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Coffee Shop Proposal
in this report I looked at two options for a new business and drew a justified conclusion as to what option wold financially be best.
Date : 26/10/2020
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Uploaded by : Emilia
Uploaded on : 26/10/2020
Subject : Business Studies
Coffee Shop reportIntroductionIn this report I will be looking at the positive and negatives of both of my client s options. My research will be analysis of the data which will lead me to an informed decision on what choice is best for the client. Option one is a form of organic growth whereas option 2 is more external growth as it is a takeover.Option one: Setting up a new coffee shopStrengthsOne strength of setting up a new coffee shop is that the client can develop their own brand image which will allow them to create their own reputation by customers spreading positive word of mouth and this can allow the business to get new customers and to make sure that a high number of customers repeat purchase in their store.An Added strength to setting up a new coffee shop would be that they will have car parking space this will allow them to attract more customers as people will be able to park their car and stop for a coffee. If there were not a car park people may decide to not get a coffee or to go to another coffee shop with a car park.Another strength would be that they can move into a niche luxury market which would be a strength as it will allow them to be able to increase their price per cup of coffee and they can attract a new target market as the product is more targeted.Another strength of setting up a new coffee shop would be their location this they are near popular tourist attractions which means that they have a lot of people nearby who may want to find a coffee shop. This means that they have lots of potential customers and that they just need to attract them and let them know where their store is located and how to get there.An additional strength would be that the new shop would be a corner property near local shops and transport links. The shop being on the corner is a strength because it means that people can see it while they are waling from different angles as it will probably be visible from two or more roads. Being near transport links is a strength as lots of people will be passing the shop and may stop for a coffee, also people often like a coffee on the way to work so they may get customers who live near them and are using the transport to get to work they may also get customers from people who work in the area and who have just finished using the nearby transport.An alternative strength of setting up a new coffee shop would be that the annual lease of the premises is £2500 cheaper than if they took over an existing business. Which means that their costs will be cheaper.A final strength for setting up a new coffee shop would be that there are only 15 nearby coffee shop competitors compared to 105 competitors if they take over an existing coffee shop. This means that people have less choice and will be more likely to go to the new coffee shop.WeaknessesOne weakness to opening a new coffee shop is that they will have 18m2 less floor space which means that they have less room for customers, tables or equipment.Another weakness to opening a new coffee shop is that they have 5 less seats in their store this means that customers may come in not see a space and decide to leave however they can extend but this will be an added expense.A further weakness to opening a new coffee shop is that they are not in the city centre so they may not get as many customers walk by and they are not Surrounded by shops, offices and two universities like they would be if they took over an existing business.An alternative weakness to opening a new coffee shop is that they will have to work hard to compete against well-known existing coffee shops such as costa, Starbucks, pert and caf Nero. This means that they will need to work harder to differentiate their brand and gain a bigger market share.Another weakness to opening a new coffee shop is that they will have to employee two part time staff which means they have to advertise go through the recruitment and selection process.OpportunitiesThe business is likely to get more customers in summer as they are near tourist attractions and they get more customers in the summer mainly summer holidays, this offers an opportunity to gain customers who may not usually be in the area so this could be a chance to attract customers this could be done by local advertising and local promotion.We can see in the case study that tea is the nation s best drink with 165 million cups consumed per day this means that there is an opportunity to also move into sales of cups of tea which could dramatically increases their revenueWith opening a new coffee shop, they will also be able to set their prices at what they want as if they took over an already existing coffee shop customers may feel that they should keep the prices the same which may affect their revenue and mark up.They could offer a loyalty card which could offer rewards for every £1 purchased. This could encourage repeat purchase and to spread positive word of mouth when they receive rewards. Theses rewards can be buying 5 coffees and get one half price, but 10 get the 11th one for free or it could be buy a meal deal 5 times get one for free these rewards should be personalised for everyone which will make people talk about what rewards they are getting and this could be good advertising for the business.The business could offer free samples in the local area as this will attract new customers, they could give samples of products which that could set them apart from their competitors, the client could offer things which accompany coffee and this could be another thing which sets them apart from competitors this could include gluten-free cakes, nut free cakes and new innovative syrup flavours this could set them apart in the market. While give out samples you should also give loyalty cards or flyers so that people who are interested can walk away with a copy of the address and the business special offers.
