Informational Interview with the Owner of Toms Coffee Shop in New York - Scholarship Essay Example

Due Informational Interview Introduction I interviewed Thomas Patterson, who is the manager and owner of Tom’s Coffee Shop in New York. The manager exposes the various issues that small business owner and operators go through in starting and operating a business. I asked the manager questions regarding starting a business, maintaining business and the legal challenges that affect businesses. From the interview, I learned that the success in entrepreneurship requires expansive knowledge regarding various issues such as operations, finance, and legal issues. The three aspects determine the success of new businesses in the America. What is the name of your business? The business name is Tom’s Coffee shop How did you start your business? I started this business in 2005. I mobilized savings that I had made over the years to rent a coffee shop that had been closed for more than two years. I found it as an advantage to start a coffee shop at a place where there existed one. By so doing, marketing budget reduced by almost 50% since people had an idea of the existence of this coffee shop. The idea of opening a coffee shop came as a result of the need for self-employment. I undertook extensive business planning sessions and estimated the cash flows and balance sheet. However, the critical part was identifying a location. After I had identified the location, I sought licenses from the state and federal government. The licensing and a good business span enabled me to apply for a federal loan from the Small Business Administration (SBA). I then added my savings to complete the capital requirements of the business. What made you decide to set up your own business? As noted earlier, the need for self-employment motivated me to start my business. I believe that formal employment hinders a person from full development and self-actualization since the chances of growth are limited or controlled. Also, I understand that making business decisions in formal employment is subject to many issues and protocols that may derail decision making. A business can lose good opportunities if there is a lot of bureaucracy in decision making. Setting up my business was in line with my aim to be an employer. I believed that I had a duty to make the lives of fellow countrymen better. The country needs more entrepreneurs to relieve the government the burden regarding social services by increasing the number of people with economic independence. In this regard, I thought it was wise to start a small business hoping that it would grow and take more employees. Today, the business employs more than ten employees. How did you do it? Did you launch full-time, start off with a part-time or full-time job to keep you going? Before I started the business, I was a state employee. My job was very demanding and did not have many avenues for growth. My intuition told me that I would remain in the position until my retirement. However, I still had dreams of becoming an entrepreneur. With this business mind, I decided to resign to start my business. Starting a new business is a tricky undertaking. As such, I decided to launch it and tend to it full time. I did not worry about the risks and uncertainties involved in starting a new business. I believed that an entrepreneurial mind was enough to power success in the business. In addition, coffee and tea are fast moving products due to their necessity and low prices. I was convinced that my business would succeed, and thus would not need my former job. What legal aspects do you need to consider before starting your business? There are several legal aspects that must be considered before starting a business. First, an entrepreneur must have a unique business name. The government cannot register a business whose name is registered by another business. Second, the business structure that one intends to start. In my case, it was a sole proprietorship. Third, business permits and licenses are required. Before a business is commissioned, the state and federal authorities must be satisfied that the business has acquired all the relevant certification. Fourth, an entrepreneur must have tax registration as stated by the law. The motive is to ensure that the new business is tax compliant. For tax compliance purposes, the business sis required to have standard filing systems. What did you do to get a loan? As I explained earlier, I started my business from personal finances and SBA loan. The application process for the loan includes several aspects. I was required to draft and very elaborate business plan that would aid in making a decision on whether to finance. A crucial part business plan outlined the structure of the company and how decisions would be made. It also outlined the products that would be offered and at what price. The lender required that information be substantiated by considering the market prices of the products, the operational costs and labor to determine the worthiness of investing in the business (U.S Small Business Administration n.p). Upon preparing all business and financial information, the SBA decided to award $100000 as their investments to my business. How did you use the loan proceeds? The loan was used in renting the premises for two years and refurbishing the premises since it was unused for two years. The activities include repainting the shop, repairing broken chairs and awareness banners. However, these activities did not cost too much since the premises had been a restaurant. Renting and refurbishing the premises cost $25000. Another part of the money was used to buy an initial stock. The initial stock comprised of coffee and tea, mugs and other kitchen essentials. The overall cost of the stock and other support items amounted to $55000. The rest of the money was used in funding business operation for the first three months. The loan did not cover for the salaries of employees. How did you repay the loan? The loan was payable within a period of 24 months. The intuition is that the SBA expected that two years would be enough for the business to service the loan based on the financial plan I had submitted. I repaid the loan in installments of $4200 per month for 24 months. The money used to pay for the loan was sourced from the internal revenues of the business. The business operations peaked after three months, thus enabling the business to be sound in terms of finances and meeting its debt obligations. As such, repaying the loan did not pose a financial constraint on the business. At no time did the business fail to service the loan. What do you wish someone had told you before you started? Initially, I thought that businesses that dealt with fast foods did not need aggressive marketing strategies. My assumption was that people would always find their ways to the shop for coffee and tea were basic beverages. However, the first moths of the business proved me wrong. I had to invest personal funds in marketing since I had appropriated a subtle budget to marketing. Since my business was small, I followed guerilla marketing strategies as outlined by Levinson (21). I wish I had information that even small businesses require advanced marketing strategies. I believe that if had invested in marketing at the very beginning, my business would have peaked at a faster rate. I wish I had sought advice from other business owners on the effective strategies for a startup business. What has changed and what has stayed the same? Various aspects of the business have remained the same while others have changed. The internal management of the business has remained the same with myself as a manager and several assistants. The product line of the coffee shop has remained relatively the same with some very minor changes in things such as flavor. The size of the business and turnover