Financial Considerations in Expansion - Essay Example

Case Study Introduction In this case scenario, the consideration is on relocating to a new store. There are important factors that should be discussed. These include the customers’ preferences, tastes, desires and needs. Prior to making this decision, the owner should do extensive and thorough research in order to have better understanding of the obstacles which might present themselves during the expansion process. Evaluation of the capital management and strategies which should be incorporated in the expansion process will shed light on the direction the owner should take. The location selected by the owner is suitable as it is nearby the former coffee shop thus it is easily accessible. This is considered because most of the clientele access the coffee shop in the morning. Another important consideration is whether or not the shop will be a franchise or not which in this case a private-owned company is. This means the owner should aim at retaining former employees in order to create a familiar environment to previous customers and also offer comfortable hospitality to new ones. Part a – Financial considerations in expansion 1. Outfitting costs (estimated to be $100,000) In the process of outfitting the shop which will sell both coffee and men’s wear, it is advisable to contact a supply company which can provide to essential services. They should be able to furnish the coffee shop with new equipment or offer repairing services for existing ones. They should also provide advice on which equipment is required and needed in order facilitate expansion. Furnishing is included in outfitting. This is important because it captures the customers’ attentions making them want to stay longer at the shop. The assortment should include computer tables, comfortable and decorative seats and couches as well as outside café setting. Another consideration in outfitting costs is the rent of the location (Hirschey, 2009). The rent should be less that 15% of the projected sales thus one should make estimates in order to balance the sales and the rent paid. 2. Equipment costs (estimated to be $40,000) When calculating the equipment costs it is imperative to consider the returns from the investment. Money should be spent on the right things and focus only on what is important and necessary (Hirschey, 2009). There are important equipment which should be added during expansion as the number of customers will also increase. They include coffee brewers, blenders, coffee grinders, refrigerator and state of the art espresso machine. An espresso machine should be placed as top priority, as it is the central factor of the business. Despite the fact that money should be spent wisely, it is imperative for one to consider purchasing an effective espresso machine. This is because they are prone to damage thus a new machine will not only make the new location look brand new but will also offer prolonged service. The following are rough estimates which can be incorporated in the equipment costs Espresso machine - $ 5,500 Coffee grinder- $ 250 Coffee maker - $ 920 Service equipment - $ 10,000 Miscellaneous expenses- $ 300 Office equipment - $ 2,400 Storage equipment - $ 14,000 Service area equipment - $ 2,500 Counter Area Equipment- $ 4,500 The funding which can be used to facilitate provision of equipment can either be from bank loans as well as the owner’s investment which in this case is the former. The loan taken for the equipment should be between $ 40,000 and $50,000 which falls under long term loans that can be payable for two years. This amount is exclusive of the start-up inventory which should be expanded as the business grows. 3. Operating costs (cup, coffee, milk – see below) In the operational costs sector, this basically includes milk, coffee, milk, chocolate, syrups as well as accompaniments such as pastries. While planning the expenses, these items should not surpass 40% of the sales made, thus a balance should be struck to avoid wastage of finances (Mognetti, 2002). Part B – Marketing strategies In any business, it is important for there to be a marketing strategy. The efforts made in this sector play an important. The main aim is to ensure that the services and products provided meet the needs of the clientele (Peter & Olson, 2010). This will enable the owner to develop long lasting relationships with the customers and maintain their loyalty. In an effort to attain this objective, one needs to structure a flexible marketing framework that works along the lines that correspond to the clients’ tastes and preference. During this developmental phase, it provides a platform to recognize new market ventures and thus facilitate the success of the business. The main purpose of this strategy is to communicate the services offered and their benefits thus once it has been implemented, it is crucial to closely monitor how effectual the strategy and whether alteration should be made to ensure it meets its purpose and thus accomplish the goals set prior its development. Understanding the process of developing a strategy and its componential parts is mandatory for any business minded individual who aims at having a flourishing business. Prior to evaluating the strategies of creating a business plan, one should know its key elements which constitute it. The first most crucial component is the stratification of the clientele (Peter & Olson, 2010). This basically entails acknowledging loyal customers belong to different segments based on their tastes and needs. It is necessary to understand these groups and how they function as well as their needs. This can be done through market researching as it enables one to solve to tackle the needs effectively than other similar businesses. As mentioned previously, monitoring and evaluation of the effectiveness of the strategy is important. This is the second key element which is overlooked. This process ensures that changes can be made if needed thus guaranteeing the success of the business through marketing. It quantifies performance of the strategy thus providing room for improvement. Thirdly, the strength and weaknesses of the strategy are constituent parts. These two aspects are handled in the SWOT analysis and further outline the specifics which are vital to marketing (Homburg & Krohmer 2013). Acknowledging the strengths reflect on the areas which should be rigorously marketed as compared to weaknesses. This analysis also allows one to separate each aspect and weigh its overall effect in the marketing strategy. The written marketing plan should include the following The activities and services which should be undertaken in the coffee shop Acknowledge the customer audience each activity and service is applied to Indicate the duration for quantification of its effectiveness and success. Allocate and indicate team leaders responsible for specific marketing duties 1. Identification of goals The first step of developing a marketing strategy is identifying the goals. They can be varied depending on the end results desired. They might include Creating a new client base Selling of more products as well as provision of services Creating and spreading awareness of the existence of the business The goals set should meet certain standards to qualify as part of the marketing strategy. They should be specific, measurable, achievable, relevant and time bound. This facilitates the achievement of the goals set by the owner (Kozami, 2005). 