them best,
what they don’t like about other existing coffee shops in the
area, the popular items in the menu, or anything they would prefer to have and which is not
currently available at the nearby coffee shops.
It is also proposed to carry out
these surveys
through

telephone and face to face conversations
, as this would help to gain very specific and
detailed response from the potential customers, as against written questionnaires which offer
limited scope for details
.
Another useful method which is desired to be in
cluded in the
research is carrying out taste tests for the purpose of establishing consumer tastes and
preferences, and estimating their demand for a particular item.

Secondary Research

It is also intended
to collect data from other agencies who have alre
ady conducted this
research as part of the secondary research plan.
It is proposed to make use of research done
by others and collect statistical data and information from public libraries, coffee trade board,
and chamber of commerce.
It is also proposed t
o purchase the compiled data for the market
research

plan from
certain online sources.
The whole purpose of doing research through this
method is that the cost of obtaining and purchasing research comes to be way cheaper than
carrying out this kind of
research by one’s own self.



Outline of Preliminary Budget Operations

In this section, we shall carry out an overview and outline of the
preliminary budget
preparations
to be carried out with respect to the sales mix required and also the finance and
cash

flow requirements for the expenses and other things.

Sales Forecasts

As regards the sales mix, it shall comprise of the sale of coffee beverages, sale of coffee
beans and sale of savouries and pastries.

As regards the sales forecast
, it is expected that

the
first two months shall be spent in setting up the location of the coffee shop
, hire two
employees for the coffee shop,
and establish relationship with the suppliers

and get training
from the franchisor in the art of making quality coffee
.

Therefore, it

is expected that the sales
during that period will be considerably low and will take time to pick up as

is required to
build up a steady customer base.

It is expected that the sales will pick up third month onwards
and shall remain steady thereafter

Cash

flow forecasts and finance requirements

The initial investment for the coffee shop range from $300,000 to $
45
0,000 and which is
expected to be collected through an approved bank loan from the National Bank of Australia
(NAB).

This is in a way a deposit w
h
ich is required to be paid as

the
initial deposit and a high
amount suggests a lower
interest to be paid out of subsequent earnings.

The franchisor
requires a $30,000 franchise fees and a royalty fee of 6% of gross sales.

Projected Profit and loss

The proj
ected profit and loss statement for the initial 12 month period will help to display the
position of the business in terms of the sales
made;

expenses incurred profit or loss made and
the taxes
payable on such revenue. This will also help to gauge and summ
arise the expected
position of the business in te
r
ms of the trends for sale in different months.it
will also help to
establish and determine the
expenses required to be incurred for the purpose of making such
sales. It will also give an estimate and
projection of the total outgoings in respect of various
item
s

such as coffee, beans, milk, pastries and savouries.

Projected Balance Sheet

The projected Balance Sheet is prepared for the year as at the end of initial 12 month period.
The purpose is to make

a forecast of the expected position of various fixed assets, cash,
inventory, payables and so on at the end of the first year. This will help to gauge an overview
of the expected financial position at the end of this time period.

It can be noted that ther
e will
not be much receivables as the majority of the sales will be on cash basis and except for the
sales made through

credit card which will not be received till it is presented to the bank.

As
regards other fixed assets, it must be noted that the entire

statement will help to summarise
the financial position of the business as at the end of the 12 month period.

All the above detailed projections are required to help to establish the viability of the small
business and reiterate the skills needed in the s
uccessful implementation of the execution of
the plan for its commencement.

Conclusion

It is seen that the above
report is developed in respect of a plan to establish an enterprise in
the small business segment. The enterprise chosen is a coffee shop in
Melbourne City 3000
under the franchise of Gloria Jeans’ Coffee.

The report
has discussed

the proposal and
prospective decision

that the coffee shop be opened under a partnership structure
, and focuses
on the advan
tages and benefits of same, with a special

reference to
the personal risks
associated with this kind of ownership structure.

There was a detailed market research plan to
highlight the procedure to conduct market research with a view to fulfil and acco
mplish the
market research objec
tives of antici
pation of demand, tastes of the consumers

and so on.

Further, it went on to carry out

and outline the projections re
lating to the proposed sales mix,
monthly sales forecasts,

cash flows, and finance requirements for the initial 12 month period.

This is done with a view to assess the financial viability of the proposal in terms of the profits
and losses expected.

Hence, in conclusion, we note that

the report carries out a detailed
evaluation and assessment of the proposal to commence an enterpris
e in the small business

segment and with a detailed an
d comprehensive analysis of the

associated risks and the
available opportunities.














References:

1.

Lewis, Kate,

Weber Paull,

Volery, Thierry &
Schaper, Michael (
2012).
Entrepreneurship and Small

Business
.

John Wiley & Sons. 496 pages.

2.

Wilson, Nicholas &
Stokes, David (
2006).
Small Business Management and
Entrepreneurship
.

Cengage Learning. 5
th

edn
.

479 pages.