has drastically changed over the years. The increase has led to demand for more workers from 3 to 10 full-time workers and 5 part-time workers. The changes are as a result of market dynamics that are influenced such as demand and other dynamics such as a stable national economy. How much profit do you really make on your 10 largest customers? The largest customers are corporate. The business services at least 14 corporate entities with staff coffee at the rate of $2 per cup. On average, the business sells 2000 coffee cups per day to the top 10 customers. At the rate of $2 per cup, the business makes $4000 per day. The amount translates to $120000 per month and 1.44 million per year. However, the amount received is not constant due to the fluctuations in the prices of coffee and overall economic conditions. However, the amount received from the top clients is within the range 1.4 million to 1.5 million. What is the cost of each product you sell? The business has various types of coffee and tea beverages. The quality and the contents of the drink are the determinants of price. The shop sells ordinary coffee at a price of $2 and an espresso at $3. The difference in price is caused by the difference in taken to make ordinary coffee and an espresso. Tea costs about the same price as coffee. The tea retails at an average of $1.8 per cup with the option for unlimited refills. Our tea is served as black tea or green tea. Black tea cost $1.6 whereas the green tea costs $2. The price differences in tea is a result of differences in prices in the international market. How quickly does your inventory turnover during a year? The bbusiness makes sales averaging to $250000 per month. This translates to 3 million per year. The coffee and tea business does not require a lot of stock. This implies that the turnover is relatively high. The shop has inventory amounting to $ 10000 per month to make an average of $120000 per year. The turnover ratio (cost of sales divided by the average inventory/ stock) thus becomes 25. The ratio implies that the inventory turnover period is 14 days. The figure implies that the business has to replenish its stocks every 14 days. In a year, the shop has to turn its inventory 25 times with stock worth $ 10000. How quickly does your business collect its receivables? As stated above, the business has corporate and individual customers. The individual customers, who comprise more than half of the business sales pay cash on delivery or through credit cards. On the other hand, corporate customers are billed monthly. According to the business understanding between the corporate customers and the shop, they are supposed to pay their dues the first Tuesday of every month. The overall scenario implies that the business does not offer its products on credit to individual customers. The situation means that it becomes easier for the business to collect its receivables at the end of the month. If your business does what you expect it to, when will your cash reach its highest and lowest points of the year, and roughly how much cash will that be? The business earns an average of 250000 per month. However, there are periods of low business and high business. Sales should be higher during the autumn and winter months. If all conditions are favorable for the business, the average income per month in winter should be over $320000 per month for three months. In addition, autumn can record a value of $300000. The normal trend is that sales of hot beverages reduce as summer approaches. An ideal spring would attract sales of up to $280000. Summer, being the hottest season, experiences a low sales volume. I estimate the sales to be $270000 per month. The estimates are based on the exploited and the unexploited capacity of the business. The sales can be realized if the business operates at optimal level. The business also expects to earn more income by expanding its existing premises. During peak hours, the shop is full, and most customers have to take their beverages while standing. Other customers prefer to take way the drinks. If the current expansion plans are executed, then the expected sales for summer will increase to $350000 and 300000 in summer. Have you sued somebody or someone sue you? Like other coffee shops in the country, this shop has been sued once by an employee. The employee was severely hand burns when she accidentally poured hot water on it when preparing espresso. The suit was launched in 2010 with the employee claiming damages for negligence. She asserted that the coffee shop owned a duty of care to the employees. Consequently, she claimed that it was an act of negligence on the part of the management. The case was determined one year later. Was it a good case? Well, I believe that the case was invalid and uncalled for. The employees of the coffee shop have medical covers. It is clear that the employee inflicted the injuries on herself and not through a failure of the equipment. As such, the business was under no obligation to protect her. The duty of care was not breached and thus the employee could have taken a goodwill offer that the business offered and take a medical leave. The business refused to admit any liability. The decisions of the court in this case were satisfactory. The jury found that the happenings that led to the accident were not out of the failure of the management of the café. All the systems were working normally and thus there must be something unique that happened to the employee. The court ruled that the business was under no obligation to pay the plaintiff. The business welcomed this decision. Did you try to settle the dispute by compromise? The management tried to advise the employee that the business held no liability regarding her injuries, however, as an employee; the business had an obligation to issue a paid medical leave. The employees are insured against accidents and thus the medical bills were not an issue. However, the customer was bent on pursuing the case to receive damages. The business has a lawyer who deals with legal issues. In this regard, we tried to involve him in explaining the customers the legal obligation of the business and the extent in which a business can accept liability. Given this, the customer had no chance of winning the case. The alternative was to take the offer of a paid medical leave and some additional benefits that would be disclosed if a deal was reached. Do you have the time and resources to devote to a lawsuit? Every business finds itself in legal crisis. In this regard, most businesses, if not all, have been involved in legal cases. As such, the business has braced itself for legal suits that may come along. The business has set aside funds that may be used to finance legal suits. The business has contracted a law firm to deal with its legal matters whenever they arise. The complexity of the American society has seen legal cases increase in the past years. These days, customers can sue a business for an accident they have inflicted themselves. Thus, the business must have time and resources to defend itself against malicious accusations that may damage the reputation or the upset the financial position of the business through paying damages. Do you have a question for me? Yes, I would like to know whether businesses have a duty to care for the customers who inflict injuries, such as burns, on themselves inside the shop. Works Cited "Small Business Loans The U.S. Small Business Administration SBA.gov." N.p., Web. 25 Nov. 2014. Gardiella, Adrianna. "Tips for Small-Business Owners to Avoid Employee Lawsuits - NYTimes.com." The New York Times - Breaking News, World News & Multimedia. N.p., 20 Feb. 2013. Web. 25 Nov. 2014. Levinson, J. C. (2007). Guerrilla marketing, 4th edition: Easy and inexpensive strategies for making big profits from your small business. New York: Houghton Mifflin Harcourt. Read More