Financial Statements for Burger King - Essay Example

Financial Statements for Burger King Franchising is the use of another organizations business model, for purposes of conducting business by the franchisee. This is beneficial to the franchisee because the business model under consideration is successful. On this basis, chances of succeeding in their business operations are high. This is advantageous to the franchisor because he gets the capability of building a series of chain stores, while avoiding the investments and liabilities that come with building a chain store (West, 16). Under franchising, the franchisor is always the distributor, and he or she allows the franchisee to use his trademarks for purposes of conducting the business. In return, the franchisee will pay him or her some fees. It is therefore a good method of making some incomes, and increasing the business presence of a franchisor. An example of a franchise company is the Burger King. The abbreviation of Burger King is BK, and it has more than 13,000 outlets, in approximately 79 countries of the world. 66% of the BK outlets are found in United States. BK is a global chain of restaurants, specializing in the manufacture and production of hamburgers. The headquarters of the company is in Florida, under the headquarters of Miami-Dade. The company began its operations in 1953, by using the name of Inst-Burger King, and it was based in Florida. In 1954, Inst Burger King ran into a series of financial problems, forcing its two franchisees, James McLamore and David Edgerton to buy the company, later renaming it Burger King. In the next half a century, the company managed to change hands four times. The third owners of the company, namely Bain Capital, Goldman Sachs, and TPG Capital managed to enlist the company into the stock market. In the year 2010, a Brazilian company, 3G capital managed to acquire a controlling portion of BK, in a deal that was valued at more than 3.26 billion US dollars. These new owners restructured the company for purposes of making it successful. Over the years, Burger King has used a variety of marketing campaigns aimed at improving their market share, and staying ahead of their competitors (West, 22). Amongst the strategies used are aggressive advertisements, use of logos, engaging in promotional activities, and changing of menus to reflect the desires of its customers. During periods of 1970s, Burger King initiated a series of advertisement programs by using slogans and animated advertisements. In 2003, Burger King hired an advertisement firm referred to as Crispin plus Porter i.e. CP+B. This advertisement company managed to review the advertising programs of Burger King, from the periods of 1970s, to 1980s. This in turn led to the creation of a series of new advertisement programs, which were viral and web based. T his was for purposes of supplementing the various advertisement programs initiated by Burger King, and which were contained in the television and radio stations (West, 26). These advertisement strategies were very successful, and they helped the owners of Burger King and their partners to make approximately 367 million US dollars. In 2010, 3G capital of Brazil, the new owners of the company ended their marketing relationship with CP+B, and hired a new advertising company referred to as McGerryBowen. This is because the new owners of the company wanted to focus on a global and international market in advertising for their products. In developing marketing programs, McGerryBowen terminated the use of Burger King, and resorted to use a program that was focused on the ingredients and food that the company offered. On this basis, the marketing strategy used by Burger King to appeal to the locals, and international market is advertising. This strategy is the best for this model of business because the organization will have an option of convincing people on why the company products and services are better as compared to their competitors. The use of the right media of advertising can also reach a large number of people, and this is advantageous to the company, because it has a presence in more than 70 countries of the world (West, 25). It is important to denote that all franchisees of Burger King contribute a certain fee for the organizations advertisement programs. This contribution amounts to 4% of the franchisees gross sales. This contribution occurs on a monthly basis. The company runs a sales and procurement strategy referred to as integrated supply chain strategy. This strategy allows the parent company, and its franchises to receive supplies from multiple and different suppliers as long as these suppliers are able to provide the quality of resources needed by the company and its franchisers. Under this style of the organizations procurement and supply chain management system, the company gains the ability to ensure that there is effectiveness and efficiency in the distribution of the resources needed by the company and its franchisers for purposes of satisfying the various needs of its customers. This system also helps the organization to track the supplies to its franchises through the new technologies made possible by information