ThreatsOne threat of opening a new business is that because they are near a tourist attraction, they may get less customers in the winter as most tourist attractions are busiest in the summer.Another threat to opening a new business would be that it may be hard for a new coffee shop to compete in a crowded market among existing established coffee shops and this may force them to lower prices or force them to make a new product with a USP.Most people don t like to change their routine which means that they will be less likely to visit a new coffee shop especially when they are in a rush maybe when they are on their way to work this could be because they know what they want and they know that there existing coffee shop do that, they also know the quality and price.It is a very crowded market and they could struggle to have a big market share and to gain customers from competitors.Financial analysis for opening a new business:Gross profit =The gross profit = £153000 65500 = £90000Gross profit margin = GP REVENUE X 100£90000 153000 x 100 = 50%£63500 + 120200 =£183700£183700 153000= £30700Financial analysis for taking over an existing business:Gross profit£153000 65000 = £88000Gross profit margin88000 153000 x 100 = 57.5%Net profit marginNet profit revenue x 10032800 153000 = 21.4% Income StatementSales153,000Cost of Sales 65,000Gross Profit 88,000Less Expenses/Overheads Wages27,000Heating and Lighting 8,000Business rates 6,000Accountant rates 1,500Lease 7,500Advertising costs 1,000Insurance costs 1,200Other costs 3,000Total Expenses55,200Net Profit32,800 Impact on ResourcesHuman Resources:The client needs to employee two part time staff members, this means that they may need training which may take time and money this will be an added cost for the business and one they need to consider.Financial Resources:The client has savings of £35000 but there running costs are 120200 and they have start-up costs of £63000. Therefore, the client will need to consider where they can get finance. They may look at the possibility of a loan, however this will require repayments with interest.Equipment or Physical Resources:The client will need to source and purchase all the materials, equipment and stock for their coffee shop. This means that the client will have a choice on which brand of machinery to purchase this could mean that the client could be tempted to buy cheaper machines but this may mean that the quality is not as good meaning the machines are not as durable leading to them having to be replaced or fixed in the near future.Time:The client needs to: train staff, purchasing and set up equipment, complete paperwork, get insurance and comply to legislation. will take up a large amount of time before the coffee shop can even start to operate and make revenue. Looking at the forecasted timeline these processes may take up to 5 months.Option two - Taking over an existing businessStrengthsOne strength to taking over an existing coffee shop would be that the client will not have to purchase machines, cash registers, initial stock, furniture, fridge, dishwasher etc. This saves them £63,000.Another strength would be that the business is in the city centre meaning that lots of people will walk by and they might be tempted to go in.Another strength is that they already have a loyal customer base which means that they will not have to spend money on promotion to get some people in.There are 5 extra seats in the existing business that the new business.Owner will cover half the cost, meaning they will only need to take out a very small lone, meaning the repayment won t be too much.WeaknessesThere will be preconceived views and it may be hard to get away from them it may mean that it will be hard for the business to establish the niche, luxury, ethically sourced business that they aim to. This could lead to it being hard for the client to have a USP which acts as a competitive advantage in a very crowded market this could mean that they can t charge as much for their coffee impacting on revenue.They don t have a car park this could be inconvenient for commuters, meaning they could lose out on potential customers as they may go to a place which has a car park.OpportunitiesThe business is near to two universities which means that they could attract students by maybe offering a student discount of a meal deal, this could attract a lot of customers and could mean higher revenue.ThreatsThe client would be taking over a business which already has a reputation which means that people could judge them for previous mistakes which could lead to not attracting a whole group of people who had encountered issues with the previous owners.The business has already had a loyal customer base and the client would like to go into the niche luxury market which means that they could lose their existing customers as they will probably put prices up and will be targeting a different audience to what they already have. Gross profit = revenue cost of sales180000 90000 = 90000Gross profit margin = gross profit revenue x 10090000 180000 x 100 = 50%Sales180,000Cost of Sales 90,000Gross Profit 90,000Less Expenses/Overheads Wages 27,000Heating and Lighting 8000Business rates 7000Accountant rates 2500Lease 10,000Advertising costs 500Insurance costs 1440Other costs 4000Total Expenses 60,440Net Profit29,560 Impact on resourcesHuman ResourcesThe existing business already has two part time members of staff which means that they will not need to much training as they will already know their job role and may only need to be trained in what the client wants them to be