Analyzing RD's Cafe: Capital Sources, Challenges, And Risks

In this assignment, students are required to write a report and do a presentation on a business venture. They need to analyse the selected venture to come up with answers for the following questions:

What are the capital sources for the venture and how they are obtained?

What are the challenges and difficulties that might be expected for the example ventures? You need to discuss any possible problem such as legal, technological, political, economic, environmental, social and cultural challenges.

How are the potential risks involved in the process of the example business venture?

Capital resources for new venture

RD’s Café Australia is located at 167 Kent, Sydney NSW 2000. It is a full-service café cum restaurant. It has a complete menu of moderately costed comfort which includes caffeine items as well as authentic Asian food honored from everywhere in the world. The café section of RD's café also offers a coffeehouse with magazines, dessert counter and live performances of local Australian artists. It is owned by Firetower LLC, a Sydney Limited Liability company by Lowel Patton. It is based on the theme of many casual diners. It has the high quality of food and entertainment for the locals and the visitors to a 5-mile radius. In a very short time, the café has become the destination for many residents of Australia and outstation visitors. It promises to give a high-quality experience for people who are looking for everything which is becoming popular in most of the Australian diners. They will be providing honored recipes from everywhere and they will be doing this in ample patio space like a very fond time pass of Australian locals. They will also enjoy music, live performances, desserts or a chilled out game of bocci in the adjacent gardens to the café. The aim is very simple. To provide a sophisticated casual dining experience this will ensure affordable and bring them to come again. The menu will include everything of the type which is frequently out of reach of the typical young Australians because of time issues and cooking problems.

There are basically four types of investments and funding available for the restaurant business.

Self-funding-The best way to get funding for the restaurant or kick-start food business is by using your own money and savings. But only when you are very clear about the idea and format of your business that you’re starting. There are many risks involved and it is advisable that if anyone plans for entering the food business they should not use their savings till the person has enough so that doesn’t hinder the daily needs and requirements. They can borrow from their families or friend as a debt and give the returns once the business starts earning profits. And if you want or enter the business in a few years the investment has to be smart and the finding can be complete.

Partnerships- Another way is to go for partnerships. It is always a better option to take up partnerships because it makes it easy for the investment and also lessens the chances of risks in business by sharing the profits and losses. It is always better to look for a partner who has some industry experience in the restaurant business. Choosing for a partner can be difficult and getting a like-minded person who also has the same vision. Every deal is sealed by a formal partnership deed, black and white approved by a notary. Ideally, partners must not be relatives or friends but only acquaintances who have the very formal relationship. Individual discretion in choosing a partner is always there.

Risks associated with RD’s cafe

Bank Loans- Bank loans are also the great way to get an initial funding for restaurants and the working capital for the restaurant business. However. Loans from a bank are not easy to get as it will require collateral property against it as well. Moreover, bank loans need a lot of paperwork and documentation. But, when there is a proper plan for the business and a good collateral property, the loans can be very easy to be sanctioned. A bank, on an average charges 11-13% rate of interest on the principal amount of the investment.

VC funding- The restaurant business has been seeing many major changes in the investment phases. Venture capitalists normally invest in the formats and concepts which have seen success and in more than five profitable units. They invest their money for only 5-7 years and then they exit it. The VC acts as a very active director in the company and it holds us liable for business performance. We should seek investment from the VC’s when we want to scale our success in various cities.

Crowd-funding- It is a new way of funding a new venture which has been seeing popularity lately. It is like taking a loan, pre-ordering it, contributing, or investing from more than a person at the same time (Kaur, 2014). This is how it works- the entrepreneur will give a detailed description of the business that he wants to put up on the crowd-funding platform. He will then mention the goals, plans for profit making and how much the funding is needed and the reasons as well and then the people can read about it and give the money if they like it (Wadhwa, Phelps & Kotha, 2016). Those who will be giving the money they will be making pledges of pre-buying the business or by giving the donation. Anyone can give the money for helping the business.

Angel investors- they are people who have surplus cash and an interest in investing in new ventures. They work collectively in groups of networks to screen the proposals prior to investing. They also offer advice and counseling alongside the capital. Angel investors have a lot of companies, like Google, and Alibaba. It is an alternative form of investment which works in the early stages with approximately 30% equity. They take a risk for higher returns.  

Business incubators and accelerators- Early stage business has an incubator and accelerator funding option as well (Scarborough, 2016). They work in many major cities. These programs usually work for 4-8 months and need the commitment from the owners. They make good connections with investors and various another statuses by using this platform.

RD’s cafe is a small scale business in Sydney. For any small-scale business, there are so many risks associated with it. Risks can be of any type like environmental, political, economic or social and many more. All these factors affect the business as follows:

Political factors- Political factors can affect the business in so many different ways.  So many laws and regulations, which are politically associated, can change the business. In Australia, there are so many laws to which all the cafes and restraints are bound (Paul, Parthasarathy & Gupta, 2017). Laws like, fair trade, carbon emissions, requirements for labeling and advertisements and food and health safety.  Other influences that government has on such business organizations are like tax policies, transport policies or involvement in the trading agreements. A government in Australia keeps on interfering in the economy of the country substantially on a continuous time interval. Increasing amount of corruption can also be challenging for such a small-scale business organization like RD's cafe. Due to corruption, it will become difficult for them to maintain stability in the business.  Some market pressuring and lobbying groups that are present in Sydney are kind of a real terror for such organizations (Kasabov, 2015). Lack of funds and capital resources does not allow RD’s cafe to expand their business, the way it is supposed to be. Due to random changes made in-laws by the government, the business of ventures are most likely to get affected and this is the greatest disadvantage of this following factor

