Assignment 1: To Build or Buy
Select a small business that you visit often (e.g., coffee shop, bookstore, sporting goods store, etc.). Write a 6-8 page paper in which you:
1.Craft a brief (1-2 pages) strategy for a business concept that would directly compete with the small business you selected. Explain the rationale for the strategy in detail.
2.Determine if it would make more sense to open the new business you describe or to purchase the existing business you selected. Explain your reasoning.
3.Discuss the most appropriate form of ownership for your new business (assuming your current financial situation).
4.Outline a business plan for your business. Visit http://www.sba.gov for tools and templates.
The specific course learning outcomes associated with this assignment are:
•Analyze the nature of entrepreneurship, business ethics, and social responsibility in managing a successful small business.
•Analyze a business strategy and supporting business plan for a small business concept
•Describe and analyze the necessary activities and key decisions to start a small business.
•Use technology and information resources to research issues in small business management.
•Write clearly and concisely about small business management using proper writing mechanics.
Sample paper
To Build or Buy
Crossroads Café is a small coffee shop located in West Memphis, Arkansas. The coffee shop offers breakfast, brunch, lunch and dinner items to customers. The coffee shop offers a limited number of menu items, primarily coffee accompaniments such as omelets, pancakes, bacon, sausage, eggs, cheese, and biscuits. The coffee shop operates on weekdays between 6:00 am and 8:00 pm and Saturday. On Sundays, the coffee shop remains closed to give employees break. Crossroads Café has excellent services to its customers. This is mainly due to the input of the owners in directly monitoring the daily operations of the coffee shop. This paper includes a proposal of a new business concept, analysis of a make or buys decision, a determination of the most appropriate form of ownership, and an outline of a business plan for the proposed business.
Strategy for a Business Concept
The new business concept seeks to combine coffee business and fast foods. While Crossroads Café primarily offers coffee to its customers, there is a huge market for fast foods in the region. A business combining coffee and fast foods is likely to attract a large segment of consumers. A recent report by Statista (2017) indicates that the fast food industry is worth about $198.9 billion dollars. The report projects that by 2020, the fast food industry will be worth over $ 223 billion. Over the last decade, the number of quick service restaurants has increased significantly owing to the rising demand of fast foods among the population. A recent report by the Euromonitor International (2017) indicates that although growth of the fast food industry may slow in the coming years due to the emergence of fast casuals, the overall growth of the fast casuals will still help in driving the fast food sales growth.
By offering coffee and fast foods, the new business will attract more consumers. The business will also be able to cut a niche into the high growth fast food industry. The coffee industry is lately experiencing slow growth. According to Harrington (2017), coffee stores have experienced slow growths since 2011. In 2016, the coffee shops growth was 2.17%, which indicates low growth of the coffee store sector. The single-cup coffee market is the worst hit by declining sales. Focusing primarily on the coffee market may thus lead to lower sales. By combining coffee and various menu items from the fast food industry, the business will attract a wide clientele. Currently, most coffee shops compete with other restaurants by adding a variety of menu items such as sandwiches, baked goods, salads, and other types of snacks (Statista, 2017b). A coffee shop selling various fast food items may thus be the best in competing with Crossroads Café.
Build or Buy Decision
Several factors influence the decision on whether to build or buy; the key among them the total cost involved in making either decision. Purchasing the existing restaurant has several benefits. First, there is instant name recognition and a ready customer base. This would be quite beneficial especially if the outlet has a large customer base in the region. It is advisable to buy if the restaurant has a positive image among consumers. Another important factor to consider is the location of the restaurant. A strategic location would be a plus in making the buying decision. Building a new restaurant may take a lot of time. In addition, there are higher risks since there is no ready customer base unlike in the purchasing decision. On the plus side, building a new restaurant provides the opportunity to develop own customer base. This can give more pride to the owner. Another important factor to consider is the potential for growth. If the restaurant shows high potential for growth, it is prudent to purchase.
Considering the above factors, it would make sense to purchase Crossroads Café. This is because the café satisfies a number of previous factors. First, Crossroads Café has a large customer base due its delicious coffee and snacks. In line with this, the café has positive customer reviews with regard to the quality of beverages and snacks served as well as the quality of customer service. By purchasing the café, the new business will have a ready customer base. Another reason why it makes sense to purchase is the location. Crossroads Café is located along North Missouri Street, one of the busiest streets in Memphis. The strategic location means the café is accessible to a large customer base. As such, it is easy to build a loyal customer base from those who walk in by providing quality services and foods. Another reason to consider the buying decision is the less time it will take to establish the new restaurant with the additional menu items.
The Appropriate Form of Ownership
There are different forms of business ownership including sole proprietorship, partnership, limited partnership, limited liability company, corporation, trust, and non-profit organizations. Sole proprietorship is the most common form of business ownership among the small businesses. Sole proprietorships comprise of a sole owner who also runs the business. This form of ownership may not be appropriate in situations where the individuals face capital challenges. Partnership, on the other hand, involves two or more people coming together to develop a business. The most appropriate form of partnership would be the limited partnership form of ownership. Limited partnership is similar to the general partnership. The major difference is that in limited forms of ownership, the limited partner does not take part in the active management of the business (Schneeman, 2010). It may not be possible to establish the other forms of business ownerships due to capital and bureaucratic constraints.
