Business Plan Report: Feasibility Of Coffee Shop In Openshaw

Forecast of cash flow, budgeted statement of profit and loss and balance sheet

Main purpose of the report is to evaluate the feasibility of the coffee business stated up by 2 retiring lecturers in Openshaw that is close to TMC and UCENMCR campus. Te report will consider the liquidity, gearing and profitability factors for assessing the business’s feasibility. For doing this it will prepare the statement of cash flows, budgeted statement of profit and loss and the balance sheet of the business for period of 12 months with the help of the given information. Financial years for the purpose of assessment will be taken from January 2018 to December 2018.

Forecast of cash flow, budgeted statement of profit and loss and balance sheet

Refer to the excel sheet for above projection

Coffee bar that will be opened in Openshaw will be owned by 2 retiring lecturers. Coffee bar will be opened at nearby to TMC and UCENMCR campus. Partners of the business are under the process of negotiation regarding small seating unit outside, for ground level with the developer and competitive rent for the period of 1^st 12 months that has already been offered. Further, it is noticed that the entrepreneurs has acquired the license already for selling the alcohol (Burns and Dewhurst 2016).

Products and services

Various products those will be offered by the business best taste coffee beverages that will use high standards quality. Along with this it will also offer brewed coffee, espresso drinks and refreshment beverages, sand witches and small salads. Further, it will also offer its customers with pastries and will sell coffee beans (Brinckmann et al. 2018). The coffee bar will have built around coffee based on espresso like mochas, cappuccinos and lattes. Espresso based drinks will be provided with skimmed, whole or soy milk. Further, the espresso shots will be combined with the steamed milk or other additives such as caramel or cocoa.

Marketing strategy

The business will cater to the people who are in needs of getting the daily cup of coffee under relaxing atmosphere. The customers differ in age and as the coffee shop is nearby the campus it is expected that majority of the customers will be from the faculties and college students. As per the research it is recognized that these customers are gravitate towards the better tasting coffee. Further, most of the students from college consider the coffee bars convenient for meeting with friends where they can get a comfortable ambience with a cup of coffee (Pasqual, Padilla and Jadotte 2013). It will offer unique possibility for establishing loyal client base. Marketing strategies of the business will be as follows –

• Launching with adequate funds – once plan of the business is prepared for starting up, the owners must have adequate funds for covering up the initial costs. This will decrease the risk level and will start business with strong customer base (Khan and Guruli 2015).
• Talking to potential customers – if potential customers are identified they can be personally contacted for assessing the appropriate demand. However, if demands of the customers are not satisfied there is obvious likelihood that the business will not get succeed. Hence, estimating the demand will help in generating profit.
• Pre-selling of product – before the product launch the business may pre-sell the product on experimental basis for analysing the product’s acceptability and the customers may be asked regarding acceptability of similar products and the amount they are ready for paying that will help the owners to fix the price (Brinckmann et al. 2018).
• SWOT analysis

Strengths	Weaknesses
· Unique quality coffee · Close to university · Availability of public transport · Lower cost of operating and more control over business · Wide range of products availability (McKenzie 2017)	· Depends on small base of customers · Start up costs will be higher as compared to any normal coffee shop · No built in equity for brand · Clients like faculty and students will be available during the semesters.
Opportunities	Threats
· Continuous customer base from university · Able to appeal different target market as compared to other cafes · Able to expand the business through opening new branches in other locations	· Other cafes are there that may offers the products in accordance with changing tastes of the market · Limited income of the target market · Other cafes are opening in the surrounding area (McKenzie 2017)

USP

USP is the unique selling point that differentiates it from others. Major USP of this coffee shop will be it will offer a special coffee that is low priced and less in quantity. Instead of regular 200 ml servings it will have 125 ml servings. Hence, the students with lower budgets will be able to afford this one.

Operations and logistics

Operation section of the business plan portrays the picture regarding daily activities of the business and what goes behind the coffee cup that will be experience d by the customers. Below mentioned things will be considered and included under the operational section –

• Listing of inventories and equipments for running the shop. Breaking down the menu and what it will take for preparing the coffees and preparing and presenting them. Various coffee shop suppliers list will be researched online and will be used for building its own.
• Describing the physical location for creating atmosphere of the shop. Research will be carried out for establishing the requirement of bar design and interior design. Electrical requirements for electrical or water treatment shall be considered for the business (Tahmoorespour, Mina and Randjbaran 2015).
• Describing the workflow and how this will help in performing the daily activities shall be established. Although these things are developed with time, controls and systems shall be considered that can be shared afterwards with the employees and managements.
• Key supplies for food, equipment, coffee and other services shall be listed including the backup suppliers for unique products.

