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Business Plan Of A Coffee Shop

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Question:

Present a Business Plan of a Coffee Shop.
 
 

Answer:

Introduction

This report is a business plan of a coffee shop business. A business plan is a statement that describes the overall goals and objectives of a business and the manner the organization targets to attain those objectives. It is a formalized statement of the objectives of an organization and steps the organization will taking to attain those objectives (Abrams, 2013) . These days, coffee shops are not only a trend but also a requirement. Meetings, conversations, a casual hang out with friends or a date with the beloved seems to be incomplete without a cup of coffee. Therefore, it can be said a coffee shop business can be lucrative business with good growth prospects in future. Moreover, on an analysis of the market it can be said the return in this business is quite high.

About the Business

The entities that are currently involved in this business are doing very well. The profitability graph of the entities engaged in this business seems to rise ever since these entities entered this industry. The average yearly  revenue of a medium sized café in Australia ranges between $50000 to $75000. Therefore, entering this venture is a good option.  The proposed name of the coffee shop is ‘Coffee Time’. It will provide the customers with a variety of  coffee options. Further, different varieties of snacks will also be available. Moreover, few indoor games will also be kept to attract the customers.

Objectives of the Business

The motive of the business is to make profits. In the first year of the business, the café might not have enough profits to cover all its expenses or it might have to incur some losses. However, the sales forecast shown in the appendix indicates that the company aims to increase the sales by 1.5 or 2 times the following years. The owners aim to maintain an innovative approach in doing business. However, it shall be ensured the quality of the products shall not be compromised with, in the haste of earning profits. The owners have decided that business will be done with the objective maximizing profits along with proving at most satisfaction to its customers.

 

Current Market Conditions

The cafes currently in business are doing very well. The results of the research reveals that the current coffee shop chains had started their business from a small shop and with be passage time these coffee shop chains started growing and ever since then,  these coffee shops have been reaping huge profits. Although, according to the research the market status indicates good prospects in this business still, new entrants in this business shall have to face tough competition in this industry. This brings the importance of inventing and exploring unique ways to attract more and more customers. The current condition of the market indicates towards the fact that there is plenty of scope in the market to absorb new entrants in the industry as the people of Australia are coffee lovers. The major coffee consumers are the students that range approximately within 40% to 50% of the total coffee drinkers. The office goers who drink coffee consist of 20% to 30% of the total coffee drinkers. The teenage crowd can be said to be 10% of the total coffee drinkers. The other groups who drink coffee are homemakers, old and retired persons that make up the remaining 20% to 30% of the coffee drinkers crowd. This is a great opportunity for the company and the company should try its best to make the best use of this opportunity.

SWOT Analysis of the Business

A SWOT Analysis of the business shall enable the owners of the business understand the strength, weakness, opportunity or threat involved in a business. Therefore, a SWOT analysis of the coffee shop business conducted and the details are shard below:

 

Strengths

In a swot analysis strength refers to those factors that are within the organization and place the organization in a stronger position than the other organizations working in the same industry (Bridge, & Hegarty,  2013). In case of Coffee Time café, the main strength of the cafe shall be its location. The owners of the café plan to rent a place close to a college area. This shall enable the café to attract college students who constitute the major portion of the coffee consumers. Moreover, the cafe owners are willing to come up with varieties of new and innovative snack ideas. The gaming area of the café is yet another bonus, which shall attract more, and customers and shall distinguish this café from the other cafes of in the area.

Weakness

In a swot analysis, weakness refers to those factors that are present within the organization that place the organization in weaker position than the other organizations that are operating the same area of the business (Gallo, 2014). In case of Coffee Time café, the main weakness is that it is the shortage of space. The owners of this café have limited funds to finance the business and cannot afford to hire a bigger place as the rent and the deposit of a larger place is too high. Another weakness of this café is that the café will not be able to provide the facility of home delivery. Due to shortage of funds, the owners of the café shall not be able to hire delivery staff and purchase vehicle for delivery purposes. This is a major weakness as most of the cafes in the area provide home deliveries. Another weakness of the café is that the café might not be able to order premium blends of coffee from overseas. However, these weaknesses can be overcome in the coming years as the café starts growing and earning good profits. The owners can think of expanding and providing home delivery services once the café gets established in the market and attains stability.

 

Opportunities

Opportunities refer to those external opportunities that are available to all the organizations working in the industry (Eremenko, 2012). In case of Coffee Time Café, the main opportunity is that the café is located in a college area and it can be expected that the college crowd would be visiting the place. Moreover, attractive discounts for the frequent customers shall also give an opportunity to make long term relations with its customers. The price of the items of this cafe have also been kept low in comparison to other cafes keeping in mind that the café would be dealing with more of student crowd who have limited funds.

 

Threats

In Swot analysis, threat refers to those external factors that weaken the position of all the organist ions operating in the industry (Finch, 2013). In case of Coffee Time café, the major threat the café would be facing is the competition prevailing in the industry. The café would be facing very strong competition  from the cafes which are established in this industry and are operating since a very long time. Another factor that needs to be considered is that since the café is located in a college area, there is a high probability that the business of the café might get highly affected during the period when the café remains closed. Moreover, another point that needs consideration is that the menu of the café contains lesser number of items in comparison to the other cafes, which cause the customers to go elsewhere. Coffee Time Café needs to prepare strategies to deal with such situations that might arise in future.