A limited partnership helps in solving the challenge of raising capital for the business. Under the general partnerships, all partners contribute equal amount of capital towards starting the business (Schneeman, 2010). In circumstances where they do not contribute equal amounts, sharing of profits is according to the ratio of the capital each contributed. A limited partnership will allows the owner (general partner) to retain total control of the business. The general partner is responsible for the general management and is liable for all debts of the business (Schneeman, 2010). The limited partner contributes capital and takes a share of the profits or losses as agreed. The limited partner is only liable by the amount of capital contributed to the business.
A limited partnership will be the best due to capital limitations. Through limited partnership, it will be possible to make decisions quickly and effectively unlike in general partnerships where all partners must be involved (Schneeman, 2010). The limited partner will only raise capital for starting the business but will not participate in the management of the business. The limited partners are passive investors to the business; they only share in the profits made by the business. The business can raise more capital for expansion by adding new limited partners (Schneeman, 2010). This can enable the business expand with ease. It is easy to transfer limited partnership. A limited partner who wishes to withdraw from the business may not lead to the dissolution of the business. This will ensure continuity of the business. Nonetheless, limited partners can still vote to change the nature of the partnership agreement.
Business Plan
Executive Summary
Product. Crossroads Fast Foods Café offers coffee and high quality fast foods to its customers. The fast food outlet serves a variety of menu items to its customers. These include coffee and various accompaniments such as omelets, pancakes, bacon, sausage, eggs, cheese, and biscuits. Recently, Crossroads Fast Foods Café has expanded operations to include various fast food items on its menu. These include chicken sandwich, burghers, egg muffin, sausage muffin, salads, and carbonated drinks.
Customers. The key target market for Crossroads Fast Foods Café is youths and business customers. Most working youths and school-going youths prefer fast food outlets due to time limitations. Business customers are those who work within a certain radius of the business. Crossroads Fast Foods Café will encourage these customers to order their favorite menu items via phone or other means. Delivery to customers within a certain mile radius is free.
Future of the Company. Crossroads Fast Foods Café aims at being among the top fast food outlet chains in the U.S. in the next 10 years. The business will engage in continuous expansion by opening new branches across the U.S. Franchise agreements will enable the business to expand easily. Another strategy is purchase of small restaurants across various locations in the U.S. This will facilitate easy expansion.
Company Description
Mission Statement: To offer our customers the quality and delicious foods and drinks and with the highest quality of customer service that will lead to building loyalty.
Principal Members. A business manager, Susan Park, will be responsible for managing the daily activities for the business. The business will start with ten junior employees. This number will be adjusted depending on the number of daily customers.
Legal structure: Crossroads Fast Foods Café is a limited partnership form of business. The limited partner will provide capital for a share of the profits.
Market Research
Industry. Crossroads Fast Foods Café is part of fast food and beverage industry. Projections indicate that the fast food industry will continue to experience growth over the next five years. This growth is driven by increasing consumer demand for fast foods.
Company Advantages. Crossroads Fast Foods Café combines coffee and fast food items in its menu. This will likely translate to a higher number of customers. Currently, majority of restaurants offer a combination of fast foods and carbonated drinks while others offer coffee and snacks. By offering fast foods, coffee, snacks, and carbonated drinks, the business will attract a larger segment of the consumers.
Regulations. Crossroads Fast Foods Café must adhere to the rules and regulations outlined by the United States Food and Drug Administration (FDA). The FDA provides rules and guidelines to ensure the safety of food.
Product/Service Line
Product/Service. Crossroads Fast Foods Care will offer a variety of fast foods, hot beverages, and carbonated drinks. The fast food items include chicken sandwich, burghers, egg muffin, sausage muffin, salads. Coffee will be served with omelets, pancakes, bacon, sausage, eggs, cheese, and biscuits. The carbonated drinks will include Coca Cola and Pepsi products.
Pricing Structure.
- Chicken Sandwich – $4.00
- Burgher – $4.59
- Egg muffin – $3.00
- Sausage muffin – $2.99
- Snacks – Less than $2 per item
- Carbonated drinks – $2.40 on average
- Salads – $5.20 on average
Research and Development. This will mainly include reviewing customer feedback on our online platforms. The business will make use of the feedback to improve on the overall quality of services and foods.
References
Euromonitor International. (2017). Fast food in the US. Retrieved from http://www.euromonitor.com/fast-food-in-the-us/report
Harrington, M. (2017, Sept. 29). US coffee store growth slows to lowest rate since 2011 as ready-to-drink java sales heat up. CNBC. Retrieved from https://www.cnbc.com/2017/09/29/us-coffee-store-growth-slows-to-lowest-rate-since- 2011-says-mintel.html
Schneeman, A. (2010). The law of corporations and other business organizations. Clifton Park, NY: Delmar Cengage Learning.
Statista. (2017). Fast food industry – statistics & facts. The Statistics Portal. Retrieved from https://www.statista.com/topics/863/fast-food/
Statista. (2017b). Coffee Shop industry – Statistics & Facts. Retrieved from https://www.statista.com/topics/1670/coffeehouse-chain-market/