trained in.Financial Resources:The clients will be making a profit at the end of the year however they only have 35000 savings and the running cost for the business without cost of sales is £60,440 so the client may need to take out a loan.Equipment or Physical Resources:The client will not need to purchase any new machinery but may need to have the existing machinery serviced to make sure that it is all working as it should be this can help them to avoid unexpected costs.TimeAs they will have less to do because a lot is already done, they should be open quite quickly. However, the client may need to wait until they can acquire the funding possibly form a bank loan.RecommendationsOverall, I believe that the most appropriate option, given the data received is option one opening a new business. My first reason for this would be because the client wants to go into a niche market of luxury coffee and I feel that taking over an existing coffee shop may prevent them from doing this and the existing customers will not want the change and they may not be the target market and would therefore not be willing to pay a higher price for a more targeted product. Also, I feel that although the existing coffee shop was in a city centre and near to two universities this is really not the targeted demographic for the luxury coffee market as lots of students do not have much disposable income so will not be as willing to pay more for a luxury ethically sourced coffee.Secondly, I believe this option is superior because I feel that with the location, they are in they are near tourist attractions which will further justify higher prices leading them to be able to make higher revenue. They also have a car park which is very convenient for customers and they will be more likely to stop and make a purchase whilst commuting.Finally, I have recommended this option due to the fact that that there cost of sales are lower and that they make more net profit compared to if they took over an existing business I also believe that they will be more likely to be able to grow their net profit as the business grows, gets a bigger customer base, builds customer loyalty and makes more sales whereas with an existing business I feel that they won t get as many new customers as they have a preconceived reputation also they will not be consistently busy all year round as they are near tourist attractions which are more popular in summer meaning that they might need and extra member of staff during that time which would be an added cost or they might need to get rid of one of their members of staff during the winter. Opening a new business, they will also be able to negotiate with suppliers to get costs lower and have a bigger mark-up which will increase revenue.
ThreatsOne threat of opening a new business is that because they are near a tourist attraction, they may get less customers in the winter as most tourist attractions are busiest in the summer.Another threat to opening a new business would be that it may be hard for a new coffee shop to compete in a crowded market among existing established coffee shops and this may force them to lower prices or force them to make a new product with a USP.Most people don t like to change their routine which means that they will be less likely to visit a new coffee shop especially when they are in a rush maybe when they are on their way to work this could be because they know what they want and they know that there existing coffee shop do that, they also know the quality and price.It is a very crowded market and they could struggle to have a big market share and to gain customers from competitors.Financial analysis for opening a new business:Gross profit =The gross profit = £153000 65500 = £90000Gross profit margin = GP REVENUE X 100£90000 153000 x 100 = 50%£63500 + 120200 =£183700£183700 153000= £30700Financial analysis for taking over an existing business:Gross profit£153000 65000 = £88000Gross profit margin88000 153000 x 100 = 57.5%Net profit marginNet profit revenue x 10032800 153000 = 21.4% Income StatementSales153,000Cost of Sales 65,000Gross Profit 88,000Less Expenses/Overheads Wages27,000Heating and Lighting 8,000Business rates 6,000Accountant rates 1,500Lease 7,500Advertising costs 1,000Insurance costs 1,200Other costs 3,000Total Expenses55,200Net Profit32,800 Impact on ResourcesHuman Resources:The client needs to employee two part time staff members, this means that they may need training which may take time and money this will be an added cost for the business and one they need to consider.Financial Resources:The client has savings of £35000 but there running costs are 120200 and they have start-up costs of £63000. Therefore, the client will need to consider where they can get finance. They may look at the possibility of a loan, however this will require repayments with interest.Equipment or Physical Resources:The client will need to source and purchase all the materials, equipment and stock for their coffee shop. This means that the client will have a choice on which brand of machinery to purchase this could mean that the client could be tempted to buy cheaper machines but this may mean that the quality is not as good meaning the machines are not as durable leading to them having to be replaced or fixed in the near future.Time:The client needs to: train staff, purchasing and set up equipment, complete paperwork, get insurance and comply to legislation. will take up a large amount of time before the coffee shop can even start to operate and make revenue. Looking at the forecasted timeline these