Products and services

Coffee business can be ruined if the process of logistics is instable. Owing to this, the business will require maintaining the process of own supply chain. Operational process of the beverage industry assists in mitigating the issues involved with inventories that will increase the operational flexibility. This scenario is more crucial to individual coffee shop as franchising or any other business mode may reduce quality of coffee servings. In turn, it will not be able to offer value-added services to its customer (Sander and Kantšukov 2013). Hence, the operational process of the entity will also focus on flexible process of supply chain for offering fantastic experience for coffee to the customers.

Financial strategy

Business is considered as feasible if it is able to generate adequate cash and profits and offers sufficient liquidity for meeting the business goals and short term obligations. It can ensure the profitability through the following –

• Sales and profitability – from the budgeted profit and loss account it can be identified that the sales for the 1^styear covering the period from January 2018 to December 2018 is projected as £ 2,15,928 from the sales of sit-in arrangements, take –out coffees and food beverages. On the other hand, after paying all the expenses including wages, website maintenance, general costs, rent, legal costs and marketing costs will be amounted to £ 67,731 (Bodie, Kane and Marcus 2014). Hence, the net profit margin of the company will be £ 67,731 / £ 2,15,928 * 100 = 31.37%. Hence, it can be stated that the projected business profitability is quite strong and are feasible for the business sustainability over the long-term period.
• Liquidity and cash flow – liquidity is measured through computing the current ratio of the company. It is measured for computing the ability of the company with regard to paying off its liability with the current assets available with the firm. It can be identified that the projected current ratio of the business is 9.80 that is indicating that the current assets of the entity are adequate for paying the short term obligations (Friederich and Payne 2015). On the other hand, if the cash flow of the company is considered it can be stated that the closing cash balance of the business is in positive and amounted to £ 55,806.
• Gearing and risk – looking into the gearing ratio of the company it can be identified that the amount of total liabilities are £ 25,696 whereas to total equity is amounted to £ 46,643. Hence, the gearing ratio or debt equity ratio of the company is 0.55 that indicates that the business is expected to be lower leverages and therefore less risky (Laitinen 2017).   

In future, the company is planning to serve the coffee in edible cup to reduce the wastages. The edible cup will be made from cereals that are healthy as well as can be munched like ice cream cones once the drink is finished. It will increase the revenue of the business as well as the target customers as the kids will be interested in having the drinks with the edible cups (Detzel and Strauss 2017).

Conclusion 

With regard to the above discussion and analysis it can be concluded that the business seems to be feasible one both in terms of risk, profitability and liquidity. Net profit of 31.37% and current ratio of 9.80 is indicating that the business will earn adequate income to generate return for its shareholders and sufficient cash to meet the short term obligations. Further, the gearing ratio of 0.59 is indicating that the company is lower leveraged and not much dependent of outside debt for its operation. Hence, it is expected that the business will be successful and the lecturers are recommended to go ahead with the project and start the business with the projected level of sales.

References 

Bodie, Z., Kane, A. and Marcus, A.J., 2014. Investments, 10e. McGraw-Hill Education.

Brinckmann, J., Dew, N., Read, S., Mayer-Haug, K. and Grichnik, D., 2018. Of those who plan: A meta-analysis of the relationship between human capital and business planning. Long Range Planning.

Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan International Higher Education.

Detzel, A. and Strauss, J., 2017. Combination Return Forecasts and Portfolio Allocation with the Cross-Section of Book-to-Market Ratios. Review of Finance.

Friederich, S. and Payne, R., 2015. Order-to-trade ratios and market liquidity. Journal of Banking & Finance, 50, pp.214-223.

Khan, A.H. and Guruli, M.R., 2015. Predicting Bankruptcy by Liquidity Ratios Analysis. Journal UMP Social Sciences and Technology Management, 3, pp.372-380.

Laitinen, E.K., 2017. Profitability Ratios in the Early Stages of a Startup. The Journal of Entrepreneurial Finance, 19(2), pp.1-28.

McKenzie, D., 2017. Identifying and spurring high-growth entrepreneurship: Experimental evidence from a business plan competition. American Economic Review, 107(8), pp.2278-2307.

Pasqual, J., Padilla, E. and Jadotte, E., 2013. Equivalence of different profitability criteria with the net present value. International Journal of Production Economics, 142(1), pp.205-210.

Sander, P. and Kantšukov, M., 2013. Effect of Corporate Taxation System on Profitability and Market Ratios–the Case of ROE and P/B Ratios. Research in Economics and Business: Central and Eastern Europe, 1(2).

Tahmoorespour, R., Mina, A.A. and Randjbaran, E., 2015. The Impact of Capital Structure on Stock Returns: International Evidence. Hyperion Economic Journal, 1(3), pp.56-78.