2. Stating The Marketing Goals The business goals direct the type of marketing aims that should be stated. They are aimed at offering motivation to the marketing teams. Some of the marketing goals include developing market for new products and market penetration (Ryan & Jones 2012). The goals can either be long term or short term depending on the time needed to achieve them. As mentioned earlier, there are standards which should be met by these goals in order for them to be fulfilled. 3. Marketing Research This step is vital and part of the marketing plan. Extensive research should be done to understand elements of the market which include its size, social trends, demographics and growth, monitoring the market ensures that any change which occurs are detected and changes are made in the marketing strategy to accommodate these changes. 4. Profiling the Clientele The process of profiling customers is done by categorizing them according to their needs. The profile indicates the various characteristics of these groups including their buying patterns and the products and services they prefer. The constant reviewing of trends assists in keeping up with the changes as well as the expansion or reduction of these groups. Despite the fact that new customers will be attracted to the business, it is important to maintain relationships with the existing customers (Sekhar, 2004). 5. Profiling of competitors Similar to profiling customers, competitors should also be profiled. This can be done by identifying their services, supply market, products and marketing strategies. Identification of this aspect enables the owner to have an upper hand and competitive advantage (Ryan & Jones 2012). It also allows the owner to come up with unique strategies which are different and more complex as compared to the rest and thus attract more customers. 6. Utilization of the 5 Ps of marketing The 5 Ps are considered to be marketing strategies which are meant to meet the needs to targeted customers. They can be regulated and applied in both external and internal markets. A combination of either of these strategies is known as a ‘tactical marketing mix’ and it considered effectual in achieving the marketing goals outlined by the business owner (Ryan & Jones 2012). I. Price Products have different prices depending on the production costs. It is crucial to consider a marketing strategy which analyses how the price affects the customers (Peter & Olson, 2010). One needs to research on factors such as how much the clients are willing to pay for the product or service as well profit margins, miscellaneous costs and payment methods. To enhance the customers’ satisfaction and loyalty, introduction of seasonal pricing and discounts should be done. II. People Marketing requires competence which is reliant on the type of staff hired as well as the business owner. For there to be excellent customer care and service, the staff should be talented and highly competent. This translates implementation of effective recruitment and training of the staff for marketing to be successful (Homburg & Krohmer 2013). Another factor that should be considered is the retaining of talented workers and providing advanced training for them to improve the quality of service provided. III. Promotion Promotion is aimed at creating customer awareness. It can be done through promotional activities which include advertisements, direct marketing, promotions and sales promotions. IV. Place A place in this definition can be described as a locality where the clientele can access the products and services. It is where they are displayed and offered. This place should be easily accessible and thus allowing people to purchase and view the products (Kozami, 2005). To enhance the customers’ experience, the business owner can incorporate visually stimulating designs aimed at attracting the targeted groups as well as using merchandising techniques. V. Product Marketing products should be aimed at enticing the customers to purchase them. These products should be advertised and marketed in a way that guarantees the customers that they meet their needs and preferences and they can enjoy the benefits from the purchase (Kozami, 2005). Conclusion Expanding a business is often considered strategic action and often implies that the business of doing well. During the implementation of expansion, there are problems and challenges which are bound to be faced. Starting a new business or in this case merging business ideas into one can be quite challenging. It is crucial to encourage development of a business marketing plan as well as managing the costs of setting up the business to ensure it is successful. A business can only flourish if an effective marketing strategy is developed and followed step by step. Expansion requires maximum focus and also should have the owner’s attention. Reference List Hirschey, M. (2009). Managerial Economics. Mason, OH: South-Western Cengage Learning. Homburg, C., Kuester, S., & Krohmer, H. (2013). Marketing Management: A Contemporary Perspective. London: McGraw-Hill Higher Education. Kozami, A. (2005). Business Policy And Strategic Management. New-Delhi: McGraw-Hill Published. Mognetti, J.-F. (2002). Organic Growth: Cost-Effective Business Expansion from Within. Chichester, West Sussex: Wiley. Peter, J. P., & Olson, J. C. (2010). Consumer Behaviour & Marketing Strategy. New York: McGraw-Hill Irwin. Ryan, D., & Jones, C. (2012). Understanding Digital Marketing: Marketing Strategies for Engaging The Digital Generation. Philadelphia, PA: Kogan Page. Sekhar, G. V. S. (2004) Business Policy and Strategic Management. S.l.: I K International Public. Appendix Spreadsheet of Financial Consideration for the Coffee Business 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Revenue Sales for Black Coffee 68040 92340 353808 198288 136080 184680 353808 198288 Sales for Latte 90720 123120 471744 264384 181440 246240 471744 264384 Total Sales 158760 215460 825552 462672 317520 430920 825552 462672 Less Cost of Goods Sold Paper Cup Costs 453.6 615.6 2358.72 1321.92 907.2 1231.2 2358.72 1321.92 Coffee Costs 22680 30780 117936 66096 45360 61560 117936 66096 Milk Costs for Latte 3402 4617 17690.4 9914.4 6804 9234 17690.4 9914.4 Total Cost of Goods Sold 26535.6 36012.6 137985.12 77332.32 53071.2 72025.2 137985.12 77332.32 Gross Profit 132224.4 179447.4 687566.88 385339.68 264448.8 358894.8 687566.88 385339.68 Less Other Expenses Rent Expenses 10000 10000 10000 10000 10000 10000 10000 10000 Sales Wages 10000 10000 40000 30000 20000 20000 40000 30000 Outfitting Expenses 100000 0 0 0 0 0 0 0 Equipment Expenses 40000 0 40000 0 0 0 0 0 Interest Expenses 9000 10103.268 5622.94 0 0 0 0 0 Total Other Expenses 169000 30103.268 95622.94 40000 30000 30000 50000 40000 Net Profit -36775.6 149344.13 591943.94 345339.68 234448.8 328894.8 637566.88 345339.68 Read More