Analysis of the Feasibility of the Business

START UP COST

 

Particulars

Amount

Legal fees to consultants

1000

Stationery

1500

Deposit for renting the space

3500

Remodeling Expenses

3500

Equipments

4500

Crockery

3500

Furniture

4200

Opening Inventory

8000

Other Expense

2500

Total Start up Expenses

32200

The table given above indicates the expected start up expanses of the café. The owners of the café can obtain a loan of $25000 to $50000. Hence, the expected startup expenses of the café are within the loan amount that the owners of the café can receive. However, the net present value of the project and the payback period of the venture needs to be analyzed before going ahead with the venture.

Expected Income from Business

 

 

 

 

Income from sale of

       

 

Coffee

$8,000.00

     

 

Snacks

$10,000.00

     

 

 

$18,000.00

     

 

The owners of the café plan to earn a gross profit of 20% on sales.

 

Therefore, the cost of gods sold shall be as follows

 

 

Coffee

$5,600.00

     

 

Snacks

$7,000.00

     

 

 

$12,600.00

     

 

 

       

 

Gross Profit

$5,400.00

     

 

 

       

 

Expected Operating Expenses

     

 

Rent

$450.00

     

 

Insurance

$300.00

     

 

Electricity

$400.00

     

 

Staff Expenses

$2,000.00

     

 

Telephone & internet

$350.00

     

 

 

$3,500.00

     

 

Net Cash flow

$1,900.00

     

 

 

       

 

Expected Cash Inflow in the 5 years

   

 

 

Year 1

Year 2

Year 3

Year 4

Year 5

Inflow

$18,000.00

$27,000.00

$40,500.00

$60,750.00

$91,125.00

Cost of goods sold

$12,600.00

$18,900.00

$28,350.00

$42,525.00

$63,787.50

Operating Expenses

$3,500.00

$3,675.00

$3,858.75

$4,051.69

$4,254.27

Net Cash flow

$1,900.00

$4,425.00

$8,291.25

$14,173.31

$23,083.23

PV of Cash flows (10%)

$1,727.27

$3,657.02

$6,229.34

$9,680.56

$14,332.87

 

       

 

PV of net cash flows in 5 years

$35,627.07

   

 

Less: Start up Expenses

 

$32,200.00

   

 

NPV of the project

 

$3,427.07

   

 

 

       

 

Payback period

       

 

Total profits in 5 years

$51,872.79

     

 

Average profit per year

$10,374.56

     

 

Start up Expenses

$32,200.00

     

 

Payback period

3.10

 

 

 

 

It can be seen in the table given above that the cash flows inflows and outflows of Coffee Time Café have been estimated for the first five years in order to calculate the net present value of the venture and the payback period of the venture. A conservative approach has been adopted in estimating the cash flows. However, it can be seen that the net present value of the venture is positive which indicates that the proposal should be implemented. Moreover, payback period of the venture indicates that Coffee Time café will be able to recover its start up costs within 3 years.  

Timescale Diagram

Given below is a time scale diagram which indicates the time required to commence a coffee shop business.

No

Activities/ time

Jan

Feb

Mar

1

Weeks

1

2

3

4

1

2

3

4

5

1

2

 Identification of the business to be set up

 

 

 

 

 

 

 

 

 

 

3

 Research about the business

 

 

 

 

 

 

 

 

 

 

 

4

 Market Analysis

 

 

 

 

 

 

 

 

 

 

5

SWOT Analysis

 

 

 

 

 

 

 

 

 

 

6

Obtaining the licenses

 

 

 

 

 

 

 

 

 

 

7

Finalising the place of business

 

 

 

 

 

 

 

 

 

 

8

Remodelling

 

 

 

 

 

 

 

 

 

 

9

Purchasing the furniture

 

 

 

 

 

 

 

 

 

 

10

Hiring the staff

 

 

 

 

 

 

 

 

 

 

11

Purchasing the opening inventory and commencing the business

 

 

 

 

 

 

 

 

 

 

Recommendation

It can be recommended from the above analysis that the owners of the café should go ahead with the venture as the café industry is a promising industry and entity entry this industry can earn huge profits. Moreover, the net present value of the business is also is positive and the payback period is also short. Therefore, the venture should be undertaken as it will pove to be quite profitable in the long run.

Conclusion

It can be concluded from the above discussion that a business plan considers all the aspects of a start up business which enables that a particular venture should be undertaken or not. On the market analysis, swot analysis and evaluating the venture by calculating the present value of the venture, it can be concluded that the owners of the café should go ahead with the venture as it will reap huge returns in future

 

Bibliography

Abrams, R. (2013). Business Plan in a Day: Prepare a Polished Professional Business Plan in Just 24 Hours!. Planning Shop.

Arnold, G. (2013). Corporate financial management. Pearson Higher Ed.

Barrow, C., Barrow, P., & Brown, R. (2012). The business plan workbook. Kogan Page Publishers.

Bridge, S., & Hegarty, C. (2013). Beyond the Business Plan: 10 Principles for New Venture Explorers. Springer.

Bryman, A., & Bell, E. (2015). Business research methods. Oxford University Press, USA.

Eremenko, N. (2012). The purposes and functions of the business plan at the present stage of economic development. New University. Series: Economics and Law, (4), 41-43.

Finch, B. (2013). How to write a business plan (Vol. 35). Kogan Page Publishers.

Gallo, A. (2014). A refresher on net present value. Harvard Business Review, 19.

Hair, J. F. (2015). Essentials of business research methods. ME Sharpe.

Hiduke, G., & Ryan, J. D. (2013). Small business: an entrepreneur's business plan. Cengage Learning.

Larson, E. W., & Gray, C. (2013). Project Management: The Managerial Process with MS Project. McGraw-Hill.

Wade, A. (2012). Writing a business plan.

Zikmund, W. G., Babin, B. J., Carr, J. C., & Griffin, M. (2013). Business research methods. Cengage Learning.

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