BUS 402 Assignment 2: - Expanding Your Business

Introduction:

The dynamics of markets related to the operating activities of the companies are changing rapidly and this process is resulting into the creation of new business models and market strategies, which are used by the executives for the survival and growth of their respected companies in different markets. It’s really difficult to predict the capabilities and creativity of different professional geniuses but the developments in different fields illustrates their level of skillset. The market dynamics are changing rapidly and are getting complex day by day. Companies working in different sectors are trying to compete by using their full potential, but still it’s becoming really difficult to increase the economic growth and expand their activities around the world. Businesses are operating in different market competitions based on their working environments and strategies. The policy makers and natural conditions have formulated different kinds of market structures and each market structure has its own advantages and limitations. The effect of these market structures on small businesses is low as compared to large cooperation’s, it’s easy to start a small business and chances of growth are very high. This report will explain that how a small business can be developed, based on a good creative idea and obviously with a risk taking capacity. ( Friend & Zehle, 2004)

The 21st century only accommodates creative geniuses. The era demands that an entrepreneur have to get creative in its thinking, rather than just getting depended on the old orthodox ways of formulating a business plan based on different concepts. The world is changing rapidly, the survival is dependent on creating something new out of current resources available, these resources can be in the form of financial capital or even we can say human capital. My strategy for a business concept will be based on the principle of creativity in terms of giving different kind of services to the customers. We all are found of visiting Coffee shops and sometime it becomes a necessity in terms of relaxing our minds. It’s in our nature that we spend a lot of money on recreational activities. Different people around us prefer to have a coffee in a good shop or café, where the environment gives some kind of relaxation to their minds and it’s also a good way of increasing the social circle. We all must have visited lot of coffee shops but let me tell you a universal fact that; the organizational culture of Starbucks, stand at the top of coffee business. Their customer relation area is excellent and fulfilling the basic needs of customers, their coffee along with their classic environment creates an incredible effect on the mind of customer even if they belong to different cultures. My business concept will be based on opening a coffee shop but obviously on small scale, the reason is that I have to look after many different factors, specially the factor of financial capital. Initial financial capital is a very important factor for opening up any kind of business, the budget should be allocated for both capital expenditures and as well as for the revenue expenditures (accounting, Coach 2015).

The feasibility report for the business concept should be formulated on the basis of customer base and obviously on the area selected for opening this kind of Coffee shop. I would prefer to keep limited categories of coffee but in order to meet the good organizational standards, the business demands lot of investment on creating a nice environment for the customers; especially in the form of sitting place. The target customer user base will be formulated in such a way that majority of the professional specially the executive class and youth will be attracted towards this Coffee shop and it will be ensured that the product of Coffee will be up to the required level of expectations of the customers. The company will invest some amount of capital on the hiring of an employee whose academic record and market experience is based on helping the different types of companies in terms of value propositions. Other than this the business should also focus on distribution strategy (Richards, 2015) , one of the way is serve the customers within the premises of the coffee shop but other than this focus should also be giving to free home delivery of different products. By the concept of delivering I mean the coffee along with other products should be deliver to different places, it will become easy for the business to explore new segments of the market. It’s difficult to carry out this kind of service, but some capital will also be invested on equipment required for maintaining the temperature and taste of Coffee and other products while implementing this kind of service.

A small business usually have different types of strategies as compared to an established business, the main reason for this kind of difference is current financial position. In early stage of the business expenses are high and the revenues are low, sometimes the business couldn’t able to meet the breakeven point. With a good growth strategy, product differentiation, price skimming strategy, even a small business based on creative business plan can change the whole game. Especially the focus should be given on growth strategy; such as new features should be added into existing products or with some research and development create new products and services in order to compete and grow in the market (Suttle, 2015)

Before taking any kind of discussion between whether to buy an existing business or start a new business, the entrepreneurs have to consider many factors. First of all they have to consider the level of practical experience specially related to the industry in which the entrepreneurs are planning to open up their businesses or thinking of buying existing business. Practical experience matters a lot especially when you are formulating a business plan and preparing yourself for the implementation phase. The second factor is; the type of industry in which the business will operate, what will be the nature of services and products and what will be the customer base. The last factor but the most important is the capacity of taking financial risk. Financial risk is directly interlinked with financial capital and in worst condition; an entrepreneur can even lose all of its capital without achieving any kind of objective (MORIOKA, 2015).

The world around us is living in perilous economic times. We all know that the economic conditions are in danger but according to the basic principle of finance, high risk can result into high return. After analyzing the three factors mentioned in the above paragraph, an entrepreneur have to consider some basic concepts, so that it becomes easy to decide between buying an existing business and starting a new business. It’s really essential to understand the difference between human capital and financial capital. Human capital is basically people’s health, skills, motivation and knowledge. On the other hand financial capital represents human, social or manufactures capital e.g. shares, bonds etc.