technology. This strategy is advantageous to the company because it is flexible, and the company can effectively respond to the actions of its competitors. It is also possible for the company to collect intelligence information concerning its competitors, through its supply chain (West, 29). This system also limits overstocking and understocking of resources because the organization will only order for new supplies when they are finished. This is because of the availability of suppliers who will readily supply for the company. This process is disadvantageous because it is difficult to control the suppliers of the company. It can also lead to a breakdown of the organizations balance and check system because of a combination of internal and external suppliers. To open a franchise with the company, it is important to understand the different types of franchises that the company offers. Burger King offers three types of franchises, namely corporate, entity, and individual franchising (Franchise Direct, 5). To qualify for a franchise, there are a number of costs that the applicant must pay. These costs include, the franchise fee, expenses that the applicant will incur while travelling and undergoing training by the company, professional fees, real property fees, zoning expenses, insurance, business licenses, landscaping, etc. On a lower side, the total cost of starting a franchise with Burger King is estimated at 1, 410, 600 US dollars, while on a higher side, the total cost of starting a franchise with Burger King is estimated at 2, 530, 600 US dollars (Franchise Direct, 8). Burger King always offers some types of financial assistance to the various applicants of their franchise. This financial assistance includes remodeling programs, and real estate leases to the franchisees. On certain occasions, BK might provide some financial assistance to some business transactions that involve their franchisees. However, these business transactions must be viable, with a good return. The franchisee might also apply for the SBA loan processing. The royalty paid to the company by franchises is 4.5% of the gross sales of the franchisee, and it is paid monthly. The following is an estimated breakeven point for the sales of Burger King in 2013 (Burger King Worldwide, 4). Sales at the breakeven point = Total Fixed Cost/ Gross Margin. Gross Margins = Total Sales-Total variable costs. Total Sales Revenue = $ 1,146.3 billion. Total Variable costs = $ 221.8 billion Fixed Costs = $ 347.7 billion Sales at the breakeven point = 347.7/ 924.5 = 0.376 For purposes of ensuring the success of its franchisees, Burger King normally offers training programs to successful franchise applicants. These training programs are always held in Miami, Florida, or any other designated location identified by Burger King. There is a training program in In-Restaurant, and this program is always offered at various restaurants owned by Burger King. The restaurants under consideration must be identified as training restaurants. The company might also require individual franchise owners and their managers to attend additional training programs on procedures, standards, and operations of the company. The company also organizes training seminars and workshops for franchise managers. Under these seminars and workshops, managers are taught managerial courses, and imparted operational skills. There are numerous advantages to these trainings offered by Burger King. One advantage is that its franchisees are able to acquire skills that would help them in managing and running the franchises they acquired (West, 29). These franchise holders are also motivated, and this also increases their productivity. In as much as this corporate training is advantageous, it also has some disadvantages. One disadvantage is that the organization loses some time, during the process of training. This time could have been used for purposes of serving the needs of the customers or the organization. Another disadvantage is that corporate training is very costly to the organization (West, 33). This will in turn increase the organizations operating expenses, leading to a reduction in their profits. In conclusion, Burger King is a franchise giant in the fast foods industry. In as much as it has been making losses in the previous years, due to a change in the marketing strategy, the company has begun making profits. Franchising is an important method of achieving growth and establishing a chain of businesses. This is because the franchisor will always benefit from the capital brought forth by the franchise applicant. On this basis, it is cheaper and far much better for an organization to achieve growth through franchising, than engaging in direct investments. Works Cited: Burger King Worldwide. "Financial Statements for burger king worldwide inc (BKW)." Businessweek.com. N.p., n.d. Web. 18 Feb. 2014. . Franchise Direct. "Burger King Franchise Cost & Fees." Burger King Franchise Cost & Fee, Burger King FDD & Franchise Information. N.p., n.d. Web. 18 Feb. 2014. . West, Thomas L.. 2013 business reference guide: the essential guide to pricing businesses and franchises. 23nd ed. Wilmington, NC: Business Brokerage Press, 2013. Print. Read More