Economic factor- economy of any country is very likely to change from time to time. Economy factor that can affect the business of RD's cafe and put it in danger are currency exchange rates, interest rates, import-export rates, and inflation rates. In the coffee business, the coffee beans are mostly imported from other countries; therefore, the import charges and logistic charges can affect the business profit and cost the organization a huge amount (Karadag, 2015). Due to changing economic, the small organization like RD’s cafe is not able to cope with the high level of competition in the market in the whole world. For RD's cafe, it is quite difficult to make the business on another level due to lack of funds and high competitions from cafes like Starbucks, McCafe, and Dunkin Donuts and many more (Dodgson, 2018). Random fluctuations in the economy can even put the business in jeopardy; therefore, the small-scale business becomes vulnerable to get funds from any possible place.  Large organizations like Starbucks can easily handle such changes but RD’s cafe cannot handle any such situation due to lack of resources. Increasing rate of Competition can be a huge deal for business RD’s cafe and affect its contribution to the Australian economy.

Social and cultural factor- the most important factor for any business organization to succeed in providing quality services to the customers and for that it is very important to pay necessary attention to the social and cultural factor. Small business like RD’s cafe that operates in NSW Sydney have to deal a large number of customers with different requirements and to fulfill those needs they require a large number of sources as well. Due to lack of funding and capital investments, these business organizations fail to operate in compliance with the cultural system of the demographical area where they presently operate from (Barringer, 2015). There is a different kind of people present in the area of now, with a different cultural background, therefore, they have the different point of view. For instance, some of them prefer the organic product which is way too costly for the small cafes and eventually the lack of options and people go choose another place to get what they want. Society is the most important factor and needs to be handled accordingly because any slight mistake can ruin the reputation of the business in every way possible. It might lead to such small-scale business organizations ending up with lawsuits costing them a fortune.

Legal factors- legal factors are an important part of any business (Miller & Miller, 2017). They need to be included in each and every strategy of the business operations so that there will be no problems regarding the facilitation of the projects related to the business. All type of business organizations is required to abide by all kind of legal laws and policies issued by the government of the following country. A large business organization does not face any kind of problems while handling any possible legal situation. They are well prepared for any such situation that is very likely to occur in the future. Large business organizations or firm hire a good quality of lawyer with the better reputation. Small-scale business organizations like RD's cafe are not able to spend a much large amount on lawyers due to low financial status. lawsuits can charge an organization a heavy amount of money, therefore, each and every organization needs to be prepared for any such adverse condition (Eniola & Entebang, 2015). Large firms have a huge amount of funds stored but small ventures can face quite a difficult time while handling lawsuits, therefore, they need to be careful and provide the customers with the best services possible.

Environmental and technological factors- environmental factors put a lot of pressure on the business. For instance, due to continuously changing weather conditions of NSW, the logistics and the transport services get delayed or stop. This is a huge problem for NSW area (Burns, 2017). Another issue can be policies issued for the environment protection costs a large amount of money to the small-scale ventures like RD's cafe, therefore, it becomes very difficult for them to pay such huge amount of money to the government regarding these policies. Environmental factors like adverse weather condition for the coffee farming can also affect the cafe business.
Technology is the major factor that determines the growth of any business; therefore, it should be included in the business. RD's cafe being the small business organization is not able to afford the latest technology like Starbucks or McCafe etcetera. This gives a competitive advantage to the big organizations like Starbucks. Technology factors can be quite a determining factor, therefore, lack of funding and resources lead to low business profit for RD's cafe. These factors challenge the business of small-scale ventures in many different ways and can even put the business in a risky position.

Political factors and legal factors affect the business in the most dramatic and drastic way (Karadag, 2015). Since these political and legal changes are unexpected, therefore it is very unlikely to expect what is going to next. If any organization is filed with any kind of lawsuit then it may cost them a huge amount of money. Unlike larger firms, smaller business like RD’s cafe can be really in a difficult position to handle those lawsuits. Another effect of these factors on the small firms is that the smaller firms are required to pay a large amount of money for several kinds of environmental and other policies. These political and legal factors can charge a large amount of money from the small-scale businesses in different ways.

An economy is another factor affecting the business of RD's cafe. Due to continuous change in the economy, RD’s cafe faces a lot of challenges on a daily basis. The economy affects the business in such a way that can be difficult to handle by small ventures. Ups and downs in the economy change the profit of a business (Barringer, 2015). Another way in which the business is affected is due to currency exchange rate and dollars position. Economy determines the level of business in the global market. A low economy can put a deep impact on the small business like RD's café. Therefore, it becomes quite difficult to cope up with such situations with low resources and lack of capital sources.

Technology factor is the factor which determines the growth of the business administrations. Bigger cafes like, Starbucks and big brekky in NSW uses the latest technology in the business and to provide the customers with better services (Kuratko, 2016). This factor really attracts the customers and gives them a competitive advantage over small cafes like RD’s cafe. Without proper funding and resources for the business capital, RD’s cafe is not able to produce as much profit as them which puts the business on the verge of getting jeopardized. Technology allows the business to get expanded, promote and helps the business to be efficient but RD’s cafe lack all these.

A social and cultural factor can also affect the business. It is because these factors are very important to determine the business growth and reputation (Webb, 2017). People need to be served with the better services and according to their requirements because even a little mistake can harm the business reputation of the business organization in many ways.

Conclusion

After summing up the above-executed analysis it has been inferred that establishing a new venture requires hard efforts and detailed research into various aspects. The above-presented report is focused on the new venture of RD's café in Australia. Types of capital sources required for operating business, challenges faced by the venture and the risks associated with the firm are described.

References

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