Basically these two terminologies determines the capacity of risk taking, if a human capital is high along with a good financial capital , than it make sense to follow the principle of high risk high return. If the human capital is low especially for those people who are in their 50’s than the focus should be to buy the existing business. From an investor point of view, the risk element is very important and a proper mix of human capital and financial capital can save the investment from any kind of risk. So if we analyze our case, the decision should be taken for starting a new business with a high risk. Even if the business results into failure, human capital will always be there to help the business.

The ownership structure for the business of Coffee shop will be sole proprietorship, the reason is that it’s good to become full and legal in charge of the business. In this ownership structure the profits and assets are owned by one individual and is responsible for all the risks and rewards associated with the business. The best benefit with this kind of ownership structure is full command on decision making process. With decision making factor, it’s really easy to formulate future objectives and solve current hurdles according to the vision of the business. Although the financial capital available doesn’t suit with this kind of structure but the benefits are high in long term period of time (Ownership structure, 2015)

In order to support this kind of ownership structure it’s necessary to get some debt capital as well. It will be difficult to sustain in short and long term period of time with only initial capital, so some more focus should be given on generating some other sources of finance.

After analyzing the potential market of the Coffee business, the management will analyze the size of potential market. Size is important, because it will provide help in creating long term and short term objectives. Round about 50% of the initial capital will be invested on purchasing the equipment and paying the rent of the premises in advance. The research and development department will focus on creating some product samples, so that a general survey can be conducted based on these sample products. A proper research team will be formulated in order to identify the premises where it will be easy to target the customers especially the youth. This is a general idea but a proper way can be like this (business plan, 2015)

General company description:

The purpose of this small coffee shop is to serve the basic needs of the people. We believe that an organizational culture play an important role in creating an environment where people can get relax and forget all their problems at least for the time they are physically present in our premises.

Products and services:

Initially we are dealing with ten types of Coffee and services will be given inside the premises. Services will also include the delivering of Coffee to the nearby places. Services should also include some elements of recreation, such as Pool table or TV with sports channels. People do like to watch soccer in public places.

Marketing plan:

Initially the marketing plan should be focused on social media marketing, it’s the most useful source of marketing and the good thing is that, it demands less amount of capital. So 10% of the capital will be invested on social media marketing. Special campaigns will be developed in order to promote this new Coffee shop.

Operational planning:

More focus will be given on improving organizational culture. Special training programs will be designed in order to train the employees in terms of how to deal with the customers. Starbucks motive of dealing customers with ‘’dignity and respect’’ will be also be core objective of operational activities of this Coffee shop.

Milestones:

Short term and long term milestones will be identified in order to achieve the goals with practical approach rather than theoretical assumptions.

Budget:

First of all, the sources of generating capital will be identified in order to do the process of budget allocation. The sources of capital should be a mix of debt and equity, so that the debt to equity ratio of the company don’t get disturbed and it became easy for the company to carry out its activities rather than just paying the interest on the debt.

The initial investment of the company for capital and revenue expenditures will be $50,000 and by further diversification $30,000 will be from equity capital and $20,000 will be the debt capital. The government is trying to increase the growth through small businesses, so for this approach they have introduced some loans with low interest rate(loans and grants,2015).The debt capital will be most probably a bank loan, on which 10% interest will be applicable per year.

So now we can allocate the budget as:

The amount of $11,000 will be the working capital of the company and can be utilize for day to day activities of the business.

Price

During the process of pricing, the strategy of the competitors will be kept in mind so it will become easy for the company to attract the customers in term of prices. The price should be affordable and should be in the range of the youth population.

It’s important to do some analysis before opening up a new business. PESTLE and SWOT analysis should be done in detail, so that it becomes easy for the business owner to understand the market and as well as the current standing of the business. In order to minimize the risk, especially focus on SWOT analysis.

SWOT analyses will help the business owner in analyzing its internal strengths and weaknesses, and external opportunities and threats. By this information it will become easy for the business owner to formulate short term and long term objectives.

References

About.com Money,. (2015). Writing a Business Plan - Business Concept and Value Proposition. Retrieved 25 July 2015, from http://entrepreneurs.about.com/od/businessplan/a/businessconcept.htm

AccountingCoach.com,. (2015). What is a capital expenditure versus a revenue expenditure? | AccountingCoach. Retrieved 25 July 2015, from http://www.accountingcoach.com/blog/capital-expenditure-revenue-expenditure

Friend, G., & Zehle, S. (2004). Guide to business planning. London: Economist in association with Profile Books.

Small Business - Chron.com,. (2015). Different Types of Business Strategies. Retrieved 25 July 2015, from http://smallbusiness.chron.com/different-types-business-strategies-4634.html

Smallbusiness.intuit.com,. (2015). Selecting an Ownership Structure for Your Small Business. Retrieved 25 July 2015, from http://smallbusiness.intuit.com/news/Business-operations/19319168/Selecting-an-Ownership-Structure-for-Your-Small-Business.jsp

Yahoo Small Business,. (2015). Ideas and Advice for Small Businesses | Yahoo Small Business Advisor. Retrieved 25 July 2015, from https://smallbusiness.yahoo.com/advisor/buying-existing-business-vs-starting-190019574.htm