processes may take up to 5 months.Option two - Taking over an existing businessStrengthsOne strength to taking over an existing coffee shop would be that the client will not have to purchase machines, cash registers, initial stock, furniture, fridge, dishwasher etc. This saves them £63,000.Another strength would be that the business is in the city centre meaning that lots of people will walk by and they might be tempted to go in.Another strength is that they already have a loyal customer base which means that they will not have to spend money on promotion to get some people in.There are 5 extra seats in the existing business that the new business.Owner will cover half the cost, meaning they will only need to take out a very small lone, meaning the repayment won t be too much.WeaknessesThere will be preconceived views and it may be hard to get away from them it may mean that it will be hard for the business to establish the niche, luxury, ethically sourced business that they aim to. This could lead to it being hard for the client to have a USP which acts as a competitive advantage in a very crowded market this could mean that they can t charge as much for their coffee impacting on revenue.They don t have a car park this could be inconvenient for commuters, meaning they could lose out on potential customers as they may go to a place which has a car park.OpportunitiesThe business is near to two universities which means that they could attract students by maybe offering a student discount of a meal deal, this could attract a lot of customers and could mean higher revenue.ThreatsThe client would be taking over a business which already has a reputation which means that people could judge them for previous mistakes which could lead to not attracting a whole group of people who had encountered issues with the previous owners.The business has already had a loyal customer base and the client would like to go into the niche luxury market which means that they could lose their existing customers as they will probably put prices up and will be targeting a different audience to what they already have. Gross profit = revenue cost of sales180000 90000 = 90000Gross profit margin = gross profit revenue x 10090000 180000 x 100 = 50%Sales180,000Cost of Sales 90,000Gross Profit 90,000Less Expenses/Overheads Wages 27,000Heating and Lighting 8000Business rates 7000Accountant rates 2500Lease 10,000Advertising costs 500Insurance costs 1440Other costs 4000Total Expenses 60,440Net Profit29,560 Impact on resourcesHuman ResourcesThe existing business already has two part time members of staff which means that they will not need to much training as they will already know their job role and may only need to be trained in what the client wants them to be trained in.Financial Resources:The clients will be making a profit at the end of the year however they only have 35000 savings and the running cost for the business without cost of sales is £60,440 so the client may need to take out a loan.Equipment or Physical Resources:The client will not need to purchase any new machinery but may need to have the existing machinery serviced to make sure that it is all working as it should be this can help them to avoid unexpected costs.TimeAs they will have less to do because a lot is already done, they should be open quite quickly. However, the client may need to wait until they can acquire the funding possibly form a bank loan.RecommendationsOverall, I believe that the most appropriate option, given the data received is option one opening a new business. My first reason for this would be because the client wants to go into a niche market of luxury coffee and I feel that taking over an existing coffee shop may prevent them from doing this and the existing customers will not want the change and they may not be the target market and would therefore not be willing to pay a higher price for a more targeted product. Also, I feel that although the existing coffee shop was in a city centre and near to two universities this is really not the targeted demographic for the luxury coffee market as lots of students do not have much disposable income so will not be as willing to pay more for a luxury ethically sourced coffee.Secondly, I believe this option is superior because I feel that with the location, they are in they are near tourist attractions which will further justify higher prices leading them to be able to make higher revenue. They also have a car park which is very convenient for customers and they will be more likely to stop and make a purchase whilst commuting.Finally, I have recommended this option due to the fact that that there cost of sales are lower and that they make more net profit compared to if they took over an existing business I also believe that they will be more likely to be able to grow their net profit as the business grows, gets a bigger customer base, builds customer loyalty and makes more sales whereas with an existing business I feel that they won t get as many new customers as they have a preconceived reputation also they will not be consistently busy all year round as they are near tourist attractions which are more popular in summer meaning that they might need and extra member of staff during that time which would be an added cost or they might need to get rid of one of their members of staff during the winter. Opening a new business, they will also be able to negotiate with suppliers to get costs lower and have a bigger mark-up which will increase revenue.
Emilia A Level business - A* report
This resource was uploaded by: Emilia